You’re probably here because you’ve heard the buzz about WordPress (Alignable’s SMB Index says WordPress is the most trusted software for small business), but are wondering if there are situations in which someone should not use WordPress for their business website.
WordPress is an incredibly versatile website platform — I won’t hide my enthusiasm for it. But there is no such thing as a “best website platform”. There’s only the best choice based on your goals, resources and preferences.
Most website platforms promote with features and price. But like buying a house – price and features don’t tell the whole story. They don’t tell you if this platform is a good choice for your website.
When evaluating whether or not to use WordPress, you need to think about your needs for a website. Do you need flexibility? Support? A mixture of both?
Here’s how to figure out if/when someone should not use WordPress for their business website:
Disclosure – I receive referral fees from companies mentioned on this website. All data & opinions are based on my professional judgements as a paying customer or consultant to a paying customer.
Understanding Tradeoffs: What to Know Before Choosing a Website Platform
Before we dive into the no-WordPress scenarios, it’s important to understand how we’re approaching deciding on a website platform.
Think of it like shopping for a house. You should be evaluating your website provider based on what you want, what you need, and what tradeoffs you are willing to make.
When it comes to your website platform, the main trade-off is between maximum convenience and maximum control. Think of it this like buying somewhere to live.
The absolute most convenient place is a hotel room. It’s safe and furnished with room service. But can you repaint the room? Nope.
On the other extreme is raw land. You have unlimited control to do whatever you want. But is it convenient? Nope.
And in the middle, you have a mix. An apartment has some freedom – but you have landlord. A condo has even more freedom… but you have a HOA and shared property.
A house has even more freedom… but you have more responsibility and you have to deal with an existing building.
Here’s a graphic from my post on ecommerce software (that also applies to website software) to illustrate —
Using this analogy, WordPress is like owning a house. You don’t have as much control as you would if you just bought raw land and built something yourself, but you have way more control than say, an apartment or condo.
Which means a situation is which you wouldn’t want to use WordPress most likely involves more control (AKA raw land) or more convenience (AKA an apartment/condo/hotel room). Let’s break that down further:
Reasons/Situations Where You Wouldn’t Choose WP:
You Need a Fully-Customized Solution
WordPress’s primary structure is pages, posts, and comments. While the platform does use Plugins (where you can download and “plug-in” third-party pieces of software to make your site look, act, and feel exactly the way you want) that allow the CMS to be turned into literally anything, you should still be operating within the realm of pages/posts/comments if you want to use WordPress.
If you’re looking to build a non-CMS website (think Software as a Service or mega-robust ecommerce platform), then you’re better off building a custom solution. Why?
Because something ultra-specific like the examples above typically require 100% control. Loading up your WordPress site with hundreds of Plugins just to make it close to what you want is just going to slow it down.
This is your raw land example — it’d be easier to build your dream home from scratch than try to manipulate the house you already have or add on a bunch of attachments (Plugins) that may mess with the wiring/airflow/other elements of the home.
You Want Customization But Don’t Want to Handle the Technical
If you’re looking for some customization abilities on your website but don’t want to deal with the more “technical” aspects of managing a website such as self hosting, check out customizations for ecommerce, server management, etc. then a self-hosted WordPress isn’t the best option.
There are two different routes you could go if you want more customization without having to handle controlling the technical aspects of your site.
The first is what I’ll call the 70% Convenience // 30% Control group. These are providers that allow for more control than a totally done-for-you platform (like Amazon, where you have zero customization), but you’re still using their space and rules (in our house analogy, these are the apartments).
These are usually “website builders” like Wix (I reviewed Wix here and you can check out Squarespace here) and Weebly (I reviewed Weebly here. You can check out Weebly here…). They allow you to customize your website and have a custom domain, but the remaining technical elements (like ecommerce integration) are handled for you.
The second group is 50% Convenience // 50% Control. They’re known as hosted platforms and provide as much control as you can have before you have to have your own server.
The biggest advantage here is that you have customer support, seamless “onboarding” and advanced tools. Building a website with these providers is like owning a condominium or leasing a storefront in a mall. The plumbing and “big stuff” is taken care of. You can pretty much do what you want since you do fully own your property. However, you’re going to run into condo association rules and fees.
This would be a provider like WordPress.com which is a hosted version of WordPress or a self-hosted WordPress page builder like BoldGrid. They limit some of what you can and can’t do. For example, you don’t have FTP access to a server, but you can access your HTML/CSS editing and use 3rd party plugins with their business plan.
You can also export your data and migrate it to self-hosted WordPress or another platform with relative ease, making it a good in-between if you want to start with more convenience and migrate to more control in the future.
You Don’t Have Time or Resources
WordPress comes with a learning curve. But given the platform owns 50-60% of the global CMS market share, there are thousands and thousands of pre-made templates, plus designers and developers who know WordPress and are ready to help your firm.
That being said, the trade-off here is time and/or resources. Either you have to take the time to learn the basics of WordPress and keep the software updated like you do the apps on your phone, or you have to know enough to vet these support roles to make sure you’re getting the results you need at a reasonable price.
Not all projects justify this trade-off. A simple website that doesn’t need any advanced functionality or the ability to scale would work perfectly fine as a simple HTML site and may cost you less in time/resources than learning WordPress or hiring a designer and developer to build your WordPress site.
You Have Plenty of Resources
The flip side of having no time and resources is having all the time and/or resources.
This goes back to our first scenario… if you have a team of people and the funds to build and maintain your website for you, you can build whatever you want, including a totally custom website that’s unique to your business and the functionality you need.
With that said, this scenario comes with one big caveat: you’re putting your website in someone else’s control.
If you’re comfortable with putting your website 100% in the hands of someone else, go for it. If not, then you may want to rethink a custom build and brush up on your website management knowledge.
WordPress is like the mid-size SUV of the website building world. It doesn’t fit everyone by any means, but there also good reason that a large plurality has one.
I’ve tried to make it as easy as possible to try WordPress before making any decisions here.
If you don’t have time to run software updates and learn a bit of WordPress jargon, then you should go ahead and pay the extra money for an all-inclusive website builder. Sure, you’re trading control for convenience, but that’s fine.
On the flip side, if you’re very adept at working with developers or have the money to pay for custom builds and don’t mind putting your site into someone else’s hands, then you’d want to research more – especially in regards to ecommerce. WordPress may not be the right fit for you. You can check out some interesting WordPress alternatives here.
Finally, if you’re building something super, super simple, then WordPress may simply be too complex for what you’re looking for. You might just need some cheap hosting or even a simple profile on an existing platform.
The post When Should Someone Not Use WordPress? appeared first on ShivarWeb.
If youâre a small business owner looking for a faster way to get the cash you need to move your business ahead, an SBA Express Loan may be the right choice for you. When considering a loan (or any business decision), itâs best to understand what to expect ahead of time. Read on to find out more about the SBA Express Loanâand how to get the ball rolling if you decide thatâs the right option for you.
Compare Your Options: SBA Express Loans vs. SBA 7(a) Loans
Before digging too deep into SBA Express Loans, letâs clarify that this option is a little different than the typical SBA loan. When we talk about SBA Express Loans vs. traditional 7(a) Loans, the biggest differences are the amounts you can finance and the time it takes you to get the funds you need.
Just like any other type of SBA loan, an SBA Express loan is a long-term loan that you can put to use on almost any expense for your business. An SBA Express Loan, like an SBA 7(a), is backed by the governmentâand that means that the lenders who participate in the program have a guarantee on some portion of the loan. This guarantee by the Small Business Administration represents less risk for the lender and that means greater accessibility to business funds for you. With any type of SBA financing, you will enjoy lower rates and longer repayment terms with a variety of loan sizes.
There are critical differences between SBA loan products, however, as mentioned above.Â
How Much Can I Borrow With The SBA Express Loan?
You can borrowup to $350,000 with an SBA Express Loan. As the name implies, the turnaround time is faster with an SBA Express Loan than with a traditional 7(a) Loanâso if time is of the essence and you need money fast, this type of SBA business loan may be a lifesaver. You could get loan approval from the SBA in as little as 24 – 36 hours (however, approval from the bank will still take several more weeks or months).
The SBA 7(a) loan is also a great option if you need working capital, but it can take some timeâyouâll need to factor in at least a few weeksâ time for application processing.
When Is An SBA 7(a) Loan Better Than An SBA Express Loan?
If you need more than $350,000 to finance real estate or working capitalâup to $5 millionâyouâll need to consider the more traditional avenue of the SBA 7(a). Because there are more approval requirements for an SBA 7(a) loan, you could also enjoy lower interest rates. What’s more, the SBA guarantees 75% – 85% of a traditional 7(a), while it backs only 50% of an Express Loan.
The good news is that they are both long-term loans, so youâll have plenty of time to pay down the loan amount.Â The amount of time youâll have to repay the debt is the same for both 7(a) and Express loansâ25 years to finance real estate and 10 years for other fixed assets and working capital.
The Two Main Types Of SBA Express Loans
Within the SBA Express Loan program, you have two avenues — depending on your type of business. The first option is the standard SBA Express Loan. This loan is nearly identical to the typical SBA 7(a) loan as far as how itâs structured and how you use it. Your lender can structure your financing either as a term loan or as a revolving line of credit, and you can use the small business loan for a number of needs, including:
Other Business Expenses
However, if youâre a business that deals in exports, thereâs a loan structured for you, too: the SBA Export Express Loan option.
What Are SBA Export Express Loans?
The SBA supports American export activity through the SBA Export Loan program. While other SBA loan programs guarantee 50% to 85% of the loan amount, the SBA Export Loan guarantees a whopping 90% of the loan. This means itâs going to be easier for you to obtain the loan.
Additionally, your loan proceeds can be used for a variety of business expenses you incur as an exporter, including financing direct or indirect export activities. The Export Express Loan Program is one of three SBA Export loan options; as the name implies, it is a fast-track loan guarantee program and like the other express loan options, is geared for smaller export-related loan needs.
SBA Express Loan Pros & Cons
As mentioned, the two main differences between SBA Express Loans vs 7(a) options are the amount that can be borrowed and the time it takes to approve the loan. It may be a little easier and a lot faster for you to get the funds you need through an SBA Express Loan, but that convenience doesnât come without cost. Because the SBA does not back as much of an SBA Express Loan (only 50%, as opposed to the traditional 75% – 85% for a 7(a)), youâre going to see higher rates associated with the higher risk. However, if an Express Loan makes the difference between getting what you need to beat an impending deadline or stalling on the tracksâthe extra cost may be worth it in the long run.
Want to find out more about what you can afford when it comes to financing your business expenses? Read âCan I Afford a Small Business Loanâ and learn more about how to crunch the numbers while comparing SBA rates to make the best decision for your business.
Qualifying For An SBA Express Loan
The good news is that, as previously mentioned, the requirements for an SBA Express Loan are significantly less stringent than they are for a traditional SBA 7(a) loan, but youâll still need to provide financial information about yourself and your business, along with some additional forms.
When it comes to qualifying for the SBA Express Loan, the things that are going to ultimately matter the most are your cash flow (or projected cash flow) as well as your prowess in managing your business. Also up for consideration are things like your credit score and how long youâve been in business. In general, you’ll need a credit score of 680 or higher to qualify for an Express Loan.
As far as the documents youâll need to fill out in order to qualify for your loan, youâll work through a checklist of required forms, including a Borrower Information Form, a Statement of Personal History, and an Agreement of Compliance (if more than $10,000 in loan funds are being used for construction). The lender who is ultimately issuing the SBA loan will help you work through the process and point you to the right place to start. They will also be working on their end, checkingÂ your credit score and history and verifying information about your business.
Where You Can Find SBA Express Loans
When you are ready to move ahead with the SBA Express Loan option, or you just want to learn more, the SBA provides a lender match service. Youâll start by describing what you need and a little bit about your business. In a few days, you’ll receive an email with information about lenders who are interested in issuing your loan. After that, you can then go through the process of talking to lenders and applying for a loan with the lender that is the best fit.
Of course, you have other options outside of an SBA loan. By doing a little digging, youâll find the most business-savvy option that meets both your short and long-term business goals.
The post SBA Express Loans: Your Guide To Terms, Fees, and Eligibility appeared first on Merchant Maverick.
Good things take time.Â Patience is a virtue.Â We all know the sayings. But letâs face it, when it comes to making critical business investments—whether itâs new technology/equipment, a new location, or even just a new employee on the payroll—you usually donât have unlimited time to come up with the needed funds. A quick loan or line of credit is often the best bet to take your business to the next level (or simply keep your company afloat).
If youâre reading this article, youâre probably in a hurry, so letâs dive right in. Here is a list of the quickest small business lenders, followed by a list of general tips for fast loan approval.
6 Best Lenders For Quick Business Loans
The following are some of the fastest and most reputable small business lenders. There are a lot of speedy “payday” loans out there, but most of them are dodgy at best (and outright scams at worst) and will end in you paying back way more money than you anticipated. The following lenders are reputable, and while the fees might be higher than what you’d pay with a bank, the financing offered is much faster and easier to qualify for than a bank loan.
We chose these lenders based on their stellar reputation and user feedback, as well as our own experiences reviewing their services.
One term you need to understand before we get started is “time to funding.” This refers to the amount of time from submitting the initial application to when the funds arrive in your account.
