Business Loans For HVAC Companies

business loans for hvac companies

It’s hard to imagine modern life without the benefit of the work done by the HVAC industry. HVAC companies (HVAC refers to heating, ventilation and air conditioning) are tasked with keeping us warm in the winter, cool in the summer, and breathing safely as we live our lives in the archipelago of enclosed spaces that comprises our indoor universe.

With the economy in a period of expansion, demand for new construction has risen, and where the construction industry goes, so goes HVAC work. After all, these new offices, homes, and transportation systems aren’t going to keep themselves ventilated and comfortable.

As with any industry, HVAC companies have their own particular financing needs. There’s no shortage of loan products out there, offered by banks, online lenders, credit card issuers, and even the federal government. But you probably knew that already. The question most relevant to you is: Which types of loans best fit the specific financing needs you’re going to have in the course of operating your HVAC business?

That’s where Merchant Maverick comes in. We’ll help make sense of the lending market for you and direct you to the loan products that best fit your specific needs. Let’s get down to the nitty-gritty and delve into how to get a business loan for an HVAC company.

Financing Need Best Loan Type Recommended Lender
Marketing & Advertising Medium-Term Loan Fundation
Equipment Purchasing Equipment Loan Lendio
Business Expansion SBA Loan SmartBiz
Emergency Funds Business Credit Card Chase Ink Business Unlimited
Working Capital Short-Term Loan PayPal LoanBuilder
Covering Payroll Line Of Credit OnDeck

Loans For Marketing & Advertising

business loans for HVAC

Whether your HVAC company is just finding its legs and seeking to generate new leads or is established but working to expand, marketing and advertising are integral to an HVAC business’s success. Of course, such a campaign costs money, and the funds need to come from somewhere.

While we’re not here to tell you how to run your marketing campaign, here’s a quick tip: Reach out to people just before summer and winter begin. It’s when your services will be most in demand — for obvious reasons!

Medium-Term Loans

A medium-term loan is an installment loan (a loan that is repaid periodically over a defined period of time with interest) with a term length of between two and five years. You can typically borrow more with a medium-term loan, but if your anticipated marketing campaign won’t cost that much, a short-term loan would be appropriate.

A medium-term loan can obviously be used for any business purpose. However, since you should be able to more accurately estimate the cost of your marketing campaign than many other types of business expenses, a loan in which you borrow a specific amount of money is particularly appropriate here.

Recommended Option: Fundation

fundation logo

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Founded in 2011, Fundation has since become one of the leading “alternative” lenders, boasting competitive rates, a solid reputation, and fixed-rate pricing (the interest rate will not increase over the life of the loan). Fundation’s term loans max out at $500K; accordingly, Fundation’s borrower qualifications are stricter than those of many online lenders. Fundation also offers lines of credit of up to $100K.

Fundation’s installment loans are offered with terms of one to four years and are fixed-rate, meaning the assigned interest rate will remain unchanged over the life of the loan. Additionally, Fundation sports a rapid time-to-funding, typically between two and seven days.

Loans For Equipment Purchasing

business loans for hvac companies

The HVAC industry relies on heavy equipment — the bigger the building, the heavier the equipment. Of course, these heating and cooling systems don’t come cheap. While any loan products can be used to cover the cost of purchasing HVAC equipment, there’s one type of loan tailored for this purpose: Equipment loans.

Equipment Loans

In many ways, an equipment loan resembles a traditional installment loan — you’ll be paying down the principal plus interest with monthly payments. The advantage of the equipment loan is that the equipment you purchase with the funds serves as collateral. Equipment loans are therefore secured loans, and secured loans typically have better rates and terms than their unsecured counterparts.

With an equipment loan, the lender usually covers most of the cost of purchasing the equipment, leaving around 10% to 20% to be covered by you. On occasion, however, the lender might be willing to cover the entire cost.

Equipment Leases

An equipment lease is another means of equipment financing. Such leases fall into one of two categories: Capital leases and operating leases.

With a capital lease, you are considered to be the owner of the equipment in question, so the arrangement resembles a loan in many ways. You make your monthly payments throughout the course of the lease. Afterward, you pay a small residual to close your account.

An operating lease lets you essentially rent the equipment during the lease, making monthly payments. When the lease ends, you can either return the equipment or buy it at fair market value, giving you a nice degree of flexibility.

See our article on equipment loans vs equipment leases for more information.

Recommended Option: Lendio

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Lendio isn’t your typical lender. In fact, Lendio isn’t a direct lender at all. Lendio is a loan aggregator, which means that you submit a single loan application which Lendio then passes on to multiple lenders, saving you time and effort. Within about three days of submitting your application, you should be fielding multiple equipment financing offers.

Through Lendio, you can find an equipment loan as large as $5 million, with loan terms ranging from one to five years and interest rates as low as 7.5% for highly qualified borrowers.

Loans For Business Expansion

business loans for hvac companies

Let’s say your HVAC company has been thriving and is ready to expand to meet the challenges of our glorious future of relentless climate extremes. Without an infusion of cash, however, your expansion plans may not be feasible. If you’re looking for a sizable loan at a reasonable interest rate, consider an SBA loan.

SBA Loans

The Small Business Administration (SBA) is an agency of the federal government meant to assist small businesses in obtaining funding. For the most part, the SBA does not lend directly to businesses. Rather, it guarantees up to 85% of loans offered by SBA-approved lenders. These lenders are known as intermediaries.

While SBA loans feature competitive rates and terms, be warned that borrower requirements tend to be rather stringent.

Here’s a rundown of four of the main SBA loan programs with links to articles describing the programs in greater detail.

Loan Program Description More

7(a) Loans

Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.

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Microloans

Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.

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CDC/504 Loans

Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.

Review

Disaster Loans

Loans used to rebuild or maintain business following a disaster. 

Review

Recommended Option: SmartBiz

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There is no shortage of SBA-approved lenders out there. However, if you’re looking to grow your HVAC business with an SBA loan, you might find the complex SBA application process to be intimidating and fraught with peril. The beauty of SmartBiz is that the company helps simplify and streamline the application process for you so that you can make sense of it all.

SmartBiz is not a lender. Describing themselves as the “white knight in small business lending,” SmartBiz will match you with an SBA-approved lender after helping you through the onerous application process. You’ll need to have at least two years of business history behind you and a personal credit score of at least 650, but if you meet these and other requirements, you can get an SBA-backed loan of up to $350,000 with interest rates between 8% and 9%. Not too shabby!

Loans For Emergency Funds

business loans for hvac

Let’s say the construction industry takes a downturn, leaving you with less business. You still have employees to pay and expenses to cover. How should a company in your position deal with unexpected cash flow problems? When you need a flexible funding solution you can draw from on an as-needed basis, consider a business credit card.

Business Credit Cards

As business credit cards tend to feature higher interest rates than business loans, they aren’t an ideal funding mechanism in many instances. But when unexpected situations arise and you need a stop-gap measure to temporarily plug some funding holes, there’s nothing like the ease and convenience of a business credit card. With the right card, you can cover emergencies while earning rewards and/or cash back along the way.

A good credit history will help you get lower interest rates and a higher credit limit. However, even with a less-than-stellar credit history, there are options available to you, including secured credit cards, which require a security deposit.

If you’re unsure of your credit score, whatever you do, don’t pay for a credit check. Here are some websites that let you check your credit score for free.

Recommended Option: Chase Ink Business Unlimited

Chase Ink Business Unlimited


chase ink business unlimited
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Annual Fee:


$0

 

Purchase APR:


15.24% – 21.24%, Variable

The Chase Ink Business Unlimited card is a great way to cover those unexpected expenses while earning 1.5% cash back to boot. If you’re using a credit card to cover emergencies, you’re probably not looking for a card with rotating cash back spending categories or lavish travel benefits. The Ink Business Unlimited comes without these extraneous distractions so you can focus on getting your HVAC business out of a jam while earning cash back on everything you buy.

Keep in mind that you’ll need good to excellent credit to qualify for the Ink Business Unlimited. If your credit doesn’t fit that description, check out these options for business owners with poor credit.

Loans For Working Capital

loans for hvac businesses

Working capital refers to the money you use to keep your business running on a day-to-day basis. When times are good, your cash flow should be sufficient to keep your company running smoothly. The problem is that without extraordinary luck, times will not always be good, particularly in a field prone to seasonal slow-downs like the HVAC industry.

When seeking a loan for this purpose, you’ll want something that affords you a high degree of flexibility in terms of what you can spend your funds on. For this reason, a short-term loan may be worth your consideration.

Short-Term Loans

A short-term loan is an installment loan that must be repaid within 12 months or less. Payments must be made on a weekly or even daily basis and are normally deducted automatically from your business account. If approved, you can usually get your funds within a few days. Short-term loans are all about fast money, both in terms of getting the money and paying it back.

Instead of charging interest on what you borrow, short-term lenders charge you a flat fee known as a factor rate. This factor rate is a multiplier that determines the lender’s fee. I’ll give an example: Take out a $50,000 loan at a 1.2 factor rate, and you’ll be paying $60K for the loan over the agreed-upon term length.

Recommended Option: PayPal LoanBuilder

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Check Eligibility

PayPal’s LoanBuilder is what the name suggests. You essentially build your own loan by customizing its elements to fit your particular situation. The loans offered range from $5K to $500K and term lengths run from 13 to 52 weeks.

LoanBuilder’s lender requirements aren’t terribly strict. Your business must have been running for at least 9 months. Your annual revenue must be at least $42,000 and your personal credit score must be at least 550. As ever, your credit history and your company’s overall health will determine your maximum borrowing amount and your rates.

Loans For Covering Payroll

 

Heating and cooling systems don’t install themselves. To ensure that our apartments, workplaces, and shopping centers don’t become unlivable nasty hellscapes, an HVAC business needs workers. Workers need to be hired, trained, and paid, all of which costs money.

If you need help hiring new employees (or paying the ones you already have), consider a line of credit.

Lines Of Credit

A line of credit operates on the same principle as a credit card. Instead of receiving a lump sum of dinero all at once, you’re given a credit line you can draw from whenever you feel the need. As with a credit card, you’ll have a credit limit to contend with, and you pay fees and interest only on the funds you use, not the total amount of the line of credit.

Recommended Option: OnDeck

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If you need funding quickly, consider a line of credit from OnDeck. Approval should come in a matter of days, and the credit requirements are not particularly strict. Your credit line can run anywhere from $6K to $100K.

One thing to keep in mind about OnDeck’s lines of credit is that they are a short-term funding mechanism, lasting only about 6 months.

What To Consider When Choosing A Lender

business loans for hvac businesses

For business owners seeking a loan, there has never been a wider array of funding options. To help narrow down your search, consider the following questions.

Why Do I Need A Loan?

Before you can even start looking at particular options, you need to be certain of the purpose of your loan. Whether you’re looking to expand your business or purchase new equipment, only by defining your precise need can you select a loan product that fits what you seek to accomplish. Otherwise, you’re flying blind without any point of reference.

No one lender or loan makes sense for every business need under the sun. Know what it is that you need and shop accordingly!

Am I Qualified?

There’s no need to examine a lender in detail if you won’t qualify for its loans in the first place. Try to find and examine a lender’s minimum qualifications before going through the terms and fees with a fine-toothed comb.

Vendors of business loans nearly always inquire about your time in business, credit rating, and revenue. On each of these measures, the lender may have a strict cutoff point where, if you don’t meet the benchmark, you don’t qualify. Alternately, they may just use this information to determine your rates. Either way, it’s information you’ll need to provide.

Do The Rates & Terms Meet My Needs?

It’s obviously important to consider a lender’s rates and terms when deciding on what loan to pursue. Make sure you can afford the funding; nothing will give you nightmares like taking out a loan you can’t repay. However, a lender’s reputation and business practices are equally important. To get a sense of just how a lender treats its customers, try to find user feedback on the company in question wherever you can. Read enough reviews (we do business loan reviews, you know!) and borrower feedback and you’ll get a pretty good idea as to whether the lender is an honest broker or a predator fixing to bleed you dry.

What You Need To Apply For HVAC Business Loans

The number of documents you’ll have to round up depends on the lender. Naturally, you’ll need the basics — name, business name, address, telephone number, email address, social security number, and federal tax ID number. Many lenders will require much more, however. Here are some documents you should be prepared to submit, depending on the lender:

  • Business & Personal Credit Reports/Score
  • Business & Personal Bank Statements
  • Business & Personal Tax Returns
  • Profit & Loss Statements
  • Balance Sheets
  • Income Statements
  • Business Licenses
  • Business Owner Resumes
  • A Business Plan

For a more thorough look at how to apply for a business loan, read our in-depth take on business loan requirements.

Final Thoughts

Now more than ever, we need the HVAC industry at the top of its game. As I write this, wind-driven fires have spread dangerously smoky air over large parts of my tinder-dry home state of California, and proper indoor ventilation is literally the last line of defense for many in the affected areas.

When seeking a loan for your HVAC company, do your due diligence, explore all your options, and get your documents in order. This should set you up nicely for getting the loan that paves the way for your success.

The post Business Loans For HVAC Companies appeared first on Merchant Maverick.

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19 Reasons To Get A Business Loan (And How To Get Started)

business loan reasons

There are so many good reasons to get a business loan that you probably haven’t even considered half of them. For example, have you ever thought about taking out a loan to hire a new employee or getting a loan for the sole purpose of building your business’s credit? Those are both valid reasons to apply for business financing, and there are many other reasons that might not have ever crossed your mind.

While many small businesses are debt-averse — afraid to apply for financing because they don’t think they have good enough credit, or unsure if they can afford repayments — it’s a simple fact that you need money to make money. In some ways, living debt-free can actually hinder your business’s growth or even its ability to stay afloat. You might also be surprised at the wide variety of financing products available for almost any type of business pursuit.

Even if you’ve never applied for financing before, a business loan is definitely something to think about if you are short on funds or are considering a new opportunity or investment that could advance your business.

Read on for a look at 19 reasons you might want to take out a business loan.

Or, skip down to the “Types of Business Loans” section to see if what type of loan you should pursue for your particular business need.

1. Start A Business

Want to get your brand-new business off the ground with a running start? A startup loan can help you do just that. A few startup-friendly lenders will lend to brand-new businesses with no time in business, while others will want to see that you have 6 months’ worth of revenue.

However, startup loans are not by any means easy to get for spanking new businesses lacking in experience, especially if your business is still in the “idea stage.” If this sounds like you, you might consider a crowdfunded loan or small business grant in lieu of traditional financing.

2. Increase Working Capital

Working capital—the money required for day-to-day business operations—is a big reason businesses might need to apply for financing. For myriad reasons, your business may simply be short on cash. Sporadic cash flow, business growth spurts, and seasonal sales fluctuations are just a few reasons businesses apply for a working capital loan.

In many circumstances, you might not know exactly how much money you need, but expect you’ll need some extra working capital in the near future. In such cases, you might be wise to apply for a short-term business line of credit that you can draw from as needed.

3. Purchase Inventory

Businesses new and old, large and small, commonly apply for financing to cover the cost of purchasing inventory or raw materials to make products. A healthy inventory allows you to have enough product on-hand to meet demand and keep customers happy.

Retail businesses, in particular, often require financing to replenish stocks, particularly is your store sees a big sales up-tick during certain seasons. For example, a company that sells a popular holiday gift might take out a short-term loan to purchase product ahead of the holiday season, and then repay that loan with the proceeds of their seasonal sales.

4. Purchase Equipment

Almost all businesses require equipment of some sort — especially businesses involved in manufacturing, as well as those in the food and service industries. Whether you need professional gym equipment or even a business vehicle, such assets can represent a major expense to a new, struggling, or expanding business.

Purchasing equipment may necessitate a business loan, or perhaps you’d rather charge it on your business credit card if your credit limit is high enough. One popular way to buy business equipment is equipment financing, as this type of loan typically does not require any collateral other than the equipment itself.

5. Hire New Talent

According to the National Small Business Association, data going back as far back as 1993 shows a strong connection between businesses’ ability to hire employees and their ability to get financing. Indeed, payroll is a significant expense businesses must contend with, including not just wages, but healthcare and other benefits, as well as employee training. In some cases, businesses even have to reduce their number of employees or scale back employee benefits if they don’t have sufficient access to financing.

While taking out a loan to hire someone is always a risk, it’s true that employees are a business’s greatest asset; if the employee is worth their salt, they will eventually justify the expense of the loan.

6. Expand Products/Services

Businesses in the growth stage, as well as stable businesses trying to increase revenues and/or stay competitive with peers, will need to expand their offerings from time to time. Regardless of how you’re going to achieve a product or service expansion, an installment loan or another type of business loan can help you make the necessary investments to keep your offerings fresh and relevant.

7. Open A New Location

Your business is growing fast and you need to open a new location. Expanding to a new location is a major undertaking requiring a lot of capital, but one that can pay off tremendously in time.

If you have at least two years’ time in business, you may be eligible for a long-term business expansion loan with low interest rates. Businesses purchasing real estate to open a new location be eligible for a commercial real estate mortgage such as those offered by the SBA through the  SBA CDC/504 program. There is even such a thing as real estate crowdfunding for businesses.

Or, say you own an online business and want to establish your first physical location, you might consider a startup loan to help get your new operations up and running.

8. Pay Taxes

Ideally, you will set aside enough money throughout the year to pay your business taxes when the tax man comes a knockin’. But alas, life doesn’t always work out that way, which is why small businesses frequently take out loans to pay taxes.

Rather than get in trouble with the IRS for not paying your taxes, you are much better off using a business loan or even a cash advance to pay your taxes.

9. Create A Safety Net

A safety net is a cash or credit “cushion” you can use to fall back on during slim times. Perhaps you own a seasonal business or simply have cash-flow problems from time to time; even though you don’t require any extra working capital at the present moment, you feel good knowing it’s available if and when you need it.

You’re probably especially aware of the need for a safety net if you’ve been caught without one in the past, and had to pay overdraft bank fees or get an expensive short-term loan to cover unforeseen shortfalls.

A revolving line of credit, working capital loan, or even a business credit card can all help provide a safety net for a future rainy day. If there are no rainy days on the immediate horizon, you will have some peace of mind knowing you’re prepared for anything.

10. Refinance Another Loan

While it may seem strange to take out a loan to pay off another loan, debt refinancing is a popular and sometimes necessary reason to take out a business loan. You might choose to refinance your business debt because you are offered a loan with better rates and fees, or you might choose to consolidate multiple loans into one loan.

If you’re considering refinancing a loan you are currently paying on, check out our Complete Guide To Refinancing Small Business Debt.

11. Buy A Business

A business acquisition loan, or a loan to buy a business, is another popular category of business loans. You can take out this kind of loan to expand your current business’s offerings with the purchase of another business, or to buy a business even if you don’t have an existing business (in which case you will probably need a startup loan).

Depending on your business credentials, the health of the business you want to purchase, and other factors, you may be able to get a business acquisition loan through a bank or the SBA. You might also finance your business purchase through a business expansion loan or a startup loan from an online lender. There are also franchise loans available to individuals looking to purchase a new or existing franchise.

12. Buy Out A Partner

business loan vs personal loan

Sometimes it just doesn’t work out with a business partner. But just because your partner agrees to be bought out doesn’t mean you’ll necessarily have the money to do so. In these circumstances, you can get a business loan to execute a partner buyout.

There is not really a specific type of loan for partner buyouts but you can use many standard business loans for this purpose, including an SBA standard 7(a) loan.

13. Cover Construction Costs

Perhaps you want to expand or improve your physical business location(s) with renovations or improvements, or maybe you want to construct a brand-new building for your business. Either way, a commercial real estate loan—also called a commercial mortgage or commercial construction loan—is the type of financing you need.

