SBA Loan Default: What Happens When You Default And What You Can Do About It

A small business owner may be passionate and committed to their ideas, but things don’t always go according to plan. If you lack funds or are worried about making payments for your SBA loan, it may be time to start learning about delinquency and defaulting on loans.

From Delinquent To Default

A loan will go into default when a borrower repeatedly fails to meet the legal conditions of the loan. Before you default on a loan, chances are the loan will first be deemed delinquent. Although they aren’t exactly the same problem, both loan delinquency and default can do serious damage to your credit score. A loan becomes delinquent as soon as you have missed or are late making a payment, even if only by one day. If your loan becomes delinquent, your lender may charge you late fees or increase your interest rate. If you don’t take care of a delinquent loan quickly, it can easily lead to a default.

When Is My SBA Loan In Default?

Depending on the specifics of your loan agreement, a delinquent loan will fall into default status after a certain amount of time has passed and no action has been taken on the outstanding balance. Lenders will usually wait anywhere from 90–120 days before considering a delinquent loan to be in default.

Tips To Avoid Defaulting On Your Loan

Communicate With Your Lender

If you’re struggling to make payments on your loan, you should first contact your lender to discuss your position. This is always preferable to waiting until the problem worsens. You may find a better way to fix your temporary financial issues by speaking with your lender transparently, rather than waiting for the loan to default.

Create A Modified Repayment Plan

If you communicate honestly with your lender, they may be open to helping you create a more feasible payment plan or reducing the overall cost of your loan. SBA partner lenders are almost always willing to work with borrowers since they lose money when they have to chase down someone in SBA loan default. You can expect any proposed repayment plan to be largely in favor of the lender, but it will most likely be a better option than defaulting.

What Happens If You Default On An SBA Loan

Seizure Of Collateral & SBA Guarantee

If no alternative options are possible, or you have no ability to make payments, your lender may force you to default on the loan. They will then begin standard loan collection procedures, as outlined on your SBA loan agreement.

First, your lender will contact you via phone and email. You should know that FTC guidelines that restrict how often, when, and how collectors may contact you don’t apply to business loans, so any restrictions on this communication will depend on which state your business operates.

The bank will then be able to seize any collateral you put up on the loan, first business assets and then personal, per your agreement. If your business has failed and there are no remaining assets to fulfill repayment, your personal guarantee will be invoked. Alternatively, they may force you to sell your assets, or obtain a court order demanding any money in your business accounts.

If the loan is still not repaid in full, the lender will then file with the SBA for the guaranteed portion of the loan, minus any amount they were able to collect through alternative means.

Transfer To The Treasury Department

Although the loan will have been fully paid back to the lender at this point, the process is unfortunately not over. The SBA will then contact you for repayment of the funds they gave to the bank as part of your SBA loan agreement. This communication will come in the form of a 60-day demand letter.

This letter states that your case has been transferred to the Treasury Department, which will demand you either settle the debt, or provide an “offer in compromise.” The Treasury Department has the ability to garnish wages, withhold future tax refunds, or file suit against you in a civil court. They will collect the debt by any means necessary if you have not resolved by the given deadline. While it is still possible to settle with the SBA at this point, it is much more difficult.

An “offer in compromise” is a proposed payment plan (or smaller lump sum) than what is being demanded by the Treasury Department. It is only a viable option if your business has completely ceased all operations and been liquidated. This compromise will open a dialogue and allow the Treasury to determine your ability for repayment.

When creating an appeal, you will need documentation of tax returns, business and personal assets, income statements, expense reports, and more. These documents should serve as proof that you cannot repay the borrowed funds to the SBA in a reasonable time period, and show you are in need of a more lenient payment option. If your argument is convincing, the Treasury will opt to work on an offer in compromise so they can recover some of the funds lost on your case.

Final Thoughts

Above all else, remember that defaulting on an SBA loan is serious, but it is not the end of the world. Although it can be a stressful time, it is possible to recover after you’ve settled the debt. Do what you can to avoid defaulting, but if you must, just keep moving forward, and keep improving your financial health!

The post SBA Loan Default: What Happens When You Default And What You Can Do About It appeared first on Merchant Maverick.

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FreshBooks VS Wave

Freshbooks-vs-Wave

FreshBooks VS Wave

Accounting

✓

Features

✓

Pricing

✓

Tie

Hardware & Software Requirements

Tie

Tie

Users & Permissions

Tie

✓

Ease of Use

✓

Mobile Apps

✓

Customer Service & Support

Tie

Negative Reviews & Complaints

Tie

Tie

Positive Reviews & Testimonials

Tie

✓

Integrations

Tie

Security

Tie

?

Final Verdict

?

ReviewVisit

ReviewVisit

Choosing the right software for your business isn’t easy, especially when you have two great choices to pick from like FreshBooks and Wave.

FreshBooks has been helping small business owners with their invoices and expenses since 2003. The software offers strong mobile apps, excellent customer service, and good customer reviews. A recent redesign has made the software easier to use than ever.

Wave is completely free accounting software that has grown to support over 3 million users. The app offers strong accounting with ample features including project management, invoicing, and a basic ecommerce tool. Wave is also the only accounting software besides QuickBooks Online to offer lending services.

But which software is better? That’s what we’re here to tell you.

At Merchant Maverick, our goal is to help you to find the best software for your small business needs. So to make your decision easier, we’ve carefully researched and tested both products. We’ll put FreshBooks and Wave head to head by comparing features, pricing, customer experience, reputation, and more, so you don’t have to. Read on to see which software is best for your business.

Don’t have time to read the whole post? Or looking for a different accounting option? Check out our top-rated accounting solutions to see our favorite recommendations.

Accounting

Winner: Wave

This one’s easy. Wave wins by default because FreshBooks is not accounting software. While FreshBooks does offer a few basic bookkeeping tools, it does not use double-entry accounting. It also has no bank reconciliation features, no accounts payable, and no customizable chart of accounts.

Wave, on the other hand, uses double-entry accounting and offers both accrual and cash-basis accounting. The software offers bank reconciliation, journal entries, a detailed chart of accounts, and basic reporting,

Features

Winner: Wave 

FreshBooks Features Wave

✓

Invoicing

✓

✓

Estimates

✓

✓

Client Portal

✓

✓

Expense Tracking

✓

✘

Bank Reconciliation

✓

✓

Chart of Accounts

✓

✘

Accounts Payable

✓

✘

Inventory

✓

✓

Time Tracking

✓

✓

Project Management

✓

✓

Reports

✓

✘

Journal Entries

✓

✓

Sales Tax

✓

✓

Multi-Currency

✓

✘

Lending

✓

The two programs are pretty on par in terms of invoice template choices, time tracking, importing/exporting, and multi-currency support. However, Wave’s features are more developed than those of FreshBooks. Wave offers 5 more reports than FreshBooks, better project management, and better inventory. Wave also offers key features that FreshBooks is missing like bank reconciliation, vendor management, accounts payable, and a brand new ecommerce tool called Checkouts.

Pricing

Winner: Wave

You can’t beat free. Wave costs $0/month — no gimmicks, no tricks, no limitations. The only thing you have to pay for is adding payroll, payment processing, or bookkeeping help from a professional Wave advisor. FreshBooks costs $15/month – $50/month. FreshBooks is more expensive and offers fewer features, so businesses get a lot more bang for their buck with Wave.

Hardware & Software Requirements

Winner: Tie

As cloud-based software, both FreshBooks and Wave are compatible with nearly any device so long as you have an internet connection.

Users & Permissions

Winner: Tie

Neither FreshBooks nor Wave shines in the “additional users” department. With FreshBooks, each pricing plan only comes with one user. You can add additional users for $10/month each, but you can’t set any user permissions. Wave was designed for the small business owner, meaning it’s not possible to have additional users. You can add “collaborators” who can view or view and edit your Wave account, but there are no permissions available here either.

If you’re looking for multiple users and strong users permissions, take a look at Zoho Books, QuickBooks Online, or Xero instead.

Ease Of Use

Winner: FreshBooks

Both Wave and FreshBooks have attractive interfaces that are well-organized and easy to use. However, FreshBooks has better customer support which helps you learn to navigate the software faster.

Mobile Apps

Winner: FreshBooks

FreshBooks is well-known for its strong, full-featured mobile apps. Wave, on the other hand, has separated its apps into Receipts by Wave and Invoices by Wave. Neither app is full-featured and many users complain that they want a single, all-encompassing Wave app instead.

Customer Service & Support

Winner: FreshBooks

When it comes to customer support, FreshBooks can’t be beaten. FreshBooks offers great phone support with hardly any wait times. Representatives are generally friendly, helpful, and well-informed. In addition, FreshBooks offers a detailed help center, email support, and a comprehensive blog. Wave only offers phone support for payroll and payment processing users, leaving regular users a well-developed help center and email support. Most emails are responded to within a day, but it’s harder to get a quick response than with FreshBooks.

Negative Reviews & Complaints

Winner: Tie

Both FreshBooks and Wave are loved by customers. Each software receives mostly positive reviews, with a few negative complaints thrown in. For FreshBooks, users call for more features, better invoice templates, and true accounting. Wave users complain of limited mobile apps, lack of integrations, and occasionally slow servers.

Positive Reviews & Complaints

Winner: Tie

FreshBooks and Wave have a similar ration of positive to negative complaints. Most users seemed thrilled with both programs and each software receives high marks across popular review sites. FreshBooks users love that the software is easy to use, offers professional invoicing, and has great customer service. Wave users love the software’s features, ease of use, and, of course, its price.

Integrations

Winner: FreshBooks

FreshBooks offers 70+ integrations as opposed to Wave’s four, so if add-ons are important to your business, FreshBooks is clearly the way to go.

Security

Winner: Tie

Both FreshBooks and Wave offer strong security. They each use 256-bit SSL encryption, redundancy, and regular backups, and they each host their servers with trusted security providers.

And The Winner Is…

While FreshBooks reputation for ease of use is well-earned, the software doesn’t always live up to these high expectations. First of all, despite its advertising, FreshBooks isn’t true cloud accounting software.

Wave, on the other hand, offers true accounting software and an incredible number of features for $0/month. In addition to the basic tools you’d expect from an accounting software, features like lending and Checkouts set the software apart and allow Wave to give even QuickBooks Online a run for its money. For small businesses looking to save money, you can’t beat Wave. The software is also ideal for Etsy users and ecommerce businesses.

That being said, businesses that don’t need the accounting capabilities or a large number of features may find FreshBooks to be a good choice. The software has better mobile apps and customer service than Wave. However, FreshBooks is far more expensive than Wave and your money only goes a short way with the software.

Perhaps, after reading this, neither option seems like the right choice for you. Our comprehensive accounting reviews can help you explore all of your options so you can choose the perfect software for your business.

Check out our full FreshBooks and Wave reviews for more information.

The post FreshBooks VS Wave appeared first on Merchant Maverick.

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The Complete Guide to PayPal’s Fees, Rates, and Pricing

As a consumer mobile wallet, PayPal is darn-near ubiquitous. But with more than 17 million merchants worldwide calling PayPal their payments processor, it’s also a massive force in the merchant services industry. So if you’re looking for a quick and easy way to get set up with credit card payments, whether for a POS system or online, PayPal is probably going to be on your radar, and with good reason.

But should you choose PayPal as your payments processor, and what will it cost? The good news is that PayPal offers transparent, pay-as-you-go pricing with no monthly fees, no account termination fees, or other hidden costs. You can predict fairly well what you’ll pay with PayPal, and all payment processing fees are deducted before PayPal deposits funds in your account.

The one major drawback is that PayPal is a third-party processor, also referred to as an aggregator. That means the company essentially onboards merchants as sub-users of one, giant merchant account that includes the entirety of PayPal’s merchant base. This means that the company does minimal underwriting before approving an account. You don’t need to provide much info beyond confirming your identity to open an account. However, this does mean you face a greater amount of scrutiny after opening an account, and PayPal can terminate your account or place a hold on funds with no notice to you.

That sounds worrisome, but the reality is it only happens to a small percentage of merchants. You can also take steps to protect yourself by recognizing the common red flags that processors look for and avoiding them. Check out our article on how to avoid merchant accounts holds and terminations to learn more.

PayPal obviously isn’t the right choice for everyone. There are restrictions on the types of products merchants can offer, and it doesn’t support certain business models. High-risk businesses should look somewhere else for a merchant account. However, most merchants should be fine with a PayPal account for payment processing.

Read on for a closer look at what you can expect to pay with PayPal as your business’ credit card processor! You can also check out our PayPal and PayPal Here reviews for a focused look at the products and services.

Payment Processing Fees

The major concern for most merchants who use (or are considering using) PayPal are the payment processing costs, so we’ll start there. PayPal offers predictable, flat-rate pricing for all merchants. You don’t have to worry about higher interchange for American Express cards, or MCCs, or qualified vs non-qualified transactions. Your exact rate will depend on the type of transaction.

