Small Business Blog

Posts Tagged ‘Loan’

If you thought generating ideas for your business was a difficult task, then arranging necessary finance in the form of business start up loans would seem even more difficult. Many entrepreneurs succumb at this stage, only to lead their idea to dumps. Entrepreneurs, who withstand the challenges of the process, continue to shine in the world of business.

Capital has been rightly referred to as the lifeblood of any business. Business starved of capital during the initial stages of its formation, would be similar to malnourished children who were not fed properly during their childhood. The growth of the business will be stunted, often affecting negatively its productivity and efficiency.

Entrepreneurs no longer have to depend solely on their own resources for purposes of capital. Many loan providers are ready to finance promising business ventures. The loan is referred to as business start up loan. Amounts on business start up loan ranges from £30,000 to £250,000. Entrepreneurs can qualify for more loan amount, provided the business plan is very attractive. Loan proceeds will primarily be used for purchasing the necessary machine and equipments, paying for legal documentation, maintaining office and any other expenses that crop up during the initial formative period. Moreover, business start up loan contributes towards the working capital.

Borrowing through business start up loan is fraught with a number of challenges. The very first task in the process will be to generate faith in loan providers that the amount lent on account of business start up loan will be safely returned. Preconceived notions about new entrepreneurs make the task difficult. The negative notions are further strengthened through two factors:

* Firstly, borrowing entrepreneur has zero or very less credibility in the market at the particular point of time. Loan providers fear risking the loan amount on borrowers with low credibility.

* Secondly, the borrowing entrepreneur is still to form business or the business is still to show results. Lending at this stage, without having knowledge about how the business fares in the long run, is perilous for the loan provider.

The borrowing entrepreneur is thrown into a dilemmatic situation wherein they cannot prove their worth till they start business. They cannot start business until they get the necessary finance. And they cannot get the necessary finance till they are able to prove their worth.

However, not all loan providers look at new venturists with suspicion. New venturists are considered a unique group of people who have a unique set of characteristics. A sound and foolproof business plan works well for new entrepreneurs. Bankers study the plan well and then decide if it will be viable to lend.

Guaranteeing payback through collateral is another important method of getting good deals in business start up loans. These are referred to as secured business start up loans. As a part of this method, the borrower will have to offer lien on certain asset/assets to the loan provider. This process is also referred to as hypothecation. Though the asset will continue to be in possession of the borrower, loan provider has every right to claim the asset in case of non-payment of loan.

Loan terms for business start up loan ranges from 5 to 25 years. Given the unique income structure of businesses and self-employed individuals, wherein income is not guaranteed, flexible repayment schedule will be especially helpful. Under a flexible repayment schedule, the borrower gets to repay in the manner that he chooses. Monthly repayments can be increased, reduced and discontinued altogether depending on the entrepreneurs finances. The arrangement will have to be accepted by the loan provider. Sometimes, regular payments for a certain period may be the prerequisite for flexible repayment schedule.

Business start up loans may exceed personal loans in terms of interest rate. The typical APR on a business start up loan will be anywhere between 7-13%. Online comparison and searching loan providers will ease the process, besides improving the quality of deals. Rates may go upwards depending on the presence and value of collateral and the credit status of the borrower.

Business loans will not suit borrowers who want full control over their business. Some loan providers would like to dictate terms and thus curb the control of the entrepreneur over his business. The borrowing decision must be made only after an impartial and impatient study of the pros and cons of the method.

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Even though longer-term business finance techniques might be appropriate for many circumstances, there are some important short-term business loan options that will be less costly in producing improved credit card processing and commercial mortgage results for business owners. Short-term business financing choices can be misunderstood because of a preference by many business owners for long-term commercial real estate loan and commercial loan programs.

Two Important Short-Term Business Finance Options

Two of the most overlooked short-term working capital business loan strategies are short-term commercial mortgage loan programs and business cash advance programs in conjunction with credit card processing. Both of these business finance options are relevant for most business owners but are frequently misunderstood.

Short-term Programs for Commercial Real Estate Investment Financing

A long-term business loan is appropriate for many businesses that own commercial real estate investment property. Business properties should normally be financed with a combination of short-term and long-term business finance funds. When a longer-term commercial mortgage is viable, it is preferable to secure long-term business financing, preferably for 30 years.

However there will be many commercial mortgage loan situations in which longer-term real estate business financing is not appropriate for the business owner. In such circumstances it is important for a business owner to realize that there are viable short-term working capital management options.

When a Short-Term Commercial Mortgage is Appropriate

If a business owner plans to sell or refinance their business within a few years, it is preferable to explore short-term business finance options. The best short-term business loan will have minimal prepayment penalties in comparison to terms commonly included with long-term commercial real estate investment property financing.

The avoidance of business finance prepayment fees and lockout fees fees in some short-term business financing programs is an important benefit of these short-term commercial mortgage approaches. The absence of these potential fees could produce a savings of up to 20% or more if the business property is sold during the period which would have involved lockout fees in a longer-term commercial loan.

