Crowdfunding

May 12, 2020

6 Financing Options For Up & Coming Entrepreneurs (Plus 4 Expert Funding Tips To Get You Started)

Starting any business can be challenging, but the quick growth and turnaround times commonly associated with entrepreneurial ventures come with their own particular set of challenges. You’re entering a fast-paced and cutthroat segment of the economy with both high risks and high rewards. To start your journey as an up and coming entrepreneur, you’ll need to take stock of your financing options.

If your business plan prominently features explosive growth, a liquidity-rich exit strategy, or even an initial public offering (IPO) within five years or so, this article is for you. For other prospective business owners who are looking to build something on a smaller scale, we have you covered with some broader resources for entrepreneurs.

Why Financing Can Be Hard For Entrepreneurs To Find (& Why That Shouldn’t Stop You Anyway)

Entrepreneurs face a few serious obstacles to getting financing, but if it were easy more people would be entrepreneurs, wouldn’t they?

The biggest issue is, of course, risk. You take an enormous one by starting a new, unproven business. Well over 50% of startups fail. Those aren’t great odds for the more conservative lenders out there, so right from the start, you’re going to be dealing with a smaller pool of lenders than is available to established businesses.

Related to that is the fact that bank consolidation has resulted in fewer traditional lenders, which means fewer opportunities for funding. The loss of community banks, in particular, has had a negative impact on lending. Online lenders have partially stepped into the void, but many are focused on very short-term lending.

In particular, the high growth startup model (though much romanticized in the media) is rarer than you might think. Fewer than 1% of businesses successfully raise venture capital.

Finally, social barriers ranging from prejudiced lending practices to geographic concentration of resources can greatly affect your chances of getting financing.

That said, “difficult” doesn’t mean “impossible.” With some creativity, diligence, and relationship-building, you’ll have a good shot at overcoming the odds.

6 Types Of Financing For Entrepreneurs

Now that we’ve gotten the cautionary tales out of the way, it’s time to look at some types of financing entrepreneurs can tap.

1) Venture Capital

If any funding source has become more closely associated with entrepreneurship in the public than venture capital, it would be news to me. There’s a certain mystique to being successfully being funded by groups that believe your business idea could take off.

Venture capital firms pool money from sources ranging from wealthy individuals to banks to pension funds. Each firm tends to specialize in a particular industry or type of company. Once they’ve raised an agreed-upon amount, they’ll shop around for businesses in which to invest.

A venture capital fund frequently disburses its funding over the course of several “rounds,” the first of which is called the seed round. As the name implies, this funding is meant to get your business off the ground. Successive rounds, called series, may become available as your business grows. Series A funding, for example, may be used to scale up a business that is already offering a product and has a customer base. Series B funding is similarly focused on growth.Â Finally, Series C funding focuses on helping mature companies expand into new products, or even acquire other companies. Different venture capital firms tend to specialize in specific phases.

Pros

Specialized Financing:Â Venture capital firms develop some expertise in the industries they’re investing in, which can be handy if you need advice.
Well-Connected: The venture capital circuit is pretty small and interconnected. Once you get your foot in the door, you can often use their connections to your advantage.
Eager To Work With Startups: Where many lenders are reluctant to work with businesses who have little more than an idea and a plan, venture capital firms may take a risk on big ideas.
No Debt:Â While you are giving up equity in your company, you don’t have to worry about “paying off a loan.”

Cons

Geographic Concentration:Â The majority of venture capital supported startups are in California, Massachusetts, New York, and Texas. Some states have no active venture capitalist firms. Even within the states that do, they’re frequently concentrated within a few cities (San Francisco, New York City, Boston, for example). That doesn’t mean you can’t get venture capital funding elsewhere (Cincinnati, Salt Lake City, and Atlanta all have some VC activity, for example), but there’ll be fewer firms in the mix.
Loss of Control: Accepting venture capital funding means giving up equity in your business. In some cases, it may even mean giving up some decision-making power to the firm.
It’s Just Hard To Get: As mentioned earlier, fewer than 1% of startups successfully raise venture capital. For all the hype VC gets, it’s actually a really small part of the business funding picture.

2) Angel Investors

Though sometimes used interchangeably with venture capitalists in casual conversation, angel investors aren’t quite the same thing. Whereas venture capital usually involves a firm aggregating funds from a number of different sources, an angel investor is an individual–typically wealthy–who is looking for a risky venture with a potentially high rate of return. Like a venture capital firm, an angel investor is usually looking for equity in your company in exchange for funds.

While word-of-mouth is still a common way to get hooked up with an angel investor, over the past decade or so there have been attempts to form networks of investors through hubs like AngelList and ACE-Net. Some angel investors even pool their resources and function like a venture capital firm.

Pros

No Debt:Â You’re giving up equity in your business instead of taking a loan.
Eager To Work With Startups: Whereas banks may be wary, angel investors are looking for the type of investment opportunity a startup can provide.
You Just Need To Convince One Person: While this is not always an advantage, you can hone your pitch to the investor rather than having to worry about a committee evaluation.

Cons

Loss Of Control: Again, you’re giving up equity which can also mean loss of decision-making power. With angel investors, there can also be an added risk of lack of expertise, which brings us to …
Potential Lack Of Expertise:Â Unlike venture capital firms, an angel investor may not be intimately familiar with your industry or product.

3) Debt Financing

For brevity’s sake, we’re combining bank loans, microloans, online loans, and personal loans. While there are advantages and disadvantages to each of these, in the end, we’re still talking about taking on and servicing debt in exchange for a lump sum of cash. While it’s difficult to get a loan before you’ve established a steady source of income, it’s not impossible, particularly where programs like microloans are concerned. These programs provide relatively small amounts of money with reasonable interest rates and long term lengths that can give you enough time to get your business up and running.

Pros

Retain Control: You’re not giving up any equity to a third party.
Flexible Exit Strategy: You’re on your own timetable for selling or making an IPO.
Building Credit: If you manage to service your debt regularly, it’ll make getting funding in the future easier.

Cons

Interest:Â Your debt earns it and you have to pay it off. This can be a drag on your growth down the road.
Risk Of Default:Â Starting a business is risky, and there’s a very real chance you won’t be able to pay your debt. If that happens, you’ll want to know how much personal liability you have, as well as the effect it’ll have on your credit.
Borrowing Amounts May Be Low:Â You’re probably looking at five-figure amounts or less when it comes to loans that are available to startups.

4) Bootstrapping

Another financing strategy is to not seek outside financing at all. That means working with your own savings and resources and taking a lean, minimalist approach to your business operations. When you do hit a growth phase, it’ll be funded by your business’s own revenue.

Pros

Retain Control:Â You don’t owe anyone anything, so you have complete control over business decisions.
Your Business Strategy Matters:Â You’ll only grow if your model works.
No Obligations:Â You have no debt or third-party timetable to adhere to.

Cons

Lack Of Funds: There’s a reason the old cliche “you’ve got to spend money to make money” persists. You may run into roadblocks that could be removed by money you don’t have.
Slow Growth:Â You won’t be able to scale quickly, which may put you at a disadvantage if you have competitors.
Time Investment:Â You’ll probably have to take on tasks you’d otherwise be able to delegate if you had employees.

5) Crowdfunding

Among the newer ways to get a startup off the ground is to crowdfund it. Crowdfunding is typically associated with pre-purchasing products, but some newer services are offering so-called “equity crowdfunding.” As the name implies, you’ll be giving up some equity in your company in exchange for funding from a pool of investors.

Pros

No Debt:Â Crowdfunding doesn’t come with any debt obligations.
High Funding Amounts Possible:Â Crowdfunding can be hit or miss, but when it works, the hauls can get pretty big.
You Don’t Have To “Know The Right People”:Â If you’re not socially connected to wealthy investor networks, crowdfunding can be a way to still raise large amounts of equity financing.

Cons

Loss Of Control:Â You’re giving up equity, which means you may also be giving up decision-making power.
Crowdfunding Campaign:Â Crowdfunding requires a sustained effort to get eyeballs on your business.
Platform Fees:Â Crowdfunding platforms have to make money too, so expect to be some kind of fee or to have them take a cut of the funds you raise.
It’s Still New:Â Some investors are still wary of equity crowdfunding.

6) Grants & Subsidies

Most parts of the country have programs in place designed to encourage entrepreneurship. These can take the form of tax incentives, subsidies, grants, or some kind of infrastructural support. You should familiarize yourself with the ones that apply to your type of business and take advantage of them when you can.

Pros

Free Money:Â While grants and subsidies may come with obligations, they aren’t debt or even loss of equity.
Builds Local Connections:Â Becoming a pillar of your community, so to speak, can open up additional opportunities down the road.

Cons

Can Be Time-Consuming: Grants, in particular, have involved, competitive application processes that may require a lot of your attention.
Obligations:Â Accepting this kind of help may come with strings attached. You may be expected to stay within a certain city or county for a certain number of years or hire X-number of employees.

Entrepreneur Financing Tips From The Experts

What better source of advice is there than people who have successfully undertaken the same journey you’re about to attempt?

Make Sure You Really Want Angel Investment

Entrepreneur Tim Berry, founder of Palo Alto Software and bplans.com, cautions founders to make sure they actually need and want angel investment prior to seeking it out. If you don’t need it, you’re better off without it.

Believe In Your Vision

In an episode of The Jordan Harbinger Show, angel investor Jason Calacanis says he can tell when an entrepreneur believes in their own vision and when they’re bluffing, a skill he compares to playing poker.

Getting A VC Firm’s Attention Is Part Of The Interview

Marc Andreessen, co-founder of VC firm Andreessen Horowitz, says that a founder’s ability to network their way into a meeting with a venture capital firm is a good barometer for their ability to forge other important business relationships, such as those with customers, suppliers, and even the media.

Understand The Motivations Of Your Potential Investors

Scott Kupor, author ofÂ Secret of Sand Hill Road, advises founders to consider what an investor is hoping to get out of their relationship with the startup. The right investor will be the one whose objectives align with your own.

Get Started On Your Entrepreneur Financing Journey

You had your vision in place. Now you have a sense of how you might finance it. If the odds seem daunting, remember that the rewards are also great.

None of these options sound appealing? Check out some additional ways to finance your startup. And if you’re looking to finance smaller, short-term expenses for your business, you’ll want to take a look at our top business credit card options for startups.

The post 6 Financing Options For Up & Coming Entrepreneurs (Plus 4 Expert Funding Tips To Get You Started) appeared first on Merchant Maverick.

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May 5, 2020

8 Alternative Funding Sources If Venture Capital Isn’t The Right Fit For Your Startup Or Small Business

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 valuation of 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.

1) Grants

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.

2) Crowdfunding

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.

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April 15, 2020

How To Get A Startup Business Loan If You Canât Put Up Collateral

There are many different types of entrepreneurs, and just as many types of startup businesses, but they all have one thing in common: the need for capital. Their business ideas may be valuable, but most aspiring small business owners don’t exactly have the funds in their own bank accounts to cover startup expenses. Sound familiar? Fortunately, a lack of capital doesn’t mean that you have to push your startup dreams to the back burner. There are plenty of startup business loan options that allow you to fund a new business without emptying your personal bank account.

There may be one thing that’s holding you back from submitting that loan application, though. If you lack collateral to back the loan, you may be hesitant to move forward with a lender. If this is a problem you’re facing, keep reading. In this post, we’re going to discuss your startup business loan options when you can’t put up collateral. We’ll look at what collateral actually is, why some lenders require it, and funding options that don’t require collateral.

What Is Collateral? A Short Primer

Collateral is a physical asset that is put up to secure your loan. It shows the lender that you’re serious about your loan and plan to make all payments as agreed. If you fail to meet the terms of your loan, you default on the agreement and the lender can seize the collateral, which is then sold in order to pay off the debt.

There are several things that can be used as collateral. Business equipment, vehicles, property, and inventory are common forms of collateral when seeking a business loan. Any property of value that can be sold by the lender can qualify as collateral, even accounts receivables.

Still scratching your head over collateral? Check out our post What Is Collateral & Do I Need It For A Business Loan to learn more.

Secured VS Unsecured Loans: Know The Difference

In your search for a small business loan, you’ve likely encountered the terms “secured” and “unsecured.” If a loan is secured, it is backed with some form of collateral. The lender will put a lien on the pledged asset and will have the right to seize it and sell it if you default on the loan. Failure to pay your loan as agreed will also negatively impact your credit score. A home mortgage is a type of secured loan, where the property being purchased is the collateral for the loan.

An unsecured loan, on the other hand, does not require you to put up specific collateral to back the loan. If you do not pay your loan as agreed, the lender can’t seize your property. However, the lender may seek a judgment against you in court if you default on your loan agreement. As with a secured loan, defaulting on an unsecured loan will affect your credit score negatively.

Do Personal Guarantees Count As Collateral?

