Small Loans Make a Big Difference

Even in 2009, businesses like Tri-State Biodiesel were scrambling to find working capital that was hard to come by. The company should have been one of the first in line to receive loans as it’s main business is converting waste oils from restaurant cookers into biodiesel. Located in New York city, this company had a solid business strategy in a green industry that should have made it easy to borrow the money it needed to upgrade their equipment. Unfortunately, the owner Brent Baker, tried to obtain financing through three major banks he had previously done business with and was subsequently denied the loan. Facing the possibility of layoffs or an inability to compete in the marketplace with old equipment, Mr. Baker ended up turning to Boc Capital for a microloan of $50,000 that helped him to expand the business and hire more staff.

How Microloans Work

Microloans are associated more with third world countries and individual entrepreneurs than small businesses in America. While loans for individual entrepreneurs may only be hundreds of dollars, for small businesses in the United States, the average microloan from the SBA is about $13,000. They do keep to the same mission of other microloan programs as the loans are targeted to specific industries or demographics that are under served. The SBA microloan program is distributed via specially selected non-profit intermediaries all over the country. For a complete list of the intermediaries who are in the microloan program, visit  http://www.sba.gov.

Microloans can be more than $13,000 and as much as $50,000 if several intermediaries end up pooling funds to service the loan. The interest rates are typically near 10%, which some business owners see as a deal due to the poor lending climate elsewhere. Each intermediary is going to offer their own terms and lending rates so be sure to check with several before making a decision. The loan applications are very thorough and can be delayed if you have credit problems that must be addressed first. However, compared to other conventional loans, the application is not as lengthy, only one or two pages long. If you have difficulty, check out your local business center to help you get your documentation in order so that the approval process is as quick as possible. While credit score requirements vary, some like Accion, a microloan SBA intermediary, only requested a score above 575, which is not that high. Even if you don’t have a credit history, you might still be able to qualify for a loan. Some of the monies are being disbursed to immigrants and refugees, and they aren’t expected to have a complete credit profile.

The SBA admits only 1% of small business owners are being helped through the micro loan program. However, that translates to a monthly $3.1 million dollars going to prop up small businesses in America, up from $2.5 million at the height of the credit crisis. The program has been so popular and well managed that delinquency rates on repayment average a low 4.73%. For small business owners who have trouble getting approved elsewhere, the program offers a lifeline that can help save businesses, increase hiring, and provide needed monies to support future growth.

However, banks are quite strict in handing out business loans, especially after the banking debacle in the past three years that has seen several banks go under because of unpaid loans and falling asset values. Thus, you will have to be prepared to submit several documents to prove that you are worthy of that loan. If you already have a running business then you will have to provide financial documents pertaining to your past performance such as profit and loss statements, etc. If you want to start a new business then the going will be tougher as you will need to deposit sufficient collateral in the form of commercial or residential property, inventory, etc to get your hands on the money.

If your credit rating is blemished then banks will surely look at you with a cruel eye. In such a case you could try approaching credit unions, private lenders or even online lenders for business loans. These institutions have slightly relaxed rules as compared to banks although you might still require a decent amount of collateral as security against the loan, especially if it is a large amount. If handing out security is a problem then you could approach the SBA or Small Business Administration to help you get the business loan since they could stand in as your guarantor.

However, if your credit rating is not very good then getting a loan would surely pose a problem. There are several online and private lenders that will give you an unsecured loan to start your business without depositing any collateral. However, the interest rate will be significantly higher than traditional loans due to the increased risk factor to your borrower and you might also have to face a hostile borrower in case you do fail to make your repayments on time. Such business loans should be resorted to only if you are truly desperate for a loan or have a business model that you are supremely confident will succeed.

While applying for a business loan you should definitely consider the interest rate on such loans. Business loan rates are very important as this factor will determine the amount of repayment that you need to make on your principal loan amount for the decided period of time. Other fees, penalties for late payment and early repayment should also be looked into in great detail. You can contact a trusted loan broker to seek out business loans that best suit you so that you do not end up getting confused by various legal terms. Your broker can filter out all the lenders before presenting the ones that offer the best terms and conditions that can save you a neat packet over the coming years.