You can use a commercial construction loan, typically obtained through a bank or credit union, to pay for construction costs such as labor, materials, and land development. Hard money loans are another option to pay for business construction.

14. Cover Unpaid Invoices

Businesses with a lot of outstanding invoices can free up pending earnings using a type of loan called invoice factoring.

The financer fronts you the money that your customers owe you, and then you repay them as the customers pay off their debts. With this type of financing, your business does not necessarily need to have good credit, as the invoice factor is more concerned with your customers’ credentials than with your business’s.

15. Buy Insurance

Insurance is a major business expense. Business insurance requirements vary by state and industry. Liability insurance, property insurance, employee healthcare insurance, malpractice insurance, and flood insurance are just a few types of insurance your business might need. For certain business loans, you even need insurance in order to get the loan in the first place. For example, you may need life insurance and various other types of insurance to qualify for an SBA loan.

While, ideally, insurance costs will be included in your budget as a percentage of your gross sales, a business loan or line of credit can help your business pay your insurance policy during times you cannot afford to do so.

16. Cover An Unexpected Expense

Remember that safety net we talked about earlier? Well if you don’t have it, you could have no choice but to take out a loan after-the-fact to cover an unexpected business expense that you didn’t budget for. This could be anything from replacing some expensive equipment that failed unexpectedly to making repairs after a natural disaster. Fortunately, an emergency business loan can help your business cover the expense of just about anything life can throw at ya.

17. Advertise Your Business

Marketing/advertising is a business expense that can cost a lot of money upfront but will hopefully pay off in the long run. SEO and online advertising, commercials, billboard advertising, radio ads, and promotional materials are all types of marketing for which you could need a loan, especially if you’re hiring a marketing agency to try to achieve big results.

18. Build Credit

A lot of small businesses don’t have much of a business credit history, even though the business owner herself might have good credit. Taking out a business loan is one way of establishing a business credit history rather than using your personal credit for your business. Building business credit will allow you to separate your personal and business credit profiles, and will also put you in a good position if you need to ask for a business loan in the future.

For more information on this and other ways to build your business credit history read my Ultimate Guide To Improving Your Business Credit Score.

19. Take Advantage Of A Business Opportunity

Every now and again, your business may be presented with an awesome opportunity that is just too good to pass by—even if you can’t afford the whole thing up front. Business success requires a lot of pragmatism and planning, but there is also some degree of risk-taking and, dare I say it, magic. Whatever that special something is, if you get a “spidey sense” that a certain opportunity will help take your business to the next level, it can pay off handsomely to trust your intuition and go out on a limb to make that investment.

Of course, going out on a limb in this case likely means taking out a business loan. Just make sure you’re not so focused on the opportunity that you rush things and say yes to the first loan offer you come across. It’s absolutely essential to compare multiple loan offers to make sure you are getting the best deal.

Types of Business Loans

I’ve discussed many types of business loans in this post, and it can be confusing to sort through all the different loan categories if you don’t know what you need. To help simplify things, I’ve made a chart with brief explanations of different loan types discussed, and below that, I included longer descriptions of some popular loans you should know about.

Resource Description

Startup Loan

Financing for businesses 6 months old or younger.

Crowdfunded Loan

Funds sourced from a network of backers or investors. 

Small Business Grant

Free funds granted to businesses, normally for a specific project. 

Working Capital Loan

Financing to cover daily operating expenses of running a business.

Business Line of Credit

A credit facility from which your business can borrow money at any time. 

Short-Term Loan

Usually a higher-interest loan that you pay back quickly, typically within a year. 

Business Credit Card

Credit card used for business expenses.

Equipment Financing

Self-securing loan to finance major equipment purchases.

Installment Loan

A standard type of business loan also called a term loan, repaid in regularly scheduled installments.

Long-Term Business Expansion Loan

Usually a large, low-interest loan, repaid over 5 or more years.

Real Estate Crowdfunding

Crowdfunded capital to purchase real estate for a business.

Merchant Cash Advance

Expensive but quick source of business financing for merchants who need fast funds.

Business Acquisition Loan

Loan to purchase a business.

Franchise Loan

Loan to open a new franchise or purchase an existing franchise.

SBA 7(a) Loan

Standard business loan backed by the U.S. Small Business Administration.

Commercial Real Estate Loan

Long-term loan to purchase commercial real estate for a business.

Hard Money Loan

Shorter-term real estate loan similar to a mortgage, requiring the property you’re purchasing as collateral. 

Invoice Factoring

Service which converts your small business’s outstanding invoices to cash.

Emergency Business Loan

Fast loans to cover business funding emergencies. 

Installment Loan

Term loans, also called “installment loans” are a broad category of business loans. This type of funding is paid back in periodic installments, with interest. It may be a short- or long-term loan. Higher-quality term loans typically give you a longer amount of time to repay the loan, and let you pay via monthly installments (vs. weekly or daily installments with short-term loans). However, you will need at least 2 years in business, plus good credit and strong revenues, to qualify for a long-term business loan, particularly if you borrow from a bank; online lenders have less strict requirements.

Long- and medium-term loans are useful for established businesses making long-term investments in fixed assets like property or renovations, though they can also be used for working capital.

You can get term loans from a bank or credit union, though the lenders below offer reasonably quick installment loans as well:

Lender Borrowing Amount Term Req. Time in Business Min. Credit Score Next Steps

smartbiz logo

$30K – $350K 10 – 25 years 2 years 650 Apply Now

$2K – $5M Varies 6 months 550 Apply Now

$25K – $500K 6 months – 5 years 2 years 620 Compare

lending club logo

$5K – $300K 1 – 5 years 12 months 600 Compare

Short-Term Loan

Short-term business loans—installment loans that are repaid in 3 years or less, or sometimes in a matter of months—usually come in smaller amounts with higher rates when compared to long-term loans. Short-term loans also tend to require weekly or daily repayments. Although they are more expensive and less desirable than long-term loans in a lot of ways, short-term loans are relatively fast and easy to get and don’t have as stringent borrower requirements in terms of credit score, income, or time in business.

Because they have such a short repayment schedule, short-term loans are good for short-term problems, such as one-time expenses/investments.

The following lenders offer good terms and reasonable rates if you need a short-term loan:

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$5K – $300K 6, 9, 12, 15, or 18 months x1.15 – x1.31 1 year 600 Apply Now

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

Merchant Cash Advance

Merchant cash advances are not technically loans; rather, they are advances on your future sales or revenue. With a cash advance, you’ll receive a lump sum, which you’ll then begin repaying out of your daily credit card sales.  The interest charged on MCAs is usually calculated in terms of a factor rate rather than interest rate—for example, you might have a factor rate of 1.3, which means you’ll have to repay 1.3x the amount you borrowed. A typical factor rate for an MCA is between 1.2 and 1.4.

An MCA is good for an emergency situation where you need a large sum of money quickly and/or have bad credit, but you have a healthy daily cash flow. It does not help you build business credit because it’s not actually a loan and these lenders don’t usually report to credit agencies.

Generally, we don’t recommend MCAs if you’re eligible for another type of financing, but the following cash advance providers are reputable:

Lender Borrowing Amount Min Credit Score Time To Funding Next Steps

$5K – $500K 550 1-3 Days Apply Now

$2K – $5M 550 1-2 Days Apply Now

$5K – $500K 500 2-5 Days Apply Now

$5K – $250K 500 2-5 Days Apply Now

Business Credit Card

Business credit cards are useful the same way personal credit cards are useful—they allow you to pay for large or small expenses even if you don’t have the cash on hand, while also earning you rewards and building your credit history. Of course, you can get yourself into trouble if you don’t pay off the balance in a reasonable amount of time. With that said, business credit cards are super handy for any type of business expense that doesn’t exceed your credit limit, particularly if you can find a card with a 0% introductory rate, like the ones below.

Credit Card 0% Introductory Period Next Steps
American Express Blue Business Plus 0% APR on purchases and balance transfers for the first 15 months Compare
Chase Ink Business Unlimited 0% APR on purchases and balance transfers for the first 12 months Apply Now
American Express SimplyCash Plus 0% APR on purchases for the first 9 months Compare
Capital One Spark Cash Select For Business 0% APR on purchases for the first 9 months Compare
Bank of America Business Advantage Cash Rewards Mastercard 0% APR on purchases and balance transfers for the first 9 months Compare

Even if you don’t have an expense looming on the immediate horizon, a business card is just good to have in case you need it.

Business Line of Credit

A business line of credit is an amount of money available for you to draw from as needed. You only have to pay back what you borrow (plus interest). Similar to term loans, you can get a line of credit from a bank or online lender. Not unlike a business credit card, a line of credit is useful to have just in case you need to make up for any type of shortfall or gap. An LOC can come in handy especially if you have a seasonal business or a business with occasional cash flow problems. Additionally, a line of credit, like the ones offered by the lenders below, can help you build business credit.

Lender Borrowing Amount Draw Term Draw Fee APR Next Steps

$6K – $100K 6 months None Starts at 13.99% Apply Now

$2K – $5M Varies Varies Varies Apply Now

$5K – $5M 6 months 1.50% per draw 21% – 65% Apply Now

$1K – $100K 12 weeks None 12% – 54% Apply Now

Invoice Factoring

Invoice financing, sometimes called invoice factoring, is when you sell your business’s unpaid invoices to a credit facility. The facility fronts you the amount of the unpaid invoice (minus a percentage they charge as a fee), and you then repay the lender as your customers repay you. Note that you do still need to repay the lender even if your customer never pays you.

Invoice financing is a useful type of financing for businesses with a lot of unpaid invoices that want to free up some cash. The borrower requirements are usually pretty relaxed, as invoice finance companies are more concerned with your customers’ creditworthiness rather than your business’s.

Equipment Financing

Equipment financing is useful for the purchase of any type of equipment or machinery your company needs but can’t afford outright. This type of “self-securing” financing does not require any collateral other than the equipment itself, and you usually don’t need to have excellent credit or much else in the way of borrower credentials. If you default on the loan you could lose the equipment, but if you make all your payments, you will eventually own the equipment.

We recommend the following equipment financers:

Lender Borrowing Amount Term Interest/Factor Rate Additional Fees Next Steps

$2K – $5M Varies As low as 2% Varies Visit Site

$5K – $500K 24 – 72 months Starts at 5% Yes Compare

Up to $250K 1 – 72 months Starts at 5.49% Varies Compare

Do You Need A Business Loan? Next Steps

If you’ve decided you need a business loan, it’s time to take the next steps to secure one.

1. Compare the different types of small business loans discussed above and determine which type of loan best suits your need. Or, read more about common types of business loans.

2. Take a look at our free guide to small business loans.

3. Calculate how much you can afford to borrow.

4. Take a look at our favorite lenders.

Once you complete your initial research by taking these steps, you should have a very good idea of what to look for in a loan and which type or types of financing are best for your situation. You’re now ready to start applying!

To save time applying to multiple loans, you might consider using a lending matchmaker service like Lendio, which allows you to compare multiple loans tailored to your needs.

Final Thoughts

Applying for business financing can be daunting, given all the myriad types of loan products out there, and the possibility of being rejected for financing. You might also be worried about your ability to make payments on the loan.

However, if you have a good reason to apply for a business loan, there is a very decent chance that there is a lender willing to lend to you with feasible, realistic terms. With those funds, you’ll be able to address whatever needs your business has while building up your business credit profile with each repayment.

Lender Borrowing Amount Term Interest/Factor Rate Req. Time in Business Min. Credit Score Next Steps

$5K – $500K 13 – 52 weeks x1.029 – x1.1872 9 months 550 Apply Now

$5K – $300K 6, 9, 12, 15, or 18 months x1.15 – x1.31 1 year 600 Apply Now

$5K – $500K 3 – 36 months x1.003 – x1.04/mo 12 months 500 Apply Now

$2K – $5M Varies As low as 2% 6 months 550 Apply Now

The post 19 Reasons To Get A Business Loan (And How To Get Started) appeared first on Merchant Maverick.

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Financing And Loan Options For Manufacturing Companies

Operating a manufacturing business is extremely rewarding. Whether you’re creating products that ship directly to retailers or you’re working with other manufacturers, the potential for profits is great. However, as you’ve likely already seen in your business, owning a manufacturing company isn’t all smooth sailing. In order to make those big profits, you have to invest in your business.

Once you have steady cash flow, it’s easy to cover day-to-day operating expenses. But what happens when your bank account is running a little low or a major expense poses a threat to your operations? From emergencies to expansions to cash flow shortages, there are multiple scenarios where you fall a little short financially.

Instead of worrying, take action. When your manufacturing business has an expense you can’t handle on your own, there are loan and financing options for any situation. Don’t panic if you’re unsure of where to start. In this post, we’ll cover the types of loans available for your business, how to choose the right lender, and what to expect when it’s time to apply.

Read on to learn more and take the next step to fund your manufacturing business.

Financing Need Best Loan Type Recommended Lender
Purchasing Equipment Equipment Financing Lendio
Purchasing Materials Line Of Credit FundBox
Business Expansion SBA Loan SmartBiz
Cash Shortages Invoice Factoring BlueVine
Hiring, Training & Covering Payroll Term Loan OnDeck
Marketing & Advertising Business Credit Card Chase Ink Preferred

How To Finance A Manufacturing Company

Your business is unique, and so are its financial needs. The type of loan or financial product you select is primarily centered on how you plan to use your funds. For example, if you want to purchase real estate, you should seek out long-term, low-interest options instead of a short-term loan. If you need to cover this month’s payroll, an equipment loan won’t help you out. The key is to identify why you need the money and select the right financial solution for your situation.

Purchasing Equipment

No matter what type of manufacturing business you operate, you need equipment to keep operations running efficiently. If you manufacture clothing or garments, sewing machines and pressing machines are essential equipment. If you operate a furniture manufacturing business, your business needs saws, planers, sanders, and other expensive tools and equipment.

Over time, your equipment may become old and outdated. Or maybe your equipment is still in good working order but you need to add more as part of an expansion. Either way, buying equipment doesn’t come cheap, and funding these expenses out-of-pocket can be tough, if not impossible. Instead of breaking the bank, you have a more affordable option: equipment financing.

Equipment Financing

When you receive an equipment loan, your lender will fund the full purchase price of your equipment. After paying a small down payment of 10% to 20%, you can take possession of the equipment and put it into use immediately. Then, you’ll simply make scheduled payments to your lender, which are applied to the balance of your loan (and toward any additional fees and interest charged for taking the loan).

With a high credit score, you may be able to qualify for $0 down financing. However, if at all possible, you should make a down payment to lower your scheduled payments and reduce the overall cost of borrowing.

Equipment loans can only be used to purchase equipment, including machinery, tools, furniture, fixtures, and vehicles. When you receive equipment financing, additional collateral is typically not required. Instead, the equipment being financed serves as the collateral and can be repossessed if payments are not made as agreed. Once your loan has been paid off, the equipment is yours to keep, sell, or trade.

Equipment leases are another option to consider. When you take out an equipment lease, you can use the equipment for a set period of time, such as 2 years. At the end of your lease, you have two options: pay a lump sum to purchase the equipment or return the equipment and sign another lease for new equipment. Unless you pay the remaining balance at the end of the lease, you will never take ownership of the equipment. This may be a good option for you if you update your equipment frequently or if you desire a lower down payment and lower monthly payments.

Recommended Option: Lendio

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Lendio isn’t a lender; rather, it is a loan aggregator that matches you with a lender that best fits your needs. One of the financial products offered through Lendio’s service is equipment loans.

Through Lendio, you can apply for $5,000 to $5 million to finance your equipment purchase. Repayment terms are available from 1 year to 5 years, with interest rates as low as 7.5%.

To qualify with a lender through Lendio’s network, a time in business of at least 12 months is required. You must also have at least $50,000 in annual revenue and a personal credit score of 650. If your credit score falls below this threshold, solid cash flow and revenue could still help you qualify for financing.

Purchasing Materials

Image of hands holding credit card and pressing a keys of keyboard

As a manufacturer, you need materials to manufacture your goods to sell to other manufacturers or retailers. When you don’t have the right materials, you can’t produce your goods, which negatively affects your revenue. If financial troubles prevent you from buying the materials you need, keep your business operating without a hitch by using a line of credit for your purchases.

Lines Of Credit

A line of credit is a flexible form of revolving credit. Instead of receiving a lump sum payment, your lender will assign a credit limit. You can make draws from your credit line as often as you need for any amount within your set limit. This is ideal when you need to make multiple purchases over a period of time or you’re unsure of the exact amount of money you need.

You can use your line of credit for any business expense, including purchasing supplies, materials, and inventory. Once you make a draw from your line of credit, the funds are typically transferred immediately and will be deposited in your business bank account as soon as the next business day. Interest or fees are charged only on the used portion of the credit line. As you pay down your balance, the funds will become available for you to use again.

It’s easy for most business owners to qualify for a line of credit. However, the best rates and terms and the highest credit limits are given to the most established, creditworthy businesses.

Recommended Option: FundBox

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FundBox provides revolving lines of credit up to $100,000. When you make a draw, payments are made over a period of 12 or 24 weeks. Equal payments are made weekly and are withdrawn directly from your checking account.

Fees for drawing from your Fundbox line of credit start at 4.66% of the total draw amount. Your fee will be based on the health of your business. If you repay early, any remaining fees are waived, helping you save money.

To qualify for a Fundbox line of credit, you must have a business checking account and at least $50,000 in annual revenue. You must show two months of activity in Fundbox-supported accounting software. If you don’t have activity in accounting software, bank statements from the last three months are acceptable.

Business Expansion

Your business is growing, and it’s time to expand. There’s just one problem: expansion costs money that you don’t have. Purchasing commercial real estate, funding improvements for your facility, building an addition, or constructing a new building all come at a price that even the most successful manufacturing companies can’t pay up front. When it’s time to expand your business, move forward with confidence with the help of a Small Business Administration loan.

SBA Loans

The Small Business Administration provides a variety of resources to help small business owners succeed. One of the best resources is the organization’s low-cost, flexible loan options. SBA loans are available through lenders known as intermediaries. This could be banks, credit unions, or nonprofit organizations.

If you’ve applied for a business loan through a traditional lender like a bank, you may have been turned down. With an SBA loan, your chances for approval are higher because these loans are guaranteed by the government in amounts up to 85%, so there’s less risk for the lender.

One of the most popular types of loans for large expenses like business expansion is the 7(a) loan. With a 7(a) loan, up to $5 million is available to qualified businesses for nearly any business purchase, including commercial real estate, land development, improvements and upgrades, equipment, and more. Loan terms are set at 10 years for most purposes, although real estate purchases have terms up to 25 years.

The cost of borrowing varies based on the type of loan you select and the amount borrowed. The SBA has a set of standards used by its intermediary lenders to keep interest rates low, making loans more affordable for business owners.

Recommended Option: SmartBiz

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Applying for an SBA loan doesn’t have to be difficult or stressful when you work with a lender like SmartBiz. SmartBiz simplifies the SBA application process, helping you get the money you need as quickly as possible.
There are two types of SBA loans available through SmartBiz: working capital and debt refinancing loans and SBA 7(a) commercial real estate loans.

With working capital and debt refinancing loans, you can apply for $30,000 to $350,000 to use for business expansion, marketing, hiring employees, purchasing inventory, or refinancing existing debt. Interest rates are between 8% and 9% with repayment terms of 10 years. To qualify, you must be in business for at least 2 years and have a personal credit score of at least 650.