Some lenders require you to sign a personal guarantee as a condition of receiving a loan. By signing a personal guarantee, you are making a promise to the lender that you will repay the loan. This personal guarantee takes some of the risk off the lender. If you don’t fulfill that promise, the lender has the right to liquidate personal assets, including personal real estate, vehicles, or even your personal bank accounts.

Because a personal guarantee isn’t attached to a specific asset, it doesn’t count as collateral. It does in some cases take the place of collateral when a borrower doesn’t have an asset to secure the loan. One important thing to note is that both secured and unsecured loans may require a personal guarantee. This varies by lender, so make sure you do your research before signing on the dotted line.

Most lenders require all borrowers with at least a 20% stake in the business to sign a personal guarantee. If you have a co-signer for your loan, the co-signer will typically be required to sign a personal guarantee. In some cases, your spouse may also be required to sign even if they aren’t listed on the loan. This is to eradicate any conflicts over jointly-owned property.

If you’re unsure about moving forward with a loan that requires a personal guarantee, check out our post Should I Sign A Personal Guarantee? to learn more about the benefits and drawbacks of signing.

Why Creditors Ask For Collateral On Startup Loans

So, why do most creditors ask for collateral for startup loans?

For lenders, it’s all about risk. Borrowers with good personal credit, an established business, and solid revenue are seen as less of a risk. These borrowers receive lower interest rates, higher loan limits, and loans that don’t have to be backed with collateral.

On the other hand, risky borrowers are more of a challenge. Lenders may be willing to loan money to these borrowers, but they want to mitigate risk as much as possible. This is why riskier borrowers receive lower loan limits, higher interest rates, and may be required to put up collateral. If the lender is unable to collect what is owed if the borrower defaults, the collateral can be seized and sold, allowing the lender to recover their funds.

Startup businesses are seen as a risk by lenders because they haven’t yet established a track record of success. There is no annual revenue or business credit history to consider. In other words, the lender is unsure if the borrower is willing or able to make their loan payments on time as agreed. With an asset backing the loan, lenders feel more confident in loaning to newer businesses and startups, business owners without perfect credit, and other high-risk borrowers.

The Downsides Of Getting A Startup Loan With No Collateral

If you don’t have collateral to secure a startup loan, you’re not completely out of luck. There are some lenders that will work with your situation to help you get the funds you need. Unfortunately, there are a few drawbacks to getting a loan without collateral. It’s important to fully weigh out the pros and cons of these loans before making a commitment.

Higher Interest Rates

Without collateral, your loan may come at a higher cost. Some creditors are willing to fund startup businesses with a higher interest rate than more established businesses or business owners that have collateral. These increased interest rates can add hundreds or even thousands of dollars to what you owe, so make sure you have a grasp of exactly how much your loan will cost. Then, decide if the expense is worth it, or if you’re better off taking another funding route.

Shorter Repayment Terms

Typically, loans with the most favorable repayment terms are reserved for the most creditworthy borrowers (i.e., established businesses). If you need a startup loan and don’t have collateral, you may have to take a short-term loan. Instead of paying back funds over a longer period of time, you’ll have to repay your loan more quickly — for example, three or six months. You may also be required to make more frequent payments depending on the lender you choose (such as weekly or bi-weekly instead of monthly). Again, it’s important to fully evaluate the pros and cons of repayment terms of any loan you’re offered to decide whether it’s right for your business.

Fewer Lender Choices

Look through the Merchant Maverick website, and you’ll find just a fraction of the lenders ready to work with small business owners. To qualify, though, you must meet all lender requirements. Though these requirements vary, many lenders exclude startup businesses and require a minimum time in business, such as one year. Others may be more willing to work with startups but require collateral to secure the loan. If you don’t meet these requirements, you’ll have to find another lender.

Lower Borrowing Limits

Putting up collateral means you have some skin in the game. This allows lenders to feel more confident when lending to you. With many lenders, you’ll be able to borrow more funds than you would without collateral.

Stricter Requirements

In order to receive a startup loan without collateral, your application needs to be strong in other areas (i.e., a high personal credit score). We’ll go into this a little more later, but for now, just know that you may face much stricter borrowing requirements if you lack collateral to secure your loan.

Where To Get Startup Loans Without Putting Up Collateral

If the drawbacks of a collateral-less startup loan haven’t deterred you, you’re one step closer to starting the loan process. Like many new business owners, though, you may be unsure of where to acquire a loan. There are several lending options to consider.

Online Lenders

There are a number of online lenders that are willing to give loans startups without collateral, provided that the borrower meet all other requirements. There are several benefits to working with an online lender. The process is quick, easy, and can be done online from your home or office. Many online lenders also have more lenient requirements than banks and other traditional lenders. One thing to note, however, is that most online lenders do require you to sign a personal guarantee before you’re funded.

Take Out A Personal Loan For Business

If you have a good credit score and enough annual revenue, you may qualify for a personal loan that can be used for business purposes. Depending on how strong your application is, you may qualify for lower rates and longer terms than small business loans. You can apply for personal loans through an online lender, bank, credit union, or other financial institution.

Have a new product idea or an interesting business that you’re ready to launch? If so, crowdfunding may be the answer to your capital problems. When launching a crowdfunding campaign online, it is your job to convince others to give money to fund your startup. You do not need collateral, but in some cases, you may want to offer a perk to get people to donate. For example, if you’re launching a new product, you could offer first dibs or a steep discount to someone that donates. In other instances, you may work with fewer lenders and offer equity in your business in exchange for funding. Crowdfunding doesn’t have many of the hassles of traditional lending, but you do have to put in more work to get funding, such as sharing your campaign on social media.

CDFIs

Community development financial institutions (CDFIs) are private lenders that provide funding and other resources for community development. These lenders work with borrowers that may not qualify for funding elsewhere. This includes minorities, women, and startups. CDFIs can provide affordable, long-term finance options for startups, but this isn’t the right option if you’re looking for fast funding, as the application process can be quite lengthy.

Friends & Family

Maybe you didn’t realize it, but you may already know a lender that’s willing to take a chance on you. You can ask a friend or family member for a loan or even an investment in exchange for equity in your business. Even though you know this lender personally, it’s important to keep everything professional. Make sure that you approach the friend or family member as you would any other lender. Don’t forget to make sure that all contracts are drawn up and signed to legalize the transaction. Most importantly, don’t fail to meet your end of the bargain. Plenty of good relationships have gone south due to a business deal gone bad.

How To Improve Your Chances Of Being Approved

Qualifying for a business loan for your startup can be difficult even with collateral. But taking collateral out of the equation entirely may make it seem nearly impossible to get funded.

It is possible to get funded, however. But it can be a challenge. If you plan on applying for a loan sans collateral, you have to make sure that you provide the lender with a strong loan application to show why they should lend to you.

How do you know if your application is strong enough? Start off by taking a look at the 5 Cs of credit.

Character:Â Do you responsibly make payments on time? Lenders want to work with low-risk borrowers of high credit. Lenders will learn more about your character by looking at your personal credit profile and references.
Capacity:Â Will you be able to pay back the loan? Lenders will look at financial documents, annual revenue, and even projected revenue to see if you can financially handle the responsibility of a loan. When evaluating capacity, lenders will also look at your debt-to-income ratio and debt service coverage ratio.
Capital:Â How much of your own funds will go into your business? Lenders will consider how much capital you’re willing to put into your business. Borrowers that are willing to invest their own funds are seen as less of a risk.
Conditions:Â Lenders also look at conditions before deciding whether or not to approve your loan. This includes the state of the economy, your industry, your competitors, and current interest rates.
Collateral: Collateral, of course, is what we’ve been covering in this post. If you lack collateral, you’ll want to bolster the other 4 “Cs” as much as possible.

Before applying for a startup loan, make sure you’ve taken the steps necessary to strengthen your application. Order your free credit report, evaluate it for errors, and dispute any errors that you find. Consider paying off (or at least paying down) current credit cards, loans, and other financial products to lower your DTI. Make sure you have strong, reputable references. Finally, make sure you have all of your documentation ready. This includes financial statements and your business plan.

Final Thoughts On Collateral-less Startup Loans

You don’t have to be intimidated by collateral-less loans, but you do need to be prepared. Knowing what to expect, taking steps to strengthen your application, and being prepared to explore different lenders and funding avenues are key to successfully acquiring a collateral-less startup loan.

The post How To Get A Startup Business Loan If You Canât Put Up Collateral appeared first on Merchant Maverick.

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April 10, 2020

Raising Money For Your Small Business Through Kickstarter? Find Success With These 11 Tips

Since its 2009 launch, Kickstarter has helped more than 180,000 campaigns collectively raise over $4.8 billion in business funding. Kickstarter has been key in assisting businesses to raise money and gain media traction, but if you want to use Kickstarter for business purposes, it helps to have a plan.

It may seem obvious, but it needs to be said: Running a successful Kickstarter campaign is no walk in the park. According to Kickstarter’s campaign stats, 37.63% of Kickstarter campaigns ultimately reach their funding goal. That means that over 62% of businesses on Kickstarter get no money whatsoever from running a crowdfunding campaign. Under Kickstarter’s all-or-nothing funding policy, if your campaign doesn’t hit its funding goal within the time frame you specify (campaigns have a maximum length of 60 days), you won’t receive any money at all — all the funds pledged to you are returned to your backers.

We tell you this not to dissuade you but to prepare you for the realities of crowdfunding on Kickstarter. If the current pandemic and resulting economic climate have you struggling to find traditional sources of funding and you’re looking to Kickstarter as a possible solution, we have some crowdfunding tips for you to keep in mind.

1) Be The Point Person Of Your Campaign

Look, I get it. You may not be a natural PR flack or salesperson, and you probably didn’t get into business to be the next Billy Mays. However, the reality is that people — your potential backers — are attracted to the idea of passion projects. They tend to identify with business leaders who convey enthusiasm and vision, and from there, it’s a short path to becoming a supporter. Just look at the fanatical social media following Elon Musk has been able to attract, despite his many missteps.

Don’t be afraid to put yourself out there as the public face of your campaign. It’s challenging to make people feel invested in a business project, but if you personify that business project — if you detail your life story and your motivation for doing what you do — people become more likely to share your enthusiasm. Kickstarter knows this. That’s why the company refers to those who launch crowdfunding campaigns as “creators” and not “campaigners.”

Of course, you’ll still want to be concise and not overwhelm people with biographical details. Just remember: People are more likely to become enthusiastic about what you’re doing if they get a sense of your enthusiasm. So while you may be an introvert, do your best approximation of an extrovert while touting your business!

2) Research Past Kickstarter Campaigns Similar To Yours

Imagine that you’re trying to get a business loan from your bank. Now imagine that you could look at every loan application any business had ever submitted to your bank as well as whether each application was granted or rejected. This would be pretty valuable for you in terms of helping you tailor your loan application for success, wouldn’t it?

Thankfully, this is essentially what you can do on Kickstarter before launching your campaign. Kickstarter campaigns never get removed from the website, regardless of whether they succeed or fail. With over 480,000 campaigns launched on Kickstarter to date, you have ample opportunity to study the ghosts of campaigns past. All this raw data is just sitting there waiting for you to examine and draw lessons from. Pay particular attention to old campaigns for business projects similar to yours. Look for patterns. Compare and contrast the campaigns that succeeded vs. those that never really got off the ground.

3) Come Up With A Good Business Plan For Your Kickstarter Campaign

Achieving your business goals requires a good business plan. Why would achieving your Kickstarter goals be any different?

You’ll want to research what elements are needed in a business plan for Kickstarter. To that end, Kickstarter has posted a creator handbook that contains helpful information for creators about telling your story, promoting your campaign, fulfilling your commitments to your backers (complete with a list of services that can help your fulfillment process), and more. Read through this handbook but also seek out feedback from successful campaigners — look for interviews and podcasts featuring them, and if you can secure a private chat, you should do so.

4) Record A Professional Video & Post It

Kickstarter once posted an article about making promotional videos in which the company stated that featuring a promotional video in your crowdfunding project increases your likelihood of success from 30% to 50%. The article was posted several years ago, so the stats may be out of date, but it touches on an undeniable truth: The better your presentation is, the more likely it is that your Kickstarter campaign will reach its funding goal.

Your instinct may not be to invest precious time and resources into the production of a slick video. You might prefer investing those resources in your actual business project. Just remember that thousands of other Kickstarter creators have great business ideas too. Effective promotion helps determine which of these ideas get heard (and funded) and which don’t. A professionally-produced video can help you cut through the noise and draw attention to your campaign, so don’t be shy — put out the best video you possibly can.

You should also take care to ensure that your campaign design choices, including your logo, are top-notch as well. It may go against your instincts, but a professional sales pitch helps differentiate you from all the other worthy funding-hungry businesses on Kickstarter.

