business loans – Page 2

Best Sources for Short-term Finance (Updated For 2024)

by Simon Dreyfuss8 minutes / May 10, 2023

KEY TAKEAWAYS

Short-term financing options like short-term loans and merchant cash advances can offer small business owners fast remedies for addressing cash flow challenges, all while providing flexible repayment terms.
Accounts receivable financing and business lines of credit offer access to capital based on invoices or credit limits, allowing businesses to manage working capital effectively.
Trade credit, inventory financing, business credit cards, and peer-to-peer financing can be good alternative sources of short-term finance that cater to specific needs, from delaying supplier payments to securing inventory and accessing peer-based loans.

Every small business owner deals with capital and cash flow management, which can include capital shortages. Whatever the reason for a shortage may be, it’s the owner’s job to find ways to infuse additional capital into their business when one occurs. Short-term financing can be a viable solution in such instances.

The good news is, there are many forms of short-term funding available for consideration. In this article, we’ll highlight some of the best sources of short term financing available to help you grow your business. So, if you need short-term business financing to improve cash flow or for another reason, consider these options.

Short-Term Loans

As its name suggests, this type of business loan matures after a short term, usually within a few months. While these loans typically come with fixed interest rates, there are some lenders that offer variable interest as well.

Short term loans are best used to address immediate cash flow needs, and they can be very beneficial for different businesses under the right circumstance. For example, you lack the cash to pay your employees’ salaries because your business is dealing with the tail-end of your slow season. These short term business loans can fill the gap until business picks back up.

Because of their short maturity periods, a short term loan is typically granted with lower borrowing caps than you would see with financing that has a longer maturity period. Still, the overall cost of financing is often lower than a long term loan.

Merchant Cash Advance

If your business has not built a credit history yet, you may still qualify for a merchant cash advance, Unlike traditional loans, merchant cash advances offer a flexible financing solution based on your sales, not fixed rates. Instead, a financing company purchases a business’ future sales as a discounted rate. Payback occurs as you make sales or your accounts receivables are paid during your normal course of business, with a percentage of that incoming revenue.

There are a number of perks to taking out a merchant cash advance. One is the fact that you, the borrower, can negotiate the rates. You also don’t typically need collateral to secure the loan, but personal guarantees are required, and approval times are generally faster than a traditional term loan.

On the flip side, merchant cash advances subject borrowers to higher interest rates than traditional loans due to the uncertainty involved with sales.

Accounts Receivable Financing

Accounts receivable financing, also known as invoice factoring, allows borrowers to leverage their outstanding invoices for immediate capital. Unlock immediate capital with accounts receivable financing by leveraging the value of your outstanding invoices. Lenders can give you up to 90% of the total invoice value upfront, and you’ll receive the rest (minus a factor fee) once your customers pay their dues. You can receive the money within a matter of days, and stellar credit isn’t required On your end. Instead, terms are based on your customer’s creditworthiness. As such, invoice Factoring is an ideal financial product if your business has several outstanding invoices with well-established businesses.

Accounts receivable loans can be repaid in two ways. The first is structured where you pay back the amount borrowed after you’ve collected payment for your invoices, plus the interest you and the lender agreed upon when you were approved for the loan.

The second option is to sell your invoices to the lender at a pre-determined rate. Instead of repaying the loan, you’re actually shifting the burden of collecting and settling the amounts due from your customers to the loan company.

Be sure that you understand the terms of your agreement and consider the factor fees and other rates. This way, you know how much this short-term funding will cost your business in the long run.

Business Line of Credit

A business credit line grants you access to a set amount of credit that you can borrow from as needed. Instead of providing you with a lump-sum loan, a business credit line allows you to select however much cash you need, within your limit, at any given time. The rest of your credit remains available, for the term of your agreement, for you to borrow when the need arises again.

This alternative to traditional business loans is advantageous because you’re not limited by preset loan amounts. For example, if you only need $5,000 and have a credit line worth $10,000, you can borrow what you need and still have $5,000 to draw from when cash flow requires it again. The only downside is that lines of credit generally run-on variable rates. Therefore, interest on the loan can fluctuate. However, a credit line gives you the flexibility to take money as needed; it also gives you more freedom in using that money vs. a business credit card which limits your.

Trade Credit

Trade credit is essentially a “buy now, pay later” agreement between a vendor and their supplier. Through this type of short-term financing, you can buy much-needed inventory from your supplier that you can pay for at a later date. This eliminates the need to have cash on hand to pay the supplier upon delivery.

While it does not provide you with cash, the trade credit arrangement still helps to improve cash flow by providing you with inventory that you can sell off and earn revenues from. If you have a good working relationship with your vendors, you can expect very low or even no interest at all!

Trade credits are beneficial if you’re expecting huge sales of a specific product or product line. For example, if you need inventory for a Black Friday sale and don’t have the cash, you can arrange for credits with your suppliers instead.

