Category: Choosing A Loan

Video Spotlight: Low Interest Business Loans

 

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Transcript – Provided and/or Formatted by BorrowStar

Regardless of the state of the economy, all entrepreneurs, either new at their trade or old hats in business, when seeking financing, tend to get caught up in haggling over the lowest possible interest rate that they can achieve. Who can blame them? Cost savings – especially while we are still experiencing recession like economic symptoms – may be the key to their business’s survival and their personal financial future. But, sometimes, merely basing a financing decision on just its cost (its interest rate in this case) alone can be even more detrimental. All business decisions should be taken in the whole – with both benefits and costs consider simultaneously – especially with business loans. Let me explain: In today’s market, any offer of a business loan – regardless of its costs – should not be taken lightly given the fact that these business transactions are hard to come by.

Thinking that this interest rate is too high and that a better one will come along tomorrow may just be destructive thinking as nothing may come along tomorrow – especially in this continued sluggish economy and all lenders being overly cautious. Further, if the business owner’s decision hinges so much on the rate of the loan, then maybe a business loan is not something the business truly needs at this time or may be a decision that just spirals the business further along an unhealthy path. Example: Let’s take a simple but common business loan situation. A $100,000 loan for 5 years with monthly payments at 8% interest. This loan would require monthly payments of $2,028 for the next 60 months. Now, let’s say the interest rate was 12% instead of 8%.

This would result in a monthly payment of $2,225 – nearly $200 per month higher. A significant increase – nearly 10% higher with the larger interest rate. This is what most business owners, when seeking outside capital tend to get caught up in – the lower rate means more savings for the business and thus a better decision. But, what happens if the current lender will not lower the rate from 12% to 8%? Or, if another, lower rate loan / lender does not come along? Is it still a good business decision?

Looking at the cost of the loan or the interest rate is purely one sided and could potential affect the long-term viability of your business – the benefits of the loan also have to be weighed in. Let’s say that the business can take that $100,000 loan and use it to generate an additional $5,000 in new, monthly business income. Does it really matter the interest rate at this point as the nearly $200 difference in the rate is really trivial (especially over the months period) compared to possibly declining the higher rate loan and getting nothing in return (losing out on the $5,000 in new revenue per month). Or, what if the business would only be able to generate $1,000 in new, extra income from the $100,000 loans? Then no matter what the interest rate (8%, 12% 50% or higher), the business should not even be considering a loan in this situation. Why do I bring this up?

Simply because I have seen business after business either lose out on their future potential or fatally harm their organization over a mere one or two percent increase in a business loan rate. We are just conditioned to think that if we do not get the rate we feel we deserve – then the deal is bad for us. That can not be further from the truth. Know that these conditioning instincts we tend to have are more from the fact that competitors (those other lenders seeking our business) tell us we can do better or that we deserve better – but in end only finding out that those ploys never really work to our benefit. The lesson here is that all business decisions are more complex then we may initially think or been lead to believe. We are taught from very early in life to negotiate for the lowest costs – like zero interest car loans or buy now with “the lowest mortgage rates in decades” – either case, one would not buy a car or a house (regardless of the interest rate) if there was not a great need – a need that provides more in benefits then its costs.

The same should be done with business loans. Loans are merely an asset to a business and should be treated as such. Business loan assets should be used to generate more in revenue than they cost – the more the better. If they are not being used (like any other business asset) to generate the greatest benefit that they can generate, then they should be pulled from whatever use they are currently being employed in and put into use that will generate the greater benefit. It is simply a law of business. Thus, merely focusing on only one side of a business decision – the interest rate for a business loan decision – can have an unforeseen, adverse affect on the business – creating more harm then good.

