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September 3, 2019

The 12 Best Low-Cost Franchises You Can Purchase In 2019

While buying a franchise can certainly be a profitable investment opportunity, the cost to actually start up a popular franchise is usually quite steep. You will easily invest $2â$3 million to open a Taco Bell or Wendy’s, with the latter fast food chain also requiring you to have liquid assets of $2 million and a net worth of at least $5 million. These requirements put many popular restaurant franchises out of reach for most aspiring franchise owners. However, just because you have to be a multimillionaire to open a McDonald’s doesn’t mean that there aren’t much lower-cost franchise opportunities. You will have to look outside of fast food for the most part, though there are some fast food and restaurant franchises that you can open for under $100K.

Some types of low-cost franchises you can (usually) buy into without breaking the bank include travel agencies, commercial cleaning companies, sports/fitness instructor franchises, education/tutoring franchises, windshield repair, and others. Of course, just because a franchise is inexpensive doesn’t mean it’s a good idea to buy into it—some franchises are cheap for a reason: they’re not a good value. To help you find a quality, low-cost opportunity, I’ve compiled this list of franchises that not only have a low price tag, but also have the potential for high profits.

All of the top franchises on this list can potentially be purchased for an initial investment of less than $100K, but some you can buy into for as little as $2,500. I’ve divided them into categories to make it easier for you to navigate depending on which type of franchise interests you most.

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Travel Agency Franchises

Starting your own travel agency can be a good idea for organized, self-motivated individuals who love travel and like the idea of helping people score great deals on their own dream getaways. Travel agency franchises are often home-based, meaning there is very low overhead and minimal startup costs.

1. Dream Vacations

Initial investment: $3,245â$21,850
Franchise description: Home-based travel franchise
Awards & distinctions: Entrepreneur Best Home-Based Franchise (2018), USA Today Top 50 Franchises for Minorities (2017), IFA 5-Star Franchise (2018â2019), #101 in Entrepreneur Franchise 500 (2019)

If you’ve ever dreamed of starting your own travel agency, Dream Vacations can allow you to do that for a 4-figure initial investment– and from the comfort of your own home. Dream Vacations has collected a lot of accolades over the years (see Awards & distinctions above) and current franchisees rate it highly on sites like Glassdoor and Indeed.com. DV lets you market your business under Dream Vacations or its sister company CruiseOne, and is currently looking for new franchisees throughout the U.S.

A major benefit of owning a home-based travel agency franchise like Dream Vacations is its low overhead. DV is also a veteran-friendly business in that it gives a 20% discount on the franchise fee to veterans. The company offers in-house financing if you can’t afford the franchise fee, or you could also get a franchise loan from a bank or online lender.

2. Cruise Planners

Initial investment:$2,295â$23,367
Franchise description: Home-based travel franchise
Awards & distinctions: #60 in Entrepreneur Franchise 500 and #1 in Travel Agencies category (2019), American Express Travel Representative Excellence Award (2018), Inc. 5000 List (since 2012)

Cruise Planners, an American Express Travel Representative, is another low-cost, work-from-home travel agent opportunity. Don’t let the name fool you; as a Cruise Planners travel agent, you can book a lot more more than just cruises—you can also connect your customers with great deals on airfare, car rentals tours, hotels, etc. Cruise Planners claims they offer the highest commissions in the industry, and they do not require any travel experience.

When evaluating this franchise, I found their website to be very friendly and informative, though I couldn’t find a figure for the initial investment, apart from the $10,995 franchise fee (with no discounts). However, as with other work-from-home, service-based franchises, I expect a home-based business like Cruise Planners would require few startup expenses apart from the franchise fee (according to the official franchise disclosure document, the total initial investment to open a Cruise Planners franchise can range from $2,295 to $23,367). Cruise Planners offers in-house financing if you can’t afford the franchise fee, as well as a deep discount for veterans, first responders, and travel industry professionals. While Cruise Planners has a larger initial franchise fee than some other home-based travel agency franchises, a big perk you get with Cruise Planners is the American Express network affiliation.

3. Travel Leaders

Initial investment: $2,270â$16,910
Franchise description: Travel agency franchise (storefront preferred)
Awards & distinctions: Largest network of travel agencies in North America, highest-ranked travel management company in Business Travel News’ annual survey (2016), Top North American travel companies in Travel Weekly 2016 Power List

Travel Leaders is a quality, yet inexpensive franchise ownership opportunity if you’re an experienced travel agent who is interested in running a storefront travel agency. According to information in their FDD (Franchise Disclosure Document), it requires upwards of 10 employees to run a Travel Leaders agency. To be honest, I couldn’t find that much information online about what it’s like to work for Travel Leaders, but the brand has accumulated a number of industry accolades over the years—to be specific, over the past 131 years the company has been in business (Travel Leaders has been franchising for 35 years). Travel Leaders offers several different tiers of franchise ownership, with no long-term commitment.

Travel Leaders is currently seeking experienced travel agents worldwide.

Commercial Cleaning Franchises

If you are a dedicated hard worker but don’t necessarily have a specific skill-set, starting your own cleaning business can really pay off. Commercial cleaning is a fast-growing industry, and most of the top commercial cleaning franchises are flexible and scaleable, with a low initial investment and part-time options.

4. BuildingStars

Initial investment: $2,245â$53,200
Franchise description: Commercial cleaning for office buildings with part-time option
Awards & distinctions: #199 in Entrepreneur Franchise 500, Inc. 5000 ListÂ (2017)

BuildingStars is one of the largest, fastest-growing franchises in the commercial cleaning industry, with a sole focus on solutions for office buildings. Services include nightly cleaning, green cleaning and consulting, and carpet and floor care. According to BuildingStars, this franchise offers the highest average gross revenue of any cleaning franchise. BuildingStars also has the benefit of allowing you to start small, working part-time to start your cleaning business while you keep the income and security of your current job. The franchise offers three levels of franchise ownership: part-time technician, full-time onsite manager, and corporate manager. Depending on your goals, you can start as a part-time technician, then work your way up to onsite manager, and then corporate manager as you build experience managing larger-tenant office buildings.

BuildingStars has mostly positive reviews on sites like Glassdoor and Indeed (average of 3.5/5 stars on both sites). The companyÂ is currently looking for new franchisees worldwide, and can offer in-house financing to cover not only the franchise fee, but also equipment and other startup costs.

5. JAN-PRO

Initial investment: $4,170â$54,700
Franchise description: Commercial cleaning franchise with multiple tiers of ownership
Awards & distinctions: #1 Commercial Cleaning Franchise and Top Franchise For Veterans in Entrepreneur Magazine (2019), Top 200 Franchise in Franchise Business Review (2018), Top 50 Franchise for Minorities in USA Today (since 2012)

JAN-PRO is another fast-growing commercial cleaning franchises with multiple tiers of investment, including a home-based option. This company’s network of 10,000+ franchisees focuses on business cleaning, healthcare cleaning, and green cleaning. JAN-PRO franchisees offer cleaning services to businesses such as car dealerships, restaurants, banks, gyms, schools, churches, medical centers, and offices. JAN-PRO’s VetConnection^SM program was the first franchise commercial cleaning program created exclusively for veterans—veterans receive a 15â20% discount on the franchise fee.

JAN-PRO can be a good place to start out with commercial cleaning, as no prior experience is required and they provide you with your own accounts so you don’t have to find customers. You can start a JAN-PRO franchise for less than $5,000, which includes initial cleaning equipment, cleaning accounts, education on JAN-PRO cleaning standards, and ongoing support. The franchisee testimonials I found online say JAN-PRO has flexible hours and good compensation, and like the fact that franchise owners can transfer ownership; however, they report that JAN-PRO can be demanding work until you have well-trained employees.

6. Stratus Building Solutions

Initial investment: $3,450â$64,550
Franchise description: Commercial cleaning franchise with multiple tiers of ownership
Awards & distinctions: #42 in Entrepreneur Franchise 500 (overall) and #2 by Entrepreneur â Top Budget-Friendly (2019), “Franchise Rankings” Winner â Janitorial (2015), Franchise Direct Top 100 Global Franchises Award (2016)

Stratus Building Solutions is a general commercial cleaning franchise that specializes in environmentally friendly cleaning solutions, with branded Green Seal Certified chemicals and equipment. From schools and malls to gyms and warehouses, Stratus’s 1,400+ janitorial franchises have customers in just about every industry. This flexible cleaning franchise boasts 16 different levels of ownership, from home-based to master franchise.

You do not need any prior janitorial experience to open a Stratus franchise. In fact, all you need is $1,000. While the total buy-in for a home-based janitorial franchise starts at $3,450, with the help in-house financing, Stratus says you can buy in with as little as $1,000 down (plus another 10% off the franchise fee if you’re a veteran).

Sports & Fitness Franchises

Fitness and sports coach franchises are another low-cost franchise idea if you are an aspiring fitness instructor who wants to benefit from the recognition of a name-brand sports/fitness franchise. In some cases, you can also use the facilities and gym equipment of a master franchise, while working as an independent instructor.

7. Jazzercise

Initial investment: $2,500â$17,155
Franchise description: Global aerobics class brand with instructor and center owner options
Awards & distinctions: #94 in Entrepreneur Franchise 500, #6 on Franchise Chatter’s 25 Best Gym and Fitness Franchises of 2019

Jazzercise might scream “80s party ideas” to the uninitiated, but the franchise has actually experienced a revival in demand in recent years (I think once people just realized it’s an easier version of Zumba), and in fact, Jazzercise never even went out of style in certain circles. In any case, demand for Jazzercise aerobics classes is going strong in 2019.

Jazzercise offers several different tiers of ownership. If you just want to teach, it costs around $2,500. If you want to own your own Jazzercise center, it can range from $9,000 to $38,000. Every instructor is technically a franchise owner, however (not an employee of Jazzercise). All new instructors are trained and certified by Jazzercise before they start teaching, and the training cost is included in the initial fee.

Generally, Jazzercise franchise owners rate the franchise approvingly on sites like Indeed.com. But as for the cons, they say the job can be physically demanding and the pay isn’t great. However, if you want to get paid to exercise and can get by on a part-time income, Jazzercise could be a good investment of your time and money, especially if you already enjoy Jazzercise-ing.

8. Baby Boot Camp

Initial investment: $6,050â$13,179
Franchise description: Stroller-fitness classes for new moms, taught by “mompreneurs”
Awards & distinctions: Franchise Business ReviewÂ Franchise Satisfaction Awards (2016), Entrepreneur Franchise 500 (2015)

Baby Boot Camp offers several different types of fitness classes for moms, including popular outdoor fitness classes designed for new moms to bring their stroller-age kids to. The main idea is for new mothers to get back into shape postpartum, though the franchise also offers fitness and nutrition classes for expectant mothers as well. Baby Boot Camp participants cite the community aspect as the main reason they like these classes; they provide an atmosphere for new moms to make friends with similar-age children in their area. As for the instructors, most of them are franchisees. The very reasonable franchise fee includes everything you need to get started, including your own territory. The company website also lists existing franchise territories for sale, which you might be able to buy at a lower rate. You do not need any fitness instructor experience to own your own Baby Boot Camp franchise.

There aren’t too many franchisee reviews online, but the ones I could find were positive and noted the company is extremely family-friendly and allows you to bring your kids with you to work. There are fewer than 150 Baby Boot Camp franchisees in the country, so this franchise could represent an opportunity to enter a market that hasn’t become oversaturated yet.

9. Soccer Shots

Initial investment: $41,034â$53,950
Franchise description: Youth soccer franchise for children aged 2â8
Awards & distinctions: #245 in Entrepreneur Franchise 500 (2019), Forbes âBest Franchises to Buy” (2019)

Soccer is a sport that many of today’s parents want to get their children involved in, not always because they want their kids to embark on a serious soccer career, but more often to simply teach their kids the fundamentals of sportsmanship and teamwork at a young age. And if your preschooler has experience with soccer, there is a good chance that they participated in Soccer Shots, as it is the most popular soccer franchise in the U.S. aimed at young children. Soccer Shots instructors/franchisees teach children basic soccer skills, via 30â40 min weekly classes that take place at their preschool, elementary school, or local community park.

While this isn’t the cheapest franchise opportunity you’ll find, it is still possible to start a franchise for under $50K, and the pay is better than many other franchises—according to the Soccer Shots website, the brand’s franchise-wide top earner makes $3,093,392 in annual revenue, while the top first-year owner made $248,240. Soccer Shots Franchising LLC offers in-house financing to cover the franchise fee, and veterans receive a 15% discount on the fee.

Soccer Shots owners also report a high level of satisfaction: 93.5% of Soccer Shots franchisees would recommend the franchise, according to the Franchisee Satisfaction Index by Franchise Business Review.

Fast Food Franchises

Fast food franchises are typically big earners and as such, they often carry large initial investment. However, it is sometimes possible to start a fast food franchise for under $100K, particularly if it has a non-traditional setup.

10. Chester’s Chicken

Initial investment: $12,385â$286,817
Franchise description: Fried chicken QSR (quick-service restaurant)
Awards & distinctions: #110 in Entrepreneur’s Franchise 500 (2019), Forbes’ “The 10 Best Food Franchises For Your Buck” (2014), largest Alabama-based franchise

Chester’s Chicken is a low-cost fast food franchise, and is, in fact, one of the most affordable fast food franchises out there. Depending on your setup, you can start your own Chester’s for an initial investment of less than $15K. The franchise fee itself is amazingly low, only $3,500. For the right person and location, becoming a Chester’s franchisee could be the perfect opportunity.

A popular southern fried chicken franchise, Chester’s is unique in that it offers flexible franchise options, including store-in-store options. For example, if you already own a grocery store or convenience store, you can become a Chester’s franchisee to start selling Chester’s Chicken in your existing store. In addition to store-in-store locations, many Chester’s locations are located inside of malls, food courts, airports, college campuses, and truck stops. Chester’s was founded in 1965, but only started franchising in 2004.

11. Checkers & Rally’s

Initial investment:$96,414â$1,501,265
Franchise description: Double drive-through burger chain
Awards & distinctions: Best Franchise Deal by QSR Magazine (2018), Franchise Satisfaction Awards Top 50 Franchises (2019), #88 in Entrepreneur Franchise 500 (2019), Franchise Times Top 200 (2019)

Another Alabama-based fast food chain, Checkers Drive-In Restaurants merged with Rally’s Drive-In in 1999 to form a double drive-thru fast food chain, Checkers & Rally’s. Besides burgers, the chain’s varied offering also includes hot dogs, chicken, fish, and desserts. The initial investment is the highest one on this list, but is still quite low compared with most competing fast food franchises.

Versatile and eye-catching modular buildings, multiple financing options, and high ROI (28.7% according to the FDD) make Checkers & Rally’s a good bet for an aspiring fast-food franchisee on a budget. This franchise is an especially good deal for veterans, as the company will waive the $30,000 franchise fee entirely for those who have served in the military.

12. Baskin Robbins

Initial investment: $93,550â$401,800
Franchise description: Global ice cream brand
Awards & distinctions: Largest ice cream chain in the world, QSR Top 50 (2018), Entrepreneur Franchise 500 (2019), Franchise Times Top 200 (2017)

Becoming a Baskin Robbins franchisee means joining the world’s largest chain of ice cream stores, for potentially under $100K. With over 8,000 locations across 54 countries, Baskin’s offering includes not only its beloved rotating 31-flavors of ice cream, but also its popular ice cream cakes and frozen drinks. Though Baskin has been around since 1945, the brand is still growing and changing with the times to stay ahead of competitors. Baskin has rolled out dairy-free and gluten-free options in recent years, as well as a mobile app that allows customers to order online and collect points. In 2017, Baskin teamed up with DoorDash to offer home deliveries.

Baskin offers franchise financing for the development of new units, as well as a waiver of the franchise fee and reduced royalty rates for vets. Conveniently, Baskin lists opportunities to purchase existing Baskin Robbins locations on its website. In addition to traditional establishments, Baskin is also currently interested in non-traditional locations, such as airports, college campuses, transit terminals, and other places with a captive audience and high foot-traffic.

In case you were wondering, yes, Baskin Robbins’s sister franchise Dunkin’ Donuts is arguably an even hotter commodity right now. However, it’s also a lot pricier, with an initial investment that ranges from $228,621â$1,717,103.

Buying A Franchise: What You Need To Know

Even though it typically requires less leg-work than starting your own business from scratch, buying a franchise is still a large endeavor. There are several important things you need to understand before purchasing a franchise:

Opening a new franchise is different from buying an existing franchise (a franchise re-sale) and there are different steps associated with each type of transaction. You’ll probably need to hire an attorney to help you perform pre-purchase due diligence tasks like reviewing the FDD (Franchise Disclosure Document).
Territory is everything in the franchise business. Before buying into a franchise, you need to know how large your territory is and how many franchisees are nearby to make sure you’re not entering an oversaturated market. You can find territory information in the FDD.
Franchises do not run themselves. Most franchisees must be actively involved in managing their franchise in order for it to succeed. That said, once you are running a successful franchise, the franchise company will often give you the opportunity to start additional locations in your territory.
Pay attention to the estimated initial investment (as disclosed in the FDD), not just the franchise fee. Oftentimes on a franchise’s promotional materials (including the company’s website), only the franchise fee is listed front and center, as if to imply this figure is how much it costs to open a franchise. This is, of course, misleading, as the franchise fee doesn’t include the cost of things like inventory, labor, real estate, equipment, working capital, etc.
Is it a franchise or a pyramid scheme? Lots of multi-level marketing companies may sound like a franchise at the outset, promising to let you “own your own company.” But if the “opportunity” focuses mostly on recruiting other people to the company (rather than selling the actual product/service), then you’d probably be wise to run for the hills.
Find out what other franchisees have to say. Check reviews on Indeed.com, Glassdoor.com, online forums, and anywhere else you can find information on a franchise you’re interested in. This way you’ll know whether the franchise is worth investing your time and money, and you will be prepared for the potential negatives associated with owning that particular franchise.

Read my Step-By-Step Guide To Buying A Franchise for more need-to-knows about how to buy a franchise.

How To Finance Your Franchise Startup Costs

There are various ways to finance a new franchise. Which one you choose depends on the franchise’s policies regarding financing, and the types of financing available to you. Here are a few ways franchisees finance their startup costs.

In-House Franchisor Financing: Many franchises have in-house financing programs that allow you to finance startup costs such as the franchise fee, equipment, inventory, etc. It’s also common for franchises to partner with third-party financing sources to offer financing for their franchisees.
Personal Or Business Loan: If your franchise doesn’t offer financing or you prefer not to use their financing program, you can also obtain a loan on your own (depending on if your franchise allows this). It can be difficult for new businesses to get a business loan from a bank, but you might be able to get a startup business loan or a personal loan online. To find out about some good online loan options for new franchisees, be sure to read my post on the best loans for franchises.
SBA Loan: If your franchise is listed in the SBA Franchise Directory, then you may be eligible for a low-interest SBA franchise loan. Read our guide to SBA franchise financing to learn how to get an SBA loan to finance your franchise startup.

There are also alternative financing options you might consider to fund part or all of your franchise startup costs, such as crowdfunding, ROBS, or even a business credit card.

