When it comes to online selling, it can be difficult to keep up with new developments in the market. eCommerce is an ever-expanded industry, with new players entering the game every year. And with new competition and technology come new ways of marketing, selling, and fulfilling orders.
In this article, we’ll break down a few of the major trends we’ve noticed in 2020. We’ll explain each trend, demonstrate its popularity, and then give you some actionable steps to implement it in your own business model. Take advantage of these new ideas to stay up to date with emerging selling strategies and make sure your brand is always keeping up with the competition!
Here are the 10 biggest eCommerce trends for 2020.
1) Increase In Online Sales
Fortunately, one of the most important trends of this year is the steady increase that we will continue to see in online sales! According to data from Statista, in Q4 of 2019, eCommerce’s total share of the US retail market increased by 11.2% compared to the previous quarter. We expect online sales to continue increasing, with total annual sales projected to reach $419.9 billion, up from $365.2 billion in 2019.
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The Covid-19 pandemic has only served to cement the notion that online sales are the future of our economy. Many businesses have been forced to sell and accept payments online, or set up online ordering and delivery services just to stay alive during the shelter-in-place orders and social distancing restrictions. We have an entire hub of small business resources for people struggling to survive the coronavirus intact. There, you’ll find information about keeping your staff on with PPP loans, reaching customers virtually through social media and email marketing, setting up a webstore for the first time, and more.
These are encouraging projections for online sellers! eCommerce sales have been increasing steadily for years, and you want to make sure your business gets a cut of the pie. So, keep looking for ways to increase the impact of your online marketing. Test new promotions, create motivating email marketing campaigns, and optimize your site for web traffic. For more recommendations on increasing online sales on your own store, try our article 7 Strategies To Increase Your eCommerce Sales.
2) Household Goods Are Up In Sales
During the current coronavirus (COVID-19) crisis, we’ve witnessed a change in the way people shop. Many customers now express feelings of anxiety around a typical grocery store trip, comparing preparing for a shopping trip to suiting up for battle.
Some customers are now choosing to avoid the grocery store altogether, opting instead to order their household products online. According to a study by Ipsos from March of 2020, 23% of U.S. respondents said they were buying more of their household purchases online instead of in-store. For comparison, 42% of respondents said there had been no change in their online shopping habits, 12% said they had made fewer online purchases, and 23% never made online purchases of these goods at all.
The takeaway here is particularly relevant to those who already sell household products: if you haven’t begun selling online, now is the time to start. For those who do not yet sell household goods, you might consider stocking and advertising in-demand products–cleaning products, self-care products, and other non-perishable items. Make sure your customers know that they can look to you for the products they would typically buy in-store.
3) Mobile Shopping Is Preferred
Since the development of smartphones, mobile devices have had a growing impact on eCommerce. For many years, customers preferred to browse on mobile devices (smartphones and tablets), but they returned to a desktop or laptop computer to make their final purchase. In 2020, however, it is possible that mobile purchases will outnumber computer purchases for the first time!
We’ve known that mobile traffic has played a large role in eCommerce for years. As of Q1 2019, 64% of all online shopping traffic came from mobile devices. What is surprising is that this same quarter, mobile purchases accounted for 46% of total eCommerce orders, for the first time on par with purchases made on a computer!
With this in mind, it is absolutely crucial that your online store is mobile-friendly (meaning that it adapts to screens of all sizes). It should be easy to browse on a small screen, with simple headers, search tools, and filtering features.
What’s more, your mobile checkout needs to work seamlessly–complicated checkout can cost you sales! According to one study by the Baymard Institute, out of a pool of customers who had abandoned an online sale in the last months, 21% had abandoned the purchase because the checkout process was too long or complicated. Make sure your checkout only asks customers for the key information: name, email address, and shipping and billing information. You can create a membership/login process, but it’s vital that you allow people to check out as guests as well. Keep the full checkout process to as few steps as possible, and snag those mobile sales!
4) Subscription Purchases Are Trending
You’ve likely seen plenty of subscription boxes advertised online. The Dollar Shave Club, FabFitFun, and BarkBox are just a few examples of popular subscription services. These subscriptions make customers feel like they’re buying themselves a gift, and it works. AÂ 2019 survey from Clutch shows that 54% of respondents who shop online say they are members of a subscription box service.
It isn’t hard for your business to jump on board with this trend. Many online stores are naturally suited to starting up a subscription service. If you sell wine, a wine of the month club would be a natural application. If you sell cosmetics or beauty products, try compiling your own surprise subscription boxes. These boxes are a great way to introduce customers to new products, move some older inventory, and ensure regular purchases.
But even businesses that don’t sell glamorous products can benefit from creating subscription offers. If you sell consumable products that customers purchase regularly–think toiletries, natural cleaning supplies, or pet food–you have a great market for subscription purchases. Customers will appreciate the automatic re-ordering process, especially if you give them the flexibility to start and stop shipments at any time.
Finally, if you choose to set up subscription boxes as an option on your site, make sure you have a payment method with recurring billing features. Take a look at our full article on recurring billing for more information.
5) Ethical & Sustainable Consumerism Is On The Rise
This year, retailers should expect consumers to become increasingly conscientious in their purchasing habits. Today’s consumers are more careful than ever in their purchasing, favoring products and businesses with ethical and sustainable practices. According to a Nielson survey in 2018, 81% of global respondents feel strongly that companies should help improve the environment.
As you consider implementing better environmental practices in your own business, I suggest you start by rethinking your packaging. How you package your products and shipments can leave your customers with a big impression, either positive or negative. Good environmental practices include using recycled plastics and cardboard, as well as packaging your products in the smallest boxes possible. Shipping your products in smaller boxes not only uses less cardboard, but it also takes up less space in a delivery truck, meaning it takes less gas to deliver.
Whatever environmental and ethical practices you decide on, make sure you advertise that information. Of course, it’s always good to be environmentally responsible; but, it’s only going to increase your sales if you let customers know how you’re reducing your footprint.
6) Free Shipping Is A Must
The words “free shipping” are every customer’s favorite phrase and every online seller’s biggest challenge.
Retail giants like Amazon and Walmart have made free shipping an expectation for many customers. The National Retail Federation’s Consumer View report in January 2019 showed that 75% of consumers surveyed expected free shipping, even on orders under $50. What’s more, 29% of interviewed consumers had abandoned a purchase because two-day shipping wasn’t free.
This is a huge burden for smaller online retailers. As all online sellers know, “free shipping” is never free, and offering free shipping on the wrong orders can completely eliminate your profit margins (sometimes even causing you to lose money on a sale!).
That’s why it’s important for sellers to be strategic about the ways they offer free shipping. You might choose to set order totals that customers must reach in order to earn free shipping (i.e. “Free shipping on orders over $50!”). Or, you could offer free shipping on every purchase, but then raise their product prices to account for the shipping costs. Alternatively, you could offer free shipping as a limited-time promotion when customers sign up for your newsletter. There are many options to consider! For more recommendations, take a look at our articles 8 Hacks For Saving On Shipping Costs and 7 Strategies To Increase Your eCommerce Sales.
7) Social Media Marketing Impacts Shopping
In the past two years, we’ve seen a sharp rise in the popularity of social media marketing. Instagram influencers, social media managers, and professional YouTubers have changed the game when it comes to online marketing.
And that shift to social media has also made an impact on online sales. Now customers aren’t just learning about brands and products on social media–they’re purchasing them on social media too! In 2019, social commerce accounted for $22 billion in sales, and that number is projected to rise to $29.3B in 2020.
If you haven’t started selling yet on social media, it’s time to get started! Look into selling on a Facebook store, via shoppable posts on Instagram, or through buyable pins on Pinterest. You should also consider beefing up your social media marketing methods. Define your brand, discover your audience, and consider hiring a social media manager. For more recommendations on creating a successful social media presence, check out our Guide To Social Media Marketing.
8) Users Want Personalized Customer Experiences
Personalization is not new in eCommerce. For years, online sellers have been using personalization in their email marketing campaigns, and with great success! Research shows that emails that use a customer’s first name in the subject line have a slightly higher open rate, and when you use a customer’s name in the body of the email, you gain a higher click-through rate!
Now online sellers are applying personalization to their online storefronts. The most popular method of personalizing your customers’ shopping experience is through product recommendations. Recommending the right products can make a big impact on your bottom line. According to data from Barilliance, sales from product recommendations account for up to 31% of a seller’s eCommerce revenue. That’s not a small amount! Be sure you list recommended products on your site, whether those recommendations are based on your customers’ browsing history, past purchases, or the items currently in their shopping cart.
Personalization can make a big impression on your customers. Do your best to personalize your shopper experience in any way you can!
9) Chatbot Customer Service Is Popular
A chatbot is an artificial intelligence software that is designed to answer common customer questions within a chat window.
Chatbots are quickly becoming a popular option for large businesses to easily handle large volumes of customer inquiries. According to statistics from eMarketer, in 2019, 40% of survey respondents had previously used chatbots to engage with retailers. And fortunately, it seems that most of those interactions go well. A 2018 study by Sumo Heavy showed that 72% of people who had interacted with a chatbot found the experience to be helpful and informative
For many small businesses, creating a chatbot may seem like a complex and overwhelming task. Fortunately, there are many software add-ons available that can take away the technical hassle of creating a chatbot. For Shopify users, you can find a number of Facebook Messenger chatbot applications in the Shopify App Marketplace.
For those who don’t use Shopify, there are many other chatbot programming software apps to which you can subscribe to in order to create your own solution. For example, a software called ChatBot lets you create question-and-answer flowcharts that you can easily turn into a chatbot’s programmed responses. Chatfuel lets you create a chatbot for your Facebook Messenger, and Kik also allows you to build your own chatbot (although Kik does require you to work with their API to do so).
Fortunately, building your own artificial intelligence doesn’t have to be hard. There are many options that you can take to simplify the process of setting up your own customer support chatbot.
10) Augmented Reality Can Lead To More Purchases
Augmented reality is a type of virtual imaging software that allows you to overlay pictures and videos of reality with a digital image. You may have seen augmented reality used in mobile games like Pokemon Go, when a digital creature seemingly appears right in front of you! Using augmented reality (AR), customers are able to “place” your products in their own homes, walk around them to view them from all sides, and even “try on” accessories and cosmetics.
While AR may seem like just a gimmick, studies show that AR can lead to more purchases! According to data from Tractica, global revenue from mobile augmented reality apps (including social media, games, eCommerce, and more) is expected to increase 89.5% from 2019 to 2020, resulting in $6.2 billion in global revenue in 2020.
AR can have multiple applications in your eCommerce business. You can use AR to let your customers view your furniture in their home, get up close to a new camera, or try on a pair of earrings.
Fortunately, enabling AR on your site doesn’t have to be complicated. Shopify users can take advantage of the new Shopify AR, which uses Apple’s AR Quick Look to enable AR experiences for Safari users. Sellers on other platforms should look into AR tools like Augment, and Marxent 3D Commerce. These apps do the hard part of creating an AR experience. Often, all you have to do is import multiple product images to get started!