The entire situation should be taken into advice before a decision is made. In fact, in the case outlined above, the interest rate can increase as high as 56% for the 60 months before the cost would outweigh the benefits – provided there were no additional costs associated with the loan. In my experience, I have always found it much easier to look at the benefits first (like the increased monthly revenue that can be generated) then search out the lowest costs options to receive those benefits. But, as stated, this is essentially opposite of what we tend to be taught in our society or in our markets (remember the zero percentage auto loans – which have the lost interest revenue built into the price). But, sometimes the best entrepreneurs think outside the box and tend to go against any conventional wisdom we may have been subject to – mostly for the benefit of others and not ourselves. Therefore, when seeking a business loan and finding yourself fighting hard for a small decrease in your interest rate – be sure to step back for a moment and look at the entire picture – as a low interest business loan may not be in the best interest of the business in all circumstances.

 

Video Spotlight: SBA Lending- Advantages and Disadvantages of Financing with SBA Loans

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Transcript – Provided and/or Formatted by BorrowStar

Welcome back! Today, we’re talking about business financing. Specifically, using a U.S. Small Business Administration loan, or an “SBA Loan” through a local bank to obtain financing for your business. My name is Thomas Rockwood, and if you have any questions whatsoever about SBA financing or would like more information about getting access to capital for your business, please feel free to reach out to me directly at any time at Thomas@LifeForth.com. Specifically, today, what I wanted to talk about was some advantages and disadvantages of using an SBA Loan for the solution of funding your business. Whether it’s a business acquisition, you’re trying to get capital for an existing business, Or there’s a specific transaction you’re trying to pull off such as purchasing real estate, or expanding your location buying equipment, buying inventory, any of those things. Ultimately, I think that there are three reasons why businesses choose an SBA Loan over conventional lending or alternative finance. And I think that comes down to Cash injection or the equity requirements that involved, the term of the loan (how long you have to repay back that loan), and then the types of transactions you are trying to pull off.

Whether it’s buying a business, starting a new business, purchasing real estate buying equipment or inventory or just needing working capital. All of those things will have different appetites at different banks. One of the first things I think it’s important to look at is is the loan request that you’re trying to do for your business, is it eligible at the SBA? And then, after you get to a “Yes, okay. This is SBA eligible,” then it comes down to: “Is this is something that the bank wants to do?” Do they have the appetite to actually fund that type of transaction or that industry? Or given the factors of your cash injection or the term you are looking for, is that something they are interested in doing? Once you’re in that space and you are saying, “Okay. I have an eligible request.” Now, it comes down to appetite, then I really think you are looking at different banks as a solution, as opposed to eligibility and looking at it from the SBA side.

Advantages, specifically. Why would you want to look at an SBA Loan? There are advantages and disadvantages to every type of financing. So, we’ll start with what would really benefit your business. And I think that typically comes into the amount of cash you have to put the transaction. For example, If you are trying to buy or start a business, Typically, a bank’s gonna want to see cash injection There might not be specific regulation or direction from the SBA, in the SOP that says, that says you must have this specific cash injection amount. And in that case, you really dealing with bank appetite. I don’t see a lot of 100% financing anymore.

So, you know, a good rule of thumb is if you start with 20% or so of the project to inject, then I think you’re heading in the right direction. If you have less than that, , 10%, you might lose a few banks’ appetite but I still think it’s an eligible request depending on the type of business and what you are trying to do. You know, cash injection requirements are really going to be bank by bank. And that’s going to be something that you’re going to want to look at and assess as you’re looking at your lender. The other thing to really consider is the term of the loan. In a business acquisition scenario, the SBA will allow for a 10-year term. If you are trying to buy real estate, You can extend up to 25 years. Those are typically beyond what I would say the normal conventional loan would allow or what an alternative financing would allow.

The term of the loan is really a key component because that’s gonna spread your payments out over that much period of time and allow for the lowest possible payment on a month-by-month basis for your business. Whether you’re starting up or expanding that direction. So, the terms of the loan, I think, are a key advantage. And depending on what you’re trying to do, if you’re involving real estate or heavy equipment that has a long life, a useful life, you can get 20 to 25-year financing options, and there’s different loan programs that you can participate in. The third main advantage of using an SBA Loan is really going to be the types of transactions you’re able to do. A lot of conventional lending? They want to have tangible assets. If you can’t touch it, it’s probably not going to be financeable.