Several online lenders promise a lower rate of interest by stating lower overheads and you can go in for such business loans only after getting positive referrals about the lender. All loans have a lot of fine print and blindly signing a loan document could lead to harassment for several years. Thus, a lower rate of interest should not be the only criteria while choosing a lender but instead a known lender through a reputed broker and favorable terms and conditions will help you sleep easily until you completely repay your loan.

In current financial conditions business loans are certainly hard to come by and if you do need such loans then you will have to put in some additional efforts. With most lenders now enforcing strict rules you will have to shell out collateral or provide guarantors to get your desired loan. You should definitely try approaching the SBA in case you have problems getting loans from banks or other lenders. The key to getting safe loans is to read between the lines and repay back your loan amount on time to ensure that your credit rating improves as time goes by, and your business starts and flourishes due to that timely loan.

When you approach banks, credit unions or private lenders for a business loan then they will first scrutinize your business and personal details. If your business is already running then you will need to submit past profit and loss accounts, balance sheets, etc. Your credit history will most certainly be scrutinized in great detail. The amount of money that you require as a loan and the amount and type of collateral that you are willing to offer against the loan will also have to be compared by all lenders. All these factors will then determine the business loan rates or the interest rates offers by various lenders based on their determination of your repaying power.

The reason as to why you require a loan will also determine interest rates. You might want a loan to buy your business premises or office equipment, delivery vans, or even to refinance an old debt. All lenders will certainly come to their own conclusions as to the credit risk that you pose when they part with the money and these factors will be factored into the business loan rates offered by them. If arranging sufficient collateral is a problem then you can also approach the SBA or Small Business Administration, which is a government arm that can arrange for guarantees against the loan.

You can now get a loan at competitive interest rates to purchase business property or equipment even if you have trouble in arranging sufficient collateral. The SBA provides guarantees so that loans can be given to entrepreneurs, war veterans and economically weak communities. You can get a business loan that stretches up to 25 years but you will certainly need to look over all aspects of the loan before you sign away a part of your future. In addition to business loan rates offered by various lenders, you will also need to look over other fees and charges such as early repayment charges, documentation fees, penalties, inclusion or exclusion of balloon payments, etc.

You can also choose between a fixed interest rate or a variable interest rate depending on how you perceive the movement of interest rates in the coming years. If you plan to go in for a fixed rate loan then you can easily use the business loan calculator that will display the monthly repayment schedule, the total interest paid on the loan, and even calculate tax implications on your loan on your behalf. You can simply download these programs from the internet so as to arrive at an informed decision on the type of loan that suits your purpose. You will also have to factor in all corresponding fees in your calculations so as to know all about the exact business loan rates that you might end up paying over the entire duration of the loan period.

Even if you have a poor credit rating or insufficient collateral to offer to traditional lenders you can still get a business loan from private lenders that are willing to take on that additional risk, at additional interest rates of course. Such loans are also known as merchant cash advances. This will help you start your business or expand it but will certainly impose additional financial burden in the form of higher business loan rates that could start pulling you down in the long run. Although you might not consider a small hike in percentage in your interest on your loan as a major factor, the amount will certainly turn huge once you multiply it over 10, 20 or 25 years. Private lenders might also not be very forgiving when you start to default on your repayment schedule due to any reason. A planned strategy to repay back your loan and interest on time along with handling business commitments at the same time will help you repay the loan without breaking into a sweat during repayment time each month.

A business loan might certainly help you to realize your entrepreneurial dreams. However, it is very important that you end up with extremely competitive business loan rates since each percentile increase in interest rates will need to be serviced from your business profits, which could already be under pressure once you step into any competitive market. It is thus very important to study the loan proposals of all lenders in great detail before you make a calculated decision on the lender that most suits your requirements.

Merchant cash advances are great for many types of businesses. They are a way to sell future receivables that are obtained by credit card sales. Obviously, you must take credit cards and have a certain amount of credit card sales per month to qualify for this type of financing. You don’t have to pay monthly payments like you would with a traditional loan. Every month, a percentage of money is deducted from your gross credit card sales to slowly chip away at the debt. These financing vehicles are not loans, but the business loan company gets full value for the sales they are buying and you get cash right away, up front for the sales you know you will receive in the future.  If you are in a pinch, the merchant cash advance can be the quickest way to get money for whatever you need. You will not have fixed monthly payments and when you have a slow month, you will pay less toward the debt.