Leveraging Trends For Your eCommerce Business
In an ever-evolving industry like eCommerce, it can be difficult to keep up with the new developments and trends in the market. However, this year you can keep up with the competition by using the steps we’ve included in this article.
As you consider your approach for this 2020, think about the steps you’re already taking to stay in line with current trends. Where are you racing ahead, and where are you falling behind? It might be a good approach to pick one or two areas in which your business is beginning to get outdated, and start by improving those areas. It’s best to make sure your site is up to date with all of the current best-practices before you try to get on the cutting edge of online selling.
So what are you waiting for? Get out there, review your current practices, and see which of this year’s eCommerce trends you want to tackle. You’re going to do great!
Here’s a quick reminder of how to get started:
Review your online marketing strategy
Look into selling household goods
Make sure your site works seamlessly on mobile
Create subscription products for your store
Consider sustainability in how you package and ship products
Offer free shipping when you can
Sell on social media
Use product recommendations to create a personalized shopping experience
Program a chatbot with add-on applications
Use an augmented reality tool to help customers envision your products
The post Top 10 eCommerce Trends For Small Businesses In 2020 appeared first on Merchant Maverick.
There are many ways to build a successful business. Some business models involve selling lots of items each marked at a lower price, while others work by selling fewer things at a higher cost. With either path, the financial resources of your customers will come into play. You might soon realize that not everyone can afford the more expensive things you sell; similarly, not everyone has the resources or desire to buy a lot of small items in one purchase. Is there a way to solve this problem and increase your sales without cutting your prices?
Of course there is. In fact, there are many ways. One way is to advertise, so that a larger number of potential customers are brought to your door. Statistically, you should make more sales. Another way is to offer financing to your customers. Financing allows those who are wavering on a purchase because of the price to buy from you right away and then pay for the goods/services in installments in the future. This way, you don’t lose a sale to sticker shock. This is called customer financing or, sometimes, consumer financing.
Broadly speaking, you can provide customer financing yourself, or you can use a third-party financing specialist. As to how to do either, along with their pluses and minuses, read on to find out.
How Does Customer Financing Programs Work?
By customer financing, we mean any sort of buy-now-pay-later arrangement. Typically, the customer will have to pay a portion of the total cost before the goods/services are released. This sort of financing is usually a business-to-customer (B2C) arrangement instead of a business-to-business (B2B) arrangement.
If you want to offer customer financing, you can either provide that service in-house or you can work with a third party. We’ll discuss each option in more detail below.
In-House Customer Financing
By in-house financing, we mean that you, the merchant, take all the financial risk — and possibly reap all the financial rewards — when letting a customer walk away with your merchandise (or receive the benefit of your services) before you’ve collected in full. If you wish to consider this avenue, there are some items you might want to think through first.
Cash Flow
If you wish to tackle in-house customer financing, you’ll need to consider your business’s finances first. Understand your cash flow and maybe do some financial projections.
Know that when you actually start to finance your customer’s purchases, you’ll have a period of reduced income because you’re not receiving the full payment for the goods or services you sell. At the same time, your customers might be making a greater number of purchases, so you would need to pay out to replenish your inventory. You’ll need to make sure that you have enough money to run the day-to-day operations of your business while you wait for the installment payments to come in and become a regular part of your cash flow.
If you are right and your customers start to buy more than before because they can now finance their purchases, then your cash flow should eventually increase after an initial dip.
Legal Risk
When it comes to lending money and charging interest, both state and federal usury and debt collection laws may apply. If you fail to follow them, you might have to pay fines or be subject to other penalties.
When you provide financing to your customers, you might want to charge interest on the loan. If that is the case, be sure to check your state’s usury laws that govern, among other things, the highest interest rate you can charge. To complicate matters, if you sell online and a customer is in another state, you might be subject to that other state’s usury laws as well.
If your customer defaults on a loan, you might wish to collect that debt. Unfortunately, what you can and cannot do are also governed by federal and state laws. The laws typically restrict you on the amount you can collect per type of asset and how you are allowed to collect it. Again, the laws differ by state, so this can get fairly complicated fairly quickly. (Here’s an article from the consumer’s standpoint.)
If you wish to start an in-house consumer financing operation, be sure to talk to a lawyer specializing in this area first. They can help you design a set of best practices that are best suited for your type of business — and that stay within legal limits.
Operational Considerations
If you decide to start your own financing department, you’d probably have to hire new people. For instance, for every application, you might want to pull a credit report before deciding whether or not to lend. There would be additional paperwork and internal records to keep as the customer pays off the debt. If the customer fails to pay the debt, you would have to have someone to work on the failure to pay in some way, even if it’s just sending the account to a debt collection company.
Additional internal processes will have to be set up to smoothly move a customer through each step, from application to approval to installment invoicing. All this requires additional employee hours. So, whether you hire one person or ten people to handle the financing, you would have to consider these operational changes and expenses before making a final decision.
Bad Debt
Lastly, not every customer will pay off their loan. We covered the legal aspects of debt collection above, but the more important aspect of bad debt is the financial impact on your business’s cash flow. Know how much bad debt your business can absorb without running into cash flow issues before you decide if you wish to move forward.
Third-Party Customer Financing
It’s always nice to be able to keep your hard-earned money, but now that we’ve gone through some of the major considerations for providing customer financing in-house, you might start to see the headaches that are involved as well.
Fortunately, there is an alternative. There are companies specifically set up to do customer financing or just debt collection (if you continue to wish to keep a portion of the work yourself). Some of these companies charge you nothing for sending a customer to them for financing, but others want a fee so that they charge you for sending a customer to them. They will also keep all the fees/interest the customer will pay to obtain financing. In return, they take care of all the legal and operational complications of customer financing for you.
If you continue to be interested in working with a third-party financing company, be sure to understand the details of how the financing company works before signing a contract. Understand your expected sales increase and your expected profit. If you sell low margin items, make sure that these financing charges do not exceed your profit margin. Otherwise, you would have gone through all this trouble for nothing.
Is Consumer Financing A Good Fit For Small Businesses?
Many large businesses provide consumer financing. For instance, you can finance a car purchase through any one of the major car manufacturers. Consumer financing is also available from some chain store home furniture sellers or large electronics stores. These are all large businesses that can afford a separate department–and sometimes even a separate corporate subsidiary–to take care of consumer financing.
But you’re a small business owner. Maybe you have only a handful of employees, and each of them is already busy taking care of other things. You already work twelve-hour days and things are still not done. How do you provide consumer financing when you’re already stretched so thin?
You might want to consider using third-party customer financing companies. This doesn’t preclude you from trying in-house financing in the future, if you pick one with a contract with no early termination penalties. It’s a quick way to get started, and it introduces you to an industry that you can become more familiar with, so you can make a more informed decision in the future.
Below are some pros and cons for your consideration.
Pros To Offering Third-Party Customer Financing
No Need To Increase Staff: The most obvious advantage is that you won’t need to hire more people to run the financing. As a small business owner, you know how difficult it is to find the right person–one who has the knowledge needed as well as the proper “fit” for your business. It might take several tries to ultimately find the right person, but with third-party financing, you won’t need to do that.
No Need To Worry About How The Details Work (e.g. credit checks): There are a lot of things you would have to set up from scratch to start an in-house customer financing operation. You’ll have to have the application forms, know where to run credit checks, figure out how much risk you can take, and give the customer the credit needed to make the purchase. With third-party financing, you won’t have to worry about any of this. You just send the customer to the financing company, and they take care of the rest with their existing workflow.
Legal Compliance:Â As already touched on above, when it comes to lending money, there are a lot of legal issues that could arise. If you’re in the US, then not only would you have to understand federal laws that could affect your operations, you’ll have to understand multiple state laws as well, if you operate an online store. These laws change from time to time, so you can’t set up a process and forget it. It would be easier to let a third-party financing company worry about following the laws. They might still (hopefully only accidentally) violate these laws, but at least if they do, they would be responsible for it. (Be sure the contract clearly states they’re responsible for any legal compliance issues.)
Less Need To Worry About Cash Flow:Â While you might still have to invest more money into your business to have enough inventory for increased sales, you are less likely to have to worry about a healthy cash flow by using a third-party financing company. A lot of these companies will fund you within two to three days of purchase, so you shouldn’t have to worry about cash flow at all.
Cons To Offering Third-Party Customer Financing
The Reputation Of The Financing Company Will Affect Your Own Reputation: A company’s reputation, especially where money is concerned, matters. When you recommend a financing company to your customer, like it or not, you’re guaranteeing that the company is reputable. If this turns out to be incorrect, then the bad reputation rubs off on you too. A business’s reputation is everything, and a bad one will run customers away from you.
Customers With Bad Experiences Might Not Come Back: Even if customers clearly understand that the financing company has nothing to do with your business, a bad experience with the financing company could still prevent them from coming back to you. Their shopping experience is ruined, and it’s highly likely they will subconsciously connect that bad experience with you. It’s not difficult to imagine that they might go elsewhere to shop in the future.
Customers With Bad Experiences Might Blame You: Related to the above, we know that people don’t always notice things that they should. This is why there will always be a portion of the customer base that thinks you and the third-party financing company are one and the same. If anything goes wrong, it’s very likely that they will blame you for the financing company’s mistakes. They might go online to complain, giving you a bad reputation that you don’t deserve.
You Must Share Revenue:Â Naturally, these third-party financing companies can’t provide their services for free. In fact, in addition to keeping the interest and fees paid by the consumer for the loan, many will want you to pay them for their services as well. Maybe your margins are high and you don’t mind, but if you do mind, then you’ll need to pick the financing company carefully.
Possible Long-Term Contract: Some third-party financing companies will require you to sign a long-term contract. As with all contracts, you’ll need to look at the possible penalties if you need to get out of the contract early. One contract we reviewed when researching for this article allows you to cancel but requires a 12-month notice period, which is basically the same as not being able to cancel at will. Make sure you’re not stuck with a company that you won’t want to work with for one reason or another (e.g. bad reputation) for longer than necessary.
How To Offer Financing To Customers: Options For Online & Brick-and-Mortar Businesses
If you have decided to offer financing to your customers, the way you tell your customers that financing is available and invite them to apply will depend on whether you operate a physical store or an online store — or both. It also depends on whether you’ve decided to do this in-house or through a third-party specialist.
If you’ve decided to offer financing in-house, then you can advertise any way you want to, as long as you have the application readily available for an interested customer to sign up. However, if you’ve decided to go with a third-party provider, then there are several ways to deliver information about the financing offer and payment options.
Online Customer Financing
For webstores, customer financing is often offered at checkout. The customer sees a financing button, along with other payment choices such as credit or debit cards. If the customer clicks the financing button, they must respond to a few questions. A “soft” credit check is performed. With some companies (e.g. Affirm, Afterpay), a decision to lend is made based on the soft check. With other companies (e.g. Square), a hard credit check is eventually required. (If you’re curious, this article explains the difference between soft and hard credit checks.)