5) Recruit Backers From Your Network Prior To Launch

People who support crowdfunding campaigns generally don’t like to be the first to support a campaign. When people happen upon your campaign and see “$0 pledged,” it can be a deterrent to getting their backing, whereas if they see that your campaign already has some support, they may decide to join the bandwagon. That’s why you should mine your existing networks for backing before you officially kick off your Kickstarter campaign.

According to Kickstarter’s ever-helpful stats page, while just 37.63% of Kickstarter campaigns succeed, 78% of projects that raise more than 20% of their goal are ultimately successful, thus illustrating this bandwagon effect.

Don’t be afraid to go to your family and friends to line up commitments of support before your campaign goes live, then have them contribute once you launch your project. Try building an email list of potential backers from your personal and professional networks as well. Of course, if you have a significant social media following, do some prelaunch promotion of your campaign on your social media channels. Then, once your campaign goes live, notify everyone immediately.

Securing immediate funding is key to attracting subsequent funding from those who aren’t already familiar with you and your business. Success breeds success, so line up those early commitments!

6) Use The Data In The Project Dashboard To Your Advantage

Kickstarter’sÂ Project Dashboard gives you access to a lot of helpful data, such as the domain source your backers (not just internet traffic in general, but your actual backers) are coming from, the number of pledges from that source, the amount pledged, and the percentage of your total amount raised from each domain. In terms of helping you focus your marketing efforts on the right places, this information is golden.

The Dashboard also gives you information on the popularity of your reward tiers, assuming you offer different levels of rewards to backers at varying levels of financial support. This should help you refine your reward tiers to better reflect what the data shows people want. Kickstarter’s Project Dashboard data is your friend!

7) Stay In Touch With Your Backers

The act of backing your project is an act of faith on the part of your backers. These folks are putting their trust in you to deliver on your promises. They generally realize that there’s no guarantee that you’ll be able to fulfill your commitments. That’s why it’s so important to show your backers the respect they deserve by keeping them updated on your progress. Be as open as possible — honesty is the best policy.

Try to monitor what’s being said about your campaign on social media. If people have concerns, respond to them and try to address their issues. Give people reassurance about taking the leap of faith necessary to place their trust in your campaign.

8) Don’t Be Afraid To Run An Ad Campaign

Yes, this is another point that touches on the marketing aspect of running a Kickstarter campaign. That’s how important the marketing side of crowdfunding is.

In the early days of Kickstarter, you may well have gotten away with not focusing on advertising. But as some observers have noted — not without a hint of bitterness — the backlinks directed towards successful Kickstarter campaigns often reveal a lot of traffic coming from Facebook or Google AdWords.

Don’t be squeamish about running an ad campaign. It’s simply what modern crowdfunding often requires. If you can afford it, you may want to hire a PR agency and/or an advertising agency to handle the promotional side of your campaign so that you can keep more of your focus on your business project.

9) Make Sure Your Funding Goal Is Realistic

Most entrepreneurs possess a healthy amount of self-confidence. If they didn’t believe in their ability to reach big goals, they would likely have found another line of work. However, if this is you, there are benefits to keeping your Kickstarter funding goal relatively modest.

It’s good to know just how much money you’ll need to accomplish your goals and cover your expenses, being mindful of Kickstarter’s 5% platform fee and the fees charged for payment processing. Don’t ask for more than is necessary. You’ll have better luck meeting a modest fundraising goal than a more ambitious one. As I said earlier, success breeds success, so a successful campaign can set the stage for more crowdfunding success in the future.

Additionally, with a modest funding goal, you’re more likely to have a campaign that blows well past what you set out to raise, which, in and of itself, can impress interested parties, perhaps including the media.

10) Don’t Go Overboard With The Reward Levels

Studies have consistently shown that when you offer people too many choices, they tend to feel overwhelmed, thus leading them to decide that making a choice isn’t worth the trouble.

Decide on rewards that are clearly presented and that appeal to your target audience. Offer entry-level rewards for small pledges to give the broadest possible array of potential backers the ability to feel like they’re a part of your project. Get them invested in your success. However, don’t offer an overabundance of rewards. In particular, don’t offer a plethora of similar rewards or variations on the same reward. It will prove to be counterproductive.

11) Don’t Try To Do Everything Yourself

When Kickstarter launched in 2009, it may have been possible to run every aspect of a successful campaign yourself. However, in 2020, you’re going to be competing with companies backed by angel investors and other deep-pocketed agencies. Hell, in some cases, their agencies have agencies.

Don’t spread yourself too thin — enlist help when you need it. Whether you have an agency to handle the marketing, business partners to help with your project, or your friend’s kid to take care of the social media outreach, Kickstarter campaigns are best approached as group projects.Â Remember, your project isn’t competing with a bunch of ragtag DIY folks. Your competitors are taking advantage of assistance any way they can get it. Don’t hesitate to do the same.

Report Back: How Did You Find Success Using Kickstarter For Your Business?

Crowdfunding has been a godsend to hundreds of thousands of businesses. Just remember that the playing field is not level and that you’ll be competing with projects backed by big crowdfunding agencies. That’s why it’s so vital that you use every tool at your disposal to meet your funding goal.

Have you been a part of a Kickstarter crowdfunding campaign? Does your experience with what works comport with our advice? Are there other things people should keep in mind to set themselves up for crowdfunding success? If so, please drop us a comment — we’d love to hear from you!

The post Raising Money For Your Small Business Through Kickstarter? Find Success With These 11 Tips appeared first on Merchant Maverick.

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March 25, 2020

The Business Owner’s Retail Guide To Surviving The Coronavirus

The retail industry is facing massive, unprecedented closures as the novel coronavirus spreads throughout the country and state and city governments announce “shelter in place” orders. In much of the United States, the only type of retail stores that remain open are superstores and “essential retail” stores that sell food, medicine, or other life-sustaining goods. While business is thriving for major retailers, such as Costco, Walmart, and Amazon, small retailers are bearing the full brunt of this crisis. In this article, we want to be informative about the effects on retail, but we won’t stop there — we will also give actionable steps to help your retail store survive and even stay profitable during the outbreak.

What Coronavirus Means For Retail

The retail sector has been particularly hard-hit by the COVID-19 pandemic, as much of the industry is deemed “nonessential” — though states have some leeway in how they define what is and what isn’t essential retail. In a growing number of states, residents have been advised to shelter in place and only leave the house to buy food or medicine. Even in regions without strict shelter-in-place orders, many governors and mayors have called for the closure of nonessential retail businesses. As COVID-19 cases continue to mount, most or all of the United States may soon be under such orders.

This grave situation requires the closure of a large portion of small retail businesses, though it is still possible to sell online. In fact, eCommerce sales are expected to surge in 2020Â as consumers stock up on essentials, such as food, healthcare items, cleaning products, household items, and even consumer electronics to stay entertained while at home.

Generally, the following types of stores are considered essential retail and can remain open for in-person sales:

Grocery stores
Liquor stores (depending on the state)
Healthcare supply stores
Marijuana dispensaries (depending on the state)
Convenience stores
Farmer’s markets
Superstores (Walmart, Target, Costco, etc.)
Gas stations
Drug stores/pharmacies
Hardware and home improvement stores
Office supply stores
Pet stores
Telecommunications stores
Auto parts stores

Pretty much all other types of retail stores are considered nonessential retail and have been forced to close in many states and cities. As follows are some examples of nonessential retail businesses (though this list is certainly not comprehensive):

Clothing and shoe stores
Hobby and craft stores
Furniture stores
Jewelry stores
Cosmetic stores
Book stores
Sporting goods stores
Malls

Of course, you’ll need to check with your local authorities to find out if your retail store must close or if it can remain open.

Demand Changes

Some retailers may find their goods in high demand, while others may be in less-popular industries and will have to get more creative about how they run their business. As mentioned, essential goods — soap, food, cleaning products, and, of course, toilet paper — are seeing record-high demand. Many nonessential retail goods, such as clothing and fashion, are expected to be harder hit.

Social Distancing

Social distancing is being mandated by a lot of states, so even if your store remains open (at least, for the time being), social distancing will affect foot traffic and people’s desire to go shopping. In some cases, stores are limiting how many people can enter the premises at the same time to allow for adequate social distancing.

Increase In Online Shopping & Deliveries

Because of social distancing, there has been an upsurge in online shopping and an increased need for curbside pickup or delivery options. Especially as Amazon Prime shipping times increase — Prime delivery times on some items are now as long as a month — this may result in higher demand for smaller retail businesses that offer online sales, as these businesses may be able to provide a level of service that big-box stores are unable to offer right now.

10 Tips To Keep Your Retail Business Strong During COVID-19

If your retail business can adapt to these strange new times, you have the potential to keep it going strong throughout this crisis.

Create An Online Store

If your retail store is strictly brick and mortar, now is a great time to add an online store. Plus, there are many easy eCommerce platforms out there to get a site up and running quickly. Retailers should also promote their online buying and shipping options for their store (if you’re still open), especially on social media and via email marketing. Learn more about how to start an online store by checking out the resources listed below.

Offer Personal Shoppers

There are a couple of ways your business can use personal shoppers to deliver products to customers without them having to enter your store. The first way is for your employees to act as personal shoppers for customers by taking their orders online or over the phone and personally delivering them. The second way is to use a third-party delivery service, such as Shipt or Instacart. Note that third-party delivery services may charge a fee and only deliver for certain industries.

Add Curbside Pickup

In addition to or instead of delivery services, it may make sense for your retail business to offer a curbside pickup option for those who don’t want to go out to shop. Customers order online, choose a “pick up in-store” option, and when they arrive at the store, an employee comes out and delivers the order. Some big-name retail stores that have implemented curbside pickup options include Target, DICK’s Sporting Goods, Books-a-Million, and DSW.

Create Subscription Boxes

Subscription boxes are a great way to supplement income and increase brand awareness. Mail may be one of the few ways people can still buy (nonessential) things in the near-term, and subscription boxes will likely become even more popular as consumers remain more or less stuck at home. Plus, subscriptions can help your business guarantee regular monthly income.

Appeal To Consumer Needs

As shoppers are encouraged to self-isolate and practice social distancing, think about what your business can offer during this difficult time. For example, art stores can provide drawing kits for kids home from school; gyms can provide online workout recordings; travel companies can offer discounts for planning 2021 vacations; landscaping business can build indoor garden starter kits; beauty stores can offer sample boxes or at-home spa kits.

Host Virtual Events

For retailers that have strong communities, consider hosting virtual events on Facebook or another online video platform. For example, board game stores can host virtual competitions; bookstores can create a weekly book club discussion (and customers can pay for that book to be shipped to them); cooking supply stores can offer weekly bakeoffs or demonstrations (and customers can buy kits with the tools and ingredients they’ll need).

Get Creative With Marketing

Even in these trying times, you can still market your business and the products and specials your retail business is offering. You can grab customers’ attention using email, text, and social media —Â while appealing to consumer needs and respecting social distancing guidelines. Read up on what other small and large brands are doing and start thinking about what you can offer that no one else is. Even if you’re brand-new to email marketing, now is a great time to start.

Communicate With Customers

Be clear with customers about your hours and how you’re handling the virus in general. Even if you have to close your business, it’s good to let people know, and if you are able to reopen your shop, make sure you tell customers about that too. Let your fans know if you’re offering curbside pickup, deliveries, subscription boxes, a percentage of your sales donated to a charity to fight COVID, or anything else. Again, you can use email marketing for this purpose.

Limit Expenses

In addition to trying to create sales, another huge part of successful cash flow management and managing a financially strong business is limiting unnecessary expenses. Sadly, this may mean cutting your payroll or closing locations. You might also consider reducing your interest costs by consolidating all of your outstanding debt into one low-interest loan and putting any new business expenses on a 0% APR credit card.

Don’t Be Afraid To Ask For Help

Some businesses might just need a helping hand to get through this rough patch instead of closing down altogether. A couple of examples of how you could obtain assistance include starting a business crowdfunding campaign or applying for an SBA Disaster Loan. Refer to the list below for resources on financial assistance and loans — many loans are 0% interest right now.

Keeping Your Employees & Customers Safe From Coronavirus

If your brick-and-mortar retail store is open in any capacity, you need to educate yourself and your employees about how coronavirus is spread. Then, you can provide helpful tips on how to keep the virus from spreading to employees and customers in a store environment.

Encourage Good Health & Hygiene

Educate your employees and enforce proper hygiene practices to ensure they follow the necessary health and safety protocols to prevent the spread of disease. This includes both cleaning and employee health practices. Specifically, make sure you are following the CDC’s Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019 (COVID-19).

Revisit Sick Leave Policies

Make sure you and your employees understand your store’s sick leave policy. Update the policy if needed and help employees feel stable in their income so that they can stay home if need be. To prepare for a probable increase in employee absences, you might consider cross-training employees so that your store can continue to operate even if key employees are not present. Again, you can find advice on employee sick leave policies in the CDC’s official COVID-19 guidance for businesses.