Another perk to using trade credit for short-term financing is that these transactions can improve your business credit.

Inventory Financing

Inventory financing is another ideal short-term financing avenue that product-based small businesses might consider. This type of financing offers working capital to purchase inventory. The inventory serves as collateral for the loan. It is a secured loan, but you don’t need to pledge any business assets to the lender. Instead, the inventory that you’ll be purchasing serves as collateral.

Just like trade credits, inventory financing is a great option when you’re expecting a huge inventory movement like seasonal sales, but your supplies have already run low and you have no capital available. Just make sure you pay off the loan once you’ve sold off the inventory you pledged for it, or else the lender will seize your supplies upon default.

Business Credit Cards

Like their consumer counterparts, business credit cards can provide purchasing power even when your cash flow is tied up. You use credits assigned to your card to make purchases and then pay them off when the due date arrives. Paying off the credits makes them available once again for use.

Business credit cards are generally more advantageous because they provide you with flexibility in repaying the credit. Depending on the type of card you apply for, you can also earn various rewards that can be put towards your business needs. Plus, it’s easier to apply for a business credit card than for a business loan.

Peer to Peer Financing

Peer-to-peer financing generally involves individual investors that act as lenders. Instead of a financial institution, these people are found on P2P platforms where they offer businesses or individuals the opportunity to apply for loans from them.

Just like traditional loans, the borrower and the lenders agree to a loan with fixed interest rates. The transaction is made between the two parties directly. The only “middleman” involved is the platform.

The more personal nature of the negotiations also improves the borrower’s chances of being approved instead of trying to borrow from a financial institution. The interest rates may also be more favorable.

While it gives borrowers direct access to funds, peer-to-peer financing also complicates the process. This is because not all lenders will want to finance the amount needed. For example, if you’re seeking a loan of $20,000, one lender may agree to let you borrow $1,000, another will extend you $5,000, and so on and so forth. This means multiple negotiations and, as a result, multiple loan agreements with varying dates and interest rates.

It’s good to know what options for short-term financing are available for your business when you’re in a pinch. This knowledge saves you from a lot of stress and headaches from wondering where you can get quick financial aid.

Simon Dreyfuss

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Should You Take Out a Business Loan? Consider this Checklist

Financing, Manage Your Money

by Vince Calio6 minutes / May 17, 2022

If your small business is ready to obtain financing, that means you should be in a great position – your sales are flowing, your earnings are consistent, and you’re ready to expand your business’ footprint. Before you do take out a business loan, however, it’s crucial that you decide first whether taking on debt is truly advantageous to your business, and which lending product is best to meet your goals.

Should You Take Out a Loan?

One of the most pressing questions you need to answer before taking on any new financing is: how well-equipped is your business to take on new debt? To answer this question, you should complete a comprehensive checklist regarding your business:

#1 Do I Even Qualify for a Loan?

Different types of loans require different qualifications, but you should first make sure that your business meets certain requirements from lenders. Your minimum FICO score should probably be in the 680 to 700 range for certain financing products such as a term loan, although alternative lenders such as Kapitus may require slightly lower scores, depending on which financing vehicle you are applying for.

Lenders will also want to see how strong your company’s business plan is; how long you’ve been in business; what your plans for growth are, and the consistency of your cash flow in order to gauge whether you have the ability to pay back the loan.

If you’re not sure whether you qualify, you should speak to a lending officer at the institution you are seeking to borrow from, who can walk you through the steps in which your business needs to take in order to qualify for a loan.

#2 Why Do You Need a Loan?

Ideally, you are seeking to borrow money to expand your business and increase revenue, and hopefully, that increased revenue will offset the cost of capital for your loan as well as enable you to make monthly loan payments.

As we all know, however, we’re currently not living in an ideal economic environment, as small businesses are still struggling to make ends meet in a turbulent economy. Fortunately, there are a variety of financing products to choose from that can provide much-needed cash for all sorts of reasons. Some of these are:

The development of a new product or service which you foresee increasing sales.
Opening a new office or facility.
An emergency such as a collapsed roof or crucial machinery breaking down in which you need emergency cash to keep your business in operation.
Getting immediate cash for invoices.
Increasing your inventory to meet high demand.
Meeting off-season expenses.
Purchasing new equipment.

Once you’ve decided the reason you need financing, you can examine several distinctly different financing products that can meet your needs.

#3 How Strong is Your Cash Flow?

After credit score and business longevity, lenders will want to see your business’ cash flow – the net balance of cash that’s moving in and out of your business on a regular basis. If you’re borrowing to finance the development of a new product, for example, and sales of that product don’t end up being as strong as you thought they would be, a lender will want to know if you’ll still be able to make monthly installment payments on the loan you took out. This is what a strong cash flow will indicate to them.