SmartBiz also offers SBA 7(a) commercial real estate loans from $500,000 to $5 million. You can use these funds to purchase a new commercial property or refinance your existing property. Rates are between 6.75% and 8% with repayment terms of 25 years. To qualify for this loan, you must be in business for at least 2 years with a credit score of at least 675. Any property funded with loan proceeds must be at least 51% owner-occupied.

Additional requirements for SBA loans include no outstanding tax liens, recent charge-offs, or defaults on government loans. You must not have any bankruptcies or foreclosures within the last 3 years. You must also qualify as a small business based on the SBA’s definition, which limits your company’s net worth, number of employees, and annual revenues.

Cash Shortages

Cash shortages happen to everyone. A seasonal drop in sales, an unexpected emergency expense, or another situation could leave your bank account running a little short. Sometimes, the real problem is your unpaid invoices. For times when money is tight, invoice factoring can help make up for these shortages.

Invoice Factoring

Unpaid invoices can leave you in a financial bind. Instead of waiting weeks or months to receive payment, consider invoice factoring. If you’re a B2B business and you have unpaid invoices, you may qualify for this type of financing. With invoice factoring, a lender pays a large portion of an unpaid invoice directly to you. Once the invoice is paid by the customer, the remaining amount of the invoice is paid to you after the lender takes any fees charged for the service.

With invoice factoring, the invoices are the collateral for the loan. A high credit score is typically not needed to qualify. Your invoices are the most important factor in this type of financing. A lender will ensure that your invoices are a sufficient amount to cover any fees. Lenders will also make sure that your invoices are for customers who are likely to pay.

Recommended Option: BlueVine

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BlueVine has invoice factoring lines up to $5 million. Rates may be as low as 0.25% per week. You can receive approval in as little as 24 hours when working with BlueVine.

To qualify, you must be in business for at least 3 months and have at least $100,000 in annual revenue. You must be a B2B business and have a personal credit score of at least 530.

Hiring, Training & Covering Payroll

It’s time to expand your business, which means hiring and training new employees, but your funding falls short. Maybe you’re not ready for expansion, and your business is struggling just to cover your current payroll. No matter the situation, a term loan can help.

Term Loans

When you apply for a term loan, you’ll receive a lump sum of money that can be used for any purpose, including hiring, training, covering payroll, or for use as working capital. The terms of these loans vary. While some lenders provide loans for up to 12 months, other lenders may offer repayment terms of several years.

If you’re applying for a short-term loan, one difference you may notice is that a factor rate is used to calculate how much you owe. This multiplier is used to determine the one-time fee that is added to the cost of your loan, replacing a traditional interest rate. The factor rate is based on the lender’s policies, as well as the creditworthiness of the borrower.

Other term loans have a traditional interest rate. Your interest rate and repayment terms will be based upon your creditworthiness and ability to pay back the loan.

One thing to note is that some term loans, such as short-term loans with low borrowing requirements, come at a very high cost. As with any other type of financing, shop around to find the best rates and terms for your business.

Recommended Option: OnDeck

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OnDeck has loan options up to $500,000 for qualified borrowers. There are two different loan options available. Short-term loans come with repayment terms between 3 and 12 months. These loans have simple interest starting at 9%.

Loan options with longer terms are also available. These loans come with terms of 15 to 36 months with annual interest rates starting at 9.99%.

For all loans, origination fees are charged by the lender. For the first loan, fees are between 2.5% and 4% of the total loan amount. Subsequent loans have reduced fees.

To qualify, you must be in business for at least one year and have a gross annual revenue of $100,000. You must have a personal credit score of at least 500 to qualify. Daily or weekly payments are automatically deducted from your checking account.

If you’re looking for other financing options, OnDeck also has lines of credit up to $100,000.

Marketing & Advertising

You want to get the word out about your business to bring in more customers and increase your revenue. Word-of-mouth and free social media advertising may bring more customers your way, but you’re not going to scale at a higher level until you launch a paid marketing and advertising campaign.

Marketing and advertising can get expensive very quickly, although the return on investment is often high enough to justify this expense. But what happens when you just don’t have the extra funds to market and advertise your business and services? A business credit card can help, and you can even be rewarded just for using it.

Business Credit Cards

One of the best things about a business credit card is that it can be used any time for any business purpose. When you have marketing and advertising expenses that need to be covered, you won’t have to wait days or weeks to get financing approval. Instead, you’ll be able to use your credit card immediately to cover the expense.

A business credit card is great for marketing and advertising campaigns because you won’t have to request a specific amount. You can use your card as needed to cover any expense, whether it’s marketing and advertising costs or an emergency expense.

When you’re approved for a business credit card, your lender will provide you with a credit limit. Your purchases can’t exceed the credit limit assigned to your card. You can make multiple purchases with different vendors as needed provided you don’t exceed your credit limit. Each month, you’ll pay at least a minimum payment that will be applied to the borrowed balance and the interest charged on used funds.

Business credit cards can be a very expensive form of financing if you only make the minimum payment each month. Cut down on the amount of interest you pay and the overall cost of borrowing by using your credit card responsibly and paying all or a significant portion of your balance each month.

Business credit cards are available for all types of credit situations. Borrowers with the highest scores will receive the lowest rates and highest credit limits, in addition to the best rewards cards, introductory rates, and bonus offers. There are options available for fair credit scores that come with higher rates and lower limits. For bad credit borrowers, a secured card requires a cash deposit but helps you rebuild your credit and qualify for additional cards and financial products with responsible use.

Recommended Option: Chase Ink Business Preferred

Chase Ink Business Preferred



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Annual Fee:


$95

 

Purchase APR:


17.99% – 22.99%, Variable

If you have good to excellent credit and need a business credit card, consider applying for the Chase Ink Business Preferred card. This card has a variable APR of 17.99% to 22.99%. There is a $95 annual fee associated with this card.

This credit card is great for marketing and advertising expenses. You’ll earn 3 points for every $1 spent on advertising purchases with search engines and social media platforms. You’ll also earn 3 points for every $1 for shipping purchases, travel, cable, internet, and phone purchases. It’s important to note that this offer is only valid for the first $150,000 spent in combined purchases.

For all other purchases, you’ll receive 1 point for every $1 spent. If you redeem your points for travel through Chase Ultimate Rewards, they’re worth 25% more, giving you the most bang for your buck.

The Chase Ink Business Preferred Card also has a bonus offer of 80,000 points when you spend at least $5,000 within three months of opening the account.

Does The Government Offer Loans For Manufacturing Companies?

There are so many options when it comes to financing your manufacturing company. You have traditional lenders like banks and credit unions. You have alternative lenders that you can seek out online. You even have government loan options available to you.

One of the most popular government loan options has already been discussed in this post: SBA loans. These loans are backed by the government, so lenders feel more comfortable approving them since there’s less risk. In addition to the 7(a) loan that is open to any qualified small business owner, the SBA has programs for veterans, startups, and businesses operating in underserved areas.

Another option to consider is the United States Department of Agriculture’s Business & Industry Loan Program. This government-backed loan program allows lenders to provide affordable loans to businesses that don’t qualify for traditional financing. Any business that saves or creates jobs in a rural area is eligible to apply. This includes manufacturing businesses.

These loans can be used for almost any purpose, including acquiring a business, updating or constructing facilities, purchasing equipment and supplies, paying startup costs, or for use as working capital. Loan proceeds can also be used to refinance certain types of debt. These loans come with terms between 7 and 30 years. Most loans distributed through this program are between $200,000 and $5 million.

The Best Loan Options For Starting A Manufacturing Business

The options previously discussed work well for established businesses, but what happens when you need financing for a manufacturing business that hasn’t even been started yet? You need capital to fund your venture, but it seems impossible to receive a loan … or is it?

If you need capital to start a manufacturing business, you have to know where to look. At times, you may even have to get a little creative. Since traditional lenders like banks prefer to work with low-risk borrowers, you won’t be able to receive a loan, right? Not exactly. If you have a high personal credit score, you can apply for a personal loan through your bank, credit union, or another lender for money to start your business. Since it’s a personal loan and not a business loan, your business information — or lack thereof — won’t be a consideration for approval. You will, however, need a solid credit score and income that is sufficient to pay back the loan.

Lender Borrowing Amount Term Interest Rate Min. Credit Score Next Steps

$2K – $25K 2 – 4 years 15.49% to 30% 600 Apply Now

$1K – $50K 3 or 5 years 8.16% – 27.99% 620 Apply Now

$2K – $35K 3 or 5 years 6.95% – 35.99% APR 640 Apply Now

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$1K – $40K 3 or 5 years 5.32% – 30.99% 640 Compare

If you don’t want to go that route, there are additional options. Microloans are perfect for startups and new businesses. The SBA Microloans program provides up to $50,000 for startups, new businesses, and established companies. These loans are available through nonprofit intermediary lenders. Other nonprofit organizations also provide microloans to eligible business and startup owners.

You can also look to private investors. Peer-to-peer loans have less stringent requirements than traditional loans and may be an option to explore. You can also spread the word about your business and appeal to investors with crowdfunding. If you have a family member or friend that believes in your business and has money to invest, a loan from that person is a possibility. Just remember, no matter who gives you the money, borrow responsibly, read and understand all contracts, and pay your loan as agreed to start your business off on the right foot.

What To Consider When Choosing A Lender

5 C's of Credit: What Lenders Look For

Now that you’re familiar with the types of loans available for your manufacturing business, you may be tempted to jump online and start an application. Before you apply, you still need to choose a lender. The internet gives us access to more lenders than ever, so you may be tempted to just pick and choose based on what your search engine pulls up. However, a smart business owner knows the importance of shopping around for the best rates and terms.

Before you choose a lender, consider these factors to help narrow down your choices so you can feel confident that you’ve selected the most affordable financing option for your situation.

What Is The Loan Used For?

This question should be easy to answer. Why do you need money? Once you know how you’re using the money, you can choose the type of loan that’s best for the situation. For example, if you need a more flexible option for making purchases or in case of an emergency, apply for a line of credit or credit card. If you want to make an expensive real estate purchase, you don’t want a high-cost, short-term option. Instead, an SBA loan would be the best choice.

Once you know which type of loan you need, you can narrow your search to include only those lenders offering these products. You won’t apply with a short-term lender for an SBA loan or a lender that specializes in equipment loans when you need a flexible line of credit. Choose your loan, then narrow down your pool of lenders based on your business needs.

How Much Money Do I Need?

This is another simple question. How much money do you need? If you want to purchase equipment that costs $150,000, a lender that has maximum loan amounts of $100,000 won’t be a match. Before you fill out an application, calculate how much you need, how much you can afford, and find a lender that offers that amount.

Do I Qualify?

Applying for loans you won’t qualify for is simply a waste of time. If a lender has annual revenue, time in business, or credit requirements you just don’t meet, move on to another option. If you have challenges in these areas, find a lender that works with your specific situation. For example, if your credit score is low, consider loan options that are based on the performance of your business. If you have a new business, apply for loan options that work for startups and new businesses, like microloans. Also, take collateral and down payment requirements into account when selecting your lender and applying for a loan.

One important step to take before you apply for a loan is to know your credit score. Pull your free credit score online and review your credit report for errors. If your financing need isn’t immediate, take steps to raise your score if it’s low. With an improved credit score, you’ll qualify for more financing options that are more affordable and come with more favorable terms.

Do The Rates & Terms Work For My Business?

A loan may help you out right now, but you have to consider whether it will benefit your business over the long term. You want to select a lender that offers loans with the lowest rates and best terms you are qualified to receive. A short-term loan may be funded fast, but daily payments and a high factor rate could become a burden. In this situation, you could save hundreds or even thousands of dollars by waiting for a long-term option with better rates and terms.

Of course, in some situations, getting a loan quickly is important. Even so, shop around to make sure that you get a loan that you’ll be able to afford that has payment terms that are best for your business.

What You’ll Need To Apply For A Loan

Some types of financing for your manufacturing business require very little information about yourself and your business. For example, your name, business name, federal tax ID, social security number, contact information, and annual revenue may be all that’s required to qualify for a business credit card. However, there are other loans that require much more information and documentation before you’re approved.

Before you apply, you can get the specific requirements from your lender. However, you may want to go ahead and gather a few documents, including:

  • Business & Personal Tax Returns
  • Business & Personal Credit Scores/Reports
  • Business & Personal Bank Statements
  • Profit & Loss Statements
  • Balance Sheets
  • Licenses & Articles Of Incorporation
  • Business Plan
  • Future Projections
  • Account Numbers & Balances If Refinancing Debt

Your requirements may vary based on the lender you select, the type of loan you’re applying to receive, and the amount of your loan. Sometimes, a lender may even require additional information after you’ve submitted your application and documentation. Be prepared to offer this additional information promptly to move one step closer to approval and funding.

Final Thoughts

You need money just to keep your manufacturing business operating each day. This amount increases even more when you face a challenging situation, from growth and expansion to emergency expenses.

When you need money, it’s important to not stress yourself out over the situation and remember that you have financial options. Take a deep breath, run some calculations, pick your lender, and apply for the financing you need. You’ll be out of your financial rut and heading toward success again in no time.

The post Financing And Loan Options For Manufacturing Companies appeared first on Merchant Maverick.

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Business Loans And Other Financing Options For Wholesale Distribution Companies

Wholesale distributors play a critical role in the retail supply chain. It is crucial for a wholesale distributing business to be a well-oiled machine: storing manufacturers’ products, then shipping them as needed to retailers, which then sell these products to customers. If the wholesale distributor fails in its critical tasks, retailers won’t have the products they need, leading to many unhappy customers.

Like it is for other businesses, one of the most important resources for the success of a wholesale distribution company is capital. Heavy equipment, warehouse space, and inventory requirements are just a few of the big expenses these companies face. Incoming cash flows certainly help fund day-to-day operations, but what happens when more capital is needed than is readily available in your checking account?

If you’re running short on funds, a business loan can help. Before signing the dotted line for a loan, read on to explore the different types of financing available to you, which options are best for your situation, and how to kick-off the application process.

Financing Need Best Loan Type Recommended Lender
Purchasing Equipment Equipment Financing Lendio
Business Expansion SBA Loan SmartBiz
Purchasing Inventory Line Of Credit Kabbage
Cash Shortages Invoice Financing BlueVine
Emergency Funding Business Credit Card Chase Ink Business Unlimited

Why Take Out A Loan For A Wholesale Distribution Business?

If you’re in the wholesale distribution business, you may be familiar with situations where you’re running a little short on cash. Whether your business is booming and you need to expand your facilities or your bank account is too low to purchase inventory for a seasonal uptick, there will be times when you need extra money.

With a business loan, you’ll receive the money you need right away with the benefit of being able to pay it back over time. Since there are many different types of loans, the type you choose should be based on the unique financial needs of your business.

Purchasing Equipment

As a wholesale distribution company, your business is reliant upon heavy equipment. From forklifts and pallet jacks that are used in your warehouse to delivery vehicles, software, and mailing systems, your business requires equipment to be efficient. Unfortunately, this equipment doesn’t come cheap.

Whether you’re updating your equipment or adding new equipment as part of your expansion, make these large purchases more affordable for your business by applying for equipment financing.

Equipment Financing

Equipment financing is a type of funding that is used for the purchase of equipment. Instead of paying the full cost up front, you’ll pay a smaller down payment — typically 10% to 20% of the equipment’s cost — and be able to put the equipment into use immediately. You’ll make payments on a scheduled basis to your lender on the balance of the loan. Interest is also charged by the lender for providing the service. The equipment purchased with loan proceeds is the collateral for this type of financing.

There are two main types of equipment financing to consider: equipment loans and equipment leases. With an equipment loan, you’ll make a down payment, followed by regularly scheduled payments. At the end of the repayment term, you take ownership of the equipment. At this time, the equipment is yours to keep, sell, or trade. You own it free and clear.

With an equipment lease, you may also pay a down payment, although it’s typically lower than the down payment required with an equipment loan. You’ll make regular payments for the duration of the lease, which is typically around 2 years. Once your lease is over, you return the equipment and upgrade with a new lease, or you may have the option to pay a lump sum to take ownership of the equipment. While you’re essentially “renting” the equipment, a lease may be a consideration if you want a lower down payment or if you upgrade your equipment frequently.

Credit and revenue requirements vary by lender, but borrowers with solid credit histories and strong businesses qualify for the lowest rates, best terms, and lower down payments.

Recommended Option: Lendio

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Lendio isn’t a direct lender. This loan aggregator allows you to submit just one application to connect with multiple lenders, so you can shop for a loan more efficiently. Through Lendio, you’ll find the most affordable equipment loan for your situation.

Lendio offers access to equipment loans from $5,000 to $5 million. Loan terms are spread out over 1 to 5 years, with interest rates as low as 7.5% for the most qualified borrowers.

To qualify, you must be in business for at least 1 year, have a minimum annual revenue of $50,000, and a personal credit score of at least 650. If your credit score doesn’t meet the minimum requirements, you may qualify based on your cash flow and revenue over the last 3 to 6 months.

Business Expansion

Expansion is a good sign — it means that your business is growing. The drawback, however, is that expanding your business takes money, and you may be stalling because you don’t have the funds. When your business is ready to grow, follow the lead of other smart business owners by applying for a Small Business Administration loan.

SBA Loans

The Small Business Administration, or SBA, has loan programs to provide affordable, flexible financing for businesses that encounter difficulties when applying for loans from traditional lenders.

Loan Program Description More

7(a) Loans

Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.

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Microloans

Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.

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CDC/504 Loans

Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.

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Disaster Loans

Loans used to rebuild or maintain business following a disaster. 

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SBA loans are backed by the government in amounts up to 85%, so there’s less risk for lenders and higher rates of approval when compared to bank or credit union loans.

There are several programs offered by the SBA. One of the most popular is the 7(a) program. SBA 7(a) loans can be used for almost any business purpose, from real estate purchases to working capital. With a 7(a) loan, you receive up to $5 million with repayment terms up to 25 years. Interest rates are set by the SBA, so these loans are extremely competitive and affordable. SBA 7(a) loans are available through SBA-approved lenders known as intermediaries.

When you’re expanding your business, 7(a) loan funds can be used to purchase land or real estate, pay for improvements in your facilities, or purchase equipment. High borrowing amounts, low interest rates, and flexible usage make 7(a) loans a popular choice among business owners.

For business expansion, another SBA loan to consider is the CDC/504 loan. Through this program, up to 40% of your project costs are funded by an SBA-approved Certified Development Company. A traditional lender provides 50% of the project costs, while you’re responsible for the remaining 10%.

Recommended Option: SmartBiz

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If you’re familiar with SBA loans, you’ve probably heard that the application process is difficult and time-consuming. If the process is intimidating to you, SmartBiz has made it easier for business owners to receive the capital they need.
SmartBiz offers SBA commercial real estate loans for $500,000 to $5 million for qualified borrowers. The interest rate is set at the base rate plus up to 2.75%. As of November 2018, rates are between 6.75% and 8%. Repayment terms are available up to 25 years.

With a commercial real estate loan, you can refinance your commercial mortgage, purchase the property you’re currently occupying, or buy a new commercial property.

SmartBiz also offers working capital and debt refinancing loans between $30,000 and $350,000 with rates between 8% and 9%. Repayment terms for these loans are 10 to 25 years. Loans can be used to purchase equipment, hire new employees, or for other business expansion plans.

To qualify for SBA working capital loans, a minimum credit score of 650 is required. Commercial real estate loans require a credit score of at least 660. The time in business requirement is at least 2 years. No bankruptcies or foreclosures within the last 3 years, open tax liens, and outstanding collections should appear on your credit report.