Top Quick Business Loans At A Glance
$5,000 â $500,000
$5,000 – $500,000
Up to $100,000
3 – 36 months
13 – 52 weeks
12 or 24 weeks
Required Time in Business
$10,000 per year
$42,000 per year
Required Credit Score
$5,000 – $250,000
Up to $5 million
Up to $250,000
6 – 24 months
13 weeks (invoice factoring)
6 – 12 months (line of credit)
6 or 12 months
Required Time in Business
3 months (invoice factoring)
6 months (line of credit)
$15,000 per month
$100,000 per year (invoice factoring)
$120,000 per year (line of credit)
$4,200 per month
Required Credit Score
350 (invoice factoring)
600 (line of credit)
Time To Funding:Â 2â5 days
The Basics:Â OnDeckÂ is one of the few reputable online lenders willing to lend to less-than-qualified candidates: to qualify for a short-term loan ranging from $5,000 to $500,000Â or a line of credit up to $100,000, you’ll only need a credit score of 500, 12 months in business, and $100,000 annual revenue. OnDeck has somewhat higher factor rates than some its competitors in the short-term lending space, but they have a good reputation for transparency, and it might be worth paying the extra cost if you have poor credit and need fast funds.
The Application:Â OnDeck’s application is fast and easy, and they don’t ask for a lot in terms of documents.Â To make the process even faster, have all of this information ready to submit:
Business Tax ID
Bank statements for the previous 3 months
Social Security number of business owner(s)
Driverâs license number and state of issue
When applying, take advantage of the live chat feature so that the rep can guide you through the application and answer any questions you might have. After you submit your application, a rep will typically reply with an offer within 24 hours, and after you accept the offer, the money will be in your account within one or two days.
Another cool thing about OnDeck for customers who want fast funds? If you have an eligible debit card linked to your business bank account, you can take advantage of OnDeck’s Instant Funding, wherein you can transfer your line of credit funds to your account instantly, rather than waiting the standard 1-2 days for an ACH transfer.
Apply For An OnDeck Loan
2. LoanBuilder: A PayPal Service
Time To Funding: 1â3 days
The Basics: LoanBuilder, a business financing service offered by PayPal,Â can potentially put money in your account in just a day.Â Like OnDeck, LoanBuilder offersÂ short-term loans of $5,000â$500,000. They will lend to applicants withÂ bad creditÂ and newer businesses as well (minimum credit score of 550 and 9 months in business).
LoanBuilder has moderately high rates, but these are competitive with or lower than those of similar lenders. Additionally, this lender does not charge an origination fee, which means no money will be subtracted from the total loan amount. Also, repayments are automatically deducted from your account on a weekly, rather than daily basis (unlike many other short-term lenders). Keep in mind that you will have a maximum of 12 months to finish repaying your loan, and the combination of weekly repayments plus a short repayment term means your loan repayments will be higher than they would be with other types of business financing products.
One great thing about LoanBuilder is that what you see really is what you get. All fees and terms are spelled out before you see the loan and you even have the option to adjust the loan terms to your liking to “build” the perfect loan. LoanBuilder has a tool that lets you tinker around with your prospective loan before applying. For example, if you want longer repayment terms, you can adjust the term and see how that will affect your weekly repayments.
The Application: To apply for a LoanBuilder loan, simply fill out a 5-10 minute online questionnaire. If your business is eligible, you will be able to fill out a complete application. In some cases, the only required documents might be four months of your recent business bank statements.Â LoanBuilder says that signed contracts received before 5 PM will lead to funds being deposited the next day so long as all documentation is in order.
In terms of ease, transparency, and the reputation for speed and quality synonymous with the PayPal name, LoanBuilder is a great choice for small businesses who want fast funding, even those with bad credit.
Apply For A LoanBuilder Loan
Time To Funding:Â 1â2 days
The Basics: FundboxÂ provides invoice financing and revolvingÂ lines of credit up to $100,000. Repayment terms are for 12 or 24 weeks, depending on the product and what works better for your business.
Fundbox has no minimum credit score requirement or time-in-business requirement, making its line of credit product, “Direct Draw,” a good loan for businesses with poor credit or little time in business. Meanwhile, Fundbox’s invoice financing offering, “Fundbox Credit,” is a favorite of companies that have cash flow problems due to outstanding invoices; Fundbox will lend you the full value of the unpaid invoice(s) with a 0.5â0.7% weekly borrowing fee.
The only borrower requirement to qualify for Fundbox financing is that you use compatible accounting or invoicing software for at least 3 months, or a compatible bank account for at least six months.
The Application: To apply, simply make an account, enter some basic information (such as your name, email, and phone number), and hook up your accounting or invoicing software account or your business bank account. Fundbox typically makes a decision within minutes of receiving your application, after which you can start requesting funds immediately should you accept their offer.
Fundbox requires very few fees—you will not have to pay a draw fee or a prepayment penalty. Although Fundbox’s borrowing rates are higher than what you’d get from a bank, they are in line with other online lenders’ fees. Having a revolving line of credit like the kind Fundbox offers is also a good way to ensure you never need to take out another fast business loan, because you’ll always have access to cash on-demand.
All in all, Fundbox is one of the fastest small business loans around. It’s an excellent option for businesses that struggle with cash flow issues, especially less-established businesses that can’t qualify for a bank line of credit.
Apply For A Fundbox Loan
Time To Funding:Â 2â5 days
The Basics: CrediblyÂ offers short-term loans and merchant cash advances with loan amounts of up to $250,000. This lender has relaxed borrower qualifications—to be approved for their business expansion or working capital loan, you only need a credit score of 500, 6 months in business, and revenue of $15,000 per month. For expansion loans, your average daily balance needs to be at least $1,000. As is the case with most business lenders, more qualified applicants will receive better interest rates.
The Application: To prequalify for a Credibly loan, use the easy online application to enter some basic information about yourself and your business. Credibly will then let you know whether you’re eligible and how much money you qualify for. If you’re eligible, a representative will call you and work with you to get the rest of the documentation you need. The docs you might need to supply include:
Business lease agreement or business mortgage statement
Picture ID of all business owners
Most recent business tax return
Bank statements for the last 3 months
After you send all the documents, it typically takes about a day to receive a finalized quote. Should you accept the offer, it takes about 1-3 days to receive the funds in your account. Note that while Credibly advertises 48-hour funding, that means you will receive the funds within 48 hours from the moment your loan application is approved.
We like Credibly for their transparent terms, easy application, low borrowing prerequisites, and responsive customer service.Â Credibly is one of the few, well, credibleÂ players in the short-term lending space.
Apply For A Credibly Loan
Time To Funding:Â 2â7 days
The Basics: BlueVineÂ offers invoice factoringÂ as well as traditionalÂ lines of credit up to $5 million. Borrower qualifications vary by product. The minimum required personal credit score for a 6-month line of credit is 600. The minimum score for invoice financing is just 530; for this type of financing, your customers’ creditworthiness is a bigger consideration than your own.
The Application: The process to pre-apply for either the invoice financing or line of credit service is fast and simple: simply create an online account and answer some basic questions about yourself and your business. Youâll also need to provide either the most recent three months of bank statements or allow read-only access to your bank account. A BlueVine rep will then call you and walk you through the process and answer any questions.
Initial approval for either service takes about a day. Once you are approved, you can begin drawing from your credit line or selling invoices immediately. Money transfers normally take one to three business days. If youâre selling an invoice from a customer unfamiliar to BlueVine, it will take an additional 24 hours to see the funds in your account, because BlueVine has to assess your customerâs creditworthiness.
Apply For BlueVine Financing
Time To Funding:Â 2â3 days
The Basics: KabbageÂ is one of the quickest channels to get a business line of credit. Kabbage sells lines of credit up to $250,000, with zero required collateral â no blanket lien and no personal guarantee. Kabbage also provides borrowers with a spending card so you can spend funds from your line of credit instantly, without having to wait the typical 2â3 days for an ACH transfer period.
Note that Kabbage is bad-credit friendly and does not have a specific credit score requirement. However, the service not suitable for startups; to qualify, you need 1 year in businessÂ and must have made at least $4,200 for the last 3 months. It’s also important to keep in mind that while Kabbage is super convenient, this convenience isn’t free—fees are on the high side, and you’ll have to pay back your loan in just 6 to 12 monthly payments. Nevertheless, Kabbage a fast and easy way to get a line of credit if you don’t qualify elsewhere.
The Application: When applying for Kabbage financing, you will have to allow read-only access to your business bank accountÂ and any other data channels you use (such as PayPal or QuickBooks). Kabbage uses this information to determine your monthly fee and maximum credit line. Usually, it only takes a few minutes for the system to decide whether to approve or deny your application. Kabbage might request additional information in order to grant you a credit line larger than $150,000.
When you have been approved, you can begin requesting funds immediately. As mentioned, you can alsoÂ request a Kabbage CardÂ free of charge to pay for goods and services right from your credit line.
Apply For A Kabbage Line Of Credit
Which Loan Should I Apply For?
So, now you know of some quality lenders that can put money in your account within days of your application. To determine which loan is right for your business, consider the services they offer (and how well these services meet your needs) and whether you meet the lender’s minimum qualifications, which are as follows:
OnDeck: Short-term loans up to $500,000 and lines of credit up to $100,000; need 12 months in business, 500 credit score, and $100,000 in annual revenue
LoanBuilder: Short-term loans up to $500,000; need 9 months in business, 550 credit score, and $42,000 in annual revenue
Fundbox: Revolving LOC and invoice financing up to $100,000; need to have been using compatible invoice or accounting software for 3+ months, or compatible business bank account for 6+ months.
Credibly: Short-term loans up to $250,000; need 6 months in business, 500 credit score, and $15,000 in monthly revenue.
Bluevine: Lines of credit and invoice financing up to $5 million; for invoice financing need 3 months in business, 530 credit score, and $100,000 in annual revenue; for 6-month line of credit need 6 months in business, 600 credit score, and $120,000 in annual revenue.
Kabbage: Lines of credit up to $250,000; need 12 months in business and monthly revenue of $4,200 for the last three months, or $50,000 annually (no specific credit score requirement).
Note that if you only meet the bare minimum requirements, you may not be eligible to borrow the maximum amount advertised by each lender; your qualifications will determine how much money you can borrow.
The above loans are unsecured (meaning they don’t require you to list any specific business collateral), though borrowers may have to sign aÂ blanket lien and/or a personal guarantee.
Fast Loan Approval Tips
How fast your loan is approved and received depends in large part on you. For example, if you procrastinate in turning in the necessary documents needed to get approved for a loan, or you apply for loans you aren’t qualified for, you will be wasting precious time!
What follows are some general recommendations to ensure a speedy time to funding. This includes pre-application preparedness tips to make your application process quicker, advice on what to include in your application in order to get approved fast, and considerations as to which type of quick loan you should apply for.
1. Check Your Credit Score
First, you want to check your personal credit score so you don’t waste time applying for loans you’re not eligible for. Of course, if you want to position your business to get good rates on a âquickâ loan, youâll want to your credit score to be as high as possible. While improving your credit is not something you can do overnight, before applying for loans, be sure to at least check your credit history to see if there are any major issues. Also, pay off whatever outstanding debts you might have (if you can afford to do so).
To check your credit score before you start applying for fast loans, you can use one or more of these Best Free Credit Score Sites. And whatever you find, don’t worry—there are still plenty quick financing options even if your credit score isn’t high enough to qualify for every loan.
2. Have Your Documents Ready
Having all your business documents ready and in one place will make for a speedier application process. Here are some examples of documentation the lender might ask for:
Tax returns (personal and business)
Proof of ID
Proof of address
Copy of business lease
Different lenders may require different and more/fewer documents. Itâs a good idea to find out what paperwork the lender requiresÂ beforeÂ you get pre-approved.
3. Prepare A Proposal
Many lenders require your loan application to include a detailed proposal and/or a business plan. This is often true even of âquickâ loans. A proposal generally includes information such as how much money you need, what you will use the money for, and how you will repay the loan. As with your all your important business documents, the loan application process will be speedier and smoother if you have this information prepared and ready to go before you apply.
This resource from the SBAÂ includes the information you should include in a loan proposal â although you should note that the SBA requires more information than do most âfast loanâ options.
4. BeÂ Thorough On Your Application
The more relevant information you reveal about yourself and your business on yourÂ loan application, the better. The whole process will be faster and less painful if you provide everything upfront. That way, there will be less back and forth between you and the lender as they work with you to get the information you didnât supply initially. You are also more likely to get approved for a loan if you have a more thorough application.
5. Consider All Your Options (Even Unconventional Ones)
Assuming you have all your ducks (and docs) in a row, itâs time to look at your best options in terms of financing. In some cases, you might not even want to get a âloanâ in the traditional sense; a line of credit or cash advance might be a faster or better option for you, depending on your situation. If speed is of the essence, you should consider the following loan products, through which you can potentially get funds as soon as a day or two of applying:
Short-term installment loan
Short-term line of credit
Merchant cash advance
You also might want to consider the following unconventional financing options:
All fast financing options have their own pros and cons, of course. Merchant cash advances, for example, tend to be some of the most expensive forms of capital, though they are usually the fastest. Of the unconventional options, P2P loans and personal loans tend to be the fastest, but you’ll generally need to have good personal credit in order to qualify for these options.
6. Apply For Online-Only Loans
So hereâs the quick-and-dirty about bank loans vs.Â online loans: bank loans are not only much more difficult to qualify for, they also take a lot longer to come through than online loans. If you want your loan fast â potentially even as soon as a day or two â online is the way to go. Interest rates are typically higher than with bank loans, but if you shop around, you might be able to get aÂ low-interest small business loanÂ online, especially if you have good credit.