It’s also important to note that most franchises have specific requirements as to franchisees’ personal net worth and liquid cash. Some franchises will not even let you buy into the franchise if you don’t have deep enough pockets to cover your startup costs yourself (in other words, they don’t allow any kind of financing). Most of the franchises on this list do allow you to finance your franchise startup costs via a loan or other means.

Final Thoughts

Buying a franchise is not cheap. In addition to the franchise fee, you have to pay for inventory, labor, a business space, and other costs. You’ll also need to have enough working capital to run your business and support yourself before your franchise makes a profit. However, there are a lot of low-overhead franchises which you can start without breaking the bank. Particularly, home-based franchises such as travel agencies, commercial cleaning companies, and sports/fitness instructor franchises can be very inexpensive to get started with. There are even low-cost fast food franchises out there if you know where to look. As long as you do your due diligence before buying into a franchise and secure adequate financing, you will be well-positioned for success as a franchisee.

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August 19, 2019

Types Of Equity Financing For Businesses

To make money in business, you must first start with money. It’s one of the inescapable contradictions involved in launching your own business. This barrier to entry into the realm of entrepreneurship means that plenty of ideas that might otherwise change the world wither on the vine for lack of funding.

Equity financing — that is, financing in which you sell ownership shares in your business in exchange for startup capital — is a funding route available to businesses that can demonstrate their potential for a high rate of growth.

I’ll have more to say about the types of businesses best suited to this path to funding later. For now, let’s delve into the various types of equity financing available to businesses, how they work, and the kinds of companies that stand to benefit from each arrangement.

Equity Investment From Friends & Family

Soliciting equity investments from friends and family isn’t an option for all would-be entrepreneurs. Given the extreme racial and class stratification of generational wealth in this country, this funding route is not a realistic option for the majority of entrepreneurs looking to build a business. However, I would be remiss if I didn’t mention this potential source of equity investment for entrepreneurs privileged enough to have wealth in their social networks or families.

Friends and family aren’t an ideal source of equity investment because you’ll be jeopardizing close personal relationships in the event your business venture goes down in flames. Nonetheless, this is one of the more common sources of equity financing, so if the option is available to you, it’s something to consider. What’s more, people in your personal networks may be more open than other investors to funding a business without, say, the exponential growth potential of a tech startup.

Of course, while it may be easier to convince your Uncle Earl of the merits of your business plan than it is to convince an angel investor or venture capitalist, you’ll have to be comfortable with the idea of Uncle Earl owning a chunk of your business and having a say in how it operates!

Venture Capital

Venture capitalists are a hard lot to impress. Popular entertainment (Shark Tank comes to mind) has propagated the image of the hard-hearted VC investor shooting down entrepreneurial dreams left and right. Of course, there are exponentially more would-be entrepreneurs than there are venture capitalists, so VC firms can naturally be ultra-selective when choosing their investments.

Given this highly competitive environment, VC firms have the luxury of investing only in early-stage companies with the highest potential for rapid growth. These investment firms also have a low tolerance for placing risky bets, so it’s a very narrow slice of the entrepreneurial world that gets substantial VC attention.

Owners of early-stage tech ventures with the potential for supercharged growth tend to be the business owners who have the most success at attracting VC attention and investment. If this describes you and your business, it may be worth seeking out some of that sweet VC cash. Keep in mind that venture capitalists tend to be more hands-on in influencing how your business is to be run than, say, angel investors. VC firms, when they do invest in a business, tend to invest a lot — consequently, they acquire more equity in your business than do other types of investors. They may well require that a representative of the firm sit on your board of directors.

If you’re building the kind of company that appeals to venture capitalists and you accept the trade-offs involved in any VC equity funding arrangement, by all means, pursue this funding avenue!

Angel Investors

Angel investors are distinct from venture capitalists in several ways. They tend to make smaller investments in businesses than do VC firms, but, accordingly, they typically take a more hands-off approach with the businesses they invest in. Angel investors are often successful entrepreneurs themselves, and they may be more motivated by your personal qualities than your typical VC outfit.

As angel investors often take a more personal approach to what they invest in than do VC firms, they may be open to funding a wider variety of early-stage businesses than a venture capitalist would. Many angel investors come from outside the tech world, and many of them likewise tend to invest in businesses within their sphere of expertise.

This isn’t to say it’s easy to get an angel investor on board with your new business. However, depending on the kind of business you’re building, you may find angel investors to be a more likely source of funding than a VC firm — and with more flexible terms to boot.

Mezzanine Financing

Mezzanine financing combines both debt and equity financing. Here’s how it works:

The lender provides you with a loan. So long as you make your payments on the loan, you’ll retain full control over your business, and the loan will be treated like any other loan. However, if your business takes a downturn and you can’t repay the loan, the lender can then convert the loan into equity interest, effectively seizing a portion of your company and establishing a claim to any future profits generated by your business.

This type of arrangement lessens the risk taken on by the lender and, in turn, makes it more likely they will lend to a business. Of course, any business taking out a mezzanine loan is taking on the risk that the lender will take over a portion of the business if you can’t meet the repayment terms of the loan. If you are able to make the payments, however, you’ll keep full ownership of your business.

Small Business Investment Companies (SBIC)

The US federal government, via the Small Business Administration (SBA), regulates a program called the Small Business Investment Company (SBIC) program. The SBA describes SBICs thusly:

An SBIC is a privately owned company thatâs licensed and regulated by the SBA. SBICs invest in small businesses in the form of debt and equity. The SBA doesnât invest directly into small businesses, but it does provide funding to qualified SBICs with expertise in certain sectors or industries. Those SBICs then use their private funds, along with SBA-guaranteed funding, to invest in small businesses.

The SBA website goes on to state that SBICs “invest in small businesses through debt, equity, or a combination of both.”

Unfortunately for startups, SBICs typically fund mature businesses that have already established their profitability. However, different SBICs have different investment profiles, so it may be worth it to look into any SBICs that are currently investing in your particular field. There are three universal requirements for any business seeking to participate in this program, however.

At least 51% of your employees and assets must be within the US
Your business must qualify as a small business according to SBA size standards
Your business must be in an approved industry (certain industries, such as farming, real estate, and financing, are not on the approved list)

Equity Crowdfunding

Equity crowdfunding is a new form of equity investing. It was legalized in 2012 with the passage of the JOBS act to allow everybody the ability to invest in companies conducting equity crowdfunding campaigns. It’s like backing a Kickstarter project, except instead of sending money to a campaign in exchange for a product or some branded merchandise, you invest in a company in exchange for equity in the company.

Essentially, equity crowdfunding websites put you in touch with a crowd of potential angel investors, only instead of receiving a large investment from one angel investor, you’ll receive lots of much smaller investments (often as low as $20) from armchair investors who liked what they saw in your online crowdfunding campaign (that is, if your campaign is successful).

Thus far, the equity crowdfunding industry hasn’t taken off in the way those who pushed the passage of the JOBS act had imagined. Nonetheless, many companies have managed to attract investments this way, and it presents entrepreneurs with a way to go around the VC companies and the big angel investors to appeal directly to the public for investments. If you think your business project has mass appeal, but you haven’t been able to secure any VC or angel investor capital, consider an equity crowdfunding campaign.

If you’re interested, check out our article on how equity crowdfunding differs from “regular” crowdfunding. If you’re wondering which equity crowdfunding sites might suit your business, have a look at our piece detailing seven leading equity crowdfunding sites for entrepreneurs.

Equity Financing VS Debt Financing: Key Differences

In case there is any confusion, let’s differentiate between equity financing and debt financing.

When you take out a small business loan from your bank, or when you buy a Playstation 4 using your credit card, that’s debt financing. Your creditor (your bank in the first example, your credit card issuer in the second) doesn’t own or control any part of your business (or your PS4). Rather, you simply have to pay back your lender with interest. That’s great if you’re able to pay back what you borrowed — you’ll have no further obligations to your creditor! Of course, this arrangement involves you bearing risk. If you’re unable to make your required payments on your debt, your creditor can go to court, have your assets seized, wages garnished, and just generally make your life hell.

By contrast, equity financing involves less risk to you (and more risk to the investor). If you’re able to secure equity investment in your business and your business ends up crashing and burning, you don’t have to repay your investors. They take the loss on the investment, not you. Of course, the flip side of this is that equity financing will cost you if your business is successful. That’s because your equity investors will be entitled to their portion of your business profits for as long as they own shares of your company, which may well be the entire life-span of your business (unless you buy them out, which will almost certainly cost you more than the amount of the initial investment).

Is Equity Financing Right For Your Business?

Any comparison of debt and equity financing wouldn’t be complete without noting the simple fact that equity financing is harder to obtain than debt financing. The primary sources of equity investment — venture capital firms and angel investors — usually look for early-stage companies with explosive growth potential, often tech companies. If your business venture doesn’t have expansive, global ambitions and is more locally-oriented, you’re much more likely to find success securing debt financing than equity financing.

That’s not to say that a smaller/more local business could never get equity investment. However, you’ll likely have to turn to alternative sources of equity investment, such as equity crowdfunding or friends/family.

Let’s get down to brass tacks. Is equity financing right for you and your business?

Equity financing is right for you if:

Your business has exponential growth potential
You are an entrepreneur looking for a mentor for guidance (angel investors like to mentor)
You want to avoid going into debt to finance your business
You have global ambitions for your company

Debt financing may be better for you if:

Your business does not yet have a plan for rapid growth
You want to retain complete control over your company and all future business profits
Your company only serves the local market
You want to raise capital without concerning yourself with federal securities laws and regulations

Final Thoughts

Equity financing isn’t a funding route for every business venture. However, if you think it’s a route worth pursuing to fund your new business, just know that there are multiple ways to seek equity investment.

If you decide that traditional debt financing is a better bet for your business, have a look at our full set of business loan reviews! It’s filterable!

The post Types Of Equity Financing For Businesses appeared first on Merchant Maverick.

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April 5, 2019

What Is A Sole Proprietorship?

Before you launch your business, you have to check a few items off your to-do list. Perhaps you have to purchase inventory, find a commercial building to lease, and explore different types of business software. Maybe you operate a home-based business so your list isnât as extensive. No matter what type of business you plan to open, though, thereâs one thing all business owners must do: select a business structure.

Thereâs no getting around choosing your business structure. The way your business is set up determines both how youâll file your taxes and how much youâll pay. Your business structure may provide you with personal liability protection against the debts and obligations of the business. It will also determine specific requirements for your business, from registering with your state to ongoing requirements (like holding meetings and recording meeting minutes).

If your business has just one owner, one business structure to consider is the sole proprietorship. But before you make that critical decision, itâs important to understand what a sole proprietorship is, registration and paperwork requirements associated with this structure, and the benefits and drawbacks of being a sole proprietor.

While the business structure you choose should ultimately be whatâs best for your business, we hope to make the decision process a little easier by breaking down exactly what to expect as a sole proprietor. Keep reading to find out more.

Sole Proprietorship Definition

Merriam-Webster defines a sole proprietorship as âa business owned and controlled by one person who is solely liable for its obligations.â

Letâs break down this definition. A sole proprietorship is a business that belongs to and is run by only one person. If your business has multiple owners, youâll be unable to operate as a sole proprietorship.

In aÂ sole proprietorship, the owner alone is liable for the obligations of the business. A sole proprietorship is not a separate legal entity. This means that the ownerÂ — you — is responsible for the debts, obligations, and liabilities of the business. Your personal assets may be seized to fulfill debts, and lawsuits can be brought against you personally.

Many people choose this structure because a sole proprietorship is the quickest, easiest, and most inexpensive way to start and operate a new business. A sole proprietor is not required to register with the state. Simply engaging in business activities legally establishes a sole proprietorship. However, the sole proprietor is still required to apply for the appropriate business licenses and permits needed to legally operate in their state.

Sole proprietors can operate under their own legal names or can create a fictitious trade name when doing business. Using a trade name does not establish a separate legal entity, and the business owner will still be held responsible for the liabilities of the business.

Sole proprietors do not have to file separate tax returns for their businesses. Instead, these business owners report business profits, losses, and expenses on a Schedule C form. Self-employment tax for the sole proprietor is reported on a Schedule SE. The Schedule C and Schedule SE are both filed with the business ownerâs Form 1040.
Weâll dive deeper into the benefits and drawbacks a little later in this article.

Next, weâll compare sole proprietorships to other business structures so you can better determine which works best for you.

How Is A Sole Proprietorship Different From A Partnership?

The biggest difference between a sole proprietorship and a partnership is the number of owners of the business. A sole proprietorship has a single owner. A partnership has two or more owners.

Comparing a sole proprietorship with a limited partnership (LP) and limited liability partnership (LLP) reveals a few additional differences. With these types of partnerships, limited partners are protected from personal liability. These partnerships are also more expensive and more complicated to form because they require registering with the state.

Other than the number of owners, a sole proprietorship and a general partnership (GP) are very similar. Neither has to be registered with the state to exist. The profits and losses for a sole proprietorship and general partnership are also filed on personal tax returns.

How Is A Sole Proprietorship Different From A Corporation?

A sole proprietorship is very different from a corporation. A corporation is the most expensive business entity to form, whereas a sole proprietorship is very inexpensive. Corporations must be registered with the state. There are also multiple ongoing requirements corporations must meet, such as holding meetings and having a board of directors. Sole proprietors do not have to register and there are no ongoing requirements.

Corporations may have multiple owners, whereas a sole proprietorship has just one owner. Corporations can also raise capital through the sale of stock — something a sole proprietor can not do.

Corporations also offer the best personal liability protection for its owners. As previously discussed, sole proprietors are held personally responsible for the liabilities of the business.

Another big difference between sole proprietorships and corporations is how each business structure is taxed. Sole proprietors are able to report business profits and losses on their personal tax returns. Corporations are taxed differently — a corporation is the only business structure that must pay separate income taxes. If dividends are paid to shareholders, shareholders must report this on their personal tax returns, resulting in double taxation for the corporation.

How Is A Sole Proprietorship Different From An LLC?

A limited liability company, or LLC, combines benefits of different business entities. An LLC must register with the state, and there are some fees associated with starting an LLC. This is in contrast with sole proprietorships, which are not required to register and are the least expensive to start.

Another difference between the two is that LLCs have liability protections in place to protect the personal assets of the owners. Sole proprietors do not receive these same protections. LLCs may also have multiple owners, whereas a sole proprietorship is limited to a single owner.

There may also be differences in how the LLC is taxed. Owners of an LLC can choose how they are taxed. In some cases, they may opt to be taxed as a sole proprietorship. In other cases, however, owners may choose to be taxed as a partnership or corporation.

What Types Of Businesses Are Sole Proprietorships?

A sole proprietorship is best for businesses with one owner that wants full control of the business without complicated requirements or additional expenses. Self-employed business owners, home-based businesses, independent contractors, and even some franchise owners may choose this business structure.

Any business can be a sole proprietorship provided there is just one owner and the owner is aware of the benefits and risks of this business structure. Smaller businesses are better suited for sole proprietorships. Companies that plan to grow much larger and want to take out business loans or raise large amounts of capital in the future would benefit from another business structure, such as a corporation or LLC. Some common small businesses that are sole proprietorships include:

Home Healthcare Businesses
Catering Companies
Housekeeping Services
Virtual Assistants
Freelance Writers, Editors, Or Designers
Tutors
Computer Repair Technicians
Landscapers
Bookkeepers

Regardless of what type of business you operate, the business structure you select should be based on the long-term needs and goals of your business.

Benefits Of Sole Proprietorships

After breaking down the definition of a sole proprietorship, you should have at least some idea of why business owners would choose this structure. However, letâs take a closer look at the full list of benefits of operating your business as a sole proprietor.

Less Expensive: Sole proprietorships are the easiest and least expensive forms of business structures. This is ideal for business owners that aim to keep their startup costs as low as possible.
No Registration Required: Sole proprietors simply need to participate in business activities to exist. No state registration is required. However, any applicable permits and licenses will need to obtained to legally operate in your state.
No Ongoing Requirements:Â Sole proprietors are not required to hold meetings, record meeting minutes, or have a board of directors.
Full Control Of The Business: As a sole proprietor, you will be the sole owner of your business. There are no additional owners or shareholders to consider. You get to make all business decisions and you receive all of the profits.
Easier Tax Returns: Sole proprietors can file their business profits, losses, and expenses on their personal tax returns with just two additional forms.

Drawbacks Of Sole Proprietorships

While being a sole proprietor definitely comes with its benefits, there are also drawbacks to consider when youâre weighing out your decision. Those drawbacks include:

No Liability Protection: As a sole proprietor, you will be held responsible for the debts, obligations, and liabilities of your business. If you default on a loan, lenders can come after your personal assets, such as your bank account, vehicle, or real estate. If your business goes bankrupt, your personal finances could be affected. Finally, lawsuits can be filed against you personally, which would also put your assets at risk.
Financing Challenges: As a sole proprietor, getting business financing can be a challenge. Most lenders — from traditional lenders like banks to online alternative lenders — only provide financing to registered entities. Sole proprietors also canât sell stock in the business as a way to raise capital. As a sole proprietor, you may have to get more creative with your financing, such as launching a crowdfunding campaign or taking out a personal loan for business.

Final Thoughts

For many aspiring business owners, operating a sole proprietorship is the right path to entrepreneurship. However, what works for some doesnât always work for others. After weighing out the pros and cons of a sole proprietorship, consider consulting with an accountant and/or attorney to help determine if a sole proprietorship will meet the needs and goals of your business.

Ready to learn more? Download our free beginner’s guides for business. You can also learn more about the different types of business structures to help you further pinpoint which option is best for you.

The post What Is A Sole Proprietorship? appeared first on Merchant Maverick.

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April 2, 2019

Types Of Business Structures: The Complete Guide

If youâre starting your own business, one of the first steps is choosing a business structure. The legal structure of your business determines how much you pay in taxes, paperwork requirements for your business, your ability to raise money, and your personal liability for the debts and obligations of your business.

Every business is different, so the legal structure you choose should be based on the specific needs and goals of your business. The best option for one business may not be best for you, even if youâre in the same industry.

Before you make your choice, the first thing on your to-do list should be to have an understanding of the characteristics of each business structure. In this article, weâll break down different business structures and the benefits and drawbacks of each to help you make the most informed decision for your business.

Sole Proprietorship

A sole proprietorship is the most basic business structure. A sole proprietorship is an unincorporated business that is owned and operated by one person. If you engage in business activities, you are legally considered a sole proprietor. There is no need to formally register your business. However, depending on the type of business you own, you may still be required to get the state and local licenses and permits needed to legally operate your business.

Under a sole proprietorship, you may operate under your own name or a fictitious name — also known as a trade name. This trade name does not create a legal entity separate from the owner.

The owner of the sole proprietorship records the income and losses of the business on their personal tax return by filing a Schedule C form. Sole proprietors also file a Schedule SE for paying self-employment tax. These forms are filed with the standard Form 1040.

Many small business owners choose to operate as sole proprietors because of how quick, easy, and inexpensive it is to get started. However, this type of legal structure isnât without its drawbacks.

One of the biggest downsides is that a sole proprietorship is not a separate legal entity. In fact, it is indistinguishable from its owner. This means that the business owner can be held personally liable for the debts and obligations of the business. If your business is sued for negligence, for example, your personal assets — such as your bank account and personal real estate — could be at risk. If you default on a business loan, your personal assets could be seized to repay the debt.