Anyone who has been delinquent or defaulted on a government loan in the past is not eligible to receive an SBA loan. If real estate is being purchased, the property must be at least 51% owner-occupied. Your business must also be considered a “small business” as defined by the SBA. Depending on the amount of the loan and your credit history, collateral may be required.

Purchasing Inventory

Your retailers depend on you to ship the inventory they need for their brick-and-mortar and online shops. If you don’t have the inventory in stock, you can’t make your shipments. If you don’t make your shipments, you lose business and the revenue that comes with it.

It’s not uncommon to face financial burdens that make purchasing inventory more difficult. A seasonal increase in orders that brings higher expenses, an unexpected emergency, or another situation could prevent you from purchasing needed inventory. Fortunately, there’s a solution: a line of credit that can help you through these tough financial times.

Lines Of Credit

A line of credit works like a credit card. However, instead of using a card to make purchases, you make draws from your line of credit. With every draw, the money is sent directly to your checking account. These funds can be used for any business expense, including the purchase of inventory.

A line of credit is a flexible financing option. Instead of receiving a lump sum for a specific amount, your lender will provide you with a credit limit. You can make multiple draws as needed up to this credit limit. You only pay fees or interest on the portion of the credit that has been used. Most lenders initiate transfers immediately, so you can have funds as soon as the next business day.

Rates, repayment terms, and credit limits vary. With most lenders, a solid credit score yields the best interest rates and terms. If you have a low personal credit score, there are lenders that evaluate the performance of your business to approve your line of credit and set your credit limit.

Recommended Option: Kabbage

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Kabbage provides lines of credit up to $250,000. Depending on the amount borrowed, repayment terms are set at 6 or 12 months. Kabbage charges a monthly fee with rates between 1.5% and 10% on the borrowed portion of funds. If you pay your balance off early, you’ll save money on monthly fees.

To qualify, you must be in business for at least one year. Revenue requirements are as follows: $50,000 in annual revenue or $4,200 in monthly revenues for each of the last three months. When you apply for a line of credit, you’ll link your business accounts — including PayPal, QuickBooks, eBay, and your business checking — so that the lender can assess the health of your business and issue your approval and credit limit. There are no personal credit requirements to qualify.

The application process takes fewer than 10 minutes, and you can be approved immediately. When making draws, transfers are immediate and you can receive your funds as soon as the next business day. However, Kabbage also offers the Kabbage card, which gives you instant access to the funding you need. When using your Kabbage card, a new loan will be taken out with the same rates and terms as traditional draws.

Cash Shortages

Cash shortages happen in any business. In the distribution industry, there are a number of reasons this can occur, including slow-paying customers. It’s not uncommon to have unpaid invoices that have impacted your incoming cash flow. If you’re facing this problem and waiting for payments is affecting your operations, why not use invoice financing to help fill in the gaps?

Invoice Financing

Invoice financing is available for B2B business (like distributors) that are suffering from unpaid invoices and need money immediately to cover business expenses.

The invoices serve as the collateral, and with many lenders, you don’t need a high personal credit score to receive a loan. Instead, the lender will consider the quality and quantity of your unpaid invoices. Your invoices should be of a sufficient amount to cover any fees or interest associated with a loan, and your invoices must be for customers who are likely to pay.

Invoice factoring is one type of invoice financing. The lender pays a portion of the unpaid invoice directly to you. After the lender collects payment from your customer, you’ll receive the remaining balance after fees and interest have been taken out.

With invoice discounting, you’ll receive most of the balance up front. After you collect payment from your customers, you’ll repay the loan along with interest and fees to the lender.

Invoice Financing Invoice Factoring

Uses invoices as collateral for a line of credit

Sell invoices for immediate cash

You are granted a credit facility based on the value of your unpaid invoices, and can draw from your available funds at any time

Factor gives you an advance when the invoice is sent and sends you the rest once the customer pays (minus a factoring fee)

You are responsible for collecting invoice payments

Factor is responsible for collecting invoice payments

Recommended Option: BlueVine

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BlueVine is a lender that provides invoice factoring lines up to $5 million. The factoring fees for receiving the line of credit start at 0.25% per week. BlueVine pays 85% to 90% of your invoice amount up front, and pays the remainder, minus fees, after the invoice is paid.

To qualify, you must have a minimum personal credit score of 530 and a time in business of at least 3 months. You must be a B2B business with qualifying invoices and at least $100,000 in annual revenue. The application process takes about 10 minutes, and you can be approved for financing as quickly as 24 hours after applying.

Emergency Funding

Emergencies happen, and often, these emergencies come with unexpected expenses. When these emergencies occur, time is of the essence. A flexible form of financing, like a business credit card, can help you get over these financial hurdles and even reward you for responsible borrowing.

Business Credit Cards

A business credit card is a great resource to have if an emergency arises. Once you’ve been approved for a business credit card, you can put it into use immediately. You won’t need additional approval to use your card, and you won’t have to wait on money transfers.

Once you’re approved for a business credit card, your lender will set a credit limit. You can make multiple purchases as needed up to this credit limit, so you can cover your emergency, purchase supplies and inventory, or tackle other business expenses. The borrowed portion of funds will incur interest based on the rate assigned by the lender. The sooner you pay down or pay off your balance, the more affordable this financing becomes. As you pay down your balance, funds become available to use again.

With a solid credit history, you’ll receive lower interest rates and a higher credit limit. There are options available for high-risk borrowers with low credit scores, including secured cards, which require a deposit and can help build credit.

Some of the best business credit cards have rewards programs. With every purchase, you’ll receive points to redeem for perks or cash back offers as a reward for responsible use.

Recommended Option: Chase Ink Business Unlimited

Chase Ink Business Unlimited


chase ink business unlimited
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Annual Fee:


$0

 

Purchase APR:


15.24% – 21.24%, Variable

The Chase Ink Business Unlimited card is targeted at borrowers with good to excellent credit. This card comes with no annual fee and an introductory APR of 0% for the first 12 months. After the introductory period, the Chase Ink Business Unlimited has variable APR of 15.24% to 21.24%.

In addition to competitive rates, the Chase Ink Business Unlimited card gives 1.5% cash back on all purchases. The card also has a bonus offer of $500 cash back after spending $3,000 within the first 3 months of opening your account.

If you don’t qualify for the Chase Ink Business Unlimited card due to your credit score, check out other business credit card options for fair credit and bad credit.

The Best Loan Options For Starting A Distribution Business

If you’re an established business with proof of solid performance, getting a business loan isn’t difficult. However, what if your financial needs are different? What do you do when you need money to get your business started?

Getting a loan to start a distribution business can be a challenge. After all, traditional lenders like banks and credit unions want to work with established, low-risk businesses. Because your business is non-existent or very new, you haven’t yet proven yourself to these lenders. But that doesn’t mean you’re completely out of options. You may just have to get a little more creative and dig a little deeper to find a lender that will work with your situation.

In addition to the SBA loans we’ve already discussed, the SBA has a Microloans program that’s suitable for new businesses and startups.

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

SBA-approved nonprofit lenders can provide up to $50,000, although the typical loan is around $13,000. Loan proceeds can be used to purchase inventory, supplies, fixtures, furniture, or equipment. Funds can also be used as working capital. Rates can’t exceed the limits set by the SBA and are generally between 8% and 13%. Borrower requirements include a credit score in the high 600s and qualifying as a small business based on the SBA’s definition.

If you don’t qualify for an SBA Microloan, other nonprofit organizations have microloan programs available. Credit requirements, maximum borrowing amounts, rates, and terms vary by lender. In addition to microloans, many nonprofits offer additional resources for new business owners, including training, classes, and mentorships. Looking for a microlender? Check out the options below.

Lender Max. Borrowing Amount Rates Req. Credit Score Next Steps

$500,000

2.9% – 18.72% factor rate

550

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$250,000

9% – 36% factor rate

500

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$500,000

9.4% – 99.7% APR

500

Apply Now

Another financing option to cover startup expenses is a personal loan. If you have a high credit score, you may be able to obtain a personal loan with low rates that can be used to fund your business. Approval for a personal loan will be based on your personal credit score and history, as well as your personal income. The following lenders offer reasonable rates for personal loans that can be used for business:

Lender Borrowing Amount Term Interest Rate Min. Credit Score Next Steps

$2K – $25K 2 – 4 years 15.49% to 30% 600 Apply Now

$1K – $50K 3 or 5 years 8.16% – 27.99% 620 Apply Now

$2K – $35K 3 or 5 years 6.95% – 35.99% APR 640 Apply Now

lending club logo

$1K – $40K 3 or 5 years 5.32% – 30.99% 640 Compare

You can also jump online and look into peer-to-peer lending options and crowdfunding. Peer-to-peer loans are often easier to qualify for than traditional bank loans, while crowdfunding allows you to use a platform to raise money from investors.

Finally, loans from a friend or family member could be an option that works for you. Make sure that any loan agreement is on paper and signed by all parties involved. Be careful to treat the loan just as you would any other by paying it back on time as scheduled.

What To Consider When Choosing A Lender

In order to receive a loan, you have to choose a lender that is willing to work with you. In the past, most business loans were obtained from a bank, credit union, or another traditional lender. Today, there are more options than ever thanks to online lending.

The good news is that with so many lenders, it’s easy to find at least one willing to work with you – even if you have credit challenges, a short time in business, low annual revenues, or other factors that would disqualify you from traditional loans. The bad news is that finding the right lender can be overwhelming. With so many choices, which is best for you? To narrow down the lender pool, ask yourself these key questions to find the best loan for your financial situation.

How Will I Use The Loan?

This should be an easy question to answer. Why do you need a loan? Did an emergency expense pop up out of the blue? Have you been planning an expansion for the last 6 months and you’re ready to take action? By knowing how you plan to use the loan, you’ll be able to select the loan product best for that situation and can narrow down your selection of lenders.

Let’s say you want to expand your business and need a commercial real estate loan. In this case, lenders that offer short-term loans or lines of credit with low limits wouldn’t be the right choice. Instead, you’d want to find lenders that offer long-term loans with low interest rates, like SBA loans.

How Much Money Do I Need?

You should never apply for a loan without an idea of how much you need and how much you can afford to borrow. Taking money just because a lender offers it is can lead to unnecessary debt that can negatively impact your business. Instead, run some calculations and borrow only what you truly need.

Once you’ve figured out how you’re going to use the loan, take the time to figure out what amount would cover that financial need. Going back to the commercial real estate example, you could begin looking at properties online comparable to what you’d like to purchase to get an idea of the market values in your area. If your loan is going to be used to purchase equipment, shop around, get bids and quotes, and have an idea of the total cost of your purchase.

Not only will this help you prevent unnecessary debt, but it can also help whittle down the number of lenders you’re considering. If your loan needs are $500,000, a lender that has maximum borrowing limits of $100,000 can be crossed off of your list.

Do I Meet All Borrower Requirements?

Before you apply for a loan, make yourself familiar with the lender’s borrowing requirements. Time in business, annual revenue, and credit scores are factors considered by most lenders. If you don’t meet the requirements of the lender, you won’t qualify for a loan.

Most lenders perform a soft credit pull when prequalifying you for a loan. A hard credit pull — the kind that shows up on your credit report — is performed further along in the process for most financial products. However, some lenders do perform a hard pull once you hit “Submit” on your application. Avoid an unnecessary inquiry by ensuring that you meet all credit requirements. Before you apply, make sure to check your free credit score online.

Remember, there are many financing options available to business owners, regardless of credit score, time in business, or revenues. Take the time to find the loans that you’re qualified to receive.

Does The Lender Offer Rates & Terms That Work For My Business?

When you select your lender, you want to work with one that will offer you the best rates and terms for your particular situation. A short-term loan that’s funded almost immediately may seem appealing, but a high overall cost of borrowing could put a burden on your business. If you have a solid credit score and a healthy business profile, you should be able to shop around to find rates and terms that are most affordable for you.

If you have credit challenges, there are options available for you. However, there are some drawbacks to these high-risk financial products, like high interest rates and fees or daily payment requirements. If you don’t need the money immediately, you can take steps to boost your credit score so you can apply for a more affordable loan in the future.

What You’ll Need To Apply For A Wholesale Distribution Loan

You’ve decided what type of loan best fits your needs, and you’ve calculated how much you need and can afford. You’ve selected a lender. Now, it’s time to begin the application process. Before you start, there are a few key items the lender will require to approve and fund your loan.

For all loans, you’ll be required to provide basic information about yourself and your business. This includes the name of your business, contact information, your social security number, and your federal tax ID. For some loans, such as business credit cards, this may be the only information you need.

For other loan options, you’ll be required to submit documentation. This documentation will allow the lender to see how your business is performing and if you’ll be able to afford a loan. Documentation requirements vary by lender, but commonly requested documents include:

  • Business & Personal Credit Reports/Score
  • Business & Personal Bank Statements
  • Business & Personal Tax Returns
  • Profit & Loss Statements
  • Balance Sheets
  • Income Statements
  • Business Licenses

If you’re a new business, you may be required to submit the resumes of all business owners, a detailed business plan, and financial projections. If your loan requires collateral, you’ll submit information about the collateral you’re putting up to back the loan. If no collateral is required, you may still be required to sign a personal guarantee or agree to a blanket lien before receiving your loan. Learn more about business loan requirements.

Application, underwriting, approval, and funding times vary based on the type of loan you’re trying to receive. SBA loans take at least several weeks, while lines of credit and business credit cards may be approved on the spot. During the application process, your lender may need to speak with you to ask questions about information and documentation you’ve submitted or to request additional information. Make sure your lender has current contact information on file and that you make yourself available for calls or emails as needed to continue moving through the loan process.

Final Thoughts

Running a distribution business takes organization, hard work, and capital. As a business owner, it’s your job to bring these things to the table, but it’s understandable when money becomes an issue. A business loan can be an excellent resource to keep operations running smoothly or to grow your business provided you do your planning, shop around for the best rates, and understand what your business can afford.

What’s Next
    • Check out the top 8 small business startup loan options
    • Business loan options that don’t require a credit check
    • Your guide to low-cost SBA loans

The post Business Loans And Other Financing Options For Wholesale Distribution Companies appeared first on Merchant Maverick.

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Understanding Variable APR

Whether you need extra money to pay an emergency expense, expand your business, or to use as working capital, it’s not uncommon to seek financing in the form of a loan, line of credit, or credit card. Before signing a contract with a lender, though, it’s important to fully understand the cost of your loan.

While shopping around for financing, you’ll likely find financial products that feature a variable APR. If you’re scratching your head in confusion, this post is for you. Before entering into a loan agreement, read on to learn more about variable APR, how it’s different from fixed APR, and the benefits and drawbacks to consider.

What Is APR?

Before we jump into the specifics of variable APR, what is APR in general?

APR is the annual percentage rate of your loan, credit card, or other financial product. In simpler terms, APR is the total cost of borrowing for a period of one year. The APR includes the interest you pay to the lender as well as any additional fees, such as origination fees or packaging fees.

As you’re shopping for a loan, it’s vital to look at the APR in order to find the most affordable financing option. Let’s say you’re considering one loan that has a low interest rate but comes with additional fees. Another loan option has a slightly higher interest rate but no fees are charged. In this example, the APR for the first loan — the one with the lower interest rate — may actually be higher than the APR for the second loan. Even though the first loan has a lower interest rate, the added fees give it a higher APR  — which means a higher overall cost.

If this scenario is confusing, don’t worry. Most lenders perform APR calculations for you before you sign your loan agreement. If they don’t, or you want to see the numbers for yourself, check out our calculators for term loans, short-term loans, and merchant cash advances.

One thing to remember is that APR doesn’t always tell the full story surrounding the cost of your loan, particularly if you’re dealing with a non-traditional loan product, like a merchant cash advance or a short-term loan. Term lengths may also be a factor in determining the overall cost of borrowing. Refinancing or prepaying your loan can also have an impact on what you pay each year. Still have questions about APR? Learn more about the basics before applying for financing.

What Is Variable APR?

By now, you should have an understanding of APR at the most basic level and how it affects the cost of borrowing. Maybe you’ve even started shopping around for financing. But in your quest to find a loan, you may be faced with a new term: variable APR.

If your loan or credit card has a variable APR, it means that the interest rate will fluctuate over time. These fluctuations are based on an interest rate index that serves as a benchmark for the interest rates charged by lenders. Many lenders use the Wall Street Journal Prime Rate, which uses the base rates on corporate loans posted by at least 70% of the nation’s top 10 banks.

Interest rates are always based on the prime rate, but the number of percentage points a lender adds is based on the risk of the borrower. Low-risk borrowers, such as established businesses with high revenue and solid credit histories, will have a lower number of percentage points added to the prime rate. A higher number of percentage points will be added to borrowers with low credit scores or revenues or a short time in business, making the overall cost of the loan higher over time for riskier borrowers.

With variable APR, both low- and high-risk borrowers may see fluctuations in their APRs based on changes to the interest rate index. When the prime rate increases, so does the APR. When the prime rate drops, the APR is lower.

Variable APR VS Fixed APR

Loans, credit cards, and lines of credit come with either variable or fixed APR. Unlike products with variable APRs, financing options with fixed-rate APRs never change. This means that if your APR is 5%, it is 5% for the life of the loan; the rate will not change if the prime rate increases or decreases. However, there are some instances where an APR can change even on a fixed-rate product.

If the APR on fixed-rate financing alters from its original terms, the lender must notify the borrower in writing. Most lenders provide a grace period that allows the borrower to pay off the debt and close the account or transfer the balance before the new terms are applied.

With a variable APR, the lender does not have to notify the borrower of changes to APR based on changes to the prime rate.

Is A Variable APR Good Or Bad?

A variable APR can be good for short-term use. For example, if you use your credit card and pay it off each month, you’ll save money when rates are low.

However, if you plan to use your financing over the long term, there is a risk that rates could rise. This could result in a higher cost of borrowing.

This doesn’t mean that if you need a long-term financing option, you should write off variable APRs. Long-term loans like Small Business Administration 7(a) loans have variable interest rates. Interest rates are based on the prime rate plus a markup between 2.25% and 4.75%. SBA loans are some of the most competitively-priced and affordable long-term loan options for small business owners.

When applying for a credit card, one thing to be aware of is that many card issuers offer introductory rates. These introductory rates are fixed and are lower than usual for a set period of time, such as 6 or 12 months. After the introductory period, the interest rate increases. A fixed rate may also revert to a variable rate after the introductory period. This is why it’s so important to carefully read all disclosures and agreements before opening an account.

Looking for a business credit card? Compare rates side-by-side to find the best option for your business.

Final Thoughts

APR is incredibly important to consider before applying for financing, but you need to consider all other factors before choosing your lender. The goal of your financing is to get rates and terms that work for you and your business. Shop around, do your research, and read everything before signing on the dotted line to find financing that best fits your financial needs.

The post Understanding Variable APR appeared first on Merchant Maverick.

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Top Business Financing Options For Contractors

As a professional contractor, it takes the right resources to complete each job. From equipment to employees and insurance, careful planning, preparation, and the right tools for the job are always required. No matter what type of contractor you are, you have one thing in common with other contractors and business owners: the need for capital to operate and expand your business.

While it’s great to be able to pull the funds you need from your own bank account to cover your expenses, this isn’t always a possibility. For times when you need financial help, consider a business loan for contractors. A business loan can be used to expand your business, fund daily operating expenses, or fill in gaps during seasonal lulls.

Before you start your loan application, first understand the types of loans available to you and which is best for boosting your business. Whether you’re an electrician, carpenter, plumber, painter, or another type of contractor, you have financing options.

Read on to learn more about business loans for contractors, choosing your lender, and how to apply for the financing you need.