Have Clear Communication

People are understandably worried. Customers and employees want to know what you as a business owner are doing to keep them safe, so be sure to communicate clearly about the measures your business is taking and help ease those fears. You should help employees, in particular, feel safe and hopeful during this time, maybe consider giving your employees a way to give back or options to hold their job if they choose not to come to work right now.

Keep Calm & Sell On

This is a tough time for the retail industry, for America, and the world overall. Nevertheless, you will make it through this; we all will. By exercising patience, diligence, and ingenuity, retailers can keep their business safe, operational, and even profitable during these unprecedented — but temporary — times. Again, eCommerce will play an especially vital role for retailers in the age of social distancing and beyond. While brick-and-mortar retail will likely not disappear entirely, now is the perfect time to augment your online sales options.

Do you want to read more about how small businesses can manage during the coronavirus pandemic? Refer to our hub dedicated to this subject: Coronavirus (COVID-19).

The post The Business Owner’s Retail Guide To Surviving The Coronavirus appeared first on Merchant Maverick.

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March 2, 2020

How To Start A Subscription Box: 7 Steps To Launch A Thriving Business

So you want to start a subscription box company. I bet you’ve come here with questions, and if so, you’re in the right spot! We’ve got answers, inspiration, and plenty of resources ready for you to check out. Keep reading to discover how you to find niche subscription box ideas that will turn heads, how to keep your company running like a well-oiled machine, and how to reach more customers and expand your business once you launch. Let’s get going!

Step 1: You Need An Interesting Subscription Box Idea To Succeed

How will you find that amazing idea to dazzle your would-be subscribers? In part, the foundation of a successful subscription box company is that extra something that sets you apart. Interestingly, one of the most successful boxes in the last few years started with a regular old hygiene product we all probably purchase. I’m thinking about what the Dollar Shave Club did with a simple self-care item: the razor. Their campaign used visual textures, packaging, and smart, fun messaging to connect with potential subscribers. While they initially marketed to men, their brand has grown to target both men and women. The idea is that people sign up to save on a razor (something everyone needs anyway) and soon enough they’re adding non-essentials to their box as well. While you might have more of a whimsical idea than just a plain razor, this company shows that anything is possible with the right planning and execution.

There are a lot of exciting possibilities out there, so get a notepad out, grab a refreshing beverage, and let’s explore how to create a very successful subscription box business.

14 Subscription Box Business Ideas To Get You Started

The sky is the limit when it comes to curating a subscription box. It’s true that subscription boxes are becoming a competitive market, but that doesn’t mean you can’t reach a particular group with a new angle. As we saw with the Dollar Shave Club, sometimes it’s the simplest ideas that take off when coupled with a good message and imagery.

First, you’ll want to figure out your target audience and demographic and do the needed research on these folks. Will your box provide convenience, discovery, whimsy, and/or special interest? Here are some general ideas to help you narrow down the focus and come up with something unique for your subscribers:

Gourmet foods, exotic snacks, coffee, tea, candy, etc.
Pregnancy and baby
Arts and crafts
Gaming and “geek” interests
Fitness and health
Curated clothing and accessories
Educational
Self-care and pampering
Inspirational / encouraging
Romantic gift-giving
Beauty and grooming
Kids’ toys
Pet care and toy
Home (plants, cleaning, candles, art)

If you are feeling inspired, keeping brainstorming those ideas and write them down — you’ll need them for the research and discovery steps coming up. Keep reading to find out what you need to know to expand your business or start a brand-new business based on the subscription box model.

Step 2: Before You Start Planning In Earnest, Make A Business Plan

A business plan acts as a blueprint for success. It keeps you on track, aligns your goals, and helps you cover the basics. You’ll also need a business plan should you seek out funding or investors for your subscription box endeavor. The most important person this business plan serves is you, however.

Of course, you’ll need to do some more preliminary research and get your ducks in a row before creating your plan, but it certainly does not have to be complicated. We suggest starting with a lean business plan, which is a one-page document that follows this basic structure:

Business overview
Objectives
Experience
Target market
Your competition
Financial summary
Marketing strategy

If you need a little more direction, check out our post, The How-To For One Page Business Plans

Research The Competition & Check Out Other Subscription Box Companies

As a part of your business plan, you’ll want to research the competition. The best way to start that is via a Google search. Go through the first few pages and click through the businesses there. The most important thing you can learn here is the average price point. You also can find product ideas there, but it’s more useful to identify what’s not in those boxes so that you can provide a unique angle.

Step 3: Consider How To Fund Your Subscription Box Business

There are several ways to go about funding expenses. You’ll need to consider a few things to help you assess what exactly you’ll need here.

Will you be paying the full price for some or all items?
Can you source wholesale to save costs?
Can you approach local artists or specialty shops for unique and specially priced inclusions?
Can you reach out to pitch suppliers for special pricing or free samples (more on this later)?

You can certainly do a combination of the above list. But whatever you decide, you’ll need to cover initial costs in marketing, setup, shipping, and inventory. Once you have an idea of what’s going in the box and your costs to fill it, then you can consider how you’ll go about funding the business.

Here are some options to consider:

Borrow money with a startup loan.
Use funds from advanced orders from subscribers.
Utilize a business credit card.

Another approach is to start small and limit quantities initially so you can cover your own costs. By doing this you can reduce your financial risk, not to mention create some urgency in the sale thanks to limited inventory.

Should You Crowdfund Your Subscription Box?

You could think about crowdfunding your fledgling business idea. Crowdfunding certainly has its advantages, along with some unique challenges. For one, you’ll need to devote marketing dollars to outreach and exposure for your campaign. And with that, you’ll need to lead with a great story to stand out and get attention. The best part of all this strategy, however, is that if you get your backers to support your start-up costs, you can reduce your debt and gain supporters while you’re at it. This strategy would likely be best for unique, cause-related, and highly niche ideas, as you’ll have the most potential for excitement from your backers.

There are several types of crowdfunding and (even more platforms to choose from), but rewards-based crowdfunding is likely the most appropriate choice for your subscription box business. Interested in exploring this option for your business? For more ideas and information on crowdfunding, check out Crowdfunding for Startups: 8 Tips For Launching.

Step 4: Seek Out A Supplier For Your Subscription Box Service

You’ve got a few options on how you’ll actually fill your box. You could choose to purchase directly from a wholesale company, pay full-price, or use a combination of both. For some or all of your products, initiating a long-term relationship with a supplier becomes the smartest option.

You can start finding some amazing things for your subscription box by networking and establishing good relationships with vendors, suppliers, or artists. Those of you who focus on unique or one-of-a-kind items will particularly need to get relationships going with specialty shops, sellers at trade shows, local artists, and crafters. Etsy can be a wonderful source for contacting niche and specialty item sellers in all kinds of categories — not just handmade items. Many sellers would be more than happy to supply samples or a discount, and some may even be open to sharing in exchange for exposure.

If you end up creating a full website for yourself (more on that coming up), make it easy for vendors to get in touch with you through a dedicated page and instructions for how to submit a request. While you may not be fielding a lot of inquiries when you launch, get it set up so you’re ready to respond to those requests when they start pouring in.

Why You Need To Perfect Your Pitch Before You Talk To Suppliers

We recommend creating your one-page business plan (discussed in Step 2) before approaching suppliers. If you already have an email list or social following, lead with these resources; suppliers will be more than happy to work with you if additional exposure to their product is in the mix. Whether you’re asking for sample sizes or a discount, remember that transparency, a good plan, and confidence in your approach will go a long way in your pitch.

Step 5: Build Your Web Presence & Customer Service Channels

You can approach selling your subscription boxes online a few different ways:

Hire a firm or freelancer to build a fully custom site.
Integrate a shopping cart with an existing site.
Choose an eCommerce platform including a site builder with website templates and a payment gateway all in one (e.g. Shopify, Read our review).
Sell via social channels only with a Facebook Store or Instagram Shoppable posts.

If the website part makes you a bit nervous, I have some good news for you. It really has never been easier to sell online — with little to no experience or technical expertise — by going with a website builder. Some platforms even offer all-in-one solutions with payments (including recurring billing), website templates, and a plethora of integrations for easier shipping and tracking built right in, too!

Where To Find eCommerce-Friendly Website Builders

Because they are both feature-rich, easy to use, and provide a lot of room to scale, we recommend Shopify and Square to business owners who are starting from the ground up with little to no tech expertise. And for those that do have coding expertise, you’ll have customization tools at your disposal, too! What makes me most excited about Shopify is that it enables multi-channel selling across platforms, including Facebook stores, Facebook Messenger, Instagram, and Amazon. With these options, you can take advantage of more opportunities for growth while meeting potential customers where they’re hanging out anyway. And what I love is that everything including your inventory and reporting is all synced no matter where you sell!

Whether you’re looking for just a shopping cart integration or a full all-in-one platform, I recommend checking out The Best eCommerce Platforms For Your Small Business as you can compare options side-by-side and get a lot more information regarding what to look for to match what you need.

I will leave one final thought in regards to eCommerce website builders â take advantage of any trial periods or demos to give yourself time to play around and explore your possibilities.

Why Your Choice Of Payment Processor Matters

Your payment processor is how you’ll actually accept payments, so this is an important business consideration. If you’re a fledgling entrepreneur, you’ll likely find yourself below the monthly volume of what many traditional payment processors serve.

Third-party processors like Square, PayPal, and Stripe (the backend processor of Shopify) make it possible for smaller businesses to start taking payments, and they provide an exhaustive set of (oftentimes free) tools to help you manage your business. ThisÂ convenience comes at a cost however: an increased risk of account freezes if you have an uptick in chargebacks or your account is considered higher risk.

Regardless of what type of merchant account you go with, however, you will have this risk, unfortunately. That’s why we recommend arming yourself with knowledge. Check out How To Keep Your Payment Processor From Holding Funds Or Terminating Your Account.

So what should you look for in a merchant account? Here is what you can keep in mind as you research companies:

Product Features: What comes with the account? Are there any beneficial add-on services like email marketing? Reporting tools?
Recurrent Billing: Allowing your customers to save and automatically be charged is a must!
ACH: Automatic bank transfers can lower your processing costs, and it’s another payment method to offer your customers.
Forms of Payment: Some payment flows like Shopify Payments let you easily add PayPal and digital wallets to your checkout.
Card Automatic Updating: This feature can prevent billing issues and ensures you don’t have to chase someone down for updating billing information if their card expires or gets replaced.
Check The Contract: Always read your contract! We recommend merchants avoid long-term contracts as they are often also laced with lots of fees.
Customer Service: It’s important to get the help you need when you need it. Companies that have several active customer service channels and generous customer service hours are a must for the eCommerce subscription box business.

Check out some of our top picks in payment gateways for online payment processing in our post The Best Payment Gateways For Online Payment Processing.

Solving The Customer Service Question

The customer service issue can also happily be solved with the right eCommerce platform, too. For instance, many web builders, like Wix, for instance, now include chatbots that allow you to communicate in real-time to field any incoming questions. Some companies direct their customers to send any order issues or inquiries via Facebook Messenger.Â If you’ve linked a Facebook business account with Shopify, for example, you can take advantage of order tracking as well. Of course, there are always reliable phone and email options. Whatever you decide, make it clear how your customers can contact you, along with the expected response time.

Regardless of customer service channels you ultimately choose, we suggest making it easy for your subscribers to alter their box or skip a month. Enabling them to easily skip a month may feel like losing a sale, but you’ll likely retain them for longer (and keep them less frustrated).

Step 6: Build A Marketing Plan To Draw In Customers

Getting a marketing plan down on paper is an absolute must, but it doesn’t have to be as overwhelming as it sounds. The subscription box biz is a bit competitive at the moment, and that’s where being savvy and making the most of the opportunities you already have can go a long way.

Social Media Marketing For Your Subscription Box

Social media can work wonders to establish your brand and get people excited. Follow the strategies below:

Start Posting Regularly: If you already have followers on social, you’re at an advantage, but if you don’t, consider building your following by posting regular content, tagging larger accounts, and networking.
Test A Paid Social Ad: If you’re up to it, I recommend testing a sponsored post or two to get people excited during your pre-launch focus and beyond. Facebook advertising is a very cheap way ($20-30 bucks) to get in front of potentially thousands of people, and your ad will go to Instagram automatically, too. It’s also easy to target your campaign (even down to niche interests).
Excite With a Giveaway: A giveaway is a tried-and-true method of increasing your footprint with every post! Ask your followers to tag friends, share, and direct them to your site to sign up with an email. You increase your reach exponentially while building an email list of people who are interested in you. It’s a win-win.
Tap Into Influencer Marketing: Whether you have a lot of followers or not, an inexpensive way to boost your brand is through influencer marketing. By offering your box to an established YouTube personality in exchange for a shout-out or review on their page, you can reach potentially thousands with your brand name. Influencers will likely be happy about to devote some screen-time to your sub box, as it’s not always easy coming up with fresh content.