Sole proprietorships are best for low-risk businesses. Some entrepreneurs start off as a sole proprietorship when testing out a business idea before reorganizing under another business structure. Most commonly, sole proprietorships are selected by service professionals, freelancers, and consultants.

Pros & Cons Of Sole Proprietorships

Is a sole proprietorship right for your business? Consider these pros and cons before deciding.

Pros

Easy & Inexpensive: There are no costly fees associated with setting up a sole proprietorship. In fact, you donât even have to register at all. Simply buying and selling goods or performing other business activities classifies your business as a sole proprietorship.
No Ongoing Requirements: Unlike other business structures, a sole proprietorship does not have requirements such as meetings or voting.
Simplified Taxes: You do not have to file a separate tax return for your sole proprietorship. Instead, you simply attach your Schedule C and Schedule SE to your personal income tax return. You will also have your earnings taxed just once, and you can write off your business losses on your personal return.

Cons

Unlimited Personal Liability: As a sole proprietor, you would be responsible for the debts, obligations, and liabilities of your business. Your personal assets could be put at risk, and lawsuits can be filed against you.
Financing Difficulties: Getting extra capital when you need it can be difficult as a sole proprietor. Banks, credit unions, and even some alternative lenders are hesitant to loan money to sole proprietors. You also will be unable to sell stock to raise money.

Partnership

Businesses that have two or more owners may consider forming a partnership because it is quick, easy, and inexpensive. A partnership is the simplest business structure for businesses that have multiple owners. Like a sole proprietorship, you are not required to register your partnership. Simply coming to an agreement with other owners and engaging in business activities is enough to establish a partnership. However, you may still be required to obtain the appropriate licenses and permits required to legally operate your business. You may also be required to register your partnership with your state depending on the type of partnership you form.

When itâs tax time, a Form 1065 is filed with the IRS to report income, losses, gains, deductions, and credits. The partnership does not directly pay income taxes, but instead, âpasses throughâ profits and losses to each partner, who report this information on their personal tax returns. Profits or losses are recorded on a Schedule K-1, which is filed with personal tax returns. All partners are also required to pay self-employment tax based on their share of the companyâs profits.

Before establishing a partnership, itâs always important to ensure the right partners are selected. Disagreements between partners can hinder business growth and even be the downfall of a business.

While any business with two or more owners can form a partnership, this business structure is best for low-risk businesses and professional groups. Like sole proprietorships, this structure is also a good way to test out a new business idea. If the business is successful, owners may take the next step to growth by reorganizing as a corporation.

Types Of Partnerships

Weâve established the basic definition of a partnership. However, there are three different kinds of partnership to consider. The primary difference between the three lies in the personal liability of each partner.

General Partnership

In a general partnership (GP), all owners are considered general partners. Each partner manages the business and is an active participant in day-to-day operations. Each partner is also personally liable for the debts, obligations, and liabilities of the partnership.

Limited Partnership

With a limited partnership (LP), there is one general partner that is responsible for managing the business and overseeing day-to-day operations. The remaining partners are limited partners that do not participate in managing the business and have limited control. These partners are investors only and are commonly known as âsilent partners.â In this type of partnership, only the general partner can be held personally liable for the debts, obligations, and liabilities of the business.

Limited Liability Partnership

A limited liability partnership (LLP) is made up of limited partners. Partners are not personally liable for the debts, obligations, and liabilities of the business. Partners will also not be held personally responsible for the actions of another partner.

Pros & Cons Of Business Partnerships

With the right people, a partnership can be very successful. There are several benefits to forming a partnership. Before you get started, though, itâs also important to understand the risks and drawbacks associated with this business entity.

Pros

Minimum Requirements For GPs: General partnerships have minimum requirements and do not require filing with the state. Partnerships are also not subject to the same requirements as corporations, such as holding meetings, recording meeting minutes, and establishing bylaws.
Tax Requirements: Partnerships are not required to pay taxes on income, and partners can report their share of profits or losses on their personal income tax returns. Business losses can also be deducted on personal tax returns.
Raising Capital For LPs & LLPs: Businesses that choose to form an LP or LLP may be able to raise capital from their investors.

Cons

Personal Liability: General partners are personally liable for the debts, obligations, and liabilities of the business. Each partner may also be held accountable for the actions of other partners.
Financing Challenges For GPs: General partnerships may have difficulties getting loans or other types of business financing if the business is not a registered entity.
Costs: While forming a general partnership is easy and inexpensive, forming a limited partnership or limited liability partnership may be more expensive and requires filing with the state.

Corporation

A corporation is the most expensive and complicated business structure. If you plan to raise capital through the sale of common or preferred stock, your business will need to be set up as a corporation.

There are no limitations on how long a corporation can exist. If an owner dies or retires, the corporation does not have to be dissolved.

Corporations are independent legal entities and are separate from their owners. The good news is that this provides the owners with the best liability protection. The bad news is that there are more regulations and tax requirements for this type of legal structure. Most corporations hire an attorney to ensure the corporation is set up and maintained according to state regulations.

Depending on the type of corporation, double taxation may also be a concern. This means that corporations pay federal and state corporate income tax, while shareholders also report dividends on their personal tax returns. Many corporations enlist an accountant and/or tax preparer to ensure returns are filed correctly, which adds an additional business expense.

Types Of Corporations

If you plan to grow your business in the future and want to raise large amounts of capital to fund that growth, a corporation could be the best legal structure for your business. Before you make that decision, though, there are a few different types of corporations. Letâs explore the differences between each type.

C-corporation

A C-corporation, or C-corp, is your basic corporation. This business entity is completely independent of its owners. With a C-corp, owners have the best protection from personal liability. C-corps can raise capital through the sale of stock and make profits, but double taxation, higher costs associated with formation, and more legal requirements are drawbacks of this business structure.

S-corporation

An S-corporation, or S-corp, is different from a C-corp because it is used to avoid double taxation. Profits and losses of the business can be passed through to the personal tax returns of the owners without being subject to corporate tax rates. To form an S-corp, a filing with the IRS is required.

Another way that an S-corp differs from a C-corp is that there is a limit on the number of shareholders. An S-corp may only have up to 100 shareholders, which could limit the amount of capital raised by the business.

B-corporation

A B-corporation, or B-corp, is similar to a C-corp in how it is taxed. However, a B-corp must offer a benefit to the public in addition to making a profit. In some states, an annual report must be filed to prove that the company is providing a benefit to the public.

Close Corporation

A close corporation is similar to a B-corp but is a structure typically used by smaller businesses. Close corporations are generally prohibited from public trading. Shareholders run this type of corporation, and a board of directors is not required.

Pros & Cons Of Corporations

There are big benefits that come along with forming a corporation, but like other entities, there are also negative aspects to consider before choosing a corporation as your business structure.

Pros

Ability To Raise Capital: Corporations give you the biggest opportunities for raising large amounts of capital through the sale of stock.
Limited Personal Liability: Corporations offer the most protection against personal liability for shareholders.
Some Tax Benefits: C-corporations offer more tax deductions than other business entities, as well as lower self-employment taxes. S-corporations also offer the additional benefit of no corporate tax rates or double taxation.

Cons

Higher Cost To Form: It is more expensive to form a corporation than any other business structure.
More Requirements: Corporations have more ongoing requirements, including holding meetings, recording meeting minutes, and establishing bylaws.
Shareholder Restrictions: The number of shareholders is restricted to 100 or less if you create an S-corp.
Higher Taxes: C-corps face double taxation. Business losses also canât be deducted on personal income tax returns.

Limited Liability Company (LLC)

Business owners that want the best of both worlds may consider forming a limited liability company, also known as an LLC. An LLC combines the benefits of other business entities to keep taxes and business requirements lower than corporations while also offering personal liability protection for its owners. All members of the LLC can fully participate in the operations of the business.

LLCs must be registered with the secretary of state in the state where the business will operate. In some states, an operating agreement will also need to be filed.

In an LLC, owners have limited liability, in most cases protecting their personal assets from being taken to pay off business debts and obligations, just like a corporation. Personal assets will also be protected in the event that the business files for bankruptcy.

Owners can select how an LLC is taxed by the Internal Revenue Service. LLCs can be taxed like a corporation, or the profits and losses can be passed through to the LLC members and filed on personal tax returns. Members must file a Form SE to pay self-employment taxes.

An LLC is best for any business that wants to protect the personal assets of its members. Itâs also a good choice for businesses that want the benefits of a corporation without paying corporate tax rates.

Pros & Cons Of LLCs

Will forming an LLC best meet the needs of your business? Only you can answer this question, but make sure to fully evaluate the pros and cons of forming an LLC before making your decision.

Pros

Limited Liability: One of the biggest benefits of an LLC is that all members have limited liability, meaning personal assets arenât at risk in most cases.
Tax Benefits: With an LLC, you have the option to choose how your business is taxed.
Fewer Requirements: There is less paperwork and fewer ongoing requirements for an LLC when compared to a corporation.
No Shareholder Limits: An LLC has no limits to its number of shareholders.

Cons

Expensive & Time-Consuming To Set Up: Because you will have to register with the state where you conduct operations, setting up an LLC is more expensive and time-consuming than forming an entity like a general partnership or sole proprietorship. You may also need to hire an accountant to help ensure youâre complying with the rules and regulations of your state — adding an additional expense to your list.
Limited Life: If a member quits, dies, or retires, the LLC may be dissolved. Some states even have laws in place that require an LLC to dissolve after a set number of years.

Nonprofit

Most businesses have one primary goal: to make a profit. One business structure is the exception: nonprofits. A nonprofit — or 501(c)(3) — is a business that is beneficial to the public.

Nonprofit corporations follow a set of rules and regulations similar to other types of corporations. However, nonprofits also have additional rules governing how profits are used. For example, profits canât be distributed to members of the corporation.

Another difference between nonprofits and other corporations is that this type of business entity may be exempt from state and federal income taxes. However, nonprofits must register with the IRS to receive this exemption, in addition to registering with the state.

Religious, educational, literary, and scientific organizations may be eligible for nonprofit status. Charities are also businesses that are formed as nonprofits.

Pros & Cons Of Nonprofits

If the goal of your business is to benefit the public, a nonprofit structure may be the right choice for you. However, if your goal is to make a profit, consider choosing another business structure. Before you make your decision, weigh out these pros and cons:

Pros

Tax Exemption: Qualifying organizations may be exempt from paying corporate income tax, as well as state and local taxes.
Tax Deductions: Charitable contributions by a nonprofit may be tax-deductible.
Limited Liability: All founders, directors, employees, and members of the nonprofit are not liable for the debts and obligations of the nonprofits … in most cases. There are, however, some exceptions, such as when the organization is engaged in illegal activity.
Grant Opportunities: Nonprofits may be eligible for public and private grants not available to for-profit businesses.

Cons

Paperwork Requirements: Nonprofits must submit annual reports to state agencies and the IRS in order to maintain tax-exempt status.
Costs: Starting a nonprofit can be expensive in terms of time and money. Nonprofits must pay fees, and most organizations opt to hire attorneys, accountants, and/or consultants to make sure records are kept up-to-date and all regulations are followed.
Stricter Policies: In addition to following state laws and regulations, nonprofits are also required to follow their own bylaws and articles of incorporation.

Cooperative

A cooperative, or co-op, is a type of business that operates for the benefit of its members. Members of a co-op are known as user-owners and have the right to vote on important decisions surrounding the growth and direction of the business. Officers and a board of directors are responsible for running the co-op.

Any type of business can become a cooperative if the goal of the business is to benefit the user-owners. Businesses that aim to sell their products or services to consumers for a profit would be better suited to form another type of business entity.

Pros & Cons Of Cooperatives

If youâve thought about your goals and you think a cooperative may work for your business, read through these pros and cons before you make your final decision.

Pros

Everyone Has A Voice: Member-owners get to weigh in on key issues and decisions of the business. Regardless of how many shares a member-owner holds, all votes are weighed equally.
Member Investments: Member-owners buy into a cooperative, providing a source of capital that can be used for operational expenses or expanding the business.

Cons

Funding Challenges: Finding startup loans and other types of funding through traditional lenders may be difficult. Cooperatives have to get creative with other funding sources, such as launching a crowdfunding campaign or applying for small business grants.
Slow Decision-Making: Voting and making decisions can be a lengthy process. This can put the cooperative at a disadvantage if a critical decision must be made immediately.

Final Thoughts

Ultimately, the type of business structure you select is based on the current and future goals of your business. You should consider the long term plan before choosing your business structure. While you can always reorganize if needed, this process can be lengthy and expensive. If youâre still having difficulties choosing the right business structure, consider consulting with an accountant, business consultant, and/or attorney to weigh out the pros and cons of each and make the decision thatâs best for your business. Once you’re ready to your business off the ground, check out our beginner guides for business to get started on the right track.

The post Types Of Business Structures: The Complete Guide appeared first on Merchant Maverick.

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February 12, 2019

The Best Business Loan And Financing Resources For Florida Small Businesses

Does finding capital for your small business seem like an insurmountable task? While it may seem impossible on the surface, the secret is that there are lots of lenders willing to finance your business. The key is knowing where to look.

If youâre a small business owner in Florida, youâre in luck. There are many options to consider when itâs time to apply for small business financing. Whether youâre new to the game and need money for startup costs or youâre an established small business looking to expand, weâve got you covered.

In this guide, weâll explore the financing options available to you. Weâll cover national lenders that offer easy online applications and take a look at local banks and credit unions. Weâll explore small business grants which give you free (yes, free!) money for your business. Finally, weâll take a look at the options available to startups. Ready to get your financing? Letâs go!

Online Business Lenders For Florida Businesses

The internet has made our lives more convenient than ever. From online banking to communicating with family and friends to watching our favorite funny cat videos on YouTube, the internet has changed the way we interact with the world.

For small business owners, the internet has also opened up new opportunities in lending. Just a few decades ago, getting a business loan meant heading to your local bank, presenting your pitch, and waiting for that phone call approving your loan â¦ or, more likely, turning you down. Today, you can apply for loans, lines of credit, credit cards, and other financial products from the comfort of your home or office.

Not only is the application process easier, but now, small business owners that wouldnât qualify for bank loans have options as well. No matter your industry, time in business, annual revenue, or personal credit score, thereâs an online lender that can help you get the financing you need.

Lendio

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Time in business: 6 months Business revenue: $10,000 per month Personal credit score: 550 Borrower requirements (click to expand) Hide

Want to shop options without filling out a million applications? Give Lendio a try. Lendio isnât a direct lender. Instead, itâs a loan aggregator, connecting you with more than 75 financing partners with just one application.

Through Lendio, you can apply for all types of small business financing. If you need a large amount of capital to fund your expansion, apply for a low-interest, long-term Small Business Administration loan. Looking for a flexible form of financing? See if you qualify for a line of credit or business credit card. Need new equipment for your business? Try equipment financing.

Some of the financial products offered through Lendioâs network include:

Small Business Administration Loans: $50,000 to $5 million with terms up to 25 years
Lines Of Credit: $1,000 to $500,000 with terms up to 2 years
Equipment Financing: $5,000 to $5 million with terms up to 5 years
Term Loans: $5,000 to $2 million with terms up to 5 years
Short Term Loans: $2,500 to $500,000 with terms up to 3 years
Merchant Cash Advances: $5,000 to $200,000 with terms up to 2 years
Commercial Mortgages: $250,000 to $5 million with terms up to 25 years

Borrower requirements, rates, and terms vary based on the type of loan you select, the lender you work with, your borrowing amount, and your creditworthiness. Applying with Lendio to receive offers does not affect your credit score. However, if you move forward with a lender’s offer, a hard credit pull may be required.

SmartBiz

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Must be in business at least 2 years. Must have a personal credit score of 650 or above. Must have a business credit score of 150 or above. Borrower requirements (click to expand) Hide

Have you tried to receive a bank loan, but your application was rejected? Youâre certainly not alone. Most small business owners find that receiving a low-cost, long-term loan from a bank is difficult. This is because banks take a hard look at risk. Banks and credit unions want to work with low-risk borrowers — established businesses with solid business and personal credit profiles and high annual revenues.

For many new and growing businesses, meeting these requirements is impossible. But this doesnât mean that youâre stuck with only high-interest, short-term loan options. You can receive affordable financing with great terms by applying for a Small Business Administration loan.

These loans are backed by the SBA, so banks, credit unions, and nonprofit lenders feel more comfortable loaning to small businesses â even those with less-than-perfect credit or low revenues. The SBA takes on some of the risk for lenders, while small business owners get to enjoy flexible, affordable loan options.

You can apply for an SBA loan through your bank or credit union. Or you can do what many busy entrepreneurs do and apply through SmartBiz.

With SmartBiz, you can pre-qualify for an SBA loan in just minutes with no effect on your credit score. You may be eligible to receive funding as quickly as 7 days after completing your application — much faster than the weeks it may take through your bank.

SmartBiz offers two types of SBA loans. Working capital and debt refinancing loans are available in amounts of $30,000 to $350,000. These funds can be used for a variety of purposes including:

Refinancing Debt
Equipment Or Inventory Purchases
Hiring Employees
Business Expansions
Marketing Costs

To qualify for a working capital and debt refinancing loan, you must meet the following requirements:

At least 2 years in business
Personal credit score of 640 or above
Sufficient cash flow to support loan payments
No outstanding tax liens
No bankruptcies or forecloses within the last 3 years
No previous defaults on government-backed loans

Working capital and debt refinancing loans have interest rates between 8.25% and 9.25% with repayment terms of 10 years.

You can also apply for an SBA 7(a) commercial real estate loan. These loans start at $500,000 and can go up to $5 million; they can be used to purchase commercial real estate or refinance your existing property loan. Funds canât be used to purchase investment properties or to fund the construction of a new commercial building.

To qualify for an SBA 7(a) commercial real estate loan, you must meet the following borrower requirements:

The property must be at least 51% owner-occupied
At least 3 years in business
Personal credit score of 675 or above
Sufficient cash flow to support loan payments
Property purchase price must be higher than $500,000
No outstanding tax liens
No previous defaults on government-backed loans

SBA 7(a) commercial real estate loans have interest rates of 7% to 8.25% with repayment terms of 25 years.

If you donât want to apply for an SBA loan or need funding quickly, SmartBiz has also partnered with banks to offer competitive term loans. These loans are available in amounts from $30,000 to $350,000 with terms of 2 to 5 years. Fixed interest rates range from 6.99% to 26.9%.

OnDeck

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Time in business: 12 months Business revenue: $100,000 per year Business industry: Must not be in aÂ restricted industry Personal credit score: 550 Borrower requirements (click to expand) Hide

If you donât qualify for an SBA loan or you need money fast, you could get the capital you need with an alternative online lender like OnDeck. OnDeck offers two financial products for small businesses: term loans and lines of credit.

With an OnDeck term loan, you could qualify to receive up to $500,000. OnDeck offers short-term loan options with terms of 3 to 12 months. These loans are best for purchasing inventory, paying marketing expenses, or seasonal hiring or inventory needs. Short-term loan options have a simple interest rate starting at 9%.

Long-term loan options are also available with terms of 15 to 36 months. These loans are best for larger projects including purchasing equipment or business expansion. Annual interest rates for long-term loans start at 9.99%.