There are several ways to improve your cash flow if necessary – you may want to examine ways to cut unnecessary spending, optimize inventory management, hound customers to pay their invoices and improve your cash flow forecasting. Your loan approval could very well depend upon the strength of your cash flow.

#4 Is the Price Right?

Courtesy: CBS Television. No, you don’t have to be a contestant on The Price is Right, but you do shop around for the best prices in terms of cost of capital.

Anytime you borrow money, be it through a business credit card, a mortgage or a term loan, you are going to have to pay a cost of capital. This can be the interest rate associated with a term loan, the APR on a business credit card or line of credit, or the costs associated with invoice factoring or revenue-based financing. Whatever financing instrument you choose, it’s crucial that you ask the lender the total amount you will be paying back over time.

It’s also just as crucial to shop around for lenders and consider which ones may be offering the best terms, and which ones can offer you a quick turnaround.

Traditional banks often have more stringent borrowing requirements, while alternative lenders often are more expensive but will typically offer a quicker turnaround time on your loan with fewer requirements.

Something else you should consider – the Fed has just hiked the overnight rate by a half percentage point – that’s after a quarter-point hike last month – so some loans are going to be even more expensive than they were at the beginning of the year.

#5 Are you Willing to put up Collateral?

Depending on your credit score and other factors, some lenders may require you to put up collateral or even a personal guarantee. Collateral would include the liquid assets of your business such as your equipment, business savings and/or investments and future invoices.

Some may even want you to give a personal guarantee that you’ll pay back the loan by putting up some of your own assets as collateral, such as your house or your personal investments, in case you default on the loan.

Putting up collateral may increase your risk in taking out a loan, but keep in mind that lenders really aren’t interested in seizing your assets – they would much rather see your business succeed and for you to pay back the loan in a financially healthy manner. Therefore, when you’re taking a loan, it’s imperative that you sit down with your lender and carefully go over the terms of collateral and the exact steps that will be taken should you default.

Carefully Weigh Your Options

Before you take out a business loan, it’s always a good idea to consider other ways to raise money besides going into debt. Crowdfunding, asking for outside investments, borrowing money from family are other options. If you do decide to take out a loan, carefully consider the above questions and decide which loan will help your business the most and which would be most cost-efficient.

Vince Calio

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What Are The Best Long Term Working Capital Loans

Financing, Manage Your Money

by Brandon Wyson6 minutes / July 1, 2021

Loan options for securing working capital

KEY TAKEAWAYS

Banks generally offer are a good long-term capital loan options, but they have strict requirements, lengthy approval times, and possible prepayment penalties, making them suitable for established businesses with strong financial histories.
Private lenders provide competitive rates and flexibility on repayment schedules and term length. They rarely enforce prepayment penalties, typically offer quicker funding and are a good choice for businesses seeking more flexibility.
SBA loans offer terms similar to banks and typically come with lower interest rates. However, they come with strict requirements and a complex application process. They can be a viable option for businesses who do not have an immediate need for financing.

Maintaining a steady flow of working capital, otherwise known as operating capital, is the basis of a successful business. Many businesses, however, may have trouble keeping a steady flow of working capital even though they are profitable . Companies with seasonal highs, cyclical customers, or only a few clients accounting for large percentages of income may find their working capital is uneven. An effective means to securing an even flow of operation liquidity, then, is seeking long-term working capital financing, which businesses can use to cover daily operational needs including payroll, ordering, and even rent.

As businesses look for ways to secure annual operational costs, it is important to understand what long-term options are available and which is best suited for the unique situation of the business. Starting a relationship with a financial institution can also be lucrative for businesses seeking other financing services like invoice factoring or specific equipment financing, as those services are likely to be offered by banks as well as private lenders.

Types of Long-Term Working Capital Loans

Bank Loans

While banks generally offer the longest-term capital loans at comparatively low rates, these loans often have exceedingly strict requirements for applying businesses. Before approval, banks will typically want to see that the applying business has a long-standing history of profitability, good credit, and a detailed history of positive balance sheets. Bank loans for securing long-term working capital often have terms from as short as 3 years to as long as 25. Banks, however, often take the longest in distributing approved funds, sometimes as long as 60 days . In addition, they will sometimes enforce a prepayment penalty so be sure to thoroughly read and understand your contract before signing on the dotted line.

Private Lender Loans

Seeking a private lender to secure a long-term working capital loan is often a great alternative to banks since private lenders can offer competitive rates and more flexible requirements in exchange for shorter terms. Private lending working capital is often underwritten by a private investment bank, or individual, and tends to have more flexible repayment structures. Unlike traditional banks, private lenders very rarely implement prepayment penalties if a business repays a loan in full after 6 months. Private lender loans often have competitive rates, and terms up to 2 years. Private loans have some of the quickest funding time, even as little as hours after approval.