Email Marketing For Your Subscription Box

If you already have an established business or a robust email list, email marketing is a great way to promote your subscription box service. Email is still one of the cheapest and easiest ways to advertise new products and services. I love that Square offers this as an add-on service for only $15/month and includes analytics, templates, and targeting.

Don’t have a list? Consider reaching out to another local business and paying a small fee for a shout-out in their next newsletter. Make sure you create an email form on your site to make it easy for people to show their interest in your box. You could even use a credit card number to reserve a spot for a limited quantity of boxes before you’ve even launched! Fanning the flames of FOMO (fear of missing out) is never a bad idea in marketing.

To get the most bang for your buck when it comes to emails, check out How To Create A Successful Email Marketing Strategy (all skill levels).

Step 7: Create A Strategy For Headache-Free Shipping & Fulfillment

There are two major pathways to take with shipping and fulfillment: doing it yourself or outsourcing fulfillment. Of course, the size of your operation and your budget are factors, as well as logistical and space considerations.

Creating a strategy that gets your boxes out on time is key, but you are probably looking for the lowest possible overhead and tools that can help you save time. There are a plethora of integrations that work with Shopify and other eCommerce platforms to make it easy to print labels and ship from your home.

When it comes to costs, your shipping fees can vary widely depending on what’s in your box, size, and materials you need. In your planning stages, do research on which carriers are most economical and if it’s best to use multiple carriers. Most importantly, when it comes to packing up your goodies and shipping out your subscription box, keeping everything protected and beautiful (not to mention eco-friendly) goes a long way in customer retention. The truth is that when you’re starting out, you’re building your reputation one box at a time.

Thankfully, we have a library of comprehensive and easy-to-digest resources to help you find the right solutions and make the best choices for your business. For answers to questions about shipping and fulfillment, check out our posts, 8 Hacks For Saving On Shipping CostsÂ and Learn To Delegate: What It Means To Outsource Your eCommerce Fulfillment.

5 Tips To Keep Your Subscription Box Business Growing

Create Referral Campaigns:Â Make the time-tested and powerful technique of word-of-mouth advertising work for you through a referral campaign. All you need to do is incentivize current subscribers to refer your box to their friends and family. Whether that’s through a bonus box or a few extra treats in their next shipment, those who successfully recruit friends and family to your brand deserve some celebration!
Stellar Customer Service:Â Nothing creates a solid reputation better than stellar customer service. To be the best, it’s not just about answering inquiries or solving problems, it’s about being proactive and listening to your current customers. Send them an email and ask them how they like their box, make amends right away for any issues (even if they weren’t your fault), and generally bring a “service with a smile” approach. Turning a customer into a brand ambassador is the ultimate sign of customer loyalty, and providing excellent care is how you’ll accomplish it.
Check Your Reports & Recognize Trends: Whatever eCommerce platform you go with, take advantage of any and all reporting and insights. Is there a certain geographical area that stands out? A peak time of year for sales growth? What is your “deadzone” in terms of new signups? Knowing the answers to these questions can help you target marketing and encourage growth through marketing when you need it most.
Identify Opportunities & Always Be Closing:Â Knowing what your customers love most about your boxes and looking at your sales reports gives you key insights into what items to purchase for upcoming boxes and new opportunities for growth. Once you have established customers, consider offering related or additional products that you know they’ll get excited about (because you’ve done your research). Remember Dollar Shave Club’s expansion from just the humble razor to a full line of personal care products? You want that potential growth for your business, too! Whether that’s through expanding into a new niche, identifying a new under-served market, or just boosting your sales with your current subscribers, always be closing!
Understand Cash Flow & Plan Ahead:Â Absolutely essential for any small business, including your subscription box company, is knowing your cash flow. You’ll need to figure out your cash flow so that you can make better decisions about your finances. To do this, you must understand how to create a cash flow statement, which breaks down your operating cash flow, cash flow of investments, financial activities, and net cash flow. We make this easier to understand and show you what tools can help in our post, How To Calculate & Analyze Business Cash Flow.Â

Are You Ready To Launch Your Subscription Box Company?

Launching a successful subscription box service requires some smart legwork, including researching your potential customers, curating irresistible products, buzz-building advertising, and structuring a plan of action. With the right eCommerce tools and a well-thought-out business plan, you can whittle down what feels like a giant, overwhelming project into something that’s more manageable.

For more startup resources, check out Small Business Startup Loans: Your 8 Best Options and The Beginner’s Guide To Starting An Online Store.

The post How To Start A Subscription Box: 7 Steps To Launch A Thriving Business appeared first on Merchant Maverick.

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February 25, 2020

The 7 Best Business Credit Cards For Your Nonprofit Organization

From purchasing office supplies to taking staff out for dinner or traveling to events, nonprofit organizations have plenty of reasons to sign up for a credit card. And, because a nonprofit is technically a business, it may make sense to apply for a business-specific credit card. Consumer cards can work, if you use them correctly, but business credit cards usually offer rewards and benefits that better suit professional organizations.

There are also credit cards out there designed specifically for nonprofits. Depending on your location and your organization’s situation, you may find that one of these credit cards will actually work better for you than a business-centric card.

Curious to find out what’s out there in the world of credit cards for nonprofits? Take a peek below to find out which business credit card might work best for your nonprofit organization.

Best Credit Cards Designed For Nonprofits

While they may not be the most common type of credit cards, cards built for nonprofits do exist. The most notable thing about these cards is that they require no personal guarantee from applicants. This means that the card issuers won’t look into the personal credit history of individuals listed on the application; instead, they’ll simply consider the organization’s financial records. Let’s take a deeper look at a few credit cards designed from the get-go for nonprofits:

Charity Charge Nonprofit Business Card

Charity Charge is an issuer dedicated to helping nonprofits thrive. Besides its nonprofit business credit card, Charity Charge offers other cards that automatically donate cash back to a nonprofit of the user’s choice.

This co-branded Mastercard, meanwhile, was designed from the ground up for nonprofits to spend with. First appearing in the summer of 2019, the Charity Charge Nonprofit Business Card could make a solid option for your organization. There simply aren’t many credit cards dedicated to working for nonprofits — and certainly none of the others come from a company built around giving back to such organizations.

Besides requiring no personal guarantor, this card will generate 1% cash back on all of your purchases as an automatic rebate to your monthly statement. Going beyond rewards, Charity Charge promises online expense reporting and card management, dedicated customer service, and fraud protection. Charity Charge also markets this card to schools and associations.

U.S. Bank Community Card

In partnership with Mastercard, U.S. Bank offers its community card for nonprofit organizations. With this card, you’ll be able to apply without needing a personal guarantee. U.S. Bank also offers an online tool to analyze your organization’s spending. Plus, employees can get their own cards for free.

When it comes to rewards, you have two options. You can either pay $99 per year and gain access to 1% cash back on all purchases. Or you can choose to pay no annual fee — but you also eschew rewards. It’s also worth noting that going the annual fee route opens up the possibility to earn points for taking credit card payments and making purchases with U.S. Bank’s Encore Relationship Rewards program.

Unfortunately, you’ll need to live near a U.S. Bank location because you must apply in person for this credit card. While the bank operates in over half the states in the U.S., if you don’t live in Ohio or further west, there probably isn’t a U.S. Bank near you.

Visa CommUNITY Card

Introduced by Visa several years ago, the Visa CommUNITY Card is available at local banks and community credit unions throughout the country.

Because this card is issued through various banks, the exact terms may vary from location to location. You’ll generally be able to earn rewards for this card (usually either 1% cash back or 1 point per $1 spent) and the annual fee is low ($99 per year) or nonexistent. You’ll also be able to access high credit lines. Like the above two cards, no personal guarantee should be required when applying.

You’ll likely need to apply in person for a Visa CommUNITY Card. Several banks and credit unions issue this card, so you might be able to find a location near you. Issuers include:

Bangor Savings Bank (Maine and New Hampshire)
bankHometown (Massachusetts)
Beacon Credit Union (Indiana)
First County Bank (Connecticut)
Fulton Bank (Delaware, Maryland, New Jersey, Pennsylvania, and Virginia)
PCSB Bank (New York)
Shelby State Bank (Michigan)
South State Bank (Georgia, North Carolina, South Carolina, and Virginia)
Sunrise Banks (Minnesota)
United Community Bank (Georgia, North Carolina, South Carolina, and Tennessee)

There are also a number of other banks that offer a Visa CommUNITY Card, so be sure to call around locally if none of the above financial institutions are near you.

Best Business Credit Cards For Nonprofits

Unfortunately, it’s pretty slim pickings when it comes to credit cards designed specifically with nonprofits in mind. Because of this, you may find it better to apply for a business credit card that offers a set of rewards, benefits, interest rates, etc. that best suit your organization. Here are a few of our favorite business credit card picks for nonprofits:

Best For No annual fee

SparkÂ® Cash Select From Capital OneÂ® Compare	Annual Fee: $0 Â Purchase APR: 14.49%-22.49% (variable)
Required Credit: Excellent Welcome Offer: $200 cash back if you spend $3,000 in the first 3 months after opening your account Intro Purchase APR: 0% APR for 9 months Intro Balance Transfer APR: N/A Foreign Transaction Fee: 0% Rewards: Unlimited 1.5% cash back Featured Benefit: Zero fraud liability if your card is lost or stolen. Plus, get automatic fraud alerts via text, email, or phone call. More card details (click to expand) Hide

SparkÂ® Cash Select From Capital OneÂ®

Compare

Annual Fee:

Purchase APR:

14.49%-22.49% (variable)

Required Credit: Excellent

Welcome Offer: $200 cash back if you spend $3,000 in the first 3 months after opening your account

Intro Purchase APR: 0% APR for 9 months

Intro Balance Transfer APR: N/A

Foreign Transaction Fee: 0%

Rewards:

Unlimited 1.5% cash back

Featured Benefit:

Zero fraud liability if your card is lost or stolen. Plus, get automatic fraud alerts via text, email, or phone call.

More card details (click to expand)

Hide

No one likes an annual fee. While paying a yearly charge is often a requirement of some higher-tier credit cards, there are a few solid options without one. SparkÂ® Cash Select from Capital OneÂ® is one such option.

The Spark Cash Select card features a strong 1.5% cash back on all purchases. What’s most impressive about that rewards rate is that there’s no cap on how much you can earn. You’ll also be able to take advantage of a 0% introductory APR rate for your first nine months, free employee cards, and a welcome offer worth $200. The card also includes other standard credit card perks like extended warranty and fraud protection.

Best 0% APR introductory period

Blue Business Cashâ¢ Card from American Express Compare	Annual Fee: $0 Â Purchase APR: 14.74% – 20.74% (variable)
Required Credit: Good Welcome Offer: None Intro Purchase APR: 0% APR for 12 months Intro Balance Transfer APR: 0% APR for 12 months Foreign Transaction Fee: 2.7% Rewards: 2% cash back on all eligible purchases on up to $50,000 per calendar year, then 1% Featured Benefit: Spend beyond your credit limit with Expanded Buying Power (Just remember, the amount you can spend above your credit limit is not unlimited. It adjusts with your use of the Card, your payment history, credit record, financial resources known to us and other factors.) More card details (click to expand) Hide

Blue Business Cashâ¢ Card from American Express

Compare

Annual Fee:

Purchase APR:

14.74% – 20.74% (variable)

Required Credit: Good

Welcome Offer: None

Intro Purchase APR: 0% APR for 12 months

Intro Balance Transfer APR: 0% APR for 12 months

Foreign Transaction Fee: 2.7%

Rewards:

2% cash back on all eligible purchases on up to $50,000 per calendar year, then 1%

Featured Benefit:

Spend beyond your credit limit with Expanded Buying Power (Just remember, the amount you can spend above your credit limit is not unlimited. It adjusts with your use of the Card, your payment history, credit record, financial resources known to us and other factors.)

More card details (click to expand)

Hide

If you know you’ll be carrying a balance right off the bat, going with a credit card that has an introductory rate period could be a great possibility. When a card has an intro rate period you won’t have to pay interest until the period is up. The Blue Business Cashâ¢ Card from American Express has one of the longest intro rate periods for business credit cards at 0% APR for the first 12 months.

Outside the 0% intro rate, you’ll be able to nab 2% cash back on the first $50,000 you spend every calendar year (the cash back rate drops to 1% after passing the $50,000 threshold). There’s also no annual fee and Amex allows you to spend above your credit limit. Otherwise, standard credit card features come along for the ride, such as extended warranty and purchase protection.