For both loan options, fixed daily or weekly payments are automatically deducted from your business bank account. To qualify for OnDeck loans, you must:

Have a time in business of at least 12 months
Have at least $100,000 in annual revenue
Have a personal credit score of 500 or above

If you want a more flexible financing option, you can apply for a line of credit up to $100,000. You can use your line of credit whenever you need it, including when you have unexpected expenses or gaps in cash flow.

The APR for an OnDeck line of credit starts at 13.99%. Fixed weekly payments are automatically taken from your business bank account. There are no draw fees, but a monthly maintenance fee of $20 is required. This fee is waived for 6 months if you draw at least $5,000 within 5 days of opening your account.

To qualify for an OnDeck line of credit, you must meet the following requirements:

Time in business of at least 1 year
At least $100,000 in annual revenue
A personal credit score of 600 or above

Fundbox

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No time in business requirements, but must have used a compatible accounting or invoicing software for at least 2 months, or a compatible business bank account for at least 3 months. Business revenue: $50,000 per year No specific personal credit score requirement Borrower requirements (click to expand) Hide

If a flexible line of credit seems like the best option for your business, consider giving Fundbox a shot. Fundbox is unique in that the performance of your business — not your personal or business credit score — is the most important qualifying factor.

With Fundbox, you can receive a line of credit up to $100,000. Your line of credit can be used for nearly any business purpose, from buying inventory and supplies to covering payroll or an unexpected emergency. You can make multiple draws from your line of credit, and funds can be transferred to your account as quickly as the next business day.

Fundbox fees start at 4.66% of the draw amount. You can choose from 12- or 24-week terms, and repayments are automatically deducted from your business bank account each week. If you repay your balance early, remaining fees are waived. No fees are charged if you donât use your line of credit.

To qualify for a Fundbox line of credit, you must have:

A business checking account
At least $50,000 in annual revenue
A U.S.-based business
At least 3 months of transactions in a business bank account OR at least 2 months of activity in supported accounting software

A soft credit inquiry is performed during the application process, so your credit will not be affected just by applying. After youâre approved and draw funds for the first time, a hard credit inquiry will be performed.

BlueVine

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For invoice factoring: Time in business: 3 months Business revenue: $100,000 per year Business type: Business-to-business Personal credit score: 530 For business lines of credit: Time in business: 6 months Business revenue: $120,000 per year Personal credit score: 600 Borrower requirements (click to expand) Hide

BlueVine is another lender that offers flexible lines of credit. However, this lender also offers an additional option for qualified borrowers: invoice factoring.

With a BlueVine line of credit, you could qualify to receive up to $250,000. Rates start at 4.8%, and you only pay for the used portion of funds. Your line of credit can be used for any business purpose. Weekly repayments are automatically taken from your business bank account.

To qualify for a line of credit, you must have the following:

A personal credit score of 600 or above
A time in business of at least 6 months
At least $100,000 in annual revenue

If you have unpaid invoices, you may qualify for BlueVineâs invoice factoring service. Factoring lines of up to $5 million are available for qualified borrowers. Rates start at just 0.25% per week.

With invoice factoring, youâll submit an application to BlueVine. Once approved, you can automatically sync your invoices from a supported accounting software. You can also upload your invoices to the BlueVine dashboard.

Once your invoices are received, BlueVine pays you 85% to 90% of the invoice amount up front. Once the invoice has been paid, youâll receive the remaining funds, less fees charged by BlueVine.

To qualify for BlueVineâs invoice factoring, you need:

A B2B business
A personal credit score of 530 or above
A time in business of at least 3 months
At least $100,000 in annual revenue

Amex Business Loans

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Time in business: 24 months Business revenue: $50,000 per year Personal credit score: Good to excellent Other: Must accept Amex cards or have an Amex business credit card (depends on the type of financing you are applying for) Borrower requirements (click to expand) Hide

If youâre an American Express business cardholder, you may qualify for an AmEx business loan. The great thing about these loans is that no credit check is required since American Express already has your information on file.

With an Amex business loan, you can receive $3,500 to $50,000 for any business purpose. The only restrictions are that funds canât be used to pay for personal expenses or to repay debts to American Express. Repayment terms of 12, 24, or 36 months are available. Fixed interest rates are 6.98% to 19.97%.

To qualify, you must meet the following requirements:

Be at least 18 years old
Be a U.S. citizen or permanent resident
Have an American Express Business Card and be in good standing

Upstart

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Time in business: N/A Personal credit score: Minimum 620 Business revenue: N/A Borrower requirements (click to expand) Hide

If youâre a new business, meeting the time in business or annual revenue requirements of business loans may be difficult. However, if you have at least a fair credit score, you have a financing option: using a personal loan for business expenses.

With a personal loan, your personal information, including your credit score and annual income, are used to determine if you qualify. Since this isnât a business loan, annual revenue, business credit score, and time in business requirements wonât be a consideration for approval.

Upstart offers a personal loan option that may work for you. When you apply for a personal loan, you may qualify to receive $1,000 to $50,000. Rates with Upstart begin at just 8.09% for the most creditworthy borrowers. Maximum APRs are 35.99%. Payments are made monthly over a period of 3 to 5 years.

Unlike other lenders, Upstart looks at more than just your credit score. While this is still a factor in qualifying for a personal loan, your credit history, education, and job history are also considered for approval.

To qualify for an Upstart loan, you must have:

A credit score of at least 620
A solid debt-to-income ratio
No bankruptcies or public records
No delinquent accounts
No public records
Less than 6 credit inquiries over the last 6 months
At least $12,000 in annual income

Banks, Credit Unions, & Nonprofit Lenders In Florida

If you want loan options with extremely competitive rates and terms, consider applying for financing through a bank, credit union, or nonprofit lender. Weâve compiled some of the top options in the state of Florida that offer everything from traditional business loans to commercial mortgages and SBA loans.

Florida First Capital Finance Corporation

Florida First Capital Finance Corporation has been licensed by the SBA since 1984. Since that time, this nonprofit Certified Development Company has helped small businesses through the SBA 504 loan program.

Funds through the 504 program can be used to purchase commercial real estate, machinery, or equipment. Funds may also be used to refinance qualifying debt. Through the 504 loan program, Florida First Capital Finance Corporation provides up to 40% of loan funds. A traditional commercial lender provides up to 50% of loan funds. The remaining project balance is paid by the borrower as a down payment.

To qualify for a 504 loan, you must meet the following criteria:

Own a small business that meets the size standards set by the SBA
Be a U.S. citizen or registered alien
Operate a for-profit business
The net worth of the business must be $15 million or less
Average net income of the business must be $5 million or less
Business canât be engaged in rental real estate investment

Suncoast Credit Union

Suncoast Credit Union is the largest credit union in the state of Florida. Branches are located in and around the Tampa area, and online services are available to members.

Through Suncoast Credit Union, you can apply for multiple financial products for your small business. In addition to business checking and savings accounts, payroll services, and employee benefits, Suncoast Credit Union also offers:

Business Lines Of Credit
Commercial Real Estate Loans
Vehicle & Equipment Loans
SBA Loans
Business Credit Cards

Rates, terms, and borrowing amounts vary by product selected and your creditworthiness.

To become a member of Suncoast Credit Union and be eligible to apply for business financing, you must have an immediate family member that has joined, live in a qualifying county in Florida, or be a Florida College alumnus.

Chase Bank

Chase Bank is one of the largest banks in Florida, with over 300 branches located across the state. Chase offers a variety of financial products targeted at small business owners. Not only does the lender offer business checking and savings accounts, payroll services, and merchant services accounts, small business owners can also apply to receive:

Business Lines Of Credit: Up to $500,000
Commercial Lines Of Credit: At least $500,000
Commercial Real Estate Loans: Conventional or SBA loans starting at $50,000
Small Business Loans: Starting at $5,000 with terms up to 84 months
SBA Loans: 7(a), Express, and 504 loans
Equipment Financing
Business Credit Cards

Rates, terms, and maximum borrowing limits are based on the product selected and the creditworthiness of the borrower.

Small Business Grants In Florida

With most small business financing, you get the capital your business needs and repay your borrowing amount, interest, and fees over time. With grants, you receive capital without having to pay back the funds. Sounds like a dream, doesnât it?

Unfortunately, the one drawback is that grants are very difficult to receive. Competition is high for small business grants. Many grants also have very specific requirements and may be awarded only to businesses owned by a minority or businesses in a specific industry. If you donât meet all requirements, you wonât be eligible to receive a grant.

However, this doesnât mean that you shouldnât apply. There are several small business grants available to business owners in the state of Florida that you may qualify to receive.

Enterprise Florida Inc.

Enterprise Florida Inc. (EFI) offers training, development, and financing opportunities to small businesses, minority-owned businesses, and entrepreneurs.

There are multiple funding opportunities available through EFI. This includes:

State Small Business Credit Initiative: This program reduces the risk taken by lenders by purchasing up to 50% of loan funds, making it easier for small businesses to qualify for affordable loans.
Microfinance Guarantee Program: This program provides a guarantee on loans, similar to the SSBCI program. This helps lenders feel more secure in lending money to small businesses.
Florida Opportunity Fund: EFI is a sponsor of the Florida Opportunity Fund, which offers funding to businesses through programs including the Fund of Funds Program, the Clean Energy Investment Program, and Floridaâs Venture Capital Program.

EFI has also partnered with other organizations to provide additional resources and funding opportunities to small businesses.

WomensNet Amber Grant

Women-owned businesses in Florida and across the nation can apply for a small business grant through WomensNetâs Amber Grant Program. Each month, a $1,000 small business grant is awarded to a woman-owned business. At the end of the year, all 12 monthly winners will be entered to win a grant of $10,000.

One of the best things about this grant is that the application process is simple. There are no lengthy applications to fill out and no extensive documentation to submit. Instead, all women business owners can apply by answering a few short questions about their business. There is a $15 application fee to enter. Deadlines for applications are the last day of each month.

Palm Beach County Job Growth Incentive Grant

Businesses that are relocating or establishing a business in Palm Beach County, Florida, may qualify for the Job Growth Incentive Grant Program. This award is given through the Economic Development Office and is available to startups and established businesses that will create jobs in Palm Beach County.

Interested businesses can contact the Palm Beach County Department of Housing and Economic Sustainability or the Business Development Board of Palm Beach County to learn more about applying for this grant.

VISIT FLORIDA Targeted Marketing Assistance Program Grant

If your business is in the tourism industry, you may qualify for VISIT FLORIDAâs Targeted Marketing Assistance Program Grant. Through this program, marketing costs up to $5,000 are matched with a grant.

To qualify, a business must be an approved TMAP business and a partner with VISIT FLORIDA. Applications must include a marketing project overview, a marketing strategy and media plan, anticipated results, and a marketing budget.

All independently owned and operated businesses with gross revenues of $1.25 million or less that are in the tourism industry may apply to become a TMAP business. Some nonprofit organizations may also qualify.

Loans & Financial Resources For Startups In Florida

Even established businesses may encounter challenges when applying for business financing. So, it should come as no surprise that startup businesses — businesses that havenât yet established a credit profile or arenât bringing in revenue — may have a more difficult time getting needed funding and resources.

Luckily, though, there are resources available to new businesses and startups. In the state of Florida, there are a few good options to consider.

SCORE

SCORE has 300 chapters throughout the nation, with chapters located in the state of Florida. Through SCORE, you can tune in to live and recorded webinars and take courses on small business topics. You also have access to e-guides, articles, blogs, and online workshops.

One of the most beneficial features of SCORE is that you can be matched with an expert business mentor. You can get advice at no charge with your mentor either face-to-face or online.

Small Business Development Center

The Small Business Development Center (SBDC) offers multiple resources to business owners in Florida. The SBDC has online and offline resources, including videos, in-person workshops, and low-cost training.

The SBDC also offers consulting at no cost. New business owners can work with a Capital Access Specialist to find, prepare, and receive business financing.

There are several locations throughout the state of Florida in cities including Cape Coral, Daytona Beach, Jacksonville, Boca Raton, Miami, and Pensacola.

The Florida Virtual Entrepreneur Center

A good online resource for business owners in Florida is the Florida Virtual Entrepreneur Center. Through this website, you can find business resources by city. This includes links to your local Chamber of Commerce, Economic Development Councils, forums, and more.

If you want to take advantage of offline resources, the website has a list of events taking place all over the state. These events are centered on topics such as business and personal credit, SBA loans, business planning, and cybersecurity for small businesses.

Find An Investor

If you need capital for your startup, where do you turn? One option is to find an investor. While you can certainly find these investors on your own — think a friend, family member, or colleague — you can also hop online and give crowdfunding a shot.

With crowdfunding, youâll use an online platform to pitch your business to potential investors. In exchange for their investment, you can offer up a reward (such as a new product for free or a reduced cost) or equity in your business.

One of the best things about crowdfunding is that there are no credit score, time in business, or revenue requirements, which is ideal for businesses that are just getting started. However, you do have to perfect your pitch, share your campaign online, and work harder to bring in investors that are willing to back your company.

What To Consider When Choosing A Lender

Now that youâre aware of the loan options available to you, the next step is to choose your lender. Unfortunately, this is when having so many choices has its drawbacks. If you donât know where to begin when it comes to selecting a lender, ask yourself the following questions:

How Will I Use The Money?

You want to select a lender that offers financial products that best fit your needs. Letâs say you need working capital for your business. A loan used to purchase commercial property wonât be a good fit, so you could scratch this lender off the list. Plan how you intend to use your funds, then choose lenders that donât have restrictions that would prevent you from effectively using your capital.

How Much Money Do I Need?

Knowing how much money you need is a critical step before you even start filling out an application. This not only helps you plan and budget for your own business, but most lenders want to know how much you need to borrow. Having a number in mind can also help you decide which lenders work best for your specific needs. If you need $250,000, a line of credit that maxes out at $100,000 just wonât work for your business.

Do I Meet The Lenderâs Requirements?

Save yourself the trouble of unnecessary rejections by understanding the borrower requirements of every lender that interests you. If a lender requires a time in business of 2 years and youâre just opening your doors, you wonât qualify. If you need a personal credit score of 700 but yours is just 620, itâs time to search for another lender. Start your search by checking your free credit score online, then make sure you meet all borrower requirements before applying. Also, keep in mind that meeting the minimum requirements is not a guarantee of a loan offer.

Do I Want A Lump Sum Or Flexible Financing?

If you have a specific financial need in mind — purchasing new equipment or buying a commercial property, for instance — work with lenders that offer lump-sum loans. If youâd rather have a more flexible financing option — making payroll or covering revenue gaps — find a lender that offers a flexible form of financing such as a line of credit or business credit card.

Can I Afford It?

Sure, you may want a million dollars to build your business, but can your business afford it? Consider your outstanding debts and obligations, your current and project revenues, and shop around your options. Understand the fees and terms of your loan to determine if itâs something you can handle â¦ or if it could drag your business deep into debt. Learn more about calculating the affordability of your small business loan.

Final Thoughts

In the state of Florida, there are plenty of lenders and small business resources at your disposal. The only thing you have to do is find the right resources for your business and leverage them to successfully start and build your business.

The post The Best Business Loan And Financing Resources For Florida Small Businesses appeared first on Merchant Maverick.

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February 5, 2019

Pros And Cons Of Debt VS Equity Financing

No matter what type of small business you operate or how long youâve been in business, there comes a point when all business owners need extra capital. From paying startup costs before you open your doors to growing your business and boosting your profits with an expansion, you need capital.

Most small business owners donât have pockets deep enough to cover all expenses themselves. Instead, these entrepreneurs seek financing from outside parties to fund their startup, pay for expansion, or even cover day-to-day operating costs when money is tight.

If youâre a small business owner who needs extra capital, there are two main types of financing to consider: debt financing and equity financing. Both types of financing provide funding for your small business, but which is right for you?

In this post, weâll break down the differences between debt financing and equity financing. Weâll look at how each type of financing works, discuss the benefits and drawbacks, and talk about which is the best choice for your business. By understanding how debt and equity financing differ, youâll be able to make the most informed financial decision for your business.

Letâs get started.

What Is Debt Financing?

Debt financing is pretty much what most people think about when they hear the word âfinancing.â With debt financing, a lender provides you with the capital you need for your business. Over time, youâll repay the lender the money youâve borrowed, plus interest.

How Debt Financing Works

How does debt financing work? Itâs quite simple to understand, actually. As we mentioned above, debt financing occurs when a lender charges interest and/or fees to give you the capital you need. The money you borrow, plus these additional charges, are paid back over a set period of time, which could be weeks or even years.

But now letâs take a more detailed look at debt financing. Youâll apply to receive money from a lender. This could be your bank, credit union, a non-profit organization, an alternative lender, or other individual or company that provides your business with capital. You may receive a lump sum, or you may have a more flexible revolving form of credit, which weâll cover in more detail a little later.

Your lender will consider a few factors to determine if you qualify for financing. These factors vary by lender but could include:

Personal Credit Report & Score
Business Credit Report & Score
Annual Revenue
Time In Business

Your lender may use a combination of these factors and/or additional factors to figure out whether you qualify for financing at all, and if so, determine your total borrowing amount and the rates and terms of the loan.

Over time, you will pay back the amount of money borrowed, in addition to any fees or interest charged as agreed upon between you and the lender. Once you have paid back the principal (your borrowing amount) plus the lenderâs fees and interest, there are no additional steps to take. You can certainly apply for additional financing, but you are not obligated to do so.

One thing to be aware of is that some types of debt financing are secured with collateral. For most lenders, business assets are acceptable forms of collateral, although personal property and assets may also be used. If you default on your agreement — that is, you do not pay back the borrowed amount plus interest and/or fees within the agreed-upon time frame — the lender has the right to seize this collateral to pay off the debt.

However, even if youâve put up collateral for a loan, the lender does not hold a stake in your business. This is what sets debt financing apart from equity financing, which weâll cover a little later.

Types Of Debt Financing

There are multiple types of debt financing to consider if you opt to go this route. The type of financing you select will depend on your specific circumstances. Letâs take a look at a few of the most common types of debt financing.

Loans

Loans are what most people think of when discussing debt financing. A loan is a lump sum of money given to you that is repaid over a set period of time. A long-term loan is paid back over several years; this is the type of traditional funding you would receive from your bank or through a Small Business Administration program. These loans are best for larger business purchases, such as equipment or commercial real estate and are typically only available to those with good credit and established businesses.

Short-term loans offerÂ quick cash to borrowers with less ideal credit and time in business qualifications and (as the name would suggest) are repaid over a shorter period of time. These products are best for smaller purchases, such as supplies and inventory, or to cover an emergency expense.

Lines Of Credit

Lines of credit offer a more flexible financing option. With a revolving line of credit, youâll be able to make multiple draws against a credit limit set by your lender. As you repay your principal, interest, and fees, funds will become available to use again. You can withdraw up to and including the credit limit through one or multiple draws. Once you initiate a draw on your line of credit, the funds are sent to your bank account, where you can access them in as little as one business day. Lines of credit are particularly useful for emergency expenses or working capital.