After this, the customer is presented with a choice of how they want to finance the purchase–i.e. how many installments, how much per installment, and interest or other fees. Once the customer makes a pick, the online merchant is paid by the financing company, typically within a day or two after shipping.
As to the rest of online financing, a merchant is often supplied with banners and buttons that they can place on their website to announce that financing is available.
In-Store Customer Financing
If you run a physical store, then customer financing is done a little differently, though you’ll still need a connection to the internet just like online financing.
There are several ways a customer at a physical store can apply for financing. One financing company offers free-standing kiosks that customers can use to apply. Tablets can also be loaded with financing application software for the store clerk to hand to the customer. Yet others simply have the store clerk ask a few questions of the customer at checkout and enter that information online. Lastly, a customer can apply for some specific amount beforehand, the financing company can issue the customer a single-use virtual card, and the card number can be keyed in by the merchant just like any keyed-in credit card charge.
How Much Does It Cost To Offer Customer Financing?
The cost to offer customer financing runs the gamut, from free to something similar to the swipe of a credit card. It’s not always easy to find this cost on the provider’s website, however. (It’s much easier to find out how much the customer will be charged for taking the financing offer.) Very often, the company simply does not disclose the charges to the merchant but instead tries to sell their services as a way to increase sales. You can only find out the cost after you contact them.
Ten Customer Financing Programs For Small Businesses
For this article, we did a quick survey of the companies currently providing customer financing services for small to mid-sized businesses. We briefly discuss the companies we found below, but we haven’t reviewed most of them, so please be aware that we pass no definitive judgment about the quality of service each provides. We hope to have some reviews for you in the future.
In looking through these companies, we find that they can generally be categorized into three groups. The first group contains more traditional financing companies. Financing applications may take a day or two to process and be approved. A second group includes the so-called fintech companies–they have their origins in the tech startup world, and they’re here to “move fast and break things.” These companies tend to do a soft credit pull and then give you a loan within seconds. These loans tend to be of a smaller amount and they typically must be paid back within a year. Some of them are fee-based and do not charge interest. The third group seems to be a hybrid, featuring some characteristics of both the traditional and the fintech companies. They also do a soft credit pull and sometimes can offer you a loan for a very small amount very quickly. Typically, larger loans are also available with these companies.
Grouping the vendors we found below into the three categories above, we have:
With some of these companies, it was hard to find merchant-related information–i.e. sign up cost, processing fee, contract terms, etc. These companies tend to try to sell their services by touting how much more a merchant can sell if the customer had the ability to buy more. Signing up with them might mean that you never get to see any income from the financing side. Still, they seem to be worth investigating, so we encourage you to find a few that you might be interested in and contact them for details.
Lastly, if you look at the way these companies work–especially the fintech companies–you’ll see that there’s a strong potential that they might replace the entire merchant processing side of the credit card industry. If you look carefully about the nature of the credit approvals, loan amounts, and repayment terms, you’ll see that they work like charge cards, where each charge is judged separately based on the person’s current debt load and creditworthiness. It’s very similar to the American Express model. From a merchant’s standpoint, it might be a good idea to understand how these financing companies work, in case they do replace some credit card company functions in the future.
With the above in mind, here are some of the customer service companies we found that you might wish to look into further.
Flexxbuy
Flexxbuy seems to fall into the more traditional side of the consumer lending business. It has a relationship with over 20 lenders in its backend and can quickly set a customer up with the right lender, depending on the customer’s credit score.
With Flexxbuy, the customer can get a loan of up to $50,000. The website isn’t quite clear, but the wording in various places suggests that smaller loans might be approved instantly, but the larger ones can take up to 48 hours. There is a formal application to be submitted by the merchant. The customer doesn’t have to pay a penalty for pre-payment, and loan payback can be from 12 months to a few years.
Flexxbuy says the cost to the merchant is “customized,” and, since they work with several lenders, this probably just means that the cost varies depending on the lender. To sign up with Flexxbuy, there is an enrollment/setup fee for the merchant.
LendPro
LendPro, like Flexxbuy, seems to fall towards the traditional lender side of the industry. They claim that they have lending relationships with more than two dozen lenders on the backend to provide financing for a wide range of amounts and for all types of credit scores.
When a customer finances through LendPro, the lending relationship is directly between the customer and LendPro. LendPro can integrate their financing application software with your website, so customers can see their financing options at checkout and file an application if they are inclined. They also have physical kiosks for physical stores, where a customer can apply for credit in person. A merchant can also buy a tablet and install LendPro’s software on it and then hand the tablet to the customer to apply for financing.
There are no other disclosures about how a contract with LendPro would work or how much they would charge the merchant per transaction.
Snap Financing
Snap Financing calls itself a “lease to own” company. This means that, as a merchant, you might be sending your merchandise out to consumers, but you still own the item until the lease term is up. Then, the consumer can either buy the item outright or return it to you.
Lease-to-own arrangements are typically used for large furniture, appliances, electronics, and computers. If the goods are damaged during the lease, they still belong to you. (Presumably, you can deduct the damage from the price.) With Snap Financing, you’re working with a somewhat traditional business model. While it’s not clear on the website, it seems from the nature of the business model that the merchant still owns the sales contract. If the customer defaults on the (unsecured and high-interest) loan, then the matter is between Snap and the customer.
Snap funds your business within 2-3 days once the leased goods are delivered, so you are fully paid.
Affirm
Affirm falls squarely within the fintech label, and it has the pedigree to prove it. The company was founded by Max Levchin, who was one of the founders of PayPal. Even now, it’s still taking money from venture capital firms, with the latest round of funding raising $300 million USD.
Affirm’s website is geared more towards the consumer than the merchant, so there are not a lot of details on how (or if) they charge the merchant to process a customer’s loan. On its backend, Affirm’s loans are financed by two banks: Cross River Bank and Celtic Bank.
The Affirm financing application can be integrated into various eCommerce shopping platforms and be shown to a customer at checkout as a push-button option. When a consumer applies, Affirm performs only a soft credit pull and then makes a decision to lend based on that pull. There’s no stated loan limit. If the purchase is made from an online store, then the payment can be applied at checkout. If the payment is at a store that’s not affiliated with Affirm, then Affirm issues the customer a single-use virtual card that can be used like a credit card.
Afterpay
Afterpay is yet another fintech company. It has a business model that looks very similar to that of Affirm, and it is also funded by venture capital investors. While Affirm seems to focus on providing financing for goods and services that cost a bit more, Afterpay seems to be focused on things that cost a little less.
Afterpay discloses a little more on their website on how they work with merchants. When the merchant makes a sale, the purchase is made between the merchant and the buyer. But the merchant immediately assigns the purchase contract to Afterpay so that Afterpay has the right to recoup nonpayment. After that, the merchant is still responsible for taking care of complaints and returns, but any questions on payments belong to Afterpay.
Afterpay’s services integrate with many existing online shopping carts. Consumers are presented with Afterpay as a payment choice at checkout, and they can apply for credit that way.
Afterpay checks the consumer’s credit with a soft credit pull and, once approved, the consumer is presented with several installment payment options and can see fees and the payment amount for each. The consumer picks whichever option that appeals to them. They can be charged a late fee, but there’s no interest or service fee on the amount borrowed, and of course, the customer can prepay or fully pay before the payment is due.
To borrow from Afterpay, the consumer will have to have an Afterpay account. A credit or debit card must be linked to the account, so Afterpay can automatically withdraw the installment payment from the account. (Which begs the question: why not just use the credit card instead?)
ViaBill
ViaBill is a European fintech startup. Merchants in Denmark, Norway, and the US can sign up with ViaBill.
Like Affirm, ViaBill focuses on bigger ticket items. They offer easy integration with online shopping platforms, easy and fast approvals, and installment payments linked to the debit or credit card used to set up the consumer’s account. The payment is broken into four installments, with the first installment due immediately at checkout. Afterward, ViaBill assumes the risk of fraud and credit risk. If the customer fails to pay, they are charged a late fee (but no “penalty fee”), and ViaBill handles everything related to non-payment/collections.
For merchants, ViaBill charges 2.90% + $0.30 per transaction, which is comparable to some credit card processing charges. After the goods are shipped, the merchant assigns the right to receive payments to ViaBill, but ViaBill may assign the right back to the merchant to deal with chargebacks, disputes, item returns, and some other conditions.
When a merchant signs with ViaBill, the contract can be terminated by ViaBill at any time for any reason or no reason, while the merchant can only cancel for any reason or no reason in the first three months. Thereafter, the merchant must give ViaBill 12-months notice before the contract can be canceled.
There is a setup fee to connect up to ViaBill. They fund the purchase five days after shipping. Be aware that if you sign with ViaBill, they don’t want you to work with any other consumer financing provider unless you both agree in writing that you can.
Vyze
Vyze is a fintech startup that began in 2008. It was acquired by Mastercard in 2019, so if you sign up with them, you at least know that they are backed by a reputable business. Vyze doesn’t seem to be doing anything too different from the other fintech startups, however, so there might not be any other specific benefits to working with Vyze.
Like other fintech companies, it seems Vyze only does a soft credit pull; consumers can apply with just a few quick personal details. A customer can apply online, or if at the checkout of a physical store, apply from the store’s tablet loaded with Vyze’s app.
Once Vyze has the customer’s credit information, the software queries a first lender for approval. If the first lender rejects the application, then the software automatically pings a second lender in the queue, and then a third, and so on until one lender approves the financing.
Vyze’s website does not have much information for the merchant, so it’s difficult to tell if/how much they charge you for each customer you bring them, how they would handle returns or chargebacks, or any other details of a merchant’s contract with them.
VIP Financing Solutions
VIP Financing Solutions has an interesting business model. It seems to be a credit card processor that also does consumer financing (or vice versa). You can get Clover POS stations from them (it’s unclear if they sell or lease them, so be careful). They also have multiple lenders in the backend to support their financing activities.
No matter what you do with VIP, whether it’s credit card processing or customer financing, you’re charged the same rate: a 3.0% “Merchant Fee.” The website also claims that you’re not charged a credit card processing fee, but that 3% seems to cover more than enough of the usual fees associated with credit card processing. Once the charge is cleared, you are funded within 48 hours.
As to financing, VIP offers three types of financing:
A Store-Branded Credit Card:Â The shopper can be instantly approved and walk out with a card, which basically is a revolving line of credit specific to your business.
A No-Credit-Check Loan: The amount can be between $500-$35,000. The repayment is divided into four installments, to be paid within a short period of time.
A Traditional Personal Loan: Approval can take a few days, with repayment plans of up to 60 months.
We couldn’t find a merchant contract on VIP’s site, so we don’t know other details about how VIP works with its merchants.
PayPal Credit
If you are already a PayPal merchant, then you can offer consumer financing through PayPal Credit. Just activate the service as a form of permissible payment. Then you can advertise that the service is available by adding promotional banners already prepared by PayPal to your website.
When a customer uses PayPal Credit, the merchant is paid upfront (i.e. no need to wait for the customer to completely pay back the loan to PayPal). PayPal does not disclose how much it charges per transaction, but it also doesn’t say that the cost would be different from other PayPal transaction charges. So, each transaction likely costs the same as other PayPal payment transactions.
