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The Quickest Ways to Get Your Small Business Loan Request Denied

Posted by Brittni Abiolu

Jul 24, 2014 8:30:00 AM

Small_Business_LoanGetting your small business loan request denied is much easier than getting it approved, especially if you are not prepared. It’s a proven fact that banks are denying 90% of the applications they get therefore preparing yourself to get approved gives you a better chance of being in the 10% approval pile. The best way to prepare yourself to get approved for a small business loan is to know what lenders want and what they don’t want. Here I will discuss what they don’t want by outlining the quickest ways to get your small business loan request denied and what to do to get your small business loan approved the first time you apply.

  • Lack of Creditability – Having a less than perfect credit history (or no credit history at all) is one of the top reasons why small business owners get their loan request denied, especially if the business is a start up. Banks and lenders only want to lend to small business owners that have a history of properly managing their debts and paying them back on time. Therefore if you don’t have the best credit history, you may want to focus on repairing and rebuilding your creditability before you apply for a small business loan. The best way to repair and rebuild your personal credit history is to pay off your creditors and ask them to stop reporting all derogatory and delinquent accounts to the 3 credit bureaus (Experian, Equifax, and Transunion) if you pay what you owe 

 

  • If they agree to stop reporting all derogatory and delinquent accounts if you pay what you owe, ask them to put it in writing (have it signed by a notary) and send it to you certified mail before you pay. Have a lawyer review the certified letter and if all looks good, go ahead and pay off the derogatory or delinquent account. Once you have done that with all of your derogatory and delinquent accounts (and they have stopped reporting to the 3 credit bureaus), try applying for a secured credit card with a small limit ($500 or less). Use it for purchases that you know you’ll have the money to pay back and do this for about 6 months. You should see your credit history improving and credit score increasing which will put you in a better position to qualify and apply for a small business loan.

 

  • Inability to Service Debt – If you can’t prove to a lender that you earn enough income to pay back the small business loan you are requesting, you’re request will be denied. Lenders need to see proof that you have the ability to service the debt. Therefore I suggest maintaining long term employment and/or starting your business to generate revenue before you request a small business loan. Applying for a small business loan when you are unemployed and/or have no personal or business income is small business loan application suicide. As a rule of thumb, you should be employed for at least 6 months (or operating your business for at least 6 months – with 6 months of revenue) before you attempt to apply for a small business loan.

 

  • No Investment of Your Own – Why would a lender approve you for a small business loan when you haven’t invested in yourself? Many lenders will want to see that you have taken the time and your own money to invest in your business. If you truly believe your business will be successful, why not invest some of your own personal savings to get it going? If you can show a lender that you have your own funds you can bring to the table, they just might be more inclined to approve your loan request. If you don’t believe in you, why should anyone else? Prove that you believe in yourself, by investing in yourself.

Brittni Abiolu is the Owner & Publisher of www.CapitaLinker.com. Through her website, she serves to educate entrepreneurs and small business owners on how to increase their chances of obtaining capital in the simplest way possible and how to find and connect with the most appropriate funding sources. You can connect with Brittni on LinkedinGoogle+TwitterFacebook, and Pintrest.

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Topics: small business loans

How to Borrow Money to Solve Your Business Cash Flow Problems

Posted by Brittni Abiolu

Jul 22, 2014 8:10:00 AM

Cash_FlowIf you’re in the market to borrow money for you small business to solve your cash flow problems, there are a few important things you need to know before you take that leap. Borrowing money for a small business is a huge decision and can have lasting effects on your company, (either good or bad). Therefore you’ll want to know what you are getting yourself into. It’s never wise to simply borrow money without knowing how your company can be impacted by it. Borrowing money for a small business to solve your cash flow problems is doable but may not work for everyone so if you plan on doing it, it will benefit you to know how to do it the right way. Here I will give you a few tips and things to think about before you make that move. 

Tip #1: Avoid borrowing when you are in a bind – In my professional experience, it’s never wise to borrow when you are in a bind. All businesses have cash flow issues at some point but if your cash flow issues are causing your business to be on the brink of closing down, borrowing money to save it may not be the best solution. I’ve dealt with many business owners who have borrowed money when they were in a bind, hoping those funds would yield a high return in a relatively short period of time to help the business get back on its feet. And when that doesn’t happen, they find themselves over-extended. So now, not only do they have to pay for the business expenses they had before they borrowed the money, the have an additional expense to cover – loan repayment. That loan repayment usually puts them over the edge and causes them to do what they wanted to avoid in the first place – closing down.