Business Credit Cards

A business credit card works just like a personal credit card. Your lender sets a credit limit, and you can make purchases with the swipe of a card anywhere credit cards are accepted. Youâll repay any funds used, in addition to any interest charged by the lender. Interest is applied only to the borrowed portion of funds. Business credit cards can be used to purchase supplies or inventory, pay for unexpected expenses, or to set up recurring payments (utility bills, etc.).

Accounts Receivables Financing & Invoice Factoring

Accounts receivables financing — or invoice financing — uses your unpaid accounts receivables as collateral for a line of credit. Invoice factoring is also an option. This is when you receive a lump sum of money up front for your unpaid invoices. Once the invoices are paid, you receive the remaining amount owed to you, minus any fees charged by the lender. Both are good options to improve cash flow that has slowed due to unpaid invoices.

Debt Financing Pros & Cons

Debt financing certainly has its benefits, but there are drawbacks you must consider as well. Letâs take a closer look at the pros and cons of this type of financing:

Pros

You Retain Business Ownership: With debt financing, your ownership interest is not diluted. This means that you wonât have to share your profits over the long term.
Multiple Options Available: From flexible lines of credit to long-term loans that give you a lump sum of cash, you can find debt financing for any situation.
Planning Ahead: With debt refinancing, you know exactly when to pay, how long youâll be paying, and the amount of each payment.
Tax Benefits: Interest for your financing can be used as a deduction on your income tax return.
Availability: Debt financing options are available to almost all businesses, regardless of factors such as size, industry, time in business, or business or personal credit history.

Cons

Interest & Fees: Even borrowers with the highest credit scores and most profitable business have to pay interest and/or fees for borrowing. Borrowers that are seen as âriskyâ by lenders face even higher costs.
Taking On Debt: True to its name, debt financing means you are taking on debt. This raises your DTI ratio, making your business look like a bigger risk to investors and lenders.
Risk Of Default: Even the well-intentioned borrower can fall upon hard times and miss a payment. Months of hardships can lead to default, which puts your collateral and credit score at risk.
Difficult Borrowing Requirements: Even though there are many debt financing options, you may not qualify for the product you need. For example, if you have a low credit score, short time in business, or low annual revenues, you may only qualify for smaller short-term loans or lines of credit. This could pose a problem if youâre looking to borrow a larger sum of money for a longer period of time.
Potential Restrictions: Some lenders impose restrictions on how funds are used. If you want more flexibility than what one lender is offering, you have to find another lender â¦ or consider equity financing.

What Is Equity Financing?

With equity financing, you can also receive the capital you need for your business. However, instead of borrowing money that you repay with interest, an investor provides the capital in exchange for ownership interest in your business.

How Equity Financing Works

Equity financing is significantly different from debt financing. Instead of seeking a lender, youâll look for an outside investor. That outside investor will provide you with capital in exchange for shares in your company. The investor then has an ownership stake in your company.

You will not have to make regularly scheduled payments to your investor as you would with a lender. Instead, the investor willÂ take a share of your profits as your business becomes successful. The investor will also have some control within your company, including the power to make decisions.

Letâs look at an example of how equity financing works:

You invest $700,000 in your new business. An investor is willing to invest $300,000. You agree to a price of $1 per share. Your business now has $1 million in capital. You control 70% of the shares, but the investor has purchased 30% of your business.

Types Of Equity Financing

Does equity financing seem like a smart financial move for your business? Before you get started, there are several different types of equity financing to consider.

Venture Capitalists

Venture capitalists (VCs) are willing to invest millions of dollars in companies that have the potential for high returns. Therefore, most small businesses would not be of interest to VCs. However, promising tech and innovation startups could benefit from the equity financing offered by VCs. VCs use money that is pooled from sources, including investment companies, corporations, or pensions. It is rare for a VC to use their own money for investment.

Angel Investors

Angel investors, like VCs, are willing to invest money in promising businesses and startups. However, angel investors are a little different because these are accredited investors who use their own money for investments. An angel investor may be someone you donât know, or it could even be a friend, family member, or colleague who has a high net worth and annual income.

Mezzanine Financing

Mezzanine financing combines traits of both debt and equity financing. Your business takes a loan and agrees to repayment terms. If you are profitable, you retain ownership of your business. If your business is not successful, the lender is able to convert the loan into equity interest, giving claim to future profits.

Crowdfunding

The internet has made it easier than ever for small businesses to raise capital. With crowdfunding, you can make your pitch to the public to raise capital for your business through an online platform. While some businesses promise rewards in exchange for investments, such as a new product for free or at a reduced price, others use equity to bring in investors. Learn more about the best equity crowdfunding sites.

Equity Financing Pros & Cons

Similar to debt financing, equity financing has benefits and drawbacks to consider. Take a look at these pros and cons to determine if equity financing would be the smartest financial move for your business.

Pros

Investors Take On Risk: With equity financing, the risk falls primarily on the investor. Investors only see their returns if your business is a success.
Good For New Businesses: If youâre a brand new business with no revenue, equity financing could be the best option for you. While you may qualify for debt financing, youâll likely be stuck with low borrowing limits and less-than-desirable rates and terms.
No Interest Or Fees: With equity financing, you wonât have to worry about paying interest and/or fees on a loan or other financial product. This gives you more money to invest in your business.
Investors Bring More To The Table: The right investor brings more than just capital to the table. You can gain industry knowledge, meet new connections, and gain experience that you wouldnât receive by working with a lender.

Cons

Giving Away Ownership: With this type of financing, youâre giving away ownership in your business. Not only does this reduce your share of profits, but it also gives outside parties the power to make decisions surrounding the operations of your business.
Finding Investors Is Difficult: Finding one or more people willing to invest in your business can be a difficult and time-consuming process. If you need money quickly or with little effort, equity financing is likely not the right option for you.

Debt VS Equity Financing

As you can see, there are very clear differences between debt and equity financing. With debt financing, you simply have to meet the criteria of a lender in order to receive money. Depending on the type of financing you seek, you could have the capital you need in as little as 24 hours. In exchange for this capital, you pay the lender back as agreed. You take on all the risk, so if your business fails, you may lose your assets or face legal action.

Additionally, with debt financing, you donât have to worry about drawing up legal paperwork. Apply for your loan, submit the required information and documentation, and the lender will provideÂ you with money if you qualify. You retain full ownership of your business.

On the flip side, equity financing could take some time. It is up to you to find the right investors willing to work with your business. Drawing up legal paperwork will be part of the process as well.

While you donât have to pay your investor back over the short-term, the lender will recoup their money if your business is successful. Because they will own part of the company, they will be able to take their share of the profits and make important decisions about your business along the way.

The risk is on the lender. If your business is successful, the lender gets their capital plus a return. If your business is unsuccessful, you will not be indebted as you would with debt financing.

Which Type Of Financing Is Best For Your Business?

The type of financing you select depends upon the specific financial needs of your business. If youâre still on the fence, consider why you need capital, how you envision your business in the future, and these additional factors to determine whether to choose debt financing or equity financing:

Choose Equity Financing Ifâ¦

You picture your business growing to a global or national scale
You have larger capital needs that wouldnât be satisfied through debt financing
Youâre willing to give up some control over your business in exchange for equity
Youâre looking for more than just money, i.e. industry connections and experience
Youâre willing to put in the work to pitch to investors
Your capital needs arenât urgent

Choose Debt Financing Ifâ¦

You have smaller capital needs
You need capital but donât want to give up ownership interest in your business
Youâre willing to take on risk, including losing assets if you fail to repay your lender
You need financing quickly

If debt financing seems like the right option for you, give Lendio a try.

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Time in business: 6 months Business revenue: $10,000 per month Personal credit score: 550 Borrower requirements (click to expand) Hide

Lendio is a loan aggregator that has over 75 financing partners ready to serve small businesses just like yours. Through Lendio, you can reach these lenders and receive multiple offers with just one application.

No matter what your financial needs, Lendio has a financial product for you. Through Lendio, you can apply for Small Business Administration loans, short-term loans, equipment financing, commercial mortgages, startup loans, and more. Total borrowing limits, interest rates, and repayment terms vary by lender and financial product.

Final Thoughts

There are many ways to get capital for your business through debt financing or equity financing. However, itâs very important that you weigh out the pros and cons and consider the specific needs of your business before moving forward. While your capital needs may be urgent, itâs critical to look at the long-term picture to determine what type of financing will most benefit your business.

The post Pros And Cons Of Debt VS Equity Financing appeared first on Merchant Maverick.

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January 10, 2019

How To Secure A $10,000 Loan Online For Your Business

Even the most prepared business owners will face a financial shortage from time to time, whether it takes the form of a holiday uptick in your retail business, a slow season for your construction business, or unpaid invoices that have brought your incoming cash flow to a screeching halt. Unexpected or emergency expenses can arise out of nowhere in any industry, and they have the potential to have a devastating financial impact your business.

If your cash flow begins to suffer from seasonal slumps, late-paying customers, or emergency expenses, know that there are options available to you. Online small business loans and financing products can help you overcome any financial hurdle.

On the other hand, maybe things are going well for your business, and you just need a little boost to help expand your facility, hire new employees, and take your business to the next level. Online business loans can help with that, too.

If you need $10,000 for your business — for whatever reason–, youâre in luck. There are many loan products available to you, from traditional installment loans to short-term loans, invoice financing, or lines of credit. Best of all, you donât have to have a perfect credit score or high annual revenues to qualify. With some online lenders, you can be approved in just minutes, and in some cases, you may even receive the financing you need within 24 hours.

Many online lenders can fund your loan or financial product without the delays or heavy paperwork requirements imposed by banks or traditional lenders. You’ll pay higher rates and fees for this convenience, but if you need cash fast, an online loan is the way to go. Depending on the lender you select, you may get approved and funded simply by supplying basic information about yourself and your business and a few recent bank statements.

Ready to secure a $10,000 online business loan? Read on for our top lender picks.

1. BlueVine

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For invoice factoring: Time in business: 3 months Business revenue: $100,000 per year Business type: Business-to-business Personal credit score: 530 For business lines of credit: Time in business: 6 months Business revenue: $120,000 per year Personal credit score: 600 Borrower requirements (click to expand) Hide

One lender that makes it easy to get $10,000 for your business is BlueVine. With two different financing options, you can receive up to $5 million to cover your business expenses.

The first financial product offered through BlueVine is a revolving line of credit. You can receive between $5,000 and $250,000 with simple interest rates starting at just 4.8%. Through BlueVine, the application process is simple, and you can be approved for an unsecured line of credit in just minutes. Youâll be able to make draws from your account as needed up to the credit limit assigned by the lender. Repayments are made weekly or monthly over 6 or 12 months. Interest is only charged on the borrowed amount, and your funds will be replenished as you make your payments.

To qualify for a BlueVine line of credit, you must have:

A minimum personal credit score of 600
A time in business of at least 6 months
At least $100,000 in annual revenue.

The application requires you to supply information about yourself and your business, as well as business bank statements from the last 3 months.

If unpaid invoices are dragging your business down, BlueVine also offers invoice factoring. You can receive up to $5 million for your qualifying invoices with rates starting at just 0.25% per week. Youâll receive up to 90% of the total balance of your invoices upfront and the remainder once the invoices are paid, minus fees charged by the lender.

To qualify for BlueVineâs invoice factoring, you must:

Operate a B2B business
Have a personal credit score of at least 530
Have a time in business of at least 3 months
Earn at least $100,000 in annual revenue

2. Credibly

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Must be in business at least 6 months with a revenue of $15,000 per month. Must have a personal credit score of 500 or above. Borrower requirements (click to expand) Hide

Credibly offers three financing options for business owners seeking $10,000 in capital. If you need a loan to cover daily operating expenses, Credibly offers a working capital loan. With this product, you can apply for up to $250,000. Instead of interest rates, these loans come with a factor rate. The most qualified borrowers can receive factor rates as low as 1.15. Working capital loans are repaid daily or weekly over a period of 6 to 17 months. An origination fee of 2.5% of the loan amount is deducted from your loan.

To qualify for a working capital loan from Credibly, you must have:

A credit score ofÂ at least 500
A time in business of at least 6 months
An average of at least $15,000 per month in deposits to your business bank account.

If you need $10,000 to expand your business, consider a business expansion loan from Credibly. You can apply for up to $250,000 to be repaid weekly over 18 or 24 months. Interest rates for the most qualified borrowers start at 9.99%. An origination fee of 2.5% of the total loan amount will be deducted from your loan proceeds.

To qualify for a business expansion loan from Credibly, you must have:

A credit score of at least 600
A time in business of at least 3 years
Average monthly bank deposits of at least $15,000
An average daily balance of $3,000

If you donât meet the revenue or credit score requirements of Crediblyâs other financial products, consider applying for a merchant cash advance. With this type of financing, you sell a percentage of your future receivables. Credibly will take a set percentage of your sales each day until your loan plus any fees are repaid. Factor rates start at just 1.15 and repayment schedules are available up to 14 months. Through this type of financing, you can apply for up to $150,000. A one-time 2.5% origination fee is added to your loan balance, and Credibly also charges a $50 monthly admin fee.

To receive a merchant cash advance, you must have a credit score of at least 500 and at least $15,000 in average monthly bank deposits. Your business must also be in operations for at least 6 months to qualify. You can be approved for your loan in as quickly as 24 hours.

3. Fora Financial

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Time in business: 6 months Business revenue: $5,000 monthly in debit and credit card sales (for a merchant cash advance) OR $12,000 monthly in gross sales (for a short-term loan) Personal credit score: Unknown Borrower requirements (click to expand) Hide

For quick working capital loans, consider applying for financing through Fora Financial. If you want a flexible working capital loan with no restrictions, this lender offers small business loans in amounts from $5,000 to $500,000. Repayment terms are available up to 15 months.

To qualify for a working capital loan through Fora Financial, you must have:

A time in business for at least 6 months
At least $12,000 in gross sales
No open bankruptcies on your credit report

You can also apply for a merchant cash advance of up to $500,000 through Fora Financial. There are no set terms and no restrictions. Payment amounts are based on the revenue of your business.

To qualify, you must be in business for at least 6 months and have no open bankruptcies. You also must have at least $5,000 in credit card sales to be eligible.

4. Fundbox

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No time in business requirements, but must have used a compatible accounting or invoicing software for at least 2 months, or a compatible business bank account for at least 3 months. Business revenue: $50,000 per year No specific personal credit score requirement Borrower requirements (click to expand) Hide

Another flexible line of credit comes from Fundbox, where you can receive up to $100,000. Youâll make equal weekly payments for 12 or 24 weeks to pay off the loan, plus the flat fee charged by the lender. Fees start at just 4.66% of the draw amount.

To qualify for a line of credit from Fundbox, you must have:

A business checking account
At least $50,000 in annual revenue
A connected business bank account

There are no minimum credit score requirements.

Fundbox Credit is another option to explore if you have unpaid invoices. This is an invoice financing product that provides you with up to $100,000 for qualifying invoices. Advance fees start at 4.66% with repayment terms up to 24 months.

To qualify, there are no minimum credit score or time in business requirements. You must also connect your accounting software that shows activity from at least the last 2 months.

5. IOU Financial

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Must be in business at least 12 months.Â Must make at least $120,000 per year and have an average daily balance of $3,000 over a 3-month period. Must have a personal credit score of 600 or above. Borrower requirements (click to expand) Hide

With IOU Financialâs core small business loan, you can receive between $5,000 and $150,000 in extra capital for your business. These loans come with terms of 6, 9, or 12 months, and fixed payments are made daily.

To qualify for a small business loan from IOU Financial, you must:

Be in business for at least 1 year
Own at least 80% of your business (this requirement drops to 50% if you own your business with your spouse)
Make at least 10 deposits per month into your business bank account
Bring in annual revenue of $100,000

If you need more capital at a later time, IOU Financial also offers a mid-market loan of $70,000 to $300,000. Terms for these loans are 12, 15, or 18 months, and payments are made on a daily or weekly schedule.

6. Kabbage

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Must be in business at least 12 months and make at least $50,000 annually (or $4,500 for the last 3 months). No specific credit score requirements. Borrower requirements (click to expand) Hide

Kabbage offers flexible lines of credit that can be used to cover any business expense. If youâd like access to money on-demand, Kabbageâs lines of credit allow you to make draws as needed up to your credit limit.

Through Kabbage, you can be approved for a line of credit up to $250,000. With each draw, youâll receive terms of 6 or 12 months, with payments made monthly. Kabbage charges fee rates between 1.5% and 10% based on the performance of your business.

If you have a low personal credit score but your business is doing well, Kabbage may be the right option for you. There are no minimum credit score requirements to receive a Kabbage line of credit.

However, to get a line of credit from Kabbage, you must:

Be in business for at least 1 year
Bring in annual revenue of at least $50,000

If you donât meet this revenue requirement, you must show that youâve brought in at least $4,200 per month for the last 3 months.

What makes Kabbage stand out from other lenders is that it offers the Kabbage Card. Typically, with a line of credit, you initiate the draw and receive your funds in your business bank account as quickly as the next business day. With the Kabbage Card, however, you have instant access to your funds. Use this card wherever Visa is accepted without having to wait for funds. Kabbage will then create a new loan with the same rates and terms as its traditional draws.

7. LoanBuilder

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Time in business: 9 months Business revenue: $42,000 per year Personal credit score: 550 Borrower requirements (click to expand) Hide

If you want a business loan with one fixed fee and terms that are easy to understand, consider Paypalâs LoanBuilder. Through this lender, you can customize your loan to get the payments that are right for you. You can apply for anywhere from $5,000 to $500,000 and receive your funds as quickly as the next business day. Repayment terms of up to 52 weeks are available and are based on the amount of the loan. Payments are made weekly until your loan plus the lenderâs fee are repaid. Fees range from 2.9% to 18.72% of the borrowing amount.

To qualify for a LoanBuilder loan, you must have:

A personal credit score of at least 550
A time in business of at least 9 months
At least $42,000 in annual revenue
No active bankruptcies on your credit report

8. OnDeck

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Time in business: 12 months Business revenue: $100,000 per year Business industry: Must not be in aÂ restricted industry Personal credit score: 550 Borrower requirements (click to expand) Hide

OnDeck offers several financing options if you need $10,000 for your business. With a short-term loan, you can receive up to $500,000 with repayment terms of 3 to 12 months. The lender charges a simple interest rate starting at just 9% for the most qualified borrowers. Long-term loans are also available with repayment terms of 15 to 36 months with annual interest rates starting at 9.99%. Daily or weekly payments are automatically deducted from your bank account with both loan options.

To qualify for a term loan from OnDeck, you must:

Be in business for at least 1 year
Have a minimum of $100,000 in annual revenue
Have a credit score of at least 500

An origination fee up to 4% of the borrowing amount will be charged to service and process your loan.

If you want a more flexible financing option, OnDeck provides lines of credit to qualified borrowers. Lines of credit from $5,000 to $100,000 are available, with APRs starting at 13.99%. Automatic payments are deducted weekly from your business bank account.

To qualify for a line of credit from OnDeck, you must have:

A time in business of at least 1 year
$100,000 or more in gross annual revenue
A personal credit score of at least 600

You must also be the majority owner of your business.