7. Use A Loan Aggregator
A loan aggregator service lets you apply for multiple online business loans at once. Using a service likeÂ LendioÂ you can fill out a single application with your business information and be pre-approved for multiple loan options. This is one of the quickest way to apply for online loans, as you save the time it takes to apply for multiple loans individually. Loan matchmaking services are also typically free; if you do accept a loan offer, the lender pays a referral fee to the matchmaker. You never have to pay the matchmaker directly.
Compare loans with Lendio
8. Consider An Online/SBA Loan HybridÂ
If youâre looking to borrow from the SBA, you probably know this isnât the fastest form of financing around. And if speed is your top priority, you probably shouldn’t bother applying for an SBA loan, bank loan, or any other type of long-term loan. With that said, the SBA offers high quality, low-interest loans, and if you qualify for one, it might be worth waiting a little extra time for. To make the SBA loan application process faster and easier, you can apply for an online/SBA loan hybrid.
SmartBizÂ is one example of an online service that facilitates SBA-backed loans. Your funds might still take up to a few weeks to come through, but it will be quicker than applying directly through the SBA.
9. Don’t Forget About Your Business Credit Card
Taking out a business loan isn’t your only option if you need fast cash. You can also charge major expenses on your business credit card and pay them off later as you are able. Be sure to check out theÂ Best Business Credit Cards for 2018 to find a good credit card that earns rewards and doesn’t charge an exorbitant amount of interest.
If you need a large sum of liquid cash, you might also consider a credit card cash advance. You need minimal qualifications in order to qualify for such an advance; if you have a business credit card, you will probably be approved for an advance. Once you sign up for your card’s cash advance program, you can typically begin withdrawing cash right away.
The downside to credit card cash advances is that the APR and cash advance fees are usually quite high. Since you’re borrowing against your own credit limit, this can also temporarily lower your credit score by affecting your credit utilization ratio. Nevertheless, credit card advances are a fast and easy business loan alternative available to virtually anyone who has a credit card.
10. Don’t Be Too Hasty
Finally, when getting a fast business loan, itâs important to take your time and read the fine print. In many cases, the super-quick ânext-dayâ loans you find online will have less than ideal terms. Youâll likely have to pay your loan back rapidly at a high rate of interest.
Ideally, of course, you will find a great lender that gives you a fair rate and terms. Check out our Small Business Loan Calculators to calculate your total repayment, financing cost, daily/weekly/monthly payments, APR, and cents on the dollar.
Fast business loans can serve as a lifesaver for businesses that need working capital, have cash flow problems, and other financing issues. Although banks can take weeks to issue business loans (if you can even get approved for one), alternative lenders can put money in your bank account within a couple days. However, the reason that online/alternative lenders are willing to give you money so quickly is that you are paying a premium for speed—meaning, you’ll pay more than you would for a bank loan, and you’ll pay the loan back much quicker than you would other types of financing.
To avoid getting ripped off by a predatory lender or agreeing to a bad loan because you are desperate, be sure to compare multiple loan offers.Â It’s important to do your due diligence to ensure you get the best loan possible, i.e., the one with the lowest fee and repayments you can reasonably afford. Remember that you can pre-apply for multiple loans online without affecting your credit score.
Bear in mind that there are indeed some legitimate, quality lenders (like the ones on this list) that provide quick capital. Whatâs more, you can take certain actions to speed up your loan application process and time to funding. Be sureÂ to organize and present all your business documentation at the start of the application process. And save time by applying for multiple loans at once with a loan matchmaker service like Lendio.
Req. Time in Business
Min. Credit Score
$2K – $5M
As low as 2%
$5K – $500K
3 – 36 months
x1.003 – x1.04/mo
$5K – $500K
13 – 52 weeks
x1.029 – x1.1872
$20K – $500K
1 – 4 years
7.99% – 29.99% APR
The post Quick Business Loans: The 6 Best Lenders And 10 Tips For Fast Approval appeared first on Merchant Maverick.
We all like to know that we are succeeding in our endeavors. It’s easy to tell how successful you are when exercising — just pull out a scale or a measuring tape. It’s equally easy to judge a successful work day by how many items you checked off the good ol’ planner. But when it comes to loan applications, how do you know when you’re ready to submit it?
What if I told you that you could measure how likely your loan application is to be approved before you sent it? While there’s no sure-fireÂ magic secret to ensure your business loan application gets approved, there are ways to tell how strong your application is and how likely lenders are to accept it. In this post, we’ll cover seven ways to measure the strength of your business loan application.
Before sending your loan application, check how it stacks up in these seven areas first…
A Clear Plan
Lenders want to know exactly how you plan on using a loan if approved. For this reason, it’s incredibly important to explain in detail how you plan on using the funding to grow your business.
If you ask a lender for $100,000 and don’t give a reason for the loan, there’s no chance you’re getting that money. Instead, provide a specific reason for the funding. For example, you may need $100,000 of new equipment that will increase your company’s productivity, allowing you to take on 100 new clients.
Common reasons for business loans include:
Hiring new employees
Expanding your business
The more detailed you can be on your application the better. Some lending experts even recommend adding a detailed business plan to your application. A business plan will show that you are prepared, organized, and knowledgeable about your business field. When it comes to getting approved for a loan, these extra brownie points could make the difference between securing a loan and being declined.
Double check your loan application to make sure it clearly explains what you need the money for and how your business will benefit from this loan. Also, make sure you are asking for a reasonable amount for your business’s specific purposes. If your business loan application can demonstrate a clear plan, you’re off to a great start.
The 5 C’s Of Credit
A strong loan application will highlight the 5 Cs of Credit. But what are the 5 Cs of Credit?
The 5 Cs of Credit are a measurement that lenders use to judge the trustworthiness and creditworthiness of a potential borrower.Â If your loan application doesn’t display these traits, then most lenders view you as high-risk and decline your application entirely.
Here is a basic breakdown of the 5 Cs of Credit and what lenders are looking for on your loan application.
Character refers to your business’s reputation. Lenders want to see that you pay your debts on time and are trustworthy.
To judge your company’s character, lenders will often check your credit history, your business credit score, and your personal credit score. They may also try to gauge your personal character through social media, references, or a phone consultation.
A loan application with strong character will have:
A good credit score
A record of on-time payments
Sound references (if required by lender)
If your application doesn’t demonstrate these qualities, read our post 5 Ways To Improve Your Personal Credit Score.
Capacity refers to your business’s ability to pay back the loan. Lenders want to be assured that you have the cash flow to actually afford loan repayments.
To judge your company’s capacity, lenders often view your cash flow statements, bank statements, income, and existing debt.
A loan application with strong capacity will have:
Strong cash flow
Enough income to cover monthly payments
Minimal existing debt
Capital refers to how much money you have invested in your business. Lenders view owner’s capital as a sign that you “invested” in your company’s success and are then more likely to do whatever it takes to make your business succeed (which for lenders means paying back your loans).
To judge your capital, lenders view how much is invested as well as how it has been invested.
A loan application with strong capital will:
Show the total owner’s investments
Give detail on how those investments have grown the company
We understand that not every business owner has invested personal money into their business. Read our post The 5 Cs of Credit: What Lenders Look For to learn how you can still impress lenders without owner’s capital.
Collateral refers to any assets that are offered up as insurance should you default on the loan. Many lenders require collateral as a safeguard that they won’t lose everything should you be unable to pay your loan.
To judge your company’s collateral, lenders may vary. They may require specific assets or a blanket lien or a personal guarantee.
A loan application with strong collateral will:
Understand their specific lender’s collateral requirements
Provide the proper collateral
Include any paperwork associated with the collateral
Conditions refer to the conditions of the loan as well as those of the current economy. Lenders want to make sure that you can afford a loan.
To judge your company’s conditions, lenders will not only evaluate your loan application but also the details of the loan you are applying for (such as borrowing amount, interest rate, etc.). The economy and your business’s current market can also play a role.
A loan application with strong conditions will:
Have enough income to cover monthly payments
Demonstrate an understanding of their industry, current market, and competitors
Ultimately, the 5 Cs of Credit are a great way to determine how strong your loan application is. Make sure your loan application highlights your company’s character, capacity, capital, collateral, and conditions. If your business application demonstrates each of there traits, you are well on your way to getting the loan you want.
If you want to tips about how to master the 5 C’s of Credit, read our post The 5 C’s of Credit: What Lenders Look For.
Strong Cash Flow
For lenders, it’s all about being certain that you can pay your loan back on time and in full. Your business loan application and the documents you send with it should demonstrate that you have enough cash flow to comfortably make payments.
Almost all lenders will require that you include cash flow statements and projections with your business loan application. Most accounting software will generate cash flow statements for you. A strong loan application will provide this information upfront so that lenders can calculate your debt service coverage ratio (DSCR).
Debt Service Coverage Ratio (DSCR): Measures the relationship between your business income and debt and is used to determine how healthy your business’s cash flow is. It also plays a key role in knowing exactly what size monthly payment you can afford on a potential loan.
Before applying for a loan, I recommend calculating your DSCR so you can know exactly what you can afford. You don’t want to go into a spiral of unpayable debt or bankruptcy. Be sure that the borrowing amount you’re asking for and its monthly payments are realistic. A lender will shoot your application down if they aren’t convinced you can pay a loan back.
A loan application that displays weak cash flow or a poor DSCR is not likely to get approved. By calculating your DSCR and evaluating your cash flow ahead of time, you can be sure that you can afford the loan you want before submitting the application.
To learn more about DSCR, read our post Debt Service Coverage Ratio: How To Calculate And Improve Your Business’s DSCR.
Minimal Existing Debt
In addition to displaying strong cash flow, business owners seeking a loan should have little-to-no existing debt. A strong loan application is one that shows again and again “I can afford this loan.” If your business already has a large amount of existing debt, it’ll be hard to convince lenders to approve your application.
When lenders look at your application, they will check your existing debt using the DSCR mentioned earlier as well as the debt-to-income ratio (although, the DTI ratio is used more for sole proprietors and freelancers who aren’t considered separate legal entities and don’t have a DSCR).
Debt-To-Income (DTI) Ratio:Â Measures the relationships between your personal debt and income and is used to determine how high-risk you are.
Working to get rid of existing debt also proves to lenders that you pay your debts in full and on time, which increases your credit score and betters your chances of getting approved for a loan. The less debt, the more cash you have available for a loan, and the stronger your application is.
Every lender requires certain documents to be included in a potential borrower’s loan application. Specific documents will vary from lender to lender, so be sure to check your lender’s requirements. Have all of the proper documents prepared beforehand.
Often, these documents include:
Cash flow statements
Statement of owner’s equity (or capital)
Legal documents and licenses
Business owner’s history
Some lenders may ask for these documents in the loan application itself, while many online lenders require you to submit an initial application and then provide the required documents at a later time. Having these documents ready to go whenever the lender asks for them demonstrates that you are timely and organized.
Taking every opportunity to impress lenders and put your best foot forward can make or break the chance of you getting that loan.
No matter how beautifully polished and impressive your loan application is, it’s not going to get you anywhere if you don’t meet the lender’s requirements.
Every lender has specific requirements borrowers must meet in order to qualify for a loan. They often include:
A minimum credit score
A specific amount of time in business
A minimum monthly or yearly income
Be sure to carefully research potential lenders so that you can be certain you meet all of the borrower requirements. If you meet and exceed all of the requirements and have a beautifully polished loan application, you make yourself a strong applicant and increase your chances of being approved for the loan you want.
If you are having trouble finding a loan you qualify for, we can help you find the perfect loan for your business.
No Spelling Or Grammatical Errors
You’ve checked that you can afford a loan; you’ve met the borrower requirements; you’ve prepared all the proper documents. That should mean you’ve got the green light and are all clear, right?
Not quite. There’s one key final step.
Before sending off your loan application, double and triple check that there are no typos, spelling error, grammatical errors, or missing information. Maybe even get another set of eyes to read over it. This is an easy step to skip over, but I can’t stress how important it is.
Spelling errors and typos simply make you look unprofessional. Additionally, loan applications require a lot of legal information that you really don’t want to goof up on.
Once you’ve read and edited your finished loan application multiple times, you can be confident that you’ve done everything to make your loan application as strong as possible.
Now that you have a better idea of what lenders are looking for, you can more easily measure how strong your application is. After all, the stronger your application, the strong your chance of getting that loan.
Before you send off your application for good, be sure to ask yourself these questions regarding your loan application:
Do I demonstrate a clear plan for the loan?
Do I display the 5 Cs of Credit?
Do I have enough cash flow for monthly payments?
Did I eliminate most or all of my existing business debt?
Are the required documents included (or at least prepared)?
Do I meet or exceed the borrower requirements?
Did I edit everything correctly?
If your application is strong, great! You can go ahead and send it off with confidence. If your application seems weak, you can save yourself the heartache and time and avoid being denied. Instead, take the time to strengthen your application and better your chances of getting approved.
For more information on how to improve your loan application, read our post 20 Tips To Improve Your Business Loan Application.
The post How Strong Is Your Business Loan Application? appeared first on Merchant Maverick.
So you’re looking to purchase a business, either as a first-time venture into entrepreneurship, or to expand your existing company by acquiring new assets. The only problem is, you’re short on the capital needed to take on such a venture. Darn.