Best For Travel

Chase Ink Business Preferredâ Compare	Annual Fee: $95 Â Purchase APR: 17.49% â 22.49% (variable)
Required Credit: Excellent Welcome Offer: 80,000 points if you spend at least $5,000 within the first three months of opening your account Intro Purchase APR: N/A Intro Balance Transfer APR: N/A Foreign Transaction Fee: None Rewards: 3 points per $1 spent on the first $150,000 in combined purchases on travel, shipping purchases, internet/cable/phone services, and advertising purchases made with social media and search engines each account anniversary year 1 point per $1 on all other purchases Featured Benefit: Points are worth 25% more if redeemed for travel via Chase Ultimate Rewards More card details (click to expand) Hide

Chase Ink Business Preferredâ

Compare

Annual Fee:

$95

Purchase APR:

17.49% â 22.49% (variable)

Required Credit: Excellent

Welcome Offer: 80,000 points if you spend at least $5,000 within the first three months of opening your account

Intro Purchase APR: N/A

Intro Balance Transfer APR: N/A

Foreign Transaction Fee: None

Rewards:

3 points per $1 spent on the first $150,000 in combined purchases on travel, shipping purchases, internet/cable/phone services, and advertising purchases made with social media and search engines each account anniversary year
1 point per $1 on all other purchases

Featured Benefit:

Points are worth 25% more if redeemed for travel via Chase Ultimate Rewards

More card details (click to expand)

Hide

Should your organization require frequent travel, finding a credit card with travel rewards and perks may be wise. One of the most well-rounded travel cards on the market is Chase Ink Business Preferredâ .

This card has a nifty rewards scheme — you’ll net 3 points per dollar spent on travel, shipping, internet/phone/cable services, and advertising. You can then redeem those points for 25% more when booking travel through Chase’s own online portal or you can transfer them on a 1:1 basis to an array of travel partners. In terms of perks, Ink Business Preferred promises trip insurance, extended warranty, and cell phone protection.

Best For Low Credit Users

SparkÂ® Classic from Capital OneÂ® Compare	Annual Fee: $0 Â Purchase APR: 24.49% (variable)
Required Credit: Fair Welcome Offer: None Intro Purchase APR: N/A Intro Balance Transfer APR: N/A Foreign Transaction Fee: None Rewards: Unlimited 1% cash back Featured Benefit: Zero fraud liability if your card is lost or stolen. Plus, get automatic fraud alerts via text, email, or phone call. More card details (click to expand) Hide

SparkÂ® Classic from Capital OneÂ®

Compare

Annual Fee:

Purchase APR:

24.49% (variable)

Required Credit: Fair

Welcome Offer: None

Intro Purchase APR: N/A

Intro Balance Transfer APR: N/A

Foreign Transaction Fee: None

Rewards:

Unlimited 1% cash back

Featured Benefit:

Zero fraud liability if your card is lost or stolen. Plus, get automatic fraud alerts via text, email, or phone call.

More card details (click to expand)

Hide

If you or your organization lacks a strong credit history — or doesn’t have one at all — the SparkÂ® Classic Card from Capital OneÂ® might work best for you. Designed for credit-building users, this card can help you strengthen your credit — allowing you to eventually graduate to a better credit card down the line.

Even though Spark Classic was constructed for those with weaker credit, it still comes with some decent perks. Its 1% cash back will see you earning rewards at a nice clip. Beyond that, the card comes with other standard benefits like free employee cards, no foreign transaction fee, and extended warranty.

Didnât Find What Youâre Looking For? Check Out Our Other Resources For Nonprofit Organizations

If a credit card isn’t the next step for your organization, Merchant Maverick has a few more tools that can lend a hand. In case you’re curious about the difficulties nonprofits face when it comes to financing, check out our guide to loans for nonprofits. Organizations in need of a grant may find our in-depth article on grants helpful. Or, if you’d like to try raising funds with a more modern approach, read up on crowdfunding for nonprofits.

The post The 7 Best Business Credit Cards For Your Nonprofit Organization appeared first on Merchant Maverick.

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November 19, 2019

The Step-By-Step Guide To Registering Your 501(c)(3) Nonprofit Organization

Nonprofit organizations are responsible for doing so many amazing things, from combatting hunger and homelessness, to helping sick children and animals. But no one said saving the world was easy. While there are multiple steps to registering a business, you have to jump through even more hoops if you want to register a nonprofit business. Still, officially registering as a nonprofit is important because it legitimizes your organization and provides it with some distinct advantages. In particular, nonprofits registered as 501(c)(3) organizations have a tax-exempt status, which means they do not have to pay federal or state income tax.

Whether you want to start a nonprofit or have already begun your nonprofit, it’s important to make sure your organization is properly registered, compliant, and set up for success. Read on for an actionable, step-by-step guide to help you make your nonprofit official.

Why Register As A Nonprofit?

It is possible to informally operate as a nonprofit organization without officially registering as a nonprofit. However, until you make it official, you are basically turning away free money, as well as other benefits.

Here are the main reasons to register your nonprofit:

Legal Protections: Nonprofit corporations have limited liability protection, which protects directors and members from being held personally responsible for the organization’s debts or liabilities. The nonprofit is considered a separate entity that can enter into contracts, sue or be sued, take out business loans, etc., without anyone who works for the nonprofit being held personally liable.
Tax Benefits: Once you have your federal and state tax-exempt status, your organization will be exempt from paying income tax. There are also tax benefits for donors, who can deduct donations made to 501(c)(3) organizations on their taxes.
Access To Grants: Many business grants are only available to organizations registered as nonprofits.
Access To Discounts: With proof of your nonprofit status, your organization is eligible for various discounts, such as USPS nonprofit discounts and credit card processing discounts for nonprofits.
Crowdfunding Eligibility: 501(c)(3) status lets you raise money through certain nonprofit crowdfunding platforms, such as CrowdRise. Some crowdfunding platforms will also eliminate platform fees for registered nonprofit entities.
Credibility: An official nonprofit status lets people know your organization is legit and not just a bunch of yahoos or even scammers. Obtaining your nonprofit status is likely to attract more donors and larger donations.

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The 8 Steps You Need To Take To Get Started

The process to execute some of these steps varies somewhat from state to state. For example, in some states, you will need to apply for both federal and state tax-exempt status. But wherever you live, you will need to follow all of the below 8 steps.

1. Select A Name

Though you may have a working name for your organization, to make your nonprofit official, you will have to make sure that name is available and hasn’t already been trademarked. After you choose your name, check with your Secretary of State office as well as the U.S. Department of Commerce website to ensure that it is available. You can normally pay a nominal fee to reserve your name until you file your articles of incorporation.

2. Form Your Board Of Directors

Generally, you should form your board of directors before incorporating. Some, but not all states require that you list your board members’ names in the incorporation documents. You’ll also need to list at least three directors when you file for your 501(c)(3) tax-exempt status. These members should ideally be unrelated (by blood or marriage).Â Â

3. File Articles Of Incorporation

This is the documentation that forms an official corporation for your nonprofit and will be filed with your secretary of state. It includes information such as your organization’s name, location, board of directors, and purpose (what your nonprofit is being created to do/provide). Although incorporating your nonprofit does not make it tax-exempt, you will need to include certain language in the articles of incorporation for when you apply for tax-exempt status later—your state’s nonprofit formation packet should include the required information.

Some states also require you to publish a notice of incorporation with your local newspaper.

4. Write Bylaws

After your articles of incorporation have been approved, you can write your bylaws. These are your nonprofit’s internal rules and guidelines for procedures such as holding issues, voting, and electing officers. You will need to include a copy of your bylaws in your 501(c)(3) application.

5. Hold First Board Meeting

At your first board meeting, you will make your articles of incorporation part of the official record, adopt your bylaws, and elect officers. Someone will need to take minutes, which you will keep on file. It’s recommended that you hold this initial board meeting before you file for federal tax-exempt status. In a later meeting, you can record the receipt of federal and state tax exemptions.

6. File For EIN

The final thing you need to do before filing for your 501(c)(3) status is to apply for an Employer Identification Number (EIN). You need to do this even if you don’t have employees yet, as it is required by the IRS to obtain your tax-exempt status. The IRS uses your EIN to track your organization’s financial activities. You’ll also need an EIN later on when you open a business bank account and hire employees.

To obtain an EIN, file Form SS-4 with the IRS.

7. File For Tax-Exempt Status

After you have your directors, incorporated status, bylaws, and EIN, it’s finally time to file for your federal tax-exempt status with the IRS. For nonprofits in most states, you only need to do this at the federal level, but some states require you to file for tax-exempt status at the state level too. For example, nonprofits in California must also apply for tax exemption with the California Franchise Tax Board after obtaining tax-exempt status from the IRS.

To apply for your federal tax-exempt status under section 501(c)(3)Â of the Internal RevenueÂ Code, you will need to file Form 1023Â with the IRS. If your organization has gross receipts of less than $50K and less than $250K in assets, you can file the 3-page 1023-EZ application (vs. the 26-page standard 1023).

Some information you’ll need to include in your 1023 application:

Your budget, including any balance sheets or other financial information
The names of your directors
Copy of your articles of incorporation
Copy of your bylaws
Dissolution clause (usually included in articles of incorporation or bylaws)
Conflict of interest clause (usually included in articles of incorporation or bylaws)
Statement of exempt purpose (usually included in articles of incorporation or bylaws)

In order to ensure that your application meets all state and federal requirements, it’s a good idea to consult with a lawyer or someone familiar with tax-exempt law. Including attachments, a 501(c)(3) application package can easily exceed 50 pages.

Note that even after your organization receives its letter of determination from the IRS with its tax-exempt status, each year you will have to submit Form 990 in order to maintain your 501(c)(3) status. This document provides financial information about your organization to both the IRS and to the public.

8. Obtain Business Licenses & Permits

Once you have your tax-exempt status, you’re almost ready to start raising funds. But first, you’ll need to make sure you’re in compliance with all business licenses and permits applicable to your state and your organization’s activities. For example, you may need a sales permit or a zoning permit. Check with your local department of consumer affairs to find out what kind of licenses and permits you need to operate as a charitable organization in your particular state. Some cities may require a city business permit as well.

Registering As A Nonprofit: FAQs

How long does it take to register a nonprofit?

The IRS estimates it will take 100 hours to fill out Form 1023. The application process typically takes between 3-6 months, though it could take as long as a year, depending on whether the IRS has follow-up questions and how quickly you provide the answers.

How much does registering a nonprofit cost?

To file for 501(c)(3) status, you will pay either $600 to file Form 1023, or $275 to file Form 1023-EZ.

The costs of incorporating and obtaining the necessary permits to operate as a nonprofit vary from state to state; however, they usually do not exceed $100-$200.

Is the registration process different in each state?

Yes, somewhat. Check with your state to see if you need to complete any extra steps, such as publishing your nonprofit’s articles of incorporation or filing for state-level tax exemption.

Can any organization register as a nonprofit?

No. Your organization must meet the IRS’s definition of a public charity (the most common type of 501(c)(3) organization), private foundation, or private operating foundation. Be sure to read up on the IRS’ exemption requirements for 501(c)(3) organizations before you apply.

Can I register my business as a nonprofit to dodge taxes or get rich?

No. The IRS has strict regulations in place to make sure that businesses cannot use misuse their 501(c)(3) status for personal gain or to avoid paying taxes. All of your organization’s financial information, including salaries and use of income, will be closely and regularly scrutinized to look out for possible fraud and conflicts of interest. For example, if your nonprofit brings in $500K a year, you will not be able to get away with paying yourself a $200K salary.

Should I hire a lawyer to help with the registration process?

Yes, it is a good idea for first-timers to consult with a legal professional at some point to ensure compliance with all state and federal requirements, particularly when filling out the incorporation paperwork and when preparing the 501(c)(3) forms.

Final Thoughts

Whether they benefit schools, the environment, public safety, or another cause, nonprofit organizations do a lot of good in this world. But if a nonprofit is not officially registered, then it can only make a limited impact. When a charitable organization is incorporated as a nonprofit corporation and obtains a 501(c)(3) status from the IRS, the organization does not have to pay income taxes on the money it brings in, and the organization becomes eligible for other funding opportunities, including government grants and charitable crowdfunding platforms. Additionally, donors are more motivated to donate to IRS-registered nonprofits because any contributions they make to these organizations are tax-deductible.

There is some work involved in registering a nonprofit and maintaining nonprofit status, but your charity and your cause will ultimately benefit from your diligence. If you’re not sure your nonprofit qualifies for 501(c)(3) status, the IRS has information you can review on the various types of tax-exempt/nonprofit organizations, including 501(c)(3) and others. If you think maybe a nonprofit structure is not right for your organization after all, I recommend reading our article on the different types of business structures.

The post The Step-By-Step Guide To Registering Your 501(c)(3) Nonprofit Organization appeared first on Merchant Maverick.