Merchants who use PayPal’s mPOS app, PayPal Here, or integrate with one of PayPal’s POS partners (such as Vend), will pay the following for in-person transactions:

  • 2.7% per swiped, dipped or tapped transaction
  • 3.5 + $0.15 per keyed transaction

For online transactions, including monthly subscription charges, donations, and digital invoices, PayPal charges the following:

  • 2.9% + $0.30 per online transaction

That’s it. Really. The simplicity of PayPal’s pricing is one of the biggest draws for merchants. You can predict fairly easily what your pricing will be and, because PayPal deducts its fees before depositing funds in your account, you don’t have to worry about an end-of-the-month invoice or going over a limit and incurring additional fees.

What About Alternative Payment Processing Rates?

If you’re wondering whether PayPal offers any sort of alternative payment plans, the answer is yes. Merchants with an average transaction size under $10 can opt for the micropayments plan. PayPal also offers a nonprofit discount for online transactions to qualified 501(c)(3) nonprofits.

  • Micropayments Plan: 5% + $0.05 per transaction. (Note: This rate applies to all transactions, even those above $10)
  • Nonprofit Discount (Online Only): 2.2% + $0.30 per transaction

If you integrate with one of PayPal’s partner POS systems, such as Vend or TouchBistro, you may be eligible for special discounts  (presumably volume-based) or other promotions. However, these offers aren’t clearly disclosed, just advertised on the POS software sites.

Other PayPal Fees For Payment Processing

While PayPal does charge a few extra fees relating to payment processing, they aren’t many. But these are what you might come across:

  • 1.5% Cross-Border Transaction Fee: For US merchants who accept online payments from buyers out of the country, or in-person transactions involving a card from outside the US, PayPal charges a 1.5% cross-border fee. That means, for example, that a US merchant accepting a Canadian card at a POS terminal will pay 4% of the transaction value to PayPal.
  • 2.5% Currency Conversion Fee:  If PayPal has to convert the currency before it deposits the funds in your account, you’ll pay another 2.5% conversion fee. Whether you have to pay the conversion fee depends on the customer’s bank and whether it will handle the currency conversion (usually at a cost to the customer).
  • $20 Chargeback Fee: Chargeback fees are pretty standard, and if a customer files a chargeback against you, PayPal will assess a $20 fee in addition to withdrawing the funds to cover the transaction amount.
  • Refund Fee: In the event of a refund, PayPal will refund the percentage-based fee from the transaction to you, but keep the fixed fee. For most in-person transactions that means you’ll pay nothing. However, refunds on keyed transactions mean you’ll pay $0.15. Refunds on online or invoiced transactions will cost $0.30. PayPal can be a bit confusing about how this works in its transaction summaries, but be aware that you will pay a fee for most refunded transactions, albeit a small one.
  • 1% Instant Transfer Fee: If you’d like to move your PayPal balance to a bank account immediately, you can do that — for a fee. PayPal charges merchants 1% of the transfer value, capped at $10 per transfer, but your funds will be available typically within 30 minutes (s0 long as your bank’s system isn’t incredibly slow). You’ll have to connect an eligible debit card to support instant transfers as well. However, if you prefer to have instant access to funds without paying a fee, don’t forget that PayPal offers a business debit card that’s linked to your PayPal balance, too.

Software Fees

One of the big draws for PayPal is the lack of software fees. Instead of paying a monthly fee for PayPal’s ecommerce features, you pay only the payment transaction costs (in most circumstances — but we’ll come back to this in a moment). While you’ll need to arrange for your own domain and web hosting, you can implement PayPal’s “buy” and “donate” buttons with no additional costs. You can send digital invoices for free and only pay the transaction cost when the invoice is paid.

Likewise, access to PayPal’s mPOS app, PayPal Here (read our review) is also free. However, if you opt to integrate PayPal into a POS app, invoicing software, or another platform, you’ll be responsible for those software costs. PayPal doesn’t charge anything for use of the integration.

Also, take note: PayPal doesn’t charge merchants any PCI compliance fees, account maintenance fees, customer service fees, or termination/account closure fees.

However, PayPal does offer a couple of advanced software options that come with additional costs:

  • PayPal Payments Pro: The “Pro” plan from PayPal has two advantages. One, it includes a virtual terminal to accept payments over the phone by keying in a card from a browser window.  Two, it allows merchants to keep the checkout process on their own website rather than redirecting to PayPal to complete a transaction. This does come with a couple of concerns. For one, you’re not automatically PCI compliant and you’ll need to take additional steps to handle your PCI compliance. Two, $30/month for a virtual terminal is pretty pricey considering you’ll still pay higher rates than swiped/dipped/tapped transactions. Square and Shopify both offer free virtual terminals. Also, opting for PayPal Payments Pro and the Virtual Terminal will mean a few different transaction fees to worry about:
    • 3.5% American Express Fee: Any Amex cards will process at the higher 3.5% rate if you’re on the Pro plan.
    • 3.1% + $0.30 Virtual Terminal Fee: Any transactions processed through PayPal’s Virtual Terminal process at 3.1% + $0.30, plus the international transaction fee if applicable.
  • Recurring Billing: If you’d like to sell subscriptions (software, gift boxes, etc.), PayPal does offer a set of recurring billing tools. Recurring payments are available with PayPal’s Express Checkout Option at no additional charge, but if you have PayPal Payments Pro and want advanced tools, they’ll cost you $10/month. This doesn’t apply to “Donate” buttons, which have their own option for donors to choose between a one-time or recurring donation.

  • Mass Payouts: If you need to distribute funds to multiple parties, PayPal’s Mass Payouts feature might be an appealing option. You have two options here: using PayPal’s API to handle the command, or uploading a spreadsheet. Which method you choose affects how much you pay — if you opt to upload a spreadsheet through PayPal’s website, you’ll pay 2% per transaction, capped at a maximum $1 USD, which is pretty reasonable. If you opt for the API, you’ll pay a flat fee of $0.25 USD per payment. This is a great way to distribute payments to contractors, for example, or manage marketplace payments if you use PayPal’s platform.

PayPal Hardware Costs

Unless you’re integrating PayPal with a POS system or using the free mPOS, PayPal Here, you won’t have to worry about hardware costs. But if you do, you’ll have a few options for card readers:

  • Chip & Swipe Reader: PayPal’s entry-level chip reader sells for $24.99. In addition to EMV capabilities it supports magstripe transactions, but no contactless payments. However, it does connect to phones and tablets via Bluetooth and comes with a convenient mounting clip.
  • Chip & Tap Reader: To get a credit card reader that supports magstripe, EMV, and contactless payments, you’ll need the Chip and Tap reader, which sells for $59.99. We’ve already reviewed this reader as well as the optional charging dock ($30 separately, or bundled for $79.99), with a very positive rating. Again, the Chip and Tap reader connects via Bluetooth. In addition to the charging dock, it comes with a convenient mounting clip.
  • Chip Card Reader: The Chip Card Reader was the first EMV-enabled card reader PayPal offered, and it’s still the only hardware option for merchants who want to integrate with one of PayPal’s POS partners. It sells for $99 on the PayPal site, with an optional charging dock. Given the price point, it shouldn’t surprise you to learn that this all-in-one reader connects via Bluetooth.

  • Mobile Card Reader: PayPal used to offer its entry-level swipe-only reader for free, but now it sells for $15 because PayPal, like most processors, really wants you to start accepting EMV. Use of the mobile reader comes with limitations on accounts, so if you do a decent volume of credit card transactions and don’t want to encounter any holds on your funds, you should avoid the mobile reader at all costs:

*Key-in transactions and sales over $500 in a 7-day period made with the Mobile Card Reader are subject to an automatic 30-day reserve where funds are held in your PayPal account to cover the high risk associated with these types of transactions. For increased protection from fraudulent transactions, we recommend using a chip card reader. All PayPal accounts are subject to policies that can lead to account restrictions in the form of holds, limitations, or reserves. Additional information about these policies can be found in the PayPal User Agreement.

Apart from the cardreaders, PayPal doesn’t offer any proprietary hardware. If you need a countertop register setup, you can choose from an array of tablet stands, receipt printers, and cash drawers. A few select models are confirmed to work, while many others are “unofficially supported” in that they’re likely to work in most cases. The PayPal Here app doesn’t officially support any external barcode scanners (it supports in-app scanning using the device’s camera), but Bluetooth-enabled scanners may work with your setup.

Is PayPal Actually a Good Value?

We’ve talked pretty extensively about the cost of using PayPal, but we haven’t really talked about value. Because value is so much more than just the actual, physical cost. Value encompasses convenience, customer service, and other extra factors that could easily justify paying more than the absolute lowest prices.

PayPal isn’t the absolute cheapest processor out there — especially not for businesses that handle more than $10,000/month in credit card transactions. Larger businesses may be eligible for merchant accounts with volume discounts. For low-volume businesses, PayPal often does offer more competitive pricing because of the lack of monthly fees. The flat-rate pricing, especially for in-person transactions, can mean cost savings over interchange-plus.

But the real value in PayPal is the massive consumer trust and convenience. Just about everyone recognizes the PayPal name, and with 200+ million consumer users around the world, it’s safe to say a lot of people have PayPal accounts. The barriers to entry are minimal — you don’t need a huge amount of technological experience to implement PayPal for in-person or online payments. As long as you aren’t using PayPal Payments Pro, you don’t even have to worry about PCI compliance. PayPal handles it for you, at no additional cost.

Apart from the issue of account terminations or funding holds, the only other consistent complaint about PayPal is its customer service, and reports vary. Some merchants say they’ve never had a problem with customer service. Others say that their support reps have been downright unhelpful when they’ve called in. Fortunately, PayPal offers extensive self-help resources so you should be able to deal with most technical issues without having to contact PayPal directly.

I can’t say unequivocally that PayPal is right for everyone. It’s not. But it is a really good option for a lot of merchants, especially low-volume businesses that are just starting out. For a closer look at PayPal and all its services, we recommend checking out our PayPal and PayPal Here reviews.

If you’re not sure PayPal is right for you, I suggest looking at our Square vs. PayPal article, as the two companies are fairly similar in their business models and offerings.

Thanks for reading! If you have any questions or comments, we’d love to hear from you, so please drop us a comment!

The post The Complete Guide to PayPal’s Fees, Rates, and Pricing appeared first on Merchant Maverick.

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Slow-Paying Customers? 10 Tips To Get Your Invoices Paid Faster

Slow Paying Customers? 10 Tips To Get Your Invoices Paid Faster

If your company relies on invoices, you’re probably all too familiar with slow-paying customers. According to the popular accounting software Xero, “More than a third of small business invoices are paid late.”

Late invoices seem like an inevitable part of running a business, but they don’t have to be. That’s why we’ve created a list of practical steps you can take to increase your chances of getting paid on time.

Here are our top ten tips to get your invoices paid faster.

Send Online Invoices

If you’re still mailing invoices manually, now is the time to start saving time and money by switching to e-invoices. Sending invoices online is easy, cost-effective and best of all — fast.

Instead of spending time printing invoices, stuffing envelopes, and waiting on the mailman, you can send your invoices to customers instantly. Your customers get their invoices faster, which means you get paid quicker. And you won’t need to worry any longer about whether your invoice got lost in the mail or sent to the wrong address. Most invoicing software programs offer invoice tracking so you can see exactly when your customer receives and views their online invoice.

When it comes to small businesses, time is money. But money is also money. With e-invoices, you’ll save both. While you may need to spend a small monthly fee on invoicing or accounting software, you won’t have to purchase envelopes, ink, paper, stamps, etc., and you can use your newfound free time for managing other more important aspects of your business.

Take a look at some of our favorite online invoicing options or continue reading to learn all of the perks invoicing software offers.

Offer Online Payments Options

Slow-Paying Customers? 10 Tips To Get Your Invoices Paid Faster

One of the other great perks of using online invoices is the ability to accept online payments. When it comes to getting invoices paid fast, the key is to make it as easy as possible for customers to pay you.

That’s why payment processors are so important. They’re quick, convenient, and available with almost all invoicing and accounting programs offers multiple payment processing options.

According to the popular invoicing software FreshBooks, offering an online payment option significantly increases your chances of being paid on time; and according to Xero, companies that accept both online credit card payments and Paypal payments get paid 20 days faster than those that don’t.

To learn more about accepting online payments, download our free Beginner’s Guide to Payment Processing. If you’re already sending online invoices but aren’t yet accepting online payments, read our post The Best Payment Processors For Accounting Software.

Choose The Right Invoice Template

Believe it or not, choosing the right invoice template can play a role in getting your invoices paid on time.

Most invoicing software programs offer multiple templates options. You want to pick a template that is attractive, simple, and clear to read. This includes choosing a legible, easy-to-read font like Arial or Helvetica (I usually shy away from serif fonts, like Times New Roman, as they are harder to read and often make the invoice look outdated and cluttered).

According to Invoice Ninja:

[An invoice] that’s colorful, distinctive, and attractive in appearance will stand our in their minds. This can help clients to remember your invoice and nudge them towards paying promptly.

Not only do you want an attractive invoice, but you also want an invoice that clearly shows:

  • The invoice due date
  • The invoice amount
  • Your company’s contact and payment information
  • The products or services the customer is paying for
  • The invoice’s terms and conditions

Clarifying and highlighting this information makes it easier for your customers to know when and how to pay you, which can speed up the payment process.