Tip #2: Borrow before you need it now when you need it – This goes back to avoiding borrowing when you are in a bind. The best way to avoid borrowing when you are in a bind is to borrow before you need it. If you have a well thought out business plan in place, more than likely you know how much money you need to operate. If your business is bringing in revenue and doing pretty well, why not preserve your cash flow and take out an unsecured business line of credit to cover some of your operating expenses? With an unsecured business line of credit you will not have any monthly payments unless you actually use it. Therefore you can have access to additional capital (to use whenever you need it) and you will not have to worry about an additional expense (in this case a loan repayment), until you use the funds (unlike with a small business loan). [Click here to learn the differences and benefits of using a business line of credit instead of a small business loan].

Tip #3: Know what funding options are the most suitable for you – All small business financing options are not created equal. There are small business loans, SBA loans, microloans, small business lines of credit or credit cards, merchant cash advances, factoring/accounts receivables financing, purchase order financing, import/export financing, 401k/IRA rollover financing, and equipment financing, etc. Lenders that offer these types of financing will require you to meet certain criteria to get approved. The criteria for approval for a microloan will be totally different than the criteria for approval for a small business line of credit. Qualifying for any one of these types of financing can depend on what stage of business you are in (startup, emerging, or established business stage), your personal credit history and score, your personal income, and/or your business revenue. Understanding the criteria for approval for each one of these types of financing will help you understand which one is the most suitable for you based on your unique situation. The best way to find out which option is the most suitable for you is to speak with an expert who is well-versed in the small business financing industry and who has experience in working with lenders that offer all of these financing options. If they truly know what they are doing, they will be able to analyze your situation and tell you which type of financing is the most suitable for you.

Tip #4: Keep your personal credit separate from your business credit – As a small business owner, building business credit should be one of your top priorities. Building business credit during the early stages of your business will enable you to preserve and protect your personal credit. You can start building your business credit by taking out vendor/trade credit from companies like Uline, Quill, or Office Depot. Then you can go on to apply for unsecured business lines of credit from banks such as Chase, Bank of America, and Barclay’s, etc.

Brittni Abiolu is the Owner & Publisher of www.CapitaLinker.com. Through her website, she serves to educate entrepreneurs and small business owners on how to increase their chances of obtaining capital in the simplest way possible and how to find and connect with the most appropriate funding sources. You can connect with Brittni on LinkedinGoogle+TwitterFacebook, and Pintrest.

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Topics: cash flow

The Importance of Small Business Financing for Small Business Success in the U.S.

Posted by Brittni Abiolu

Jul 17, 2014 8:07:00 AM

Due to the great recession we’ve experienced a great deal of hardships in the U.S. economy, especially job loss. Our government has made many attempts to help improve the economy over the last few years, with hopes of it being the big booming economy it used to be. The importance of capital access for small business has been indicated by President Obama’s advocacy and introduction of legislation that will help increase funding available to small businesses for the purpose of creating jobs. Legislation such as the American Recovery and Reinvestment Act of 2009, Small Business Jobs Act of 2010, and most recently the Jumpstart Our Businesses (JOBS) Act provisions that were made in the spring of 2012 were put in place to promote entrepreneurship and help our small business access capital with less difficulty.According to the Kauffman Foundation, 2013 “State of Entrepreneurship Address”, the JOBS Act has included new provisions for equity crowdfunding. These new provisions have changed the regulatory environment for crowdfunding in a way that will make accessing these funds much simpler. 

Small_Business_Financing

More Proof that Small Business Greatly Benefits from Increased Access to Capital

Data from the report, “U.S. Microfinance: Small Loans, Big Results”, also indicate that improved access to capital greatly impacts the growth and sustainability of small businesses. This study was compiled based on a survey that was conducted amongst small business borrowers that were awarded small microloans from Accion during 2010. According to the report: 

  • 54% of the small business borrowers hired 5.6 employees as a result of receiving microloan funding. 
  • 32% of the small business borrowers reported that their business revenue increase and 41% that increase met or exceeded their expectations. 
  • 97% of the small business borrowers were still operating their business at least one year after receiving the microloan funding.