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November 18, 2019

Should You Form A Business Cooperative? Consider These 9 Advantages And Disadvantages Before Getting Started

A business cooperative, also called a “worker cooperative” or just a “co-op,” is a type of business that offers some special advantages—namely, the advantages of group ownership. Though it has some commonalities with other business types, including business partnerships and traditional corporations, a business co-op is its own animal with its own unique legal structure. A cooperative is not the most conventional business type and can only work for certain types of businesses. Read on to learn more about whether this unique business model could work for your new or existing business.

What Is A Business Cooperative & How Does It Work?

Essentially, a business cooperative is an employee-owned business. Every member of the cooperative has an equal voice, regardless of how many shares they own. Profits and earnings are divided equally among the members (also called “member-owners”). However, it’s important to know that there are different types of co-ops with different goals, and that there are other business types that resemble co-ops.

How Business Co-ops Differ From Consumer Co-ops

A business cooperative is not to be confused with a consumer cooperative, though the legal structure may be the same. With a consumer co-op, members of the co-op are also consumers of the co-ops good or services, paying into the co-op or sometimes volunteering their labor (usually part-time) in exchange for membership.

Why join a consumer co-op? Membership typically gets you a free service or lower prices for a service. For example, a food co-op typically offers high-quality food at much lower prices than you’d pay at, say, Whole Foods. A parent joins a preschool co-op so that their children can attend the school for free or at a discounted rate. Consumer co-ops typically not-for-profit, community-based services. They may or may not be incorporated as businesses.

Business cooperatives, on the other hand, serve workers. The member-owners of a business cooperative are typically full-time corporate employees.

While business co-ops are democratic by nature and often have a socially conscious business ethos, the main goal of a business co-op is not to provide a community service, but to make a profit. Typically a percentage of profits are distributed equally among owners, while the rest is reinvested in the company. There are co-op businesses in retail, agriculture, healthcare, manufacturing, and other industries. Business cooperatives are incorporated and do business as cooperative corporations.

Business Cooperatives VS Other Business Structures

A cooperative corporation is also not to be confused with a regular corporation (C corp). Though many corporations are partly owned by shareholders who also work for the company, a cooperative, by contrast, is 100% owned by its employees, with no owner having any more control or ownership of the company than any other owner. Unlike a traditional corporation, a cooperative corporation has no executives who hold the majority of shares (among other differences).

Co-ops are also different from business partnerships, which have different liability structures and tax structures, and can involve unequal ownership arrangements. Learn more about the different types of business structures if you’re not sure which one is right for your company. Depending on your goals, a more appropriate business structure might be a partnership or even a limited liability company (LLC), which has a lot of the same benefits of a co-op but with fewer restrictions.

Other business types may borrow some features of co-ops without being true co-ops. For example, Costco and Sam’s Club resemble co-ops in that members pay a fee in order to shop there; however, these businesses are not true co-ops because they are not member-owned.

Business Cooperatives On A Large Scale

Very large business co-ops can operate much like franchises—in that members pay to use the company name and resources, but each individual business location is more or less independently managed. ACE Hardware, whose shares are all owned by individual ACE Hardware store owners, is an example of a retail cooperative. In exchange for purchasing shares of company stock, approved ACE outlets become part owners of the company and can use the ACE name, products, and distribution channels.

A business cooperative can also function sort of like a union, in that its democratically-elected leaders can exert collective bargaining power in their industry if the co-op is large enough. Land O’Lakes Inc., owned by dairy farmers, is an example of a large-scale agricultural business cooperative. Due to its large size and purchasing power, Land O’Lakes has a lot of negotiating power from its suppliers (of trucks, farming equipment, etc.), which it uses to lower its cost of production.

But not all business cooperatives are nationwide brands; most are actually small businesses. A new co-op might only have a handful of employees. There are still benefits to forming business cooperative, even on a very small scale.

The Advantages Of Owning A Business Cooperative

Incorporating your business as a co-op can provide great benefits and establish your organization as a really special entity where workers love their job — with low operating costs to boot. Read on to learn about the benefits of owning a business cooperative.

Invested Employees

Because employees are directly impacted by the company’s performance and share in the company’s successes and losses, they are more invested in the company they work for. Employees are more likely to pour their hearts and souls into a company when they are also owners. Having an equal voice in the company, as co-op owners do, can also inspire more motivated workers. In addition to their labor, employees invest their money into the company, which helps fund the business.

Funding Opportunities

Cooperatives may be eligible to receive certain business grants from the federal government and other entities.

Reduced Liability

Equal distribution of ownership in a cooperative also means equal distribution of liability. In contrast to partnerships where all partners are fully liable for both their own and their partners’ actions, each owner of a cooperative has only limited liability for company debts, obligations, etc. The liability of the co-op’s members is limited only to the extent of their investment in the co-op, provided that they were not engaged in illegal or negligent activities. (LLCs, which can also have multiple owners, also have limited-liability benefits.)

Lower Overhead

Owner-employees are more motivated to keep costs down, because lower costs ultimately increase the company’s profitability. By leveraging their large size, co-ops may also be able to obtain lower-cost goods and services from suppliers, resulting in an overall lower cost of production.

Tax Advantages

Earnings are taxed twice in a traditional corporation—the corporation pays tax on their net earnings and then the shareholders pay taxes on their individual dividends.Â The federal tax structure of a cooperative—subchapter T of the U.S. tax code—is such that these entities are not taxed on the surplus earnings/dividends they redistribute to members. Co-op owners are only taxed once on their personal co-op income, and not at the co-op level. Thus, a cooperative has a reduced tax burden compared to regular corporations.

The Disadvantages Of Owning A Business Cooperative

A cooperative business model is also not without its downsides. Before you decide to incorporate as a cooperative, make sure you are okay with the following caveats of forming a co-op:

Legal Restrictions

Depending on where you live and work, you may not be allowed to incorporate your business as a co-op. Every state has a co-op law, but they are all different. Some states have very restrictive co-op laws, only allowing co-ops in certain industries, such as agriculture, to incorporate. Other states allow co-op businesses in almost any industry. If your state allows you to form a co-op business, you will still have to adhere to your state’s co-op laws. Before you get yourself in some legal challenges, make sure you are following your state’s business cooperative laws.

Not As Profitable For Founders

Because a cooperative’s earnings and profits are distributed equally among all employees, this type of business is not nearly as profitable for the company’s founders. This doesn’t mean that all cooperative employees are paid equal wages, but in a conventional business structure where the owners/founders have the majority of control and ownership in a company, those owners stand to take a much bigger chunk of the profits. Then again, if you’re considering forming a co-op, there is a good chance that personal profit is not your primary goal.

Funding Challenges

FindingÂ startup loans and other types of funding through traditional lenders may be difficult due to a cooperative’s financial and liability structure. Co-ops also struggle to attract large investors, since a large investor will not have any more control in the company than a small investor. During the startup phase and sometimes beyond, co-ops may have to get creative with other funding sources, such as launching a crowdfundingÂ campaign or applying for small business grants.

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Slow Decision-Making

Have you ever tried to make a decision as a large group? It can be pretty challenging! By the time the entire group decides where to eat, you are out of your mind with hunger. The process to make big decisions as a cooperative, where everyone gets an equal vote in all company decisions, can be equally time-consuming and frustrating.

How To Form Your Co-op

The following are the main steps you need to take to form a business co-op. However, the steps to register your business as a co-op vary somewhat from state to state; check with your state’s Secretary of State or State Corporation Commissioner for more information regarding your stateâs specific co-op laws.

1. File Articles of Incorporation

The articles of incorporation is a document that makes your co-op an official business. This document includes your company’s name, location, purpose, financial structure, and the names of your charter members (incorporators/founders). Your incorporators must file the articles of incorporation with your state business entity registration office.

2. Obtain Business Permits & Licenses

You will need to obtain all local, state, and federal permits and licenses before you can operate as a legal business. These requirements will vary based on your industry and location.

3. Create Bylaws

Once your articles of incorporation have been approved by the state, you can write your bylaws. These are all of the rules and procedures for your cooperative and include membership requirements and duties, as well as general operational procedures for your co-op. Your bylaws must comply with state law, so you may need to consult with an attorney at this time if you haven’t already.

4. Hold Charter Meeting

During this meeting, charter members will adopt the bylaws and elect a board of directors (if the board wasn’t already established in the articles of incorporation).

5. Recruit More Members

To make your co-op a success, it needs to grow its membership. These are the employees and co-owners of your company who will supply the capital and labor. The application members use to join the company needs to include names and signatures from the board of directors, as well as a description of the member rights and benefits.

6. File With The IRS

Even though you are exempt from certain taxes as a cooperative, you will still need to file with the IRS (before the end of your fiscal tax year) to validate your organization’s tax-exempt status. In particular, most cooperatives will need to file Form 1120-C to report income, gains, losses, deductions, credits, and to determine your income tax liability. Any cooperative with employees needs need an Employer Identification Number (EIN) to file taxes, so be sure to sign up for one before tax-time if you haven’t already.

7. Obtain Additional Financing

Depending on your financial needs, you may need to obtain additional financing at some point, especially if contributions from co-op members are not sufficient to cover all your initial startup expenses. As mentioned, crowdfunding and startup business grants are a couple of potential ways co-op startups get capital, and certain online lenders might be willing to extend you a startup loan as well.

Note that if you are converting an established company to a co-op, this process will look different. In addition to incorporating as a cooperative, writing bylaws, etc., you will also need to buy out the original owners/founders and then redistribute that money to the co-op.

Final Thoughts

A business cooperative can be the perfect business structure for certain organizations, particularly those with a democratic business ethos. A strong corporate culture and reduced costs are just two of the many benefits that cooperative businesses enjoy. However, co-ops are also limited in certain ways, and are not appropriate for every business type.

Don’t think a co-op is right for you? Take a look at our business structures explainer to learn about other business structures and their pros and cons.

The post Should You Form A Business Cooperative? Consider These 9 Advantages And Disadvantages Before Getting Started appeared first on Merchant Maverick.

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November 14, 2019

Your Step-By-Step Guide To Starting A Successful House Flipping Business

If you’re intrigued by the thought of making money by flipping houses, you aren’t alone. Flip through the TV channels (pun intended), and you’ll see home improvements that lead to a five- or six-figure payday. You may have even received an email promising frozen cocktails on the beach while raking in the dough … all because of house flipping.

What these TV shows and emails don’t tell you is that there is a lot of hard work involved in starting a house flipping business. I know, I know. The idea of a burgeoning bank account without having to do much work is appealing, but it isn’t the reality of the industry. That said, don’t be entirely discouraged — you can build a successful business that centers on flipping houses for a profit. You simply have to be prepared to put in the hard work — just as you would with any other business.

In this guide, we’re going to look at how to start your own house flipping business, step-by-step. While this isn’t a get-rich-quick scheme or even a guarantee of profitability, understanding the industry and what it takes to open and operate your business can increase your chances for success. Whether you’re brand new to house flipping and toying with the idea of becoming an entrepreneur, or you’re ready to hit the ground running, this guide is a must-read before you get started.

Why Start A House Flipping Business?

If you’re reading this, you probably already have at least some idea of what a house flipping business does, but let’s briefly review what this type of business entails. A house flipper buys a property at a low cost. This property could be distressed and in need of repairs, a foreclosure, an older home that needs to be updated, or a house that is located in an up-and-coming neighborhood. Once the home is purchased, it is renovated and resold to another buyer at a higher price.

So, why are people jumping into this industry? One reason that many people choose to flip houses is the potential for profits. If a property is purchased and renovated at a price that’s low enough and resold at a much higher price, you have the potential to pocket thousands of dollars per house. For example, let’s say you purchase a house for $120,000. After putting $20,000 into the house to replace floors, cabinets, counter tops, and make other cosmetic repairs, you are able to resell the house for $150,000. You have only invested $140,000 in the house, so you make $10,000 on this flip. Of course, there are circumstances where a flip doesn’t work out exactly as planned (which we’ll cover a little later), but there is the potential for big profits with a house flipping business.

A house flipping business may also be a great opportunity if you’re somehow already familiar with the industry. Maybe you have experience as a real estate agent or contractor, and you’re familiar with how the business works. You might have even flipped a house or two to make extra cash in the past, but now want to make it a full-time career. If you have experience — whether it’s selling properties or fixing them up — you can put these skills to work for your own house flipping business.

Finally, right now may be the perfect time for you to flip houses. We all remember the housing crisis of 2008, but more than 10 years later, the real estate market is hot again. Housing prices are on the rise, and investors are grabbing up properties to flip. According to Realtor.com, mid-sized cities in the South and Midwest with strong economies, growing populations, and an abundance of older properties in need of rehab are prime markets for flipping. If you live in these areas, house flipping may be the right business opportunity for you.

No matter what your reasoning, you must be prepared to work hard to make your business a success. From finding and securing financing to marketing and reselling your properties, you’ll need to be fully involved every step of the way (at least at first) and be prepared to encounter bumps in the road on your path to building a business.