SBA Working Capital Loans

SBA loans are provided by traditional lenders like banks or even private lenders, but they are secured by the Small Business Association, meaning that if a borrower fails to pay back a loan, the SBA will cover a portion of the losses. SBA-guaranteed loans often have terms as long as banks, 3 to 25 years. But, because these loans are guaranteed by the government, they have very strict requirements and an intensive application process. Depending on a chosen lender, funds can become available anywhere from the day of approval to multiple months.

Asset Based Working Capital Loans

While asset-based financing is usually associated with short-term funding solutions, a company can still seek long-term working capital financing with their existing assets. Instead of using invoices as collateral, larger assets like real estate paired with equipment can lead to agreements that secure long-term capital. When dealing with an asset-based lender, there is no universal rule to determine how much asset collateral a business may need to secure a loan, but long-term capital often requires long-term commitment of assets like commercial real estate, vehicles, equipment, or even intellectual properties. Most asset-based, long-term working capital loans have terms from 1 to even 30 years. Asset-based financing agreements tend to take slightly longer to reach a borrower, often 1 to 2 weeks after approval.

FinTech & Online Loans

FinTech, or financial technology lenders, are likely the best way for start-ups or businesses with a less than stellar credit and revenue profile to find long-term working capital financing options. Fintech loans typically have very easy application processes and businesses can often get same day approval on one of several FinTech financing options. After finalizing an agreement, a business owner can have gone from application to capital in as little as a day. FinTech loans vary significantly by lender. And the sheer density of marketplaces and options means that rates are regularly subject to change. Terms often can range from 6 months to 5 years and as explained, FinTech loans are often the fastest way to secure capital with the least up-front revenue.

Cash Advance

While not the best option for every business and every situation, Merchant cash advances are an unexpected, but viable, option for long-term working capital. Cash advance lenders can sometimes increase terms to levels that compete with traditional long-term working capital loans. Cash advances, however, are not loans. By agreeing to a long-term working capital deal with a cash advance lender, a business owner is selling a piece of their own future revenue at a discounted rate. By extending a payback period by 12 or 24 months, a cash advance can act quite similar to other long-term working capital options. Unlike short-term cash advances, long-term agreements generally demand that borrowers have good credit and balance sheets.

Choosing a long-term financial strategy is often daunting. Depending on your business’s size and field of operation, certain financing options may prove more helpful than others. If you would like to learn more about your long-term working capital options, feel free to speak to a Kapitus specialist who can address your unique situation.

Brandon Wyson

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The Best Business Loans for Franchise Purchases and Improvements

Financing, Manage Your Money

by Bernadette Abel7 minutes / February 20, 2020

Are you exploring business loans for franchise purposes? You’re likely bringing some of your own money to the table to finance your dream. However, that doesn’t mean that you won’t need help with other startup costs, future expansion or ongoing funds. You might be surprised at how many options there are in the marketplace. This guide will help get you up to speed on the most popular franchise financing options according to two main objectives: buying a first/additional/multiple franchises and funding existing franchise operations.

Get ready to feel better about your financing options for the next chapter in your entrepreneurial careers. Your franchise ownership goals are within reach.

Buying Your First/Additional/Multiple Franchise Locations

Whether you’ve got your eye on owning your part of a franchise or ready to expand your franchise footprint, you’ll need one of the many flexible-use business loans for franchises.

The three most popular types of franchise financing are:

Traditional loans
Small Administration (SBA) loans
Franchisor financing

Look at how each of these financing options can fit the needs specific to someone purchasing an initial franchise.

Traditional loans

When considering the different business loans for franchises, traditional business loans top the list. Proceeds can help purchase or expand franchise holdings.

Traditional loans are smart financing options for small business owners confident that they have the financials and good credit to qualify. With generous loan limits, highly competitive interest rates, and flexible terms, these loans will likely offer some of the best rates in the market. You’ll need to come to the table equipped with solid financials. The rigorous underwriting process is one of the reasons these loans typically offer the most competitive terms. Traditional loans might be an attractive option. Show three years of tax returns, a strong personal financial history and a good credit score. The lender will verify fund source you’re using for your down payment.

With traditional loans, your franchise choice could play a significant role in the approvals process. Lenders like to see big brand names with proven track records in the market. Franchises with few locations might hurt your application. These franchises haven’t worked in multiple markets and various economies. Yet, if you’re a new franchise owner, a traditional loan can use your personal credit and financial history to launch your new venture.

SBA 7(a) loans

The SBA 7(a) loan program is hands-down the most popular loan program. It’s a reliable option for financing franchise startup and expansion costs. When you use these types of business loans for franchises, you’ll find competitive rates and virtually unlimited use of funds. Loan Limits are generous, and flexible terms are perfect for a franchise on the rise.

The first step to qualify for an SBA (7a) loan is to make sure your franchise is listed in the SBA Franchise Directory. If they don’t list your franchise type, you can apply for participation in the directory (note: the SBA will require additional documentation).