Naturally, you might think of going to a bank or credit union for a loan (after all, that’s supposed to the place with all the money, right?). Or, perhaps you’ve done a little research and know you’ll get a better deal if you go through the Small Business Administration (SBA) to get a loan. While loans from a bank or SBA are still a viable source of financing, there are other sources available. Have you considered all your options?
If you’re currently trying to buy a business, here are some viable ways to get a business acquisition loan, depending on your particular situation.
1. Startup Loan
If you want to buy a business (and don’t already have an existing business), you might be able to get a startup loan.Â To receive a startup loan, you will be required to prove that you have the experience and resources available to run a business. Startup lenders might also require you to prove you’re serious about the venture by making a down payment on the business you’re acquiring.
Startup loans are offered by banks, the SBA, and other independent lenders.Â If you are purchasing a franchise business, you have certain startup loan options available to you as well, as someÂ online lenders offerÂ loans to purchase a franchise.
Quickly compare top Start-Up Business Loan Lenders:
Min Credit Score
$1K – $50K
5.26% – 25.77%
$2K – $35K
6.95% – 35.99% APR
Up to $10K
10.99% – 22%
2. SBA Loan
SBA loans are bank loans that are backed by the U.S. Small Business Association in amounts of up to 85%. Because there is less risk for the bank in the event that you default, the bank can offer you a lower interest rate and longer repayment terms than they otherwise would. If you need a loan to acquire a business, an SBA loan is one of the highest-quality loans you can get. However, SBA loans can have lengthy application processes and it can take a while to get accepted and for the funds to reach your account.
That said, it is still possible to get a business acquisition loan through the SBA, even if you don’t have an existing business (particularly if you’re purchasing a registered franchise). You can consult theÂ SBA’s lender match service to find eligible lenders for your business purchase, as well as the other informational resources the SBA has on their website.
3. Bank Loan
As mentioned, banks do offer loans for business acquisitions, but the requirements are more strict than those of online lenders. The bank will scrutinize your credentials, the finances of the business you want to acquire, and other information related to your proposed business purchase. However, bank loans have terrific rates and if you have the right credentials it’s not impossible to get a bank loan — even if you don’t have an existing business. It will help to have relevant experience in the type of business you’re buying, partnered with steady personal income and good credit.
Check out The Best Banks for Small Business Loans if you’re thinking about applying for a bank loan. Also bear in mind that, depending on how established your business is, a local community bank or credit union may be more likely to approve you than would a large, nationwide banking institution.
Note that while most banks still require a traditional, in-person application, a few banks (like Wells Fargo) offer some alternative lender conveniences, such as an online loan application.
4. Equipment Financing
Depending on what type of business you’re purchasing, equipment and machinery could be among the largest expenses involved in your sale. If equipment is one of your new business’s major assets, equipment financing might help you afford the sale. While not a traditional loan, equipment financing lets you borrow against the value of the equipment, meaning there is no additional collateral required. Besides not requiring you to put up any collateral (other than the equipment itself), equipment financing contracts usually do not require a credit check.
Of course, while equipment financing alone won’t allow you to purchase an entire business, it might help you better afford a business acquisition. Check out our equipment financing comparison chart to see how the top options stack up.
5. Business Expansion Loan
It is without question easier to get a loan to buy a business if you already have an existing business and want to acquire another business of a similar scope. If you already own a stable, profitable business, it’s definitely worth looking into a bank loan for the purpose of expanding your business with an acquisition.
However, even qualified business owners may not want to go through the arduous process of applying for a bank loan and might turn to an alternative/online lender that offers business acquisition loans.Â Some online lenders offer business expansion/acquisition loans with rates and terms similar to what a bank might offer, but with a much easier application process and quicker time to funding. Most of these lenders do still require two years in business, though some only require one.
For more information on small business lenders from whom you might be able to get a business acquisition loan to expand your existing business, look at our small business loans comparison chart.
6. Crowdfunding & P2P Loans
Crowdfunding or P2P loans can be another option if you’re looking for business acquisition money, though crowdfunding by itself likely won’t pull in sufficient funds to cover the entire business purchase. There are various types of crowdfunding for businesses, includingÂ equity-based crowdfundingÂ and rewards-based crowdfunding. EvenÂ charitable giving sites can sometimes be used for business.
Crowdfunding could be an option for you if 1) your business purchase will enable you to produce an innovative product with which you can reward your backers, or 2) the purchase will increase your business’s net worth, which you can share with your backers in the form of equity.
Similarly, peer-to-peer business lending allows business owners to borrow directly from interested investors in an online marketplace, or even from peers in their personal networks. A third-partyÂ provides an online platform that packages the loans and may charge a fee for their services. Because multiple parties typically fund P2P loans, the concept is similar to crowdfunding.
With both crowdfunding and P2P lending, having an innovative, community-minded business plan and a strong online presence will help convince would-be investors to fund your business purchase. And generally, it helps to have some business experience/time in business for lenders/backers to be willing to take a chance on you.
Buying a business can be an exciting and rewarding venture, but getting a loan to finance this purchase is tricky if you don’t already have an established business. Fortunately, alternative lenders have made it easier for aspiring entrepreneurs to secure non-standard business loans, SBA loans, and other types of financing.
If you’re not sure which type of loan option is best for your business purchase, you might benefit from using a loan matchmaking service like Lendio (see our review),Â which will help connect you with the right lender for your situation. This is easier than applying to a bunch of different places, especially if you’re short on time or new to business lending. You can also feel free to ask me some questions in the comments!
Visit Lendio To See Options
The post How To Get A Business Acquisition Loan appeared first on Merchant Maverick.
Managing personal finances can be hard, and choosing the right personal accounting tool can seem even harder. That’s why we’re here to compare two of the most popular personal finance management tools out there: Mint and Quicken.
Mint is a cloud-based, easy to use finance tool that’s been around since 2007. The software was acquired by Intuit in 2009 and today it features expense tracking, investment tracking, budgeting, planning, and more. Mint also offers well-developed mobile apps, so you can easily check your spending on the go. The icing on the cake? Mint is completely free.
Quicken has been the big name in personal accounting from the beginning. Created in 1988, this software was also run by Intuit until 2016 when it was acquired by H.I.G. Capital. Quicken offers an incredible number of features and amazing customer support. Although Quicken is a locally-installed software, there are still mobile apps available.
But which software is better? And more importantly, which is right for you? That’s what we’re here to find out.
At Merchant Maverick, our goal is to help you to find the best software for your small business needs. To make your decision easier, weâve carefully researched and tested both products. Weâll put Mint and Quicken head to head by comparing features, pricing, customer experience, reputation, and more, so you donât have to.
Hardware & Software Requirements
Ease Of Use
Customer Service & Support
Negative Reviews & Complaints
Positive Reviews & Testimonials
And The Overall Winner Is…
Transactions Imported Automatically
Online Bill Pay
Debt Reduction Planner
In many ways, the programs are similar. Each offers income and expense tracking, bill management,Â budgeting, credit score checks, and investment tracking. However, while Mint offers a ton of great features, Quicken’s features are far more developed.
For example, Mint only allows you to create one budget and it has to be for the current month, while Quicken allows you to create multiple budgets for the current month, next month, quarter, or year. Quicken also offers additional features like bank reconciliation, reports, a debt reduction planner, and online bill pay.
Mint is completely free to use. There are no monthlyÂ payments or hidden fees. The software makes money by advertising credit cards, Turbo Tax, and investment accounts to users.
While you can’t beat free, Quicken is still anÂ affordable option. Quicken offers three pricing plans that range from $34.99 – $74.99/year. The company also often sells the software at a discount. Still, Mint is the cheapest way to manage your personal finances.
Hardware & Software Requirements
As cloud-based software, Mint is compatible with nearly any computer, so long as you have an internet connection.
Quicken has more specific software requirements as the program is locally-installed onto a single computer. Quicken is compatible with:
Macs with El Capitan 10.11+
Mint wins this category since its requirements are less strict, making it accessible for nearly any user.
Ease Of Use
Mint is the clear winner here. Mint has a beautiful, modern UI that is easy to navigate. The features are intuitive and well-organized, and the software offers time-saving automations as well. Quicken is also well-organized, but the UI is a bit more dated and some features are unitive and difficult to figure out.
Both Mint and Quicken have mobile apps for Apple and Android products. However, Mint’s mobile apps receive much more positive attention from customers, and Quicken’s apps receive low ratings on both iTunes and Google Play. If mobility is one of the key factors in your personal accounting software decision, then Mint is the clear winner.
Customer Service & Support
Quicken not only has better support but also has far more support options. Quicken offers phone support, in-software help, tons of guides, a help center, a community forum, and live chat. In my experience,Â phone wait times were short and most representatives were knowledgeable and helpful.
Mint, on the other hand, offers very few customer support options. And if you need to talk to an actual person, you’re out of luck. You’ll have to make do with live chat and FAQs. It’s easy to see who the winner is here.
Negative Reviews & Complaints
This is one category Quicken should not want to win. Quicken has far more customer complaints. Most complaints are from long-time users who don’t like Quicken’s new subscription pricing structure. Though there are complaints about glitches, issues loading transactions, and limited mobile apps as well.
Positive Reviews & Testimonials
While both programs have many satisfied users, Mint has more positive reviews and a higher percentage of positive to negative reviews. Mint users love the software’s usability, price, feature set, and mobility.
Both Mint and Quicken connect with thousands of banks and online lenders so that you can track your spending and upcoming bills. However, in terms of additional add-ons, Quicken offers seven, whileÂ Mint only offers two.
This category is a bit like comparing apples to oranges. With a locally-installed software like Quicken, you are responsible for keeping your data secure. Quicken does use data encryption for the data involved in its online features, and the software offers password protection for your Quicken files, but other than that, you’re on your own.
As a cloud-based software, Mint has security built-in from the beginning. We figure that for most people, the convenience of having security taken care of for you outweighs all of the extra efforts of securing your locally-installed software.
And The Overall Winner Is…
With advanced features, good customer support, and affordable pricing, Quicken is ultimately the better software. However, I still have a hard time naming this tried-and-true program the absolute winner. Unlike most software comparisons we do, in this case, it’s not about which software is better. It’s about what type of person you are.
For people looking for a detailed way to actively manage every aspect of their finances, Quicken is a great choice. It is ideal for users who are used to QuickBooks or who enjoy the complexity of locally-installed software.Â If you want to create multiple budgets, track savings goals, and run reports, Quicken has far more to offer than Mint.
For people who want a simpler way to keep their spending in check and manage the basics of their finances, Mint is the winner. It is ideal for users who like cloud-based software and strong mobile apps that can keep up with a mobile lifestyle.
In the end, it all comes down to the level of detail you want and what type of software you’re more comfortable with.
More Accounting Options:
Compare Top Accounting Software
See All Accounting Reviews
The post Mint VS Quicken appeared first on Merchant Maverick.
The loan application process can seem overwhelming at times. But keep in mind that all lenders want to know is that you can pay back the loan. Your application is the perfect place to prove that you can and willÂ repay your loans successfully. Filling out a loan application is about being prepared and putting your best foot forward. It’s important to “sell” lenders by convincing them that your business is reliable, profitable, and going places. According toÂ Entrepreneur,Â potential borrowers should:
Think of your loan application as a sales tool, just like your brochures or ads. When you put together the right combination of facts and figure, your application will sell your lender on the short- and long-term profit potential of lending money to your business.
Easier said than done, right?
We’ve put together a comprehensive list of the best tips, tricks, and practices for improving your business loan application. By knowing how to optimize your loan application, you can improve your chances of getting the loan you want. Here are 20 practical tips for nailing the loan application process and increasing your chances of securing a small business loan.
1. Have A Plan
Lenders want you to demonstrate that you have a clear purpose and an actionable plan for your business loan. If you simply say you need $50,000 without giving a reason, most lenders will shoot you down right then and there. Instead, be as specific as possible about your plans for the loan. Explain that you need $50,000 to purchase a new piece of equipment that will double your production efficiency, for example.
Here are some common reasons that small businesses give when they apply for additional funding:
Hiring or training new employees
Increasing cash flow
In short, when filling out your loan application, be sure to give a reasonÂ why you need the loan and discuss howÂ the loan will benefit your business in detail.
2. Choose A Realistic Borrowing Amount
For your application to be successful, it’s vital to be realistic about how much cash your business needs.Â Don’t ask for too much, and don’t underestimate expenses or costs and ask for too little.
Don’t guess, in other words. Sit down and crunch the numbers. If you need a loan to purchase new equipment for your business, research exactly how much that equipment costs, including tax, shipping and handling, implementation, and/or any training required to use it.
Lenders want to work with realistic, responsible borrowers who know, to the cent, how much money they need to achieve their goals and grow their business.
3. Calculate Your Monthly Payments
A lender’s biggest question is always “can you pay back the loan?” If you can’t satisfactorily prove that you can repay the loan, you’re out of luck.
Lenders evaluate whether youÂ can afford monthly loan repayments by using the debt service coverage ratio and the debt-to-income ratio. Both ratios are used to determine how risky your business is and if you can afford to pay back the loan or not.
Debt Service Coverage Ratio (DSCR): Measures the relationship between your business’s income and debt. Since the DSCR measures how much excess cash your business has after meeting its financial obligations, the higher your DSCR, the better. A DSCR of 1.25 or higher indicates that you have enough cash flow to run your business, while still having money left over to take on new debt.
Debt-To-Income Ratio (DTI):Â Measures the relationship between your personal income and debt as the business owner. Since the DTI indicates how much of your income is designated to debt, the lower the DTI, the better. A DTI ratio of 36% or lower is ideal as it shows that you can afford to comfortably take on loan repayments.