Here are a few examples of strong, attractive invoice templates:



Pick The Right Date

Choosing an invoice template with a clear due date is a definite step in the right direction, but you also want to make sure you choose the right due date.

Oftentimes, you’ll see invoices that say “due upon receipt.” This is a perfect example of what not to do. It doesn’t give a clear due date, which encourages late payments. Another term you often see is a “Net 30” due date. This means that the invoice payment is due 30 days after the invoice is sent. Some customers may not be familiar with this notation. Instead, be clear and specific. If an invoice is due 30 days after it’s sent and it was sent on September 1st, just say that the invoice is due September 30th. When customers have a set-in-stone deadline, they are more likely to pay on time.

If you want your invoices to be paid faster, also consider moving up your due date. If you typically have invoices due 30 days after they’re sent, try moving that up to 15 days. This way you are spending less time waiting on cash.

Give Discounts

merchant cash advance industry

 

You catch more flies with honey than vinegar, and invoicing is no exception. A great way to get your invoices paid fast is to offer a small discount for customers who pay early. Maybe consider offering a 5% or 10% discount for customers who pay their invoices in the first ten days. Everyone likes saving money, so those customers who are looking for savings will jump on the deal and pay their invoice quickly. While you may lose a small amount of your sale, you’ll receive cash faster, which may be more than worth it.

This option may not be for everyone or every type of business, but is definitely worth considering if your business is struggling with cash flow due to late invoice payments.

Enforce Late Fees

If incentives don’t work, you can also consider charging a late fee or interest for late payments. While no one likes to be the bad cop, sometimes you have to take drastic measures to receive your hard-earned money.

If you do go this route, be sure to clearly state your late fee policy on your invoice’s terms and conditions and send reminders to inform your customers that you will begin calculating interest or charging a fee if you don’t receive your invoice in time.

Send Invoices Right Away

Get your merchant funds fast. Image description: Clock with money underneath it

Your customers can’t pay you if they haven’t been sent an invoice. That’s why staying on top of invoicing is one of the most important things a business owner can do. The sooner you send your invoice the sooner you can get paid. Plus, customers are more likely to pay quickly for items or services that they just received.

It can be easy to become overwhelmed and fall behind on invoices. Luckily, there are tons of great invoicing tools out there to help automize your invoicing process. Nearly every invoicing software allows you to send recurring invoices to repeat customers. Apps like Zoho Invoice and QuickBooks Online allow you to auto schedule invoices in advance to help save time. And programs like Invoice2go offer great mobile apps so you can send invoices on straight from your phone.

Send Payment Reminders

Slow-Paying Customers? 10 Tips To Get Your Invoices Paid Faster

Another way to avoid late-paying customers is to send regular invoice payment reminders. Sometimes people simply forget and need a nudge in the right direction toward payment. Send invoice reminders a few days before the invoice is due, the day the invoice is due, and a few days after the invoice is missed.

Hopefully, the first reminder will be enough to get you your payment. If not, continue sending email reminders and calling them on the phone. No one likes to chase down payments or be a nag, but it’s your responsibility to follow up with slow-paying customers.

One of the perks of invoicing software is that most programs allow you to create automatic payment reminders, which saves a lot of time. These programs almost always have an Accounts Payable report as well so you can view your customer’s outstanding balances without having to manually track who hasn’t paid yet.

Invoice In Phases

If you run a project-based business, consider invoicing in phases. Instead of sending one giant invoice at the end of the job, maybe try invoicing once certain phases of the tasks are complete. Or, consider charging a deposit for your work to discourage customers from avoiding payment altogether. This way, you can even out your cash flow.

Use Invoicing Software

When it comes to getting your invoices paid on time, invoicing software is integral. With it, you can send invoices quickly, automize your invoicing process, and encourage customers to pay quickly with online payments.

Here at Merchant Maverick, we highly recommend that small businesses use invoicing software at the very least, or purchase full-fledged accounting software to send online invoices and balance the books. In this post, we’ve already mentioned several of the great perks of e-invoicing and invoicing software.

Here is a full list of the reasons you should use invoicing software:

  • To automate your invoicing process
  • To send online invoices to customers
  • To accept invoice payments from customers directly online
  • To see when your customers have received and viewed their invoices
  • To send automatic payment reminders to late-paying customers
  • To construct default terms and conditions that automatically appear on every invoice
  • To create default invoice email messages to make sending invoices faster
  • To run helpful reports like Accounts Receivable and Sales by Customer
  • To send invoices on the go with mobile apps
  • To save on paper, ink, and time

If you’re ready to start getting faster invoice payments by using invoicing software, here is a comparison of the top invoicing software options that have the best offerings:

Zoho Invoice Invoice Ninja Invoicera FreshBooks

Review Visit

Review Visit

Review Visit

Review Visit

Pricing

$0 – $29/month

$0 -$12/month

$0 – $15/month

$0 – $50/month

Customer Support

Very Good

Very Good

Good

Very Good

Ease of Use

Very Easy

Easy

Very Easy

Very Easy

Business Size

Small – Medium

Small

Small – Medium

Small

Number of Invoice Templates

16

10

7

2

Autoschedule Invoices

✓

✘

✓

✘

Payment Reminders

✓

✓

✓

✘

International Invoicing

✓

✘

✘

✘

Number of Payment Processors

11

35

30

2 – 6

If you want the same great invoicing features but with added bookkeeping functionality, here are the four best accounting programs for invoicing:

Zoho Books QuickBooks Online Wave Zipbooks

ReviewVisit

ReviewVisit

ReviewVisit

ReviewVisit

Pricing

$0 – $29/month

$15 – $50/month

$0

$0 – $125/month

Customer Support

Very Good

Poor

Good

Good

Ease of Use

Very Easy

Easy

Very Easy

Easy

Business Size

Small

Small – Medium

Small

Small

Number of Invoice Templates

15

5

3

1

Autoschedule Invoices

✓

✓

✘

✘

Payment Reminders

✓

✓

✓

✓

International Invoicing

✓

✘

✘

✘

Invoice Strength Score

✘

✘

✘

✓

Number of Payment Processors

12

15

2

2

If you need help deciding which software is right for you, check out our comprehensive invoicing software reviews, take a look at our post How To Choose Invoicing Software, or leave us a comment below.

What If My Customers Still Don’t Pay Their Invoices On Time?

So what happens if you try all 10 of these tips and you still have late-paying customers? That’s where invoice financing comes in.

With invoice financing, you can sell your unpaid invoices to a factoring company in exchange for immediate cash or you can use your invoices as collateral for a line of credit.

If you’re suffering from inconsistent or poor cash flow due to slow-paying customers, invoicing financing might be the perfect solution for you. Read our Merchant’s Guide To Invoice Financing to learn more or compare the invoice financing options.

Instead of feeling powerless against late invoices, you now have ten tricks under your sleeve to help get those invoices paid faster (eleven if you count invoice financing!) Take action against slow-paying customers and start getting your invoices paid faster today.

The post Slow-Paying Customers? 10 Tips To Get Your Invoices Paid Faster appeared first on Merchant Maverick.

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Do I Need To Pay A Down Payment To Get A Small Business Loan?

If you’re a small business owner, you already know that growing, taking care of emergencies, and even just handling day-to-day operations takes capital — and lots of it. Sometimes, when expenses can pile up, it makes sense to consider turning to a small business lender for a helping hand.

After you’ve calculated the amount you need, selected a lender, and started the application process, however, you may hit a financial roadblock: you need ready money to put a down payment on the loan.

To obtain a small business loan — especially for a large amount — lenders often require the borrower to pay a percentage out-of-pocket as a down payment. But why is this required? It seems a bit counterintuitive, after all. You’re borrowing money because you need more, but you have to pay money up front to actually receive the loan.

Is there a way around this apparent Catch-22? What loans require down payments, and what are your options if you don’t have the funds to pay the down payment? Read on to find out more.

Why Lenders Require A Down Payment

If you’ve ever taken out a large loan before, you’re already familiar with down payments. Car loans and mortgages are two examples of loans that require down payments. Let’s say that you go to the car dealership to purchase a car for $30,000. A 10% down payment is required. This means that you will pay $3,000 out of pocket, while the lender will loan you the remaining $27,000 to be paid over the next several years.

Down payments work the same way for business loans. But why do lenders require it?

Requiring a down payment is just one of the ways that lenders lessen their risk. When you make a down payment, you’re investing your own money, which demonstrates to the lender that you’re serious about the loan and more likely to pay it back. It will also be easier for the lender to recoup at least part of their money in the event of a default. If an asset must be repossessed to pay off the debt, the lender will not have to sell the item for full value in order to recoup their investment.

Of course, down payments aren’t just good for lenders — they benefit you, too. By putting up a down payment, you’re able to lower the amount of money that you borrow. This means that not only will your monthly payments be smaller, but you also will save on interest over time, making the loan more affordable over the long term.

Do All Loans Require A Down Payment?

Most larger business loans — including commercial mortgages, commercial auto loans, and equipment loans — do require a down payment in order to get approval for funding.

Whether a down payment is needed at all — and, if so, the required amount — will often vary based on the creditworthiness of the buyer. For example, a borrower with a solid history may qualify for a “zero down” offer or very low down payment, whereas a borrower with a troubled credit history may be required to pay a down payment to be approved for the loan.

One thing to consider is that when there is a minimum down payment requirement, it’s a wise move to put more money down, if possible. As previously discussed, this means you’ll need to borrow less money, leading to lower payments and long-term interest savings.

How The Cost Of A Down Payment Is Determined

There are a few factors that determine the cost of a down payment. The first is the lender’s policies. Lenders may automatically require a down payment for specific loans or loans that exceed a certain amount.

Credit history also plays a role in the amount of the down payment. Down payment requirements are often lower for borrowers with high credit scores and solid credit histories. In some cases, these borrowers may even qualify for no-down payment offers. Borrowers with low scores may be required to make a down payment before even being considered for a loan.

Collateral may also play a role in the amount of the down payment. If sufficient collateral has been put up to cover the loan in case the borrower defaults, a down payment may not be required. For other loans with no specific collateral requirements, a down payment may be required based on the amount of the loan and the creditworthiness of the borrower. This also holds true for loans where the assets being purchased with loan proceeds (such as vehicles, real estate, or equipment) serve as the collateral.

Typical Down Payment Requirements

Whether a loan requires a down payment is based on a number of factors, including the type of loan selected. For some loans, a down payment is always required but may vary based on the profile of the borrower and other considerations, such as the amount of the loan. For other loans, a down payment may not be required at all.

Loan Type Typical Down Payment Requirement

Bank Loans & Lines of Credit

0% – 20%

Online Loans & Lines of Credit

None

SBA 7(a) Loans

10% – 20%

SBA CDC / 504 Loans

10% – 30%

Business Acquisition Loans

10% – 20%

Commercial Real Estate Loans

10% – 30%

Equipment Loans

0% – 20%

Invoice Financing

None

Bank Loans & Lines of Credit

Business loans from a bank are typically reserved for the best borrowers. Even so, banks want to protect themselves from risk as much as possible, which is why a down payment to receive a loan is required, especially for higher loan amounts.

The typical down payment requirement for a bank loan is 10% to 20%. The down payment amount will be based upon the amount borrowed, how the loan funds will be used, the borrower’s credit history, and how the loan will be collateralized.

Business lines of credit from a bank are different in that a down payment is not required. Secured lines of credit may require collateral but will not require a down payment. Learn more about collateral requirements for business loans. A personal guarantee or blanket lien may be required in place of specific collateral for some loans.

Online Loans & Lines of Credit

More business owners are turning to online loans because they are convenient to apply for, are funded quickly, and have qualification requirements that are less strict than conventional loans.

Online loans and lines of credit are also a top choice for business owners for another reason: they do not require a down payment. However, for most loans, collateral or a personal guarantee will be required to secure the loan. Learn more about personal guarantees before applying for your next loan.

Looking for a reputable online lender? The following lenders offer good rates and terms for online loans and lines of credit:

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 – $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

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

SBA 7(a) Loans

The Small Business Administration 7(a) program provides loans to small businesses through intermediary lenders. These loans are very popular because of their high limits (up to $5 million), low interest rates, and flexible terms.

Like other lenders, SBA intermediaries will require a down payment that is sufficient to mitigate risk. Intermediary lenders typically require a down payment of 10% to 20% for 7(a) loans. The down payment amount is based on the borrower’s credit history, the amount of the loan, and the amount of collateral, if any, that is used to secure the loan.

SBA CDC / 504 Loans

SBA CDC/504 loans are loans that are used for the purchase or improvement of commercial real estate. With these types of loans, a borrower works with two lenders – an SBA-approved Certified Development Company and a traditional lender like a bank.

The CDC provides 40% of the total project cost as a loan, while the second lender loans 50% of the total cost. This leaves the borrower with the remaining 10% to be paid as a down payment. Based on the credit profile of the borrower and the amount funded, an additional 10% to 20% may be required by some lenders.

Business Acquisition Loans

When money is borrowed to acquire a business, a down payment is required. Again, it all comes down to the risk posed to the lender. Low-risk borrowers with stellar credit scores and high-value collateral can often receive down payments for business acquisition loans as low as 10%.