9. QuarterSpot

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Time in business: 12 months Business revenue: $200,000 per year Average daily balance: $2,000 or above Bank account activity: At least 10 revenue-producing deposits per month Personal credit score: 550 or above Borrower requirements (click to expand) Hide

Through Quarterspot, you can receive up to $250,000 in funding for your business in as quickly as 24 hours. Repayment terms of 9, 12, and 18 months are available with factor fees starting at 12.5 cents per dollar borrowed. With a Quarterspot loan, you can repay early to save on interest and fees.

To qualify for a loan from Quarterspot, you must have:

A credit score of at least 550
A time in business of at least 1 year
Monthly revenue of $16,000 or more
At least 10 sales every month
An average daily bank account balance of $2,000

You must also live in the United States, although applicants located in the states of North Dakota, Rhode Island, South Dakota, and Vermont are ineligible to receive funding through QuarterSpot.

Online Loans For Business Startups

Youâve reviewed all of your options, and thereâs one major problem standing in your way: youâre running a brand-new business or startup. Most online lenders require your business to be in operations for at least one to two years in order to qualify for a business loan. While getting the capital you need for a new business may be more challenging, it certainly isnât impossible. In some cases, you may even have to get a little creative with your financing options.

One option to consider is a personal loan for business. If your personal credit score is solid and you meet income requirements, you can receive a personal loan to use for business expenses. The lenders below offer personal loans for business with reasonable rates and fee:

Borrowing Amount	Term	Interest Rate	Min. Credit Score	Next Steps
$2K – $25K	2 – 4 years	15.49% to 30%	600	Apply Now
$1K – $50K	3 or 5 years	8.16% â 27.99%	620	Apply Now
$2K – $35K	3 or 5 years	6.95% – 35.99% APR	640	Apply Now
$1K – $40K	3 or 5 years	5.32% – 30.99%	640	Check Rate

Another way to get $10,000 online to grow your new business is with crowdfunding. Through crowdfunding, you have a platform to pitch your business in front of multiple investors. Whether you want to expand your business or bring a new product to market, you can launch a campaign to raise the capital you need. One such platform to consider is Kiva US.

Kiva US

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No requirements for time in business, revenue, or credit scores. Borrower requirements (click to expand) Hide

Through Kiva US, you can receive up to $10,000 for your business. The best part is that you’ll be charged 0% interest on your loan. However, financing through Kiva doesnât work like a traditional loan. With a traditional loan, you submit your application, the lender considers your business history and credit profile, and if youâre approved youâll receive your payment.

With Kiva US, youâll fill out an application once youâre pre-qualified. Then, for 15 days, you use the platform to get friends and family members to lend money to you. Once youâve raised money from people you know, your campaign will go public to over 1.6 million people for 30 days. After youâve raised the funds you need, you have up to 36 months to pay back your interest-free loan.

Unlike other loans, there are no credit score, time in business, or annual revenue requirements. To qualify, you must live in the United States, be at least 18 years old, and use the loan for business purposes.

What To Do If You Have Bad Credit

Letâs be honest: securing a loan with bad credit can be a challenge. Traditional options like bank loans and SBA loans are typically completely off the table with a poor credit score, even if your business is successful.

Before you apply for a business loan, itâs always important to know where you stand credit-wise, even if you know you have a great score. The internet makes this easier than ever, and there are multiple sites that allow you to view your credit score at no cost. If you have credit challenges, review your report for any errors that can be disputed with the credit bureaus.

Once you know your score, youâll be able to better gauge what types of loans and which lenders you can work with. If you have a score that is in the low 600s or even lower, know that your financing options may be more limited.

Before you apply, also understand the cost of borrowing. A low credit score shows lenders that youâre a risky borrower, so not only are your financing options limited, but youâll face higher fees and interest rates than more creditworthy borrowers. When you do apply for a loan or other financing, make sure to evaluate the full cost of the loan to ensure it makes sense for your business. Your loan should help your business — not drag you into uncontrollable debt.

The wisest financial move is to take steps to boost your score before applying. However, if you need a loan immediately, improving your score over months (or even years) may not make sense for your business. If this is the case, short-term loans, business credit cards, invoice financing, and lines of credit may be your best options. Some of the lenders on this list, such as OnDeck and Kabbage, work with borrowers with all credit types. Crowdfunding is a low-interest option you can also explore if youâre facing credit challenges.

Final Thoughts

Getting $10,000 for your business is easy when you know where to look, even if you have past credit challenges, operate a new business, or have annual revenue that falls below traditional lending requirements. However, having access to quick loans also makes it easier to push your business further into debt.

Be smart. Shop around with lenders, evaluate all of your options, and calculate the return-on-investment to ensure youâre making a sound, responsible financial decision for your business.

The post How To Secure A $10,000 Loan Online For Your Business appeared first on Merchant Maverick.

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January 7, 2019

Where To Find Fast $5,000 Loans For Your Business

When most people hear the term “business loan,” they immediately think about the large amounts of capital used to purchase real estate, buy bulk inventory, or hire a new team of employees. But even though business loans can be used to cover big expenses, sometimes all you need a small loan to assist with day-to-day cash flow, deal with an unexpected emergency, cover payroll for a few weeks, or help you get through a seasonal slow-down.

If you need $5,000 fast, a small business loan can help you clear your financial hurdles. The good news is that with a loan this small, you have your pick of online lenders that can get you funded as soon as the next business day. Paperwork requirements are also minimal for these smaller loans. With some lenders, a little basic information and a few bank statements are all you need to get approved.

However, not all online lenders issue $5,000 loans. Some lenders have much higher minimum borrowing amounts. Instead of spending hours weeding through search engine results, kick off the loan process with one of our picks. The following lenders offer loans, lines of credit, and other financial products that can help you get the $5,000 you need fast.

Ready to learn more? Letâs dive in!

1. LoanBuilder

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Time in business: 9 months Business revenue: $42,000 per year Personal credit score: 550 Borrower requirements (click to expand) Hide

If you want to âbuildâ a loan thatâs customized to your business, consider applying with PayPalâs LoanBuilder. Thanks to the LoanBuilder Configurator, you can get a quick overview of your financing options and pick the borrowing amount, terms, and payments that work best for your business.

LoanBuilder small business loans are available in amounts from $5,000 to $500,000 and have a single fixed-fee structure, with fees starting at 2.9%. Weekly payments are made over 13 to 52 weeks depending on the amount borrowed. In some cases, you can receive your funding as quickly as the next business day.

To qualify, you must be in business for at least 9 months, have at least $42,000 in annual revenue, and operate in an eligible industry.

2. Accion

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To qualify, you must: Have a credit score of 575 or above (550 in some places) Be no later than 30 days overdue on any bills Have had no bankruptcies in the past 12 months Have had no late rent or mortgage payments in the last 12 months Have no foreclosures for the past 24 months Have no mortgage adjustments during the length of the loan Startups also must: Have less than $500 in past-due debt Have a business plan with a 12-month cash flow projection Have a partner referral (likeÂ SCOREÂ orÂ SBDC) Borrower requirements (click to expand) Hide

Accion specializes in term loans in amounts from $300 to $1 million. Term lengths vary based on the loan products you are qualified to receive. Typical APRs are between 7% and 34%. An origination fee of 3% to 5% is required.

To qualify, you must have a credit score of at least 575. Depending on the state youâre in, credit score requirements may be as low as 550. There are no time in business requirements, but you must have sufficient cash flow to repay your loan. You must also be no more than 30 days overdue on any bill, have no bankruptcies within the last year, no late rent or mortgage payments within the last year, and no foreclosures within the last 2 years.

If your business is a startup, you must have less than $500 in debt that is past due, have a referral, and provide a business plan with future cash flow projections.

3. Credibly

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Must be in business at least 6 months with a revenue of $15,000 per month. Must have a personal credit score of 500 or above. Borrower requirements (click to expand) Hide

Credibly offers three business financing options: working capital loans, business expansion loans, and merchant cash advances (MCAs). With Crediblyâs working capital loans, you can receive up to $250,000 that is repaid over 6 to 17 months. Instead of interest rates, Credibly uses factor rates that start at 1.15. Learn more about factor rates and how they affect the cost of borrowing. Payments on working capital loans are automatically deducted daily or weekly.

Requirements for Crediblyâs working capital loans are at least 6 months in business, a credit score of at least 500, and at least $15,000 in monthly bank deposits.

If you need money to grow your business, consider Crediblyâs business expansion loans. These loans are available in amounts up to $250,000 with term lengths of 18 or 24 months. Interest rates are as low as 9.99% and payments are made weekly.

Qualifying for a business expansion loan is a bit more difficult. To receive this product, you must have a time in business of at least 3 years and a personal credit score of at least 600. You must also have an average of $15,000 in monthly deposits to your bank, as well as an average daily balance of at least $3,000.

If you donât qualify for Crediblyâs working capital or business expansion loans, a merchant cash advance may help you get the extra capital you need for your business. You can receive up to $150,000 through the purchase of your future receivables. This means that Credibly will deduct a percentage of your sales daily from your credit card processor or bank account until the cash advance plus fees are paid off. With an MCA, repayment terms are set at 3 to 14 months and factor rates start at 1.15.

To qualify, you must have at least $15,000 in monthly bank deposits. Your business must be in operations for at least 6 months, and you must have a personal credit score of at least 500.

4. QuarterSpot

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Time in business: 12 months Business revenue: $200,000 per year Average daily balance: $2,000 or above Bank account activity: At least 10 revenue-producing deposits per month Personal credit score: 550 or above Borrower requirements (click to expand) Hide

Through QuarterSpot, you can receive small business loans up to $250,000. Repayment terms are 9, 12, or 18 months. With interest and fees, you may pay as little as 12.5 cents on the dollar to receive your loan. You can also save on interest and fees when you pay off your loan early.

To qualify for a QuarterSpot loan, you must meet several requirements. First, you must be in business for at least 1 year. You must also have a credit score of 550. Your business must make at least 10 sales per month and bring in monthly revenues of $16,000. Your average daily balance must be $2,000 to receive a QuarterSpot loan.

5. Fora Financial

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Time in business: 6 months Business revenue: $5,000 monthly in debit and credit card sales (for a merchant cash advance) OR $12,000 monthly in gross sales (for a short-term loan) Personal credit score: Unknown Borrower requirements (click to expand) Hide

Like other lenders on our list, Fora Financial offers more than one way to get extra capital for your business. First, this lender offers small business loans from $5,000 to $500,000 with terms up to 15 months.

Fora Financial also offers MCAs for qualified borrowers. There are no set terms, and payments are remitted based on the revenue of your business. You can borrow between $5,000 and $500,000 with this product.

Fora Financialâs small business loans and MCAs both have factor rates between 1.1 and 1.3 and origination fees between 1% and 4%.

To qualify for a small business loan, you must have no open bankruptcies, a time in business of at least 6 months, and at least $12,000 in gross sales.

To qualify for Fora Financialâs MCAs, you must have no open bankruptcies, a time in business of at least 6 months, and at least $5,000 in credit card sales.

6. IOU Financial

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Must be in business at least 12 months.Â Must make at least $120,000 per year and have an average daily balance of $3,000 over a 3-month period. Must have a personal credit score of 600 or above. Borrower requirements (click to expand) Hide

IOU Financialâs core small business loan allows you to receive anywhere from $5,000 up to $150,000 for any business expense. With this loan, youâll have repayment terms of 6, 9, or 12 months. Repayments are fixed and are made on a daily schedule. For larger capital needs, IOU Financial also offers loans of $70,000 to $300,000 with repayment terms up to 18 months.

To receive an IOU Financial loan, you must own at least 80% of your business. If you co-own your business with your spouse, you must own 50% of the business. You must have a time in business of at least 1 year, at least 10 deposits per month in your business bank account, annual revenue of at least $100,000, and an average ending balance of $3,000 in your business bank account.

7. BlueVine

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For invoice factoring: Time in business: 3 months Business revenue: $100,000 per year Business type: Business-to-business Personal credit score: 530 For business lines of credit: Time in business: 6 months Business revenue: $120,000 per year Personal credit score: 600 Borrower requirements (click to expand) Hide

If a flexible line of credit would better fit your business needs, BlueVine has an option for you. Through this lender, you can receive a line of credit of $5,000 up to $250,000 with rates starting at 4.8%. There are no prepayment penalties or monthly maintenance fees.

With your line of credit, you can make multiple draws up to your total credit limit. You only pay fees on the borrowed amount, and your account will be replenished as you repay. Payments are made weekly or monthly over a period of 6 to 12 months.

To qualify for a BlueVine line of credit, you must have a personal credit score of at least 600, $100,000 in annual revenue, and a time in business of at least 6 months.

If unpaid invoices are affecting your incoming cash flow, consider applying for BlueVineâs invoice factoring service. You can receive a factoring line up to $5 million with rates starting at 0.25% per week.

To qualify, you must have unpaid invoices, a credit score of 530, and $100,000 in annual revenue. You must also have a B2B business that has been in operations for at least 3 months.

8. Kabbage

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Must be in business at least 12 months and make at least $50,000 annually (or $4,500 for the last 3 months). No specific credit score requirements. Borrower requirements (click to expand) Hide

Another option for flexible lines of credit is Kabbage, which offers up to $250,000 to qualified small business owners. With Kabbage, you can make draws (up to your credit limit) as needed to use as working capital for your business. You only pay for what youâve used, and fees range from 1.5% to 10%. With Kabbage, you can select from 6-month and 12-month terms based on the amount you withdraw.

Kabbage looks at the performance of your business to determine if you qualify. There are no minimum personal credit score requirements. To qualify, however, you must be in business for at least a year and have at least $50,000 in annual revenue. (If you fail to meet this revenue requirement, you can still qualify if youâve had $4,200 in revenue per month for the last three months.)

The application process with Kabbage is easy and requires you to provide some basic information about yourself and your business. You will also link your business accounts to get the maximum line of credit based on your business performance.

You can also use the Kabbage card. This works just like a credit card and can be used anywhere Visa is accepted. With this card, you can make instant purchases, and Kabbage will create a new loan with the same rates and terms as its traditional draws.

9. Fundbox

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No time in business requirements, but must have used a compatible accounting or invoicing software for at least 2 months, or a compatible business bank account for at least 3 months. Business revenue: $50,000 per year No specific personal credit score requirement Borrower requirements (click to expand) Hide

Through Fundbox, you can receive a line of credit up to $100,000 based on the performance of your business. Payments are spread out over a 12- or 24-week schedule and include Fundboxâs flat fee. Fees start at just 4.66%.

To be approved for a Fundbox line of credit, you must have a business checking account, at least $50,000 in annual revenue, and a business based in the United States. You must also provide business bank account statements from the last 3 months.

In addition to its lines of credit, Fundbox also offers invoice financing to qualified businesses. You can receive up to $100,000 with your unpaid invoices with fees starting at 4.66%. You must have qualifying invoices to receive this product, and you also must link your accounting software with activity from the last 2 months.

10. OnDeck

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Time in business: 12 months Business revenue: $100,000 per year Business industry: Must not be in aÂ restricted industry Personal credit score: 550 Borrower requirements (click to expand) Hide

With OnDeck, you can receive a line of credit up to $100,000 to use for any business purpose. APRs start at 13.99% for the most qualified borrowers, and payments are automatically deducted each week. Thereâs a $20 monthly maintenance fee, but this fee is waived if you draw at least $5,000 within 5 days of opening your account.

To qualify for an OnDeck line of credit, you must be in business for at least 1 year, have at least $100,000 in annual revenue, and a personal credit score of 600.

If you donât meet the requirements for a line of credit, or youâre interested in another option, OnDeck also has fixed term business loans. You can receive up to $500,000 with annual interest rates starting at 9.99%. OnDeck has two different options for its loans: short-term loans with terms up to 12 months and long-term loans with terms up to 36 months. Repayments are made daily or weekly.

To qualify, you must be in business for at least 1 year and have $100,000 in annual revenue. Your credit score must be at least 500 to qualify for OnDeckâs term loans.

11. Kiva US

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No requirements for time in business, revenue, or credit scores. Borrower requirements (click to expand) Hide

If you want to bypass traditional and alternative lenders and avoid high interest rates, give Kiva US a try. This crowdfunding platform allows you to borrow up to $10,000 at a 0% interest rate.

Sounds great, doesnât it? However, getting funded through Kiva US isnât quite as easy as other loan options. But with a little extra work, you can receive an affordable loan for your business. Hereâs how it works.

First, you fill out the application on the Kiva US website, just as you would any other loan application. Once youâve submitted your application, youâll prove that youâre creditworthy by getting your friends and family members to loan money to you through the platform over the next 15 days. Once youâve passed this stage, youâll be able to use the public Kiva platform to reach over 1.6 million people worldwide to raise your funds over the next 30 days. Once youâve reached your goal, youâll receive your money and up to 36 months to repay your loan.

To qualify, you must live in the United States and be at least 18 years old. You must also use your loan for business purposes. There are no time in business, personal credit score, or annual revenue requirements to qualify.

How Fast Can I Get A Business Loan?

The time it takes to receive your business loan varies by lender. For small loans of just $5,000, you could be approved in just minutes and receive your funds as quickly as the next business day. For lines of credit through lenders such as Kabbage and Fundbox, you can make draws immediately after being approved, with funds typically reaching your business bank account within 1 to 3 days.

The key to getting your business loan as quickly as possible is to make sure that you provide accurate information and upload all requested documentation. In some cases, your lender may require additional information or documentation to approve your loan. Make yourself available to answer any questions from the lender and provide the required documentation needed to approve and fund your loan.

What To Do If You Have Bad Credit

If you have bad credit, there are business loan options open to you. Some of the lenders previously mentioned, such as Kabbage and Fundbox, do not have minimum credit score requirements and consider the performance of the business when approving loans. Therefore, if you have steady revenue, you may still qualify for funding.

Business credit cards often have less stringent requirements, so these may be an option if you have a low credit score. Depending on your score, you may be able to qualify for an unsecured card. However, if your credit score is very low or you havenât yet established credit, you may qualify for a secured card which is backed by a cash deposit. As you make on-time payments, youâll build your credit score and qualify for unsecured cards and other financial products in the future.

Crowdfunding has also grown in popularity among small business owners. Sites such as Kiva US allow business owners to raise the capital they need without paying high interest rates. Crowdfunding is also a great resource for new businesses and startups that donât meet time in business or annual revenue requirements of other lenders.

If you have bad credit, itâs inevitable that youâll hit roadblocks on the path to funding. Not only will your options be more limited, but youâll miss out on low-interest, long-term loans. To qualify for the best funding opportunities, you must have a solid credit score. Go online to pull your free score, review your credit report, and take steps to build your credit. Pay off all debt obligations as agreed, keep your credit utilization down, and dispute erroneous items on your credit report. Though this method takes time, boosting your credit score opens the door for more affordable loans and financial products in the future. Learn more about how you can raise your personal credit score.

Final Thoughts

Finding a $5,000 loan for your business shouldn’t be too difficult. However, you should go into the process knowing that smaller loans come with shorter repayment terms and may also be accompanied by high fees and interest rates.

Calculate the affordability of the loan to ensure that taking out a loan is a smart financial move. If youâre new to applying for small business loans, educate yourself before you start submitting applications to lenders. Finally, be sure to shop around to ensure you get the most affordable financing products that work best for your business.

The post Where To Find Fast $5,000 Loans For Your Business appeared first on Merchant Maverick.