These findings suggest that access to small business financing for small businesses can greatly contribute to their long term success and sustainability as well as job creation. This further proves that having sufficient access to capital is important for small businesses as well as the good health of our overall economy. If you’ve thought about starting or growing a small business, it would be wise to consider the benefits of investing your own funds or seeking outside capital. I’m sure you’ll be glad you did.

Brittni Abiolu is the Owner & Publisher of www.CapitaLinker.com. Through her website, she serves to educate entrepreneurs and small business owners on how to increase their chances of obtaining capital in the simplest way possible and how to find and connect with the most appropriate funding sources. You can connect with Brittni on LinkedinGoogle+TwitterFacebook, and Pintrest.

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Topics: Small Business Financing

3 Reasons Why Using Investor Funds May Not be the Right Small Business Financing Option

Posted by Brittni Abiolu

Jul 15, 2014 10:43:00 AM

Small Business FinancingMost small business owners don’t realize that all small business capital is not created equal. There are two type of small business financing you can obtain as a small business owner. This includes debt financing and equity financing. Debt financing is when you borrow money from a bank or lender and pay it back (plus interest). Equity financing is when you give up a percentage of ownership in your company in return for an investment. Sometimes that investment could be time (sweat equity), but most of the time it is financial. The percentage of ownership often goes to either a venture capitalist or angel investor. 

According to Rosemary Peavler of About.com, Venture capitalists mostly use institutional funds that mainly come from big pension funds and large college endowments to invest in emerging businesses. They invest large sums (often in the millions), while Angel Investors are individuals that invest small sums of their own money (less than 1 million) into startup companies. Before you decide to pursue either a venture capitalist or angel investor, you should seriously consider the following 3 reasons why they may not be right for your small business. 

Your business isn’t “high growth” – Investors in this day and age prefer to invest in high growth businesses that will yield returns in the millions in just a few short years. Let’s face it, most small businesses are not yielding high returns in a relatively short period of time. If you’re business isn’t in high tech industries such as bio-tech, software, “green”, internet, or healthcare, your chances of landing an investment from a seasoned venture capitalist or angel investor is slim to none.


You can forget being your “own boss” – Most investors will want to be apart of your board of advisors or directors, attend every single meeting, and have a say in making huge decisions regarding your business. Sure you will still get to voice your opinion about which direction to take your business however, your ideas will be up against the investors. Since you’re using their funds to grow your business, they may be able to get the final say more often than not. If you decide to go against what they want, you risk them pulling out their investment and moving on to something else. (Have you ever watched “Dragons Den” on BBC? I’ve seen this happen before with one of the “Dragons” aka investors). 


You will be required to sell or go public - All investors have an exit strategy when they invest in your business. At some point, they will want to sell or public to reap the rewards of their investment. Once they get their return on investment, they will want to on move on to something else. 

If you want to stay in control of your small business, you may want to consider other options in regards to financing. Debt financing such as a small business loan or line of credit may be more suitable for you. Small business loans and lines of credit are often better options for small businesses that are not considered “high growth” and where the owners will want to maintain full ownership. Below is a list of the various types of small business loans and lines of credit you may want to consider instead of equity financing: 

  • SBA Loans
  • Unsecured Business Credit Cards
  • Unsecured Business Lines of Credit
  • Purchase Order Financing
  • Accounts Receivables Financing/Factoring
  • Merchant Cash Advances

If you haven’t made the final decision or you are simply not sure what type of financing is the most suitable for you business, you may want to consult with a small business finance expert. The best experts can analyze your unique situation and give you and honest and sound advice about what you realistically will qualify for.

Brittni Abiolu is the Owner & Publisher of www.CapitaLinker.com. Through her website, she serves to educate entrepreneurs and small business owners on how to increase their chances of obtaining capital in the simplest way possible and how to find and connect with the most appropriate funding sources. You can connect with Brittni on LinkedinGoogle+TwitterFacebook, and Pintrest.