Note: Most lenders rely predominantly on the debt service coverage ratio to judge small business loan eligibility. However, sole proprietors and freelancers are not separate legal entities, so lenders will use your DTI to determine your creditworthiness.
These ratios provide a good indication that you can (or can’t) take on more debt. Before turning in your loan application, calculate your own DSCR and DTI scores. Making sure your DSCR and DTI ratios are ideal will increase your chances of impressing a lender. You can also use these ratios to find outÂ exactly how much you can afford to repay each month, which can help you be realistic about your borrowing amount.
Read our posts Debt Service Coverage Ratio: How To Calculate And Improve Your Business’s DSCR and Debt-To-Income Ratio: How To Calculate And Lower Your DTI to learn more.
4. Find The Right Type Of Loan
All loans are not created equal. To improve your chances of securing a loan, make sure you’re applying for the right kind of funding for your business.
Here are the most common types of business loans:
Installment Loan:Â An installment loan, or term loan, is issued in one lump sum and paid back in regular intervals or installments, plus interest.
Short-Term Loan:Â A short-term loan is issued in a lump sum and paid back in regular intervals over a short period of time. Instead of earning interest, short-term loans have a fixed fee that is added to the repayment amount.
Line of Credit:Â With a line of credit, a lender grants you a certain amount of money that you can draw from as needed.
Merchant Cash Advance:Â While not technically a loan, a merchant cash advance is a type of financing in which businesses sell their future receivables for immediate cash.
Invoice Factoring: While not technically a loan, invoice financing is the practice of selling unpaid invoices at a discount in return for immediate cash.
Carefully choose which small business lending method is right for you. Don’t waste your time filling out applications for loans that aren’t suited for your business. Improve your chances of getting approved by applying for the right type of loan.
To learn more about the pros and cons of each loan and to decide which is right for you, download our free Beginner’s Guide To Small Business Loans.
5. Find The Right Lender
Finding the right lender can make or break your chances of being approved for a business loan. Each lender offers different types of loans and has different borrower requirements. Some only lend to established businesses, while others lend to startups. Some only work with businesses that have good credit, while others care more about your annual income. You get the picture.
Carefully researching each lender and their requirements can help you know if you qualify for a loanÂ before putting in all the effort of completing an application.
If you aren’t sure which lender is right for you, check out our small business loan comparison chart or read through our selection of small business loan reviews.
6. Understand The Loan Process
Lenders want to work with responsible, experienced borrowers. Increase their trust in you by having a good understanding of how loans work. Not only does this show that you know what you’re doing, it makes the application process go more smoothly. According to Forbes:
The more educated you are about small business lending options and procedures, the more likely you will be successful in obtaining a loan.
If you’re asking a lender what an interest rate is or to explain the difference between a term loan and a line of credit, it’s time to go back to the basics. But don’t worry, we’ve got you covered with our Beginner’s Guide To Small Business Loans.
7. Have A Strong Business Credit Score
Another key to a strong loan application is having a healthy credit score. Lenders use credit scores to determine that your business is trustworthy and able to pay its loans on time. Having strong credit will not only increase your chances of being approved for a loan, it can also qualify you for better loans with more favorable terms and rates.
Read our Ultimate Guide To Improving Your Business Credit Score to make your credit score — and loan application — even stronger.
8. Don’t Forget Your Personal Credit Score
Lenders don’t just look at your business credit score; they also look at your personal credit score when applying for aÂ loan. Lenders want to establish your character as a borrower to see if you are trustworthy and pay your debts on time. This is especially true if you are required to sign a personal guarantee.
Improve your loan application by having great business and personal credit scores. Improving your personal credit may take some time, but will be more than worth it when applying for a loan. Read our post 5 Ways To Improve Your Personal Credit Score to master your credit score and wow potential lenders.
9. Know What’s On Your Credit Report
When applying for a loan, be sure to know your credit report forward and backward. Lenders will look at your credit report to evaluate your credit history before approving youÂ for a loan. If you know there’s negative activity on your report, explain it to your lender in your application. This may not always make up for the poor credit report, but it might make lenders understand your situation better.
10. Pay Off Existing Debt First
We know you’re probably foaming at the bit to get business funding, but paying off existing debt before applying for a loan could be the key to securing a loan in some situations.
If you already have substantial debt, a lender is far less likely to approve your loan application for fear that you won’t be able to keep up with the repayments. Not only will paying off existing debt show lenders that you mean business and have a good credit history, it will also increase your debt service coverage ratio and lower your debt-in-income ratio, leaving you with more cash to use on a new loan.
11. Increase Your DSCR
Paying off your existing debt isn’t the only way to increase your debt service coverage ratio. If you want to increase your DSCR and show lenders that you have plenty of cash to afford a loan, here are some additional tips:
Increase your net operating income
Decrease your net operating expenses
Decrease your borrowing amount
Finding ways to cut back on operating expenses and increase your sales income will boost your DSCR. In some cases, your DSCR may not need a boost. If your operating income and expenses are already optimized, or if you don’t have time to implement changes before applying for a loan, consider decreasing your desired borrowing amount. Maybe you can’t afford payments on the $100,000 loan you need to replace the entire company’s computer systems, but you can afford payments on a $50,000 loan to replace the equipment for your executives and sales team. Lenders will only approve loan applications for loans when they know that you can afford the payments.
12. Offer Up Collateral
Many lenders have specific collateral requirements. If you don’t have the assets to meet those requirements, you’re much less likely to have your loan application approved. Be sure to carefully research your lender’s borrower requirements to see exactly what collateral they require. Some may require specific assets, while others may simply require a blanket lien or personal guarantee. Be sure that your business can meet theseÂ requirements and feels comfortable in doing so.
Once you’ve decided on what collateral your business can offer up, prepare a document outlining each asset offered. Include this in your business loan application to show lenders that you take your business seriously and have something to lose if you default on the loan. Lenders aren’t evil monsters, lying in wait for you to default so they can steal your assets — they just need an assurance that they won’t lose all of their money if you can’t repay your loan. The hope is that you will be more likely to pay your loan back with your collateral at stake.
To learn more about collateral, check out these resources:
Secured Vs. Unsecured Business Loans
Should I Sign A Personal Guarantee?
What Is A UCC Blanket Lien?
13. Prepare The Proper Documents
To complete your loan application, lenders require certain documents to verify your business’s financial history and validity. The documents required vary by lender, but here’s an idea of types of things they might ask for:
Cash flow statements
Profit & loss report
Statement of owner’s equity
Business licenses and registrations
Articles of incorporation
Business history and business owners’ history
Owners’ resumes or background
Your lender may not require all of these, but having the above documents prepared before applying for your loan can help the application process proceed more quickly. Gathering these documents ahead of time can also help you have a better understanding of your business’s financial state — always good information to have before seeking business funding!
14. Create A Cash Flow Projection
Lenders don’t just analyze your business’s financial past; they also want to see that you have a promising future. One of the best ways to promote faith in your business’s future is to add a cash flow projection to your loan application.
A cash flow projection, or cash flow forecast, is an estimation of your business’s future operating income and expenses. The best way to create a cash flow projection is to realistically predict your future expenses and sales. Use your past cash flow statements as a jumping-off point so you aren’t just winging it.
To learn more about how creating a cash flow projection can benefit your business, read our article How To Calculate And Analyze Business Cash Flow.
15. Use Accounting Software
Before applying for a loan, you need to have a solid understanding of your business’s financial state and a firm grasp on managing cash flow. One of the best ways to achieve this is by using accounting software. Accounting software will track your income and expenses so you can know exactly how much you’re spending and how much is left to use on a loan.
In addition, accounting software can help you run the reports required by lenders, such as the income statement, profit and loss, and cash flow statements. If you need help finding the perfect accounting software for your business, check out our comprehensive accounting software reviews and compare our top favorite accounting software programs.
16. Create A Business Plan
While not always required by lenders, a business plan can earn you a gold star and shows a lender that you are organized, prepared, and responsible. A strong business plan also allows you to further demonstrate why you need a business loan and exactly how it will benefit your business.
Additionally, a business plan lets you present realistic repayment plans, which assures lenders that you have thought of a strategy for repaying your loan. Many business loan specialists recommend making a repayment plan as well as multiple backup plans, just in case.
17. Be Professional
This should go without saying, but here’s a friendly PSA: Being professional in all of your communications with a potential lender is incredibly important. Whether you’re interacting in person, over the phone, online, or through your loan application itself, be sure to put your best foot forward. This is the difference between being a C student and an A student, which in the business world equates to getting a loan or not getting a loan.
As we mentioned earlier, lenders care about character. Show a potential lender that you are professional, kind, and put together. Always spellcheck your work and ensure that every section of your application is filled out properly. Have all of the required documents ready for when your lender needs them.
And, don’t forget that honesty is one of the most important aspects of aÂ strong character. It’s easy to fib to try and make your business’s situation sound better, but this will only hurt you in the end. Lenders aren’t stupid. They can tell if you’re lying and can easily see when the financial statements don’t add up. Don’t ruin your chance of getting approved for a loan. Instead, be honest and trust that your character and business expertise are enough.
18. Wait Until The Market Is Good
This may seem backward, but don’t wait until you are in dire need of money to try to get a line of credit. Apply for a line of credit when the economy is booming and your business is successful. This way, when you do need to draw on a line of credit, you’ll already have the funds available.
You are much more likely to be approved for a loan if your business is healthy and has excess cash flow — and you’re more likely to get favorable rates and better terms to boot.
19. Don’t Ignore Social Media
For many lenders, it isn’t all about the money. They also want to know that you and your business have a good reputation. For this reason, many lenders review your business’s social media platforms and sites like Yelp before approving your loan. If they like what they see — good customer service, positive reviews, an effort to respond to and correct poor reviews — they can trust that your business has good character. If they see any red flags, they may decline your application altogether.
Treat others like you want to be treated using your social media, and lenders may be that much more likely to “treat you” to a business loan.
20. Seek Extra Help
If you are still worried about your loan application or want a second opinion, you can always seek professional assistance. Organizations like SBDC and SCORE are designed specifically to offer small business advice; your local chapter may be able to assist you in bettering your loan application. You can also have an accountant view your loan application and financial documents. They can help make sure everything is in order and raise any potential red flags that lenders would be concerned about.
Note: Some lenders actually require you to have your loan application reviewed or audited by an accountant. Make sure you know your lender’s policy before submitting your loan application.
We’ve covered twenty practical steps you can take to improve your business’s loan application. Now, when you finally send in your application, you can rely on more than crossing your fingers. Don’t guess or trust to luck. By optimizing your loan application and knowing exactly what lenders are looking for, you significantly increase your chances of getting approved.
If you are still looking for the right lender, check out our top-rated lenders. Best of luck!
The post 20 Tips To Improve Your Business Loan Application appeared first on Merchant Maverick.
Most small business owners don’t have a trust fund to draw from, and are therefore concerned with keeping costs to a minimum. Avoiding unnecessary credit card charges is a no-brainer for frugal business owners, which is why you may be looking to get a business credit card that carries no annual fee. After all, given the plethora of business card options out there that deliver great perks and benefits without charging an annual fee, why pay an annual fee simply for the privilege of using a business credit card?
As it turns out, you can find business credit cards offering all manners of rewards (points, cash back, travel benefits, sign-on bonuses, etc.) that do not charge an annual fee. There are certain categories of cards — top-tier travel cards, for instance — that will be out of reach for you if you stick to your no-annual-fee guns, but these cards aren’t likely to be practical for most new business owners anyway.
Let’s take a look at the business credit cards that give you the most value in each rewards category without charging you a yearly fee just for the privilege of using their plastic.
(For a fuller picture of the business credit card scene as it stands, check out our summary of the best business credit cards of 2018.)
Chase Ink Business Cash
Best Free Business Credit Card for Cash Back
Chase’s business credit cards are well-regarded — by us and by others — for the value they provide to small business. The Chase Ink Business Cash card is no exception. With no annual fee and the ability to earn 5% and 2% cash back on select categories of spending, combined with a healthy $500 cash back signup bonus for those who spend the required amount within the first three months of opening your account, you have one formidable business credit card.
Ink Business Cash At A Glance:
Annual fee: $0 (duh)
Bonus offer:Â $500 cash back if you spend at least $3,000 on purchases within the first 3 months
Introductory rate:Â 0% APR for the first 12 months
5% cash back on the first $25,000 spent in combined purchases at office supply stores and on internet, cable, and phone purchases each account anniversary year
2% cash back on the first $25,000 spent in combined purchases at gas stations and restaurants each account anniversary year
1% cash back on all other purchases with no earning limit
Many business cards with no annual fee don’t offer a sign-up bonus, but the $500 in cash back you can earn after 3 months is one of the more generous welcome offers you’ll find. While you do have to spend $3,000 on purchases within this time to get the bonus, that shouldn’t be a problem for the majority of businesses.
If a goodly portion of your business expenditures goes toward office supply stores and internet, phone, and cable purchases, you’re in luck, because Chase offers 5% cash back on such purchases with the Ink Business Cash. Additionally, you get 2% cash back on purchases at gas stations and restaurants.Â Both of these cash back options cap off at $25,000 each anniversary year, however. Any purchases in these categories beyond these limits, along with all other purchases, will earn you 1% cash back with no limits on how much cash back you can earn. Nonetheless, the cash back limits on the high-earning categories mean that if your business spends very heavily on these purchase categories, a card that places no limits on high cash back-earning categories may make financial sense for your business (even with an annual fee).