From the consumer’s standpoint, PayPal Credit is a loan between PayPal and the consumer. Once PayPal’s underwriter approves the loan, the consumer has to make minimum monthly payments. For purchases over $99, as long as the consumer pays the loan back within six months, there’s no interest on the loan. However, if the loan is not paid back completely within six months, interest is charged from the date of purchase.
PayPal will pull a soft credit check before approving a loan. The minimum starting credit is $250, and this might be increased from time to time. You can use the money in PayPal Credit to send to family and friends, just like sending cash. And, just like sending cash, you pay 2.9% + $0.30 per this person-to-person transaction.
The service is available to US consumers only.
Square Installments
As with PayPal Credit, if you’re already a Square merchant, you can use Square Installments. Square Installments can be used from the point-of-sale or from your virtual terminal, and they cost 3.5% per transaction. You can also integrate Square Installments into your electronic invoice, and that service costs 2.9% + $0.30 per transaction.
For a merchant to sign up, navigate to your dashboard and look to see if you’re already approved for Installments (approval sometimes depends on industry or location, business type, and/or volume and price of goods sold). If you are, then you’ll have to watch a video and answer a few questions to make sure you understand the terms of service. That’s all you need to do. You can cancel the program at any time. There’s no added integration needed, and Square can provide all the buttons and banners you need to advertise online to your customers that the service is available.
For your customers to apply for financing, they follow a link customized for your business and then enter their information. They will quickly get an offer after a soft credit pull, and the offer will include various monthly plans and total fees. Square pulls a full credit check if the customer elects to go forward with financing. Square Installments are used for purchases of $150 and up and the repayment terms are for up to 12 months.
For physical stores, Square Installments can be used with a digital card, which can be keyed in like any other purchase. The merchant is paid right away, and if the customer misses a payment, it doesn’t affect the merchant.
Here’s a more detailed article about Square Installments, if you’re interested in learning more.
Should I Offer Third-Party Financing For My Customers?
There are a lot of data-based arguments out there that suggest that making financing available to your customers translates to more sales. As a small business owner, the easiest way to do this is to go through a third-party financing company so that you won’t have to deal with the paperwork, the possible cash flow issues, the legal aspects of lending, and the defaults when a customer refuses to pay.
Third-party lenders aren’t willing to do all this for free, of course. Some will charge you a fee, and it’s important to understand how this fee works. It’s also important to think through other issues, such as how chargebacks and returns will be handled. Of the companies we surveyed above, many do not disclose much about how they work with the merchant at all. If you decide that you’re interested in working with one of these companies and contact them, be sure to ask questions such as:
Do they charge you for sending a customer to apply for financing?
Do you get a finder’s fee for sending customers?
How do they deal with merchandise returns? Are you required to accept a return, or can you simply refuse? Do you have to return the money to the customer? Or is that handled between the financing company and the customer? And if so, will the merchant have to return the money to the financing company?
How do they deal with disputes/chargebacks? What about fraud, such as a customer claiming that you didn’t ship a product when you actually did?
How do they deal with defaults? Some companies assign defaults back to you and you’d have to deal with that, so that seems to create more headaches for you.
Who handles customer service? If this is divided between the merchant and the financing company, how do you share the responsibility?
How quickly are you funded, and at which point in the process does a sale count as a sale?
You might have more questions, so be sure to write them down before you contact a financing company. That way, you won’t accidentally leave out a question.
If you decide that providing customer financing is just not for you, but you still want to explore ideas on how to increase the cash you have at hand to grow your business, be sure to check out some of our lending articles. We have picks for the best small business loans, advice on how to get a line of credit, and even information on startup grants. You might also want to consider invoice factoring or invoice financing.
Lastly, if you have had any experience with any of the providers above or want us to do a detailed review of a specific provider, do let us know by leaving a note below.
The post The Complete Guide To Customer Financing For Small Businesses appeared first on Merchant Maverick.
If you’re wondering how business loans work, you are probably in the early stages of research for getting business financing. You have taken an important first step: gathering information about what the process is like and learning what to expect if you continue your search for a loan.
However, you might be a little nervous or unsure about the prospect of getting a business loan because you’re afraid of rejection, of predatory lenders, or of being able to make the payments. You might also be overwhelmed with all the information and not know where to begin. With this article, I hope to give you a little more confidence and a starting point for your search going forward.Â
How Business Loans Work (The Short Version)
Simply put, a business loan is money you borrow to fund your business. You might obtain your loan from a bank, credit union, or alternative lender online. What sorts of reasons do businesses take out loans? Startup capital, working capital for everyday expenses, debt refinancing, expansion, construction, inventory, payroll, you name it—there are loans for every business need. Once you receive the money, typically as a lump sum, you will then start repaying on the principal, plus interest, usually in a series of installments.
So why borrow money when you’ll just have to pay it back, with interest?
Because having access to business capital opens up doors. It will allow you to keep your business going during tough times, or invest in expansion to grow your business when you’re ready. With the proceeds of a business loan, you can fund your payroll expenses during a slow season, take advantage of a good deal on bulk inventory, or open a new location for your growing business. And as long as you make all your payments on time, you’ll also build up your business’s credit profile, which will help open up access to more capital in the future.
Types Of Loans & How They Work
There are many various types of loans and they all work a little differently.
Different loan products are suitable for different uses. Products with short term lengths, such as short-term loans, invoice financing, and lines of credit, are normally better for working capital needs. Longer term products, such as medium- or long-term loans, are better for business expansion or refinancing purposes.
Bank, Credit Union, & SBA Loans
Best for: Long-term investments (expansion, refinancing, construction)
Not for: Startup capital
Many banks and credit unions offer business loans and lines of credit to eligible merchants. Bank loans are traditional term loans, also called installment loans, that you pay off in over a period of years (rather than months, as with many online loans). To qualify, you’ll generally need to have good credit and at least two years in business. Most banks have very long and detailed applications, but theyâre worth it to get the lowest interest rates and longest term lengths.
The Small Business Administration (SBA) is a good resource for merchants who canât qualify for a bank loan on their own. Rather than issuing loans, the SBA backs a portion of your loan, so your business isnât as risky, and matches you with one of their partner lending institutions. To qualify for an SBA loan, you’ll still usually need at least two years in business, assets you can use as collateral, and fair credit.
Medium-Term Loan
Best for: Medium- or long-term investments
Not for: Short-term working capital needs
Medium-term loans are installment loans that range from about three to five years in length. These loans are normally offered by online lenders.
Because the term lengths are shorter (and therefore less of a risk), medium-term loans are normally easier to obtain than bank loans. But you still have to have an established business (at least a year or two old) to qualify.
Short-Term Loan
Best for: Short-term working capital
Not for: Long-term investments
Short-term loans (STL) are online loans with terms ranging from three months to two years. Often, these loans carry a one-time flat fee instead of an interest rate, which means youâll know the total cost of the loan before borrowing. Repayments are made in daily or weekly installments. STLs can be expensive, but they are easy to apply for and can be a life-saver if you need cash immediately—depending on the lender, you can receive your loan in as little as one business day.
Merchant Cash Advance
Best for: Emergency cash infusion
Not for: Long-term investments
Technically, merchant cash advances (MCA) are not loansâtheyâre sales of future receivables. These âpurchasesâ are collected by deducting a portion of your sales each day. Although they have no set term lengths, most MCAs are structured to be repaid over the course of three months to two years. MCA borrowing rates tend to be even higher than those for STLs, though they are very fast and easy to qualify for.
Lines of Credit
Best for: Small, frequent cash infusions
Not for: Large, one-time investments
Lines of credit (LOC) function similarly to credit cardsâyou are given access to a certain amount of money, you can draw up to your limit whenever you want, and you only have to pay interest on the amount youâve borrowed. This type of financing is excellent for businesses that frequently need to borrow small amounts of capital.
Many LOCs are revolving, which means that your line is replenished as you repay funds you’ve borrowed.
Lines of credit are offered by many lendersâboth online and through banks. Term length for LOCs varies, but generally online lenders offer shorter-term lines of credit, whereas banks offer longer terms on their LOCs.
Personal Loan For Business
Best for: Startup capital
Not for: Large investments
Merchants in the earliest stage of starting a business often donât have access to a whole lot of capital. If youâre unable to continue bootstrapping and/or have exhausted the bank of family-and-friends, you could consider getting a personal loan for business.
Because personal loans are based on your individual creditworthiness, not that of your business, these loans are attainable, even if you donât yet have enough profits or time in business. Keep in mind that these are generally small loans, typically maxing out at $35-$50K.
Equipment Financing
Best for: Purchasing or leasing business equipment
Not for: Anything else
Equipment financing is exactly what it sounds like: a loan to finance business equipment. Your lender fronts you the money to purchase the equipment, and you pay it off in installments until you own the equipment outright. This type of loan typically doesn’t require any business collateral or even good credit, as the equipment itself serves as the collateral.
Equipment leasing is a subcategory of equipment financing, where you pay to use the equipment, but are not purchasing to own (sort of like leasing a car).
Invoice Financing
Best for: Turning unpaid invoices into immediate cash
Not for: Businesses that can afford to wait for customers to pay their invoices in full
Invoice financing is a type of business financing available to businesses (usually B2B businesses) that frequently have a lot of cash tied up in unpaid invoices. With invoice financing, a lender will extend you a line of credit based on the value of your unpaid invoices, and you repay your LOC as you collect on your invoices. Due to the often high fees involved, you should generally only choose this option if unpaid invoices represent a heavy burden to your business, and you need immediate cash.
Invoice factoring is similar, but slightly different. With this type of financing, you actually sell your invoices to a factoring company, at a pretty steep discount. It then becomes the factor’s responsibility to collect on these invoices. Learn more about the differences between invoice financing and invoice factoring.
What To Expect From The Application Process
Every lenderâs application is a little bit different, but most follow the same three stages: prequalification, verification and underwriting, and funding.
Prequalification
In the prequalification stage, you will need to fill out detailed information about you, your business, your businessâs finances, and what youâre looking for in a loan. The information at this stage is normally unverified, though of course, you should still be as accurate as possible.
Some lenders will also allow you to complete this stage informally over the phone or online.
An underwriter, or, often, a computer, will look at your application and determine if youâre qualified to receive funding.
If so, at this point many lenders will present an estimated loan offer to you. This offer will detail information about your potential loan, including your borrowing amount, interest rate, fees, term length, and size of periodic repayments. Ideally, the quote will also include information to help you compare loan offers, including the APR and/or the cents on the dollar cost.
If youâre still deciding between a few lenders, get an estimated loan offer from each one to easily compare your options.
Contrary to what many people think, being âprequalifiedâ for a business loan does not mean that you are necessarily approved for funding. To be officially approved, you need to complete the next step.
Verification & Underwriting
Before actually giving you money, the lenders will have to verify your information. This step primarily involves supplying documentation about yourself and your business, so lenders can be sure theyâve offered you a deal that will fit your business (and that youâre not lying to them).