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Topics: Small Business Financing

How to Determine if a Small Business Loan or Line of Credit is Right for You

Posted by Brittni Abiolu

Jul 10, 2014 8:15:00 AM

5792635506_697faa416dThe most accessible type of small business capital for small business owners is debt financing, which includes small business loans and small business lines of credit. If you’re seeking small business capital, it’s very important to understand that small business loans and small business lines of credit are two very different types of small business capital. The biggest (and most obvious) difference between a small business loan and line of credit is: 

  • Small business loans have fixed interest rates and terms and are considered long term financing. Long term financing is generally used to purchase large assets such as equipment and machinery. 

 

  • Small business lines of credit have variable interest rates and terms and are considered short term financing. Short term financing is generally used to purchase supplies and inventory and cover payroll. 

Once the total amount of a small business loan has been used, you’ll need to re-apply if you need more financing. However, the good thing about obtaining a small business loan is that you’ll have the same monthly payment for the life of the loan. This will make it easier to budget because you will already know what to expect in regards to monthly payments. You’ll also be able to pay it back over time.

Small business lines of credit are revolving, meaning that you can have access to them for the life of your small business if you manage the debt properly (and the lender wants to continue their relationship with you). Lenders may also continuously increase your credit limit over time if the small business line of credit is properly managed (increasing your access to capital year after year). However, your monthly payment may vary depending on how much you spend from the small business line of credit. Because of this, you’ll need to plan ahead before you begin using the small business line of credit to be sure you can handle the monthly payment.

If you want to determine if a small business loan or small business line of credit is right you, ask yourself:

  • Will I need ongoing access to capital? If you own a small business that will continuously need outside funds to operate efficiently and effectively, you may find that small business lines of credit are more suitable for you than small business loans. This is because once a small business loan is used, you’ll have to re-apply to get another and there’s no guarantee that you will be approved again.

 

  • Can I afford to pay a fixed monthly payment? If you don’t have the ability to pay the same monthly payment every month, a small business loan may not be suitable for you. With a small business line of credit, your monthly payment will vary depending on how much you use. If you don’t use the small business line of credit for a particular, you may not have a monthly payment for that month (as long as there isn’t a current outstanding balance).

If you are still unsure about whether or not a small business loan or line of credit suitable for someone in your unique situation, you may want to consult with an expert who is well versed in the small business finance arena. The most reliable and knowledge experts will be able to properly analyze your business and situation to determine whether a small business or line of credit will be best for you at the present time.

Brittni Abiolu is the Owner & Publisher of www.CapitaLinker.com. Through her website, she serves to educate entrepreneurs and small business owners on how to increase their chances of obtaining capital in the simplest way possible and how to find and connect with the most appropriate funding sources. You can connect with Brittni on LinkedinGoogle+TwitterFacebook, and Pintrest.

 

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Topics: small business loans, lines of credit

Identifying the Best Small Business Financing Experts

Posted by Brittni Abiolu

Jul 8, 2014 10:11:00 AM

8016428880_8bdfffafafApplying for small business financing can seem like a difficult and daunting task for many entrepreneurs and small business owners who have no experience with it. The best way to minimize the difficulties that can be associated with applying for small business financing is working with an expert who understands the process and can help you increase your chances of getting approved. Before you approach an expert to assist you with the process of obtaining small business financing, it would be wise to know how to identify the best of the best. There are hundreds of thousands of so-called small business financing experts online but only a small few will live up to your expectations. If you’re considering consulting with an expert to help you apply for small business financing, you’ll need to know how to identify them. There are 3 good ways you can identify the best small business financing experts:

  • Transparency – The best small business financing experts will be open and honest about who they are and what they can do for you. They’ll have a professional website with a company name, phone number, email address, and/or contact form. They’ll make it easy for you to contact them and do your due diligence on them by telling you everything you need to know about them on their website or over the phone. If you find that you have a difficult time doing due diligence on a so-called expert, it would be wise to look elsewhere. 

 

  • Proof of Experience – Small business financing experts who are the best at what they do often have a long history of working with small business owners to obtain funding and will be able to display that through their knowledge. The best way to determine if they are knowledgeable and experienced is to speak with them. When speaking with an expert, they should be able to do 4 things – (1) analyze your personal and/or business credit history to help you determine what type of small business financing you will qualify for and how much you can get, (2) tell you how to increase your chances of getting approved for small business financing based on your personal and/or business credit history and unique needs, (3) tell you which lenders are the best to approach and help you apply to those lenders, and (4) coach you on how to use the small business financing effectively so you can grow your business and increase your profits. If they don’t discuss each of these things with you, you may want to consider another option. 