Additional benefits of Ink Business Cash include a 0% introductory APR for the first 12 months and the ability to redeem your points for travel, gift cards, or Amazon purchases. To learn more, read our full Ink Business Cash review.
Capital One Spark Cash Select for Business
Another Great Free Business Credit Card for Cash Back
Here’s another business credit card with no annual fee that handsomely rewards you with cash back: The Capital One Spark Cash Select for Business. This rewards credit card lets you earn 1.5% cash back on all purchases with no limits whatsoever on how much cash back you can earn. It’s a good card for business owners who make a large number of diffuse purchases and who can’t be bothered with spending categories.
Spark Cash Select At A Glance:
Annual fee: $0
Bonus offer: Earn $200 in cash rewards after you spend at least $3,000 in the first 3 months
Introductory rate: 0% APR for the first 9 months
Rewards:Â 1.5% cash back on all eligible purchases
The Spark Cash Select is a simple card with a simple reward structure. You can earn $200 if you spend more than $3K in the first three months, and you’ll earn 1.5% cash back on all your purchases with no limit to the amount of cash back you can earn. There isn’t much more to say about this card — either it will benefit you, or it won’t. If you don’t want to be constrained by the amount you can spend on purchases that will be eligible for more than 1% cash back, and if the idea of spending categories gives you a migraine, consider the Spark Cash Select.
Read our full Spark Cash Select review to delve deeper into the card.
Now to spotlight another business rewards card from this credit card issuer…
Capital One Spark Miles Select for Business
Best Free Business Credit Card for Travel
If you’re looking for a business credit card with great travel benefits that doesn’t carry an annual fee, consider theÂ Capital One Spark Miles Select for Business card. The card’s beauty is in its simplicity. You’ll earn 1.5 miles for every dollar spent on every purchase with no limits or category restrictions, so you won’t have to track your spending or concentrate it in certain categories to earn extra miles. You’ll also get a very nice travel signup offer. Let’s take a closer look!
Spark Miles Select At A Glance:
Annual fee: $0 (you may notice a theme here)
Bonus offer:Â 20,000 miles (worth $200 for travel) once you spend at least $3,000 in the first 3 months
Introductory rate: 0% APR for the first 9 months
Rewards: EarnÂ 1.5 miles per $1 spent on all eligible purchases
As I said, you’ll earn 1.5 miles for every dollar spent with the Spark Miles Select card. It’s a higher rate of miles-earning than you’ll get with most cards, making Spark Miles Select an excellent choice for business owners who make frequent business trips and want their purchases to help defray the costs of their travel.
Another sweet travel perk is the 20,000 miles you stand to earn if you spend at least $3,000 within the first three months of opening your account. These 20,000 points are worth $200 for travel. So long as you make business purchases on the card at a reasonable rate, you’ll be able to access this perk and get more travel bang for your buck.Â Miles can be redeemed for travel expenses such as airfare, hotels, and vacation packages, among other purchases. You’ll also have access to all the standard business benefits Capital One and Visa get you.
Interested? Check out our Spark Miles Select review for a deeper look.
American Express Blue Business Plus
Best Free Business Credit Card for Rewards Earning
Best Free Business Credit Card with a Long 0% Intro APR Period
Looking to earn points at a solid rate without having to be concerned with spending categories and the like? Have a look at the American Express Blue Business Plus card. For a low, low annual fee of $0, you’ll be earning double points on your purchases. You probably have better things to do than tracking spending categories.
Blue Business Plus At A Glance:
Annual fee: $0
Bonus offer: 10,000 points after you spend at least $3,000 within the first three months
Introductory rate: 0% APR for the first 15 months
Earn 2 points per $1 spent on all purchases (up to $50,000 per year)
EarnÂ 1 point per $1 spent on all purchases after $50,000
Until recently, the Blue Business Plus didn’t offer a signup bonus. Currently, however, Amex offers a welcome bonus of 10,000 Membership Rewards points if you spend at least $3,000 in the first three months of having your card. It’s not the biggest welcome offer but it’s a nice one for a business credit card with no annual fee. The main draw of the card, however, is the double points you’ll be earning on the first $50,000 worth of purchases you make per year. All purchases past $50,000 in a year will still earn one point per dollar spent until the new year rolls around. This makes the Blue Business Plus an excellent card for businesses with spending that doesn’t generally fall neatly into certain categories. Businesses spending significantly more than $50K a year, however, may be better served by a card that doesn’t limit the amount of spending that can earn max points — even if that card carries an annual fee. Alternatively, cardholders could supplement their Blue Business Plus card with another points-oriented business card.
Other perks of Blue Business Plus include the ability to spend above your credit limit — good for the sort of business that suffers from uneven cash flow. Another great benefit of the card? Your APR will be 0% for your first 15 billing cycles — longer than the typical intro APR period!
Go check out our full Blue Business Plus review if this card sounds like it might suit you and your business.
Bank Of America Platinum Visa Business Card
Best Free Business Credit Card with aLow Interest Rate
Overall, the Bank Of America Platinum Visa Business card isn’t the greatest business credit card I’ve ever reviewed. It offers a near-total lack of earnable rewards, so if earning points with your business spending is a priority of yours, don’t get this card. However, the Platinum Visa Business card carries one very significant benefit for the business that carries a significant balance on its card from month to month: a lower interest rate than just about any other business credit card.
Platinum Visa Business At A Glance:
Annual fee: $0
Bonus offer:Â $200 statement credit bonus after making at least $500 in net purchases in the first 60 days
Introductory rate: 0% APR for the first 7 months
Rewards: Unlimited employee cards at no additional cost (just like every other card in this article)
The $200 statement credit you’ll get if you spend $500 within the first 60 days is a decent bonus offer, but the lack of any other earnable rewards means that this isn’t the most impressive business credit around — a fact that is reflected in my review score. So why am I including this mundane card in this article at all? Because the card carries aÂ 10.99% to 21.99%Â variable APR. You’ll be hard-pressed to find a business credit card offeringÂ a possible APR of 10.99%.
Now, it’s obviously not ideal for businesses to carry a large credit card balance month-to-month over a significant period of time. That’s why this card isn’t for most businesses. However, your circumstances may be less than ideal, and you may not have any other choice at the moment. If this is you, getting the BofA Platinum Visa Business card will save you money on monthly payments due to the card’s relatively low APR. It’s not a good card for earning rewards, but the benefit of a low APR might override all other considerations for certain business owners.
Read our Platinum Visa Business review for more information.
As it turns out, if you want a business credit card but don’t want to pay an annual fee, you don’t have to settle — you’ve got many solid options to consider. After checking out the cards above, read our article on the best business credit cards of 2018 to get the big picture when it comes to today’s best business credit cards. Now get out there and keep making purchases like your business depends on it!
The post Business Credit Cards With No Annual Fees: Your Best Options appeared first on Merchant Maverick.
Here at Merchant Maverick, we’ve received countless questions over the years from concerned business owners regarding their merchant account statements. In fact, our website owes a large part of its very existence to the complex pricing, convoluted statements, and hidden markups that are hallmarks of the card processing industry. This is the unfortunate state of affairs that keeps us researching, writing, and advocating for small business owners.
Questions we frequently field from our readers about their processing bills include:
Am I paying too much for card processing? (That’s the big one everyone wants to know!)
Why did my processing costs suddenly go up this month?
What is this unexpected/oddly-named/junky-looking fee? Is it legit?
Is there anything I can do to lower my costs without changing providers?
Should I change account providers?
Only a thorough understanding of your own statements will yield the answers to these important questions. The inherent difficulty of the task is that you can’t completely rely on your provider’s statement guide, nor its sales or customer service reps, to explain all the fees. If your account provider is being sneaky about extra markups and unnecessary fees, the responsibility falls directly on you to decipher what’s really going on.
There’s no one-size-fits-all method for analyzing a statement, because every business and situation is a bit different. Still, there are definitely some foundational concepts that should help demystify the process. For example, here’s one quick tip to kick things off: Examine more than one statement side-by-side to avoid missing anything. Often times you need two months of statements just to completely view one month’s worth of charges. So, grab at least two or three consecutive statements and let’s get started!
Detail Vs. Big Picture
Analyzing a processing statement is always a balancing act between the details and the big picture. If you’re worried about a questionable charge, or suspect you’re paying too much overall, you may need to check every fee on your statement to identify its source and confirm the amount is what it should be. I’d encourage all merchants to at least give this a try on a few statements. If anything, you’ll verify that the fee schedule from your merchant agreement was implemented as you expected.
On the flip side, you actually needn’t worry too much about all the individual fees and rates on your statement if you track the big picture numbers (your overall costs) month-over-month. As long as the big picture amounts remain reasonable and consistent, you’re pretty much good to go. If they do change significantly, though, you’re back to looking at the details of your statement to figure out why. Fortunately, if you’ve already mastered the baseline details of your statements, you’ll easily identify the culprits that are most impacting your costs.
In short, understanding the interplay of your big picture numbers (what you’re paying overall) and detailed costs (why you’re paying it) is the best way to protect yourself from paying too much.
With that bit of philosophy out of the way, let’s look at the main big picture percentage that all merchants can calculate.
Your effective rate is the “all-in” percentage rate you’re paying for the privilege of accepting card payments. All business owners should take a first crack at calculating this rate before conducting any detailed analysis. It’s a simple formula:
(Total monthly fees / Total monthly sales) x 100 = Effective Rate
By total monthly fees, we mean processing charges, gateway fees, statement fees, monthly fees, equipment leases, weird fees you can’t figure out — everything. Sometimes you can grab these numbers from a summary section, as below:
$5,907.03 / $98,511.45 = 0.0599, or an Effective Rate of 5.99%
I still always recommend calculating your effective rate again once you’ve analyzed your statement in full. That way, you can ensure your summary section didn’t sneakily omit any charges. You’d be surprised how often this happens. (Or, maybe you wouldn’t be!)
Your effective rate provides a basic answer to “How much am I being charged for card processing?” and “Am I paying too much?”Â The precise answer to that second question is, of course, more nuanced for each business. For a large retail corporation, a 2.5% effective rate might be too high. For a high-risk ecommerce operation with lots of small transactions, 4.5% might be a screaming deal. Even with this variation, however, the effective rate gives you an important birds-eye view of where you stand.
Types Of Fees
You’re probably already aware that there are multiple layers to the card processing industry. Not surprisingly, each entity involved takes a cut of your card sales in one form or another. We’ve covered a lot of this territory in our complete guide to rates and fees, but I’ll quickly recap the main players in the industry, and whether they each charge wholesale costs (fixed throughout the industry) or markups (variable and negotiable depending on your business situation and account provider).
Card Networks: We’ve all heard of these folks — Visa, MasterCard, and the like. These associations take their cut of processing costs in the form of card association fees and assessments.Â If you don’t think you’d be able to recognize these charges on your statement, head over to our card brand fee article for an explanation and full reference list.
Card-Issuing Banks:Â The banks that have issued credit and debit cards to your customers chargeÂ interchange feesÂ — the cost of running each individual type of card and transaction. The card associations actually set these fees for the issuing banks, and also publish and frequently update lists for merchant reference.
Not everyone will be able to see pure wholesale costs on their statements. This is because sometimes wholesale costs are passed through directly to merchants, while in other cases they’re blended in with markups. This mostly depends on your pricing model (we’ll have a section on that topic coming up). Still, regardless of what “should” be happening with wholesale charges according to your pricing model, it’s worth checking to see if any have been passed through to you, and if the amounts are correct. Interchange fees are usually pretty easy to spot — they’re typically in a giant itemized list if you can see them at all. Card brand fees can be more difficult to identify, so definitely consult a reliable reference list.
Everything besides those two types of wholesale fees we’ve just discussed counts as a markup. Here are the main players that add costs above wholesale:
Processor/Acquirer:Â You may know some of the big ones — First Data, TSYS, Vantiv/Worldpay, Chase, Elavon, etc. These entities are also usually involved with an acquiring bank (e.g., Wells Fargo or B of A) if they aren’t already one themselves. The processor behind your merchant account can add its own extra fees and markups.
Merchant Service Provider (MSP):Â This is the entity that actually sets up and manages your merchant account — the company you interface with most directly. You also access your monthly statements through your MSP, even though the statement might have the big processor’s name across the top. You may have signed up for your account with the MSP department of one of the large processors we’ve already mentioned, or you may have used a separate MSP/ISO that has teamed up with one or more processors to provide accounts. Regardless of the setup, your merchant services provider adds its own markups as well.
Additional Service Providers:Â Charges from other third parties (such as gateway or equipment providers) may also show up on your merchant account statement.
A word of caution about “pass-through” fees: Just because your MSP claims to be merely “passing through” a fee to you “at cost,” doesn’t necessarily mean it’s a wholesale charge (from the card associations or card-issuing banks). As you can see above, the big processor/acquirer behind the scenes may also charge its own fees and markups, and often other third-party equipment and software providers do as well. These “pass-through” fees should be counted as variable markups, even though your MSP may not see any money from the charges.
If you can see all interchange fees and card brand fees (wholesale costs) itemized on your statement, you can calculate your effective markup. Let’s take a look at what this is, and why it’s an advantageous number to crunch if you can swing it.
Remember, the markup is the piece that varies between MSPs. Not only can the overall amount vary widely, but the way markups are charged is also variable between providers. For example, one MSPs might charge a low markup percentage on your individual transactions, but several different monthly fees as well. Meanwhile, another MSP might charge a high markup percentage on transactions, but hardly any monthly fees. Which one’s a better deal? This is why it’s good to know your markup as an overall percentage.