Regardless of the option taken for securing financing, it is sometimes important that a business obtain money to stay afloat during rough times. As the economy goes through its cycles, many businesses feel the brunt of these swings and must seek help if they are not able to save money. If financing can be readily found, this just allows more businesses to get the money they need without great credit, quickly and without having to pledge any collateral. Business loans can be useful, but many of the businesses that use them do so out of necessity. Once you are able to repay such loans and advances, you can continue to help the community as they would rather have a thriving small business community than one that allows the small businesses to fall by the wayside.

Republicans and Democrats Clash on Issues

The Senate game has centered on whether Democrats will allow all (or any) Republican amendments or continue to fight off filibusters from recalcitrant Republicans. One of the main amendments that Republicans sought was an estate tax cut, not favored by the Democrats. After many debates and a few threatened filibusters, the Democrats managed to stop the debate and get the Small Business Jobs and Credit Act of 2010 on to the next step: A full vote on the bill. That might come about before the end of summer break, although that isn’t certain. Efforts at negotiations and passage are likely to resume after the summer break.

A Long Road Ahead

Back in February the White House released a proposal for “the new Small Business Lending Fund”, which would transfer $30 billion from the Troubled Asset Relief Program to the new program whose aim was to support small business lending.  The Small Business Lending Fund would target smaller banks that lend the most to small businesses, and offer incentives for banks to increase small business lending.

On Wednesday, July 28, 2010, the bill appeared dead when the President’s initiative was stripped from the Senate bill, due to absolutely no Republican support. On Thursday July 29, 2010 the original bill made a miraculous recovery when two Republicans George LeMieux, Florida and Olympia J. Snowe, Maine, joined the Democrats to close the debate with a vote of 60-37.  Without closing the debate, the bill would have most likely not survived threatened Republican filibusters.

Small Business Blessing

The National Small Business Association has stepped forward to endorse the bill, along with many bank trading organizations. Even some Republicans have been willing to offer their blessings to the bill. Senator George LeMieux’s support was won once the Democrats offered to add additional items to the bill. Senator LeMieux was lobbying for steps to increase the promotion of exports at the Commerce Department and to reduce fraud in the Medicare payment system. Both of these items were addressed and the Republican Senator also offered his support to help pass the bill. It’s very clear that America needs a small business build to continue to nurture the economy to full health. However, the way that comes about is still open to debate. For now, the bill has survived, and continues to be negotiated between the Republicans and the Democrats. However, the question as to whether it continues to survive or instead becomes a disappearing act, is also still open for debate.

Bank of America has recently stated that they plan on committing $10 million to help non-profit financial institutions support local businesses. This move signifies that influx of cash in the financial sector as opposed to a couple of years ago when this scenario would have been considered impossible and highly unlikely due to the credit freeze and hoarding of money for potential disaster. Banks are now starting to loan to businesses directly and through these Community Development Financial Institutions, which are non-profit lenders set up in communities where small businesses need money for anything from inventory to making sure that their payroll demands are met with ease. These CDFIs, as they are called, are able to leverage money they receive to increase their overall lending output. Leveraging is basically using money to make money, a kind of debt for the institution. This debt is easy for them to pay back and can provide up to ten times their initial capital for lending purposes.

Other banks are also stepping up and looking over old rejected applications to see if those business owners are a good candidate for a second chance at obtaining money. Chase and others are also offering bonuses for hiring new employees on some of their credit products to spur spending in the small business sector as well. Once all of the banks begin to roll out achievable products in this climate, small business can get back into the swing of things and start to get more and more business, ultimately helping the community at large as well as themselves and potentially setting themselves up for a bright, productive future. Government agencies are also getting involved to help the private sector by initiating some steps of legislation that may help small business acquire money in an easier fashion. The combination of help from the private and public sectors may be the best and only way to overcome the downswing we have experienced recently.

For example, one of the most common forms of investing in real estate is by purchasing a rental property. In this case, the individual who purchased the property will be the landlord to a tenant who rents the property. This is a relatively simple way to invest in real estate. The strategy of going about this process is usually to charge enough rent to pay off the costs of the property. These includes the mortgage, taxes, and the basic costs needed to maintain the property. Some landlords choose to charge a little extra for rent so that they can make a profit immediately. Although this is sometimes done, the most common thing to do would be to charge just enough rent to pay off these expenses and any loans you might have until the mortgage of the property is fully paid off. Once that is done, you will begin making a profit off your property.

