Every business owner probably dreams of regular, stable, month-to-month cash flow, with spare cash on hand to cover any expenses that might arise. The reality for most businesses, of course, is that sales are often seasonal. One way to bridge the famines between the feasts is to use seasonal financing to normalize your cash flow.
Use A Seasonal Business Loan To Get Financing When Your Business Needs It Most
Technically, there’s no financial product called a “seasonal business loan.” There are, however, a number of ways to finance your business’s short-term, cyclical needs. These include loans, lines of credit, and even business credit cards. What you’ll want to look for is money you can quickly access when you need it and then pay back as soon as you can to get it off your books.
6 Reasons You Might Need A Seasonal Business Loan
Before we get to the types of seasonal business loans you can tap to cover your seasonal shortfalls, let’s take a look at some of the reasons you might need a seasonal business loan.
1) Meeting Payroll
Labor is usually one of the biggest expenses for any business. While some businesses may be able to get away with having seasonal staff, that’s often not the best way to retain talented and reliable personnel. Even if you have seasonal staff, you may need to hire them in advance of your seasonal peak, before you have the revenue to cover salaries. A seasonal business loan can help you hire and retain talent.
2) Off-Season Repairs
Whether through planning or bad luck, sometimes repairs and maintenance need to happen when your company isn’t all that busy. Perhaps a key piece of equipment broke. Maybe you want to redo your storefront. In any case, you may need additional funds to cover the costs.
3) Buying Inventory
If your busy season is looming, and you sell a product rather than a service, you’ll probably need to stock up in advance. If you’re coming off a slower season, you may not have the funds available to cover the inventory you need. You don’t want to miss out on sales because you’re sold out.
Need to stoke the fire in preparation for your busy season? Want to try bringing in more business during the off-season? You may need to do some advertising. While you probably don’t want to go overboard, a well-placed campaign can make a big difference in your sales. If you need money to cover it, you may want to try a seasonal business loan.
5) Planning Ahead
Some types of seasonal funding can serve as an “insurance” policy of sorts. With a line of credit or a business credit card, you can have money at the ready for unanticipated expenses.
6) Normalizing Your Cashflow
Most of your month-to-month expenses probably don’t disappear when your revenue is low. Some businesses may find it useful to use a short-term financial product to keep all their expenses up to date.
Best Types Of Loans For Seasonal Business Needs
So you’ve determined that you need some kind of seasonal business loan. Now let’s look at the types of financial products and services that can help you meet your seasonal expenses.
If you’ve looked at any online lenders, there’s a pretty good chance you’ve seen an advertisement for a short-term loan. These loans are a little bit different than the typical term loan you might get from a bank. They’re designed to be quick, and that applies to everything from the application to the repayment process. Most short-term lenders can drop a healthy lump sum in your account within a few business days if you’re approved. Repayment usually begins immediately, with regular payments deducted automatically from your business account either each business day or weekly. The term length of a short-term loan is generally a year or less.
If you need a relatively large chunk of cash quickly and can handle the repayment schedule, short-term loans are a great way to get your hands on working capital.
Lines Of Credit
A line of credit is like a loan you may or may not use. Or you might only use part of it. If you successfully apply for a line of credit, your lender will extend you a certain amount of credit. This number is your credit limit. For as long as your line of credit is active, you can draw money from it so long as the total amount you’ve borrowed does not exceed your credit limit. In most cases, you’ll only pay interest on the amount of credit you’re using.
Lines of credit are great for seasonal businesses that want a kind of “rainy day fund” for unexpected expenses. Most lines of credit are revolving, meaning that as you pay them off, your credit becomes available to use again. If this sounds similar to a credit card, that’s because credit cards themselves are a form of revolving credit. That said, a non-credit card line of credit will often be better for making larger purchases that you can’t pay off within 20 days.
Business Credit Cards
And speaking of business credit cards, they are also a valuable way to bridge the gap between your boom months. Business credit cards are similar to personal credit cards, except they tend to have bigger reward programs. They also lack some of the legal safeguards associated with personal credit cards, so if you’re going to use them, make sure you don’t get in over your head.
When should you use them? Business credit cards have a narrow application, but within their niche, they can actually save you money. The key is to never carry a balance. By that, we mean you should pay your card off in full during the interest-free credit grace period offered by your issuer. You’ll collect points without accruing any interest! This makes business credit cards ideal for smaller, short-term expenses.
Equipment financing covers an enormous swath of products that includes both loans and leases used to acquire hard assets. While many of these are potentially useful, of particular interest to seasonal businesses may be the operating lease. If you only need a piece of equipment for part of the year, it may make more sense to rent it than to own it. Operating leases can be a great way to get your hands on up-to-date equipment when you need it, without being burdened by long-term upkeep and repair costs.
Where You Can Find Seasonal Business Loans
Ready to look for a seasonal business loan? When you have an idea of what type of product best fits your needs, you can check out one of our best-of guides to help you compare your options.
The Best Small Business Loans: Top Picks For Every Type Of Business
The Best Business Credit Cards
The Best Lines Of Credit For Small Businesses
The post The Best Types Of Loans & Financing For Your Seasonal Business Needs appeared first on Merchant Maverick.
Venture capital: As an entrepreneur, you’ve undoubtedly heard of it, but you may not be familiar with exactly how it works or whether it could be a good option for your business. You may be wondering if your startup is even eligible for venture capital. Keep reading to learn what venture capital is, what sorts of businesses and entrepreneurs are good candidates for VC funding, and how to go about tapping into this resource!
What Is Venture Capital?
Venture capital is a type of equity financing where investors provide capital to a young business with high growth potential in exchange for equity in the business. In addition to ponying up startup funds, VC investors also give direction to the companies they invest in to help them succeed. The venture capitalist’s long-term goal is to make a profit when the company they invest in goes public or is sold to another company.
Venture capital firms are usually looking to invest in tech companies, though some may specialize in healthcare or other industries. Most VC firms specialize in a specific type of industry, focusing on businesses that are in a particular stage of growth. VC firms are often located in or near tech metropolises, such as New York City, San Francisco, Boston, and Austin, and usually (but not always) focus on businesses in their immediate region.
How Venture Capital Works
Most everyone has seen Shark Tank, but in actuality, there’s a bit more to VC than making a quick pitch to a room of hyper-critical rich people. Securing VC funding is a little less intimidating than defending your life’s work to Mark Cuban in under five minutes, but it’s also a long, multistage process. It requires a significant amount of patience, diligence, and flexibility, as you may have to change your company to fit your investor’s vision for growth. You should also keep in mind that VC funding is extremely competitive, and your company must have a lot to offer potential investors â only about 0.05% of startups are able to obtain this coveted form of capital.
Venture capital is not a loan; venture capitalists invest in companies in exchange for equity or ownership in the company, betting that they will make money if your company does well. So what are these entities that supply venture capital? Generally, they are investment firms (rather than individual investors). Venture capital investment firms raise and pool funds from a range of sources, from corporations to nonprofits, pension funds, and wealthy individuals. These investors are limited partners in the venture capital firm.
VC financing is risky for the investor, which often loses money when a company fails. However, they know that not every company they invest in is going to be the next Uber or PayPal. The VC investor can offset their risk by investing in many different businesses, some of which may deliver a phenomenal profit. Most VC firms make a profit of about 20% a year.
How Venture Capital Compares
Venture capital shares similarities to certain other types of startup financing, but there are also some important differences you should know about.
Venture Capital VS Debt Financing
As mentioned, venture capital is a form of equity financing. Equity financing differs from debt financing in several ways. Namely, debt financing is structured as a loan, which you have to pay back with interest. However, the debtor is just a debtor; they don’t own any part of your company or have any say in your business decisions. Some examples of debt financing include lines of credit, business credit cards, and SBA loans.
Venture capital is not a loan, so the recipient does not have to pay it back or pay any interest or fees. VC also includes more than just capital â you also get business guidance and mentorship. But in exchange for the help getting your business off the ground, you have to forfeit some control over your company to the venture capital firm. Also, unlike debt financing, which serves a wide variety of business types, only certain kinds of businesses â technology and innovation businesses with high growth potential â are good candidates for venture capital.
ReadÂ Pros & Cons Of Debt VS Equity Financing to learn more about the differences between debt financing and equity financing (such as venture capital).
Venture Capital VS Private Equity
Venture capital and private equity are both types of equity financing and are similar in several respects. PE investment firms and VC investment firms both provide capital to privately-owned companies, using pooled funds from investors that are limited partners of the firm. The main difference is that VCs invest in startup companies in exchange for a minority stake in the company (less than 50%). In contrast, PEs invest in mature companiesÂ for a majority stake (more than 50%).
Also, while VC-backed companies tend to be innovative and tech-focused, PEs tend to invest in traditional industries, such as retail, restaurants, and manufacturing. The types of mature companies PEs invest in need capital to expand, address inefficiencies, or fix stagnation related to lack of capital.
Venture Capital VS Angel Investors
Angel investors also have a lot of things in common with venture capitalists. Angel investors invest in privately-held companies in exchange for equity, but these investors tend to be high net-worth individuals or groups of individuals (rather than investment firms). Most angel investors are entirely profit-motivated, but some angel investors are at least partially motivated by philanthropy. For example, there are angle investment groups dedicated to helping fund underserved business owner demographics, such as women-owned businesses or veteran-owned businesses.
Angel investors typically offer smaller investments and have a more hands-off approach to supporting your company. They also tend to serve a wider variety of industries than VC companies and offer more flexible terms.