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December 13, 2018

SBA Loans For Women: What You Need To Know

Being an entrepreneur is never easy. However, if youâre a female entrepreneur, you may face even more challenges when owning and operating your own business. After all, until the passage of H.R. 5050: Womenâs Business Ownership Act in 1988, women in many states couldnât even receive a business loan without having a male cosigner. Thanks to this legislation, more resources are available for women business owners. Unfortunately, though, women still face challenges when applying for business loans and financing.

If youâre a female business owner or youâre ready to start your own business, donât lose hope. There are resources available to fund the launch or expansion of your business. One of the best resources? The Small Business Administration.

The Small Business Administration — or SBA — provides a variety of resources, including affordable loan programs, to female entrepreneurs. Ready to learn more? Read on to find out more about the SBA, growing your business with SBA loans, and additional resources available for women-owned businesses.

What Is The SBA?

The SBA was founded in 1953 to provide assistance to small business owners. The SBA provides various resources to help small business owners become successful entrepreneurs. This includes in-person and online counseling, low-cost training, and advocacy for small businesses. One of the SBAâs most significant resources is its low-interest loan programs.

Securing a traditional loan from a bank or credit union can be tough for any business owner. These financial institutions view small businesses as a risk, even when the business has established a track record of success. Because traditional lenders tend to avoid risky borrowers, many business owners have the door shut in their face.

At this point, there are a few options to consider. Alternative lenders have fewer requirements but much higher rates and less favorable terms. Low borrowing limits through these lenders may also prove to be a problem.

Instead of simply accepting a loan with less-than-desirable terms, many business owners look to the SBA to receive loans with competitive rates and terms, even when theyâve been turned down for other loans.

Overview Of SBA Loan Programs

Loan Program	Description	More
7(a) Loans	Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.	Review
Microloans	Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.	Review
CDC/504 Loans	Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.	Review
Disaster Loans	Loans used to rebuild or maintain business following a disaster.Â	Review

How The SBA Helps Women-Owned Businesses

The SBAâs Office of Women Business Ownership was created to enable and empower female entrepreneurs. Training and counseling are available to all women through Womenâs Business Centers, with over 100 educational centers open nationwide.

The Office of Womenâs Business Ownership collaborates with other organizations to provide additional resources to women entrepreneurs. Weâll explore some of these resources a little later in this post.

The SBA also provides federal contracting opportunities for women through the Women-Owned Small Business Federal Contracting program. Through this program, certified women-owned businesses can compete for federal contracts.

The SBA does not discriminate when it comes to funding and resources. Women-owned businesses can take advantage of everything that the SBA has to offer. Female entrepreneurs can apply for all SBA loans provided they have a âsmall businessâ as defined by the SBA and meet all other requirements. These loans open up funding opportunities for women to launch or grow their small businesses.

One important thing to note here is that the SBA is not a lender. Instead, this organization has created guidelines that keep interest rates low and repayment terms flexible. Money is loaned through lenders known as intermediaries. An intermediary can be a bank, credit union, nonprofit organization, or another lender. The SBA takes the risk off of lenders by guaranteeing large percentages of most loans. This makes it easier for lenders to loan to small businesses, which can then take advantage of these affordable financing opportunities when other options arenât available.

How To Qualify For An SBA Loan

One of the most valuable resources available through the SBA is access to low-cost loans. Female entrepreneurs that donât qualify for traditional loans can receive competitive rates and terms through SBA programs.

Starting or expanding your small business takes capital â¦ and sometimes, lots of it. Purchasing or leasing a commercial building, buying equipment, and even having working capital for daily expenses can be a financial burden that most entrepreneurs canât handle alone. This is when an SBA loan can really be beneficial.

Women can apply for any SBA loan product, provided they meet the requirements. The first requirement is that the business must meet the SBAâs size standards for a small business. The SBA limits the number of employees, annual revenues, and net worth of the business.

To receive anÂ SBA loan, your business must be based in the United States. Most loans are only available to for-profit businesses, although SBA Microloans are also open to nonprofit childcare centers. Businesses in certain industries are also ineligible to receive SBA loans. These industries include, but are not limited to:

Multi-Level Marketing Schemes
Real Estate Investment Firms
Religious Institutions
Lending Firms
Businesses In Illegal Industries
Government-Owned Businesses
Gambling Businesses

When applying for SBA loans, your personal credit score will be a factor for approval. Though credit requirements vary by lender, most SBA intermediaries require a solid credit score at least in the mid-600s. Of course, the higher your score, the higher your chances are to receive a loan. Your credit report must also be free of:

Recent Bankruptcies
Tax Liens
Defaults On Government Loans

Other negative items on your credit report will need to be explained to your lender, and depending on the severity, may disqualify you from receiving a loan.

You must also show sufficient revenue to cover your monthly loan payment. Your lender will evaluate your revenue and your current debts during the underwriting process to determine if you can afford the new loan.

Depending on the loan you apply for and the total borrowing amount, you may also be required to pay a down payment and/or put up collateral to secure the loan. You may also be required to pay fees to receive your loan including but not limited to:

Guarantee Fees
Origination Fees
Packaging Fees
Loan Service Fees
Closing Costs

To qualify for an SBA loan, you must have invested your own time and money into your business. You also must have exhausted all other financing options before applying.

Can I Get An SBA Loan If I Have Bad Credit?

To qualify for an SBA loan, a solid credit score is required. Credit score requirements are not set by the SBA, but this doesnât mean that your score isnât important. Your personal credit score is, in fact, an important factor considered by intermediary lenders.

Most lenders want to see a credit score of at least 620, while scores over 700 are preferred. If your credit score falls below 620 or your credit report has negative items such as bankruptcies, foreclosures, or collections, the chances of receiving an SBA loan are slim to none.

If your credit prevents you from receiving an SBA loan, there are a few options. The first is to work on your credit, build your score, and apply when you meet all requirements. Start by receiving your free credit score online, reviewing your credit report, disputing any errors, and paying your current debt obligations as agreed. Although this can be a lengthy process, building your credit score will open up many affordable financing opportunities for you, including SBA loans.

If your financing need is more urgent, you can apply for loans and other financing for bad credit borrowers. Be aware, however, that these loans have less favorable terms, higher interest rates, and are more expensive than SBA loans.

Types Of SBA Loans For Women-Owned Businesses

Now that you have a general understanding of SBA loans, which loans are best for women-owned businesses? While all SBA loans are available to female entrepreneurs, three loans stand out the most: SBA 7(a) loans, Microloans, and CDC/504 loans. Letâs delve into the details of each type of loan to help you determine which is best for your business.

SBA 7(a) Loans

The SBA 7(a) loan is one of the most popular loan options for small business owners. Through the 7(a) program, borrowers are eligible to receive up to $5 million that be used for nearly any business purpose, including the purchase or expansion of an existing business, refinancing existing debt, or to pay startup costs.

Repayment terms are based on the borrowerâs ability to repay and are up to 10 years for loans used as working capital or up to 25 years for loans used for commercial real estate. Interest rates are based on the amount borrowed and the repayment terms. The maximum interest rates for a 7(a) loan is the prime rate plus a markup between 2.25% and 4.75%. Check out the current rates for SBA loans.

SBA 7(a) Loan Base Rates + Markups

Loan Amount	Less Than Seven Years	More Than 7 Years
Up to $25,000	Base rate + 4.25%	Base rate + 4.75%
$25,000 â $50,000	Base rate + 3.25%	Base rate + 3.75%
$50,000 or More	Base rate + 2.25%	Base rate + 2.75%

SBA 7(a) loans of $25,000 or less do not require collateral. Loans of more than $25,000 up to $350,000 may require collateral based on the lenderâs policies. All loans that exceed $350,000 must be secured with collateral. Fixed assets of the business are used to collateralize the loan, although trading assets and personal real estate may be used as collateral if needed. A guarantee fee must be paid by the borrower for 7(a) loans over $150,000.

Women-owned businesses may also qualify to receive the SBAâs Community Advantage loan. Through this program, business owners can receive up to $250,000. Loan proceeds can be used for nearly any business purpose, just like with the 7(a) loan. Repayment terms are the same as the 7(a) program, and the maximum interest rate is the prime rate plus 6%.

What makes this loan different from the traditional 7(a) loan? The Community Advantage program is designed for small businesses in underserved markets. Women-owned businesses, businesses located in low-to-moderate income areas, businesses in rural areas, and businesses that are less than 2 years old qualify for funding through this program.

SBA Microloans

If you have smaller capital needs, the SBA Microloan program may be the right financing solution for your business. Women-owned businesses can apply for up to $50,000 through this program. The average loan amount distributed through this program is $13,000. These loans are distributed through nonprofit lenders.

SBA Microloan proceeds can be used as working capital, to purchase equipment or fixtures, or to cover improvements. Microloans canât be used to repay existing debt.

Maximum repayment terms are set at 6 years. The interest rate is based on the lenderâs cost of funds. The lender can add a maximum of 8.5% to its cost of funds when distributing loans. There is no guarantee fee required with these loans. Collateral and/or a personal guarantee may be required by the lender as a condition of receiving the loan.

SBA Microloan Rates & Terms

	SBA 504 Loans
Borrowing Amount	$500 – $50,000
Term Lengths	Up to 6 years
Interest Rates	6.5% – 13%
Borrowing Fees	Possible fees from the loan issuer
Personal Guarantee	Guarantee required from anybody who owns at least 20% of the business
Collateral	Collateral normally required, but depends on the lender
Down Payment	No down payment for most businesses Possible 20% down payment for startups Possible 10% down payment for business acquisition loan

SBA CDC / 504 Loans

If you need to purchase commercial real estate or update your existing facilities, consider applying for an SBA CDC/504 loan. This program is a little bit different from other SBA programs because you work with two different lenders.

Proceeds from an SBA CDC/504 loan can be used to purchase buildings, land, or long-term equipment, to improve land or update facilities, to pay costs for new construction, or to refinance debt connected to purchasing or updating facilities or equipment.

This is how the SBA CDC/504 program works: a Certified Development Company that is licensed through the SBA provides 40% of your project costs up to $5 million. A private lender provides 50% of the project costs. You are responsible for paying the remaining 10%. If youâre a new business or purchase a special-use property, you may have to pay up to 10% more.

Your CDC loan comes with repayment terms of 10 or 20 years. Interest rates for the portion of the project funded by the CDC are based on the 5-year and 10-year U.S. Treasury issues. Interest rates and repayment terms funded by the private lender vary.

SBA 504 Loan Rates & Terms

	SBA 504 Loans
Borrowing Amount	No maximum, but the SBA will only fund up to $5 million
Term Lengths	10 or 20 years
Interest Rates	Fixed rate based on US Treasury rates
Borrowing Fees	CDC servicing fee, CSA fee, guarantee fee, third party fees (however, most of these fees are rolled into the interest rate or cost of the loan) Possible prepayment penalty
Personal Guarantee	Guarantee required from anybody who owns at least 20% of the business
Collateral	Collateral required; usually the real estate/equipment financed
Down Payment	10% – 30%

For these loans, additional collateral is not typically required. The assets being purchased act as the collateral. All owners of 20% or more of the business are required to sign personal guarantees to receive this loan.

How To Apply For An SBA Loan

If your business needs financing and you meet the requirements of the SBA, you can apply for an SBA loan. The steps that you take next are determined by the type of loan you select.

To apply for an SBA 7(a) loan, the first step is to find an intermediary lender. You can do this through the SBAâs Lender Match service, which connects you with a lender in your area. You can also get referrals through your existing financial institution.

If youâre applying for an SBA Microloan, youâll need to find a nonprofit lender in your area. If youâre applying for an SBA CDC/504 loan, you will need to find a CDC that is licensed with the SBA, as well as a private lender that will loan money to cover 50% of your project costs.

Once youâve found a lender, youâll fill out an application for the loan of your choosing. In addition to providing details about your business, you may also be required to provide a breakdown of ownership, a summary of how loan proceeds will be used, and details surrounding how you plan to pay back your loan.

Documentation will also be submitted with your application. This documentation will be used to determine if your business qualifies for funding. While requirements may vary by lender, expect to present the following items:

Business & Personal Credit Scores/Reports
Business Licenses
Articles Of Incorporation
Business & Personal Income Tax Returns
Cash Flow Statement
Balance Sheet
Profit & Loss Statement
Business Plan
Financial Projections

Depending on the loan product you select, additional documentation may be required. For example, a letter of intent from a private lender is needed when applying for an SBA CDC/504 loan.

As you move through the application process, be prepared to provide information on the collateral being used to secure the loan (if required) and all owners should be ready to sign a personal guarantee.

Once all documentation and information are gathered, the lender will evaluate your application, taking into consideration factors including credit score, credit history, time in business, and your ability to repay the loan. Donât be surprised if the lender has questions or requests more information throughout the process. Make sure that your contact information is up to date and you make yourself available to keep the process moving forward.

The underwriters may take several weeks to review your full loan application. With banks and traditional lenders, you may wait 2 to 3 months (or longer) from the application stage to funding. Some lenders offer expedited services to help you get the money you need fast, so if time is an issue, shop around for intermediary lenders that offer fast approvals and funding, like SmartBiz or Lendio.

SmartBiz

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Must be in business at least 2 years. Must have a personal credit score of 650 or above. Must have a business credit score of 150 or above. Borrower requirements (click to expand) Hide

Through SmartBiz, you can apply to receive anything from $30,000 to $5 million to finance your small business. If you want to expand your business, refinance debt, hire employees, purchase inventory or equipment, launch a marketing campaign, or just have funds to use as working capital, consider applying for SmartBiz’s SBA 7(a) Working Capital and Debt Refinancing Loans.

Qualified borrowers can receive up to $350,000 through this program and can be funded in as quickly as 7 days. To qualify, you must have a minimum credit score of 650, a time in business of at least 2 years, and a credit history free of bankruptcies, foreclosures, charge-offs, and settlements. Your credit report should also be free of defaults on government-backed loans and tax liens.

You can also apply for up to $5 million for a 7(a) Commercial Real Estate Loan through SmartBiz. You must have a credit score of at least 675, a time in business of at least 2 years, and no delinquencies or defaults on government loans. The property being financed with loan proceeds should be at least 51% owner-occupied. You must also show proof of sufficient income to cover your loan payment.

Lendio

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Must be in business at least 6 months with a revenue of $10,000 per month. Must have a personal credit score of 550 or above. Borrower requirements (click to expand) Hide

Through Lendio, you can apply for the SBA 7(a) loan, the SBA 504 loan, and the SBA Express loan. Loans are available for $50,000 up to $5 million.

To qualify, you must meet all the requirements for receiving an SBA loan. Documentation can be uploaded securely to Lendio’s platform, and if you encounter any trouble along the way, you can work with your personal funding manager.

The average time for funding SBA loans through Lendio’s platform is 30 to 90 days.

Other Business Resources For Women

As mentioned earlier in this article, the SBA offers more than just loans for women-owned small businesses. One program offered through the SBA is the Women-Owned Small Business Federal Contracting program.

Through this program, women-owned businesses can bid on federal contracts with less competition. Only businesses that are certified WOSBs are eligible to compete for these contracts. To qualify, a business must be a small business as defined by the SBA, be at least 51% owned and controlled by U.S. citizens that are female, and have women in charge of day-to-day operations and long-term decisions.

Women that operate economically disadvantaged businesses can bid on federal contracts with even less competition, provided they meet all requirements of the SBA.

Even though legislation has been leveling the playing field for female entrepreneurs, the Center for Womenâs Business Research found that almost half of women business owners donât seek outside sources of funding for their business. The SBA believes that one reason women may not seek financing is that they donât understand the process and may be unsure of who to ask for more information. The SBA has online resources, Womenâs Business Centers, and local SBA offices that provide counseling, training, and loan information to women business owners.

There are plenty of other resources for female entrepreneurs outside of the SBA. The National Womenâs Business Council offers nearly 200 resources through the Grow Her Business initiative, including accelerators and incubators, business competitions, conferences, crowdfunding, and alternative lender programs.

The National Association of Women Business Owners also provides resources to help empower women business owners. This organization offers training, education, and virtual networking to female entrepreneurs.

Entrepreneurs can also take advantage of many funding opportunities outside of SBA loans. Learn more about grants and small business loans available for women-owned businesses.

Final Thoughts

Women have come a long way in recent years, especially when it comes to entrepreneurship. The great news is that there are plenty of resources available to female entrepreneurs — you simply need to know where to look. By taking advantage of resources like SBA small business loans, youâll be ableÂ toÂ start, build, or grow your business, taking it to new levels you never thought possible.

The post SBA Loans For Women: What You Need To Know appeared first on Merchant Maverick.

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December 11, 2018

Business Loans For Food Trucks: Best Financing Options

Food trucks are rolling out across cities and towns across the nation, bringing delicious dining options to businesses and events. These mobile businesses donât just benefit hungry diners, though. Restaurants-on-wheels also open up new opportunities for entrepreneurs. With operating costs that are only a fraction of what it would be to open and maintain a traditional restaurant, food trucks are a more affordable way to bring your tasty food to the masses.

Even though your costs are cut, that doesnât mean theyâre nonexistent. You still have to consider the cost of supplies, equipment, POS software, and the truck itself. Whether you already own a food truck business and want to expand or youâre ready to launch your business, these expenses add up quickly â¦ and if youâre like most business owners, you donât have the funds just sitting in your checking account.

The good news is you donât have to be a millionaire to start or expand your food truck business. There are plenty of financing options available for your business expenses, from purchasing a new food truck to upgrading equipment and hiring employees.

Ready to roll out your food truck business? Read on to learn more about the types of financing available to you, how to apply, and our recommended options.

Financing Need	Best Loan Type	Recommended Lender
Purchasing Or Renting A Food Truck	Equipment Financing	Lendio
Working Capital	SBA Loan	SmartBiz
Supplies & Inventory	Line Of Credit	Fundbox
Hiring & Covering Payroll	Installment Loan	StreetShares
Cash Flow Shortages	Short-Term Loan	OnDeck
Emergency Funds	Business Credit Card	Chase Ink Unlimited

Purchasing Or Renting A Food Truck

Itâs no surprise that one of the most important pieces of your food truck business is the food truck itself. Your truck is your mobile restaurant, allowing you to peddle your tasty treats all over town. Without a food truck, you simply donât have a business.

Unfortunately, the truck will also be one of your biggest expenses. A custom truck stocked with all of the equipment you need to make your edible creations could cost upwards of $200,000 — an expense that just isnât financially feasible for most entrepreneurs.

Whether youâre investing in your first food truck or adding to your fleet, there are two options to consider: purchasing and renting/leasing. Letâs explore the differences between loans and leases to determine which option is best for your business.

Vehicle Loans VS Leasing

If you want to purchase a food truck, commercial auto loans or equipment loans are your best financing options. These loans can help you buy an expensive food truck without having to pay the full purchase price out of pocket.

When you receive an equipment or vehicle loan, youâll be required to pay a percentage of the purchase price as a down payment. This is typically 10% to 20% of the total cost, although this can vary by lender. In most cases, the higher your credit score, the lower your down payment requirement will be. However, you may want to consider putting a larger amount of money down to reduce the amount of your loan and decrease your monthly payment.