 

  • Proof of Results – When it comes to small business financing experts, the proof is in the pudding. The best small business financing experts will always have verifiable written or video testimonials on their website. Some experts may even provide you with the contact information of past clients so you can call them to verify their results. If you find a so-called expert that can’t show you any proof that they’ve ever gotten anyone approved for small business financing, keep searching. 

Whatever you decide to do, I strongly suggest that you talk to more than one self proclaimed expert before making a decision. Take notes when speak them so you can remember and study what they’ve said. After you’ve approached about 5 to 10 experts, review your notes, think it over, and make the decision that is most appropriate for you. Good luck!

Brittni Abiolu is the Owner & Publisher of www.CapitaLinker.com. Through her website, she serves to educate entrepreneurs and small business owners on how to increase their chances of obtaining capital in the simplest way possible and how to find and connect with the most appropriate funding sources. You can connect with Brittni on LinkedinGoogle+TwitterFacebook, and Pintrest.

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Topics: Small Business Financing

Why You Should Consult with an Expert to Get a Small Business Loan

Posted by Brittni Abiolu

Jun 25, 2014 6:49:00 AM

9071472374_780c756832If you are considering applying for a small business loan, consulting with an expert, third party resource, consultant or business finance broker could be very beneficial to you. Many small business owners are experts in their industry and good at what they do but may have no clue how to start the process of acquiring and obtaining a small business loan. The good news is that there are experts out there who can help you get the results you want. There are 3 primary reasons why you should consult with an expert to obtain a small business loan: 

Long-term experience – Most experts, third party resources, consultants or business finance brokers have a long work history of working with banks and lenders. Often times their primary positions at these companies were that of “small business bankers”, “personal bankers”, and/or “mortgage bankers.” After years of working with various banks and lenders, many of them often decide to branch out on their own to help small business owner improve their chances of obtaining small business loans.

Insider knowledge - Working with experts is also good because they often have insider knowledge about how to get approved for a small business loan that the general public may not be aware of. Experts that have years of experience working at banks often know every single detail that lenders look at when determining whether or not to approve you for a small business loan, therefore they can pass that knowledge on to you so you can better prepare yourself. 

Business Connections – Most experts, who are familiar with the process of obtaining small business loans, have built a database of connections that include banks, lenders, and credit unions that the general public may not know about. Most people only know about well known banks, lenders, and credit unions and those that are in their local neighborhoods. Experts often know about banks, lenders, and credit unions in multiple states. This opens up more opportunities for you to approach multiple small business loan sources for funding. One lender may not approve you but another will. The best experts will always know which lenders to approach based on your unique situation so you have a better chance of being approved. Working with the right expert will no longer limit you to just your local banks, lenders, and credit unions. 

Overall, working with an expert who is familiar with the process of obtaining small business loans will give you better results. It would be wise to consult with an expert the first time you decide to apply for a small business loan so you can do it the right way. The best experts will always prepare you to get approve and simplify the process of obtaining small business loans using their experience, knowledge, and connections. 

Brittni Abiolu is the Owner & Publisher of www.CapitaLinker.com. Through her website, she serves to educate entrepreneurs and small business owners on how to increase their chances of obtaining capital in the simplest way possible and how to find and connect with the most appropriate funding sources. You can connect with Brittni on LinkedinGoogle+TwitterFacebook, and Pintrest.

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Topics: small business loans

A Tale of Two Small Business Owners

Posted by Thomas Gazaway

Jun 24, 2014 11:27:00 AM

4645730858_b3114f96a4How important are the early stages of your business? Lots of the time we call it the start up phase. Well, think about it like this. Brett and Sara both sell widgets. Brett's widgets are great and amazing. Sara's widgets are good and solid. Side by side in 3 different stores Brett's widgets outsold Sara's widgets. But how are Brett and Sara's companies different?