When Venture Capital Is The Right Choice For Your Business
The following are attributes of business owners who are well-suited for venture capital investment:
Your business is related to technology or innovation (some examples include web-based tech, sustainable energy, fintech, healthcare technologies, scientific research, software development, electronics, and telecommunications)
You are fine with eventually selling your company, and you have an exit plan if you do sell
You can see your company going public at some point, and you have considered the pros and cons of doing so
You are okay with divesting some control over and stake in your company to an investor (control freaks and VCs aren’t a good mix)
You are a serial entrepreneur (or aspire to be one); that is, you develop companies with a plan to sell them or take them public and then start another one
You have a lot of business connections, and, ideally, some of these connections are in VC
Your company is located in or near a venture capital hotspot (such as the Bay Area, Silicon Valley, LA, NYC, etc.)
If Venture Capital Is The Right Fit: Next Steps
Do you fit the above criteria? Here’s what the process of obtaining venture capital might look like for you.
The beginning of your venture capital journey is all about finding the perfect fit. It’s a lot different than getting a bank loan, where you simply apply to various lending institutions that provide financing for a variety of business types. With venture capital, you need to find an investor that caters to your specific type of business in your particular stage of growth â for example, semi-established fintech companies or healthcare technology companies that haven’t gone to market yet. Location matters, too â whether your company is based in the Bay Area, Silicon Valley, or elsewhere, you will want to find and nurture VC contacts in your local market.
Once you have found a suitable VC firm to approach â and, ideally, you should already have a relationship with this firm rather than contacting them out of the blue â you can pitch your idea/company and see if they will consider funding you. If it’s a good fit, and they decide to move forward and invest in you, the investor will perform a valuation of your company, both before and after the cash infusion. The valuation will determine the percentage of stock the VCs will own in the company and may also determine the amount of influence the investors have in steering the company before your IPO or sale.
Stages Of Funding
After a deal has been agreed on, funding begins. This usually happens in several rounds, the first of which is called seed funding. Seed capital is meant to get a very new business off the ground (the average seed round is $2.2 million) and may be used to do things, such as develop a prototype, assemble a management team, or create a business plan. Successive rounds of funding, called series, may become available as the business expands. Series A funding and Series B funding, for example, focus on somewhat-established businesses that are already offering a product and have a customer base, whereas Series C funding helps mature companies expand or even acquire other companies. Different venture capital firms usually cater to different specific phases.
From sending your pitch deck to attending meetings with investors to performing due diligence, it can take from six to nine months or longer to get your first round of seed funding.
Learn About Other Types Of Financing For Startups & Entrepreneurs
If VC isnât the right fit, that’s okay. There are many other types of financing that might be better suited for your small business. Some options include small business loans, small business grants, crowdfunded loans, personal loans, and lines of credit. Start your research by checking out these resources with relevant information about various forms of startup financing.
8 Alternative Funding Sources If Venture Capital Isn’t The Right Fit For Your Startup Or Small Business
6 Financing Options For Up & Coming Entrepreneurs (Plus 4 Expert Funding Tips To Get You Started)
20 Best Ways To Finance A Business Start-Up
What Is Venture Debt & Is It The Right Type Of Financing For My Startup Business?
What Is Debt Crowdfunding & When Is It The Right Choice For My Small Business?
Small Business Startup Loans: Your 8 Best Options
Do I Qualify For A Startup Grant?
The post What Is Venture Capital & How Does It Work? appeared first on Merchant Maverick.
When you think about small business lending, what comes to mind? If you’re like most people, you probably think of the typical — banks, credit unions, online lenders. Unfortunately though, many business owners are unable to obtain the funding they need through these traditional lending institutions. Banks and credit unions, for example, may require high credit scores, a lengthy time in business, or other criteria that a borrower just does not meet. The same can be said of online lenders — those with competitive rates may have strict borrowing requirements, leaving business owners with options that are short term, expensive, and could lead to escalating debt — and eventual closure of the business.
Unfortunately, businesses in underserved communities probably know this all too well. Not only does a lack of funding opportunities impact businesses, but it also has a negative effect on the community as a whole: A lack of jobs, less access to products and services, and fewer opportunities for entrepreneurship.
There is good news, though. There are lenders and institutions that offer funding opportunities to businesses and entrepreneurs that don’t have other options. One option many are unfamiliar with is minority depository institutions, or MDIs. These institutions provide funding opportunities to many business owners who don’t have access to affordable funding elsewhere.
Sound like something that might be a good fit for your business?
Keep reading to learn more about MDIs, how they help businesses like yours, and how to determine which one is the right fit for your business.
What Are Minority Depository Institutions?
A minority depository institution (MDI) is defined in one of two ways:
At least 51% of voting stock is owned by minorities OR
A majority of the board members are minorities AND the institution primarily serves communities whose populations are predominantly minority based.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, a minority is defined as “Black American, Asian American, Hispanic American, or Native American.”
MDIs are similar to other banks, credit unions, and financial institutions by offering consumer and business services such as checking and savings accounts, business and personal credit cards, mortgages, and small business loans and lines of credit.
What Is The Minority Depository Institution Program?
The Minority Depository Institution Program is a program launched under the Federal Deposit Insurance Company (FDIC). Goals of this program include preserving, promoting, and building capacity of MDIs for the benefit of low- and moderate-income communities.
The FDIC also oversees the Minority Depository Institutions (MDI) Subcommittee of FDIC’s Advisory Committee on Community Banking (CBAC) as a way of preserving and promoting the importance of MDIs in communities around the nation. This subcommittee serves as a platform for MDIs to collaborate, form partnerships, and promote best practices.
In order to become classified as an MDI, an institution must take steps by applying for deposit insurance and also meet the criteria discussed earlier in this post. The FDIC provides a number of resources outlining the application process, rules, regulations, and other critical information that financial institutions need to know about MDI designation.
How Minority Depository Institutions Help Small Businesses
There are a number of ways that minority deposit institutions help small businesses. One of the most important ways that these financial institutions help small businesses is by providing financial products that may otherwise be unavailable to low-income, moderate-income, and other underserved communities. By having access to funding opportunities, business owners are able to expand their businesses, receive funding to keep their business in operations, and start new businesses. This, in turn, leads to new job opportunities and access to products and services to everyone within that community.
Some of the ways that MDIs help business owners include:
Small Business Loans
Affordable loans with favorable terms are difficult for many businesses to score, but it can be nearly impossible for businesses in underserved communities. Fortunately, MDIs have financing opportunities for small businesses that find it difficult to get low-cost funding elsewhere.
Depending on the institution, there are a number of loan products available. This includes commercial real estate loans, equipment financing, or other loans that provide businesses with a lump sum of capital that’s repaid over time.
Many MDIs offer loans backed by the Small Business Administration. SBA loans are known for their high borrowing limits, long repayment terms, and competitive interest rates. Some MDIs may also offer financial products for startup businesses that don’t have the revenue or business credit score required for other loans.
Lines Of Credit
Businesses that want a more flexible financing option may qualify for a line of credit through an MDI. Instead of a lump sum, businesses are given a credit limit that can be used to pay employees, purchase supplies or inventory, or cover operational costs. As the line of credit is repaid, funds become available to use again, much like a credit card. A business line of credit is great to have to cover unexpected expenses or to manage cash flow issues.
Business Credit Cards
Many MDIs offer business credit cards to qualified borrowers. Like a line of credit, this is a flexible form of funding that can be used for anything from emergency expenses to recurring costs like utility bills or gas for a company vehicle.
Merchant Card Services
Businesses that want to accept credit cards, debit cards, and other forms of payment will need to find a merchant services provider. Some MDIs provide these services for their customers.
Businesses with employees have to run payroll, and many business owners opt to leave this task to the professionals. Many MDIs — like traditional banks and credit unions — offer payroll services for its small business customers.
Checking & Savings Accounts
Business owners should understand the importance of separating business and personal expenses. The easiest way to do this is by keeping funds in separate accounts. An MDI provides personal and business bank accounts, so you can keep your money separate. Not only will you (or your accountant) be grateful for separate accounts come tax time, but many lenders require you to have a business bank account before disbursing loans or other funding.
Personal Banking Services
Looking for a new financial institution for your personal accounts? Consider working with an MDI. Not only can you take advantage of these consumer financial products, but so can others in your community. What does that mean for your business? It means that consumers have access to bank accounts, credit cards, and loans — in other words, all types of funding that they may spend in your business.
Popular Minority Depository Institutions
Now that you have a general idea of what MDIs offer, let’s take a closer look into what to expect when working with an MDI. These are just a handful of the 150+ MDIs throughout the nation, and they were chosen for this post because of their years of success, an array of financial products and services, and the work they have done within their respective communities.
First Independence Bank
First Independence Bank is a Black-owned MDI that provides financial products and services to individuals and businesses in the Detroit Metropolitan area. This institution was launched in 1970 and has helped businesses of all sizes meet their financial goals with products such as commercial real estate loans, term loans, SBA loans, and secured lines of credit.
First Independence Bank is also the majority owner of MAC Leasing, a certified minority-owned equipment leasing company. In addition to its MDI status, First Independence Bank also meets the requirements for classification as a Community Development Financial Institution (CDFI). It is also a certified Minority Business Enterprise (MBE). First Independence Bank has won numerous Bank Enterprise Awards throughout the years for its role in providing financial products and services to distressed communities.