Financing Need Best Loan Type Recommended Lender
Purchasing Equipment Equipment Loan Lendio
Supplies & Inventory Line of Credit Kabbage
Working Capital SBA Loan SmartBiz
Marketing & Advertising Short-Term Loan LoanBuilder
Emergency Funds Business Credit Card Chase Ink Business Cash
Cash Shortages Invoice Financing BlueVine
Hiring, Training & Payroll Installment Loan OnDeck

Purchasing Equipment

No matter what industry you’re in, as a contractor, heavy equipment is a must for your business. If you specialize in land grading, a skid steer is necessary to complete each job. Maybe you need a work van or truck to move from job to job or even an equipment trailer to transport your equipment around town. Regardless of what type of equipment you need for your projects, one thing is certain: equipment can be expensive.

Even if your business is successful, tying up tens of thousands – or even hundreds of thousands – of dollars from your own pocket could be financially damaging to your company. Instead of shouldering this financial burden alone, consider applying for an equipment loan.

Equipment Loans

With an equipment loan, the lender provides funding to purchase equipment. You’ll pay just a small down payment — typically 10% to 20% of the purchase price — and can then put the equipment into use immediately. You’ll then repay the loan with interest through regularly scheduled payments that are typically made monthly or weekly.

Equipment loans can be used to purchase all types of equipment, from heavy equipment to vehicles. The equipment purchased with loan proceeds is used as the collateral. Repayment terms, interest rates, and down payment requirements are determined by the lender and are typically based on creditworthiness, annual revenue, and other factors.

Recommended Option: Lendio

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When you’re shopping around for business loans, Lendio is an excellent resource. Lendio is a loan aggregator, which means that you’ll connect with multiple lenders with just one application. Once you’ve filled out the application, you’ll receive offers and can easily compare which are the best for your business.

Lendio connects contractors and other business owners with a variety of financial products, including equipment loans. Interest rates start at 7.5%. Borrowers can apply to receive between $5,000 and $5 million. Repayment terms of 1 to 5 years are available. Loan proceeds can be used for the purchase of any type of equipment, including heavy equipment, software, office furniture and fixtures, vehicles, appliances, and more.

To qualify, you must have $50,000 in annual revenue. You must be in business for at least 12 months, and a minimum credit score of 650 is required. If your credit score is lower than 650, you may be matched with a lender if you have solid cash flow and revenue.

Supplies & Inventory

In addition to equipment, supplies and inventory are also important to the operations of your business. No matter what type of supplies you need — lumber, hand tools, paint, ladders — these expenses can pile up quickly.

If you’re in need of inventory and supplies but your cash flow is a little short, you can receive a loan to cover this expense. A financial product that works well for supply and inventory purchases is a line of credit.

Lines Of Credit

A line of credit is a flexible financing option that can be used as needed. When you receive a line of credit, you can make multiple draws up to and including your assigned credit limit. Once a draw is initiated, most lenders transfer funds immediately, which are then available in your business checking account as soon as the next business day.

A line of credit can be used to purchase supplies and inventory and comes in handy when you’re unsure of exactly how much money you need. Interest is only charged on the borrowed amount. As you repay your line of credit, funds become available for you to use again as needed.

Credit score, time in business, and annual revenue requirements vary by lender. Some lenders put more weight on incoming cash flow over personal credit score, making it possible for business owners with credit challenges to receive a loan.

Recommended Option: Kabbage

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Kabbage is a lender that offers lines of credit up to $250,000 to qualified borrowers. Repayments are made on a monthly basis over a period of 6 or 12 months, which is determined by the amount borrowed. Fee rates vary from 1.5% to 10% based on business performance.

One of the benefits of working with Kabbage is access to the Kabbage card. This card gives you instant access to funding. Use your Kabbage card like a credit card for on-the-spot payments without waiting for a transfer. Once you’ve made a purchase, a new loan will be created under your account with the same rates and terms as traditional draws.

To qualify for a Kabbage line of credit, you must have either $50,000 in annual revenue or $4,200 in monthly revenue for the last 3 months. You must be in business for at least 1 year to qualify. During the application process, your business accounts — such as business checking, PayPal, Amazon, and Stripe — are connected to determine your maximum credit limit.

Working Capital

Every business needs working capital — money that’s used to pay day-to-day operating expenses. While your incoming cash flow should cover these regular expenses, it’s not uncommon to come up a little short from time to time. A slow season, unexpected expenses, and other issues could affect your incoming cash flow and your amount of working capital. When you don’t have adequate working capital, operations can slow … or come to a screeching halt.

If you need working capital and you have a solid credit score, one option to consider is a Small Business Administration loan.

SBA Loans

The Small Business Administration, or SBA, helps business owners succeed through its resources and programs, including small business loans. The SBA offers multiple loan options for small business owners. All loans are distributed through SBA-approved lenders known as intermediaries.

Loan Program Description More

7(a) Loans

Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.

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Microloans

Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.

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CDC/504 Loans

Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.

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Disaster Loans

Loans used to rebuild or maintain business following a disaster. 

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The 7(a) loan program provides up to $5 million for any business purpose with repayment terms of 10 or 25 years. The Express loan is similar to the 7(a) loan but is available in amounts up to $350,000 and comes with an approval decision guaranteed within 36 hours. The SBA Microloans program provides up to $50,000 for smaller capital needs. There are also financing opportunities for veterans, service members, and businesses operating in underserved areas.

While SBA loans have more stringent borrower requirements than other loans, those who qualify will receive competitive interest rates and terms. Many SBA loans, including the ones previously mentioned, can be used for working capital needs.

Recommended Option: SmartBiz

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SmartBiz makes the SBA loan application process easier than ever. Through this lender, you can apply for loans between $30,000 and $350,000 to use for working capital or debt refinancing.

Interest rates are currently 8% to 9% — the prime rate plus 2.75% to 3.75%. Fees will need to be paid to receive a loan, including a packaging fee, referral fee, and guarantee fee. Specific collateral is not needed but a blanket lien is required.

To qualify for a SmartBiz SBA loan, you must be in business for at least 2 years. A minimum personal credit score of 650 is required. Other credit requirements include no bankruptcies or foreclosures in the last 3 years, no open tax liens, and no outstanding collections. Business owners that have past defaults or delinquencies on government loans are ineligible. You must meet the standards of a small business as defined by the SBA, which limits annual revenues, number of employees, and company net worth. You must also show that you have sufficient cash flow and can afford to pay the loan.

Marketing & Advertising

You can’t grow your contracting business without marketing and advertising. To gain new clients and increase your revenue, a marketing and advertising campaign is a must.

Unfortunately, this comes at a price. Of course, you could rely on free methods to get the word out about your business. However, to efficiently and effectively scale your business, a paid campaign is key. A short-term loan could provide you with the extra funds you need to launch your marketing and advertising campaign.

Short-Term Loans

A short-term loan is a loan for a specific amount of money that is paid back over time. While many short-term loans have repayment terms of 12 months or less, more lenders are loaning money with longer terms up to 3 years.

Short-term loans can be used for any business purpose, including funding a marketing and advertising campaign. Many short-term lenders have fewer requirements and can release funds quickly – sometimes even within 24 hours.

One difference with short-term loans, when compared to other financing options, is that a factor rate is used in place of an interest rate. This factor rate is a multiplier that determines the lender’s fee, which is added to the loan balance.

If you pursue a short-term loan for marketing and advertising, it’s necessary to plan out your campaign. Since your loan will be for a specific amount, you’ll need to know exactly how much you plan to spend. If you’re looking for a more flexible option, consider a line of credit to fund your next campaign.

Recommended Option: LoanBuilder

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LoanBuilder, by PayPal, offers short-term loans for $5,000 to $500,000. Repayment terms are between 13 to 52 weeks. Repayment terms are based on the amount of the loan. A one-time fee of 2.9% to 18.72% of the borrowed amount is added to the loan. A blanket lien is required to receive this loan. Once approved, funds can be transferred to your banking account as soon as the next business day.

To qualify for a LoanBuilder loan, your business must be in operations for at least 9 months. An annual revenue of $42,000 and a personal credit score of at least 550 is required. You can’t have any active bankruptcies in order to qualify. The lender will review your credit history and the health of your business to determine your maximum loan amount and rates.

Emergency Funds

An unexpected expense pops up, and you don’t have the money in your account to cover it. This is a scenario that can be stressful for the most level-headed and prepared business owner.

If you don’t have an emergency fund of your own and shuffling your finances to cover an emergency expense isn’t working out, take control of the situation by applying for a business credit card.

Business Credit Cards

If you’ve ever had a personal credit card, you already know how this works. After approval, the lender gives you a credit card that can be used anywhere credit cards are accepted. Your credit card comes with a credit limit. You can make multiple purchases up to and including this limit.

Each month, you make a payment toward the balance and the interest charged by the lender. As you pay down the balance, funds become available to use again. Interest is charged only on the borrowed portion of funds. A credit card can be used for any business expense, such as purchasing supplies or paying recurring expenses. A credit card is a good choice for emergency expenses because it’s available to use immediately. Once you’re approved by the lender and have received your card, you can use it whenever you want without having to wait.

Interest rates are based on your creditworthiness. Credit cards for fair credit scores are available. If your score is very low, you may qualify for a secured card, which requires a cash deposit. By using and paying your card off responsibly, you can increase your credit limit, improve your credit score, and qualify for additional cards or loans with better rates and terms.

Many credit cards even come with rewards programs, which reward you for using and paying off your card. You’ll rack up points to receive cash back, hotel stays, or other benefits with responsible use of your card.

Recommended Option: Chase Ink Business Cash

Chase Ink Business Cash



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Annual Fee:


$0

 

Purchase APR:


15.24% – 21.24%, Variable

The Chase Ink Business Cash credit card is a popular choice with business owners that have good to excellent personal credit. The Chase Ink Business Cash card comes with an introductory 0% APR for the first 12 months. After the introductory period, rates are 15.24% to 21.24%.

If you spend $3,000 or more within the first 3 months of opening your account, you’ll receive $500 cash back. The rewards continue with 5% cash back on the first $25,000 spent toward internet, cable, phone, and office supply store purchases every year. You’ll receive 2% cash back for the first $25,000 spent at restaurants and gas stations every year, and 1% cash back on every other purchase.

Cash Shortages

From time to time, cash shortages occur in your business. Even when cash flow slows, expenses still need to be paid. Cash flow shortages occur for a number of reasons, from winter slowdowns to slow-paying customers.

If your issue is the latter and you’re waiting to receive payment for completed jobs, cut down your waiting time by applying for invoice financing.

Invoice Financing

Invoice financing is a type of loan that is borrowed against unpaid invoices. There are two types of invoice financing: invoice factoring and invoice discounting.

Invoice Financing Invoice Factoring

Uses invoices as collateral for a line of credit

Sell invoices for immediate cash

You are granted a credit facility based on the value of your unpaid invoices, and can draw from your available funds at any time

Factor gives you an advance when the invoice is sent and sends you the rest once the customer pays (minus a factoring fee)

You are responsible for collecting invoice payments

Factor is responsible for collecting invoice payments

With invoice factoring, you’ll receive a partial payment for your unpaid invoices. Once the lender collects the total invoice amount from your customer, you’ll be paid the remaining amount, minus fees and interest.

With invoice discounting, you’ll receive approximately 90% to 95% of the total invoice. Once you collect full payment from the customer, you’ll repay the lender for the loan, including interest and fees.

Personal credit often doesn’t play a significant role in qualifying for invoice financing. Instead, the quantity and quality of the invoices are most important. That is, are the invoice totals enough to cover fees and interest charged by the lender, and are your customers likely to pay? You also must be a B2B business in order to qualify for invoice financing.

Recommended Option: BlueVine

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BlueVine provides invoice factoring lines up to $5 million. Rates are as low as 0.25% per week, with funding approvals as fast as 24 hours.

With BlueVine’s invoice factoring, you’ll receive 80% to 85% of your invoice total immediately. Once the invoice is paid, you’ll receive the remaining amount after fees have been paid to the lender.

To qualify, you must have a personal credit score of at least 530 and a time in business of at least 3 months. You must also be a B2B business with at least $100,000 in annual revenue.

If you don’t qualify for invoice factoring from BlueVine, the lender also offers lines of credit up to $250,000 with rates starting at 4.8%.

Hiring, Training & Covering Payroll

Your business is growing, and you’re taking on new projects. This is what you’ve worked so hard to achieve, but what happens when you don’t have the manpower to complete all your jobs? The logical answer is to hire and train new employees, but what do you do when you don’t have the funds to bring on new hires?

Whether you’re stalling on hiring and training new employees due to financial issues or you’re struggling to cover your current payroll, an installment loan may be the solution.

Installment Loans

An installment loan is a loan that is paid in regularly scheduled installments. You’ll receive a lump sum of money, which is paid back over time along with interest.

Installment loans provide you with the money you need for any business expense. You’ll have money in your account to pay your expenses, such as covering payroll or hiring new employees, and can repay it through more manageable daily, weekly, or monthly payments. Rates, terms, and borrowing limits vary by lender and are typically based on creditworthiness and your ability to repay the loan.

Recommended Option: OnDeck

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OnDeck offers small business installment loans up to $500,000. Eligible borrowers can apply for short-term loans with repayment terms of 3 to 12 months or long-term options with repayment terms of 15 to 36 months. Daily or weekly repayment plans are available.

Short-term loans have simple interest rates starting at 9%, while long-term loans have annual rates as low as 9.99%. An origination fee between 2.5% and 4% of the total loan amount is required, and fees are reduced for repeat customers. Interest rates are based on business and personal credit scores, as well as the performance of your business.

To qualify, your business must be in operations for at least one year. You also need a personal credit score of at least 500 and $100,000 in annual revenue.

Best Financing Options For Contractor Startups

You have the skills, you have the drive, and you’re ready to start your contracting business. There’s just one problem: you don’t have the money to start your business and traditional lenders aren’t taking you seriously. Before you throw in the towel, know that there are financing options that will help you get your business off the ground.

Startup and new business owners can look into SBA Microloans, which provide up to $50,000 to cover startup expenses. The average loan amount given through this program is $13,000. SBA Microloans are available through SBA-approved nonprofit intermediary lenders.

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

If you don’t qualify for an SBA loan, you can also apply for microloans through nonprofit organizations and alternative lenders like those below:

Lender Max. Borrowing Amount Rates Req. Credit Score Next Steps

$500,000

2.9% – 18.72% factor rate

550

Apply Now

$250,000

9% – 36% factor rate

500

Apply Now

$500,000

9.4% – 99.7% APR

500

Apply Now

Another option to consider is taking out a personal loan to use for startup expenses. With this strategy, you can receive an affordable loan with favorable terms (if you have a solid credit score) from lenders like these:

Lender Borrowing Amount Term Interest Rate Min. Credit Score Next Steps

$2K – $25K 2 – 4 years 15.49% to 30% 600 Apply Now

$1K – $50K 3 or 5 years 8.16% – 27.99% 620 Apply Now

$2K – $35K 3 or 5 years 6.95% – 35.99% APR 640 Apply Now

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$1K – $40K 3 or 5 years 5.32% – 30.99% 640 Compare

Peer-to-peer, or P2P, loans may be another option for funding your new business venture. Crowdfunding and loans from friends and family are additional loan options available to cover startup costs.

What To Consider When Choosing A Lender

5 C's of Credit: What Lenders Look For

Before you begin the application process, you must choose the right lender. The internet gives you access to more lenders than ever. While this gives you more choices, it can also complicate the process of finding the right lender that offers the loan you need.

The goal of your loan is to advance your business. You want to ensure that your return on investment is worth the cost of the loan. You also want to make sure that you work with a lender that provides the best rates and terms for your financial situation.

To narrow down your choices, ask yourself a few key questions. Once you’ve answered these questions, you’ll be one step closer to selecting your lender and applying for your business loan.

Why Do I Need A Loan?

Before you apply for a loan, ask yourself why you need the money. Having a plan for loan proceeds is the first step in responsible borrowing. When you apply for a loan, you’ll need to communicate with your lender how you plan to use the funds.

Knowing how you will use the money will also help you choose a lender. Let’s say you’re seeking a line of credit. A lender that only offers short-term or installment loans won’t fit your needs, so you can scratch this lender off the list and keep shopping.

How Much Money Do I Need?

Calculating how much money you need before applying for a loan is just a financially responsible move. You never want to take money just because it’s offered to you.

For most loans, you need to request a specific amount from your lender during the application process. Before filling out an application, calculate how much money you need. For example, if you’re purchasing supplies or equipment, shop around and gather quotes and bids. While you’re making your calculations, also figure out how big of a loan you can afford.

By determining how much money you need, you’ll be able to immediately eliminate multiple lenders. If you need $150,000 but a lender has maximum borrowing limits of $100,000, you can simply move on to the next financing option.

Am I Qualified?

Every lender will review your personal information and documentation to determine if you are qualified to receive a loan. Applying to a lender with requirements that you simply don’t meet is a waste of time … and creates an unnecessary inquiry on your credit report.

For every lender you’re considering, evaluate all requirements. Is your personal credit score high enough? How about revenue? Does the lender have a time in business requirement, and if so, do you meet it? Can you provide all documentation that is required by the lender? Pull your free credit score, evaluate your finances, and search for a lender based on this information.

If you don’t qualify with one lender — or several — don’t worry. There are plenty of other options available for your specific financial situation.

Do The Rates & Terms Meet My Needs?

Taking out a loan that you can’t afford is a recipe for disaster. While the loan may be helpful over the short-term, the long-term effects can be damaging. This is why you need to make sure that the rates and terms best fit your needs.

Compare interest rates and repayment terms to make sure you’re receiving the most affordable loan for your situation. For example, a short-term loan that’s funded quickly may seem like a great option when you need quick cash. However, a loan with a high factor rate, short repayment terms, and weekly payments may quickly become too much for your business to handle. Be smart, be responsible, and shop around before signing on the dotted line.

What You Need To Apply For Contractor Business Loans

The process for applying for a contractor business loan differs based on your chosen loan product and the lender you select. For some loans — such as lines of credit and business credit cards – the application process is quick and easy, and you can be approved minutes after applying. For other financing options – such as SBA loans – the application, underwriting, and approval process may take several weeks or longer.

During the application process, you’ll submit information and documentation to the lender. At the most basic level, you’ll provide basic information including your name, business name, address, telephone number, email address, social security number, and federal tax ID number.

While this may be sufficient for some loans, other loans require more documentation. These requirements include:

  • Personal & Business Credit Reports/Scores
  • Personal & Business Bank Statements
  • Income Statements
  • Profit & Loss Statements
  • Balance Sheets
  • Business Licenses
  • Business Owner Resumes
  • Business Plan

Requirements vary by lender. During the underwriting process, your lender may require additional information. Make sure to make yourself available through email or over the phone to provide additional details and documentation as needed to expedite your loan request.

Final Thoughts

Being a contractor certainly has its advantages and can be a profitable venture. However, running your own business doesn’t come without its challenges — especially when it comes to finances. No matter what scenario you face, knowing your loan options, taking the time to find a lender that meets your needs, and borrowing responsibly can help you clear these financial hurdles.

The post Top Business Financing Options For Contractors appeared first on Merchant Maverick.

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Business Loans For Auto Repair Shops

Cars may be starting to look more like computers, but they still won’t stay on the road long without the help of a trusty local auto repair shop.

If you’re in the auto repair business, you know that the volume of work — as well as the types of problems you’ll encounter — can vary greatly by the day. Even the most prepared shop may run into emergencies where funds aren’t readily available. When that happens, you may need a quick loan to keep things running smoothly. Or you may just need a traditional loan for a large, planned expense.