However, loans for borrowers with lower credit scores, loans of higher amounts, or loans that aren’t fully collateralized may require higher down payments up to 20%.

Commercial Real Estate Loans

Commercial real estate loans are used to purchase land or property for commercial use. A commercial real estate loan is similar to a personal mortgage, including the need for a down payment.

Many lenders require a minimum 10% down payment for commercial real estate loans. However, requirements vary by lender, so in some cases, up to 30% of the purchase price may be required as a down payment.

With commercial real estate loans, the lender considers the loan-to-value, or LTV, ratio. This means that the lender looks at the appraised value of the property compared to how much the borrower is requesting. A higher LTV poses more risk for the lender, especially when the borrower doesn’t have a solid credit history. To lessen this risk, a higher down payment may be required to lower the LTV.

The SBA CDC/504 loans discussed previously offer an alternative if you’re looking to purchase commercial real estate with a lower down payment.

Equipment Loans

An equipment loan is a type of financing that is used to purchase equipment and machinery needed for a business to continue or expand operations. Equipment loans may require a down payment, although there are options available for 100% financing with no down payment required. Equipment that holds its resale value will most often qualify for very low or no down payments. Because it serves as the collateral and can be repossessed and sold if the loan goes into default, there is less risk for the lender.

However, depending on the amount of the loan needed and other factors, including credit history, an equipment loan may require a down payment of up to 20% of the total value of the equipment.

Think equipment financing is right for you? Check out these lenders:

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

Invoice Financing

With invoice financing, lenders provide an advance on cash for unpaid invoices. This type of loan is best for businesses that have cash flow issues due to unpaid invoices.

With invoice factoring, the lender provides you with a percentage of cash up front. Once the lender collects payment from the customer, the remaining percentage is paid to you minus any fees and interest collected by the lender.

Invoice discounting is similar. However, most of the unpaid invoice is advanced to you up front. Once you are paid by the customer, you pay back the advanced funds, along with any fees and interest charged by the lender.

With invoice factoring and invoice discounting, the unpaid invoices act as the collateral. Because the collateral reduces the risk for the lender, there are no down payments required for this type of loan.

What To Do If You Can’t Afford A Down Payment

You need a loan in order to expand your business, but you can’t afford the down payment – now what? Fortunately, there are a few steps you can take when you’re struggling to come up with the funds to make the down payment.

The first thing you can do is consider different loans to find options with lower down payment requirements. SBA loans typically have lower down payment requirements than loans from banks. If you meet the qualification requirements, consider applying for SBA loans, which also have very competitive rates and terms.

You can also explore loan options that don’t require a down payment, such as online loans and lines of credit. Remember, though, paying a down payment will help reduce the amount that you borrow, the monthly payment, and the overall cost of the loan.

Another strategy involves credit cards, but not in the way that you might think. While you can certainly choose to put a down payment on a credit card, this isn’t a wise financial move. Interest charges will rack up as long as there is a balance, keeping the business in debt. Instead, this strategy involves paying off your credit cards and other debts. Once old debts are paid off, the money being used to pay balances, plus interest, can then be applied toward the down payment.

If the financing need isn’t immediate, you can also consider saving the money. You can put money in a savings account or into certificates of deposits, money market funds, or other short-term investment vehicles.

If a low credit score is an issue that contributes to a high down payment, pull your free credit report and score and get to work building your credit profile to qualify for lower down payments — along with improved interest rates and terms — in the future.

While it’s possible to use credit cards or other borrowed funds to pay your down payment, this ultimately just adds to your business debt, so it’s best to avoid these methods if possible.

Final Thoughts

A down payment for a small business loan may seem like an inconvenience, but this requirement is put in place to protect the lender. The good news is that the lender isn’t the only one that will benefit. Having a solid down payment for your business loan will help you save money over the long-term in interest fees, while also reducing your monthly payments and lowering your debt — all keys to smart, responsible borrowing.

Looking for a business loan? Start here.

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 – $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

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

The post Do I Need To Pay A Down Payment To Get A Small Business Loan? appeared first on Merchant Maverick.

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SBA Franchise Loans: A Complete Guide

If you’re a franchise operator, you know that getting started can be tricky. Franchises offer flexibility and support for owners, but require capital to get started. Chances are, you’ll need an influx of cash at some point during your career as a franchisee. Whether you’re starting a new franchise or growing an existing one, an SBA Franchise Loan can be a helpful tool. As part of their larger mission, the Small Business Administration offers funding for small business franchises that need capital. Once determined eligible, franchises can enjoy the flexibility and low rates of a small business loan, backed by the SBA.

SBA Franchise Loan Eligibility

Applying for an SBA Loan is an arduous process, and for franchises, the process does have an additional step. Thankfully, the SBA has worked to make the extra step a bit easier for larger, more established franchised businesses.

What Franchises Are Eligible For Financing?

The SBA has a simple way for most franchises to determine their eligibility for a loan. The Franchise Directory is a list of all brands reviewed by the SBA. If you find your franchise listed on the directory, it pre-qualifies you for SBA financial aid.

If your franchise has not already been deemed eligible by the SBA, you can apply to be added in the directory by submitting an agreement. You may also be asked to submit a Franchise Disclosure Document (FDD) and other applicable documents. The FDD will ask for information on your business, including its financial history and marketing strategies.

This process does add extra steps to your SBA Loan application, so it is much faster to acquire an SBA Franchise Loan if your franchise is already in the Franchise Directory. If you don’t wish to be added to the Franchise Directory, you have the option of simply applying for an eligibility review for your franchise.

What Eligibility Requirements Do Franchisees Have To Meet?

After your franchise is approved, you as a franchisee must also meet certain qualifications. Most borrowers are required to have management or direct industry experience. You must also have an acceptable personal credit history with no personal or corporate bankruptcies. The SBA has basic guidelines applicants of any loan must meet. This includes meeting size requirements, for-profit business status, and operations within the United States. You must have an acceptable personal background, a business plan, and financial statements. In most cases, you will be required to put up collateral and sign a personal guarantee.

The ideal borrower has an acceptable business history with a franchise of at least two years. Lenders want to know that your franchise will be a success, so the more successful locations your business already has, the better. Popular franchise types include retail, fitness, daycare, food service, and hospitality.

Ineligible For SBA Funding? Try These Lenders

Many businesses find it difficult to qualify for SBA loans, as the requirements are difficult to meet. If you find that you are ineligible for SBA funding, you can check out these alternatives to SBA funding, which are often easier to qualify for and can provide funding faster with less paperwork. Lenders like ApplePie Capital, Funding Circle, and SmartBiz offer some of the best online loans for franchises.

How Can Franchises Use SBA Financing?

To fund your franchise, you will probably need a 504/CDC Loan or a 7(a) Loan. 

General SBA 7(a) Loans

7(a) Loans are the most popular and versatile of SBA Loans. They are backed by the SBA in amounts up to 85%, making them a popular choice for businesses ineligible for traditional business loans. A 7(a) program offers long-term loans, favorable rates, and flexibility. Funds from a 7(a) can be used for short- or long-term working capital, furniture, fixtures, purchasing a pre-existing business, refinancing corporate debt, construction, refurbishment, and supplies.

SBA 7(a) Loan Base Rates (Plus Markup)

Loan Amount Less Than Seven Years More Than 7 Years

Up to $25,000

Base rate + 4.25%

Base rate + 4.75%

$25,000 – $50,000

Base rate + 3.25%

Base rate + 3.75%

$50,000 or More

Base rate + 2.25%

Base rate + 2.75%

SBA CDC / 504 Loans

504/CDC Loans are a more competitive loan product offered by the SBA and Certified Development Companies (CDC). These loans also offer long-term financing and small down payments, but have less flexibility in what buyers may purchase with funds. A 504 Loan can be used for heavy machinery, the purchase of existing buildings, construction, and refurbishment.

SBA 504 Loan Rates & Terms

SBA 504 Loans

Borrowing Amount

No maximum, but the SBA will only fund up to $5 million

Term Lengths

10 or 20 years

Interest Rates

Fixed rate based on US Treasury rates

Borrowing Fees

  • CDC servicing fee, CSA fee, guarantee fee, third party fees (however, most of these fees are rolled into the interest rate or cost of the loan)
  • Possible prepayment penalty

Personal Guarantee

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

Collateral

Collateral required; usually the real estate/equipment financed

Down Payment

10% – 30%

What’s The Difference Between A 7(a) Loan & A 504 Loan?

CDC / 504 Loans SBA 7(a) Loans

Loan Size

The CDC portion of the loan has a size limit, but the overall loan can be used to finance larger projects.

Offers flexibility for size projects, but are generally used for smaller sized projects.

Interest Rates

504 loans offer fixed-rate financing, which locks in low rates for the full length of the loan.

Usually has lower fees, but are variable, not fixed, and are adjusted quarterly. Rates typically rise over time.

Prepayment Penalty

High prepayment penalties

Prepayment penalties vary depending on loan

Loan Structure

  • 50% Bank Loan
  • 40% CDC Loan
  • 10% Borrower Down Payment

Varies depending on risk. Minimum 10% down payment for the borrower.

Loan Fees

Fees are negotiated per the 50% bank loan. Can be financed within the 504 loan.

Fees are based on the size of the loan. Can be financed within the 7(a) loan. An extra .25% of fees can be charged on portions of a 7(a) loan exceeding $1 million.

How To Apply For An SBA Franchise Loan

Applying for an SBA Franchise Loan is a similar process to applying for any other type of SBA Loan. Once your franchise has been approved or been confirmed on the Franchise Directory, the process of applying for a loan will remain the same. You will need the following information for your application:

  • Personal Credit History
  • Personal Financial Statement
  • Business Plan

These are all customary documents for an SBA application. You can get started with your application online and be connected with potential lenders within two days.

Final Thoughts

Operating a franchise can be a great way to become a business owner. Franchises offer the independence of a small business with the guidance and support of a larger corporation. If this sounds like a good option for you, an SBA loan program can be another supportive infrastructure to have on your side. While applying for an SBA Loan can be a difficult process, the benefits of flexibility and support are well worth the effort.

The post SBA Franchise Loans: A Complete Guide appeared first on Merchant Maverick.

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How To Get A Small Business Loan: The Step-By-Step Guide

It doesn’t matter what type of small business you own. You automatically have something in common with every other small business owner: you need money to function. Without money, your business isn’t going to be successful. Without money, you can’t pay your employees or even yourself. Without money, you’ll never be able to grow and scale your business.

Most small business owners know the importance of capital, which is probably why you’re here. You need money, and you’re considering a small business loan. However, like any smart business owner knows, taking on debt without knowing the facts can be dangerous. Accepting a high-interest loan, taking money without having a clear plan for how to use it, or otherwise being irresponsible with borrowing can lead to unpaid debt, collections, or worse, the bankruptcy and closure of your business.

While this isn’t meant to scare you, it is intended to show you the importance of borrowing with prudence and foresight. In order to borrow responsibly, it’s important to understand the small business loan process. Many owners don’t know where to begin.

  • How hard is it to get a small business loan?
  • How big of a loan can I get for my business?
  • What do I need for a small business loan?

If you’ve asked yourself any of the above questions, this guide is for you.

You are taking the critical first step to making the smart, responsible choice when it comes to small business loans. This guide will walk you step-by-step through the small business lending process to help you determine whether taking out a loan is truly best for your business. Whether you’re wondering how to get a small business loan to start a business or how to get a business loan without collateral, this guide will help you every step of the way. Read on to find out more.

1) Determine How You Will Use The Money

How do you get a small business loan? The primary action you should take before even thinking about filling out a loan application should be to determine how the business loan proceeds will be used. In other words, why do you need a loan?

There are a variety of legitimate reasons for business owners to take out a small business loan:

  • To upgrade facilities with the purchase of new equipment.
  • To buy land.
  • To purchase office space or buildings.
  • To refinance high-interest debt.
  • To hire new employees.
  • To cover payroll.
  • To purchase inventory or supplies that may be needed due to seasonal increases.
  • For working capital.
  • To start a new business.
  • To fund a start-up project.
  • To acquire another business.
  • To buy a franchise.

A small business loan can provide capital for just about any business expense. It is up to you to determine what expenses you have, how the funding will be used, and whether or not this will contribute to the growth of your business. A small business loan should only be used to benefit the business over the long term.

2) Decide How Much You Need…

Once you’ve determined why you need a small business loan, the next step is to figure out exactly how much you need. Taking out a loan for an excessive amount of money that’s not needed could result in unnecessary extra fees and interest payments.

Figuring out how you will use the money will help you determine how much you need. Run through calculations of your potential expenditures. Consider all scenarios when making these calculations. Do your research. For example, if you’re looking to expand your facilities with the purchase of commercial real estate, look at comparable properties online to get an idea of how much you will need to borrow. If you plan to purchase new equipment, compile a list or spreadsheet of related costs to give you an overview of how much money you need.

Not only will this help you save on interest by not overborrowing, but it is also necessary for the application process. Lenders will want to know why you want to borrow the money. Doing your research ahead of time and having a logical response for how much you need and why you need it is a critical step in applying for a business loan.