American First National Bank
American First National Bank is an Asian American-owned MDI that serves businesses and consumers throughout communities in Texas, Nevada, and California. Launched in 1998, this financial institution has grown to have total assets of nearly $2 billion.
In addition to being Asian American-owned, most employees within American First National Bank are also Asian American. Many employees speak multiple languages, giving them the ability to serve a variety of different customers in their native languages. American First National Bank has numerous financial products geared toward small businesses, including working capital loans, startup loans, and equipment loans.
This MDI is also very active within its communities, even offering speakers to speak about the bank and its services at schools, local businesses, and civic organizations.
Golden Bank, National Association
Golden Bank was established in 1985 and was the first minority-owned bank in the Greater Houston area. Today, the bank has expanded to serve customers in cities in Texas and California. This Asian-owned financial institution offers a number of business services, including business loans, deposits, cash management, and trade finance. Golden Bank even offers payment processing with no startup fees and a free terminal.
Golden Bank in recent years has been named a Five-Star Bank by Bauer Financial. This is the highest ranking in banking industries.
How To Find The Right Minority Depository Institution For Your Small Business
Is your business located in an underserved community? Do you need help with funds for starting your business, or perhaps you’re already in business and need capital for expansion? If your business is located in an underserved, distressed, low-income, or moderate-income community, you may benefit from the products and services offered by an MDI. Or maybe you just want to bypass the big-name banks and get a more personalized experience with a smaller, local institution — in which case, an MDI fits the bill.
Now, the next step is to find the right MDI for your business. Your business is unique and so are its financial needs. What works for one business may be a total mismatch for yours. To determine what MDI is the right fit for you, consider the following:
Location: Unlike major financial institutions that have hundreds (or thousands!) of branches nationwide, MDIs have far fewer branches and serve a more targeted area. Make sure that the MDI you select has branches and surcharge-free ATMs that are convenient to your business.
Eligibility: Some MDIs are credit unions that have membership requirements. This could be anything from a small monetary donation to living, working, or attending school in a specific area. Make sure that you meet all requirements before signing up.
Products & Services: Do you need industry-specific financial products? Is there a specific type of loan or borrowing limit that you need for your business? If so, make sure that the MDI you select offers the products you need, plus other products and services your business may require in the future.
Up-to-Date Technology: Most business owners don’t have hours to step into a branch or sit in a drive-through line for every single transaction. Look for MDIs that offer online banking services like access to your accounts, mobile services, bill pay, and online loan applications.
Also, FDIC-insured MDIs offer you protection you need in the event that the institution fails. You’ll have up to $250,000 insured, so you won’t have to worry about losing your hard-earned money.
Unsure of where to start your search? Check out the FDIC website, or review the list of MDIs supervised by the Office of the Comptroller of Currency (OCC) to get started.
Learn About Other Financing Resources For Businesses
Smaller financial institutions like MDIs aren’t for everyone, and it’s important to always explore your options first before diving headfirst into small business financing. While MDIs may be on your list, make sure to compare and weigh your other options. This includes working with a traditional bank or credit union, comparing rates with online lenders, or working with an SBA-approved lender to get a low-cost SBA loan. You can even use your personal credit profile and income to qualify for a personal loan for business. Regardless of which choice you make, take your time, do your research, and make the choice that’s best for your business. Good luck!
The post How A Minority Depository Institution Could Help Your Small Business Get Loans, Financing, & Other Services appeared first on Merchant Maverick.
Crowdfunding has risen in prominence over the past decade to become a major source of business financing for companies and entrepreneurs around the world. However, while services such as Kickstarter and Patreon garner the lion’s share of attention, there’s another type of crowdfunding available â one that applies crowdfunding principles to traditional forms of lending. This hybrid method of raising capital is becoming known as debt crowdfunding.
Perhaps you’re already considering debt crowdfunding as an option for your business, startup, or creative project, or you’re simply curious about the concept. Either way, it’s important to understand what debt crowdfunding is, how it differs from other forms of crowdfunding, and how you can use it to raise funds for your business.
What Is Debt Crowdfunding?
Debt crowdfunding is sometimes referred to as “peer-to-peer (P2P) lending” and “crowdlending,” as it combines the concepts of crowdfunding and lending. A crowdfunded loan works similarly to a traditional business loan from a bank or other lending institution in that money is sent to the borrower by a lending institution. In exchange, the borrower repays the loan with interest over a specified period.
However, there are some key differences between traditional loans and crowdfunded loans. With the latter, your borrowed funds are disbursed by a debt crowdfunding platform, not a bank or other financial institution. And while the crowdfunding platform sends you the funds, the money comes from individual investors who pledge to provide a portion of your loan funds. When you repay the crowdfunding site with interest, the funds are then distributed back to the individual investors.
Considering how difficult it has become to qualify for a bank loan since the financial collapse of 2008, it’s little wonder that businesses have been turning to debt crowdfunding in greater numbers. Debt crowdfunding allows you to market your funding campaign to individual investors rather than relying on the hope that a large, opaque institution finds your business worthy of support.
How Debt Crowdfunding Works
With debt crowdfunding, potential borrowers submit a loan proposal to a crowdlending website. The platform assesses your proposal to judge its suitability. If your application is approved, the platform then offers you rates and fees that correlate with the degree of risk your loan poses to potential investors. The riskier the investment, the more money the peer lenders will want in return, leading to higher interest rates for your loan.
As we explain in our piece on P2P lenders, the primary advantages of P2P loans over traditional business loans provided by a bank or credit union are thus:
Application Process Is Simpler & More Convenient:Â Unlike a bank loan, which typically involves a lengthy application process and may require such things as business visits, debt crowdfunders let you apply online, usually without requiring even a phone conversation.
Quicker Approval & Funding:Â Ordinary small business term loans take much longer to get funded than the average P2P loan, making debt crowdfunding a good funding option for businesses needing funding relatively quickly.
While operating on the same basic principles, debt crowdfunding sites vary greatly in terms of the types of businesses to which they cater. For instance, Funding Circle lends to small businesses with at least two years of business history, while StreetShares requires less time in business and has a particular focus on veteran-owned business. Meanwhile, Kiva US is devoted to startups with no business history at all and offers loans with no interest whatsoever, but it has a lengthy application process and a long wait to get funded (one to three months). Point being, no two P2P lenders are the same, so do your due diligence before applying for a crowdfunded loan.
Check out our explainer article on debt crowdfunding for an in-depth analysis.
Debt VS Equity Crowdfunding
Equity crowdfunding bears considerable resemblance to debt crowdfunding. Both types of fundraising involve the solicitation of investments in the security of your business. The difference is that a P2P loan is just that â a loan. You pay the lender back on a fixed schedule with interest, and that’s that.
With equity crowdfunding, the investor receives an ownership stake in your business. This sort of fundraising was only recently legalized when the JOBS Act was signed into law in 2012 (the provisions took some time to go into effect). It legalized the advertising and solicitation of securities, thereby allowing businesses to launch equity crowdfunding campaigns.
Investors seeking hot equity investments often look for early-stage ventures with exponential growth potential to get in on the next big thing. Debt investors, on the other hand, simply expect to be paid back plus interest. For this reason, debt crowdfunding is a viable option for a greater proportion of small businesses out there than equity crowdfunding. To plenty of small business owners, this is probably just as well, considering debt crowdfunding doesn’t require you to relinquish any control over your business and forfeit a portion of all your future profits.
Debt VS Rewards Crowdfunding
Rewards crowdfunding Ã la Kickstarter, Indiegogo, and Patreon is a beast of a different nature. Legally, rewards crowdfunding isn’t investing, so it’s not regulated as such, making it a less complicated and more straightforward prospect overall.
With rewards crowdfunding, you invite backers to contribute financially to your venture, and in exchange, you offer them rewards. A reward could be a prototype of a new consumer product you’re manufacturing, tickets to a viewing of your film, access to exclusive episodes of your podcast, etc. It’s a way to get your potential customer base excited about contributing to your success.
Since it doesn’t entail you taking on debt, rewards crowdfunding looks pretty good as an alternative to a loan. However, keep in mind that with rewards crowdfunding, your ability to raise funds is dependent on your ability to make your funding campaign go viral. It’s a very competitive arena, and in some cases, you’ll be competing for attention with campaigns backed by crowdfunding agencies. What’s more, funding is anything but rapid â your typical rewards crowdfunding campaign is open for 30-60 days. (Patreon-style ongoing campaigns are different, as you’re essentially selling subscriptions.) And with Kickstarter, in particular, if you don’t meet your funding goal within the time frame you initially set, you don’t get any of the funds pledged to you â it’s all or nothing.
For the right kind of business venture, rewards crowdfunding can work swimmingly while keeping you out of debt. Just know that it isn’t well-suited to many types of small businesses, requires thoughtful promotion, and is not quick.
When Debt Crowdfunding Is The Right Choice For Your Business
Making debt crowdfunding work for your small business requires that you have a) a defined need for money, b) a strategy for what to do with it, and c) a plan to pay it back. Compared to other forms of crowdfunding, debt crowdfunding is both likelier to succeed and (generally) a swifter method of funding. Furthermore, you’ll probably get more flexible terms and a lower interest rate on a P2P loan than you would with a bank loan (along with an easier application process and a quicker time to funding).
If you’ve got a great working relationship with your bank, you might consider trying to get a loan from them instead. And if you’re involved in an exciting project or cause with lots of potential for viral success, one of the sexier forms of crowdfunding might ultimately prove more lucrative for your business. However, that still leaves a wide swath of small businesses that stand to benefit from debt crowdfunding.