6 Steps To Starting Your Own House Flipping Business

Whether you’ve already set your mind on flipping houses or you’re still on the fence, it’s important to understand what this business requires to be a success. We’ve outlined six steps to starting your own house flipping business to help you determine if this business is right for you. If so, these tips can help you get you on the right track. Let’s jump right in.

#1 Write Your Business Plan

Every business should have a business plan, and a house flipping business is no exception. A business plan is important for a few reasons. The first is that it acts as a road map for your business. It outlines the purpose of your business, evaluates the industry and your competition, projects profitability, and states the goals of your business.

In addition to outlining your goals and how you’ll achieve them, a business plan is also necessary in most cases to obtain funding. Flipping houses requires capital — capital that you obtain from traditional lenders, investors, or other sources. Your business plan shows that you know what you’re doing, you’re familiar with the industry and your competition, and you have a good chance for success, all of which add up to a lower risk investment for lenders.

There are several ways to write a business plan. A traditional business plan spans several pages and is more complex, containing in-depth analyses of your market and competition, financial projections over the next three to five years, your business strategy, and information about the members of your team. However, more businesses are scaling back on these lengthy documents and opting to create a one-page business plan. A one-page business plan is a condensed version of the traditional plan, offering information such as your objectives, a financial summary, and your industry experience. Learn more about whether a one-page business plan is right for your business.

No matter which plan you choose, there should always be a few things you include about your house flipping business, such as basic timelines, projected budgets, your market, and the types of properties you plan to flip.

#2 Set Up Your Business

Once you’ve written your business plan, it’s time to set up your business. At a minimum, this includes choosing your legal structure, registering your business name, setting up a business bank account, and acquiring any required licenses or permits. Taking these steps allows you to legally operate your business, determines how you pay taxes, and gives you credibility with lenders and investors.

The first step is to choose your legal structure. As a quick summary, a legal structure for a business may take the form of one of the following:

Sole Proprietorship:Â A sole proprietorship is the easiest and cheapest to set up. It does not require registration. Sole proprietors are taxed at the personal tax rate and file business earnings or losses on personal tax returns. This structure does not offer liability protections.
Partnerships:Â A partnership is a structure for a business with two or more owners. Partners are taxed at the personal tax rate and file earnings or losses on personal tax returns. Limited partners have liability protections, whereas general partners do not.
Corporations:Â A corporation is the most expensive to form and has the most requirements, such as annual meetings and a board of directors. Depending on the type of corporation, taxes may have to be filed using the corporate tax rate. Corporations can raise money through the sale of stock. There are also liability protections in place for owners.
Limited Liability Company (LLC): An LLC offers features of several legal structures. There are no requirements, and owners can choose how they are taxed. There are liability protections under an LLC.

This is just a brief summary of each type of legal structure. To learn more and to help determine which is right for you, check out our in-depth guide on choosing your business structure.

Once you’ve determined your legal structure, you’ll need to register your business name with the state in which you’ll operate. Depending on the legal structure you select, additional fees and or paperwork may be required.

Next, you’ll need to find out the types of licenses you need to operate your business. If you’re operating in an office outside of your home, for example, you’ll need a general business license and business insurance. As a house flipper, you’ll also need permits and insurance on each house that you flip, so it’s best to establish a relationship with an insurance agency early in the game. Some house flippers opt to get their real estate license. While this isn’t a requirement for flipping houses, it can certainly help you along the way.

Finally, you’ll need to set up your business bank account. This is necessary for keeping your business and personal finances separate, which especially comes in handy when tax time rolls around. If you seek business funding, this account will also be where your funds are deposited.

#3 Know How To Find & Secure Funding

You’ve taken all the steps of setting up your business and your new bank account. Unfortunately, your new business bank account is probably looking pretty empty … and in most cases, there certainly isn’t enough cash to buy and flip a property. The good news, though, is that this isn’t uncommon for new house flippers — or new business owners in general. It’s rare to find someone with their own cash to start and fund their own business, so that’s why new business owners turn to lenders or investors to get capital they need to start and operate their businesses.

There are a few funding options for flipping houses. The type you select is based on a number of factors, including time in business and your credit history. Not all funding will be right for your business. For example, if you have a low credit score, hard money loans may be an option for you. Hard money lenders base lending on the deal itself — not your personal or business credit or lack thereof — but are usually very short-term and have high fees.

Once you’ve been in business for at least a few months, you may need a flexible funding option to purchase properties, pay for renovations, or cover operating costs. In this situation, you may qualify for a business line of credit. Even if you have a low personal credit score, you may still qualify with lenders that consider the performance of your business over credit history.

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If you own your own home, you could use a home equity loan or home equity line of credit (HELOC) to fund your flips. If you have equity in your home, a low debt-to-income ratio, and a good personal credit score, you could qualify for one of those options, which come with low rates and favorable terms. If you have a retirement account, you could also consider a Rollovers as Business Startups plan (ROBS), which allows you to leverage your retirement funds without penalties.

For unexpected expenses or operational costs, consider applying for a business credit card. You can also get creative by bringing on a business partner or launching a crowdfunding campaign. Whether you’re new to the game, have some experience, or have credit challenges, there are options available to you. You just have to connect with lenders to find them.

No matter what type of funding you seek for your business, there are a few things to keep in mind. First, understand that borrowers with the highest credit scores typically qualify for more options that are also more affordable. So, one of the first things you want to do prior to submitting your application is pull your free credit score, access your credit report, and dispute any errors. You can also take steps to boost your credit score.

Once you apply for funding, make sure that you fully understand the terms, fees, and interest rates associated with your financial product. Don’t be afraid to shop around your options if you aren’t happy with a lender’s offer.

If you do secure funding, make sure to always pay as agreed and meet all conditions put in place by the lender. By doing so, you can not only raise your credit score, but you can also establish lasting relationships with lenders and investors that will serve you well as you build your business.

Unsure of which funding option to choose? Learn more about the best loan products for your house flipping business.

#4 Connect With Contractors & Other Professionals

In addition to lenders, you’ll also need to establish relationships with contractors and other professionals that will help contribute to the success of your business. Even if you plan to get hands-on with the renovation of your properties, you’ll still need a team of contractors to help with the work, particularly when distressed properties are involved. Not only will a contractor complete the work required to flip a house for profit, but a good contractor will know about licenses, permits, and other local requirements. You can also discuss your timelines and budgets with your contractors so you don’t have extended timelines or unnecessary expenses cutting into your profits.

When seeking contractors, don’t be afraid to ask for references or a portfolio. Also, don’t forget to shop around your options to find a reputable contractor that works with your budget. If you’re new to the industry, developing a working relationship with a reputable contractor can even help you score hard money loans from investors.

Another professional that you need on your team is a real estate agent. If you opt not to get your real estate license, a realtor has access to resources that will be essential for your business. This includes access to properties on the multiple listing service (MLS), as well as prospective homeowners that could be interested in purchasing your properties. A realtor can also help market and sell your renovated properties.

Someone else to keep on your speed dial is an attorney, and not just any attorney — one that specializes in real estate. There are some legalities of flipping houses that you don’t want to overlook, so it’s wise to have a real estate attorney on your team. An attorney is especially critical during your first flip. Overlooking important legal details, errors in contracts, and other issues could not only derail your deal but could also damage your reputation in the industry.

Over time, there may be additional professionals you’d like to have in your corner, such as an accountant and investors. For now, though, focus on finding the right contractors, attorneys, and realtors for your house flipping team.

#5 Understand The Importance Of Market Research

Knowing your market is key to maximizing profits as a house flipper. Buying the wrong property in the wrong neighborhood could result in a low profit that’s not worth the time invested in the property, or worse, a loss.

Working with a realtor can really help when it comes to knowing your market. Realtors have the inside scoop on the hottest neighborhoods, information on recently sold properties, and other data that can help you find the right homes for flipping. You can also take advantage of the vast amount of information you can find on the internet, where you can do a lot of your market research for free.

With market research, you’ll soon learn where buyers are buying, how much they’re paying, and what they’re looking for. While there are some variances depending on where you live, there are a few markets that are always hot, including neighborhoods with great schools, neighborhoods with homes that are at least 20 years old, areas with low crime rates, and houses that are close to amenities. Once you understand the market, you can begin further narrowing down the areas you wish to target and begin preparing for the next step: buying and flipping a property!

#6 Buy, Renovate, & Sell Your First Property

You’ve set up your business. You’ve connected with a team of reputable professionals. You’ve found and secured funding, or are at least aware of a few potential options. You know your market, you’ve researched recent selling prices, and there are properties on your radar. Now, it’s time to pick a property, buy it for the right price, renovate it, and then flip it for a profit.

This is where your team will really come in handy. For instance, your realtor may have information on properties before they hit the market, giving you an early edge over other flippers and buyers. Your attorney can help with the paperwork and walk you through the steps of purchasing and flipping a house — think, walk-throughs, insurance requirements, and negotiating contracts.

Once you’ve purchased the property, it’s time to start your renovations. Work through your budget and timeline with your contractors, and put the research you did earlier to good use. Look at comparable properties when determining what renovations need to be completed. For example, if recently sold houses in the same neighborhood have updated granite counter tops, add granite counter tops to your “to-do” list. Finally, be prepared for the unexpected. Deadlines may be missed, or there may be additional expenses that weren’t accounted for in the budget. It happens to even the most experienced flippers — the key is learning to roll with the punches.

After the renovations are complete, it’s time to put your house on the market. Your realtor will be a valuable asset by listing the property and helping you market it to buyers. Then, once a buyer is interested, work with your attorney to make sure all of the i’s are dotted and t’s are crossed. Once the property is sold, any amount that exceeds what you’ve put into the house is pure profit.

Final Thoughts

Let’s make one thing clear: flipping houses isn’t easy, no matter how simple it looks on TV. But if you’re ready to put in the work, you’ll find that house flipping is extremely rewarding. As you flip your first few houses and begin to find your groove, you’ll find that the process gets easier, just as it does with any other business.

You don’t have to go at it completely alone, though. We have a load of great small business resources right here, so check them out and get ready to build your business. Good luck!

The post Your Step-By-Step Guide To Starting A Successful House Flipping Business appeared first on Merchant Maverick.

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Why Financing Can Be Hard For Entrepreneurs To Find (& Why That Shouldn’t Stop You Anyway)

6 Types Of Financing For Entrepreneurs

1) Venture Capital

Pros

Cons

2) Angel Investors

Pros

Cons

3) Debt Financing

Pros

Cons

4) Bootstrapping

Pros

Cons

5) Crowdfunding

Pros

Cons

6) Grants & Subsidies

Pros

Cons

Entrepreneur Financing Tips From The Experts

Make Sure You Really Want Angel Investment

Believe In Your Vision

Getting A VC Firm’s Attention Is Part Of The Interview

Understand The Motivations Of Your Potential Investors

Get Started On Your Entrepreneur Financing Journey

How Venture Capital Works

When You Should Look For Alternatives To Venture Capital

8 Venture Capital Alternatives

1) Grants

2) Crowdfunding

3) SBA Loans

4) Online Business Loans

5) CDFI Loans

6) Personal Loans

7) Vendor Financing

8) Friends & Family

Your Best VC Alternative Offers Funding That Works With Your Terms

What Is Collateral? A Short Primer

Secured VS Unsecured Loans: Know The Difference

Do Personal Guarantees Count As Collateral?

Why Creditors Ask For Collateral On Startup Loans

The Downsides Of Getting A Startup Loan With No Collateral

Higher Interest Rates

Shorter Repayment Terms

Fewer Lender Choices

Lower Borrowing Limits

Stricter Requirements

Where To Get Startup Loans Without Putting Up Collateral

Online Lenders

Take Out A Personal Loan For Business

Crowdfunding

CDFIs

Friends & Family

How To Improve Your Chances Of Being Approved

Final Thoughts On Collateral-less Startup Loans

1) Be The Point Person Of Your Campaign

2) Research Past Kickstarter Campaigns Similar To Yours

3) Come Up With A Good Business Plan For Your Kickstarter Campaign

4) Record A Professional Video & Post It

5) Recruit Backers From Your Network Prior To Launch

6) Use The Data In The Project Dashboard To Your Advantage

7) Stay In Touch With Your Backers

8) Don’t Be Afraid To Run An Ad Campaign

9) Make Sure Your Funding Goal Is Realistic

10) Don’t Go Overboard With The Reward Levels

11) Don’t Try To Do Everything Yourself

Report Back: How Did You Find Success Using Kickstarter For Your Business?

What Coronavirus Means For Retail

Demand Changes

Social Distancing

Increase In Online Shopping & Deliveries

10 Tips To Keep Your Retail Business Strong During COVID-19

Create An Online Store

Further Reading

Offer Personal Shoppers

Further Reading

Add Curbside Pickup

Create Subscription Boxes

Further Reading

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