No matter your need, navigating through the vast market of traditional and alternative lenders can be daunting. Read on and we’ll walk you through how to get business loans for auto repair shops.

Financing Need Best Loan Type Recommended Lender
Purchasing Equipment Equipment Financing Lendio
Supplies and Inventory Short-term Loans PayPal LoanBuilder
Working Capital Lines of Credit OnDeck
Marketing and Advertising Business Credit Card Chase Ink Business Preferred
Business Startup/Expansion/Remodeling SBA Loan SmartBiz

Loan For Equipment Purchasing

We’re not talking parts for your customers’ vehicles. A loan of this type can help you buy the bigger stuff you’ll be keeping in-house and using regularly — things like air compressors, vehicles lifts, brake lathes, and engine hoists.

In most cases, you won’t be purchasing heavy equipment on the fly; you’ll purchase it when you’re first opening your shop, or you’ll have a general idea of when an old piece of equipment needs to be replaced. In these cases, you’re probably less concerned about speed than you are about getting a good deal that fits the needs of your shop.

Equipment Loans

If you prefer to own your equipment, you may want to look into equipment loans. These resemble traditional installment loans in many ways: they’ll accrue interest over time, you’ll make monthly payments, etc. But these loans have a built-in advantage; the equipment you’re purchasing with them can serve as collateral. Collateral is an asset the borrower puts up as security when they take on debt. Secured loans generally have better rates and terms than comparable unsecured loans.

Traditionally, equipment loans cover around 85 percent of the equipment’s costs, but some lenders may cover the entire cost. In most cases, this does not include transportation costs.

Equipment Leases

These are not loans strictly speaking, but they are a popular way to finance heavy equipment. (Read more about equipment loans vs equipment leases.) Leases fall into two broad categories.

Capital leases are essentially an alternative way to buy your equipment. In most cases, you are considered the owner of the equipment under this type of lease. You’ll make monthly payments for the length of the lease, at the end of which you’ll pay a small residual (sometimes as low as $1) to close your account.

Operating leases are closer to the traditional definition of a lease. In this case, you’ll effectively “rent” the equipment over the course of the lease, making monthly payments. At the end, however, you’ll have the option to return the equipment or buy it at fair market value. This type of lease is useful for equipment that becomes obsolete quickly.

Recommended Option: Lendio

If you’re not working with a captive lessor or your preferred bank, it’s nice to be able to hit a bunch of potential equipment financers with one easy application. Lendio is a great way to do just that. Within 72 hours of your application, you should have multiple equipment financing offers on your screen. Funds are typically dispensed within a week of accepting an offer.

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Loans For Supplies & Inventory

You never want to be in a position where your auto body shop is suffering from too much business. Whether you’re facing a very high volume of customers, or an unusual number of customers all presenting with similar car problems, you may find your supplies depleted more quickly than you can collect on your invoices.

When this happens, you may want to consider a short-term loan.

Short-term Loans

Fast, streamlined, and (relatively) expensive, short-term loans are handy when you need a loan fast and want to pay it back quickly.

Short-term loans can usually get money into your hands within a day or two, which makes them a good choice for unplanned emergency financing. Rather than charge interest, short-term loans use a flat fee formula, or factor rate, to calculate the amount of money you’ll owe. For example, if you take out $10,000 at a 1.2 factor rate, you’ll need to pay back $12,000.

Short-term loans usually have terms shorter than a year, so their repayment schedule is much faster than those of medium and long-term loans. If you take out a short-term loan, you’ll be making weekly or daily payments, which, in most cases, will be automatically deducted from your business account.

Recommended Options: PayPal LoanBuilder

Because short-term loans are so fast and volatile, you’ll want some flexibility over the terms of your loan. PayPal’s LoanBuilder product is built around the idea of customization. You’ll be able to customize many elements of your loan to fit your need. Better yet, their rates are reasonable (as short-term loans go).

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Loans For Working Capital

merchant cash advance industry

Working capital is a wonky term for the money you have on hand for daily operational expenses. If everything’s going well, you probably don’t have to give it a lot of thought. But if emergency expenses have tapped into your reserves, you may find yourself unable to pay some small, recurring expense.

Working capital loans tend to be some of the most flexible when it comes to what you can spend your money on.

Lines Of Credit

Since working capital expenses come in many different forms and amounts, it’s nice to have a flexible financial cushion to fall back on. Rather than giving you a lump sum, a business line of credit pre-approves you for a certain amount of money, called your credit limit. While your account is active, you can draw on your credit line as much or as little as you want so long as the total amount you’ve borrowed doesn’t exceed your credit limit.

In most cases, you’ll only pay interest on the amount of money you’ve borrowed, though some lenders do charge administrative and access fees. Revolving credit lines let you reuse credit after you pay off your balance, similar to a credit card. Non-revolving lines of credit don’t have this feature and tend to be extended for specific expenses where the final cost is uncertain.

OnDeck

OnDeck offers quick and easy access to lines of credit, even for businesses with fairly poor credit. Depending on your revenue and other qualifications, you can get a credit limit between $6K and $100K with no draw fee. Just be aware that these are short-term credit lines lasting only about 6 months, but considering the approval process only takes a few days, you don’t need to plan too far ahead. The major downside is the $20/mo administrative fee, but OnDeck will waive that if you withdraw at least $5,000 within the first five days of opening your account.

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Loans For Marketing & Advertising

Word of mouth may be the ideal form of advertising, but sometimes you need to reach outside of your normal sphere of influence to draw in new customers. Or maybe you’re a new business that needs to establish a customer base.

Designing and running an effective advertising campaign is outside of the purview of this article, but most of the good ones require spending some money.

Business Credit Cards

Surprised? Business credit cards are often suggested as a way to smooth out your business’s cash flow, but they also have some other features that make them ideal for certain types of expenses. Namely, rewards programs that allow you to get a return on specific expenses — expenses like advertising.

Just be sure to pay off your balance within your business credit card’s grace period, or the cost in interest will exceed your rewards savings.

Recommended Option: Chase Ink Business Preferred

Chase’s Ink Business Preferred credit card is at the top of most business credit card lists, and for a good reason. It offers one of the most lucrative rewards programs out there. Advertising expenses spent on social media sites and search engines earn triple points (as do travel, shipping, and telecom expenses). Those points can be redeemed on travel, on Amazon, as gift cards, statement credit, or cash back.

The card has an annual fee of $95 and an APR between 17.99% and 22.99%.

Chase Ink Business Preferred



Apply Now 

Annual Fee:


$95

 

Purchase APR:


17.99% – 22.99%, Variable

Loans For Business Startups, Remodeling, Or Expansion

Like equipment purchases, business remodeling and expansion (or starting your business up in the first place) falls under the category of “large, planned expenses.” One of the bigger and more daunting business expenses occurs when you’ve outgrown your space.

If you need additional bays, or even a larger overflow lot, you’ll want a loan that can offer you a large sum of money at a low interest rate. Your best bet is probably an SBA loan.

SBA Loans

The Small Business Administration (SBA) is a government agency tasked with advising and assisting small businesses. The SBA doesn’t usually directly lend to businesses. Instead, it guarantees a portion of an SBA-approved lender’s loan. This guarantee allows you to access better rates and terms than your credit rating or business size might otherwise allow.

The two most common forms of SBA loan are the SBA 7(a) and the SBA 504.

SBA 7(a) Loans SBA 504 Loans
  • Working capital
  • Commercial real estate purchasing
  • Equipment purchasing
  • Purchasing a pre-existing business
  • Refinancing debt
  • Purchase an existing building
  • Purchase land and land improvements
  • Construct new facilities
  • Renovate existing facilities
  • Purchase machinery and equipment for long-term use
  • Refinance debt in connection with renovating facilities or equipment

The 7(a) offers the most flexibility in terms of what it can be used for. This can include anything from equipment to non-investment real estate, leasehold improvements, business acquisition, or start-up costs. Depending on your needs, however, you may want to look into the SBA 504 loan, which has a higher maximum borrowing amount. These loans can be used to purchase land and buildings, buy long-term equipment, or make improvements to your lot.

Be prepared to play the long game with an SBA loan, though. They take far longer to close than the other financial products we’ve discussed.

Recommended Option: SmartBiz

You have a lot of choices when it comes to SBA-approved lenders, which likely includes your preferred local bank or credit union. You don’t need our advice for that, right?

But if you need help navigating the complexity of the SBA application process and don’t have a lender specifically in mind, you may want to give SmartBiz a look. SmartBiz can’t do a full end-run around the massive amounts of paperwork required to get an SBA loan, but what they can do is keep the process as organized and streamlined as possible on your behalf. Most importantly, they’ll match you with a lender that fits your needs.

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What To Consider When Choosing A Lender

If you didn’t see a lender you liked above, you can always hunt for one on your own. Though it can be a time-intensive task, there are some ways to strategically narrow your search.

Why Do I Need A Loan?

Lenders serve a variety of needs, but not every lender can serve yours. Even if you don’t like the lenders we recommended, the type of financial products discussed above can be a guide for finding a lender.

A slow, traditional lender may not be able to help you get emergency funds, while a fast, expensive alternative lender may be a poor choice for financing an expensive renovation.

Am I Qualified?

One of the easiest ways to rule out a lender is to figure out if they’ll rule you out.

Most lenders have minimum qualifications for borrowers. The most common ones are:

  • Time In business: Lenders want to know you’ll be around long enough to pay them back.
  • Credit Rating: Some lenders use credit rating as a line in the sand, while others use it mainly to help determine rates.
  • Revenue: Lenders want to make sure you can pay off your debt. Sometimes this number is an absolute minimum (like $100,000/yr); other times it’s relative to the amount of money you want to borrow ($1.50 for every $1).

Additional factors may include the number of other loans you currently have, the industry or state you’re in, and whether you’ve had any recent bankruptcies.

Do The Terms & Rates Meet My Needs?

While it might seem that lenders have the upper hand, remember that you are ultimately the one who gets to decide whether or not the transaction happens.

If a lender charges usurious rates, if they pile on unnecessary fees, or if they demand repayment on a schedule you can’t accommodate, you’ll probably want to keep looking.

Try to get a sense of whether your prospective lender will be a flexible partner or a predatory animal looking to cash-in on any small mistake you make. Do they offer early payment incentives? Incentives for repeat business? Is customer service available and helpful?

Final Thoughts

When it comes to keeping your auto repair shop’s engines purring, you have a ton of potential financial solutions at your disposal. With a little patience, you can find a deal that fits your needs.

Didn’t find a lender you were looking for above? Here are some overviews of our contenders for loans, lines of credit, credit cards, and startup financing.

The post Business Loans For Auto Repair Shops appeared first on Merchant Maverick.

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A Guide To Square Credit Card Readers And POS Bundles

 

Square made its name offering a free mobile credit card swiper, but the company has expanded so much in the past few years that there is now a massive array of hardware options, catering to all types of businesses. You can still get mobile card readers from Square if you don’t need more than just a phone or tablet and a swiper, but you can also get a countertop POS system complete with a customer-facing display, or a slim, portable credit card terminal with a phone-sized high-resolution screen and built-in receipt printer. And if you’d like to print paper receipts and have an automated cash drawer, Square offers a wide range of compatible hardware. You can even save some money by opting for one of Square’s ready-made bundles of hardware.

Let’s take a look at Square’s hardware options, including its mobile readers, POS systems, and POS kits. We’ll start with simplest options and move on to the most comprehensive kits. We’ll also talk about what you can do to control your costs and manage your cash flow with Square’s financing.

If you’re still curious about Square’s offerings, we also recommend checking out our complete, in-depth review of Square, which covers hardware as well as the software.

Square Mobile Card Readers

Square’s mobile card readers are meant to work with smartphones and tablets — unlike with some of the company’s “all in one” hardware solutions, if you go with a card reader it’s a “bring your own device” situation. Square’s mobile readers are ideal for businesses that are always on the go — farmer’s market stalls, service businesses, food trucks, etc. These card readers work with any of Square’s POS apps as well. However, compatibility with specific tablets or smartphones will vary — and you should check before you buy that a card reader is compatible with your device. Square has a helpful compatibility checker tool on its website for this purpose.

Square Magstripe Readers

Square has been offering free basic magstripe readers for years. The boxy design hasn’t changed significantly over the years and it’s simple to use. Recently, the company added a Lightning connector variant in addition to the 3.5mm headphone jack connector. Square used to sell a 3.5mm adapter, but that’s no longer available (because it’s no longer necessary). However, I will say that adapters from other makers will work for the same purpose.

New Square merchants get 1 free card reader; additional card readers sell for a very reasonable $10. Unlike PayPal Here, Square doesn’t impose any limits or restrictions on transactions processed with a magstripe reader — there’s no limit to the number of swiped transactions you can process before you trigger a hold. That’s a nice touch. However, if you do process large transactions or do a significant volume of credit card payments you should definitely look at upgrading to a chip card-capable reader.

Magstripe Reader Quick Facts 

  • Free for new merchants
  • $10 retail price
  • 3.5mm headphone jack or lightning port connectors
  • Supports magstripe transactions

Square Chip Card Reader

 

Square’s first chip card reader wasn’t particularly fancy, or even all that different from its elder sibling: it was boxy, with a headphone jack connector. And it has since fallen out of favor — partly thanks to Apple and its removal of the headphone jack on its iPhones. However, this entry-level chip card reader is still available at a reasonable price — ideal for merchants who want to accept chip cards but also save some money.

Square doesn’t offer a lightning connector variant for the Chip Card Reader, but as I mentioned, a Lightning to 3.5mm headphone jack adapter would work for iPhone users. This reader also requires the occasional battery charge because of the addition of the chip reader.

Chip Card Reader Fast Facts 

  • $35
  • 3.5 mm headphone jack connector
  • Requires battery charging
  • Supports magstripe and chip card transactions

Square Contactless + Chip Reader

Square’s Contactless + Chip Reader is a departure from Square’s earlier mobile credit card readers. First, it connects via Bluetooth. Second, it doesn’t support magstripe transactions at all. Instead, Square includes one of its free magstripe reader in the box as well. (To be honest, this design kind of disappoints me, but I figure that the Contactless + Chip Reader was designed to add EMV support to the Square Stand, which already has an integrated magstripe reader. So building magstripe support into the Contactless + Chip Reader was a moot point. Still, for merchants who don’t have a Square Stand, this might prove to be a small annoyance if the chip reader can’t read a card properly.)

Square also sells a charging dock, which can be plugged into a wall, or into the Square Stand’s USB hub. It sells for $29 separately. You can use it in a countertop retail environment and let customers insert their payment cards themselves, or you can set the dock aside and grab the reader by itself whenever you need to make a transaction.

Contactless + Chip Reader Fast Facts 

  • $49
  • Charging dock sold separately ($29)
  • Bluetooth connection
  • Supports chip card and contactless transactions
  • Basic magstripe reader also included

Square Countertop POS Devices

If you’d like something a little bit more permanent and stationary in your POS setup, Square offer options tailored to different environments. The offerings here get a little more complex, so bear with me!

Square Stand

The Square Stand has been one of the company’s core offerings for a long time — it is a tablet stand with a built-in card reader, all for a reasonable price (at launch, it cost $99). It swivels, it has minimal cords, and it looks good. Square has improved it slightly with the bundling of the Contactless + Chip Reader. That brings the price to $169.

Square doesn’t include a receipt printer for the Stand, but a printer is available in hardware bundles. Likewise, Square doesn’t include an iPad with the Stand, but you can purchase one directly from Square for an additional $329. Keep in mind that the current edition of the Square Stand only works for the most recent iPad models. If you have an older iPad, you can order a legacy stand from Square for $99, but the Contactless + Chip Reader requires iOS 9.3.5 or higher, and that version of iOS isn’t supported on an iPad 2 or other earlier models.

Because the Square Stand runs an iPad, it can also support merchants using Square Point of Sale, Square for Retail, or Square for Restaurants. There are an assortment of recommended hardware bundles for the Square stand, but if you prefer to build your own setup, you will be happy to know that the Square Stand supports USB, Ethernet, WiFi and Bluetooth printers, as well as other devices.

Square Stand Fast Facts 

  • Accepts magstripe, chip card, and contactless transactions
  • $169 (iPad sold separately)
  • Includes Contactless + Chip Reader (integrated magstripe reader in stand)
  • Compatible with Square Point of Sale, Square for Restaurants, Square for Retail, Square Appointments

Square Terminal

Square Terminal (read our review), the newest addition to Square’s lineup of hardware, takes the concept of the Square Stand and the traditional credit card terminal and combines them into one portable machine. The display is large enough to be a fully functioning POS (it runs Square Point of Sale, the free app). It accepts magstripe, chip card, and contactless transactions. It even has a built-in thermal receipt printer.

While you can operate Terminal by keeping it plugged in, Square promises the battery will last all day if you prefer to go wireless. You also get a cleverly-designed power brick and USB hub to connect accessories, such as the USB barcode scanner and cash drawer. Bluetooth accessories aren’t supported, so the USB hub will be important for some merchants.

While Terminal runs Square Point of Sale, it also offers some compatibility with the iPad-based premium POS app, Square for Restaurants. Specifically, Terminal can be used for tableside ordering and payments. It doesn’t support all of Square for Restaurant’s features, though, so it’s important that you make sure Terminal will really fit your needs.

Square Terminal Fast Facts 

  • Accepts magstripe, chip card, and contactless transactions
  • $399
  • $300 processing credit for new merchants
  • 2.6% + $0.10 per transaction
  • Compatible with Square Point of Sale (limited compatibility with Square for Restaurants)

Square Register

 

Square Register (read our review) definitely targets a higher-end market, with a price tag of $999 — not counting a cash drawer, receipt printer, or barcode scanner. However, for that price, you get a 13.25-inch screen running Square Point of Sale, as well as a 7-inch consumer-facing screen with integrated support for magstripe, chip card, and contactless transactions.

Square Register runs an Android-based version of Square Point of Sale, which means it’s not compatible with Square for Retail. However, you can take advantage of the back-end features if you opt to subscribe to Square for Retail. Specifically, that means access to the reporting features, including cost of goods sold and profitability reports. Square Register also integrates perfectly with Square Loyalty and allows customers to see the status of their loyalty accounts.

All in all, Square Register is an absolutely gorgeous piece of hardware that would look great in a retail space. The addition of the customer-facing display, combined with all of the supported hardware, brings Register on par with more traditional countertop POS systems.

Square Register Fast Facts

  • Accepts magstripe, chip card, and contactless transactions
  • $999
  • 2.5% + $0.10 per transaction
  • Compatible with Square Point of Sale (back end features compatible with Square for Retail)

Square POS Bundles

Square’s POS Kits are available for the Square Stand and Square Register — but if you’d prefer to use a different tablet stand for an iPad, Square also offers some alternatives. It would be a bit redundant and very overwhelming to go through every single bundle that Square offers, so let’s focus on what they offer, broadly speaking.

Square will first ask you to pick a category for your business. The options are limited — just food and beverages, beauty and wellness, or retail. However, those three categories cover a lot of industries. And honestly, you shouldn’t worry too much about picking the right category because the offerings will be similar. Check the options in each category and see which bundle you like.

After you’ve chosen an industry category, Square will also ask you about your Internet setup, specifically whether your business has a router. If you are relying on cellular data, obviously, there’s no router involved. But this question primarily affects what kind of printer Square includes in its bundles.

The biggest advantage to choosing a Square POS kit is the cost savings. Buying individual accessories from Square will cost more than buying a bundle. Square lists the prices as “starting at” for most bundles, but that’s usually because you have the option of purchasing an iPad direct from Square. (Note that you can only get the most recent model of iPad. Square offers POS bundles that support the iPad 2, for example, but you’ll have to acquire the iPad separately.)