For more information on debt crowdfunding and how it compares to rewards- and equity-based crowdfunding, check out our article on the different types of business crowdfunding.
Not The Right Fit? Your Best Alternatives
Let’s look at some other funding alternatives and see how they measure up with P2P loans.
Don’t have enough business history to qualify for a crowdfunded business loan? Consider a personal loan instead.
With good credit, you may be eligible for a lower interest rate with a personal loan than with a business loan. However, borrowing amounts tend to be smaller, too. Still, if you need fast financing for business expenses, personal loans are definitely an option you should consider.
If you like this idea, check out our piece, How To Get A Personal Loan For Your Business.
Business Credit Cards
If you have a good credit score, a business credit card is probably the easiest way to secure business funding. Business credit cards give you access to a revolving line of credit to use on business expenses.
Just as with most P2P lenders, business credit card issuers report your payments to the credit bureaus, thus building your business credit. This may increase the odds that you’ll qualify for business loans in the future.
In terms of convenience, there are few easier funding options than business credit cards. And unlike P2P loans, using a business credit card can earn you rewards or cash back. Just keep in mind that you might pay a higher APR with a business credit card than with a P2P loan.
Interested? Check out The Best Business Credit Cards for the rundown on your best options.
Merchant Cash Advances
Let’s say your poor credit score and/or lack of business history make you unable to qualify for either a loan or a business credit card. You may still be able to get a merchant cash advance, which is a sales agreement that will have you selling your future revenue at a discount to a merchant cash advance company.
A merchant cash advance should not be an option of first resort, as the fees are very high, and the repayment periods are quite short. An MCA can easily send you into a debt spiral if you’re not prepared to handle it. However, if your business is capable of generating the revenue necessary to pay it back, an MCA might be just the thing to keep your business going.
Read our piece on merchant cash advances for more information.
Final Thoughts On Debt Crowdfunding
Debt crowdfunding has become increasingly prevalent in a world where bank loans are harder than ever to come by. If you think a P2P loan makes sense for your business, do your due diligence and compare your available options.
If you’ve ever taken out a crowdfunded loan, drop us a comment and let us know about your experience!
The post What Is Debt Crowdfunding & When Is It The Right Choice For My Small Business? appeared first on Merchant Maverick.
Paying with credit cards is handy, especially in the modern world. Whipping out a credit card can also come with other perks — like points for purchases — and these bits of plastic can help smooth out a business’ cash flow. Unfortunately, many suppliers and merchants don’t take credit cards for bill payments, potentially causing you and your business unnecessary headaches.
That’s where Plastiq comes in. This service allows you to make payments that would otherwise require checks or bank transfers with a credit card. All told, this can help simplify your accounting while letting you take advantage of the benefits a credit card provides. There is a catch, however; Plastiq charges a 2.5% fee on each payment, meaning that this service may or may not work for your bottom line.
Is Plastiq right for your business? Keep on scrolling to find the answer.
What Is Plastiq?
Plastiq was founded in Boston in 2012 to help users pay bills with credit cards. While the company first aimed its sights on consumers, it has since pivoted towards focusing on helping small businesses use credit cards to pay off bills that might otherwise be difficult to pay.
“At first we thought consumers were the most likely to use Plastiq to pay off bills, but over time we saw that many of our customers were entrepreneurs and business owners, and changed our focus,” Plastiq’s chief operating officer Sameer Gulati told PaymentsSource in April 2020.
Plastiq, now based in San Francisco, has a simple service: If you want to pay a bill or invoice that usually would require you to initiate a bank transfer or write a check, you can pay Plastiq with a credit card instead. Plastiq will then directly pay the merchant or supplier to whom you owe money. Plastiq charges a flat fee of 2.5% of the payment amount for making the payment on your behalf. If you use a debit card, the fee drops to 1%; payments made to Canadian recipients incur a 2.85% fee.
You’ll be able to choose from three methods by which Plastiq can pay your bill:
Paper Check: Plastiq will cut a paper check and mail it to the recipient.
ACH Bank Transfer: Plastiq will deposit funds directly into the recipient’s bank account.
Wire Transfer: Plastiq can wire funds to both domestic and international recipients.
Plastiq can be used for a range of bills, from rent to payroll to taxes. It cannot be used for paying off commercial mortgages or other types of business loans. You can also set up automatic, timed payments or pay bills manually.
Those comfortable with mobile banking should note that Plastiq does not offer apps for Android or iOS at the time of writing. If you prefer handling financials on your phone, a lack of a mobile app may make Plastiq more difficult to use.
How Plastiq Can Help Small Businesses
The most obvious way Plastiq can help your small business is by optimizing cash flow. For most bills, you’ll need cash on hand in order to make the payment. With Plastiq, you’ll be able to put those payments on your credit card. This means you won’t have to pay for bills until your credit card’s due date. On top of that, if you sign up for a 0% introductory APR credit card alongside putting payments on Plastiq, you’ll even be able to carry a balance on your card for several months without needing to worry about paying interest.
Using Plastiq can simplify your business’ accounting as well. Instead of having to deal with multiple ways of paying your suppliers, you’ll simply need to pay Plastiq. Depending on your situation, this relief might be worth the 2.5% fee Plastiq charges.
In some cases, Plastiq can also be used to earn credit card points or trigger welcome offers. Note that Plastiq won’t be cost-effective for general point-earning unless your rewards rate is higher than 2.5% of your purchases. If you are merely trying to spend enough to hit a welcome offer’s minimum spending threshold, however, using Plastiq for purchases you would be paying for anyway could be a worthwhile tactic.
How To Use Plastiq For Business Expenses
Plastiq is a simple service that’s easy to use. Here’s a step-by-step guide to getting your business started with Plastiq:
1. Sign Up For A Free Account
To sign up for Plastiq, all you need to do is head over to the service’s sign-up page. Account creation is free — there’s no upfront charge to using Plastiq. To create an account, you’ll need to enter your name, phone number, who you’ll be making payments for (yourself, your business, or both), and your monthly expenses. If you select that you’ll be making payments for your company, you’ll also be asked your business’s name, industry, and zip code.
2. Add Credit Cards
Once you’ve created your account and are brought to the Plastiq dashboard, you can start adding your credit cards. Plastiq makes this part easy too — you’ll simply need to click on the “Add your first Card” box near the top of the screen and then fill out the relevant info.
While you can add as many credit cards as you like, we recommend that you only enter the cards you know you’ll be using with Plastiq. Doing so will limit the opportunities fraudsters have to steal your credit card information.
3. Make Payments
After you’ve added a credit card to your Plastiq account, you’ll be able to make payments. Just like the above two steps, there’s not much of a hassle here. You’ll just need to click “Add a Recipient” and then enter the recipient’s name and country, how you’d like Plastiq to pay the recipient (paper check, ACH bank transfer, or wire transfer), and the recipient’s address, phone number, and services provided. Before you make your first payment to a recipient, Plastiq will verify the information you entered by contacting the recipient. Once you’ve made that first payment to a recipient, you can set up recurring payments as well as manually make additional payments.
Plastiq will charge your credit card the cost of the transaction plus the 2.5% fee (or 2.85% if paying to Canada, or 1% if using a debit card). Plastiq then sends the payment to the recipient using your preferred method — all without the recipient needing to sign up for a Plastiq account.
Is Plastiq Right For Your Small Business?
Plastiq will fit a very specific niche of business, while most won’t find much worth in the service. If you like hunting down credit card welcome offers, Plastiq may offer a boon by allowing you to put more money towards your minimum spend amount. Businesses that struggle with consistent cash flow may also find value in Plastiq. However, most shouldn’t feel the need to plunk down the 2.5% fee Plastiq asks. Plus, your credit card may include a hefty interest rate — potentially minimizing the effect Plastiq might have on a business’ cash flow.
Give Plastiq a try ifâ¦
Your business has cash flow problems
You need to simplify your bill-paying process
You’re wanting to hit the minimum spend requirement for a credit card welcome offer
Skip Plastiq ifâ¦
You can’t afford Plastiq’s 2.5% fee
Your credit card has a high interest rate
You won’t benefit from paying bills with a credit card
Final Thoughts On Plastiq For Businesses
Plastiq can be beneficial for businesses needing a simple cash flow solution or for those wanting to maximize their credit card welcome offers. However, the service’s 2.5% fee should mean the most businesses will want to use Plastiq sparingly.
Wanting more options that can help your business’ cash flow? Check out our guide to improving cash flow. We also have an in-depth look at the best cash flow loans. If you’re curious about credit card welcome offers for small businesses, visit Merchant Maverick’s article on the topic.
The post Plastiq For Business: Could Plastiq Could Help Your Small Business Manage Expenses & Improve Cash Flow? appeared first on Merchant Maverick.
In some ways, the future is already here — at least in the world of credit card technology. Contactless payment enables you to simply tap your credit card to the payment terminal instead of swiping your card or sticking its chip into a reader. Because contactless credit cards reduce the touching of shared surfaces, such a payment method is both faster and — importantly, in the face of the COVID-19 pandemic — cleaner.
Especially in a world now dealing with the terrors of the pandemic, contactless payments are becoming popular. According to an April 2020 survey run by Mastercard, 79% of cardholders worldwide say they are currently using contactless payments, with safety and cleanliness being cited as important factors. Companies are buying into contactless payments, too.
“Contactless offers consumers a safer, cleaner way to pay, speed at checkout, and more control over physical proximity at this critical time,” said the Head of Mastercard Acceptance Solutions, Blake Rosenthal, in response to the above-mentioned Mastercard survey.