Loan limits are up to $5 million and terms range from 10 to 25 years. Interest rates are generally in the single digits (7% to 9.5% is a good range to consider). Prospective borrowers will usually have to be in business for at least two years. This makes the SBA 7(a) loan a better match for existing franchise owners, or those purchasing a franchise in an industry where they have a proven careers track record. Lenders will use your credit score and business financials for qualification. While the approvals process isn’t speedy, you’re rewarded with some of the best rates and terms, aside from traditional loans.

The only limit to an SBA 7(a) loan is borrowers can’t use the funds to finance franchise or royalty fees. If you choose to go the SBA 7(a) route, make sure you earmark other funds for these startup costs.

Franchisor financing

Many of the nation’s leading franchises offer direct financing to entrepreneurs. Of course, they want to make it simple for owners to get up and running. This one-stop-shop approach is potentially perfect for those looking to open their first location, adding a location, or purchasing multiple locations at once.

While the rates might not be as competitive as traditional loans or the SBA 7(a) loan, there’s something to be said for a streamlined process. As you consider all the options for business loans for franchises, it’s worth it to speak to the franchise and see what options are available. Be sure to have your attorney or accountant review any financing options offered by the franchise. Then you can compare the terms between a traditional loan, SBA 7(a) loan and the franchise’s direct financing side-by-side.

Funding Ongoing Franchise Operations

You may find times where you need a cash infusion to help fuel operations and growth. The best business loans for franchise needs in these cases is the one that matches:

The reason you need the funds
How long you need to repay the funds
How much you need to borrow

Here are three financing options franchises can use to keep operations running smoothly and make specific improvements.

Traditional business loans

If you know you need a fixed amount of cash for an upcoming franchise improvement or expansion expense, a traditional business loan can help. With fixed terms and rates, small business owners can fund franchise expenses with a predictable impact on their monthly budget.

Repayment terms are often flexible, including payment frequencies based on your current cash flow. Traditional loans have stringent qualification guidelines, and not all businesses can qualify with ease. You’ll need to have existing operations with a proven balance sheet, a plan, and your financials in order.

Lines of credit

If you’re looking for a more flexible way to access the cash your franchise needs, a line of credit might be the ideal tool.

Lines of credit can be used for nearly every purpose imaginable. You can draw as much or as little as needed–and only pay interest on the funds drawn. Once you pay it back, your credit line is once again fully available for use. There’s no need to go through the qualification process again.

For businesses that may not qualify for a traditional loan, lines of credit can fill that financing gap. Credit scores aren’t weighed as heavily in the approval process for most lines of credit, either. These features combined make lines of credit ideal to fund everything from cash flow gaps to seasonal inventory ramp-ups. The sky’s the limit.

SBA 504/CDC loans

While the SBA 7(a) loan is an ideal fit for initial or additional franchise purchases, you’ll need a different SBA loan type for funding ongoing business concerns.

The SBA 504/CDC loan has a narrow scope of use. Funds must be used for acquiring, renovating, or improving real estate or equipment. A borrower’s franchise location must also be U.S.-based. This type of loan can help fund making improvements to franchise real estate, buying real estate, or even upgrading heavy equipment to speed operations.

As with the SBA 7(a) loan, your franchise needs to be listed in the SBA Franchise Directory to be eligible. While these loans are slower to fund than traditional bank loans and lines of credit, you’ll likely be rewarded with some of the best interest rates. With all of the options for business loans for franchises, there’s one out there that makes perfect sense for your financials, credit and goals. And, if you’re still trying to determine the next steps in your franchise financing plans, you can always reach out to a loan officer to discuss.

Bernadette Abel

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Small Business Loan Application Checklist | Updated for 2023

Financing, Manage Your Money

by Bernadette Abel6 minutes / February 18, 2020

small-business-loan-application-checklist

Building and running a small business is hard. It takes conviction, leadership, sound management and, every so often, a much-needed injection of financing. In both good and lean times businesses are often faced with the decision to pursue some type of financing. However, applying for and acquiring small business loans and alternate financing can often be daunting – even if you’ve done it before. And traditional lenders do not make that experience easy.

The good news is that getting financing doesn’t have to be this hard. We help thousands of small businesses everyday and want to share secrets of getting good financing options quickly. So, we have compiled a simple checklist of actions you can take to make the process fast, simple and easy.

However, as you get ready to apply for a small business loan, you should consider the following questions carefully to be sure you are not surprised by any unforeseen requests or adverse decisions from lenders.

Six questions every business must ask in 2020 before applying for a small business loan | Download PDF

1. Should you apply for a small business loan?

While a small business loan is a great way to reduce the pressure on cash flows, you could have viable alternatives for relieving cash flow crunch like selling debt owed to your business and renegotiating contracts to allow for longer payment terms. Also, make sure you have considered all alternate sources of financing including friends and family.