Short-Term Commercial Real Estate Investment Property Financing Limitations

There are some trade-offs that need to be understood if a business owner chooses shorter-term business financing even though prepayment fees will usually be avoided with a short-term business loan. When short-term commercial real estate financing is a realistic option, the loan-to-value will usually be no higher than 70%, the commercial mortgage will not be readily available for special purpose business investment properties such as golf courses and the interest rate will frequently be in the range of about 12%.

Best Investing Possibilities for a Short-Term Commercial Mortgage Loan

Warehouse, multi-family, office, mixed-use and retail business properties are the best possibilities for short-term business financing. Business owners should be comfortable with a time period of less than three years for a typical short-term business loan.

Fewer Mortgage Lenders for a Short-Term Commercial Real Estate Loan

There will typically be a very small number of commercial real estate investment property lenders who are effective at implementing the short-term commercial mortgage loan strategy properly. There are also a number of problems to be avoided with a short-term commercial real estate loan, so choosing an appropriate provider is extremely important to any business owner considering a short-term business finance program.

Credit Card Processing and Business Cash Advance Programs

For any business that accepts credit cards as a method of payment, a business cash advance is a critical working capital management tool that is often overlooked. Even thriving businesses frequently need more working capital than they can borrow. One of the least-known business finance strategies for successful businesses is potentially the single best working capital loan strategy for obtaining needed cash for growing their business: the use of a merchant cash advance or business cash advance program.

Primary possibilities to take advantage of this business financing program are service and retail businesses. This credit card processing and credit card financing strategy uses credit card receivables to determine the amount of a merchant cash advance.

Working Capital Management: Credit Card Financing and Credit Card Processing

This business financing technique is called credit card financing or credit card factoring. Some business owners might have used a business finance technique referred to as receivables factoring to sell future receivables at a discount and receive immediate cash.

Many service and retail businesses cannot document business receivables to obtain a business loan. Businesses such as bars and restaurants do not typically have receivables to use for business financing.

What these businesses do have in many cases is documented sales volume and documented credit card sales activity. It is this documented level of sales volume and credit card sales activity that becomes a financial asset to the business and its business finance strategies. Business cash advances from ,000 to 0,000 can usually be obtained based on a merchant’s sales volume and future credit card sales.

A business financing merchant cash advance must usually be paid back in less than 12 months. For business owners that want to renew the working capital cash advance program, it is typically possible to get more working capital after payback of the initial advance.

Limitations and Problems to Avoid with Credit Card Processing and Merchant Cash Advance Programs

As with any successful business finance strategy, there will typically be only a small number of commercial lenders who are effective at implementing this working capital management strategy properly. There are also a number of problems to be avoided with business cash advance programs, so choosing the appropriate provider of this commercial financing service is extremely important to any business owner considering a credit card financing program.

We are all listening attentively about lenders on the radio, television, newspapers, and the Internet of promises to be “small business friendly”, “small business oriented”, wanting to be your “personal small business advisor” and a panoply of packages taking care of all your business needs. What small businesses really need is money, not personal hand caring services. So is there anyone out there really making small business loans? Yes. If you know where to look you can find one.

You can generally categorize banks into: 1) 10% that are actually making small business loans now and are serious about doing so, 2) 70% who will talk to you directly and indicate they are not making small business loans at this time because of the economy, and 3) 20% that slap you on the back, invite you in, and readily take your application. It is the latter group that gives us the most heartburn. It is not unusual after the initial review of your application papers for a bank represented to signal you have a good chance. Overjoyed, you begin to make plans, including executing contracts and receiving quotes for inventory, raw materials, or merchandise. Two months later, after the fourth loan committee review, you get a call that they have decided not to make the loan. The reason has little if anything to do with credit. It is typically something that was never been mentioned before and after reflection, it seems like an excuse not to make the loan in the first place.

Loan brokers such as myself are victims of the same misleading behavior. I cannot tell you how many banks have looked me in the eye and said: “Sure, we are making lots of loans. For unsecured loans of $75,000 to $150,000, we just need a credit score above 680, in business for over a year and a half, and decent financials. Real estate security is not required. We would love to entertain your applications.” Right.

What they really do is pour over the applications and pick 1 out of 100 that has the following fantasy credentials: a platinum credit score that Bill Gates would be proud of and which could support a small country, gushing positive cash flow, little competition, executed contracts stacked high on your desk, then a booming market niche. In other words, someone who doesn’t need the loan in the first place. You know the old adage: banks only give money to people who don’t need it.

It is simply psychology 101. Banks are filled up with loan officers and they have to show they are busy. If their boss walks into their office and sees nothing on their desk, they might be laid off. They have to show they are busy earning their salaries, which means receiving applications and going through the review process. It’s gotten so bad that the other day we had a client whose grandfather helped found the bank, whose father was best friends with the president, and who had received two successful loans before. Even he was turned down. Nor do they tell you the large SBA commercial loan department job layoffs of employees throughout the nation.

To prevent being too caught in this trap, look your banker in the eye and ask these questions:

1) “Tell me honestly. I don’t want to waste your time or mine. I know the credit crunch is quite depressing and there is really no secondary market. Are you actually entertaining small business loans at this time or should I wait.”