Curious to learn if your business’ credit card is contactless-enabled? Want to know which issuers offer contactless credit cards? Then keep reading for the deets!
How To Check If Your Credit Card Is Contactless-Enabled
If you’ve received a credit card sometime in 2019 or later, then you’ve got a good chance that it’s contactless-enabled. Even if you have an older card, you still might have a bit of plastic that can be used just by tapping on the payment terminal.
To determine if your card can be used for tap-to-pay, just look for a four-bar wave-like symbol. You may notice that this wave symbol is similar in appearance to the Wi-Fi logo. The contactless symbol can usually be found somewhere on the back of your credit card.
Here’s an example of what the symbol looks like on the back of a credit card (to the left of the Visa logo):
If your card doesn’t have this symbol, it probably isn’t contactless-enabled. Should this be the case for you, you’ll need to reach out to your issuer to request a contactless card. We’ve outlined methods for requesting contactless cards from popular issuers in the next section.
Note that not all merchants are set up to receive contactless credit cards. You’ll need to look for the wave symbol on the payment terminal when out shopping before you attempt to tap your card. If a payment terminal doesn’t have the symbol, you’ll need to swipe or insert the card to pay instead.
Once you’ve confirmed that you have a contactless-enabled card and the merchant you’re shopping at accepts contactless payments, simply hold your card up to the payment terminal. You just need to wait for a second or two for payment confirmation — which is usually displayed via either a beep or check-mark on the terminal screen — and then you’re good to go!
Issuers With Contactless Business Credit Cards
A number of issuers offer contactless credit cards — in fact, nine of the top 10 US issuers are actively handing out contactless cards to customers as of April 2020, according to Visa. Here’s a look at a few of the bigger issuers that offer contactless cards and how you can get set up with one:
American Express began dabbling in the contactless card game way back in 2012, making the company a fairly early adopter. All of American Express’s small business credit cards are contactless-enabled as of July 2019. The Amex business card portfolio includes these products:
Blue Business Cash
Blue Business Plus
Business Gold Card
Business Green Card
Business Platinum Card
Business Plum Card
If you apply for any of the above cards and are approved, Amex will ship you a contactless version of the card.
If you currently have an Amex card that isn’t contactless-enabled, the issuer states that it will “send you a new contactless-enabled Card on your next renewal date.” You’ll also receive a contactless card if your current one becomes lost or stolen.
Should you desire a contactless card before your next renewal date, Amex suggests visiting its website or the Amex Mobile app to request a new card that is contactless-enabled.
Bank of America
Bank of America started its contactless card push in June 2019 by issuing cards to customers in select pilot cities (specifically New York, Boston, and San Francisco). The bank has yet to formally announce a wider rollout of contactless cards.
There also isn’t an official method for requesting a contactless card from Bank of America. As such, unless you live in one of the three aforementioned cities, you may find getting a Bank of America contactless card difficult.
Capital One’s foray into contactless cards kicked off in 2017 with the launch of the technology in the Quicksilver Cash, Venture Rewards, and VentureOne Rewards cards. While the bank does promote contactless cards as a faster way to pay, there are no details about which current Capital One products do or don’t offer contactless options.
If you find yourself with a Capital One credit card that isn’t contactless-enabled, we recommend calling the number on the back of your card to find out if replacing the card is an option. If you are in the market for a Capital One card, try reaching out to customer service to find out if the credit card you’re interested in offers contactless options.
In November 2018, Chase announced plans to roll out contactless cards across its product lineup. In the time that has followed, numerous Chase-issued credit cards have received a contactless facelift — over 20 of the company’s cards now include the feature.
Chase maintains a list of all its contactless cards on its website. Its stable of contactless business cards includes:
Ink Business Unlimited
Ink Business Preferred
Ink Business Cash
United Business Card
If you want to replace a Chase credit card in your wallet that isn’t contactless-enabled, visit Chase’s card replacement page.
Citi’s history with tap-to-pay cards started with the Costco Anywhere Visa Card receiving contactless technology in 2016. Since then, the bank has rolled the feature out to other cards within its brand. Citi currently offers two business-specific credit cards:
Note that while the AAdvantage card is confirmed to have contactless technology, Citi doesn’t market the Costco Business card as having it. However, the nearly-identical consumer cousin of the Costco card does support contactless payments, so it is likely safe to assume the business version does as well (although your mileage may ultimately vary).
If you have a Citi-issued credit card without contactless technology support, we suggest that you dial the number on the back of your card. Once you reach customer service, ask if you can have the card replaced with a contactless-enabled version.
Other Tap-To-Pay Options
If your current credit card isn’t contactless-enabled, you may still be able to take advantage of contactless technology when checking out. Both Android and iOS have their own solutions utilizing NFC for mobile phone users. Let’s take a look at what they are:
Apple introduced Apple Pay in 2014. This service allows you to attach an eligible credit card to the Wallet App on your iPhone. Once set up, you’ll be able to pay for purchases using your iPhone or Apple Watch at merchants who accept contactless payments.
For more information on Apple Pay, including how to set it up with your credit card, visit Apple’s website.
To combat Apple Pay, Google released Android Pay in 2015 and then later rebranded the service as Google Pay in 2018. Similar to Apple Pay, you can add an eligible credit card to the Google Pay app on your compatible Android phone. Once you’re all squared away, you can use your NFC-equipped phone (or compatible smartwatch) to place payments at the checkout counter of merchants who are set up for contactless payments.
For a deeper diver on Google Pay, visit Google’s website.
Stay Safe While Paying For Business Expenses
Contactless cards offer a simple and safe way to pay for purchases during the coronavirus pandemic. By ensuring that your wallet contains contactless-enabled credit cards, you’ll help keep both yourself and others at less risk throughout this turbulent time. Plus, you may find that paying with just a tap is both easier and faster than more traditional methods.
The post Time To Get A Contactless Business Credit Card? Hereâs How To Get Your Own Tap-To-Pay Card appeared first on Merchant Maverick.
Venture capital is often touted as the be-all-end-all when it comes to financing a startup. To be fair, you have to admit that wealthy investors showing up to rain treasure upon you because you have a great idea has a lot of appeal. That being said, venture capital isn’t the only way to finance your new business and, in many cases, may not even be the best way to go.
So where do you turn when venture capital isn’t a good match for your business plan? Below, we’ll look at some alternative funding sources if venture capital isn’t the right fit for your startup or small business. But first, let’s talk about venture capital a bit to make sure we’re on the same page.
How Venture Capital Works
There are a lot of myths surrounding venture capital, but the concept is fairly simple and not especially glamorous in practice. Venture capital firms aggregate funds from a number of sources ranging from bored wealthy folks to pension funds. Once they’ve raised an agreed-upon amount, they’ll shop around for businesses in which to invest. What each of these funding sources has in common is the desire to recoup their money, plus a tidy profit, when the business they invested in either A) goes public or B) is sold to another company. A venture capital fund frequently disburses its funding over the course of several “rounds,” the first of which is called the seed round.
Investing in unproven businesses, many of which will fail, is risky. Typically, venture capitalists will hedge their bets by spreading their money out through a number of businesses to increase their chances of scoring a hit. This model works mainly because the payoff from a successful company making an initial public offering (IPO) can generate returns orders of magnitude above what was invested. On average, a venture capital firm is looking for somewhere around a 20% return per year.
How much the firm receives is based on a valuationof the company done both before and after the cash infusion. The difference in valuation is used to determine the percentage of stock the venture capitalists will own in the company. It may also determine the amount of influence the investors have in a company’s decision-making processes prior to the company’s IPO/sale.
When You Should Look For Alternatives To Venture Capital
If you looked at the previous section and thought that arrangement sounds bad, then venture capital probably isn’t for you. For example, if you’re not a serial entrepreneur and would prefer to own and run your business indefinitely, this probably isn’t the funding source for you. Venture capitalists expect you to have an exit strategy.
It’s also quite possible that your type of business won’t fit in well with the venture capitalist model. For better or worse, “venture capital” has become almost synonymous with Silicon Valley. If you’re not a tech company creating some kind of software, you may have some difficulty convincing a fund to work with you. They’ll also be looking for a quick return, so if your business plan doesn’t match that rate of return, you’ll be a poor match.
Keep in mind, too, that most venture capital funds specialize in a particular type of business, so even if your profile is venture capital friendly, you may have to look around to find one that can work with your company at its current stage.
Finally, there’s a geographic component to venture capital investment culture. If you’re not in, or close to, hot spots like New York City, San Francisco, Los Angeles, Atlanta, or Austin, you’ll have to work much harder to wiggle your way into a venture capitalist’s view.
8 Venture Capital Alternatives
If all new businesses needed to rely on venture capital to get off the ground, we wouldn’t have very many businesses. The good news is there are numerous ways to finance your company’s early operations that don’t involve venture capital. Let’s take a look at some of your options.
When you’re talking about raising money, even a zero-interest loan just can’t compete with free money. Grants typically offer small-to-moderate-sized lump sums to companies that fit their criteria, and the best part is you don’t ever have to pay that money back!
So why isn’t every startup running exclusively off grants? Well, as you can imagine when you’re handing out money, there’s going to be a lot of people in line to get some. Grants are highly competitive. Applying for them can be quite involved and time-consuming, and there’s no guarantee that your hard work will pay off. Still, if you target the right grants at the right time, you can score a nice chunk of cash with no debt obligations.