So, a lot of conventional lending is around equipment, around real estate, and they might do some lines of credit around your receivables. But in the case of a business acquisition, if you are buying a business and you are a new owner in that business? That might be a very tough transaction to find a lender to do conventionally. Alternative financing might not be an option because you don’t have a historical track record. So, the SBA Loan is a great tool to make that business acquisition, and it really provides the bank the incentive to say, “yes.” Say, yes to this transaction. Help this buyer make this acquisition and get this ball going for this company. Franchise start-ups Start-ups are also a tough one to pull off simply because you don’t have historical revenues. So, a franchise that’s eligible with the SBA, it’s a good option to use an SBA Loan to fund that start-up cost.

There’s a lot of start-ups that don’t have franchises. There’s specific regulation you’re going to want to talk to someone about your specific business you’re trying to start-up But I think that’s a great example of also a type of transaction that falls outside of the conventional financing option and outside of the alternative financing and falls well within the SBA. So, again, when you’re looking at SBA Loans, some advantages are always gonna be the amount of cash you can put in is gonna be probably lower than that of alternative or conventional financing. You can probably get longer terms which is gonna get you a lower monthly payment. And the types of deals you’re trying to put together…. If you are trying to do a lot of different things, such as, you’re starting a business that’s gonna need a lot of equipment, real estate, and working capital, plus you’re gonna need inventory. All of those things are eligible to be financed with the SBA Loans. So, depending on what you’re trying to do or how broad you need your financing to cover, SBA Loans have a good reach.

So, there’s a lot of talk about the disadvantages of an SBA Loan. We’ve gone through some of the advantages. You know, I think, commonly what I hear is: that either there’s too much paperwork or it takes too long or it’s too heavy on the fees. And I guess to address some of those, I think a lot of it has to do with you know, as you start your process with an SBA lender at a bank, I think your experience is going to be heavily dictated by who you are working with. The experience of that lender and of that bank doing SBA lending. Working with the right lender up front is going to help you set your expectations, it’s gonna map out the timeline it’s gonna take to pull of your specific transaction. And I think that’s gonna be the probably the most satisfying piece for your experience going through the SBA Loan process. There are checks and balances, and there’s a process to an SBA Loan.

It doesn’t matter which bank you go through. We all have to go through the exact same regulation and the exact same process for the most part. So, talking with your banker up front, and understanding what that is going to be– having that expectation set and laid out for you– is gonna make your experience much more pleasurable. The fees? The fees are the fees. I don’t think it varies too much bank-to-bank. In most cases, most lenders come in at about the same cost. The main advantage I see is going with an SBA Loan to cover those fees.

A lot of conventional loans, they don’t cover the closing costs. They don’t cover the environmental, the appraisal, the closing attorney, any of those other pieces. So, SBA Loan proceeds can cover that. The SBA also has programs– so, if you are a business and you are a 51% veteran-owned business or more so, if you are a service veteran, there’s fee reductions currently in place. And at the time of your loan application, you’re gonna want to talk to your lender about what those are. But on some loans, they waive the fee entirely. So, for the service you’ve put into our country, the SBA tries to at least reduce those fees where we can and help you get your business up and running and off the ground. I appreciate your taking the time to watch the video.

Take a look at the rest of the videos when you get a chance. If there’s a specific topic you’d like me to cover, please let me know. Again, my name is Thomas Rockwood and you can reach me directly at Thomas@LifeForth.com. Next time, we’ll be talking about some of these topics more in depth. So, check out some of those videos. Look at the other videos on the website, and hopefully, this helps get you in the right direction in terms of getting your business financed.

 

4 Major Types of Business Loan Lenders

4 Major Types of Business Loan Lenders

What happens when you have a business idea that you think will penetrate the market and be the next big thing? You come up with a well-written business plan, get to know how much capital you need against your savings. Most times savings are insufficient to cater for the new business, which is why business loan lenders are available to cover such instances.