After making the down payment, the lender will loan you the remaining balance so that you can take possession of the vehicle immediately. Then, youâll repay the loan through monthly payments for a set period of time. Your monthly payment will beÂ applied to the balance of your loan, as well as to interest charged by the lender. Once youâve made all loan payments as agreed, youâre the owner of the food truck and can keep it, trade it in for a new truck, or sell it outright if you choose.

If you have an established food truck business, a loan may be the best option for you. Once you pay off your loan, youâll own the vehicle free and clear and can use it in your business as long as you need.

If you donât have collateral, itâs no problem. For most equipment and vehicle loans, the equipment being purchased — in this case, your food truck — will actÂ as the collateral.

On the other side of the coin is food truck leasing. When you lease a food truck, youâre essentially renting it. A lease does have a few similarities to a vehicle or equipment loan. With a lease, you are required to pay a down payment. After paying your down payment, you can put the food truck into service.

When you sign a lease, you agree to make monthly payments over a period of time — usually 2 to 3 years. Once your lease ends, you can return the vehicle and sign a lease on a new truck. Some lenders may also give you the option to pay a lump sum at the end of your lease to purchase the truck.

When should you consider a lease over a loan? If youâre new to the industry, a lease may be the better option for you. If things go pear-shaped and you decide to not move forward with your business, you can simply return the truck at the end of your lease. A lease is a good option when youâre not yet sure if youâre in this business for the long haul.

If youâre short on funds for a down payment, a lease may also be the better choice. In many cases, leases have lower down payment requirements. You may also score lower monthly payments with a lease.

However, if you do plan to use your food truck for a longer period of time, purchasing your equipment with a loan is a wise move. While a lower down payment and lower monthly payments are more cost-efficient over the short-term, a lease is often more expensive over the long term.

Still stuck between a loan and a lease? Learn more about equipment loans and leases to make the right decision for your business.

Recommended Option: Lendio

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Must be in business at least 6 months with a revenue of $10,000 per month. Must have a personal credit score of 550 or above. Borrower requirements (click to expand) Hide

Lendio is an online loan aggregator that connects you with a network of lenders that best fit your financial needs. One of the options that you can apply for through Lendio is equipment financing.

With equipment financing, you can receive between $5,000 and $5 million for the purchase of your food truck. Interest rates through Lendioâs network start at 7.5% for the most creditworthy borrowers. The proceeds from your loan can be used to purchase a new or used food truck. You can also use equipment loans to purchase other equipment for your business, such as a new grill or a point-of-sale system.

To qualify, you must have a credit score of at least 650. If your score is lower, you may still be able to receive equipment financing through Lendio provided you can show proof of solid cash flow and revenue over the last 6 months. You must also have a minimum of $50,000 in annual revenue and a time in business of at least 12 months.

Working Capital

You just canât operate a successful business without working capital — money that is used to cover your daily operating expenses. Even though the average daily expenses of a food truck — think fuel for your vehicle, payroll, and other operating expenses — are far less than the operating costs of running a restaurant, they can still pile up.

The money you make from selling your food should cover your daily operating costs and add to your profits, but what happens when you fall a little short? Unexpected expenses, a slow season, or other hurdles can pose a challenge to your business and leave you short of the working capital you need.

If you need working capital, there are a variety of financing options to consider, but one of the most affordable is a loan from the Small Business Administration.

SBA Loans

SBA loans come with low interest rates and favorable, flexible terms for small business owners. Even if youâve been turned down for a traditional bank loan in the past, you may qualify for an SBA loan. The SBA guarantees portions of each loan. This takes the risk off SBA lenders — known as intermediaries — and opens up affordable business loan options for entrepreneurs.

SBA loans are a preferred choice for many small business owners because they have low interest rates, long repayment terms, high borrowing limits, and can be used for nearly any business purpose, including working capital.

Recommended Option: SmartBiz

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Must be in business at least 2 years. Must have a personal credit score of 650 or above. Must have a business credit score of 150 or above. Borrower requirements (click to expand) Hide

One of the drawbacks of applying for an SBA loan is how lengthy and difficult the process can be. Finding the right lender, gathering the required documentation, and waiting for approval can take weeks — or in some cases months.
If the challenge of receiving an SBA loan has held you back from applying, thereâs an easier option to consider: SmartBiz. This online lender specializes in simplifying SBA loans from the prequalification stage to approval and funding.

Through SmartBiz, you can apply for SBA working capital loans from $30,000 up to $350,000. These loans have a variable interest rate — the base rate plus 2.75% to 3.75% –, making the total interest rate between 8% and 9%.
Your working capital loan can be used in many ways, whether you need to purchase inventory or equipment, hire staff, cover operating costs, or even refinance existing debt.

To qualify, you must be a U.S. citizen or permanent resident. You must also have a time in business of at least 2 years and show proof that you have sufficient cash flow to cover your monthly loan payment. All borrowers applying through SmartBiz must also have a credit score of at least 640. Your credit report should be free of bankruptcies or foreclosures within the last 3 years, defaults on government loans, and outstanding tax liens.

SmartBiz offers a prequalification tool that makes it easy to see if youâre eligible for an SBA loan. The form takes just 5 minutes and will automatically tell you if you qualify to apply. If you do, you can proceed with the application and receive funds as quickly as 7 days after completing your application. If you donât qualify, SmartBiz can connect you with lenders that offer non-SBA loans that could help with your working capital challenges.

Supplies & Inventory

Running a food truck requires keeping supplies and inventory on-hand at all times. From paper products to food, there are a number of supplies that you need to keep your business operating smoothly. These expenses are recurring, and while your profits should be enough to pay for supplies and inventory, this isnât always the case.

Whether you have a seasonal increase in sales that require more supplies and inventory or you have cash flow issues that have left your bank account lower than usual, sometimes you need a financial boost. If you need financing to cover the costs of supplies and inventory, a line of credit can help.

Lines Of Credit

A line of credit is a flexible financing option to cover business expenses. When you receive a line of credit, a lender will provide you with a credit limit — the maximum amount you can borrow. You can make multiple draws up to and including this credit limit. Once you initiate a draw from your line of credit, the funds are transferred to your bank account. Most lenders transfer funds immediately, and you can access them as soon as the next business day. Some lenders even have options that give you access to your funds within just minutes.

Once youâve made a draw on your line of credit, you will make regularly scheduled payments to the lender, which will be used to pay off the balance as well as fees and/or interest charged by the lender. As you pay off your balance, funds will become available for you to use again.

You can use a line of credit to purchase your inventory and supplies as needed. Whether you’re facing a planned expense or a completely unexpected emergency, a line of credit gives you the flexibility you need to make sure you can continue to serve your customers without a hitch.

Recommended Option: FundBox

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No time in business requirements, but must have used a compatible accounting or invoicing software for at least 2 months, or a compatible business bank account for at least 3 months. Business revenue: $50k/year No specific personal credit score requirement. Borrower requirements (click to expand) Hide

Fundbox is a popular option for businesses seeking a line of credit because of its lenient requirements. Even if youâve had credit challenges in the past, it doesnât matter with Fundbox. This company takes the performance of your business into account when issuing lines of credit.

Through Fundbox, you can be approved for a line of credit up to $100,000 that can be used for any business purpose. If you have a low personal credit score, it isnât a problem. There are no credit requirements to qualify for a Fundbox line of credit. However, you do need to have at least $50,000 in annual revenue, a business checking account, and a business that is based in the United States. Additionally, you must grant access to your accounting software so Fundbox can analyze the performance of your business. If you donât use a supported accounting software, you can also submit business bank statements from the last 3 months.

Once youâve been approved for a line of credit, you can initiate draws into your business checking account. With each draw, a fee will be charged. Fees start at 4.66% of the amount drawn. You will receive your funds in your account as quickly as the next business day. Repayment terms are 12 or 24 weeks, and payments are made weekly through ACH debits. If you repay your loan early, all remaining fees are waived.

Hiring & Covering Payroll

Hiring new employees means that your business is expanding, but this expansion comes at a cost. Or maybe youâre facing a completely different situation and youâre struggling to meet your current payroll. Whether youâre adding to your crew or just trying to overcome a financial hurdle to cover payroll, there are financing options to consider, including installment loans.

Installment Loans

An installment loan provides you with a lump sum of money that is paid back through regular payments over a set period of time. Each payment will be applied toward the balance of your loan, as well as toward fees and/or interest charged by the lender.

Your fees and/or interest will vary based on the lender you select and factors such as your personal credit score. The more creditworthy you are, the more affordable your loan will be. Repayment schedules may be daily, weekly, or monthly depending on the policies of your lender.

If you choose an installment loan to cover hiring or payroll costs, you need to run some calculations before you apply. Since you receive a lump sum, calculate how much you need to cover payroll or how much it will take to hire new employees to ensure you request enough money. If youâre unsure of how much money you need, consider applying for a line of credit or another form of flexible financing.

Recommended Option: StreetShares

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Must be in business at least 12 months with a revenue of $25,000 per year (sometimes StreetShares will make exceptions for high-earning businesses at least 6 months old). Must have a personal credit score of 620 or above. Borrower requirements (click to expand) Hide

If you need an installment loan, you can apply for $2,000 to $250,000 through StreetShares. Repayment terms are between 3 and 36 months with APRs of 7% to 39.99%. A closing fee of 3.95% to 4.95% is added to the cost of your loan. Repayments on your loan are made weekly.

If you want a more flexible option, you can also receive a line of credit from StreetShares. You can receive between $5,000 and $250,000 with repayment terms between 3 and 36 months. A draw fee of 2.95% is charged for your loan, and APRs are between 7% to 39.99%.

To qualify for a term loan or line of credit with StreetShares, you must be in business for at least 1 year. A minimum revenue of $100,000 per year is required, as well as a personal credit score of at least 620.

Cash Flow Shortages

A cash flow shortage can negatively affect your entire business. Without sufficient cash flow, youâre unable to cover your daily operating expenses, pay your bills, or serve your customers. You lose profits, resulting in even more cash flow problems. Before you know it, your cash flow issue has spiraled out of control.

Cash flow shortages can occur at any time. In the food truck industry, for example, colder winter weather may affect the number of customers you have. Fewer customers mean less cash â¦ and an increased chance of cash flow shortages.

Before you get to that point, take control of your finances by covering cash flow shortages with a short-term loan.

Short-Term Loans

With a short-term loan, you receive the cash that you need quickly and pay it back through regular payments over a set period of time. While some short-term loans come with repayment terms of 12 months or less, some lenders offer up to 3 years to repay your loan.

Many lenders do not use a traditional interest rate for short-term loans. Instead, these lenders opt to use a factor rate. This is a multiplier that determines the fixed fee added to your loan. Letâs say that you borrow $10,000. The factor rate is 1.3. Multiply the borrowing amount times the factor rate to find the total repayment. In this example, the total is $13,000. This means that your fixed fee for borrowing is $3,000. Learn more about factor rates and how theyâre used to determine the cost of your loan.

A short-term loan is a good option when you know exactly how much money you need. If you need a more flexible option, consider applying for a line of credit or business credit card.

Recommended Option: OnDeck

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Must be in business at least 12 months with a revenue of $100,000 per year. Must have a personal credit score of 500 or above. Must not be in one of OnDeck’s restricted industries. Borrower requirements (click to expand) Hide

With OnDeck, you can apply for business loans up to $500,000. There are two different options to consider: short-term loans and long-term loans.

OnDeckâs short-term loans have repayment terms of 3 to 12 months with simple interest rates as low as 9%. This means that your interest rate is calculated as a percentage of your loan amount. For example, if your loan of $20,000 has 10% simple interest, you will pay $2,000 in interest.

OnDeck also has long-term loans with repayment terms of 15 to 36 months. Annual interest rates start at 9.99%.
An origination fee is also added to the cost of your loan. For your first loan, you will pay 2.5% to 4% of the total loan amount. Second and subsequent loans qualify for lower origination fees. All loans are repaid daily or weekly through automatic ACH withdrawals.

To qualify, your company must be in business for at least a year. You need at least $100,000 in annual revenue. Your personal credit score must be at least 500.

If youâre looking for a more flexible financing option, OnDeck also offers lines of credit up to $100,000 with APRs starting at 13.99%. To qualify, your company must be in business for at least a year and have $100,000 in annual revenue. You must also have a credit score of at least 600 to receive an OnDeck line of credit.

Emergency Funds

Your food truck is in need of repairs. Your equipment has suddenly given out and needs to be replaced. An unexpected expense has come out of nowhere and has turned your finances upside down. When an emergency arises, donât panic. Know that there are emergency loans and other financingÂ options available to help you overcome financial hurdles.

In an emergency, you need access to funds quickly. You donât have days or weeks to wait for a loan approval. In these situations, a business credit card could help.

Business Credit Cards

Once youâre approved for a business credit card, you can put it into action immediately. You donât have to wait for approval from the lender each time you use your card. If a sudden emergency pops up, your credit card is ready to use. You can use it to pay your suppliers or vendors, pay a bill, cover food truck repairs, or for other business expenses.

When you receive a credit card, the issuer will set a credit limit. You can spend up to and including this limit anywhere credit cards are accepted. Each month, youâll make a payment that will be applied toward the principal balance and the interest charged by the lender. As you pay off your balance, your credit will become available to use again.

If you apply for a credit card for your business, make sure to compare interest rates and to read all of the fine print. Many cards come with introductory APRs that increase at a later date so make sure youâre aware of all terms for your card. You may also consider applying for a rewards card, which provides you with cash back or points to use for perks and benefits each time you use your card.

Recommended Option: Chase Ink Business Unlimited

Chase Ink Business Unlimited Apply NowÂ	Annual Fee: $0 Purchase APR: 15.24% – 21.24%, Variable
Required credit: Good, excellent Bonus offer: $500 cash back if you spend at least $3,000 on purchases in the first 3 months Purchase intro APR: 0% for the first 12 months Balance transfer intro APR: 0% for the first 12 months Foreign transaction fee: 3% Rewards:Â Unlimited 1.5% cash back rewards on all purchases Notable perks & benefits: Employee cards at no additional cost Travel and purchase coverage More card details (click to expand) Hide

With Chase Ink Business Unlimited, you can earn unlimited 1.5% cash back with every business purchase. This card comes with a 0% introductory APR for the first 12 months, followed by a 15.24% to 21.24% variable APR. Thereâs no annual fee, and you can even receive $500 cash back after spending $3,000 within the first 3 months of opening your account.

To qualify for the Chase Ink Business Unlimited, you must have good to excellent personal credit. Unsure if the Chase Ink Business Unlimited is right for you? Check out other credit card options:

Compare Chase Ink Business Credit Cards
Best BusinessÂ Credit Cards For Good Credit
Top Business Credit Cards For Fair Credit

When You Want To Start A Food Truck Business

The financing options previously discussed are great for established businesses, but what about food truck startups? Time in business requirements, annual revenues, and business credit scores are required for many loans, so whatâs your next move if you fall short of these requirements?

New businesses and startups may not have as many financing options as established businesses, but there are options out there if you know where to look.

For example, you may not qualify for an SBA 7(a) loan, but you could get a smaller loan through the SBA Microloans program. Through nonprofit intermediary lenders, you could receive up to $50,000 to cover startup costs for your new food truck business. Although the maximum borrowing amount is $50,000, the average loan distributed through this program is $13,000, so this is an option that is best for startups with lower capital needs.

Sometimes, you may even have to get a little creative with your financing. Consider crowdfunding to raise money for your business. With crowdfunding, youâll use an online platform to raise money to fund your startup costs. Investors will invest money in your food truck business in exchange for equity or a reward of your choosing. Your crowdfunding campaign can be a success if you effectively spread the word about your business through social media and other online outlets and offer equity or rewards that are enticing to investors.

If you have good credit, look beyond business loans and consider taking out a personal loan. Your personal income and credit score will be the main qualifying factors with a personal loan. With this option, you can receive very competitive interest rates and terms on a personal loan that can be used to fund your new food truck business. Learn more about using a personal loan for business.

Friends and family that are willing to invest may also be a financial option for your new business. If you receive a loan from your friend or family member, make sure that everything is in writing and that you pay as agreed, just as you would with any other lender.

Bad Credit? Your Best Food Truck Financing Options

If you have a low personal credit score, your financing options are limited. Your low score will also result in higher interest rates and a higher overall cost of borrowing. Instead of being stuck with these higher costs and less desirable financing options, the smartest financial move is to build up your credit.

Know where you stand by applying for your free credit score and report online. Review your credit report for any errors and dispute any erroneous information to have it corrected or removed. Continue paying all loans, credit cards, and other debts as agreed. With a few easy steps, you can boost your credit score. With a higher score, youâll be able to qualify for better, more affordable loans and financing.

If youâre in a hurry to receive money, waiting for months (or even longer) to build your credit score may not be an option for you. If you need financing quickly, there are options, but be aware that these options come at a higher cost.

If you have bad credit but your business is performing well, consider applying for a line of credit. Lenders like Fundbox and Kabbage consider the performance of your business — not your credit score — as the most important qualifying factor. With these lenders, simply fill out a short form with your personal information, then link your business accounts and/or accounting software to see how much you qualify to receive. Once approved, your line of credit is available to use immediately.

Another type of financing available to borrowers with bad credit is a merchant cash advance. When you receive a merchant cash advance, you receive a lump sum of money in exchange for future revenue. The merchant cash advance company uses a factor rate to add a fixed fee to the total amount borrowed. The money is then repaid through daily ACH withdrawals, although some providers offer weekly or monthly repayments.

With MCAs, you may have fixed or variable repayments. With some providers, the amount you pay never changes. With others, the amount you pay is based on a percentage of your sales. When you have higher sales, your payment is higher. When sales are down, your payment is lower. What you pay depends on the agreement you sign with your provider.

Itâs important to proceed with caution when receiving an MCA. Financial experts advise against this type of financing due to the high costs and short repayment terms, which could lead to more debt. If you have a low credit score and no other financing options, carefully weigh out the pros and cons before signing a contract with an MCA provider.

There are also alternative lenders online that are willing to work with borrowers with credit challenges. Shop around, compare your options, and make sure that your return on investment justifies the cost of taking out an alternative loan.

What You Need To Apply For Food Truck Financing

When you apply for food truck financing, what you need to apply is based on the type of loan youâre applying for and the lender youâre working with. At the very least, youâll need to fill out an application providing personal information including:

Full Legal Name
Legal Business Name
Contact Information: Phone number, email address, mailing address
Federal Tax ID
Social Security Number
Annual Revenue

For some types of financing, like lines of credit and business credit cards, little more is needed. However, loans such as equipment financing and SBA loans may require additional information and documentation, including:

Business & Personal Bank Statements
Business & Personal Income Tax Returns
Balance Sheet
Profit & Loss Statement
Business Plan
Financial Projections
Resumes For All Business Owners
Debt Schedules

Requirements vary and a complete list of all required information and documentation will be provided by your chosen lender.

Final Thoughts

Running a food truck can be extremely lucrative, but like any other business, you may encounter financial challenges. When this occurs, just know that there are loans and financing that can be used to cover unexpected expenses, expand your business, or even start a new business.

Understand the types of financing available to your business, shop around for the best rates, and make all payments as agreed to open up future financing opportunities and to prove yourself as a responsible borrower and business owner.

The post Business Loans For Food Trucks: Best Financing Options appeared first on Merchant Maverick.

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