Brett has a cool idea to take his widgets nationwide, maybe even worldwide. He decides to build a website. He finds a couple of online sites that wanted to charge him between $700 - $1,200 for a website. They wouldn't be interactive sites, they would not really be set up to do any drip marketing, there would not be a blog, and they wouldn't design the site around proven SEO strategies. After all, what do you expect for only $1,000? They would have an online cart to receive orders and that was about it. The site would be pretty static and wouldn't change much. It would be a total of about 3 pages, a homepage, a checkout page, and a thank you page.

After seeing the costs, Brett figures he'll set up his own site to save about $1,000. He's never owned or ran a business but how tough can it be to set up a website? So while Brett starts setting up a website, Sara takes a different path to sell her widgets.

Sara decides to do a few things. First she obtains some small business funding. Since she's a startup she doesn't have any revenue so she knows her best bet is to get some business credit cards. She knows about things like the Capital One Business Credit Card so she is careful about how she obtains her funding. In the end she gets some help and has $50,000 to use for her business. She thinks she'll need about $15-20k but everywhere she reads the people with experience tell her that everything takes more time and costs more than expected. So while she's getting some funding she decides to educate herself. She does this by reading books like The E-Myth Revisted, Built to Last, and Predictable Success. She also signs up for two free courses on Courera.org.

The next thing she does is create a marketing plan. She learns about the 7 Musts of Marketing and makes a strategic decision to invest part of her funding in building a website that will engage people and generate leads. She knows she could "do it herself" but also knows that you get what you pay for. In her research she realizes that she could spend $1,000 and get a "cheap" website built for her. Or she could spend $3,000 to $5,000 and get an "inexpensive" website that is very good. She knows she does not need one of those $20,000 or $50,000 websites but for an extra couple thousand dollars she'll get a far superior website that will sell more widgets, create relationships with her customers, and represent her company in a very professional manner.

When it was all said and done, Sara spent $4,000 getting her funding, $4,500 on her website, $250 on some books and educational resources, and $750 on an email marketing system that integrated with her website leads and her twitter and Facebook accounts for a really cool backend campaign for her website visitors.

So let's compare Brett and Sara. Brett ended up building his own website. With the tools and apps and resources he needed he ended up spending $600, out of his pocket. It was a savings over what he would have spent if he had one of the online companies build his website. Sara, on the other hand, financed her company's start. She got a website that was superior to Brett's (by far) and she spend some time and money learning about business from great books and a quality online site, plus she has access to additional funding for any future needs. She set some goals and then created a marketing "plan" that was basically a "path" for "how" she would get to her goals. Lastly, Sara spent no money out of pocket. Her business credit card paid for everything, she's paying 0% in interest for the first year and her monthy payment is less than $200. She did make an initial investment of almost $10,000 but it will be more than 3 months before she spends as much as Brett did out of pocket.

So who is going to sell more widgets? Who has a better chance of success? Who would you rather be, Brett or Sara? Success as small business owners does not require a high IQ. It doesn't require you to be smarter than the next guy. It's pretty easy to open a business. It's pretty easy to "be in business." The tough part is making consistent profits year after year. It requires a "plan." If you're thinking about starting a business or you are already a business owner then read more about the 3 main reasons businesses fail here.

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Topics: small business owners, small business funding

Small Business Loan Provider Partners with Bank

Posted by Thomas Gazaway

Jun 19, 2014 11:04:00 AM

455279239_720dfc98c8Small business loans are and always have been in high demand for small business owners. We know that the lack of access to capital is one of the top reasons why small businesses fail. Additionally, we also know that banks only approve about 10-20% of the loan applications they receive from small business owners. There are a variety of reasons for this but in recent years, with advances in technology, there have been large numbers of "alternative" lenders who have stepped into the business funding gap.

Last month, a partnership was announced between OnDeck and BBVA Compass. OnDeck was formed in 2007 and uses a prorprietary scoring model to issue small business loans to small and medium sized businesses. Their loans are significantly higher cost than bank loans and, additionally, they only offer terms of 6-24 months so the higher rates along with the fast payback means that their loans don't exactly qualify for what we call "cash-flow friendly" in our 6 Benefits of Borrowing ebook. However, they have been quite successful and have grown rapidly in recent years.