You’re effective markup not only lets you know how much you’re really paying in controllable costs each month, but it’s also a handy figure to have if you’d like to compare your statement with other merchant account offers.
Here’s the basic formula (always multiply by 100 to convert to a percentage):
Markup FeesÂ / Total Sales = Effective Markup
Depending on how your statement is laid out, here’s another way to think of the calculation that might be more helpful:
I like this second way because it’s a clear process of elimination. Once you’ve got all the wholesale fees accounted for and subtracted away from your total fees, you automatically know everything else you’re charged is a markup.
You might have a summary section on your statement that divides up your fees in such a way to make this calculation simple. It’s more likely, however, that you’ll have to pick through your statement to make sure you understand your pricing structure and the true classification of each fee before you can add up the numbers and perform the effective markup calculation with confidence. Call me paranoid, but I have a mistrust of so-called “summary” sections on statements. Been burned way too many times!
What if you can’t calculate your effective markup at all, because your statement doesn’t make it possible to see all wholesale fees separately? That’s fine — justfocus on tracking your effective rate for now. It’s not as telling a number as your effective markup, but it’s an excellent starting point for staying on top of your costs.
Knowing your pricing model is absolutely critical to understanding your statement, so if you don’t already know it, now is the time to figure it out!Â We have an article that walks you through the process of identifying your pricing model by looking for specific, telltale signs on your statement, as well as in-depth articles on each of the four main models most MSPs offer.
We’ve already alluded to the fact thatÂ your pricing model determines whether or not you can distinguish wholesale costs from markups.Â You’ll never know exactly where you could be saving money (or where you’re getting ripped off) if you can’t make this distinction.
This is a complicated topic, so it may take you a while to wrap your mind around which model you have and how it impacts your statement. That’s okay — take your time. We do also occasionally come across some interesting hybrid models, so if you still need assistance figuring out your model, feel free to reach out to us.
So, how do the pricing models work? Well, the models were developed based specifically on interchange fees and whether or not they are blended in with MSP rate markups. (Card brand fees are not tied as tightly to your pricing model, so I’d just recommend checking your own statement to see if any are passed through.) Below are links to articles on each of the models, as well as a super-brief overview of each.
InterchangeÂ separate from markup:
Interchange-Plus (Cost-Plus) Pricing:Â Interchange rates are itemized and passed through separately from the MSP markups. Rate markups typically include a percentage markup and a per-transaction fee markup.
Membership (Subscription) Pricing:Â A version of interchange-plus pricing in which a monthly membership fee is charged as a markup in lieu of a percentage markup over rates.
InterchangeÂ blended with markup:
Tiered Pricing:Â Interchange rates are blended in with markups to create multiple rate tiers.
Flat-Rate Pricing:Â Interchange rates are blended in with markups to create a flat processing rate (most often used by merchant aggregators like Square, Stripe, and PayPal — not traditional MPSs).
In theory, you should be able to calculate your effective markup if you have one of the first two models, because wholesale fees are kept separate. This is one reason we favor MSPs that offer transparent interchange-plus or subscription modelsÂ to all merchants. For the other two blended plans, you’ll need to stick to monitoring your effective rate only.
Beyond understanding your pricing model, you should be aware of exactly when you’re charged the various fees and rates due on your account. A closer look at your billing cycle could potentially reveal that you’re not calculating your effective rate properly, or that you’re paying higher processing rates than you originally thought. Here are a couple of tricky billing methods to watch out for:
Daily Discount (Vs. Monthly Discount)
“Discount” here refers to your card processing fees (as opposed to scheduled monthly fees). Your discount method is totally irrespective of your pricing model.Â Most merchants are on a monthly discount plan, meaning their discount fees are all charged in one lump sum at the same time as the rest of their scheduled monthly fees. In other words, you receive gross deposits from your batch settlements throughout the month, and then pay all your discount fees along with all other scheduled fees all at once.
On a daily discount cycle, your discount fees (or a portion of them) are deducted from each batch settlement as the month progresses. This leaves you with net deposits from your batches, and all your other scheduled fees are charged in a separate chunk. You can often tell if you are on a daily discount cycle if your statement contains terms like âless discount paid,â or shows net versus gross amounts in sales columns. With daily discount, you must be careful to add the discount fees you’ve already paid throughout the month to the other monthly fees you still need to pay. Don’t be mislead by the “total charges” figure, which may not include the discount fees you’re already paid.
Add together the “less discount paid” of $168.03 and “total card fees” of $50.95 to find the actual amount that is paid for the month: $218.98!
This is a rolling billing method that is technically different from (but often combined with) both a daily discount setup and a tiered pricing model. On a normal tiered plan, you’re charged the different rate tiers (qualified, mid-qualified, non-qualified) for your transactions all in the same month. With billback, however, you are charged the qualified (lowest possible) rate for all your transactions first, but then charged a fee the next month to recoup all the extra cost for any higher-tiered transactions you ran.
With this rolling system, you actually need two months of statements to even calculate your effective rate for a given month, since your charges for one month are split over two months — possibly more. Even worse, the Enhanced Billback method (a.k.a. Enhanced Recovery Reduced) adds an additional markup to the next month’s recouping fee. You may see BB, EBB or ERR abbreviations (along with a past month’s abbreviation) listed on your statements if you’re in a billback situation, but you may just need to spot the extra fees on your own.
Billback statement: Extra fees for April transactions charged in May.
As we discussed at the beginning of the guide, you needn’t identify every fee every month into eternity, but I’d strongly recommend going for it on a few statements. Maybe you’re just curious and would like to become a more cost-savvy merchant, or maybe you suspect a hidden fee, or maybe your processing bill has spiked lately and you want to know why. Not to mention, sometimes statements contain run-of-the-mill mistakes that need catching! After all, not all MSPs are pure evil. Just most of them.
Of course, I can’t tell you every fee you’ll ever see on a statement and whether it’s legit. What I can do is offer you a few general tips I’ve found helpful as I’ve analyzed statements:
Identify Percentages vs. Dollar Amounts:Â Costs may come through as percentages of sales volume, per-transaction fees, or flat fees. At times, half the battle is just confirming which fees are percentages and which are dollar amounts, because they may all be shown in decimal formÂ (and all mixed into the same columns!). The good news is that a quick calculation of your own can usually confirm which are which.
Use Fee Guides:Â Absolutely make use of any statement guide from your provider, but also check out an outside resource or two. Our fee guide lists the common fees you’ll encounter on a statement, and our fee infographic shows the typical cost range of many standard charges. I know I’ve said this a bunch of times already, but you’ll also need a good card brand fee reference listÂ to confirm these fixed-yet-esoteric charges.
Ask Yourself Fee ID Questions: As you work through each charge, see if you can answer the following queries:
Who charges this fee/rate? (see “Types Of Fees” section above for possible culprits)
Is this charge a markup, wholesale cost, or a blend of the two?
Is this wholesale charge correct according to interchange tables or the card brand fee list?
Is this markup (or blended cost) correct according to my merchant fee schedule from my MSP?
Don’t Trust The Layout:Â We’ve dissected some horrifically disorganized statements over the years, which has only confirmed in my mind that you simply cannot rely on the sub-headings on a processing statement to properly categorize your fees. Wholesale fees are very often interspersed with markups and vice versa, so be on your guard. I’m particularly vigilant about “authorization” sections —Â the perfect hiding spot for extra per-transaction fees.
Don’t Trust Fee Names:Â This last tip sounds strange at first, but hear me out. Names and abbreviations for fees have little standardization across the industry — even wholesale fees that are supposed to be the same for everyone! This makes it all the more difficult to identify extra or padded fees on a statement. If you’re trying to pin down a particular charge, it’s often best to consider the amount first while taking the fee’s name with a grain of salt. Here’s one good rule of thumb: Just because a charge has a card brand abbreviation in front of it doesn’t guarantee it’s all from the card brand!
Poor layout example: An MSP markup fee buried in the middle of a giant alphabetical list of wholesale card brand fees. And, the section name is just “Other Fees.” Not cool! (Note: this is an old statement with non-current card brand fee amounts)
We’re about take this detailed numbers analysis thing to the next level. Ready?
So, remember how we said that wholesale fees are fixed, non-negotiable and completely out of your control, and that markups from your MSP are the variable, negotiable costs of processing? Well, in reality, this is a slight oversimplification of the system. There are some nuances and gray areas that once recognized on your statement can help you catch problems, and potentially even adjust your processing habits to save money.
Avoidable Penalty Fees:Â Most card brand fees are simple, blanket assessments on your transactions, but others are in place specifically to punish you for not following the proper protocols for authorization and settlement. They’re small fees, but can add up fast if they’re applied to a large portion of your transactions. If you’re seeing a lot of transaction “integrity” type fees, you should take the initiative to find out why this is happening. (While we’re on the topic, don’t forget that MSPs can also charge avoidable penalty fees — a PCI-non compliance fee is one common example.)
Optimizing Interchange Rates: While interchange rates themselves are fixed and pre-established across the processing industry, you may have more control overÂ which categories of interchangeÂ your transactions fall into than you think. The process of ensuring you get the best interchange rates possible is called interchange optimization. B2B transactions using commercial cards can beÂ processed with additional Level 2 and Level 3 data to get the optimal interchange rate, for example. Transactions can also end up “downgraded” to higher-cost interchange categories if you do not authorize and settle them properly (in this way, downgrades are basically another type of penalty fee). Interchange downgrades happen more commonly to card-not-present businesses because there is more margin for data-entry error and omission than when cards are read directly by processing equipment. Common statement codes for downgraded interchange rates include EIRF (electronic interchange reimbursement fee) and STD (standard). It’s normal for a few transactions to be downgraded, but if you’re seeing interchange downgrades on the majority of your transactions, this is a definite red flag.
This merchant’s largest Visa Card Brand fee for the month was $25.30 for 253 transactions that didn’t follow proper authorization/settlement procedures. It’s likely these transactions are getting downgraded to higher-cost interchange categories as well. The merchant should look into adjusting its processing procedures to avoid these unnecessary costs.
Pulling It All Together
After you’ve worked through the details of your 2-3 consecutive statements, it’s worth repeating your effective rate calculation on each one, just to ensure you didn’t miss any charges. You may have also spotted an extra or padded fee here and there that you’re ready to confidently take up with your MSP. You should also be able to locate any anomalies that occurred during a given month (e.g., excessive penalty fees, chargebacks, one-time incidental fees, etc.) that may have impacted your effective rate.
If your statements itemize interchange rates and card brand fees separately from markups (interchange-plus or subscription models only), you’re finally ready to do that magical effective markup calculation accurately. Remember to only count interchange fees and card brand fees as true wholesale. Everything else is technically a markup!
We’ve covered a lot of ground in this guide, but hopefully you’re ready to tackle some big picture calculations (like your effective rate), as well as better identify any specific “what the heck is that?” charges from your statement. If you’re ready to become the consummate master of your processing statements from here on out, the first step will be to get on a cost-plus pricing model (interchange-plus or subscription/membership).Â This is the only way you’ll see what you’re paying each month above wholesale processing costs that are largely out of your control. All but very small merchants will benefit from one of these pricing models from a trustworthy MSP. If you’re not on a cost-plus plan already,Â make it a priority if you change providers.
Meanwhile, keep on tracking that effective rateÂ (and effective markup if your statement allows)Â month-over-month for the lifetime of your merchant account. Once you’ve got a handle on your statement, it will be totally worth the 12 seconds the calculation will take you each month. I’m a super detailed-oriented person as a matter of principle, and even I give you my blessing to pretty much ignore all the stupid little fees and markups your processor or MSP may charge, as long as you’re satisfied your big picture numbers are remaining sensible and consistent. Just know I’ll send you right back into the details if those effective numbers go up!
Still need help with pricing or statements?Â Check out the transparent pricing of our highest-rated merchant account providers, or try these additional resources:
Never Overpay for Credit Card Processing Again
How Much Should You Pay for Credit Card Processing?
How to Negotiate the Perfect Credit Card Processing Deal
The post How to Analyze Your Credit Card Processing Statement appeared first on Merchant Maverick.
You’ve heard the old adage “walk a mile in someone else’s shoes.” This phrase is more than just a To Kill A Mockingbird lesson on understanding where others are coming from — it’s also the key to securing the business loan you need.
By considering the loan process from the lender’s perspective and understanding what they’re looking for, you’ll know exactly what you need to do to increase your chances of being approved for a business loan.
That’s where the 5 Cs of Credit come in.
The 5 Cs of Credit is a system that lenders use to evaluate your business’s creditworthiness and ability to repay a loan. Lenders look specifically at your business’s character, capacity, capital, collateral, and conditions before making theirÂ lending decision.
In this post, we’ll explain everything you need to know about these 5 Cs, including how lenders evaluate each trait and how to boost your business’s 5 Cs so you can secure a business loan. Read on to learn more.
Character refers to a business’s reputation and trustworthiness. Also sometimes called “credit history,” character often translates to how faithful you’ve been in paying off past debts on time.
Why Character Matters
For lenders, it all comes down to how the question: “Will I get myÂ money back?” Lenders want to work with responsible, organized businesses that are likely to make their repayments on time.
How Lenders Evaluate Character
When evaluating character, lenders look at:
To analyze your credit history, lenders will often view your credit report and credit score. Lenders take both your business credit score and your personal credit score into consideration.