You’ve probably heard of Kickstarter, but the crowdfunding industry is quite a bit larger and more specialized than you might think. In contrast to venture capital, traditional crowdfunding tends to work best when you’re trying to raise money for a tangible, deliverable product–funders are essentially pre-purchasing your product (with some additional funders simply donating smaller amounts of money in the interest of seeing your project succeed).
A newer form of crowdfunding, equity-based crowdfunding, allows investors to purchase equity in your company. These services can be convenient if you’re not plugged into the investor circuit but are still looking for that kind of relationship. Just be aware that this is still a fairly new realm of investing, with many investors still wary.
Keep in mind, any kind of crowdfunding will require a marketing blitz to get your name and product out there, which will likely have its own costs in both time and money.
3) SBA Loans
The Small Business Administration’s loan guarantee programs are designed to give small businesses access to quality rates and terms. In the case of startups, the two most popular programs, 7(a) and 504, may not be the best fit as they usually require you to have been in business for two or more years.
The SBA microloan program, on the other hand, is more geared toward startups. These loans can net you between $500 and $50,000. Interest rates range from around 6% to 18%, with most borrowers falling somewhere between 8% and 13%. You’ll have a while to pay it off too, with term lengths of up to 6 years. The rate you get will depend upon your credit score and any collateral you’re able to put up.
If you need more than that, you’ll also want to check out SBA Community Advantage Loans, which the agency offers through community-based lenders. These loans range from $50K to $250K, with terms lengths of up to 10 years. Interest rates are lower, usually falling between 7% – 9%.
4) Online Business Loans
Wait, why would you be here reading this if you could just go out and get a business loan? Fair point. It can be very challenging for startups to qualify for business loans since most business lenders are going to want to see a profitable business history before they open up their purses.
That said, it’s not impossible. Many online lenders are willing to work with businesses with histories as short as three months. Some of the more creative ones may not care at all. Just be prepared to pay interest rates in proportion to the risk your business represents. Additionally, you can often find better terms if you can put up something valuable as collateral.
5) CDFI Loans
Community Development Financial Institutions (CDFIs) come in a number of different forms, ranging from banks, to credit unions, to–believe it or not–venture capitalists. What they have in common is certification by the federal CDFI Fund, which designates them as being committed to facilitating economic growth within low-income or historically disadvantaged areas.
CDFIs usually carry higher interest rates than comparable bank products, but lower than those of a typical alternative lender. Best of all, many are startup-friendly.
6) Personal Loans
Your business may not have much history, but that doesn’t mean you don’t. Many personal loans are versatile enough that they can be used for business expenses. And since you’re probably not looking at borrowing vast amounts of money, they may be sufficient to meet your financing needs.
Of course, because they are personal loans, you’ll lose whatever protections you would have had with business loans, which typically differentiate between you and your business. Make sure you can still pay them off even if your business fails.
7) Vendor Financing
Don’t feel bad if you haven’t heard of vendor financing until now. Vendor financing is an arrangement where a vendor essentially lends a seller the money to buy the vendor’s products. This can be useful if you’re launching a retail business of some kind or even badly need what they’re selling for your own uses.
So what do the vendors get out of the arrangement? Believe it or not, it can be better to move product with risk than not move product at all. Additionally, the vendor will usually expect to earn interest on the loan or an equity stake in your company in return. No matter the arrangement, you’ll probably need to be on good terms with the vendor to be a candidate.
8) Friends & Family
Depending on your social context, this may or may not be a practical option for you. Still, you may be surprised by how willing your friends and family may be to pitch in and help you succeed and probably at far lower (if any) interest rates than even the most benign lender.
Just use your judgment and don’t burn bridges.
Your Best VC Alternative Offers Funding That Works With Your Terms
Don’t worry about fitting the platonic ideal of an entrepreneur. The best venture capital alternative for your startup will depend greatly on your circumstances and business plan. Work with the resources and connections you have to find the funding you need to carry out your vision.
Look for more startup-related information?
Get The Equipment You Need For Your Startup Business With A Loan Or Lease
The Best Business Credit Cards For Startups & Entrepreneurs
The post 8 Alternative Funding Sources If Venture Capital Isn’t The Right Fit For Your Startup Or Small Business appeared first on Merchant Maverick.
As the COVID-19 pandemic continues its attack across the globe, the financial world has experienced a brutal setback. Small businesses have been particularly affected in this downturn; roughly 70% of owners had applied for Paycheck Protection Program loans by April 9, according to the NFIB Research Center.
With such danger looming overhead, credit card issuers have begun to reign in customers’ spending limits. These decisions can cause headaches for business owners who rely on credit cards: Besides dropping the amount of usable credit available, a lower credit limit can impact all-important credit scores.
Have you been hit by a lower credit limit recently? Or are you concerned about having your card’s credit line decreased in the future? Continue reading to find out how you can help manage your situation and keep your business financially healthy.
Why Issuers Are Lowering Credit Limits & Why It Matters
As mentioned above, several card issuers are known to have tightened credit limits in recent days. The Wall Street Journal specifically attached Citi, Discover, and Synchrony as issuers that have lowered spending limits due to concern over “millions” of credit card customers being unable to pay their bills.
Synchrony Bank is one of the few issuers to publicly comment on lower credit limits, stating that it has been using internal and credit bureau data to “dynamically reevaluate” its customers’ creditworthiness. Discover has also revealed that it is decreasing limits for new customers but added that it isn’t dropping spending limits for current customers directly due to COVID-19. There are also reports that Chase has recently tightened limits for current customers, although the bank hasn’t officially commented on the situation. It’s possible that other issuers have done the same as the above banks or are planning similar tactics for the future.
Such decisions aren’t unprecedented, even if the times we live in are. At the start of the 2008 recession, roughly 20% of banks dropped credit line limits for credit cards of prime borrowers, according to a senior loan officer survey by the Federal Reserve. Sixty percent of subprime borrowers, meanwhile, saw their credit limits tightened during the same time.
Issuers cut down credit limits for a very simple reason: They want to lessen their risk. With the current financial instability swirling around the world, more and more accounts will miss payments and potentially even default. Such situations could wind up being costly for issuers, and lower spending limits can minimize any potential damage.
For you, a lower credit limit on your card can be detrimental to your credit score — a metric that issuers and lenders use to determine how trustworthy of a borrower you might be. You’ll want to have a higher credit score because it can affect your business’ ability to qualify for loans, credit cards, and other sources of credit.
A key component to having a healthy credit score is maintaining alowcredit utilization rate, something that can impact up to 30% of your score. Credit utilization is calculated by taking the amount of credit you’re using and dividing it by the amount of credit you have access to. When an issuer lowers the limit on a credit card you have, your credit utilization will, of course, rise — potentially decreasing your credit score.
Credit limit decreases to your card can also happen stealthily. While most credit card changes require 45-days’ notice, no such restriction is in place for credit line changes. That means you’ll need to stay on your toes and take note of any changes to your card’s credit limit.
With all this said, plenty of issuers are working with customers impacted by the pandemic. In fact, some have stated that credit line increases might be a potential solution if you are struggling financially due to the coronavirus.
What You Can Do To Protect Your Financials & Credit Score
If you do find yourself with a suddenly lower credit line on your credit card, there are a few avenues you can take to minimize the damage to your financial health. We’ll take a peek at several of your options below:
Talk To Your Issuer
The quickest fix could be simply to reach out to your issuer and ask them to reconsider your new credit limit. Not all issuers will be happy to reverse a recent change, though. Still, setting out for a credit line negotiation is worth a shot. In some cases, you may also learn that your credit line decrease was due to other reasons not directly related to the financial downturn, such as a change in spending habits or a previously missed payment.
However, do note that with the current pandemic crisis, many issuers’ customer service lines are experiencing high call volumes. In some situations, this means that you may wind up being on hold for an hour or even longer.
It’s also worth a try talking to issuers of other cards you might have. While you might have seen a drop in available credit on one card, a different issuer might consider you due for a credit line increase. Plus, many issuers, such as American Express and Chase, offer the ability to request increases through their online portals. Asking for an increase online can save you the time spent and headache of calling customer service.
Check Your Credit Score Regularly
Something worth getting into the habit of doing even if your credit line hasn’t decreased is checking your credit score frequently. By monitoring your credit score regularly, you’ll be able to grasp where your overall credit health stands.
Luckily, there are a few websites that offer free credit score services. Here are some of Merchant Maverick’s favorites:
Discover Credit Scoreboard
For a more in-depth look at free credit score-checking websites, read our guide.
As another note, each of the three major credit bureaus (Equifax, Experian, and TransUnion) are now allowing every American to check their credit report once per week for free. Previously, individuals were only allowed to look up free credit reports once per year from each bureau.
While these reports don’t display credit scores, checking them often can give you an overview of what lenders and issuers are looking at when you ask to borrow money. On top of that, regular peeks at your credit report can help stop problems before they get out of hand.
Apply For Another Credit Card
A possible remedy to a lower credit line is simply to increase your overall amount of credit available. You can do this by applying for a new credit card. If you get approved, your new card’s limit will be added to your overall amount of credit available, potentially offsetting the dip from one of your current cards.
Keep in mind, though, that you’ll want to make sure you get a new card that makes financial sense for your business. Some cards carry costly annual fees that won’t be worth your time, while others offer rewards that won’t suit your spending habits. Of course, there are plenty of worthwhile cards out there, such as those that dole out cash back or those with limited balance transfer fees.