2. Is a small business loan good for your business?

Understand the effect of repayment of small business loan on your cash flow. A loan does not change the fundamental working of the business. It strengthens a fundamentally sound business and quickly breaks a business that is fundamentally unsound.

3. Can you qualify for a business grant?

Unlike loans, you don’t have to pay back grants. Before applying for a small business loan, see if you qualify for a federal or private small business grant. However, grants can be highly competitive and may not fit your financial time horizon.

4. What types of small business loans are there?

There are over a dozen types of small business loans and alternative financing options for small business. The most popular options are government-backed SBA loans, revenue-based financing and factoring. Download this eGuide to learn more about different types of small business financing.

5. When should you apply for a small business loan?

Apply only once you have determined that a business loan will help strengthen your business, and you understand the different types of financing options like Small Business Loans, Revenue Based Financing, Factoring, and Equipment Financing. Each of these options have unique requirements so make sure you understand them well before speaking with a lender.

6. Should you work with a small business loan broker?

Brokers are a great resource to get offers from multiple lenders. However, many online marketplaces like Kapitus, will get you offers from multiple lenders without the additional broker fee which is borne by the borrower.

Small Business Loan Application Checklist| Download PDF

1. Run a quick cash flow analysis on your business account

Cash flows are one of the primary indicators that lenders use to understand the health of your business. Showing 3 to 6 months of positive cash flow can get you approved faster. It can even get you better financing terms for your small business loan. You can learn more about cash flows and ways to improve them in “How to Prepare Your Small Business for Cash Flow Needs.”

2. Collect at least 3 months of bank statements

Your business accounts are another good indicator of your company’s financial health. Generally, lenders want to see a positive daily balance on your bank statements. Remember, a well managed cash flow will directly improve your bank accounts.

3. Identify unusually large deposits to your bank accounts and gather supporting documents to help explain them

While presence of unusually large deposits can delay finalization of loans, they are not necessarily bad. Many businesses, like construction companies, can easily explain their presence on the bank statements. Some businesses understandably have large swings in deposits and credits to their account. If your business is like that, you can expedite your loan application process and get really good terms on your small business loan by providing a copy of your account receivables and future contracts.

4. Get a copy of your free credit report and make sure there are no red flags

A strong personal credit goes a long way to assure any lender about the fiscal responsibility of the person running the business. You can get a free copy of your credit report from annualcreditreport.com. If you find any incorrect information on your credit report, contact each credit reporting agency (Experian, Transunion and Equifax) immediately to correct the issue. Keep in mind that while small delinquencies are understandable, lenders are uncomfortable with statements that show delinquencies on child support or recently dismissed (not discharged) bankruptcies.

5. Reduce the number of lenders to whom you owe money

Too many lenders pulling money from the business can create severe strain on its cash flow. Lenders want to know that the money they provide will help grow your business and not put additional strain on its daily operations. You may want to wait to finish your current loan obligations before going back to the market to raise more capital.

6. Resolve any open tax liens

Unresolved open tax liens can hurt your ability to obtain financing. If possible, try to get a payment plan on any open tax lien. A payment plan on a tax lien is far better than an open unresolved tax lien.

7. Get three business references

Trade references help to establish authenticity and credibility of your business. If you rent commercial space for your business, make sure that the landlord is one of your references.

8. Have tax statements handy when applying for a large sum

Lastly, businesses contemplating borrowing large sums over $75,000 should get a copy of their last year tax statement and business financial statements.

Obtaining small business loans doesn’t have to be a daunting process. Use this checklist before applying for a business loan or alternate financing and get the funds your business deserves.

Bernadette Abel

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Where Businesses Can Find Small Loans

Financing, Manage Your Money

by Liz Froment5 minutes / November 7, 2019

choosing small loans for your small business

There may be several financial institutions in your area that offer business bank accounts, but you cannot determine the “best choice” based on the bank’s age, size, or advertising claims. Ultimately, finding the best business bank account for your business starts with identifying specifically what you want to achieve with your banking relationship — now and in the future.

The questions below may help determine which bank can best support both the financial needs of your business, along with your longer term business goals.

Does the bank specialize in businesses like yours?

Not all business bank accounts are the right fit for every type of business. Your business may share commonalities with others in size, region, years in business, and annual revenue, but the challenges and opportunities that come with your business are unique. As you consider different banks, explore what types of businesses they serve. Do they offer solutions geared toward your industry? How familiar are they with your local market? Are they well-versed in SBA loans? The business relationship you have with your bank can influence your ability to reach profitability, maintain adequate cash flow and expand to establish a unique point of differentiation from competitors.