The rise in business ideas has seen many loan-lending institutions come up to cover the gap. However, each institution has their rules towards those who qualify for a loan. Here are some options:

Banks

Banks are a great starting point for those seeking to get financed. In most cases, those with already existing businesses with cash flow are more likely to get financing than start-ups. One of the things banks consider is, ensuring that there is a traceable account activity. Usually, banks will go through your bank statement and analyze the chances of you paying back the loan. Banks want an assurance that you can comfortably pay back the loan. For people who already have a running business, the balance sheet comes in handy during the application process. The reason for this is that banks will weigh what you owe people against the assets to see if the borrower is credit worthy.

Credit Unions

For Credit Unions, their loan standards are a bit less harsh compared to banks. Most credit unions are not-for-profit entities, and their sole purpose is offering financial services affordably for the community. Therefore, their interest rates on loans are lower than banks and anybody is eligible for membership.

Home Equity Line of Credit (HELOC)

HELOCs are another great way of getting business loans. For homeowners who have equity in the house, this is a great way of acquiring a loan to finance the business. On application of the loan, the house will act as collateral in case there is any default. They, however, are high risk because in any case, you default in payment; your house is at risk and could be taken. Only go for it when sure to repay the loan without so many challenges.

Leasing Companies

A great way of getting funds from business loan lenders is a leasing company. Scrutinize what equipment is not necessary at the moment and lease it to the enterprise. The advantage here is, through an agreement, you will lease the equipment to the company, and upon repaying the loan, they return the equipment back.

Finding Fast Funding for Your Small Business

Finding Fast Funding for Your Small Business

Getting Started

With adequate support and capital, an inspiring idea can evolve into a profitable business. Let’s look at five ways to get fast small business loans for your business: banks, the U.S. Small Business Administration, online alternative lenders, credit unions, and small business grants.

Banks

Talking to someone at a bank can help you to determine your eligibility for funding. You can also find out what documents are needed to apply for loans, and what the best options are for your situation. Locally owned banks have an interest in the economic development of the community. Therefore, they are a great place to start looking for funding a business. In fact, 43% of small business loans in the third quarter of 2016 came from community banks (Federal Deposit Insurance Corp., 2016). Although talking to a bank representative can be beneficial regardless of what stage of your business plan you are currently in, bank loans are given to businesses that already have strong credit and collateral. Therefore, other alternatives are a better option for fast small business loans for startups.

U.S. Small Business Administration

The SBA offers lenders a federal guarantee on small business loans. The lenders are often local community banks. The SBA makes it less risky for traditional banks to loan you the funds for your business, and it can help you find ideal rates. The application process for a business loan through the Small Business Administration can be taxing, but there are organizations that can help you through preparing and submitting all the necessary documentation.

Online Alternative Lenders

To avoid the strict lending policies of traditional banks, an increasing number of entrepreneurs are borrowing from online alternative lenders, where access to capital is less limited. Borrowers with bad credit who need fast cash can benefit from these funding sources. Although online alternative lenders often say “yes” when banks say “no,” the interest rates are higher. Still, they remain a reliable source for fast small business loans, especially for entrepreneurs with limited resources.

Credit Unions

Credit Unions can offer reasonable interests rates with loans backed by the SBA. As a member of a credit union, you can reap the benefits of personal relationships and name recognition. This is mainly because credit unions are often tied to the community through their cooperative style of operation. Furthermore, credit unions have increased their lending to small businesses over the years, unlike traditional banks.

Small Business Grants

The obvious benefit to funding your business using a grant is that the money does not have to be paid back. This is a more favorable option than the limited accessibility of funds offered by banks as well as the high interest rates offered by online alternative lenders. Non-profit organizations, government agencies, and corporations are the typical suppliers of small business grants. Some of these grants are aimed toward specific kinds of business owners such as women, minorities, or veterans. Although it can take much time and energy applying for grants, finding free money could be well worth it in the long run.
There are several approaches to funding a new startup or finding fast cash for a current business. Low credit usually means limited options for entrepreneurs. In addition to traditional banks there are credit unions who offer loans through the SBA. Online alternative lenders lend money regardless of credit ratings, but at higher interest rates. Still, perhaps it is always worthwhile to find and apply for grants because they do not require repayment. Business owners should explore their options and choose what best fits their needs.