They tend to look at how long you’ve been in business as well. The longer you’ve been in business, the more stable you appear. For lenders, this again means less risk and increased likelihood that your business will be successful enough to cover loan repayments.
Sometimes, lenders also take a literal approach to the word “character” and analyze your attributes as a business owner.
They may conduct a personal interview or require references (some even go so far as looking at Yelp reviews of your business). Many online lenders make phone consultations a part of their application processes so that they can help you with any questions about the application while also getting a feel for you and your company.
How To Improve Character
If you’re looking to impress lenders with your personality or improve the character of your business, there are a few ways to do so. Here are fours tips for boosting character:
1. Raise Your Credit Score
Poor credit can be a deal breaker when it comes to loan approval. Taking the extra time to raise your credit score before applying for loans can help increase your chances of qualifying for the loan you want.
If you don’t know what your credit score is, then that’s the first place to start. Check out these top free credit score sites to learn where your credit stands.
2. Understand Your Credit Report
It’s also important to understand your credit report and be prepared to explain anything negative on your report. Some lenders may view your application more favorably if you are able to help them understand your business’s situation. Make sure to take action to correct any errors that may be affecting your credit report.
Learn more about how to check your credit report and dispute errors by readingÂ 5 Tips To Improve Your Personal Credit Score.
3. Be Professional
Whether interacting with a banker in person or applying through an online lender, put your best foot forward.Â Always be professional and kind. Also show the lender that you are knowledgeable about the loan application process and familiar with how loans work. This shows that you are responsible and experienced in business as well as being personable.
4. Establish A Relationship With Your Bank
If you are seeking a traditional business loan from a bank, establish a relationship with your banker. If the banker likes you and is familiar with your business, they may be more willing to vouch for you when it comes to loan approval time.
Capacity is your business’s ability to pay back the loan. Also sometimes called “cash flow,” capacity is directly related to how much cash your business has available for loan use.
Why Capacity Matters
Not only do lenders want to see that you have a history of paying your loans on time, they also need to see that you actually have the cash to do so. They must look at your financial health to ensure that you can afford a loan in the first place, and then use this information to see how large of a loan amount they can offer you.
How Lenders Evaluate Capacity
Lenders may use the following tools to determine your business’s capacity to afford a loan:
Cash flow statements
Cash flow projections
Debt service coverage ratio (DSCR)
Debt-to-income ratio (DTI)
Most lenders require you to provide cash flow statements and bank statements when you apply for a loan. They also may require a cash flow projection to get an idea of what your cash flow will most likely look like in the future.
Some lenders may depend on more concrete measures of financial health, like debt service coverage ratios (DSCR) and debt-to-income ratios (DTI). The debt service coverage ratio measures the relationship between your business’s debt and income, while the debt-to-income ratio measures the relationship between your personal debt and income as the business owner.
Both of these ratios are used to determine the health of your business’s cash flow and demonstrate how much extra cash you have available for a loan. Ideally, lenders look for a DSCR of 1.25 or higher and a DTI ratio of 36% or lower.
How To Improve Capacity
The following are four tips for maximizing your business’s capacity; following these steps will demonstrate that your business can handle a loan and may also increase the size of the loan that you can realistically afford to make payments on.
1. Pay Down Past Debt
If you have a significant amount of outstanding debt, a serious chunk of change is going to paying those loans off each month — money that could be used to invest in a new loan instead. Try to pay old debt down or off completely. This will increase the amount of cash flow available for a new loan. This will also show a lender that you have the means to repay aÂ new loan and that you have a history of successfully paying off debts.
2. Improve Your DSCR
The higher the debt service coverage ratio, the more cash you have to invest in your business and the more likely you are to be approved for the loan you want. To improve your DSCR, try:
IncreasingÂ your net operating income
Decreasing your net operating expenses
Paying off existing debt
ReadÂ Debt Service Coverage Ratio: How To Calculate And Improve Your Business’s DSCR to learn more.
3. Lower Your DTI
While lenders usually place more emphasis on the debt service coverage ratio, your debt-to-income ratio is still important. And, if you’re self-employed, lenders look solely to your DTI ratio to determine if you can afford a loan.
Since the DTI percentage shows how much of your money is already committed to existing debt, the lower your debt-to-income ratio, the better. Here are the main ways to lower DTI:
Increase your monthly income
Pay off existing debt
ReadÂ Debt-To-Income Ratio: How To Calculate And Lower Your DTI to learn more.
4. Use Accounting Software
Not only can using accounting software help you balance the books, it can also help you prepare a strong business loan application. With the right accounting software you can:
Generate the cash flow statements and financial statements required by lenders
Use financial history to create cash flow projections
Keep track of operating expenses and income so that you can calculate DSCR and DTI correctly
Using accounting software can also show lenders that you are organized and financially responsible. Some lenders even require that businesses use accounting software for a certain period of time before being approved. If you want to make preparing your loan application simpler, understand exactly how much you can afford to borrow, and stay in control of your business overall finances, accounting software is a must.
Take a look at our top-rated accounting programs and our comprehensive accounting reviews for helpÂ finding the perfect software for your business.
Capital refers to how much money you (or you and your business partners) have invested in your company.
Why Capital Matters
In lenders’ eyes, the more money you personally have invested in your business, the less likely you are to default on your loans. Lenders see capital investments as a sign that you take your business seriously, and have something to lose if the business goes under.
It makes sense — if you have money personally invested in your business, you are much more likely to do everything you can to make that business succeed — which for lenders, translates into doing everything you can to pay your loans off.
How Lenders Evaluate Capital
When considering capital, lenders want to see:
How much of the owner’s capital is invested in the business
How the owner’s capital is invested
Lenders primarily look at the amount of owner’s capital invested in the business. Not only do they evaluate how much money you have invested in the business, they also check to see where you’ve invested that money. If they see that you’ve made smart investment decisions in the past, they can take comfort in knowing that you will most likely invest a new loan wisely.
How To Improve Capital
If you’re looking to present strong capital to a lender, here’s what you should do.
1. Increase Owner’s Capital
First off, make sure that you actually have money invested in your business. If you haven’t invested any money into your business, now may be the time to talk to a financial advisor about the best way to increase your owner’s capital and invest in business growth.
2. Highlight Investment Successes
Lenders like to know exactly how you plan on using the money they may potentially lend to you. If you’ve made successful investments in the past, like purchasing additional equipment that increased your sales revenue by 25%, and are planning on purchasing more equipment with the loan your applying for, be sure to tell your lender! It will demonstrate that you’re experienced in business and that you’re likely to increase your cash flow (which a lender hears as “we’re getting our money back”).
What If You Don’t Have Any Capital Invested In Your Business?
If you don’t have any capital invested in your business and aren’t in a financial place where you can do so, you’ll need to rely heavily on the other 4 Cs. If your character, capacity, collateral, and conditions are particularly strong, you may be able to offset the lack of capital.
Since lenders use capital to see that you’re committed to your business, show them your commitment in other ways, maybe by offering strong collateral or articulating a clear business plan and repayment plan.
Collateral is an asset (or assets) that are offered up as insurance against you paying back your loan fully and on time. If you default on your loan, lenders will seize the collateral in order to make up for their losses.
Why Collateral Matters
Much like owner’s capital, collateral means you have something to lose if you default on your loans. The hope for many lenders is that the collateral will encourage business owners to work hard to repay their loan.
However, if your business does go under, collateral assures lenders that they won’t lose all of their money if you default on a loan.
How Lenders Evaluate Collateral
Every lender has different requirements when it comes to collateral.
Some require specific assets to be offered up as collateral. Others require a blanket lien, meaning they have the right to go after your assets in case of a default. Others still require a personal guarantee, meaning you the business owner will be held responsible in the event of a default.
Some examples of collateral include:
It’s important to carefully evaluate each lender’s policy and requirements regarding collateral. This way, you can know exactly what is expected of you. And, more importantly, you can decide if you’re comfortable with the required collateral or if you’d rather look for a different lender.
To learn more about collateral, readÂ Secured Vs. Unsecured Business Loans.
How To Improve Small Business Collateral
Each lender has their own way of evaluating collateral, so there’s no one right way to improve your business’s collateral. However, by carefully researching potential lenders, you can work to present strong collateral that meets their standards. Here are a few tips to consider:
1. Know What Collateral You Have To Offer
Carefully evaluate your assets and their value so that you know exactly what your business can offer up as collateral. Many accounting software programs help you track your assets and their depreciation so you can know how much they are worth.
2. Decide What You’re Comfortable With
As we mentioned earlier, some lenders require a blanket lien or a personal guarantee to secure a loan. Neither of these agreements should be taken lightly and these arrangements are not right for every business.
Read our posts What Is A UCC Blanket Lien? and Should I Sign A Personal Guarantee? to decide if these forms of collateral are right for you.
3. Find The Right Lender
Required collateral varies from lender to lender. If you aren’t comfortable with something like a personal guarantee or don’t have much collateral to offer up, do some shopping around until you find a lender that is suited for your business.
If you need assistance in your search for the perfect lender, let us help you find a business loan.
Conditions are considered in two parts: the conditions of the loan and the conditions of the economy.
Why Conditions Matter
Conditions such as interest rate and principal play an important factor in whether or not you can afford a loan and how big that loan can be. Factors such as the economy and your business’s market can also play a role in how likely your business is to succeed and be able to repay a loan.
How Lenders Evaluate Conditions
When considering if the conditions are right to approve your loan, lenders consider:
Your business’s industry
Your business’s competitors
The actual loan amount you are requesting is very important, but lenders will consider the principle, interest rate, and monthly payments to determine if you can feasibly take on that loan.
Lenders also carefully consider how you are planning on using the loan as the purpose of the loan can greatly affect whether your business will grow and profit from the investment.
The economy is also a huge consideration. If the economy is booming, businesses are more likely to flourish, meaning less risk for lenders. If the economy is taking a downturn, lenders may be more reluctant to lend money. When the economy is poor, lenders typically increase their minimumÂ DSCR which means businesses have to have an incredibly strong cash flow in order to be approved.
Some lenders may look at your specific market and competitors to get an idea of how financially promising your business is. Certain lenders also have prohibited industry lists, meaning that they will not lend to business in specific high-risk industries. So before you apply, be sure that your business does not fall into that category.
How To Improve Conditions
You may not be able to control the economy, but you can control how strong your business and its loan application appears. Here are a few tips on how toÂ put your best foot forward where conditions are concerned.
1. Have A Plan
Don’t just say you need $30,000 for your business. Lenders want to hear exactly what you’re planning on doing with the loan and how you plan on doing it.
Common reasons for requesting a business loan include:
Hiring new employees
Expanding your business
Increasing cash flow
Let your lender know exactly how you’re planning on using the money with a detailed business plan. Increase their faith in your business by showing how the loan will benefit your business, whether by increasing production, doubling sales, expanding your business’s services, etc.Â The more specific you can be the better.
2. Time It Right
Often, small businesses seek a loan when they are in need of money. Makes sense, right? Wrong. Consider applying for a line of credit when the economy is good and your business is booming. You will be much more likely to qualify for a line of credit with favorable terms when things are going well. This way, you’ll have cash when you do need it.
If you wait until the economy is poor and your cash flow is stagnant you will be much less likely to be approved for a loan. And if you are approved, the loan rates may be steep and unfavorable.
3. Show Your Expertise
Be knowledgeable about your business and its market. You can’t control the economy, but you can control how you present your situation to a lender. If the economy is poor or your business’s market is stalling, show lenders how the loan you’re requesting will allow you to launch a promising new marketing campaign or expand into a new, profitable business vertical.
Demonstrating your expertise will build their faith and trust in you and your business.
4. Improve Your DSCR
If the economy is poor, another way to increase the likelihood of being approved for a loan is to increase your debt service coverage ratio. As we mentioned earlier, there are several ways to improve your DSCR, including:
IncreasingÂ your net operating income
Decreasing your net operating expenses
Paying off existing debt
Read our post the Debt Service Coverage Ratio: How To Calculate And Improve Your Business’s DSCR to learn more.
Sealing The Deal
When it comes to loan applications, you don’t want to go in blind. Knowing what lenders are looking for and how they’re evaluating your application can be the key to securing the loan you need.
When it all boils down, lenders simply want to be certain that you will pay back your loan. The 5 Cs of Credit are how lenders can realistically evaluate how big of a risk you are.
It’s important to note that not all lenders evaluate each C the same way. Some place more emphasis on character, while others care more about your capital. Carefully researching each lender’s requirements and following our tips to master each of the 5 Cs of Credit can greatly increase your chances of sealing the deal on a loan.
In the end, it all comes down to establishing yourself as a trustworthy, credible borrower who can set lenders’ minds at ease. Start mastering character, capacity, capital, collateral, and conditions to impress lenders and secure the loan you want.
Ready to take out a business loan? Read through our comprehensive reviews of business lenders, put lenders side by side with our small business loans comparison chart, or check out three of our favorite lenders below:
â¢ Term loans
â¢ Lines of credit
â¢ Contract financing
â¢ Term loans
â¢ Lines of credit
â¢ Short-term loans
Small- to medium-sized businesses looking for a working capital loan or line of credit.
Small- to medium-sized business looking for fast funding.
Small businesses looking for a short-term loan with weekly repayments.
Required Time in Business
Required Credit Score
Â Visit Site
Â Visit Site
The post The 5 Cs Of Credit: What Lenders Look For appeared first on Merchant Maverick.