Banks have been very slow to embrace technology and, for the most part, still underwrite and approve their loans just like they did 15-20 years ago. The same people who are changing our world through coding and computer programming have not found a home inside the small business banking sector as of yet. There are technology hubs all around the country, the most famous area being Silicon Valley. Boston, New York, Dallas, and Seattle among other cities have lots of technology-based companies (and jobs) for programmers. If you know computer languages like Python, Ruby, Java, etc. then chances are you won't have any problems finding work. Unfortunately, the banks have not been innovators, early adopters, or even part of the early or late majority with how they accept, approve, decline, and process their small business loan applications. To call the banks laggards would almost be an understatement.

So this partnership is an important development. It might just be a strong indication that banks would rather team up with a technology partner. The landscape is changing.

What does this mean for Small Business Owners?

It might be a little early to confidently answer this question. However, it's possible that the huge gap between banks and "non-bank" lenders will begin to be bridged. It certainly won't happen overnight but if more of these partnerships follow then it would surely be good for the main street small business owners who need funding.

It's hard to find but keep in mind that the best case scenario for a small business owner is to work with someone who understands bank financing and non-bank financing, as well as both personal and business credit. Then, with a proper diagnosis of your business and your goals you can begin to know what business funding options you have and how to go about obtaining that funding. Also, remember the importance of both personal and business credit so that you not only borrow and fund your business now but also so that you can position yourself for the additional funding you'll likely need if your business is successful.

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Topics: small business loans

How to Determine if Factoring is Right for Your Business

Posted by Brittni Abiolu

Jun 18, 2014 7:15:00 AM

14050106798_e73137ac04If you own a business that has customer payment terms of net 30, net 60, net 90 (or more), chances are you may have experienced cash flow issues at some point. If you’ve had cash flow issues, using factoring finance to cover business expenses might be right for you. Factoring finance may help you keep the business afloat while you’re waiting on payments from customers. The first thing you need to know to determine if factoring finance is right for you is to understand exactly what it is. Small business owners are often confused as to what it is, therefore knowing how it works is important. 

What is factoring?

In a nutshell, factoring happens when a small business sells it’s accounts receivables to a financing company to get a percentage of total amount of receivables in cash to cover current business expenses. Most factoring finance companies will pay the small business owner up anywhere from 60% to 90% of the total amount of receivables owed to cover the cost of their business expenses. Once the accounts receivables are sold, the factoring finance company owns them and the customer becomes responsible for paying them instead of your company. This type of transaction gives you immediate access to capital and places the responsibility of collecting your customer’s payment on the factoring finance company since they have purchased the receivables from you. To determine if this type of financing is right for you, keep the following in mind:

Factoring finance is usually best for B2B companies – most factoring companies will only provide factoring to companies that sell products or services to other companies. If your company is a B2C company, you may want to consider a “merchant cash advance” instead. Merchant cash advances are best for business owners that accept credit cards or check deposits from their customers. 

Creditworthy B2B customers are required – an important key to getting approved for factoring finance is having B2B customers that can prove their creditworthiness. Factoring finance companies will check your customer’s business credit rating. If your customer doesn’t have a history of paying on time, you may not qualify to factor your receivables for that customer.
 
The total amount of your receivables – most factoring finance companies require you to have a minimum amount of receivables to sell. The minimum amount varies depending on the factoring finance company but usually a minimum of $10,000 in receivables from at least one customer is required.
 
Your customer payment terms – depending on the factoring finance company, your customer payment terms will need to be net 30, net 60, or net 90. Some factoring finance companies allow up to net 180 customer payment terms. Factoring finance may not available to you if your customer payment terms go past 6 months; (however, again this depends on the factoring finance company you work with). 

If you’ve determined that factoring may be right for you, the next step is to seek expert help. Finding a good factoring finance company is critical. You will want to go with the company that has the best rates and terms. If you need assistance with finding the most suitable factoring finance company to meet your needs, our Small Business Finance Advisors may be able to assist you. Inquire today to see how we may be able help you.

Brittni Abiolu is the Owner & Publisher of www.CapitaLinker.com. Through her website, she serves to educate entrepreneurs and small business owners on how to increase their chances of obtaining capital in the simplest way possible and how to find and connect with the most appropriate funding sources. You can connect with Brittni on LinkedinGoogle+TwitterFacebook, and Pintrest.

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