3) …And How Much You Can Afford To Borrow

merchant cash advance industry

While calculating the amount of your loan is important, also remember that there are limitations on how much you can borrow. To understand how to get a small business loan from a bank or other lender, you need to know the various calculations used throughout the loan process to determine how much you can afford to borrow.

One of the first things that will be considered is the Debt Service Coverage Ratio, or DSCR. This number is determined by dividing your annual net operating income by the annual debt payments of your business. The resulting score is used as a metric for determining loan amounts and terms.

Debt Service Coverage Ratio = Annual Net Operating Income / Annual Debt Payments

The DSCR of your business should be higher than 1. This shows lenders that you will be able to make your loan payment even with other debts.

For example, if the annual net income of a business is $150,000 and annual debt payments are $100,000, the DSCR would be 1.5, showing the lender that the business can afford to pay the principal and interest on a loan because income exceeds debt payments.

Another calculation used by traditional lenders is the Debt-To-Income Ratio, or DTI. This formula is used to show the relationship between the debt of the business owner and the owner’s monthly income. To calculate DTI, total monthly debt is divided by gross monthly income.

Debt-To-Income Ratio = Total Monthly Debt / Gross Monthly Income

Let’s say the business owner brings in $5,000 per month in income. The business owner’s monthly debt payments total $2,000. Plugging this into the formula shows that the DTI is 0.4 (or 40%).

In this example, the DTI is a bit high. Ideally, DTI should be around 36% or lower. While some lenders will still finance business owners with higher DTIs, approval may be more difficult and terms may not be as favorable.

Finally, it is important to understand your return on investment, or ROI. This simply means that the total cost of the loan, including interest and fees, is less than the profits that will come in as a result of getting the loan. For example, let’s say you need a loan to hire more employees. With more employees, you will be able to complete more work for your customers and make more money. Over time, this increased productivity will more than pay for the loan.

Understanding the lending process and whether you can afford to take on a business loan is a critical step to take before accepting a loan offer. Read on to learn more about how you can determine if your business can afford to take on a small business loan.

4) Check Your Credit Score

free credit score monitoring service

As with any other loan, a small business loan requires you to have a strong credit score in order to receive the best rates and terms. Before applying for a loan, you need to have an understanding of your credit score and know what’s on your report.

You can get started by obtaining your free credit report online. Read through your report thoroughly to check for any errors that may need to be disputed through the credit bureaus. Take note of any negative items, including but not limited to collections, charge-offs, missed or late payments, or a high number of inquiries. Negative marks will need to be explained to your lender.

How Do I Improve My Credit Score?

Uh-oh. You’ve pulled your credit report and score, and it’s not where it needs to be to get an affordable small business loan. Don’t worry; this shouldn’t be seen as a roadblock, but instead, as an opportunity to boost your credit and understand your finances while putting you on the path to responsible borrowing.

There are several easy ways to boost your business credit score. If you haven’t already, run through your credit report and find any errors. Any erroneous information will need to be disputed with the credit bureaus. This information will be corrected or in some cases deleted, which can instantly boost your score.

Make sure to continue to pay your bills on time every month. Not paying your bills at all or even paying them late will make your credit score take a hit. If something has occurred that prevents you from paying, contact your creditors immediately. In many cases, a grace period is extended. Face your debts head on and never ignore your obligations – or calls from creditors.

To improve your score, you also want to make sure that you keep your credit utilization low. Your credit utilization should be 30% or lower. This means that of your available credit, only 30% or less has been used. If you have high credit utilization, work to pay off as much debt as possible in the shortest amount of time in order to bring your ratio down.

Finally, don’t fall victim to companies that offer to boost your credit score. These services often come at a high price and don’t do anything to your credit report that you can’t do yourself. Read on to learn more about raising your credit score.

Can I Get A Small Business Loan With Bad Credit?

How easy is it to get a small business loan with a bad credit score? While it is possible to get a small business loan with bad credit, the best rates and terms are available to business owners with the highest credit scores. Instead of wondering how to get a small business loan with bad credit (which often involves very high interest rates and fees), shift your focus to increasing your credit score.

While credit score requirements vary across lenders, it’s generally recommended to have a score at least in the high 600s in order to qualify for a business loan. Other options may be available for anyone with scores in the lower 600s or even the 500s, but these are often short-term loans with higher interest rates and lower maximum amounts.

5) Decide What Type Of Loan You Need (And Will Qualify For)

You’ve determined what loan amount you need and how you will use these funds. You’ve reviewed your credit report and score. Now, it’s time to determine the type of loan that will fit your needs, as well as the loans that you will be qualified to receive.

Term Loans

A term loan (or installment loan) is one of the most common types of small business loans. These traditionally-structured loans provide a specific amount of money at a specific interest rate for a set period of time. Interest rates for term loans can be fixed or variable and typically have a monthly repayment schedule. These loans are best for funding large investments, from hiring a team of employees to purchasing commercial real estate.

Term loans are typically the most difficult to qualify for and usually require collateral. Applicants should have a strong credit history, and most businesses that qualify will already be well-established, although loans for startup businesses are available as well.

Short-Term Loans

Short-term loans are loans that are meant to be repaid in one year or less. Sometimes, terms may be much shorter depending on the lender selected.

There are a few different situations where short-term loans may be the best choice. If there are cash flow issues, seasonal upticks that result in rising operational costs, or an unexpected business emergency, a short-term loan may be an option to consider.

These loans are often funded very quickly but are available in smaller amounts than term loans. The short-term loan process is often much easier than the process of applying for term loans, and the requirements (including credit score) are less stringent. However, these loans can come with much higher interest rates than their long-term counterparts, so this type of financing may be very expensive for a small business.

Business Line Of Credit

A business line of credit is similar to a credit card. A small business is provided with a credit limit. The business can spend up to the amount of the credit limit and can make multiple draws if needed. Interest is paid on the funds that have been spent. Payments are made on a scheduled basis.

A business line of credit can be used in many situations. Emergency expenses, purchasing inventory during a busy season, or cyclical cash flow shortages can be funded using a business line of credit. Getting approved is quicker and easier than applying for a term loan, and requirements, including credit score and time in business, are less strict. However, interest rates are typically higher. Because it’s easy to use lines of credit, it’s important to be responsible and only draw on the line of credit when necessary.

Startup Loans

A startup – or a business that has been in operation for less than 2 years – may find that obtaining credit is difficult. This is because the business doesn’t have the documentation to prove that it’s a successful, established business. Other entrepreneurs have big ideas but aren’t sure how to get a loan to start a small business.

In these cases, there are loans available for startup businesses. Startup loans can be used to fund new projects, for research and development, to purchase new facilities, and other expenses. Business owners that apply for startup loans won’t be required to show traditional documentation such as three years of business tax returns. However, a solid, detailed business plan and future financial projections will be required to prove that the business has the potential to be successful.

Equipment Loans

Businesses that need new equipment can take advantage of equipment financing. These loans are used exclusively for the purpose of purchasing equipment.

Equipment loans are similar to term loans in that the total cost of new equipment, plus interest, is broken down into affordable payments. Often, these loans are easier to obtain than traditional loans, especially for borrowers with lower credit scores.

Invoice Financing

Invoice financing is a form of lending that allows business owners to borrow against money that is owed to them by their customers. With invoice factoring, the lender purchases the invoice, paying the small business a percentage of the total invoice amount. When the lender collects payment from the invoiced customer, the remaining percentage is paid to the small business, less interest and fees.

Invoice discounting is also an option. Through this type of loan, a lender will advance a percentage of the invoice total to the small business. Once the invoice is paid, the small business will repay the loan, along with fees and interest.

This is a lending option that works well for businesses that have many outstanding invoices and need money immediately. The accounts receivables serve as the collateral for this type of loan, and borrowers with lower credit scores can be approved.

6) Research Possible Lenders

5 C's of Credit: What Lenders Look For

Now that you know the best type of loan to fit your needs and (and which you’re most qualified to receive), the next step is to find a lender. Since interest rates, repayment terms, and requirements vary by lender, it’s important to take the time to research your options in order to find the most affordable loan for your business. Read on to find out where to get a small business loan.

Banks & Credit Unions

Banks and credit unions are where most people immediately turn when they need financing. For most business purposes, these financial institutions offer great options with low interest rates and long-term repayment options.

Through banks and credit unions, small business owners can take advantage of loan options including:

  • Secured and unsecured lines of credit
  • Business credit cards
  • Term loans
  • Vehicle financing
  • Equipment financing
  • Commercial real estate mortgages
  • Small Business Administration loans (through SBA-approved lenders)

As you can see, banks and credit unions offer a broad spectrum of loan options. While these loans come with extremely favorable terms, certain loans from banks and credit unions can be difficult to obtain. Obtaining a commercial mortgage or term loan can take weeks or even months to complete. For most lending options, banks and credit unions also require borrowers to have a very strong credit score.

Read The Best Banks For Small Business Loans for more information on specific lenders.

The Small Business Administration (SBA)

If you’re wondering how to get a small business loan from the government, look no further than the Small Business Administration. SBA loans are one of the most popular options for small business owners. The SBA, through intermediary lenders, provides funding opportunities for small business owners when traditional loan options aren’t available.

The SBA offers multiple loan programs for small businesses, including:

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.

Review

Microloans

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

Review

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

These loans are backed by the government, so intermediary lenders have more incentive to loan to small businesses. All loans are regulated by SBA standards, keeping interest rates low and repayment terms flexible.

There are some drawbacks to SBA loans, however. For most programs, a strong credit score is required. With the exception of Express Loans, SBA loans also have a lengthy application process, and funding can take several months.

Online Lenders

One of the benefits of the internet is that it has opened up many lending opportunities for small businesses. These loans often require less paperwork than loans obtained from banks or the SBA, and everything can be done online, from the application process to signing the final loan documents.

There are multiple loan options available from online lenders, including:

  • Long-term loans
  • Short-term loans
  • Equipment financing
  • Vehicle financing
  • Lines of credit
  • Business credit cards
  • Invoice financing

Requirements for online loans may be more flexible in terms of credit scores and time in business. However, depending on the loan selected, fees and interest rates may be much higher than other types of funding.

Looking for a good online lender? The following companies offer low rates and reasonable terms to qualified borrowers:

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

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

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

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

$20K – $500K 1 – 4 years 7.99% – 29.99% APR 2 years 660 Apply Now

Nonprofit Lenders

Some nonprofit organizations provide financing options for small businesses to fund almost any type of business expense. For qualified borrowers, low interest rates are available.

Low borrowing limits imposed by many nonprofit lenders are a potential drawback for small business owners. In most cases, these loans require a strong credit score and the application process can be lengthy, similar to applying for SBA and bank loans.

Microlenders

Microlenders offer small loans of less than $50,000 to small business owners. These loans can be used for just about business expense.

Microloans are a great choice for startups with limited credit history or small businesses that can’t obtain funding through other lenders. Getting a microloan is one way that business owners can get a boost to their credit score to qualify for larger loans from traditional lenders in the future. For businesses that need more than $50,000, microloans will not be the best option.

Check out these lenders if you’re interested in applying for a small business microloan:

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

$250,000

9% – 36% factor rate

500

Visit Site

$500,000

2.9% – 18.72% factor rate

550

Visit Site

$500,000

9.4% – 99.7% APR

500

Visit Site

7) Prepare Your Documents

You’re getting closer to applying for a loan from your chosen lender. Before signing on the dotted line, though, it’s important to be prepared for the application process and know what you need to get a business loan.

Depending on the type of loan you’re applying for, paperwork requirements vary. At the bare minimum, you will be required to show the lender that you have the means to pay back the loan. Some loans, such as term loans from the bank or loans through the SBA, require much more paperwork.

Documentation requirements vary, but in general, you should expect to provide the following documents:

  • Balance sheets
  • Profit and loss statements
  • Personal and business credit reports
  • Personal and business income tax returns
  • Bank statements
  • Business licenses
  • Franchise agreements
  • Quotes from contractors and vendors

For many loans, personal guarantees from all owners may be required. This means that if the loan goes into default, the business owners can be held personally liable for the debt.

Startup businesses without proper documentation may be required to submit other paperwork, including a business plan, resumes for all owners to prove industry experience, and financial projections.

Can I Get A Business Loan Without Collateral?

For certain types of business loans, collateral is not required. For example, with equipment financing, the equipment being purchased is the collateral. For invoice factoring, the unpaid invoices serve as collateral. Smaller loans like microloans also may not require collateral, depending on the policies of the lender.

However, for larger loans, collateral is typically required. The SBA, for instance, requires all 7(a) loans of over $350,000 to be collateralized. Collateral is typically in the form of business assets. However, some lenders will also use personal real estate or assets as collateral for a loan.

8) Apply For Loans & Compare Offers

After following the last six steps, you’re finally ready to begin the application process. Depending on the lender and the type of loan you’ve selected, you may have to visit a financial institution, call the lender, or apply online.

Before applying, it’s necessary to have a general understanding of the requirements of the lender. For example, if their small business loan credit score requirements are over 700 and your credit is 680, applying for the loan will not only be a waste of time but will also create an unnecessary inquiry on your credit report. You also want to do your research to find what lenders offer the lowest rates and best repayment terms.