The concept of investing in rental properties sometimes comes across as a hassle to those who don’t want to play the role of a landlord. When it comes to such cases there is always the option of a real estate investment group. An example of this would be a company building an apartment/condo complex and allowing investors to buy one or more individual apartments/condos through the company. Since the company is in charge of maintaining all the units in the complex,  they get part of the monthly rent that is being paid to the investor.

Real estate trading is another option for investing . In this process, an investor buys property with the intention of keeping it for a approximately 3 to 4 months and then sells it for what they think is going to make a profit.

These are just a few ways to invest in real estate and it has proven to provide many more advantages than other forms of investments. For example, investing in real estate is almost equivalent to owning your own business. Many people choose to start their own business because they long for that extra sense of control that comes from making their own decisions when it comes to making money. Investing in real estate gives you that exact power that some people strive for.

Inflation resistance is another advantage of investing in real estate. As a result of inflation, the value of the dollar decreases. However, if you put your money into a real estate property, you are protected against inflation because as inflation increases so does the prices of homes and real estate property. In fact, real estate prices increase more rapidly since homes/real estate are considered a limited supply. Therefore, investing money into real estate gives you significant protection against inflation.

The tax advantages that come from investing in real estate mainly come from the tax deductibles. This means that the interest you are paying on your mortgage can either be fully or partially deducted from the current amount of taxes you would have been paying without this interest.

Keep in mind that there are many different ways to invest in real estate that are compatible to your preferences. For example, you could buy property and rent it out or you can take part in an  investment group if you rather not take a landlord position. Either way you go about your real estate investment there will be great advantages such as inflation resistance and tax deductibles.

As your business thrives, consideration should be made to the cycles of revenue that you experience. In many ways, owning a business is like riding a rollercoaster. Often, it is not a stable financial environment and you must make sure that you are able to save money when you have the opportunity to do so for the lean times that may occur when the economy is not doing all that well. This will allow the business to survive these periods and help avoid the use of loans or advances to get by. Sometimes, this is just not possible and you must use business loans to survive. Although loans or borrowing are not the best option, it is better than allowing your business to go under and the interest rates you get are often very low with traditional loans.

Merchant cash advances, on the other hand, are a bit more expensive, but offer much more flexible terms for repayment and they are easier to qualify for than traditional small business bank loans. See, they aren’t loans, but a process in which the merchant sells his future receivables, so no loan payments, but you will have to pay back the advance. Usually they offer you less than the value of the receivables, but you get cash in hand in a few short days to take care of necessities and emergencies regarding your business. You never even notice the money that is quietly being deducted from credit card transactions. You may never have to write a check and the payments fluctuate related to your overall sales. When you have a weak month, you will less than when you have a phenomenal month, but the money will eventually get paid back and you are all the better off as the money helped you and the merchant cash advance company made some money as well. With good planning you should never have to use either of these options, but it is nice to know that they are available to bail you out in a pinch.

For businesses it has meant delaying payment on vendor invoices, finding alternative revenue streams like savings, and other options waiting for the business industry to improve.  With a restricted credit environment where banks and similar lenders are restricting finance companies have had to find new methods like credit card receivable financing.

Credit card receivable financing is a business loan option unlike a bank loan, merchant cash advance, or savings option.  Credit card receivable financing can also be referred to as a bad credit business loan, which is how it differs from merchant cash advance.  Merchant cash advance financing works on the basis of credit card sales where the more sales you get the easier it is to repay the advance.  We’ll explain in a little more detail in a moment.

First, you should know that merchant cash advances work whether you are in dire straits or good business health.  They are also an alternative for bad credit business loans.  There are some companies willing to give you a loan repayable over 1 to 10 years.  These loans have a high interest rate, and come through some type of financial institution like a bank.  However, the recent credit crunch has even restricted these bad credit loans, meaning you have the easier to finance merchant cash advance.

Merchant cash advance allows you to set up a merchant relationship with a credit card processor.  They want to know your projected credit card sales in the good times and in the bad.  You will tell them the exact amount of the loan you need. The merchant cash advance company looks at your credit card sales, projected sales, business history, and the loan amount.  If it is a feasible request they may offer the entire amount that you need.  As your credit card sales roll in the credit card processor will deduct a repayment fee from the sales.  This fee will not be the entire sales you have earned for the month, but a percentage.