If your business is small with little-to-no plans to grow, in start-up mode, or is seasonal in nature, you may not know the average monthly balance you’ll be able to maintain, or the payment tools you’ll need to purchase goods from vendors, and accept payments from customers. Narrow your search to banks that offer business checking accounts with a low (or no) monthly minimum balances and fees, debit cards, online banking, fee-free wire transfers and unlimited incoming deposits.
If your business is well-established, in growth mode or operates internationally, consider banks that have an extensive footprint (around the country or world), offer cash management solutions like lockbox, remote deposit capture and fraud prevention for checks and payments, and/or specialize in high-value or cross-border transactions.

Does the bank offer tools beyond traditional accounts?

Javelin Strategy & Research reports that digital solutions and payments services for small businesses have “…lagged significantly behind consumer and commercial banking.” As a result, many small business owners may be hindered by a lack of access to the technology they need to effectively run their business. A bank that offers additional business tools may provide you turnkey solutions to run your business — including the ability to process card payments, offer gift cards, or manage loyalty programs and inventory. Know that having digital and mobile access to your business bank account is a top priority? Narrow your search for a bank only to those brands who are equipped to deliver all of your needs virtually. If you’ll rely on your bank for more than traditional financial services, limit your search to those that offer value-added tools.

Does the bank offer the ability to build credit?

Building a formal business credit history can document your businesses financial responsibility, and could work to your advantage if you intend to bring in business investors, partners, or want to sell your business. Not all banks offer credit cards or similar products for business clients; those that do may be more willing to issue credit to a business customer who has an established relationship with it.

Does the bank assign a relationship manager?

The best business bank accounts establish relationships, much like a consultative relationship between the client and a bank representative. If a personal touch is important to you, look for a business bank account that provides a relationship manager who is vested in understanding your business, and how the bank can help support it. If you’d prefer to handle most of your businesses’ financials online, however, a relationship-based model may not be necessary.

If you do opt for a bank that assigns a relationship manager to your account, consider the level of authority and expertise the person who will support your business holds, and whether the business bank relationship will suit your need for a minimum of 18 months. Meet with relationship managers at a few banks to gain a sense of how they interact with business clients, and to gauge whether their approach aligns with your expectations.

Is the bank preparing for the future?

Technology is changing business payments at a rapid pace, and banking is increasingly moving to a digital environment, allowing for faster processing times. Not all banks are equally invested in keeping up with the technology changes, particularly when it comes to meeting the demands of small business clients. While many banks now offer digital conveniences like person to person payments for consumers, not all have the capability to offer a similar services to business customers. Smaller banks or credit unions may be more flexible with fees, compared to larger banks, but not all have the resources to support the latest banking technology.

Research the business banking solutions that a variety of banks offer; compare what is available in the broader market, and from each specific bank. The bank you choose should offer the benefits most important to you, support the financial needs of your business, and be investing in technology and infrastructure enabling them to be your business banking provider for the long haul.

Liz Froment

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6 Business Alternatives for Bank Loans and When They Make Sense

Financing, Manage Your Money

by [email protected]6 minutes / July 22, 2019

Need financing for your business but can’t qualify at a bank? There are various financing alternatives to keep your operations running.

Borrowing money is an essential part of building a small business. But when you need a loan, traditional lenders like the bank might not be an option. They tend to have strict small business lending standards. For example, you need established business credit, collateral and detailed financial statements for bank loan approval. This is a difficult hurdle for companies that have only been around for a couple years. Fortunately, as a business owner, you have other options, with a number of business alternatives for bank loans on the market today.

These alternative options can be your financing lifeline until you build enough of a financial track record to qualify for more traditional financial products.

LET’S TAKE A LOOK AT THESE BUSINESS ALTERNATIVES FOR BANK LOANS AND WHEN THEY MAKE THE MOST SENSE.

1 – Online Loans

Banks aren’t the only ones lending money. Alternative and online lenders are also a quality source of small business financing. They offer stand-alone cash flow loans that you can invest into your business and spend however you choose. If you want more flexibility, you could also open a line of credit. A line of credit lets you borrow, pay the money back and re-borrow again as many times as you want.

It’s easier to qualify for loans from alternative lenders because their requirements are not as strict as with banks. Another advantage is you often don’t have to secure the loan with your future business revenue or other collateral. However, your business will need to meet some standards like stable revenue and a good business plan for how you will use the loan proceeds.

Best fit for: A business with stable revenue looking to borrow cash quickly, without putting up collateral.

2 – SBA Loans

Another way to borrow is through the Small Business Association. This government organization assists small business owners and one of their services is to help them qualify for loans. The SBA doesn’t actually lend money. Instead they agree to back a certain percentage of the loan, guaranteeing repayment to the lender. This makes the lenders more likely to accept your application.

SBA loans can be a great tool provided you can qualify. The process does take time and you’ll need to submit, at minimum, similar documents that you would include as part of a bank loan application – such as a business plan, bank statements and your credit report.