When applying for a small business loan, you will have to give the lender the reason you’re applying for the loan, as well as the amount you wish to borrow. You should have all of your documentation together to include with your application. Please note, however, that lenders have different requirements and more documentation may be required depending on your chosen loan.

Personal and business credit reports will be evaluated by the lender. If there are any negative items on your credit report, you will need to explain these items to the lender. All documentation will be evaluated to determine whether you qualify for the loan, including creditworthiness and ability to pay back the borrowed amount.

After documentation has been submitted and the application completed, the approval process begins. For business credit cards or lines of credit, this could be almost immediate. For long-term loans, this process could take several weeks.

Once approved, the loan will need to go through underwriting, closing, and funding. Depending on the loan selected, the entire process could potentially take several months. This is especially true for SBA and long-term business loans from banks and credit unions.

If you’ve applied for multiple loans, such as through an online loan marketplace, compare the offers you’ve received to determine which has the most favorable rates and terms.

Once your loan has been funded, it’s time to use the money for your intended business purpose. With careful planning, these funds have the potential to take your business to the next level. The final step is to remember to always pay your loan as agreed like any responsible borrower. This proves that you are a trustworthy business and opens up more lending opportunities for the future.

The post How To Get A Small Business Loan: The Step-By-Step Guide appeared first on Merchant Maverick.

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Commercial Real Estate Loans: Types, Rates, and How To Apply

Whether a startup company is moving into a commercial building for the first time or an outdated warehouse needs to be brought into the 21st century, there comes a time when the next step for a small business owner is to build, purchase, or update their commercial space. Because most businesses don’t have the cash flow to pay out of pocket, a commercial loan is critical to taking this next step toward growth.

Small business owners should know their options, shop around, and find the money they need with the best rates and terms. The process can be overwhelming, but we’ll break down the different types of commercial real estate loans, the associated terms and rates, and what to expect during the application process.

SBA CDC/504 Loans

The Small Business Administration, or SBA, is known for providing low-interest, long-term loans to business owners. For the purchase of commercial real estate, there are few programs out there better than the SBA CDC/504 loan program.

How Do CDC/504 Loans Work?

SBA loans are acquired through an intermediary lender. These lenders are more willing to take on the risk of loaning money to small businesses because a portion of the loan is guaranteed by the government. An intermediary can be an SBA-approved bank or even a nonprofit organization.

CDC/504 loans are a bit different in that there are two lenders involved in the process. A Certified Development Company, or CDC, is regulated and certified through the SBA. These nonprofit organizations are tasked with promoting economic development, and this is done primarily through commercial loans with favorable rates and terms.

With this type of loan, the CDC provides 40% of the total project costs. The borrower must find another lender, such as a bank or credit union, to provide 50% of the project costs. It is then up to the borrower to pay the remaining 10%.

Loan proceeds can be used toward purchasing commercial real estate, buying land or paying for land improvements, the construction of new facilities, renovating existing commercial properties, or purchasing long-term machinery. Old debt related to the purchase of new property or upgrading facilities can be refinanced with a CDC/504 loan.

SBA CDC/504 Loan Terms, Rates & Down Payment

The maximum loan amount distributed through this program is $5 million. The interest rates on CDC/504 loans are based on the market rate of 5-year and 10-year Treasury issues. As of October 2018, interest rates will not exceed 5.25%. Interest rates are fixed, and there are no balloon payments. Repayment terms of 10 years for equipment and 20 years for real estate are available with CDC/504 loans. It’s important to note that these rates and terms apply only to the 40% portion funded by the CDC.

The required down payment is 10% of the project cost but this can rise up to 30%. Typically, the collateral for the loan is the project itself and no additional collateral is needed in most cases. A personal guarantee is required by all owners with at least a 20% stake in the business.

SBA 504 Loans

Borrowing Amount

No maximum, but the SBA will only fund up to $5 million

Term Lengths

10 or 20 years

Interest Rates

Fixed rate based on US Treasury rates

Borrowing Fees

  • CDC servicing fee, CSA fee, guarantee fee, third party fees (however, most of these fees are rolled into the interest rate or cost of the loan)
  • Possible prepayment penalty

Personal Guarantee

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

Collateral

Collateral required; usually the real estate/equipment financed

Down Payment

10% – 30%

SBA CDC/504 Loan Borrower Requirements

To qualify, the business must meet the SBA’s definition of a small business. The net worth of the business should not exceed $15 million, and the average net income should be $5 million or less after federal taxes. The business may also have a certain number of employees to qualify as a small business, but this number varies by industry.

All businesses must be for-profit and should not be engaged in illegal or passive activities. As previously mentioned, all owners with a stake of at least 20% must sign a personal guarantee. Credit score is a factor in qualifying for the CDC/504 loan program, and while there are no minimums, generally a score of 680 or higher is recommended for the best chance of approval. The borrower should have no defaults on prior government-backed loans, foreclosures, or bankruptcies.

Where Do I Find SBA CDC/504 Loans?

Business owners interested in obtaining a CDC/504 loan can find a participating CDC through the SBA website. Applicants can also get a referral to an SBA-approved lender through their own financial institutions.

How To Apply For A CDC/504 Loan

An application will need to be submitted to an SBA-approved CDC. Along with the application, paperwork will be required by the business. This includes but is not limited to personal financial statements, business and personal income tax returns, income statements, and purchase agreements if the loan is being used to purchase an existing building.

Is An SBA CDC/504 Loan Right For Your Business?

An SBA CDC/504 loan is a great option for any small business looking to expand through the purchase, upgrade, or construction of new facilities. High limits, low down payments, and competitive terms and rates make this one of the best commercial real estate loans.

However, the process for obtaining one of these loans is lengthy. Any small business owner that needs funding fast should consider other options. Small business owners that would prefer to work with just one lender should also look into other types of loans. Learn more about the SBA CDC/504 loan program to make the smartest financing decision for your business.

SBA 7(a) Loans

The CDC/504 loan isn’t the only program offered by the SBA to purchase or update commercial real estate. The organization’s most popular loans through the 7(a) program can also be used for this purpose.

How Do SBA 7(a) Loans Work?

7(a) loans are the most popular SBA loans and for good reason. With low interest rates, lengthy repayment terms, and flexibility in how the funds are used, these are easily one of the best loan options on the market today.

SBA 7(a) loans can be acquired through intermediary lenders. Up to 85% of the loan is guaranteed by the SBA, taking the risk off of the lender. This allows intermediaries to provide competitive loans to small business owners.

SBA 7(a) loans can be used for just about any business purpose. This includes the purchase of commercial real estate, financing equipment, acquiring a new business or franchise, or using for working capital.

SBA 7(a) Loan Terms, Rates & Down Payments

Up to $5 million in financing is available through the SBA 7(a) program. Interest rates are based upon the base rate plus an added percentage of no more than 4.75%. When purchasing real estate, the maximum repayment term is set at 25 years.

Loan Amount Less Than Seven Years More Than 7 Years

Up to $25,000

Base rate + 4.25%

Base rate + 4.75%

$25,000 – $50,000

Base rate + 3.25%

Base rate + 3.75%

$50,000 or More

Base rate + 2.25%

Base rate + 2.75%

Down payments for SBA 7(a) loans typically range between 10% and 20%. In some cases, collateral is required. Loans for $25,000 or less do not require collateral. Personal real estate can be used as collateral if needed. As with other SBA loans, a personal guarantee is required.

SBA 7(a) Loan Borrower Requirements

As with the SBA CDC/504 loans, all businesses receiving an SBA 7(a) loan must fall under the organization’s definition of a small business.

SBA 7(a) loans require the borrower to have a good credit score. A minimum score of 680 is typically recommended. Bankruptcies, foreclosures, and defaults on government-backed loans typically disqualify an applicant. A reasonable explanation for any negative items on a credit report is also expected by any SBA-approved intermediary.

Where Do I Find SBA 7(a) Loans?

SBA 7(a) loans can be obtained through an SBA-approved intermediary lender. A lender can be found through the SBA’s Lender Match service, an online loan broker, or through a referral from a small business owner’s financial institution.

How To Apply For An SBA 7(a) Loan

An application will need to be submitted to the chosen intermediary lender. Similar to CDC/504 loans, the proper paperwork will need to be submitted with the application. An online service such as SmartBiz can also be used to apply for SBA 7(a) loans.

Is An SBA 7(a) Loan Right For Your Business?

The SBA 7(a) loan is one of the most flexible options for small business funding, making it an ideal choice for most businesses. However, 7(a) loans are not attainable if the business owner has a low credit score. If fast funding is needed to scoop up a commercial real estate deal, other options may need to be considered, as approval, underwriting, and funding SBA 7(a) loans can take several months. Still undecided? Read on the learn more about SBA 7(a) loans for small businesses.

Bank Commercial Mortgages

When consumers want to purchase real estate, they usually head to the bank. For small business owners, banks offer mortgages that can be used to purchase commercial property.

How Do Bank Commercial Mortgages Work?

Commercial mortgages through traditional financial institutions are similar to mortgages for residential property with one big exception: commercial mortgages can be harder to obtain.

This is simply because commercial mortgages are not backed by the government. Residential mortgages are backed by entities like Freddie Mac and Fannie Mae. This is not the case with commercial mortgages, making them a bigger risk for banks. With that said, it isn’t impossible to get a commercial mortgage, but it’s important to understand that the process can be time-consuming.

With a commercial mortgage, banks lend a certain percentage of the property value to the borrower. The borrower will then pay this loan back over a set number of years, along with interest. Because these loans are riskier for lenders, commercial mortgage interest rates and down payments may be higher than other types of commercial real estate loans.

Bank Commercial Mortgage Terms, Rates & Down Payments

Interest rates vary from lender to lender and are also affected by the applicant’s creditworthiness. With good credit, though, an applicant can receive interest rates around 5% to 7%. There is no maximum loan amount, although the approved amount is based on the borrower’s ability to repay the loan.

Typically, commercial mortgages are available for 65% to 85% of the property’s LTV ratio. Depending on the loan selected, the borrower will be required to pay 15% to 35% as a down payment. The typical maximum maturity for commercial mortgages is 30 years, but terms may be longer or shorter depending on the lender selected.

Bank Commercial Mortgage Borrower Requirements

Credit requirements vary by lender, but applicants should have a score of at least 700 for a higher chance of qualifying. There should be no major negative items, including foreclosures or bankruptcies, on the applicant’s credit report.

Where Do I Find Bank Commercial Mortgages?

Bank commercial mortgages can be obtained from most financial institutions. Small business owners should start with banks and credit unions with which they already have an existing relationship. Potential borrowers can also compare rates, terms, and requirements across financial institutions online before applying.

How To Apply For A Bank Commercial Mortgage

To apply for a bank commercial mortgage, applicants can call, go online, or visit their local branch to get the process started.

Much of the same paperwork required for SBA loans will be needed to apply for a commercial mortgage from a bank. This includes business and personal income tax returns, and personal and business financial statements.

Is A Bank Commercial Mortgage Right For Your Business?

Bank commercial mortgages are a good choice for anyone that needs a loan that exceeds the $5 million limits put in place through SBA lending programs.

Commercial mortgages from financial institutions can take months from application to funding, so other options should be sought if quicker approval and funding is needed. Another loan option may be better if the applicant’s score falls below 700. Small business owners that don’t have a lot of money to use toward a down payment may also want to consider other loans.

Commercial Bridge Loans

While the previous commercial real estate loans were long-term options, sometimes a short-term loan just makes more sense. If that is the case, a commercial bridge loan fits the bill.

How Do Commercial Bridge Loans Work?

Sometimes, opportunities arise and business owners have to take action fast or get left in the dust. Traditional commercial real estate mortgages and SBA loans can take weeks or even months to get approved and funded. A hot real estate deal could be gone from the market much sooner than that.

If commercial real estate funding is needed fast, a commercial bridge loan will get the job done. This is a short-term funding option that comes with short turnarounds, even as short as a few days. This allows a small business owner to move quickly on a deal without having to shoulder the entire cost.

However, even though funding is fast, so are repayment terms for bridge loans. These loans aren’t spread out over 20 or 30 years. Instead, interest payments are made over a short period of time, such as 6 months or 1 year. At the end of this period, the balance will need to be paid in full. This can be paid in cash, or the business owner may opt to refinance the loan.

Commercial Bridge Loan Terms, Rates & Down Payments

There are no maximum loan amounts for commercial bridge loans. Most lenders will provide up to 90% of the Loan-to-Value, leaving the borrower with just 10% to pay as the down payment. However, other lenders may fund just 80% of the LTV, leaving the borrower with the remaining 20% to pay as a down payment.

Interest rates vary by lender but generally start around 6.5%. Some lenders may have interest rates of 9% or even higher. Loan terms also vary by lender but may be as short as 6 months. Six months and 1-year repayment terms are typical, but some lenders may offer slightly longer terms.