During this stage, lenders may ask for financial documentation. Your lender might ask for documents like these:
Proof of identity
Recent business bank statements
Recent business credit card statements
Business tax return
Personal tax return
Profit and loss statement
Balance sheet
Debt schedule
A/R aging
The faster you can hand over the documents requested by your lender, the faster the application process will go, and the faster youâll be able to access your borrowed funds.
Many lenders also require you to complete steps to verify your identity, which may include answering basic personal questions over the phone or having a code mailed to your house.
At the end of this process, you will be presented with a final offer. In some cases, this offer may be different from the quote you received during the prequalification stage, so itâs important to go over all the information to ensure the offer is something you want. As always, before signing a contract, read the fine print.
Funding
At this point, the only thing left to do is to get funded!
After youâve accepted an offer, the lender will send the money to your bank account. Normally this happens via an ACH transfer, which means the money will take one to two business days to transfer between banks.
How Lenders Assess Your Eligibility For A Loan
When evaluating a business loan application, lenders look at various pieces of information to determine whether it’s a good idea to lend to you. In addition to looking at your time in business, credit score, and revenue, lenders also consider how you stack up against the 5 Câs of credit and data points like DSCR and DTI.
5 C’s Of Credit
Lenders consider the following traits, also known as the “5 C’s of Credit,” when considering whether to lend to a business:
Character â The borrowerâs reputation and perceived trustworthiness.
Capacity â The borrowerâs ability to repay the loan.
Capital â How much money the borrower has put toward the investment.
Collateral â What assets the borrower has to offer as insurance in the event of a default.
Conditions â The conditions of the loan the borrower is seeking, as well as the current state of the economy in general.
While these are somewhat general traits, they paint a good overall picture of how likely your business is to repay your loan on time.
Personal Credit Score
Your personal credit score is a measure of how well youâve repaid your debts in the past. Lenders want to be sure that you, the business owner, have a history of repaying debts in a timely manner. After all, if you have a history of responsibly repaying debts, youâll likely continue to do so in the future.
Time In Business
The longer your business has survived, the more likely it is to do so in the future. Before granting your business capital, lenders want to be sure that your business has withstood the test of time.
Loans with longer term length often require a longer time in business.
Business Revenue
Quite simply, your business has to be making enough money to repay the debt. The amount of revenue youâre currently making determines the maximum loan size you will be eligible forâoften lenders wonât let you borrow more than 10% â 15% of your annual revenue.
Debt Service Coverage Ratio & Debt-To-Income Ratio
Your debt service coverage ratio (DSCR) basically tells your lender (and yourself) how much money you have available to repay additional debt or make periodic loan payments. Your DSCR is calculated using this equation:
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Net Operating Income / Total Debt Service = DSCR
A DSCR higher than one means that you are making enough money to cover your current debts, and you could manage more debt without a problem. Usually, lenders like to see that you have a DSCR of 1.15 or above.Â
A similar data point lenders consider is your debt-to-income ratio (DTI), which is expressed as a percentage. This is the DTI ratio formula:
Total Monthly Debt / Gross Monthly Income = Debt-To-Income Ratio
Acceptable DTIs vary by lender, but generally, a DTI of 36% or lower is considered good. However, some lenders will be able to finance you if you have a DTI as high as 43%.
How Small Business Loan Repayment Works
Loan repayment is usually pretty straightforward, but methods can vary somewhat from lender to lender. The length of a loan’s term will of course vary from one loan to the next—and it will obviously make a big difference whether you have to repay the loan within three months or five years. Other than that, the main differences between loans, in terms of repayment, are whether the loan repayments are fixed or variable, and how often you have to make payments (payment frequency). You may also have some flexibility in how you repay (payment method), but generally, loan repayments are automatically deducted from your bank account.
Fixed vs. Variable Repayments
Borrowers with a fixed repayment pay the same amount every time they make a payment. For example, a borrower might have to pay $341 on a bi-weekly basis until the loan is paid off. Barring extraneous circumstances, the borrower will never pay more or less than the $341.
Variable repayment means that the amount youâre paying may change. You may have a variable repayment schedule for one of two reasons:
You have a loan (or advance) that is repaid by deducting a percentage of your cash flow. For example, your lender might deduct 15% of each sale until the debt is repaid. These loans do not have a maturity date, because repayment is dependent upon your cash flow.
Your interest rate is dependent upon the prime rate. If the prime rate goes up, so will your interest rate and consequently your payments. Naturally, if the interest rate drops, your interest rate and payments will as well. The prime rate is generally utilized by lenders who offer loans with long term lengths, or those that offer lines of credit.
Repayment Frequency
In the past, almost all loans were paid on a monthly basis. These days, lenders may require payments in many different intervals, including monthly, bi-monthly, weekly, or daily. Daily repayments are generally only made every weekday, excluding bank holidays.
Repayment Method
Gone are the days when you have to remember to write and mail in a check (mostly). Now, most lenders opt for an automatic repayment system, in which your payments are deducted right out of your bank account via ACH. All you have to do is make sure the money is in the proper bank account.
Some still allow payment via checks. However, many charge a check processing fee, which can cost your business a significant cost of money over time.
Final Thoughts On How Business Loans Work
Business loans are excellent tools for increasing your liquidity so that your business can thrive in good times and bad. However, it’s important to know how loans work in general, as well as the terms and conditions of any particular loan you are applying for.
Reputable online lenders are as transparent as possible, both on their websites and in their communications with applicants. Predatory lenders, on the other hand, tend to hide behind too-good-to-be-true advertising, while offering few (if any) specific details about their lending products. Before signing on for a loan, make sure you understand how much your payments will be, how frequent they will be, and how much you will pay for the loan in total. You can use our small business loan calculators to help figure out these important details.
And finally, here are a few more educational resources we think you might find helpful in your research about small business loans:
First Time Business Loans: Learn Where & How To Apply
Types Of Small Business Loans: 12 Types You Should Know
Online Business Loans: What They Are & When To Get One
Short-Term Small Business Loans: The Complete Guide
What Business Installment Loans Are & How They Work
Business Lines Of Credit: How They Work
Invoice Financing: The Complete Guide For Businesses
What Is Equipment Financing?
Still have questions? Leave them in the comments and I’ll answer them for you.
The post How Do Small Business Loans Work & What Is The Business Loan Process Like? appeared first on Merchant Maverick.
Travel-focused cards are some of the best credit card options for small businesses. These plastic bits come with invaluable perks, such as travel credits, Global Entry/TSA PreCheck application fee waivers, and airport lounge access. Plus, many feature tantalizing welcome offers and unique rewards that help businesses save cash regularly.
Unfortunately, these premium cards often come with premium price tags — their annual fees can reach into the hundreds of dollars. And with travel becoming less of a routine for many businesses due to the COVID-19 pandemic, these cards’ perks and unique rewards just aren’t usable right now. As such, you may be wondering if it’s time to cancel your company’s premium travel card.
However, you should know some issuers are lending a helping hand by offering cardholders incentives for sticking around. Called “retention offers,” these special incentives are meant to stop cardholders from canceling their credit card. While retention offers are nothing new in the world of credit cards, they have become more popularly requested because of the current crisis.
Should you seek out a retention offer from your credit card issuer? Want to learn more about what retention offers are? Then keep reading for a primer on what retention offers are and how they can help your business.
Types Of Retention Offers For Small Businesses
Traditional retention offers have been around for a while, with protocols varying from issuer to issuer. We’re also seeing some types of offers become more popular in the face of the current coronavirus pandemic. Let’s take a look at how issuers might incentivize you to keep your card.
Bonus Points Or Statement Credits
The most common type of retention offer you’ll see is an issuer granting extra points or statement credits. In many cases, these types of offers are intended to help offset your annual fee. For example, you may receive a $100 statement credit to counteract your card’s $99 annual fee.
In some situations, these bonus points/credits are given without you needing to spend anything extra. However, it’s also possible that your issuer will require you to spend a certain amount within a set number of months before you pick up the extra rewards — similar to a welcome offer. So this means you might see an offer such as 3,000 bonus points after you spend $1,000 in three months.
Annual Fee Reduction
You may also be able to get your annual fee reduced (or even completely waived) if you call in and ask. This might wind up being a little better for you because you won’t have to worry about paying all or part of the annual fee before you get credits added to your account.
Occasionally, these reductions are made in the form of targeted statement credits. For example, Chase recently handed out a $100 annual fee credit to select users with the Sapphire Reserve card, which has a $550 annual fee. This credit helped soften the blow during the coronavirus pandemic and especially so because Chase had upped the Sapphire Reserve’s annual fee from $450 to $550 in January.
Extended Welcome Offer Windows
In the face of the current pandemic, issuers have been extending welcome offer windows for select users. A lot of premium travel cards come with meaty welcome offers. However, with the recent downturn, many aren’t using their cards as frequently — potentially harming a cardholder’s chance of hitting their welcome offer’s minimum spend requirement. By lengthening the time to meet this requirement, a card issuer gains goodwill with customers while also encouraging continued spending with eligible credit cards.
American Express was the first major issuer to announce such a change. Early in April, Amex allowed those who were approved for card accounts between the beginning of December 2019 and the end of May 2020 to receive an extra three months to trigger their minimum spend requirement.
Issuers We Know That Grant Retention Offers
A few card issuers have been pretty aggressive with providing retention offers on their premium credit cards. Below is a quick rundown of some examples you may get from popular issuers.
Note: The offers below are examples of temporary offers in response to the coronavirus pandemic and of more general retention offers. For a consistently updated and fresh list on how credit card issuers are providing aid during the coronavirus pandemic — both with temporary offers and otherwise — check out our article on credit card assistance. For more exhaustive lists on retention offers specifically, visit the FlyerTalk forum or MilesToMemories.
American Express
American Express has some of the best premium credit cards on the market. Its cards come with great rewards, but Amex also packs in some hefty annual fees — making the cards ripe for retention offers.
Amex has also been one of the most responsive issuers to the coronavirus. As noted earlier, the issuer has lengthened welcome offer windows for card accounts approved between the beginning of December and the end of May. If you qualify as one such user, you get an extra three months to spend the minimum amount for your welcome offer.
Additionally, cardholders enrolled in Amex’s Membership Rewards program are eligible to earn one extra point for purchases made via the Grubhub and Seamless delivery services. This bonus rate began in April and will run through the rest of 2020. You can add this offer to your eligible card through the Amex Offers portal.
Beyond its coronavirus response, American Express has been known to provide retention offers when cardholders call and ask. Example potential offers if you ring up Amex include:
The Business Platinum Card From American Express: $595 annual fee — 5,000 points immediately, plus 25,000 more after $10,000 spent in 90 days
American Express Business Gold Card: $295 annual fee — 5,000 points immediately, plus 5,000 more after $3,000 spent in three months
Capital One
While we haven’t seen instances of Capital One offering bonus points or statement credits, the Virginia-based bank has still been doling out new perks to encourage users to keep and continue using their cards during the pandemic.