2) “How many small business loans have you personally made in the last 30 days?”

3) “What are the loan terms of the last three loans you made, including interest rate and monthly payments, for the amount of loan I am seeking?”

4) “How long will it take before I get a definitive answer?”

5) “Can you briefly describe to me the process I have to go through to get the final approval? Will you be the one making the final decision? What other people superior to you or committees will make that decision?”

But do not despair. There actually are real live prime lenders out there making small business loans. They just need to know where to look. In the next article I will discuss if such loans are available to startups.

Today’s economy and high unemployment rates are pushing most of us to explore the option of putting up our own small businesses. You will get to handle your own money, there is no risk of lay-offs, and it is a great opportunity to explore your skills on handling your own business and company. However, more banks nowadays are enforcing stricter rules and guidelines for giving out business loans.  A bad credit history may be one of your concerns for getting rejected for a loan, and this makes it difficult for us to get the financial help few need to get started. Like every other bank or lending institution, risk factors have to be taken into consideration before they hand you their money. The credit card services you have availed and how you paid these services are very important information for these companies because it will be their basis on the approval (or disapproval) of your request, and the rate of interest they can give you. All in all, it is a tedious and stressful ordeal to go through.

Fortunately, there is now an easier way to get a  small business loan without the fear of your own credit card history. Getting a business cash advance is a faster and less stressful way of getting and paying off a business loan. A business cash advance is a lending service offered to business owners who accept credit cards as payment for their goods or services. It has a shorter processing time and you can even do the transaction online. This is ideal for those time-dependent money problems you naturally experience with your business. It usually only takes a few days to a week to have your request processed and approved, with the money transferred to your own account. All you need to do is fill out their forms (available online) and qualify for their basic requirements.

The requirements are quite similar to those of most lending institutions, but your credit history would not be put under too strict reviews. In fact, unlike business loans from the bank, bad credit history is not that big of a deal for cash advance providers. You only need to be of legal age; have a registered business in the US; have a small business that processes credit cards for payment; and have been in business for at least a year. You can use the money to start or franchise your own business, refinance a business debt, buy new equipment or purchase goods, and pay of f debt or taxes.

The payment terms for a business cash advance is, of course, different from that of a business loan from the bank. But in general, the payment terms for this lending service will greatly depend on the amount of money you will be borrowing. The higher the amount, the longer the term period. For banks and other big lenders, payment terms for business loans can be paid off in long term or short term. Small business loan payment in banks usually does not exceed five years.

Payment terms for business cash advance canbe instant or can be done on a monthly basis, it all depends on your capability to pay, and the amount of money you borrowed. The payment terms will usually require you to pay the cash advance company each month and you will get the payment structure with the amount that they expect you to pay every month. If you can afford to pay it off all at once, then the better.

A business cash advance is a great way to fund your small business because it is convenient and easy to apply for. All you need now is to choose a legitimate cash advance lender to get started.

Bad credit is one of the main reasons for bank loan denial. A credit score lower than 580 will most likely ruin your chances for a business loan. Multiple credit checks also lessens your chances for approval. And of course, a recent file for bankruptcy will ensure denial on your request.

Fortunately, there is no reason for despair if you belong to this group of people. There are now available alternatives for getting a small business loan, regardless of your bad credit. It is important, however, that you understand your circumstances before jumping into these alternative means for a business loan.

You can opt for an unsecured personal loan in such cases. But before you do, consider these factors first. One, how much do you need as a business loan? Factor in the numbers and come to a close estimate of how much you really need. Two, how much can pay each month. You have to note that personal business loans often have higher interest rates per month and if you’re not careful, you might become more in debt than you actually were, before the business loan. And three, will you be making minimum payments? Avoid making minimum payments because it actually costs more in the long run.

A business cash advance is also one way of securing the money you need. A small business loan through cash advance is  relatively an easy process to go through as compared to borrowing money from a bank. Most small business, even if they do have good credit, have often little asset and property. This is what makes business cash advances a good alternative for small entrepreneurs in need of immediate money. The only important thing your business should have is access to credit card services (i.e. you accept credit cards for transactions). You just need to have your business’ credit scores established. The best way to do this is to separate your personal credit from your business credit. It is recommended that you control most, if not all, of your business credit needs from only one of two credit card service providers so you have better chances at getting approved quickly. Lastly, your business will need to have gained $2,500 to $4,000 as minimum credit card sales per month.

Most cash advance providers base the amount of business loans by average monthly credit card sales, and of course, your actual need for capital. A business cash advance as a business loan is recommendable because the processing time for approval of your business loan can be as short as 3 days. Since newly opened small  businesses encounter a lot of time constraints with suppliers and clients, easy and immediate access to additional funding is always a plus. Furthermore, cash advance as a small business loan now comes easy with the help of the internet. You can apply for a business cash advance online and have it approved the next day. The business loan will be directly deposited into your account once it is approved.

Use your small business loan to purchase new equipment, marketing, pay debt or taxes, or pay the payroll. Banks and big lending companies are now not the only way of getting a small business loan for your immediate business needs. Fast, online cash advance is now the new means of making your business grow and compete in whatever market you are thriving on.