Let’s start by looking at what the Square Register and Square Stand bundles look like, versus the alternative tablet stands.

Square Stand POS Kit

 

Square Stand on its own is pretty affordable, but if you opt for the bundle with the stand over buying individual components, you’ll save a small amount. Square suggests running the Stand with a router setup, which includes a USB hub for accessories, rather than wireless options. Your Square Stand Kit includes the following:

  • Receipt printer paper (25 rolls)
  • USB Receipt Printer
  • 16 in. Printer-Driven Cash Drawer
  • Square Stand for Contactless and Chip

If you decide against the Square Stand Kit, keep in mind that you can use any piece of hardware that works with an iPad running Square Point of Sale, as well as USB-enabled devices. That includes barcode scanners and receipt and kitchen printers in addition to cash drawers.

Square Register POS Kit

The POS kit for Square Register will add $530 to the cost, but it will save you $67 over buying the parts individually. (Also take note: You can’t order just the hardware bundle separate from the Register.)

In addition to the Register itself, the kit includes:

  • 16 in. USB Cash Drawer
  • USB Receipt Printer
  • Receipt printer paper (25 rolls)
  • Square Register

Square only recommends the Register kit for businesses with routers, not mobile setups. That’s not too surprising because it’s clearly not a mobile setup. Register does support some USB and Ethernet printers (and one WiFi printer), but it does not support as many devices as the Square Stand or just a standalone iPad. Square also offers compatible kitchen printers, which aren’t included in the bundles for food and beverage businesses, surprisingly.

Other Square POS Kits

If you’d still like to use Square on a tablet — but without the Register or Square Stand — you can get a selection of Heckler brand tablet stands designed for iPads, as well as Galaxy Tab A devices. They contain the following:

  • A tablet stand
  • A printer (Ethernet or Bluetooth)
  • Cash drawer
  • Receipt printer paper
  • Card reader (Magstripe or Contactless + Chip)

Prices vary by the tablet stand model, as well as whether the kit includes an Ethernet or wireless printer. Which card reader Square includes depends on the model of iPad (remember, early models of iPad can’t upgrade to the iOS version required to support the Contactless + Chip Reader). And again, you can mix and match tablet stands and other devices to create a custom setup, though you will ultimately pay more than if you chose one of Square’s pre-made bundles.

Other Square Accessories

When you check out Square’s hardware shop, you can also browse standalone accessories for Square’s products. I like that the site has added the ability to filter compatible accessories by the POS device. The available accessories include kitchen printers, USB and Bluetooth barcode scanners, WiFi routers, and more. However, these are far from your only options. Square actually supports an extensive array of hardware in addition to the options available directly through its own shop. And it’s great about publishing that list of confirmed, supported devices.

Should You Finance Your Square Hardware Purchase?

There’s one last factor to consider when shopping for hardware from Square: the cost. If you are worried about the price of Square’s hardware, or the overall price of accessories, you’ll be glad to know that Square offers financing on purchases of $49 or more. Generally, the limit is $5,000, but you can apply for an increased limit. Depending on the total sum you’re financing, Square offers payback terms of 3, 6, 12 and 24 months.

Square will deduct your payments from your total processing volume before disbursing funds to your bank, so you don’t have to worry about making monthly payments. Eligibility depends on a credit check, and the financing program isn’t available in all U.S. states yet. However, if you are eligible, this could be a great option.

Square’s markup for financing is incredibly reasonable, and the program is managed by Square directly so you don’t have to worry about a shady third-party stepping in. If you can’t afford the upfront investment in hardware, Square’s financing can help you manage your cash flow better. And I like that it’s not a leasing program — when you’re done paying off the hardware, you own it.

Which Square Hardware Is Right For You?

If your business is primarily on the go, you can get a cheap, affordable mobile card reader. If you’d like a countertop setup, there’s Square Terminal with its very small profile, Square Stand for a good entry-level piece of hardware, and of course, Square Register. Plus, the bundled kits from Square allow you to easily add a cash drawer, receipt printer, and any other hardware you need. The number of options can seem overwhelming, but it really comes down to how portable you need your hardware to be and what you can afford.

One of my absolute favorite things about Square is that the company offers a huge array of very affordable hardware for all types of businesses. Some companies might only offer a few options, use expensive leases, or charge an arm and a leg just for a single terminal. You don’t have to worry about that with Square. The price is right and there are hardware options to suit every business that work with all of Square’s Point of Sale apps. That’s a very powerful reason to go with Square already. Throw in the affordable credit card processing and the great customer service, and it’s easy to see why Square is a favorite among small businesses.

If you’re still just learning about Square, be sure to read our complete Square Review! You can also check out our Square Point of Sale, Square for Retail, and Square for Restaurants reviews to learn more about the point of sale systems.

Thanks for reading! Leave us your thoughts and your questions in the comments below!

The post A Guide To Square Credit Card Readers And POS Bundles appeared first on Merchant Maverick.

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Farm And Agriculture Loans: Your Best Options

Running a farm or agricultural business isn’t without its challenges. While the agricultural industry has its own unique hurdles to overcome, there’s one challenge farmers, ranchers, and other entrepreneurs in the industry face just like any other business owner: financial issues and the need for capital.

Owning and operating a farm, ranch, or agricultural business comes with hefty expenses — expenses that a business owner often can’t face alone. From purchasing heavy-duty farming equipment to buying land to hiring employees, these expenses can pile up quickly, leaving even the most prepared small business owner struggling to stay afloat.

If you’re in the agricultural industry and you’re facing a financial burden, know that there are options available to you. Read on to learn more about agriculture and farm financing options, how to qualify, and which type of financing is best for your financial needs.

Government Programs For Agriculture & Farm Financing

The United States Department of Agriculture, or USDA, is a federal government department that manages programs in the areas of food, nutrition, natural resources, rural development, and agriculture. The USDA has 29 different agencies, including the Farm Services Agency, which provides resources for business owners in agricultural and farming industries. One of the primary resources provided by the FSA is low-cost loan programs.

There are several loan programs available to fit the needs of new and established farming and agriculture businesses.

The FSA’s Direct Farm Operating loan program provides loans for starting or operating a farm or ranch. This program provides up to $300,000 for reorganizing a farm, purchasing livestock, buying farm equipment, and paying for operating expenses. Proceeds can also be used toward the improvement or repair of buildings, land and water development, and refinancing farm-related debt.

The FSA also has microloan programs targeted at beginning farmers and farmers that operate non-traditional farms. The Direct Farm Ownership Microloan provides up to $50,000 for down payments on land, soil and water conservation projects, and the construction, repair, or improvements of farm and service buildings and dwellings.

Direct Farm Operating Microloans provide up to $50,000 for use toward tools, fencing, equipment, irrigation systems, and other operating expenses.

The FSA’s Direct Farm Ownership loan is another option for farmers. This loan is available up to $300,000. Through this program, the FSA provides up to 100% financing for the purchase or expansion of farms.

There are two additional loans available through the FSA’s Direct Farm Ownership program. The Direct Farm Ownership Joint Financing loan gives up to 50% of the cost or value of purchased properties, with maximum borrowing amounts capped at $300,000. The remaining balance is financed by a traditional lender, state programs, or the seller of the property.

The Direct Farm Ownership Down Payment loan is available to new farmers and ranchers, women, and minorities. Through this program, borrowers receive up to 45% of either the purchase price, appraised value, or $667,000. Borrowing limitations are based on the lesser amount of the three options. All borrowers must pay 5% of the purchase price to receive this loan.

The FSA also has Guaranteed Farm Loan programs that make it easier for farmers and ranchers to receive loans through commercial lenders. Through these programs, the FSA will guarantee up to 95% of a loan, putting less risk on the lender and increasing the borrower’s chances for approval. The FSA guarantees up to $1.429 million for farm ownership, conservation, and operating loans. For land contracts, up to $500,000 is guaranteed.

Finally, the FSA offers the Emergency loan program. Through this program, up to $500,000 is available to cover expenses following a disaster such as a flood, tornado, or drought. Loan proceeds are used toward the restoration or replacement of property, covering production costs or living expenses, reorganization of operations, and refinancing of non-real estate debt.

Government Farm Loan Rates & Fees

The rates and fees associated with receiving a government farm loan vary based on the type of loan selected.

For the Direct Farm Operating loan, terms range from 12 months for general operating and living expenses up to 7 years for repairs, equipment, or livestock purchases. Interest rates are set by the FSA, which posts updated rates on the first day of each month. As of November 2018, rates for Direct Farm Operating loans are 3.75%.

Direct Farm Operating Microloan repayment terms are based on the purpose of the loan. Operating and living expenses are repaid within 12 months, while equipment or livestock purchases come with repayment terms of 7 years. Interest rates are 3.75%.

Direct Ownership Microloans have maximum repayment terms of 25 years and interest rates of 4.125%.

The Direct Farm Ownership loan and the Direct Farm Joint Financing loan each have maximum repayment terms of 40 years. Interest rates for both loans are 2.5%. For the Direct Farm Ownership Down Payment loan, repayment terms are 20 years. The portion of the loan not financed by the FSA is required to have a minimum 30-year repayment period. The interest rate is 1.5%.

The repayment terms for FSA Emergency loans are based on the loss and the borrower’s ability to repay. At least one payment per year must be made by the borrower. If funds are used for operating expenses, repayment terms are 12 months, but an 18-month extended repayment period is available. The interest rate for these loans is 3.75%.

If a borrower receives a Guaranteed loan through an FSA-approved commercial lender, repayment terms are based on the type of loan, collateral, and the borrower’s ability to repay. Generally, Operating loans have a 7-year repayment term, while maximum terms for Farm Ownership loans max out at 50 years. Interest rates are set by the lender but may not exceed the FSA’s maximum rates.

What You Need To Qualify For A Government Farm Loan

For all government farm loans, borrowers must be a citizen, non-citizen national, or legal resident alien in the U.S. and specific U.S. territories. All borrowers must be unable to obtain credit from other lenders before applying for an FSA loan. Borrowers must not be delinquent on federal debt, with the exception of IRS tax debt.

All borrowers must also have no previous debt forgiveness from the FSA. Potential borrowers with Federal Crop Insurance violations are not eligible for FSA loans.

All borrowers must also have sufficient credit history. The FSA does not use credit scores but instead looks at a borrower’s past repayment history with creditors and the federal government. A lack of credit history, isolated incidents of slow payments, or adverse issues that were out of the borrower’s control will not automatically disqualify the borrower.

To qualify for an FSA Microloan, all borrowers must have 3 years of farm management experience acquired within 10 years of the date of applying for the loan.

For some loans, collateral is required. For FSA Operating Microloans, a lien on farm property or agricultural projects totaling 100% to 150% of the loan amount is required. For Direct Farm Ownership Microloans, the real estate that is purchased or improved with loan proceeds serves as the collateral.

To receive an emergency loan, additional information is required. Borrowers must apply within 8 months of the date the disaster was declared, submit declinations of credit from commercial lenders, and obtain crop insurance for the coming year to receive the loan.

Grants For Farm & Agriculture Businesses

startup grants

A grant is money given — not loaned — by the government or other organizations to fund a project, start a business, and provide other benefits to farm and agriculture businesses.

The USDA offers Farm Labor Housing Direct Loans & Grants. Funding from this program is used to develop housing for farm laborers when commercial credit can’t be obtained. Funds can be used to construct, improve, repair, or buy housing for domestic laborers. Funds can also be used to buy and improve land, purchase furnishings, or pay construction loan interest. Eligible applicants can receive a need-based grant that pays up to 90% of project costs. Applicants can apply through the USDA website.

The USDA also offers Value Added Producer Grants, which are used to expand marketing opportunities, create new products, and boost income. This program has working capital grants up to $250,000 and planning grants up to $75,000. Beginning or socially-disadvantaged farmers and ranchers and small- or medium-sized farms may receive priority for these grants. Applicants can apply through the USDA website.

Sustainable Agriculture Research & Education, or SARE, offers sustainable agriculture grants nationwide. Farmers and ranchers can submit a grant proposal to receive thousands of dollars in funding for their project. Grants have been awarded in the past surrounding topics including pest management, livestock production, soil quality, marketing, and energy. Applications can be submitted through the SARE website.

Grants are also available at the state level. Applicants can visit their state’s Department of Agriculture website to learn more about grant opportunities, how to apply, and eligibility requirements.

Alternative Loans & Financing For Agriculture Businesses

If you don’t qualify for a government loan or grant, there are financing options available for you. If you need money quickly, have a low credit score, or have specific needs that aren’t met with government grants and loans, alternative lenders provide several loan options for farmers and ranchers.

Equipment Loans

Best For…

Purchasing equipment

To keep your farm, ranch, or agriculture business running smoothly, you need the right tools and equipment. Backhoes, bailers, tractors, and other heavy equipment come at an expensive price – a cost that isn’t financially feasible for most farmers or ranchers. Whether you’re upgrading old equipment or adding more to keep up with your expanding business, an equipment loan makes these purchases more affordable.

An equipment loan is used to purchase equipment and tools needed for your business. With an equipment loan, you can buy the equipment you need and put it into use immediately without having to pay the full price up-front. Instead, you’ll pay through affordable scheduled payments spread out over time.

Depending on your creditworthiness, a down payment of 10% to 20% of the full purchase price is required. Borrowers with high credit scores may qualify for $0 down payment options. Once the down payment is paid, the lender provides the remaining funds. A weekly or monthly payment is made toward the balance, plus any interest charged by the lender. The equipment purchased with loan proceeds is typically your collateral. In most cases, you don’t need additional collateral, but a blanket lien or personal guarantee is usually required.

Our Top Pick: Lendio

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Lendio is a loan aggregator that connects borrowers with multiple lenders via a single application. Equipment financing is just one loan product offered through Lendio. Through Lendio, you can apply for $5,000 to $5 million to purchase equipment. Loan terms are between 1 and 5 years. Interest rates for the most creditworthy borrowers are 7.5%.

The application process takes about 15 minutes, and you can receive funding in as little as 24 hours. Loans can be used to purchase heavy equipment, office furniture, software, vehicles, and more. To qualify through Lendio, you need at least $50,000 in annual revenue, a credit score of at least 650, and a time in business of at least 12 months. If your credit score is below 650, you may qualify with a lender based on cash flow and revenue from the last 3 to 6 months.

Business Credit Cards

Best For…

Recurring monthly expenses or emergencies

A business credit card is always a good financial resource to have on hand. With a business credit card, you’ll be able to purchase supplies, pay operating expenses, or cover an emergency expense without waiting for a loan approval. Once approved, you’ll be able to use your card immediately anywhere credit cards are accepted.

After using your card, you’ll make payments each month toward your balance and interest. As you repay your balance, these funds are available to use again. Many business credit cards also have rewards programs. By responsibly borrowing and paying your balance off as quickly as possible, you can rack up points to use toward cash back, flights, hotels, and other rewards.

Our Top Pick: Chase Ink Business Unlimited

Chase Ink Business Unlimited


chase ink business unlimited
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Annual Fee:


$0

 

Purchase APR:


15.24% – 21.24%, Variable

Chase Ink Business Unlimited is a business credit card for borrowers with good to excellent credit history. This card boasts multiple benefits, including no annual fee and introductory APR of 0% for the first 12 months.

The Chase Ink Business Unlimited card also has a rewards program that gives you 1.5% cash back on all purchases. The card has variable APR of 15.24% to 21.24% and has a bonus offer of $500 cash back after spending $3,000 within the first 3 months of opening your account.

Installment Loans

Best For…

Purchasing supplies or inventory

With an installment loan, you receive a lump sum of money that is repaid through scheduled installments. Repayments may be daily, weekly, or monthly based on the lender you select. Loan proceeds can be used for any business purpose, including purchasing supplies or inventory, buying livestock, or using the funds as working capital. Installment loans are best if you know the specific cost of your expense. If you are unsure of how much money you need, consider a more flexible option like a line of credit or business credit card.

The repayment terms, interest rates, and fees vary by lender. The most creditworthy borrowers typically receive the lowest rates and best repayment terms.

Our Top Pick: Fundation

fundation logo

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Fundation provides installment loans of between $20,000 and $500,000 for qualified borrowers. Repayment terms are between 1 and 4 years with interest rates between 7.99% and 29.99%. Payments toward the loan and interest are made monthly.

To qualify for a Fundation installment loan, you must be in business for at least 2 years. Your annual revenue must be at least $100,000, and you need a credit score of at least 660 to receive this loan.

Short-Term Loans

Best For…

Working capital needs and seasonal gaps in revenue

When you apply for a short-term loan, you’ll receive one lump sum that will be repaid back over a shorter period of time. While most short-term loans have repayment terms of one year or less, some alternative lenders offer terms up to 3 years.

Short-term loans are repaid through daily, weekly, or monthly payments. In addition to paying off the principal balance, you’ll also pay what is known as a factor rate instead of interest. This fee is calculated into the cost of the loan.

Short-term loans are a good choice for farmers, ranchers, and other business owners because they are quick and easy to receive. Short-term loans are available for any business purpose, but because they can be funded quickly, they work well for working capital, to fill seasonal revenue gaps, or to cover an emergency expense. Alternative lenders offer more options than ever, so you can find the financing you need regardless of credit score, annual revenue, or other challenges.

Our Top Pick: OnDeck

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OnDeck offers short-term loans up to $500,000. The factor rate for OnDeck loans is between 1.003 to 1.04 per month. A one-time origination fee between 2.5% and 4% of the total loan amount is charged.

To qualify for an OnDeck loan, you must be in business for at least 1 year and have annual revenue of at least $100,000. The minimum credit score required is 500, but the lender reports that most business owners have credit scores of 660 or higher.

If an OnDeck short-term loan doesn’t fit your needs, the lender also offers lines of credit up to $100,000 with APRs as low as 13.99%.

Lines Of Credit

Best For…

Businesses that need a flexible financing option

Sometimes, you need money and you need it right away. In these situations, waiting days or even weeks can be a struggle. Instead of pursuing a loan that requires lengthy application and underwriting processes, apply for a line of credit that you can access whenever you need extra money.

A line of credit is a type of revolving credit that allows you to make multiple draws as needed. Once approved for a line of credit, you’ll receive a credit limit. You can request any amount of money up to and including this credit limit. Funds are then deposited to your business bank account – often within one business day. Interest or fees apply to the funds that have been used. As you pay down your balance, the funds are available for you to use again, similar to a credit card.

Our Top Pick: FundBox

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FundBox offers lines of credit up to $100,000. Repayment terms are 12 or 24 weeks. Fees begin at 4.66% and are paid along with your balance through weekly payments. There are no prepayment penalties, and paying off your loan early helps you save on fees.

Approval and credit limits are determined by the health of your business. The application process takes about 10 minutes, during which you’ll connect your business bank account and accounting software. Once approved, funds are available immediately and can be deposited into your bank account as soon as the next business day.

Real Estate Loans

Best For…

The purchase of commercial real estate property or land

Your farm or ranch is prospering, and it’s time for an expansion. The only problem is you don’t have the funds to purchase real estate or land. Instead of taking on this financial burden yourself, make the smart move and apply for a commercial real estate loan.

A commercial real estate loan is used for commercial property or land. After paying a down payment that is typically 10% to 20% of the total purchase price, your lender provides the remaining funds. You can use the land or property immediately while repaying the principal balance and interest over several years. The real estate purchased with loan funds is the collateral for the loan.

Our Top Pick: SmartBiz

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The Small Business Administration offers affordable and flexible loan options for entrepreneurs and business owners, but navigating the application process is difficult for many. SmartBiz is a lender that takes the guesswork out of SBA loans.