All of Capital One’s first-party travel cardholders (so those with Venture, VentureOne, and the business-focused Spark Miles and Spark Miles Select) can now redeem their miles for delivery service and restaurant takeout purchases up through June 30. Capital One includes DoorDash, Postmates, and Uber Eats among the eligible delivery services. Both consumer travel cards can also have miles redeemed for streaming services (including Netflix, Hulu, Spotify, Disney+, and Kindle Unlimited), while the business bits of plastic can have miles cashed in for purchases from wireless phone service providers (including Verizon, AT&T, and T-Mobile).
Additionally, some cardholders have chimed in that Capital One is willing to extend welcome offer windows for business cards, according to MilesToMemories. Per one user who called Capital One, the bank is reportedly allowing until December 31 for them to hit the minimum spend requirement on their Spark business credit card. Note that this extension is not automatic — you’ll need to reach out to Capital One to see if you can get a similar deal.
Citi
Citi hasn’t made any widespread tweaks in response to the coronavirus pandemic. However, the bank is still known for dishing out retention offers on its premium credit cards. Here are a couple of example retention offers from Citi:
Citibusiness / AAdvantage Platinum Select Mastercard: $99 annual fee — $99 statement credit after $3,000 spent in three months
Citi Premier Card: $95 annual fee — $95 statement credit, plus 1,000 points after $1,000 spent monthly for three consecutive months
Chase
Between its first-party credit cards and those offered in conjunction with travel brands, Chase has a number of premium credit cards. With such a deep stable of cards, Chase has been fairly receptive to handing out retention offers in the past. The bank has also distributed several perks for those impacted by the coronavirus.
Most notably, Chase has extended welcome offer windows for those who signed up for a card between January 1 and March 31. If you qualify, you get an extra three months to reach your offer’s minimum spend requirement.
As mentioned earlier in this article, Chase also dished out a $100 annual fee credit to Sapphire Reserve cardholders who have a renewal date between April 1 and July 1. This credit effectively knocked the card’s $550 annual fee down to $450 (although the card previously had a $450 annual fee last year, so it basically winds up a wash for those who qualify).
For those stuck at home, Chase has additionally enabled 5x rewards (up to $500 spent) on delivery and takeout through DoorDash and Tock for Sapphire Reserve, Sapphire Preferred, Freedom, and Freedom Unlimited cardholders. This bonus rate runs through May 31.
Those above perks are automatic — no need to dial Chase if you qualify. You might still be able to find some savings if you call in, however. Other example retention offers you might see by contacting Chase include:
Southwest Rapid Rewards Premier Business Credit Card: $99 annual fee — $100 statement credit for keeping the card, no spending required
Marriott Bonvoy Boundless Credit Card: $95 annual fee — $50 or $100 statement credit for keeping the card, no spending required
How To Get A Retention Offer
As seen above, issuers have been announcing offers without cardholders needing to reach out. These temporary offers are intended to placate cardholders during the financial downturn that has occurred amid the health crisis. In most situations, if your issuer has announced some sort of perk due to the coronavirus pandemic (such as an extended welcome offer window or bonus points for certain categories), you won’t have to do anything proactively — the perks will be available automatically.
However, for most traditional retention offers, you’ll need to give your card issuer a call on the phone. While this may be more problematic than in the past — issuers are experiencing high call volumes in the pandemic’s wake — the best way to receive a retention offer is by reaching out.
When looking for a retention offer targeted around your annual fee, give your issuer a call via the number on the back of your credit card. Note that you’ll want to do this after your card’s annual fee is posted to your account but before your monthly payment’s due date.
Here’s a couple of tips to help you with your request:
Come Up With A Game Plan Before You Call: As is the case with most customer service calls, knowing what type of offer you want as well as crafting a script in your head can help immensely. You’ll also want to know what you’re willing to concede and how weak of an offer you’re prepared to take.
Make Your Request Short & Sweet: There’s no reason to beat around the bush. Simply stating what you’re looking for and how you’d like the card issuer to handle your situation should be enough. Retention offer requests are commonplace for most customer service agents, and any offers available to you will likely be auto-generated by the issuer’s computer system — coming with a detailed sob story probably won’t help much.
Know That You May Have To Cancel: Some issuers, such as Chase, have instituted new policies where the customer service agent won’t see a retention offer until after they’ve begun the cancellation process.
It’s also worth noting that the offer may depend on how much money you’ve spent on your credit card in the past months and years. Those who have used their card more frequently will have a better shot at actually receiving a retention offer as well as potentially earning a better offer than someone who might’ve spent less.
Good Luck!
Should you wind up without a retention offer — or an inadequate one — don’t hesitate to cancel your credit card if you can’t afford its annual fee. Especially with the financial woes facing numerous businesses right now, it’s just not worth throwing away money on a card you won’t be taking full advantage of for the next several months at least. However, hopefully, your issuer will provide some sort of solution. With the right offer, you may be able to keep hold of your card until it becomes valuable again in the future.
If your business is still struggling with its credit card due to the coronavirus pandemic, check out how else issuers are providing assistance. We’ve also written up a guide on how to best use your credit card throughout the financial downturn. For more general guides and resources to help your business during the current crisis, visit Merchant Maverick’s coronavirus hub.
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As of April 23, it appears the Paycheck Protection Program will be receiving a second round of funding, pending approval from the government. Many PPP lenders, including our recommendations below, are accepting applications in advance. We recommend that you apply as early as possible to have the best chance of securing PPP funding.
With Round 2 of the Paycheck Protection Program (PPP) looking to be about ready to begin, businesses that missed the first round will have a second chance to take advantage of the popular relief package. This includes businesses whose owners may have assumed they did not qualify due to being sole proprietorships with no employees (this status technically applies to freelancers as well).
Wonder no longer! The SBA has released guidance in the form of an “interim final rule” clarifying who does and doesn’t qualify for the PPP, specifically addressing the question of sole proprietorships and businesses without employees.
Am I Qualified For A PPP Loan?
If you’re an individual with self-employment income, you can qualify for a PPP Loan if you meet the following criteria:
You filed or will file a Form 1040 Schedule C for 2019
Your principal place of residence is in the United States
You must have had a net profit for the time in question
Note that if you’re in a partnership, you are still eligible for PPP, but you should not submit a separate application for yourself as a self-employed individual. Instead, you’ll file a single application for the company with the income of each partner reported as a payroll expense. This is meant to cut down on the volume of applications and eliminate confusion regarding which companies and partners have applied.
The SBA plans to release further, specific guidance for self-employed individuals who were not in operation in 2019 but were in operation by February 15, 2020, and will also file a Form 1040 Schedule C for 2020.
Be aware that applying for a PPP to cover self-employment income may complicate your application for state-level unemployment insurance, so make sure you take a look at those guidelines to ensure you’re maximizing your eligibility.
How Much Money Can I Apply For?
Here’s how the interim final rule says to calculate the maximum amount you can apply for:
On line 31 of your 2019 IRS Form 1040 Schedule C, you’ll find your net profit. If it’s over $100,000, reduce it to $100,000. If the number is zero or less, you’re not eligible.
Divide the number you arrived at from Step 1 by 12 to get your average monthly net profit.
Multiply your average monthly net profit by 2.5.
Add the outstanding amount of Economic Injury Disaster Loan (EIDL)Â made between January 31, 2020, and April 3, 2020, that you’re trying to refinance, minus the amount of any advance you received under an EIDL COVID-19 loan, which does not have to be repaid.
If you’re applying as a partnership, you’ll treat each partner’s income as a payroll cost. The maximum amount is up to $100,000 annualized. Otherwise, consult our guide on applying for a PPP Loan.
What Will I Need To Apply?
The first thing you’ll need is a lender, which I will touch on in the next section. As government programs go, the PPP application is surprisingly short. No, really, it’s only two pages long.
Your specific lender may have particular document requirements, but you should be prepared to provide tax documents, organizational documents, and government-issued identification. Since you don’t have any employees, you won’t have to worry about W-2s and payroll documentation.
Where Can I Apply?
Unlike the Economic Injury Disaster Loan program, PPP Loans aren’t made directly through the SBA. Instead, you’ll have to work with a third-party lender. If you prefer to work with a bank or credit union, once the program restarts, you can use the SBA’s Lender Match tool to locate an SBA lender near you.
If you don’t have an existing relationship with a bank or credit union, you can also apply through online lenders that have partnered with the SBA. Here are a few popular and reliable online lenders that have been approved to process PPP Loans.
1) Fundera
Fundera
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Read our Review
Fundera is a popular matchmaking service that pairs applicants and lenders from its pool of partners. If you apply for the PPP through Fundera, the same principle applies: Fundera will shop your application amongst its network of SBA-approved lenders. Considering some of the bottlenecks applicants have run into with traditional lenders, this may not be a bad option for businesses that want to maximize their chances of getting their application through the rush.
Get Started with Fundera
Read our in-depth review
2) Lendio
Lendio
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Read our Review
Lendio is another business financing platform that matches applicants with one or more of its partnered lenders. Lendio has been very vocal about the PPP, to the degree that it turned into something of an advocate for the program after Round 1 of funding was quickly exhausted. Lendio is ready and waiting to leverage its platform to get cash-starved businesses the help they need once Round 2 is ready to go.
Get Started with Lendio
Read our in-depth review
3) Credibly
Credibly
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Read our Review
Credibly isn’t an aggregate platform like the previous two options, but it is using its online application infrastructure to allow businesses to apply for PPP Loans online. It’s a pretty user-friendly setup, so if you’re having anxiety about crossing all your t’s and dotting your i’s, you may appreciate the way Credibly walks you through the process.
Get Started with Credibly
Read our in-depth review
Other Resources For Coronavirus-Affected Small Businesses
To help businesses navigate the unprecedented difficulties of the COVID-19 crisis, we’ve created a centralized hub of guides and resources. We’re updating them frequently, so check it out.
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On April 21, 2020, the US Senate passed a bill authorizing the addition of $310 billion to the Paycheck Protection Program (PPP), which offers forgivable loans to businesses affected by the devastating COVID-19 outbreak. This comes after the initial $349 billion allocated for PPP Loans ran out in less than two weeks due to the overwhelming demand. Assuming this bill is passed by the House and signed by the President — and all indications are that this will happen — it might be another day or so before the SBA can reopen the program to new applicants.
The PPP was a major component of the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), which was signed into law on March 27, 2020. PPP Loans are designed to protect payroll — if you use the loan on operational costs (payroll costs come first) during the eight weeks after the National Emergency was declared, some of your loan proceeds may be forgiven. To this end, you’ll need to follow the guidelines outlined in the CARES Act when using your loan funds.
Where You Can Apply For A Paycheck Protection Program Loan
Currently, there are over 1,800 banks and lenders preapproved with the SBA to participate in the PPP loan program. These sources of funding include banks (both large and small), credit unions, online lenders, and loan matchmakers.