The company knows you need to still pay wages, vendors, and other expenses.  The repayment is automatic, so you do not have to think about paying the “loan” back.  The good news is a merchant cash advance is not a true loan.  You do not have a time limit, interest rate, and most times even a credit check.  Most merchant cash advance companies will provide you funds if your scores are lower than 500, though they do prefer higher credit card scores.  There are companies that don’t even run your scores.

Credit card receivable financing is much different than a merchant cash advance.  Merchant cash advance companies can have high fees and require you to switch credit card processors.  They have their disadvantages.
The new “credit card receivable financing” helps those who need bad credit small business loans.  The rates are 50 to 80 percent lower than your standard merchant cash advance.  They do not take upfront fees nor do you have to change credit card processors.  You also do not have to buy equipment to set up the loan.

Credit card receivable financing is a “true loan” in which you build positive credit, where as cash advance will not.  You will need a credit score of 550 though, which can be a drawback for some businesses.  The maximum amount of the loan is $500,000, which is also a lot more than any cash advance merchant will offer.  Credit card receivable financing has an approval procedure that takes 48 hours, funding is offered by 7 to 10 days, and you can get this loan in all 50 states.

With today’s economy merchant cash advances can be a trap.  They can have fees that get you caught in a cycle that is never ending.  The only way to steer clear of something like this is to get a loan, where you are not taken advantage of.  As a bad credit business loan, credit card receivable financing still looks to your credit card sales.

Since restaurants are a risky business it can be hard to get business financing.  You have business loan alternatives such as merchant cash advances, but those options can get you into deeper debt than you want to be.  With a merchant cash advance you can get financing from a couple thousand dollars to $250,000.  You are selling projected credit card sales to the company for a “loan,” but you do have to pay it back through a percentage of your sales.  This option has high fees and a percentage is provided to the merchant company each day.  Your daily capture rate will be calculated by the merchant cash advance company.  As they process your credit card transactions they will take their fee.

The attractive part to a merchant cash advance is not having late or missing payment fees.  In a period where you are not making a lot of money the percentage for paying back the loaned amount is still the same, but you pay back less.  You can also make arrangements with the company to withhold paying back the percentage until you are back in business.

Bank loans can take a long time to process, if you are even awarded the loan.  It’s hard to predict when you will or won’t have cash on hand in a business.  One month can be great where a lot of people are eating out, and the next month can have less than ten customers.  When you struggle through each month to turn a profit in a restaurant, never knowing when you will have money, you need to devise a way to have cash on hand.

Credit card factoring agreements can be one option as an alternative to business bank loans.  You do not need collateral or several years of financial history to be approved.  Credit card factoring can be a merchant cash advance or credit card receivable financing.  We’ve discussed merchant cash advances, so let’s look at credit card receivable financing.

The rates with financing are 50 to 80 percent lower than merchant cash advance.  You also do not have to pay an upfront fee.  You are still factoring your business on credit card sales, but you do not have to switch credit card processors.  Instead you add in the factoring agreements for the business to give you funds when you need them.

It is also like a true loan in which you get positive credit.  This means your business will repair your credit card scores.  You have to have 550 as a credit card score.  This is where it might be a little difficult for you.  The best thing to do is get the loan when you start to struggle rather than after you miss payments.

Processing on this type of loan is within 48 hours, with money provided in 7 to 10 days.  You’ll obtain the capital you need for the restaurant without going broke in the process.  You are also not being taken advantage of like some merchant cash advances.
Overall, you have to decide whether a merchant cash advance, credit card receivable financing, or business loan will work best for your situation.  You know your projected sales, consumers, and financial situation.  The easiest way to get a loan is to consider credit card factoring agreements.  There are fewer restrictions on you for this type of loan.

Eventually, once you hit the five year mark you will have a strong performance to get a mainstream loan.  If you want a mainstream loan plan ahead for when you may need to use it.  After five years you should know when your business will be in a slump, especially for restaurants.  The months leading up to Christmas and summer always see more spending than just after the new year or when children go back to school.  These patterns can help you get the funding you need for a slow period.