Through SmartBiz, you can apply for an affordable SBA 7(a) loan to purchase commercial real estate. Loan amounts of $500,000 to $5 million are available. SmartBiz offers fixed and variable interest rates between 6.75% to 8% with repayment terms up to 25 years. Loans can be closed as soon as 30 days after approval.

To qualify, at least 51% of the property must be owner-occupied. You must be in business for over 2 years and have a minimum credit score of 675. You must sign a personal guarantee and pay fees including a guarantee fee, packaging fee, and closing costs. A down payment of 10% to 20% is required.

What To Consider When Choosing A Lender

Choosing a lender and the right loan product for your farm, ranch, or agriculture business doesn’t have to be complicated. Ask yourself a few important questions to narrow down which lender to select.

How Much Money Do I Need?

Before you apply for a loan, calculate how much money you need. Your lender will want to know how much you are requesting, and this will also help you choose which lender to work with. If you need $250,000, a lender with maximum loan amounts of $100,000 won’t be a good fit. Understand how much you need — and how much you can afford — before choosing your lender.

How Will I Use The Loan?

How you plan to use your loan proceeds can help you determine the best lender for your situation. Some lenders have restrictions on how loans are used. For example, an equipment loan can only be used for the purchase of tools or equipment. If you need money to use as working capital, another loan option — such as a short-term loan or line of credit — would best fit your financial needs.

Do I Meet All Lender Requirements?

All lenders have different requirements based on their own policies as well as the types of loans offered. Understand a lender’s requirements before applying, and make sure you meet all of them. Remember, many lenders consider time in business, creditworthiness, and annual revenues. Evaluate your revenue and time in business and pull your free credit score online before applying for a loan.

What You’ll Need To Apply For A Farm Loan

The documentation and information requirements for a farm loan are based on the type of loan you’re pursuing. For all loans, you will provide basic information about yourself and your business, such as your legal name, business name, address, phone number, social security number, and federal tax ID.

You will also need to prove that you are creditworthy and have the means to pay back the loan. Additional documentation to receive a farm loan may include:

  • Business & Personal Bank Statements
  • Income Statements
  • Business & Personal Tax Returns
  • Balance Sheets
  • Profit & Loss Statements
  • Business & Personal Credit Scores

An application and all information and documentation must be submitted to your chosen lender. Underwriting and approval times vary based on the loan selected. Real estate loans and government farm loans may take several weeks or longer, while some alternative loans are approved instantly. To make the loan process more efficient, make yourself available to answer questions or provide additional information as needed. Learn more about the requirements for receiving a business loan.

Final Thoughts

Running a farm, ranch, or agriculture business is never easy, but it’s nearly impossible without adequate capital. The great news is that with so many government loan, alternative loan, and grant options, there is funding available for any purpose. As a responsible business owner, it’s your job to understand how much you need and can afford, do your research, and shop for the most affordable funding options. Once you do, you’ll be on the path to receiving the funding you need to help your business prosper.

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Loans For Childcare Businesses

Like other small businesses, a childcare business has many expenses. Incoming cash flow should cover most of your expenses, in theory, but sometimes there’s a situation where you need a financial boost. Maybe it’s an emergency expense or a lack of cash flow due to a seasonal lull. On the other hand, business could be booming … so much so that you need to expand your facilities. All of these scenarios have one big factor in common: you need money.

To operate a successful childcare business, you have to cover all of your expenses, planned and unexpected. Whether your bank account is running a little low or you don’t want to tie up all of your funds in one huge expense, there are options available to you. Small business loans are the perfect way to expand your business or to help operations run smoothly through tough financial times.

Ready to learn more? Read on to find out more about loans for childcare businesses, including the types of loans available, how to choose a lender, and the steps you need to take before submitting your loan application.

Financing Need Best Loan Type Recommended Lender
Marketing & Advertising Short-Term Loans LoanBuilder
Supplies & Inventory Lines Of Credit OnDeck
Equipment Purchasing Equipment Loans Lendio
Working Capital Working Capital Loans Credibly
Covering Payroll Installment Loans Fundation
Emergency Funds Business Credit Cards Chase Ink Unlimited
Business Expansion/Remodeling SBA Loans SmartBiz
Cash Flow Shortages Cash Flow Loans BlueVine

Marketing & Advertising Loans

You know that your business is the best. Your current clients know that you run an exceptional child care facility. But how many people don’t know about your child care services?

The key to growing your child care business is to bring in new clients. The best way to do this is by marketing and advertising to parents in your area. Whether you go with old-school methods like business cards and flyers or pay for sponsored ads on social media, you have to advertise your business to maximize your client base. No matter which methods you choose, all marketing and advertising campaigns have associated costs.

Instead of draining your bank account, consider a loan option for your next ad campaign. One of the best options is a short-term loan that breaks down your expenses into smaller payments.

Short-Term Loans

With a short-term loan, you’ll receive a specific amount of money in one lump sum. You’ll then be able to pay back the loan (and fees charged by the lender) over a longer period of time. Many short-term loans have repayment terms of one year or less, although some lenders offer terms up to 3 years. Borrowers typically repay the loan via weekly or monthly payments.

Most short-term loans use a factor rate instead of an interest rate. The factor rate is a multiplier that is used to calculate a one-time fee that is added to the cost of the loan. Similar to interest rates, the lowest factor rates are typically reserved for the most creditworthy borrowers.

Short-term loans work for marketing and advertising expenses because this type of financing allows you to pay over time without paying all costs up front. Since a short-term loan must be for a specific amount, it’s important that you carefully plan out your campaign and research costs to determine how much money you need.

Recommended Option: LoanBuilder

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PayPal’s LoanBuilder provides short-term loans in amounts from $5,000 to $500,000. Repayment terms are set between 13 and 52 weeks based on the amount borrowed. Payments are withdrawn from the borrower’s business bank account on a weekly basis.

It’s easy to qualify for a LoanBuilder loan. Your business must be in operations for at least 9 months. A personal credit score of 550 is required, and you must have at least $42,000 in annual revenue.

Supplies & Inventory Loans

A child care center requires supplies and inventory to keep operations on track and to best serve customers. From office supplies to art supplies, diapers, and toys, your child care center always needs to be stocked, and these expenses can really add up.

When you need extra money to replenish stock and inventory, a line of credit can be a smart option.

Lines Of Credit

A line of credit is a type of revolving credit. With a line of credit, you can make multiple draws of funds up to the credit limit set by the lender.

Payments are typically made on a weekly or monthly basis and are applied toward the principal balance, as well as toward interest or fees charged by the lender. (Fees and interest only apply to borrowed funds.)

A line of credit allows you to have instant access to extra funding whenever it’s needed. If your business runs out of supplies, you can make a draw on your line of credit to purchase what you need. Money that you withdraw is typically transferred immediately and is available in your checking account the next business day.

Recommended Option: OnDeck

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OnDeck offers lines of credit up to $100,000. The most qualified borrowers can receive interest rates as low as 13.99%, although the average borrower receives an interest rate of 32.6%. Repayments are made through weekly automatic withdrawals from your business bank account.

To qualify, your time in business must be at least one year. Annual revenue of at least $100,000 is required, and your personal credit score must be at least 600.

Equipment Purchasing Loans

In addition to supplies, your business also requires long-term, more expensive equipment. This could include computers for your office area, a commercial van for afterschool pickups, furniture, appliances, or security systems.

With an equipment loan, you can get the equipment you need for your business and pay for it over time with affordable scheduled payments.

Equipment Loans

An equipment loan is a lump sum of money provided by a lender for the purchase of equipment. With a loan of this type, the total cost of your purchase will be spread out over time, providing you with an affordable way to purchase expensive equipment. Payments are typically made monthly and are applied to the total amount of the loan plus interest.

With this type of financing, a down payment may be required based on the amount of the loan and your creditworthiness. The equipment being financed is typically the only collateral required, and you’re able to take possession of and use the equipment immediately. Once the loan has been paid off, you become the owner of the equipment.

Recommended Option: Lendio

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Lendio is a business loan aggregator that connects you with multiple lenders with just one application. Lendio has many loan products available for small business owners, including equipment loans.

Equipment loans are available in amounts from $5,000 to $5 million. Loan terms of up to 5 years are available. Interest rates for the most qualified borrowers are as low as 7.5%. Repayment schedules, collateral, and down payment requirements vary by lender.

To qualify, your time in business must be at least 12 months. You need a minimum credit score of 650 and at least $50,000 in annual revenue. If your credit score falls below 650, you may be approved with proof of solid cash flow and revenue for the last 3 to 6 months.

Working Capital Loans

Working capital is needed to keep your business operational. Without working capital, you won’t be able to pay your day-to-day financial expenses.

While a business owner would typically pay these expenses from a checking account, a slow period or unexpected expenses may cause issues with cash flow. When this occurs, you can receive the financing you need with a working capital loan.

Working Capital Loans

A working capital loan can be used to cover the daily expenses of your business. With a working capital loan, you can keep up with your expenses without falling behind. There are many different types of working capital loans, from credit lines to P2P loans.

Depending on the type of loan you select, you will either receive a lump sum or revolving credit. After receiving funds, you will pay back the balance, along with any fees or interest charged by the lender.

Because there are so many options, borrowers with poor credit or a short time in business may qualify for these loans. Some lenders even consider the performance of the business as the most important factor.

Recommended Option: Credibly

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Credibly is a lender that provides working capital loans to businesses with steady revenue. Loans of up to $250,000 are available with repayment terms as long as 17 months. Factor rates start at 1.15. Payments are made daily or weekly.

Even borrowers with low credit scores can qualify for a loan from Credibly. To qualify, borrowers must have a credit score of at least 500, time in business of 6 months, and at least $15,000 in monthly bank deposits.

Payroll Loans

Employee payroll is one of your most important expenses. If a situation occurs and you’re unable to make payroll, this puts you in a bad position. Not only will your employee be unpaid for their hard work, but you’ve created a breach of trust.

For those times when making payroll is a struggle, consider applying for an installment loan to cover your expenses.

Installment Loans

With an installment loan, you receive a lump sum payment that you pay through regular installments. If you receive a loan of this type, you’ll receive the money you need for payroll or other expenses upfront, and you can pay it back over time.

Rates, terms, borrowing amounts, and requirements vary by lender. Depending on your credit history and the type of loans offered by your lender, you may be eligible for short-term or long-term options.

Recommended Option: Fundation

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Fundation provides term loans of $20,000 to $500,000 with repayment terms of 1 to 4 years. Interest rates are between 7.99% and 29.99%. These loans do not require collateral but do require a personal guarantee for all borrowers and a blanket lien for most.

Qualified borrowers must be in business for at least one year and have at least three employees. You must have at least $100,000 in annual revenue and a credit score of at least 660. Although qualifying for a Fundation loan is more difficult than qualifying for other options, it’s a more affordable option for borrowers with good credit than other products (such as short-term loans).

Emergency Loans

 

Your business is doing well. Money is coming in and all of your expenses are covered. Then, it happens: an unexpected emergency.

An emergency expense can completely throw a wrench in your business finances. When tapping into your emergency fund or shuffling around your finances to make everything work just isn’t enough, a business credit card can help you get through this tough situation.

Business Credit Cards

A business credit card is a type of revolving credit that is used to cover business expenses. When a lender approves you for a credit card, you’re given a set credit limit. You can use the card up to this limit for any business purpose.

The great thing about a business credit card is that you won’t have to wait to receive funding. Once you’ve been approved for the card, you can use it as needed to cover your emergency or other expenses.

You can even be rewarded for using your card. Sign up for a card with a rewards program and receive cash back and bonuses each time you use your card for qualifying purchases.

Recommended Option: Chase Ink Unlimited

Chase Ink Business Unlimited


chase ink business unlimited
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Annual Fee:


$0

 

Purchase APR:


15.24% – 21.24%, Variable

If you have good to excellent credit, the Chase Ink Unlimited card is a top pick in business credit cards. This credit card comes with an introductory APR of 0% for the first 12 months. After that period, the variable APR is 15.24% to 21.24%.

If you spend $3,000 or more within the first 3 months, you’ll receive $500 cash back. You can also receive unlimited 1.5% cash back rewards on every purchase. Employee cards are also available at no charge.

Business Expansion & Remodeling Loans

Your business is growing and flourishing, and it’s time for an upgrade. Whether you want to remodel your existing space, open a second location, or move your business into a new building, one thing’s for certain: it takes money to expand your business.

Most of us aren’t in a position to foot the bill to expand a business, but with Small Business Administration loans, you won’t have to tackle this financial hurdle alone.

Small Business Administration Loans

The Small Business Administration provides many useful resources to small business owners, including low-cost, flexible business loans.

Loan Program Description More

7(a) Loans

Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.

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Microloans

Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.

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CDC/504 Loans

Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.

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Disaster Loans

Loans used to rebuild or maintain business following a disaster. 

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The SBA offers several loan programs through intermediary lenders. The 7(a) program provides up to $5 million for 10 to 25 years at low interest rates for qualified borrowers. The drawback is that it can take weeks — or in some cases, months — to get funded.

With an SBA Express loan, you’ll receive an approval decision within 72 hours, but loan limits are capped at $350,000.

The SBA CDC/504 loan is used for commercial real estate purchases and improvements. The SBA will provide up to $5 million toward 40% of project costs. A traditional lender will provide 50%, while the borrower is responsible for the remaining 10%.

SBA loans require credit scores in the high 600s with no bankruptcies, foreclosures, or past defaults on government loans. All businesses must also meet the standards of a small business as defined by the SBA.

Recommended Option: SmartBiz

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SmartBiz makes applying for an SBA loan easier than ever. Through this lender, you can apply for commercial real estate loans and working capital loans.

Commercial real estate loans are available in amounts from $500,000 to $5 million and come with interest rates between 6.75% and 8%. Working capital loans are available for $30,000 to $350,000 with interest rates from 8% to 9%.

SmartBiz charges fees for SBA loans, including packaging fees, referral fees, guarantee fees, and closing costs.

To qualify for either loan, your business must be in operations for at least 2 years. Credit score requirements are at least 650 for working capital loans and 660 for commercial real estate loans. To qualify for a commercial real estate loan, your business must use at least 51% of the property that you’re purchasing.

Cash Flow Loans

monetize

Every business encounters situations where there’s a shortage of cash flow. Your child care center is no exception. From a slowdown in business after school begins to parents becoming stay-at-home moms and dads, there are many different scenarios that could lead to a cash flow shortage.

A lack of cash flow can cause financial troubles to pile up. Before a minor issue becomes a huge problem, look to a cash flow loan to help you push through.

Cash Flow Loans

A cash flow loan is used specifically to address gaps in cash flow. There isn’t just one type of cash flow loan. You can resolve cash flow shortages with short-term loans, installment loans, lines of credit, or invoice financing.

Because you have so many options, finding a cash flow loan isn’t too difficult, even if you’re a newer business or have a poor credit history. Loan options are available to business owners with scores as low as 500. Some lenders may approve you based on the strength of your business and not just your credit score. Revenue and time in business requirements vary by lender.

Recommended Option: BlueVine

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BlueVine provides lines of credit up to $250,000 that can be used to resolve cash flow shortages. The lender offers repayment terms of 6 or 12 months. BlueVine charges up to 1.5% interest per week, along with a draw fee up to 2.5% per draw.

To qualify, you must have a minimum credit score of 600. Your time in business must be at least 6 months, and you must bring in at least $100,000 in annual revenue. Payments are withdrawn from your business checking account on a weekly basis.

Financing Options For Starting A Child Care Business

All of these financial solutions address existing businesses, but what if you haven’t yet started your child care business? If you need money to start a new business, there are several loan options open to you.

One of the most popular options is the SBA Microloan. Through this program, you can receive up to $50,000 that can be repaid over 6 years. Rates are generally between 8% and 13%.

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

SBA Microloans can be used for working capital, fixtures, furniture, inventory, supplies, equipment, or machinery. SBA Microloans can’t be used for the purchase of real estate.

Microloans are also available through non-profit organizations.

If you don’t qualify for an SBA microloan, you have other options. If you have a good credit score, you can receive a personal loan to cover startup costs. Crowdfunding, equipment loans, and business credit cards can also be used to pay expenses related to starting your business.

Can I Get Grants For Starting A Child Care Business?

It is possible to receive a grant to start your childcare business, but be aware that you will have to take the time to research your options. You can search startup grants in your local area, by niche, or even at the federal level. You may hit a few dead ends before you find a grant that you qualify for, and once you find one, competition can be stiff. Learn more about how to find startup grants.

If you don’t qualify for a startup grant, don’t give up hope. There are plenty of lending options available that can help you get your childcare business off of the ground.

What To Consider When Choosing A Lender

business loan reasons

With a better understanding of the types of loans available for your child care business, you’re one step closer to applying for financing. However, there’s one more critical step before you reach the application process: choosing your lender.

With so many lenders willing to give out small business loans, how do you decide which to choose? By asking yourself a few key questions, you can narrow down your choices and find the best lender for your financial needs.

Why Do I Need A Loan?

Before applying for a loan, you’ll need to know how you plan to use the loan proceeds. Not only will your lender want to know why you want the loan, but knowing this can help you determine what type of loan to pursue and what lender offers this loan.

For example, if you want a line of credit, you want to select a lender that offers a line of credit. If you want to expand your business with an SBA loan, you need to select an SBA intermediary that can help you through every step of the process.

How Much Money Do I Need?

To cover your expenses, how much money will you need? Again, this is information that your lender will also need to know. Determining the amount of money that you need will also help you select a lender. After all, if you need $250,000, a lender that has maximum borrowing limits of $100,000 does not offer the financing you need.

Unsure of how much money you need? If you don’t have a specific number in mind, you’ll want to work with a lender that offers flexible financing options such as lines of credit and business credit cards.

Am I Qualified?

Applying for a loan that you’re not even qualified to receive is a waste of time – and can put an unnecessary inquiry on your credit report. When choosing your lender, evaluate all requirements, including time in business, annual revenues, and how loan proceeds can be used. Pull your free credit score to make sure you meet credit requirements. Some lenders even put restrictions on what industries they lend to, so make sure that you meet all qualifications before submitting your application.

Do The Rates & Terms Meet My Needs?

When shopping around for loans, you want to make sure the rates and terms of the lender best fit your business needs. The purpose of a loan is to help you expand your business and keep it operating as smoothly as possible.

Getting a loan that will just drag your business into unmanageable debt could spell disaster. Make sure that you’re getting the best rates and terms that provide you with a loan payment your business can afford.

What You Need To Apply For Childcare Business Loans

Applying for childcare business loans is easier than ever now that lenders have made their applications available online. To apply for a loan, you’ll have to provide basic business and personal information, such as contact information, your federal tax ID, and your social security number.

Documentation requirements vary based on the type of loan you select and your selected lender’s policies. Documents and information that you can compile for your application include:

  • Child Care License Information
  • Personal & Business Credit Scores
  • Personal Financial Statements
  • Personal & Business Tax Returns
  • Profit & Loss Statements
  • Balance Sheets
  • Income Statements
  • Copy Of Driver’s License

Once you’ve filled out the application and have submitted all information, you may receive an instant approval decision depending on the type of loan. For other loans, the process may take several days or weeks. Make yourself available to your lender to provide additional information and documentation to move through the process and receive the loan you need. Learn more about small business loan requirements.

Final Thoughts

It’s completely normal to encounter financial challenges while operating your child care business. It’s simply the nature of the beast. The key to conquering these financial challenges is to know your financing options and to be a responsible borrower when the need arises.

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