Commercial Bridge Loan Borrower Requirements

Bridge loans have less stringent borrower requirements than other types of commercial real estate financing. An applicant’s credit score should be at least 650 but higher scores yield better interest rates. Borrowers must also be able to pay back the loan at the end of the short repayment term either by paying the balance in full or refinancing the loan.

Where Do I Find Commercial Bridge Loans?

Commercial bridge loans can be obtained from banks, credit unions, and even online lenders. Small business owners should begin at their own financial institutions. If commercial bridge loans aren’t available there, business owners can look into other local institutions or compare options online.

How To Apply For A Commercial Bridge Loan

There are fewer requirements for commercial bridge loans versus getting a traditional bank mortgage or SBA loan. However, the Debt Service Coverage Ratio (or the amount of cash flow to pay current obligations) will be considered. Some lenders may also require applicants to have previously used a short-term loan option to finance commercial real estate, but this is dependent upon each lender’s specific requirements.

Is A Commercial Bridge Loan Right For Your Business?

A commercial bridge loan is a reasonable choice for anyone who needs to obtain financing quickly. It is usually the best option for a business owner that needs to move fast to take advantage of a great real estate deal that will sell quickly. This type of loan is not a good choice for anyone who wants to obtain long-term financing.

FAQs About Commercial Real Estate Loans

What type of commercial real estate loan has the best rates and terms?

With interest rates at just over 5%, SBA CDC/504 loans have some of the best commercial real estate loan rates on the market. Combined with just 10% down and a 20-year term, a 504 loan is one of the most affordable loan options for small business owners. It is important to note, however, that the additional lender contributing 50% to the total project cost should also have competitive rates to keep the loan cost as low as possible.

SBA 7(a) loans are excellent alternatives. Though the interest rates are slightly higher, they remain competitive. With just 10% to 20% down and a 25-year term, this is also one of the best options for small business owners.

Can I get a commercial real estate loan without a down payment?

Most commercial real estate loans require a down payment. While some private lenders may offer “no money down” loans, added fees, interest rates, and shorter terms make these loans more expensive in the long-term.

There are many loan options that require just 10% down and come with low interest rates and affordable monthly payments spread over 20 or more years. These are the best, most affordable loans to pursue.

What is the fastest way to get a commercial real estate loan?

One of the fastest ways to get funded is through a commercial bridge loan. However, these loans are short-term and will require pay-off or refinancing in a much shorter period of time.

Traditional bank mortgages and SBA loans can often take months. However, the SBA Express loan program is available in amounts up to $350,000 and comes with an approval within 36 hours. Another option is applying for an SBA loan via SmartBiz, which can significantly cut down the timeline for SBA loans.

I’m a veteran. What are my best options for commercial real estate loans?

The SBA offers the Veterans Advantage program for military veterans, service members, reservists, National Guard members, and qualifying spouses. Through this program, veterans enjoy the same benefits of the 7(a) loan program along with reduced fees.

I have bad credit. Can I get a commercial loan?

To qualify for loans with the best rates and terms, an applicant’s credit score should at least be in the high 600s. While some private lenders may opt to loan to applicants with low credit scores, higher down payments could be required and terms and rates may not be as favorable.

Small business owners with bad credit should work to improve low credit scores in order to take advantage of the most affordable commercial loan options.

Final Thoughts

Getting a commercial real estate loan takes time but it doesn’t have to be difficult. By shopping around, knowing what rates and terms to look for, and working with a reputable lender, the process for obtaining a loan can go smoothly, providing business owners with the funding they need to grow their businesses.

The post Commercial Real Estate Loans: Types, Rates, and How To Apply appeared first on Merchant Maverick.

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Business Auto Loans: Rates, Terms And Where To Find Them

From equipment to commercial real estate, it takes many resources to successfully run a business. For many businesses, vehicles are just another important part of operations. Whether it’s to deliver products to customers, drive sales, or to commute from one location to another, many businesses need reliable, dependable vehicles.

However, most small businesses don’t have the capital to purchase a vehicle with cash. This becomes an even bigger problem when multiple vehicles need to be purchased. In these situations, there is a solution: obtaining a business auto loan. Read on to find out more about the types of business auto loans, why you should consider a loan, and what to expect during the loan process.

What Are Business Auto Loans?

Business auto loans, or commercial auto loans, are a type of financing used to purchase vehicles used for business purposes. A business auto loan provides business owners with money that can be used to buy a vehicle from a dealership or private seller.

The advantage of commercial vehicle loans is that the business does not have to pay the full purchase price up front in order to take possession of the vehicle. Instead, the lender provides the needed funding, allowing the business owner to pay the total loan amount, plus interest and fees, over a longer period of time.

This is extremely beneficial for business owners, as they won’t have to pay tens of thousands of dollars out of pocket. Instead, they will have more manageable monthly payments while being allowed to use the vehicle. Essentially, the process works exactly as it would for a personal auto loan, only it is more tailored to businesses.

Business car loans can be obtained by businesses that need vehicles for any purpose. Whether it’s for delivery vehicles, commuter vehicles for employees, or vehicles to be used by salespeople, a business can receive one or even multiple loans in order to fund these purchases.

Commercial Auto Loans VS Leases

When evaluating funding options for business vehicles, there are two major options to consider: commercial auto loans and commercial auto leases. It’s important for a business owner to understand the differences between the two before starting the application process.

Commercial vehicle loans are used to pay for the vehicle over a period of time (typically 5 years, though terms can be longer or shorter). The borrower pays a set payment each month for the entire length of the term. This loan payment applies to both the principal amount that was loaned, as well as the interest paid to the lender for advancing the money.

While payments are being made, the lender will be listed as a lienholder on the title of the vehicle. This gives the lender the right to repossess the vehicle if the borrower goes into default. However, once the balance is paid in full, the lender will no longer be a lienholder. The title will be given to the borrower, who will then have full ownership of the car and can continue to use the vehicle, trade it in for another vehicle, or sell it outright.

The other type of financing is leasing. Leasing is more like a long-term rental. A lessee (in this case, the business owner) agrees to make monthly payments on the vehicle. The lease period will be for a set period of time, such as 3 years; during that time, a set number of miles per year can be driven. The car must be well-taken care of and not damaged while in use.

At the end of the lease period, the business owner has two options: they can pay off the balance of the lease and own the vehicle, or they can return it. When business owners return leased vehicles, they have the option to enter into another lease for a newer vehicle. Through a lease, the business owner will never own the car unless the vehicle is paid for with cash at the end of the lease period.

When Should I Get An Auto Loan?

An auto loan is a great choice for businesses that want to keep the vehicle for a longer period of time. Making payments to eventually own the vehicle is typically the best option for businesses that aren’t concerned about having the latest and greatest cars.

Auto loans are also the better choice for businesses that will rack up a lot of mileage. Since a lease restricts the number of miles driven annually, business owners that travel extensively in their leased vehicle could end up paying 10 to 20 cents per additional mile – costs that really rack up through the year.

A commercial auto loan may be the best choice for anyone that has a higher risk of damaging the car. Damage to the interior or exterior of the vehicle would result in wear-and-tear fees, which could add hundreds to the cost of a leased vehicle.

When Should I Get An Auto Lease?

A commercial auto lease may be the wiser choice for businesses that want to upgrade every few years to a newer model. If the car is taken care of and not driven too many miles each year, a lease could be a financially-sound decision.

A lease is also less expensive in the short-term. Down payments are often much cheaper for a lease, while monthly payments may be reduced as well. For short-term use, this may be ideal for business owners. At the end of a lease, the car can be purchased for a large lump sum payment. If the business doesn’t have the money, another lease can be signed for a different vehicle. However, this will start the cycle all over again; entering into leases repeatedly is ill-advised as it will result in thousands of dollars in payments without ever actually owning the car.

Business Auto Loan Borrower Requirements

While business car loan requirements vary by lender, an applicant should expect to gather similar documentation regardless of the chosen lender. Business and personal documentation are required to receive a business auto loan. Items such as business licenses and articles of incorporation will be required to prove ownership of the business. A federal Employer Identification Number will also be needed for the application. Sole proprietors without an EIN will be required to submit their Social Security numbers.

The borrower will need to prove that they are able to make the monthly payments on the loan or lease by submitting documents like tax returns, cash flow statements, and bank statements.

Business credit history will be considered during the loan process. In most cases, the personal credit history and score of the applicant will also be evaluated.

It’s important to note that there may be limitations on the financed vehicle if the business plans to save money by purchasing a used car. The borrower may be limited on the age of the vehicle, the mileage, and the value of the vehicle when purchasing a pre-owned car.

Can I Get A Business Auto Loan If I Have Bad Credit?

Business auto lenders will evaluate the credit score of the business. If the score is bad or limited, personal credit will be considered. But what happens if the applicant has a low credit score?

Commercial vehicle loans for bad credit do exist. However, business owners with poor credit should expect to receive higher commercial vehicle loan rates, which will increase the monthly payment amount. Higher down payments may also be required for borrowers with low credit scores. This is because an applicant with bad credit is seen as a higher risk to the lender.

Business owners with poor credit scores should evaluate the affordability of the loan. Acquiring a commercial vehicle will not only result in a monthly loan payment but also other expenses, including property taxes, insurance premiums, gas expenses, and maintenance and repair costs. High monthly payments could prove to be too much for a small business, leading to a default on the loan. This would result in another hit to credit scores, as well as repossession of the vehicle and possible legal action by the lender. In most cases, it makes more sense for a business owner to at least get their personal credit in order before accepting an auto loan.

Business Auto Loan Interest Rates & Terms

The best commercial auto loan rates are reserved for borrowers with the strongest credit histories and proven track records of cash flow. Currently, rates for the most qualified borrowers are under 3%. This rate could go as high as 18% or more for borrowers with poor credit scores or startup businesses. On average, most borrowers receive a rate of just over 4% over a 5-year repayment term.

Business owners who choose to refinance their loans in the future can save on payments with interest rates starting at 2.99%. Refinancing is a great option for small business owners that have high-interest loans and would like to reduce their monthly payments after building a positive credit history.

On average, business owners should expect to put 10% of the total vehicle cost toward the down payment. Maximum terms vary, but 60 months is a typical repayment term for most auto loans. However, this term may be longer or shorter depending on the policies of the lender.

Commercial truck loan rates may be different than for commercial vehicle loans. If a commercial truck is needed, a business owner will need to inquire as to the rates on these heavy-duty vehicles. Currently, interest rates for the most qualified borrowers are below 5%. On average, a 15% down payment on a commercial truck loan is required, but down payments may be as high as 25% of the total cost of the truck. In some cases, a lower down payment or even no down payment may be required, but this would only be available to applicants with strong credit histories and cash flow.

Can I Get A Business Auto Loan Without Signing A Personal Guarantee?

With most business auto loans, all owners with at least a 20% stake in the business are required to sign a personal guarantee. This means that all owners will be held personally liable for the debt. This is almost always the case for applicants with low business or personal credit scores.

Businesses with high credit scores may qualify for business auto loans without personal guarantees. This policy varies by lender and is typically reserved for applicants with the best credit scores. In some cases, a business auto loan refinance is possible after multiple payments have been made on time. During the refinance process, it is possible to put the loan solely under the name of the business without a personal guarantee.

Can I Get a Business Auto Loan Without Making A Down Payment?

Some lenders may offer no down payment options for the most qualified buyers. However, before accepting this offer, it’s important to think about the potential drawbacks.

Financing a vehicle with no down payment will result in higher monthly payments. Also, if the business wants to sell or trade in the vehicle during the life of the loan, they may be unable to do so without putting their own money into the transaction. This is because the loan payment may be “upside down,” which means that more money is owed on the vehicle than what it is actually worth. Entering into a loan with no down payment increases the odds of being upside down on the loan.

If the business doesn’t have the funds to pay a down payment, there are several options available. The first is to wait until there is enough money to make a sizable down payment of at least 10% of the total cost of the vehicle. If a car is needed immediately, other options can be explored, such as taking out a business car lease, which often has lower down payment requirements. Vehicles that are owned by the business and will no longer be in use can also be traded in at a dealership. Financed vehicles may be traded in toward the purchase of a new vehicle as long as there is equity.

Where To Get Business Auto Loans

Once a business has made the decision to move forward with a commercial auto loan, it’s time to begin the application process. The first step is to find a reputable lender to work with. While it is possible to go to an auto dealership to obtain a commercial vehicle loan, this usually results in multiple inquiries on a credit report, which can lower a credit score. Instead, business owners should shop around on their own and have funding in place before making the purchase. There are several options available.

The Small Business Administration (SBA)

Smart small business owners know that loans through Small Business Administration programs are extremely competitive. Though these loans can be difficult to obtain, they often come with great interest rates and repayment terms. While there isn’t a specific SBA commercial vehicle loans program, there are several programs available that provide loans that can be used toward the purchase of a commercial vehicle.

The 7(a) program, for example, offers up to $5 million for almost any business expense, including the purchase of equipment and vehicles. The SBA Express loan program is another option, providing up to $350,000 in funding and a guaranteed approval decision within 36 hours. These loans are obtained through intermediary partners of the SBA, including banks and credit unions.

SBA Microloans are another program to consider for smaller funding needs. If the vehicle to be purchased costs less than $50,000, this may be an option. These loans can be received through SBA-approved non-profit intermediary lenders.