You’ll also want to practice proper credit card habits. That means you’ll only want to spend what you can afford, keep your balance to a minimum (unless you find a great 0% APR credit card), and make your payments on time. Just because you have a new credit card doesn’t mean you have free cash at your disposal. Instead, consider the new card as a way to keep your credit healthy during this period of financial instability.
Pay Off Your Balance Consistently
One of the most obvious ways to keep your credit utilization low is to only make purchases you know you’ll pay off. This way, you’ll be able to keep the amount of debt you owe to a minimum.
Unfortunately, in these turbulent times, you may find your business struggling to pay off your credit card bill. Or perhaps your business lacks a cash flow right now and needs to buy on credit to carry a balance. If these situations match your business’s profile, only make necessary purchases on your credit card. Your credit utilization rate will thank you down the line.
All told, dealing with a lower credit limit on your card is a frustrating endeavor. By taking the above steps, you may be able to protect your credit score — potentially benefiting your business into the future.
The post Was Your Credit Card Limit Lowered Due To COVID-19? How To Minimize The Damage To Your Financials & Credit 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 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
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 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
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.
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.
The post Get Waived Fees Or Bonus Points With A Retention Offer For Your Small Business Credit Card appeared first on Merchant Maverick.
Are you passionate about education? Do you love working with students? Do you have a specialized skill that you want to pass on? If so, you might be a good candidate for establishing your own tutoring business.
Becoming a tutor allows you incredible job flexibility, while also giving you an opportunity to do meaningful work in your community. When you tutor, you make an impact on students’ lives and help guide them toward educational success. And at the same time, tutoring allows you to manage your own schedule and set your own rates. What’s more, when you set up an online tutor business, you can even work from home!
Have you been considering starting a tutoring business, but you aren’t sure where to start? In this article, we’ll walk you through a step-by-step process for planning your tutoring business. And, we’ll also give you some ideas for where you can turn for the funding you might need to get set up.
Ready? Let’s go!
Why Start An Online Tutoring Business?
Tutors start their own businesses for a number of reasons, but one of the primary reasons is the ability to be your own boss. When you operate an online tutoring business, you are able to set your own hours, determine your own hourly rates, and take on as many or as few clients as fit your schedule. The flexibility that comes with tutoring is one of its biggest advantages.
What’s more, becoming a tutor is an excellent way to support students and parents. When you step in as a tutor, you help students learn the skills they need to succeed in the classroom, and you relieve some stress on parents. For many students, a tutor can change the outcome of their educational career. So if you have a heart for students, and a desire to see them grow and succeed, tutoring could be your passion.
In addition, over the past few years, online tutoring has been increasing in popularity. According to IBIS world, the market size of online tutoring services in the US (as measured by revenue) is expected to increase by 4.1% in 2020. There is always a need for educators, especially during the school year and around standardized testing time, and when you become a tutor you help fill that need. If you want to join a growing market, now is a great time to open our own online tutoring business!
When To Sign Up With A Tutoring Service Instead Of Starting Your Own Business
There are a couple of routes you can take to begin tutoring online. You can choose to sign up with an existing online tutoring network (such as Care.com), or you can start your own independent online tutoring business. Your choice between these two options depends on your available resources, your timeline, and your intentions for your business.
In general, you should sign up with an existing tutoring network if the following applies to you:
You Have A Limited Social Network: If you don’t already have a number of potential students in mind, it might be best to join a tutoring website. These sites help connect tutors with students, which can reduce some of the demand that comes with building an entire client base from scratch.
You Need To Start Working Immediately: Finding clients and establishing a presence in the tutoring market can take significant time, energy, and money. If you want to skip over this process, signing up with a tutoring site is a great option. You’ll be able to find clients and get teaching much sooner.
You Don’t Mind Paying A Fee: Most tutoring sites charge tutors a percentage of their earnings. You should have room in the budget for this expense in order for a tutoring site to be an advantage.
You Don’t Want To Set Up The Technical Tools On Your Own: In order to successfully tutor across the internet, you need access to a variety of tools. At minimum, you need a video conferencing tool, a way to share your computer screen, and a virtual whiteboard. Many tutoring sites that specialize in online tutoring (such as Varsity Tutors) offer these tools built into their platforms.
Here are a few tutoring sites you might consider: Chegg Tutors, Care.com, VIPKid, and Varsity Tutors.
Alternatively, you should consider building your own business if:
You Already Have Potential Students: If you have a wide social network full of school-age children and college students, you may not need any help building a client base.
You Want To Keep All Your Earnings: This is a huge factor. If you resent the amount that tutoring sites charge for their services, you should build your own business. You’ll have to cover other expenses, but you get to decide how much those other expenses cost.
You Have The Time To Get Set Up: As I mentioned above, building your own business takes time. Make sure you have the time (and available income) to build your business before you begin.
Before You Start Your Tutoring Business: Essential Prereqs
As you might imagine, education is a major requirement for starting your own tutoring business. In general, most tutors need to have earned at least a high school diploma or a GED. This is especially true if you are signing up with an online tutoring site.
The level of education you have earned plays an important role in determining what content areas you can teach. Here are the grade levels and subjects you can tutor with each level of education:
High School Diploma Or GED: At this education level, you are able to tutor elementary and middle school students. You are also able to tutor high school students, although you may need to demonstrate your knowledge in other ways (using transcripts or standardized test scores to demonstrate content area knowledge).
Undergraduate Degree: With a Bachelor’s degree, you are able to tutor elementary, middle school, and high school students. You are also able to tutor college students in your area of specialization. This is especially true if you have work experience post-college that relates to your specialization.
Post-Graduate Education: You can tutor elementary, middle school, high school, and college students. Depending on your area of specialization (if you have a degree in education or in teaching English for Speakers of Other Languages), you might also consider teaching adults who are finishing their GED or who are looking for a way to develop their English fluency.
As you look into tutoring, you should also consider working towards a Tutoring Certification. These certifications require you to go through a few hours of training, pass a background check, and submit a couple of letters of recommendation. Earning a Tutoring Certification enhances your credibility, and it also demonstrates to parents that you are safe around their students. Many tutors also benefit from the training included in earning a Tutoring Certification. These certifications are available from the National Tutoring Association and the American Tutoring Association. Depending on the certification, you may have to pay for training, membership fees, a background check, and application fees. These expenses total around $200-$250 for certification, but I think this expense is worth it for the amount of credibility you gain.
Finally, in order to begin tutoring, you need to identify your area of specialization. Think about where you can add value, and consider the experience that you have under your belt. Is there a particular grade level or content area that you are skilled in?Â As you look for your specialization, consider the subject areas in which tutors are in high demand: English, Math, Science, Test Prep, and Study Skills. And remember, each of these subjects can be broken down into sub-categories like Algebra, Chemistry, reading comprehension, SAT and ACT preparation, etc. Once you have identified one or two specializations, you’re ready for the next step.
8 Steps To Starting Your Own Tutoring Business Online
Step 1: Make A Business Plan
Strong businesses start with a strong plan. A business plan is a written description of your planned business and business strategy. It’s your vision of how your business will be organized, how it will operate, and how it will be profitable. You can find lots of information online about writing a business plan. Your local chamber of commerce and government economic development agencies likely also have resources you can use.
A typical business plan includes:
Sales & Marketing Strategy
Organizations & Management Team
Once you have a basic idea of how your business will operate, it’s time to calculate your starting costs. Do you need to purchase materials or teaching aids? Will you be paying for website building software or a web host? Do you need to purchase any hardware or software, or perhaps buy business insurance?
Since your business is just getting started (and since you will probably be the only employee for a while), your business plan does not have to be incredibly in-depth. Mostly, you should use this plan as an opportunity to set goals, create your marketing strategy, and predict your business expenses.
Step 2: Perfect Your Computer Setup
Your next step is to set up your classroom. Find a place in your home to conduct your online tutoring. You should look for a location that’s away from the noise of the house and has plenty of light. Then, position yourself so that there is a clean, neutral background behind you in video calls.
You should also make sure that you have all of the technology you need to begin online tutoring. You, of course, need a computer and a strong internet connection. You should also have a webcam and a functional microphone (even if it’s just the microphone built into your laptop). In addition, we recommend purchasing a tablet or digital drawing pad and stylus that you can use with a virtual whiteboard software. These tools make it easier for you to illustrate and share concepts with your students from a distance.
Step 3: Find The Right Tutoring Software
Once you have your hardware figured out, you should select your software. You should consider purchasing the following types of software:
Video Calling Software: Find a video calling software like Zoom or Google Hangouts that allows you to schedule meetings in advance and then send meeting links to your attendees via email. You should also look for the ability to share your screen as you will likely want to use this tool to make demonstrations in your tutoring.
Virtual Whiteboard Software: Virtual whiteboard software allows you to draw, write, and diagram on a digital whiteboard. All you need to use the software is a mouse, but using a tablet or a digital drawing pad and stylus (like Wacom Intuos) gives you even better control. A few virtual whiteboards you should check out include Ziteboard, Â IDroo, and Scribblar.
Document Sharing Software: Consider using the free tools that Google provides to your advantage. Google Docs is an excellent tool for sharing documents, editing simultaneously, and making comments on specific pieces of a document. Google Classroom further expands these tools. Using Google Classroom, you can create a central hub of information for your students. Here, you can add resources, assignments, and rubrics. You can use quiz features to help students assess their learning. Google Classroom stores students’ work indefinitely, making it a great way to keep track of student progress over time.