Based on reports from business owners who applied for PPP Loans during the last period in which funding was available, you may have more success applying for a loan through a smaller community bank or credit union rather than a big bank. In any case, you may want to start by applying with the financial institution you already use, as that may cut some steps out of the process. Even if they don’t offer PPP Loans themselves, they should be able to point you in the right direction.
One helpful resource in locating PPP lenders is the SBA’s Lender Match tool. The tool can help match your business with a PPP lender, either online or in your locality.
Again, for small business owners, our article that explains PPP Loans has some helpful information about who qualifies for a PPP Loan and how/where you can apply for such a loan. For the self-employed, however, the process is a bit different. Check out our article on applying for a PPP Loan as a contractor or freelancer for more details on the information you’ll need to provide.
Paycheck Protection Program Resources & FAQs For Small Businesses
This has been a tremendously stressful time for all of us. Unfortunately, small business owners and the self-employed have faced particular challenges and frustrations, as many were unable to get a PPP Loan during the last round of funding despite applying as soon as the funds became available. Many were not even able to determine the status of their loan application. Right now, things simply aren’t working as they should, compounding what is already a tragic era in our history.
Here at Merchant Maverick, we’ve heard your harrowing stories, and we understand your anger. Just know that we’re going to continue to help in whatever way we can as we all navigate this unprecedented time. You’re not giving up, so neither will we.
For more information on PPP Loans, how to apply for them, and how to check the status of your PPP Loan application, check out the following resources:
SBA Paycheck Protection Program (PPP) Loans Explained: How They Work, Who Qualifies & Where To Apply
How To Apply For A Paycheck Protection Program (PPP) Loan For Coronavirus Relief
How To Check The Status Of Your SBA Paycheck Protection Program (PPP) Loan Application
Also, check out our COVID-19 hub for more information about how to weather this disaster intact. You can also explore our small business reviews to find additional funding options. Now, let’s keep fighting the good fight.
The post The Second Round Of Paycheck Protection Program (PPP) Funding Has Been Announced: What You Need To Know appeared first on Merchant Maverick.
The Paycheck Protection Program (PPP) is bringing much-needed relief to small business owners affected by the coronavirus. Not only does this loan program provide funding to help cover payroll and other expenses, but if used for qualifying purposes, your loan will be forgiven.
Yes, you read that correctly. A PPP loan can help your business right now without throwing you into debt further down the road. Are you thinking to yourself, “What’s the catch?” There is a catch, but fortunately, it’s a small one. You must spend your PPP loan funds on qualified expenses. That’s it.
If it sounds simple, that’s because it is. In this post, we’re going to help you understand how you can qualify for PPP loan forgiveness. We’ll explore qualified expenses, what you need to track, and even what happens if you spend your funds on non-qualified expenses. Whether your funds have already hit your bank account or you’ve just started the application process, read on to learn more about PPP loan forgiveness and what expenses can be covered using these funds.
Requirements For PPP Loan Forgiveness
The requirements for having your PPP loan forgiven are surprisingly lenient. It is, however, vital that you understand and follow these requirements. Otherwise, you will be required to pay back all or part of your loan.
Loan Proceeds Must Be Used For A Qualifying Purpose
If you receive a PPP loan, you are limited in how you use your funds. We’ll go into the specifics in the next section. For now, just understand that this loan is meant to help you pay and retain your employees if your business has been affected by the coronavirus.
Funds Must Be Spent Within 8 Weeks
Your loan is calculated to provide you with eight weeks of capital to pay employees and cover other qualified costs. To be forgiven, loan proceeds must be spent within eight weeks of receiving the loan.
You Must Maintain Your Full-Time Staff
Because this loan should be used to help you pay your staff, it makes sense that one requirement for loan forgiveness is that you must maintain the headcount of your full-time employees. If you had five employees at the time of applying for your loan, you should continue to have at least five full-time employees on your payroll.
Now, what happens if you had to lay off employees in between applying for your loan and receiving the funds? This loan gives you a short amount of time to rehire. You will have until June 30, 2020, to restore staff as a result of any changes made from February 15, 2020, to April 26, 2020. You will be required to pay back all or some of your loan if you fail to maintain your staff based on these guidelines.
You Must Maintain Your Payroll
Your payroll costs must remain the same as they were when you applied for funding. If you decrease salaries or wages, you may be required to pay back a portion of your loan. To be eligible for loan forgiveness, you can’t reduce the salary of any full-time employee earning less than $100,000/yearly by more than 25%.
If you had to cut salaries or wages as a result of financial challenges caused by the coronavirus from February 15, 2020, to April 26, 2020, you have until June 30, 2020, to restore these salaries and wages.
Qualified Expenses For PPP Loans
As mentioned in the previous section, PPP loans can only be used for certain expenses. If you use your loan for anything other than these expenses, you will not qualify for full loan forgiveness. So how exactly can you use your funds?
Payroll Costs
Your PPP loan funds can be used to cover payroll expenses so that you can keep your business staffed. Various payroll costs are qualified expenses, including:
Salaries, Wages, Tips & Commissions: Capped at $100,000/annually per employee.
State and local taxes on compensation
Employee Benefits: This includes costs associated with retirement plans, group health insurance, separation or dismissal, vacation time, sick and medical leave, and parental and family leave.
If you’re a sole proprietor or independent contractor, self-employment wages, salaries, and commissions not exceeding $100,000/annually also qualify as payroll costs.
These costs will need to be proven by submitting payroll documentation. For small businesses, acceptable documentation includes:
Payroll Registers: Should be from the last 12 months
Business Bank Statements: Should be from the last 12 months
If you’re an independent contractor or sole proprietor, documentation proving payroll costs include:
Tax Forms: 1040 Schedule C and 1099s
Income and expense reports
Other documentation may be acceptable — ask your chosen lender for additional details.
Mortgage Interest
Your PPP loan can be used to pay mortgage interest. Mortgage interest obligations must have been incurred before February 15, 2020, to be a qualified expense.
Make sure to have documentation showing the mortgage interest that was paid. Acceptable documentation includes receipts, bank statements, account statements, and canceled checks.
Rent
If you rent your commercial space, you can use a portion of your funds to cover rent over the next two months. To be considered a qualified expense, a lease agreement for the property must have been in effect before February 15, 2020.
Again, you need to keep all documentation proving your funds were spent toward this qualified expense. So don’t forget to hang onto your account statements, receipts, bank statements, and canceled checks.
Utilities
Struggling to keep the lights on at your business? Good news — you can use a portion of your loan to cover your utilities. To qualify, service for these utilities must have occurred before February 15, 2020.
Once again, you’ll want to have documentation proving that these utilities were paid by keeping account statements, bank statements, canceled checks, and receipts.
One last thing to note is that at least 75% of your loan must be used to cover payroll costs. The remaining 25% can be used to pay mortgage interest, utilities, and rent.
What Happens If I Don’t Qualify For Forgiveness?
If you use your loan for qualified expenses, your loan will be forgiven. But what if you make a purchase that isn’t a qualified expense or fail to meet other requirements? If this is the case, you will be required to repay at least a portion of your loan.
As previously mentioned, there are a few things that can prevent you from receiving 100% forgiveness on your PPP loan. As a quick reminder, those are:
Using your loan funds for another debt obligation that isn’t your payroll, rent, utilities, or mortgage interest
Using more than 25% of your loan for rent, utilities, and/or mortgage interest
Reducing your employee headcount
Reducing the wages, salaries, or commissions of employees
If you don’t qualify for full loan forgiveness, you will be required to pay back loan funds plus interest. The interest rate for PPP loans is 1%, and you will have two years to repay your loan. Payments are deferred for six months, although interest will continue to accrue during this time.
When & How To Apply For Forgiveness
You will apply for PPP loan forgiveness through the lender that serviced your PPP loan. There are no requirements set by the SBA, so your specific lender may require additional documentation or have their own instructions for submitting a loan forgiveness request.
At a minimum, you should make sure that you have documentation that shows how your loan was spent. Your lender may require payroll documentation, bank statements, account statements, tax forms, receipts, and canceled checks. Additional documentation may also be required, so make sure to ask your lender what needs to be submitted to avoid delays.
Once your lender has received everything, they must make a decision on the status of your loan forgiveness within 60 days.
Other Resources For Coronavirus-Affected Small Businesses
The coronavirus has affected all of us, and many small business owners have been hit hard by the pandemic. If your business is suffering financially, don’t give up hope — there are some great resources to help you through this time of economic uncertainty. We’ve been doing our research and have created a number of posts dedicated to coronavirus relief. Check out our COVID-19 hub to learn more about the EIDL program, read industry-specific survival guides, and access our other small business resources. Good luck!
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The COVID-19 pandemic has riddled the US with both a health crisis and an economic one. Small businesses have been particularly affected — according to the National Federation of Independent Business, 92% of small employers have been negatively impacted by the novel coronavirus.
In response to the woes facing the economy, the US government has allocated funds to help support businesses throughout the country by enacting the $2 trillion CARES Act. One of the programs for small businesses affected by this act is the Economic Injury Disaster Loan (EIDL) program.
As the EIDL’s name might imply, this program involves small businesses taking out a loan. In general, loans must be paid off over time with interest. Being saddled with interest rates and having to repay loans can create additional headaches for any small business owner.
Thankfully, at least part of the money involved with an EIDL may not need to be repaid. If you’ve requested and received an emergency advance as part of the EIDL program, that money can be forgiven. Read through for the full details on how you can receive forgiveness on your EIDL emergency advance.
Can EIDL Loans & Advances Be Forgiven?
There are two parts to the EIDL program: the loan itself and an advance on the loan. The main portion of the loan — which can be as high as $2 million — is generally not forgivable. You’ll need to repay the main portion of your EIDL proceeds. The advance, on the other hand, is a different story.
The advance — which sends $1,000 your way for every employee in your business and caps its limit at $10,000 — effectively acts as a grant. As such, you do not need to repay the advance. That means you’ll be able to put the money right into your business without needing to pay it off in the future.
There is also one exception to the main loan to keep in mind. If you received an EIDL between January 31, 2020, and April 3, 2020, and you apply for a forgivable Paycheck Protection Program Loan and then refinance your EIDL into the PPP, you can essentially have your EIDL forgiven. Note that if you didn’t receive your EIDL before April 3, this exception doesn’t apply to you.
How To Get Forgiveness On Your EIDL Emergency Advance
To receive forgiveness on the advance portion of your EIDL, you’ll need to spend the money you receive on earmarked categories — you can’t just spend it on anything. Per New York state, the eligible categories to trigger the advance’s forgiveness are:
Paid leave to employees
Maintaining payroll
Paying for increased costs to purchase materials
Mortgage payments
Lease payments
Making repayments on obligations unable to be met due to revenue losses
It’s also worth noting that the advance can still be forgiven even if your EIDL application is ultimately rejected. Additionally, if you take advantage of the SBA’s Paycheck Protection Program, your EIDL advance will be deducted from your PPP Loan forgiveness.
Having earmarked requirements for how the advance can be spent might be frustrating. However, the categories should still provide enough leeway to help keep your business afloat in these unprecedented times.