Understanding the SBA system can improve your chances of qualifying so be sure to work with a lender that regularly works with these types of loans.

Best fit for: A business that can meet the SBA standards for a loan and also knows a lender that understands the application process.

3 – Equipment Financing

If your small business needs money specifically to buy a new piece of equipment or machinery, then equipment financing could be the answer. These small business loans can only be used to buy an asset, which also counts as the loan’s collateral. This makes it easier to qualify because if you end up not paying off the debt, the lender can take back the equipment as repayment.

With this type of financing, you can often buy new equipment with no money down but you’ll still receive the full tax break for the business investment, as if you bought the equipment with cash. You can also set up the financing as a lease which would let you replace the equipment earlier with new versions as they come out.

Best fit for: Buying or leasing new equipment for your business.

4 – Purchase Order Financing

A lack of cash can put even thriving businesses in trouble. 52% of small business owners had to forgo a project or sales worth $10,000 because of insufficient cash, according to an Intuit Quickbooks survey (slide 2). If you’ve got a project lined up but need some extra money to make it happen, purchase order financing could be the answer.

These short-term loans cover up to 100% of your supplier costs if you can show that you’ve got an order that will turn things around. Once you make the sale, the lender will deduct their fees from the proceeds. That way you still fulfill your order without taking on any extra debt. And since you can prove that you’ll be able to pay the money back quickly this financing is easier to qualify for. You just need to prove the upcoming purchase order.

Best fit for: When you’ve almost completed a sale and need a quick cash infusion to reach the finish line.

5 – Invoice Factoring

After you make a sale, your job still isn’t done because you you’ll need to collect payment. This can take between 30 to 90 days, depending on your payment terms. And, as many know, it could take even longer when customers miss payment deadlines. Not to mention there’s always the risk they don’t pay.

If your invoices are piling up and you need cash, invoice factoring could be the solution. You transfer over an unpaid invoice to a financing company, called the factor, and they’ll give you an advance on the payment.

From there, the factor takes over collecting from your clients. Once they get paid, they’ll give you the rest of the invoice amount minus their fee, which could be as little as 1.5% of the invoice amount.

Best fit for: A business with unpaid client invoices that wants to improve cash flow.

6 – Revenue Based Financing

Revenue based financing is the last of our business alternatives for bank loans. These loans have a simplified and fast application process, a great solution if your business needs money now. Lenders can approve this financing quickly because they just look at your historic revenue and how long you’ve been in business. They use this to forecast your future cash flow.

Based on that, they’ll give you a lump sum of cash. The lender will then collect a set percentage of your future sales on a daily or weekly basis.

Best fit for: A business with a proven history of revenue that needs money but does not want to go through a lengthy loan application process.

Don’t let a bank loan rejection discourage you from raising the money your business needs. As you can see, there are plenty of alternatives. If you have any questions to figure out which of these solutions is the right fit, reach out to a loan specialist today.

[email protected]

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Tag Archive for: business loans

KEY TAKEAWAYS

Short-Term Loans

Merchant Cash Advance

Accounts Receivable Financing

Business Line of Credit

Trade Credit

Inventory Financing

Business Credit Cards

Peer to Peer Financing

Simon Dreyfuss

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Should You Take Out a Loan?

#1 Do I Even Qualify for a Loan?

#2 Why Do You Need a Loan?

#3 How Strong is Your Cash Flow?

#4 Is the Price Right?

#5 Are you Willing to put up Collateral?

Carefully Weigh Your Options

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KEY TAKEAWAYS

Types of Long-Term Working Capital Loans

Bank Loans

Private Lender Loans

SBA Working Capital Loans

Asset Based Working Capital Loans

FinTech & Online Loans

Cash Advance

Brandon Wyson

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Buying Your First/Additional/Multiple Franchise Locations

Traditional loans

SBA 7(a) loans

Franchisor financing

Funding Ongoing Franchise Operations

Traditional business loans

Lines of credit

SBA 504/CDC loans

Bernadette Abel

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Six questions every business must ask in 2020 before applying for a small business loan | Download PDF

1. Should you apply for a small business loan?

2. Is a small business loan good for your business?

3. Can you qualify for a business grant?

4. What types of small business loans are there?

5. When should you apply for a small business loan?

6. Should you work with a small business loan broker?

Small Business Loan Application Checklist| Download PDF

1. Run a quick cash flow analysis on your business account

2. Collect at least 3 months of bank statements

3. Identify unusually large deposits to your bank accounts and gather supporting documents to help explain them

4. Get a copy of your free credit report and make sure there are no red flags

5. Reduce the number of lenders to whom you owe money

6. Resolve any open tax liens

7. Get three business references

8. Have tax statements handy when applying for a large sum

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LET’S TAKE A LOOK AT THESE BUSINESS ALTERNATIVES FOR BANK LOANS AND WHEN THEY MAKE THE MOST SENSE.