Interest rates and terms are kept low due to the SBA’s program standards. SBA-approved loans are also backed by the government, so intermediary lenders are more willing to work with small businesses, even providing options for new businesses that have been in operations for under 2 years.

One potential drawback is that, with the exception of Express Loans, approval for these loans can take a long period of time. These loans are also reserved for business owners with higher credit scores at least in the high-600s. Think an SBA loan sounds right for your business? Read on to learn more about more about the pros and cons of SBA loans.

Banks & Credit Unions

Most banks and credit unions offer commercial vehicle loan options. Getting a commercial vehicle business loan from a financial institution is much the same as getting a personal auto loan. An application is filled out and documentation is required, including proof of ownership of the business and proof of cash flow.

Banks and credit unions will calculate a Loan-to-Value ratio. This equation involves dividing the total dollar value of the loan by the actual cash value of the vehicle. This percentage can be reduced with the down payment made toward the vehicle. Most banks and credit unions have limitations on the LTV of a financed vehicle, which varies by lender.
When applying for an auto loan through a bank or credit union, business and personal credit will be considered.

Interest rates and terms will be reliant on the applicant’s credit history. Applicants should have at least a credit score of 650 before applying. Lower scores may be accepted but will come at an increased cost. Commercial vehicle finance rates vary by lender; these loans can be approved more quickly than SBA loans but for larger amounts or more complicated credit situations, the process from application to funding can take several weeks or longer.

Most businesses opt to work with the financial institutions with which they have existing relationships. However, business owners that want to shop the best rates should read on to find out more about the banks with the best rates on business loans.

Alternative Lenders

Alternative lenders can be considered when a business doesn’t have a high credit score or a long time in operations. These lenders focus less on credit scores and the length of time in business and more on incoming cash flow. Typically, applications can be filled out online and the loans are funded in a short period of time.

However, there are drawbacks to working with alternative lenders. Typically, business auto loan rates and fees are much higher through these lenders. The overall cost of the loan may be much higher than it would be with a bank, credit union, or an SBA-approved lender. However, if obtaining the auto loan will benefit the business by improving operations and cash flow, this is a high return on investment that outweighs the cost of the loan.

With so many alternative lenders offering loans, it’s hard to decide which is best for business. Check out the top small business lenders that can help you purchase your next commercial vehicle.

Final Thoughts

There comes a time for many businesses when the purchase of a commercial vehicle is necessary. While it’s easy to want to rush the process and accept the first loan offer available, it’s important for a business owner to fully evaluate the needs of the business, as well as the overall cost of the loan.

Interest rates and requirements of business auto loans lenders should be fully understood before you sign on the dotted line. When applying for and accepting a commercial auto loan, the smart business owner will make a careful, calculated decision that will boost the business, not draw it deep into debt.

The post Business Auto Loans: Rates, Terms And Where To Find Them appeared first on Merchant Maverick.

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Small Business Microloans: What They Are And Where To Get Them

Most small business owners already know they can turn to lenders for help to cover large expenses, like the purchase of a fleet of vehicles, expensive equipment, or commercial real estate. However, these loans are often difficult to obtain from traditional lenders like banks, particularly for very small or newly established businesses.

Whether you need a relatively small loan amount or don’t qualify for funding from traditional lenders, there are options out there. In fact, one of the best ways small business owners can fund their business expenses is via microloans.

Ready to explore alternative business loan options? Read on to learn more about microloans and why today’s small business owners are leaning on this source of financing to bolster their businesses.

What Are Microloans?

business loan vs personal loan

A microloan is defined as a small loan that is typically for $50,000 or less. Microloans offer an alternative to traditional bank loans. These loans are for smaller amounts, so they are easier to qualify for, opening up options to small businesses that aren’t eligible for conventional loan options, either due to low revenue or lack of establishment.

How Can Microloans Be Used For Business?

Microloans can be used for almost any business purpose. Microloan proceeds can be used for a startup project or to get a business off the ground. Loans can be used to expand a business through the purchase of equipment, an office lease, or the hiring of employees. Microloans can also be used as working capital. Specific microlenders may have their own policies surrounding what expenses can be paid using loan proceeds.

What Type Of Business Would Benefit From A Microloan?

The businesses that would benefit most from microloans are smaller businesses with fewer employees and lower capital needs. A business that needs a large sum of money for a big expense, like purchasing commercial real estate, should consider other options.

Business owners that would not qualify for traditional bank loans are also great candidates for microloans. This includes startups and new businesses that may not have the documentation, years in business, or revenue required for other loan options. Microloans can be a great choice for women-owned and minority-owned businesses, as well as businesses in underserved and low-income areas.

Because requirements are not as strict, business owners with lower credit scores may qualify for microloans. In addition to getting the money that is needed at the moment, when the loan is paid as agreed, it can help a business boost its credit score to potentially qualify for larger loans in the future.

What Interest Rates Can I Expect From A Microloan?

Like other types of loans, microloan rates vary based on a number of factors, including the chosen lender’s policy and the creditworthiness of the borrower.

Credit score is still an important consideration for microlenders, although minimum score requirements are typically lower than they would be for bank loans and other conventional business loans. Borrowers with the highest credit scores will receive the best interest rates, while borrowers with lower scores will typically be approved with much higher rates.

Other risk factors may be evaluated when determining the interest rate of a microloan. This may include time in business or whether collateral will be required. Borrowers that have collateral to offer may qualify for lower interest rates and better terms.

With all of these considerations, what kind of interest rates should a borrower expect to see when applying for a microloan? On the lower end, an average rate of about 6% for the most qualified borrowers is possible through some lenders.

However, most borrowers should expect to receive interest rates between 8% and 18%. Borrowers with lower credit scores may receive even higher interest rates – sometimes 30% or more.

While these interest rates are higher than those of other loans, easier qualifications and the resources provided by microlenders make them an appealing choice for many small business owners.

Microloan Borrower Qualifications

Borrower qualifications for microloans are much less stringent than they are for other types of small business loans. Requirements vary by lender, but there are a few general rules to remember.

Some microlenders, such as Small Business Administration intermediaries, have their own definitions of a “small business,” which may limit the number of employees, annual revenue, and net worth of the business.

Business owners that seek out microloans should also have a credit score of at least 620. Most microlenders require a score in the low- to mid-600s, at a minimum. While some lenders may accept lower scores, interest rates will typically be much higher.

Borrowers of microloans must not request funding over the organization’s limits, which is usually $50,000. It is important to note here that many organizations receive federal grants and have a limited amount of money to give, so a borrower may not be approved for the maximum amount. Microloan borrowers must also use the loan proceeds only for approved business expenses.

Collateral may be required for some microloans but will depend upon the creditworthiness of the borrower, the amount of the loan, and the lender’s own policies. Even if specific collateral is not required, a personal guarantee or blanket lien is typically part of the loan contract.

Where To Find Microloans

Does a microloan seem like it will be the logical financing choice for your business or startup? If so, the next step will be to begin the application process, which starts with finding a microlender.

The Small Business Administration (SBA)

Loans through Small Business Administration programs have gained a solid reputation among business owners because of their low rates and favorable terms. The SBA’s Microloan program is no exception.

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 are not issued directly through the organization. Instead, loans are obtained through non-profit intermediaries. Funding of up to $50,000 is available, but the average loan amount distributed through this program is $13,000.

Funds from the SBA Microloan program can be used for the purchase of supplies, inventory, fixtures, machinery, and equipment. It can also be used as working capital. Loans cannot be used for the purchase of real estate or to refinance existing debt.

The maximum repayment term for SBA Microloans is 6 years and interest rates range between 8% and 13%. Collateral may be required, as well as a personal guarantee. Loans are available to for-profit small businesses and non-profit childcare centers.

Non-Profit Lenders

There are many non-profit lenders that provide millions of dollars in microloans each year. One of the most popular is Grameen America, which provides microloans of $1,500 and financial training to female entrepreneurs.

Another popular microlender is Kiva, which provides up to $10,000 at a 0% interest rate. Borrowers prove their creditworthiness by inviting friends and family to loan to them, then can fundraise to over 1.6 million lenders through Kiva’s platform for 30 days. Borrowers have up to 36 months to repay the loan.

Other nonprofit lenders serve particular regions in the United States. For example, Accion New Mexico provides lending services and business counseling to borrowers in New Mexico, Nevada, Texas, Colorado, and Arizona. Opportunity Fund is another microlender that services business owners in the state of California. A quick online search will yield non-profit lenders in your area, or you can ask for microlender referrals through colleagues, friends, family, or your financial institution.

Alternative Lenders

Alternative lenders have risen in popularity in recent years because they have simplified the lending process. While most alternative lenders do not classify themselves as microlenders, they often have smaller loans available for small businesses.

A few of the most popular options include Credibly, LoanBuilder, and OnDeck.

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

$250,000

9% – 36% factor rate

500

Visit Site

$500,000

2.9% – 18.72% factor rate

550

Visit Site

$500,000

9.4% – 99.7% APR

500

Visit Site

These loans are top choices for business owners because of easier requirements and faster approval and funding. However, interest rates for these loans may be higher than other options and terms not as favorable. When choosing an alternative lender, it’s important to fully assess the total cost of the loan, including interest and fees, to ensure it’s a wise business decision.

How To Apply For A Microloan

Once a lender has been selected, it’s time to begin the application process. This process varies from lender to lender, but there are generally a few similarities across the board.

Before you start the application, pull your credit report and score. This is an easy step, since you can access your credit score online at no cost. Review your score and make sure that it aligns with the requirements of your chosen lender. If not, consider other options or work to clean up your credit before applying.

Once you’re ready to apply, an application will need to be submitted along with documentation. This may include personal and business financial statements, bank statements, and financial projections. Some lenders require a detailed business plan, especially from startups and new businesses. Documentation requirements vary by lender, and more paperwork may be required after you begin the process.

For some microloans, specific collateral may be required, especially for larger amounts. However, if specific collateral is not required, a blanket lien may be included in the loan contract, or you may be required to sign a personal guarantee holding you liable for the debt if the loan goes into default.

One of the best things about microloans is that the application process can be much more personalized. Microlenders are often very willing to walk you through the entire process and provide advice and resources if needed.

Some microlenders require borrowers to go through training or classes before the loan will be approved and released. You should take advantage of these resources, which can help put you on the path to operating a successful business.

Once all documentation is submitted and requirements have been met, the microlender will come to an approval decision. This could take just a few days (with alternative lenders) or a few weeks or longer (with SBA and non-profit organizations). Once approved, the loan will be distributed based on the lender’s policies.

Alternatives To Small Business Microloans

If you need a smaller loan but don’t want to go through the process of finding a microlender and applying for a microloan, there are alternative options available that could better fit your needs.

Business Credit Cards

If you don’t qualify for a microloan or would rather have access to your funds much more quickly, business credit cards may be the answer. Business credit cards are typically approved in just days and are often available to businesses with low credit scores.

Business credit cards can be used toward any business expense. The card can be used up to and including the credit limit set by the issuer. A business credit card can be used for startup costs, larger purchases, or as working capital. Interest is applied only to the portion of the credit limit that has been used.

It’s important for anyone getting a business credit card to understand the interest rates. Borrowers with lower credit scores will often be stuck with a higher APR, so it’s important to use these cards responsibly. Borrowers should also be aware of any fees that are associated with having the account to understand the true cost of using the card. As with any other financial product, credit cards should be used responsibly. This includes spending only when necessary and paying the balance down as quickly as possible to avoid paying years of interest.

Personal Loans for Business

Getting a business loan can be difficult, especially for startups and new businesses. Many banks and lenders will turn these businesses away because they don’t have a solid reputation. However, borrowers with high personal credit scores can consider taking out a personal loan for business.

With a personal loan, the history of the business, including its credit, will not be a consideration. Instead, the income and the credit score of the borrower will be used to determine eligibility. Some lenders do provide personal loans to applicants with low credit scores, but these loans can often be very expensive because of high interest rates.

Invoice Financing

If unpaid invoices are causing cash flow issues, a conventional loan isn’t the only solution. Instead, businesses can look to invoice financing to resolve these cash flow challenges.

There are two different options to consider for invoice financing. The first is invoice factoring. A lender will pay a percentage of the unpaid invoice to the borrower. The lender will then collect from the customer. Once the invoice has been paid, the remaining amount will be paid to the borrower, minus fees and interest charged by the lender.

Invoice discounting is the other option. A large percentage of the invoice is paid to the borrower by the lender. The borrower collects payment from the customer and pays back the loan, along with interest and fees.

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

Invoice financing is best for businesses that have unpaid invoices and need cash immediately. The invoices serve as the collateral for the loan, while credit requirements are not as strict as with other loan options.

Final Thoughts

Microloans can provide much-needed funding for small businesses that have faced challenges when applying for other types of loans. While these loans can certainly help a business get off the ground or overcome financial hurdles, as with any loan, be aware of the costs of the loan to ensure there will be a return on investment and compare all of your options to ensure you’re making a sound decision for your business.

The post Small Business Microloans: What They Are And Where To Get Them appeared first on Merchant Maverick.

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