Small Business Loans Made Easy

Small Business Loans Made Easy

While you may know that you need a small business loan for your company, that doesn’t mean you necessarily feel 100% confident about the process. Learning more about it and the factors to consider can help you to feel both more secure in your choices.

Types of Loans

When you need money for your business, you might think that you don’t have too many options. In other words, you may envision yourself walking into a bank, saying that you need a loan to get started with your small business and receiving either an approval or a rejection. Keep in mind, however, that some people take out business loans after their companies have been open. Others are in search of help to get started. Still others need to finance certain equipment or repairs for their businesses. Understanding that different options exist helps you to focus your efforts.

Amount of the Loan

Early on in this process, you should start to assess how much of a loan you need for your business. Being honest with yourself can help you to better procure what you want. Make a list of the expenses. Be sure to account for the fact that items, renovations and so forth often cost more than you originally think. Then, you can look into a lender that matches with your needs. For example, some providers may offer loans for only a few thousand dollars, and if you are looking to start a business, that amount probably isn’t enough.

Term of the Loan

When it comes to easy business loans, you also want to consider how much time you’ll spend paying them back. Therefore, you should research the terms that are available for different lenders. Some think that to get easy business loans, you should select the ones with the shortest terms. While that plan does help you to feel motivated to pay off the loan more quickly, short-term loans are often available for lower amounts of money than long-term ones. As a result, you must analyze more than just one factor when deciding which loans are right for you.

Available Assistance

Trying to wade through all of this material about loans might seem overwhelming. Fortunately, you can generally speak to representatives from different lending entities to learn about their easy business loans. On top of that, you can also schedule an appointment with your account or certified financial planner in order to gain some perspective.

Applying for a business loan doesn’t need to be daunting. Arm yourself with information about them to make the right choice- these loans can help bring your envisioned improvements to your business a reality.

How To Find The Right Unsecured Small Business Loan

How To Find The Right Unsecured Small Business Loan

An unsecured business loan has many advantages over a secured loan. You are not required to risk collateral, such as your home. If your business is struggling and you are unable to repay the loan, the lender will not take your assets. While you do not need collateral to qualify for an unsecured business loan, you may still be required to show that you have strong business revenues, multiple years of operating history, and solid personal credit. Unsecured business loans carry a higher annual percentage rate compared to secured business loans, however they also come with quicker funding. Here are the top lender choices available on the market as you look for an unsecured small business loan.

OnDeck

OnDeck is a preferred option for small business owners who need capital to help manage cash flow or deal with emergency expenses. OnDeck does not have as many requirements as other competitors. OnDeck does not require a lien on your assets, however you must sign a personal guarantee that makes you liable for repaying the debt if your business is unable to.

StreetShares

StreetShares should be considered an option if you have not established a business history yet, because the lender only requires a minimum of one year of experience in business. Be aware that the minimum line of credit that you can qualify for is around 20% of your actual revenue.

Lending Club

Lending Club offers both lines of credit and term loans. The APRs on these products fluctuates, which makes it more expensive than other types of Small Business Administration loans. However, they are one of the lowest among online unsecured funding options. Collateral is required on loans and high lines of credit. You also need at least two years of business experience.

Kabbage

Kabbage is an attractive option for borrowers who do not have good credit, but are in need of some cash to manage expenses in the short term. Kabbage does not have a minimum qualifying credit score, and you can receive funding quickly. Once you are approved, you can get access to your funds immediately. Try to avoid Kabbage if you need money for a large expense, due to its high APR and short repayment time frame.

Fundbox

Fundbox is a good choice for businesses that are in need of short term working capital, as the lender can provide a high line of credit. The borrowed amount must be repaid every week and you can receive funding on your next business day. To qualify for a loan, you must have at least six months of business experience.

Remember to do your research to find the right unsecured small business loan for your situation. Make sure that your small business loan matches up with the amount of revenue that you bring in.