EIDL Repayment Terms
Because you do have to repay the main portion of your EIDL, you’re probably wondering what repayment terms you might receive. As for this portion of your EIDL, the SBA states that the interest rate will not exceed 4% per year (the current rate is 3.75%), and the term length will not exceed 30 years. Your exact repayment term length will depend on your ability to repay your loan.
These are unquestionably favorable repayment terms, which makes the EIDL program very valuable if you can get approved for a loan.
Additionally, disaster loans in “regular servicing” status on March 1, 2020, will have automatic deferments provided through December 31, 2020, according to the SBA. If your loan falls under this status, it may provide you with additional relief during the economic downturn caused by the coronavirus pandemic.
Also, remember that because the advance does not need to be repaid, you won’t need to worry about any interest rates or term lengths with that portion of your loan. This means that when estimating the cost of an EIDL, you should first subtract the amount the SBA advanced to your business from the overall loan before calculating the cost.
Other Resources For Coronavirus-Affected Businesses
If you need more help beyond an EIDL or emergency advance, Merchant Maverick has been working hard to lend a helping hand.
Visit our frequently-updated coronavirus hub for a slew of guides and resources to help your business through this turbulent time. You might be particularly interested in understanding the difference between EIDL and PPP Loans. You can also learn how to set up a gift card program for your business or how to best utilize your business credit card.
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The information below is sourced from the SBA website. Unfortunately, some merchants are reporting that, when contacting the SBA, they have found there is currently no way to check the status of their EIDL application. We presume that this is due to the high volume of applications the SBA has received. Be aware that some methods of contact might not work at this time.
The Economic Injury Disaster Loan program through the SBA is a long-standing program intended to help businesses hurt by tornados or wildfires. After the national disaster was declared in March, funds became available to help small businesses impacted by the pandemic. As part of the CARES (Coronavirus Aid Relief and Economic Security) Act, the Federal government gave the EIDL program a boost, which included $10 billion for $10,000 advances/grants given to small businesses impacted by the Coronavirus pandemic. These funds are separate from the Payroll Protection Program, both of which saw an influx of applicants during the past two weeks but operate as additional avenues to seek financial assistance.
For other resources related to small business and the coronavirus, check out our COVID-hub updated with information.
How Long Is The EIDL Application Process?
According to the SBA, the EIDL application process takes between two to three hours. This is a streamlined online application, and the process goes faster if you have all the necessary information ahead of time. As part of the application process, applicants must attach a personal financial statement, a list of all personal assets and debts, and a schedule of liabilities.
How Long Will It Take For My EIDL Application To Be Approved?
After a business has submitted all relevant documents to the SBA, the waiting game begins. In a pre-COVID world, the process was remarkably fast. However, we are not in a pre-COVID world, and there is no concrete answer here. Some loans are approved quickly, while others are on a slower track; most applications are taking between two to three weeks for approval. The SBA states that applications might take up to four weeks. After submitting the necessary documents, small business owners can wait to get word from the SBA or check the status of their loan and emergency advance online.
When Will I Get My EIDL Emergency Advance?
The law requires small businesses to receive their emergency advance within three days of approval. Unfortunately, based on the influx of applications and advances, the funds are taking longer to disburse. The SBA has never before needed to open its disaster relief applications to the entire nation at one time, and the pandemic’s effects on small businesses have created a great need up against an overwhelmed system. Many approved businesses are still waiting.
When Will I Get My Disaster Loan Funds?
The SBA language states that after approval, funds should appear within five days. Many businesses are still waiting for funds after two weeks.
What Can I Do To Speed Up The Process?
If you are simply waiting for the SBA to disburse funds, there is little you can do to push the process forward. Many news outlets have reported that there has been inadequate capital and manpower to respond to the loans. One business owner told us that she waited on the phone for three hours only to be told they have received her application, and that was all — at the moment, there is no timeline. It is frustrating to feel helpless, and this level of bureaucracy is emotionally exhausting. It’s hard to hear that you have to wait. And it is especially hard now. However, here are some general tips to help navigate the process:
Follow The News Closely
Things are changing hour by hour, and the best thing you can do right now is stay informed. Set up news alerts about the disaster loan programs, and if the language or details are confusing, find someone you trust to help decipher the details.
Talk To Other Small Business Owners
Responses are going to vary, but the best way we can understand what’s happening around us is to talk to people who are weathering the same storm. Find out if there are local boards/governments that are meeting (virtually) to discuss small business relief, and don’t shy away from asking other small business owners about their tips or regrets.
Get Your Documents Together
Now, more than ever, it’s essential to know what documents are needed to apply for disaster loans and to have those resources readily available.
Final Thoughts
If I had a dollar for every time I read “unprecedented times” in an article or a Facebook status, I’d be treating myself to an inflatable hot tub for my quarantine days. But the phrase is ubiquitous because it’s a quick way to state the extraordinariness and confusion of these past few months. As a company that prides itself on helpfulness, it’s difficult when there are so many question marks littering the landscape. In this particular situation, it’s best to be armed with documents and then be prepared to wait. In the meantime, you can also research and check into other lending options. How has your experience been with the EIDL process? Let us know in the comments.
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As of April 16, all of the funds for the Paycheck Protection Program loan program has been claimed and PPP lenders are no longer accepting new applications. We will continue to monitor the situation and will let small businesses know if more funding is allocated for the program.
As a small business owner, the effects of COVID-19 probably hit close to home. Whether you’ve shuttered your business because of state laws or have had a decrease in revenue due to fewer customers, businesses around the world are facing financial challenges as a result of this pandemic. In the United States, President Donald Trump has taken steps to help small business owners through this challenging time, such as the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
One provision of the CARES Act that has gained a lot of attention nationwide is the Paycheck Protection Program (PPP). This program has received an overwhelming response from small business owners. If you own a small business and have employees on your payroll, the PPP loan may be beneficial for you. Keep reading to learn more about this program, how to know if you qualify, and how to navigate the application process with ease.
How A Paycheck Protection Program Loan Could Help Your Small Business
The Paycheck Protection Program provides forgivable loans to qualifying small businesses. Borrowers may receive up to $10 million. The actual amount you qualify to receive is equal to two months’ of your monthly payroll costs, plus 25%. Payroll costs are capped at $100,000 annually per employee.
The funds for your loan should primarily be used to cover payroll costs. You can also use a portion to pay for rent, utilities, and mortgage interest. If you use your loan for these purposes, it will be forgiven. However, if you use your funds for other purposes, you will be required to pay back your loan. If you decrease your number of employees, salaries, or wages, you may also be required to pay back funds.
Other benefits of these loans are that no collateral is required, and you do not have to sign a personal guarantee. If you’ve been debating whether or not to lay off staff as a result of the coronavirus, the PPP can provide the funding you need to keep your employees working. More people keep their jobs, small businesses continue operations, and you won’t be stuck with a pile of debt when the pandemic comes to an end.
How To Apply For A PPP Loan
Does a PPP loan sound like it would take some of the financial burden off your business? If so, the next step is to submit your application. Unsure of where to begin? Keep reading for a step-by-step guide to applying for PPP funding.
1) Make Sure You Qualify
While a PPP loan may be easier to obtain than a traditional loan, you still must meet certain requirements to qualify. All businesses can apply for this loan, provided they meet the size standards set by the SBA. In most cases, this means 500 or fewer employees, although there are some exceptions for certain industries.
For-profit businesses, nonprofit organizations, independent contractors, sole proprietors, and other businesses may apply for the PPP loan. In order to qualify for loan forgiveness, you must maintain your payroll and number of employees and use your loan for a qualifying purpose. You will need to certify through good faith that you will use the loan for its intended purpose and that loan funds are needed by your business during this time of economic uncertainty.
2) Find A Lender
Once you’ve determined that you qualify for a PPP loan, the next step is to select your lender. You can apply through an SBA lender or a federally insured financial institution, including credit unions. Other regulated lenders may also offer the PPP loan. Start off at any financial institution you already use. Even if the PPP loan isn’t offered, they may be able to point you in the right direction. You can also use the SBA’s Lender Match tool to find an SBA lender online or in your area.
3) Complete Your Application
Once you’ve found a lender, you’ll be asked to complete the PPP loan application. The application is pretty short and straightforward. You will be required to provide some basic information about your business, including your legal structure, your average monthly payroll costs, and information for all owners with at least a 20% stake in the business. You must also state the purpose of the loan and answer several questions that will determine if your business is eligible for funding.
In addition to your application, you must also submit payroll documentation. This payroll documentation should back up the numbers from your application to determine if you qualify for a PPP loan and how much you qualify to receive. You should also make sure you have other documentation on-hand that may be required by your lender. This includes but is not limited to tax documents, employee W-2s, organizational documents, and government-issued identification.
4) Keep In Touch With Your Lender
While you wait for your loan decision, it’s important to keep in touch with your lender. Additional information or documentation may be required as your loan is being processed, so be on the lookout for emails or phone calls requesting this information. Failure to communicate with your lender promptly can cause delays in the application process … and receiving your funds.
Avoid These Common PPP Loan Application Mistakes
From falling for scams to submitting an application with inaccurate information, there are a few mistakes that could delay the processing of your loan or even put your identity and bank account at risk. Here’s what to look out for.
Beware Of PPP Scams
While the PPP application process is quite easy and quick when compared to other SBA loans, there are scammers out there looking to take advantage of small business owners. Beware of shady lending websites that promise faster funding. You should only work with a reputable lender, so do your research before handing off your personal information.
Also, be on your guard when it comes to communications with the SBA or your lender. Make sure to check the email address of the sender or the phone number of the caller to ensure the communication is legit. If you’re unsure, you can always use the official website of the SBA or your lender to initiate contact.
Check Your Application For Accuracy
Always double-check that the information on your application is accurate. Make sure that your payroll information is up-to-date and all required documentation is current. A simple mistake can potentially delay your loan, so make sure that everything is accurate before it’s submitted for processing.
Calculate Correctly
There are a few calculations that you must make sure are accurate before your application is submitted. Your average monthly payroll must be accurate and is used to determine your borrowing limits. The PPP application offers guidance on performing these calculations correctly, and you can also direct any questions to your lender.
What Happens After You Apply
Once you’ve found your lender and have submitted your application, it’s time to play the waiting game. Unfortunately, there is no status tracker that lets you check the status of your loan. Instead, you must wait to hear back from your lender in regards to whether your application is approved and when you should expect funds to hit your bank account.
If you haven’t heard anything, feel free to reach out to your lender, but just know that they are working as quickly as they can to help you secure your loan.
Learn more about receiving your PPP funds by checking out our post, When Will My Paycheck Protection Program Loan Be Funded?
Other Coronavirus Relief Options For Your Small Business
Don’t let the impact of the coronavirus bring your business down without a fight. Check out loan options and other great resources in our COVID-19 hub. You can also explore our small business reviews to find additional funding options now and in the future. Good luck!
The post How To Apply For A Paycheck Protection Program (PPP) Loan For Coronavirus Relief appeared first on Merchant Maverick.