Step 4: Set Your Rates
As your own boss, you get to decide on the rate you charge for your services. Rates vary dramatically from tutor to tutor, and they typically depend upon your education level, the subject area that you teach, and your students’ specific learning needs.
Typically, tutoring rates fall somewhere between $20–$80 an hour.
Tutors who charge the highest rates are those who teach in-demand subjects that require significant experience and familiarity, like SAT prep, and high school and college-level math and science. Tutors who have training and experience working with students with special education needs also typically charge higher rates.
Unfortunately, hourly rates tend to drop when you tutor online instead of in-person. This is primarily because tutors are not limited by location, which makes the online tutoring market much larger with more available tutors. On the other hand, when you tutor online, you eliminate any expenses related to travel and you don’t have to rent out a space for tutoring.
I’ve seen information that suggests that the average rate for online tutoring is $20–$30 an hour, although you can certainly charge more based on your education level and experience.
As you think through your pricing rates, you should look into the rates that other tutors in your content area charge. Then, you should take into account your anticipated business expenses (pricing for any required software, self-employment taxes, and the time you spend preparing for each tutoring session). Using this information, you can set your own pricing range.
Step 5: Register Your Business
In many cases, registering your business is technically optional.
Tutors who decide to operate as a sole proprietorship or partnership do not need to do anything to register their business. Essentially, the business is an extension of its owner. Sole proprietorships are easy to set up, and typically in a sole proprietorship, taxes are simpler than they are with other forms of incorporation. In a sole proprietorship, when you go to file taxes, you file your business taxes and personal taxes together. You will have to pay self-employment taxes on your earnings. In addition, sole proprietorships do not come with the liability protection that is part of many other types of business structures. You are personally liable for any debts your business takes on.
Other forms of incorporation require more time to set up and come with their own advantages and disadvantages.Â Here are the most popular ways to incorporate:
Limited Liability Corporations (LLCs): Aside from setting up a sole proprietorship, many tutors find that establishing an LLC is their next best option. LLCs offer limited liability protection for their owners, and they are not as complex as a corporation. Each state has its own rules for what it takes to start an LLC, and you don’t necessarily have to register your LLC in the state where you’re doing business (although you generally should). Like with a sole proprietorship, LLC owners report their business earnings and losses on their personal taxes.
C-Corp:Â In a C-corp, shareholders are considered the owners of the company, and they receive limited liability protection. However, at the same time, business decisions are made by corporate officers who may or may not be shareholders. In a C-corp, taxed are filed separately from personal taxes, and shareholders pay income tax on dividends. In order to form a C-corp, you have to file articles of incorporation with your state.
S-Corp:Â S-corps are very similar to C-corps, but with a few additional restrictions: You have to have fewer than 100 shareholders, and they have to all be U.S. citizens or residents. Profits and losses are reported on personal taxes. Finally, in addition to filing your articles of incorporation, you also have to file IRS Form 2553.
Even if you decide to operate your tutoring business as a sole proprietorship, we suggest setting up a plan for separating your business finances from your personal finances. The easiest way to keep your finances separate is to create separate business checking and savings accounts. These additional accounts make it easier to track your profits and losses, and they can save you a ton of headaches when it’s time to pay your taxes.
You should also consider filing a DBA (Doing Business As), Trademark, or Entity Name for your business. Filing a business name allows you to operate your business under its own name, instead of your legal name (Math Works as opposed to Sandy Davis, for example).
Step 6: Establish A Web Presence
As an online tutor, it’s crucial that you have a strong online presence. There are a few ways you can go about building your web presence:
Create A Website: It never hurts to have a sleek, attractive website. Developing your own website adds credibility to your business and can help build hype for your services.Â Luckily there are user-friendly and cost-effective website builder tools that you can use to set up a site in a matter of days. Some of these tools (such as Wix) even provide appointment scheduling tools that you can use to allow your clients to book–and pay for–their tutoring sessions online.
Set Up Social Media: Set up business accounts on the social media sites that your clients use most frequently (Facebook and Instagram are good places to start). Make sure you include important information like your subject areas and a link to your website. You should also encourage reviews on your Facebook page, so parents and students can leave testimonials, improving your credibility.
Create A Yelp Page: If your business doesn’t already have a Yelp page, now is a good time to set one up. Adding a page on Yelp encourages more clients to leave reviews, and it can help direct new potential clients to your services.
Check out these top website builders:
Hosted or Licensed
Templates & Themes
Compatible Credit Card Processors
$14 – $179/month
Go to Site
Free – $29.90/month
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Go to Site
Step 7: Choose A Payment Processing Solution
In order to accept payments online, you’ll have to integrate with a payment processing solution.
Payment solutions fall into two categories: Payments Service Providers (PSPs) and merchant accounts. PSPs are typically easier and faster to set up, but they are also known for having account stability issues. Many PSPs accept merchants almost immediately, and then upon review decide that certain merchants are too high-risk to use their platform and freeze their accounts. Merchant accounts, on the other hand, take longer to set up because there is an initial review process. This makes merchant accounts more stable (you are less likely to have your service revoked). Merchant accounts also allow you to negotiate the rates that you pay for payment processing. In order to process online payments with a merchant account, you need to find a payment gateway, which is an integration that allows you to connect your website and your merchant account.
Here are a few payment processing solutions that might work for you:
Payment Service Providers: PayPal is one of the most widely accepted PSPs out there, and it is a familiar payment option for your clients. Another good PSP is Square. In fact, Square includes appointment scheduling features, so your clients can schedule sessions and pay for services at the same time.
Built-In Payment Processors: Some website builders come with their own in-house payment solutions. One of these options is Wix Payments for Wix users. Built-in payment solutions are great options for quickly setting up a payment method.
Merchant Accounts: Although merchant accounts often take longer to set up, for some merchants the initial investment is well worth it. We particularly like Fattmerchant and Payment Depot.
Step 8: Market Your Business
Once you have your website and payment method set up, it’s time to start marketing your tutoring business! Your marketing strategy should take into account your current network and your intended audience. Here are a few methods you can try:
Email Marketing: If you already have a large personal network, make sure to notify them of your new business. Use email marketing software like Constant Contact or Mailchimp to reach out to family and friends with information about your tutoring services.
Social Media Marketing: Use your personal and business social media accounts to announce your business. One great way of gaining new clients with social media is to put out free content that anyone can view or download. Upload or link your favorite learning resources, and create a few videos to show how you prepare for a tutoring session. Sharing these resources and videos demonstrates your personality and teaching style. It can help build your reputation and make you appear more approachable.
Post In-Person Flyers: Place fliers with tear-off tags on bulletin boards in libraries, churches, schools, gyms, and daycare centers. Think about where parents of school-age children might be, and get your fliers out there! Be sure to always check with management before posting your fliers, of course.
Offer Free Consultations: Consider giving new potential clients an opportunity to meet with you for a free initial consultation. It’s a good idea to include parents in this initial conversation.
Share Customer Testimonials: Ask happy clients for a positive customer review, and then use that testimonial to your advantage. Word-of-mouth goes a long way. Make use of it in any way you can.
How To Fund Your New Online Tutoring Business
New businesses often find themselves in need of capital. If you’re facing startup costs and wondering how to address them, here are a few options:
If you have some liquid assets saved up, now might be a good time to use them. By using the money you’ve already saved, you eliminate the risk associated with debt and you ensure you won’t be losing additional money on interest. That said, you take a risk by using your personal money to finance your business. If your business fails, you lose that money.
One of the easier–and riskier–ways to fund your startup expenses is with personal or business credit cards. Credit cards allow you to access credit quickly and apply it to many different types of purchases.
You should keep in mind, however, that credit cards charge high-interest rates on any balances you carry from month to month. This makes credit cards a good option for purchases you can pay off quickly, and a potential problem for ones that you can’t.
Note: Avoid taking out cash advances on your cards unless absolutely necessary. They come at a very high cost.
Although traditional business loans are not an option for some new businesses, you can often use a personal loan to cover some of your startup expenses. These loans can be easier to get when you’re first starting out.
The downside of a personal loan is that you don’t get the liability protection you’d have if you applied as a business. You may also be more limited in terms of the amount of money you can take out. Still, if you need a little money to get started, it’s not a bad option.
Grants might be the closest thing to “free money” we have in the real world. Grants are often highly competitive, and they require businesses to complete a fairly involved application process. As you consider your options, you should factor in the amount of time you spend applying for a grant. And, you should take into account the likelihood that you will not be selected for that grant.
If you need some advice on where to look for grants, check out our feature on the topic.
ROBS stands for Rollovers as Business Startups, and they areÂ extremely niche products for entrepreneurs with retirement accounts like 401(k)s.
For a fee, a ROBS provider allows you to use money from your retirement account to pay for startup costs without incurring any tax penalties for accessing retirement funds early. Like with personal savings, with ROBS, you are risking your own money. ROBS is probably overkill for most new tutoring businesses, but it is a good option to keep in mind.
Go Out & Start Your Online Tutoring Business
Does tutoring from the comfort of your own home sound like your dream job? Tutoring can be one of the most rewarding and profitable small businesses to start. And with minimal start-up costs and very few steps to getting started, you can get begin tutoring in very little time!
That said, as with all new business ventures, you should approach your online tutoring business with a strategic mindset. Take your time, decide on a niche, gather all the tools you need, and work towards building a positive reputation in your social network. Now is a great time to enter the tutoring market. So get out there, and get teaching!
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The post How To Start An Online Tutoring Business: Prerequisites & 8 Steps To Success appeared first on Merchant Maverick.