Loans & Financing

4 Ways to Get Around SBA Loan Shutdown

Affecting more than 200 businesses waiting on the loans across the United States, a Small Business Administration spokesman says, the government shutdown has put a halt to its normal flow of working capital.

The SBA typically handles about 200 loans daily for working capital via the SBA’s 7(a) program and another 120 loans for commercial properties through what the SBA calls the “504 program.”

This amounts to roughly $200 million worth of loans every day for small and midsize businesses, according to the Washington Post.

But all came to a stop on December 22, the day the government shutdown began. As the longest government shutdown in U.S. history is nearing a month’s mark with no clear end in sight, here are 3 ways for business owners to obtain the funds they need.

 

1. Seek Out a Merchant Cash Advance

A merchant cash advance is an advance of a business’s future receivables. While it has been around since the 1980s, it only truly took off during the last decade due to the recession in the U.S. Small businesses who need quick capital can receive anywhere between $2,000 and $3 million. The great thing is the turnaround is very fast – 24-48 hours.

A business can be approved for a merchant cash advance with firms like Global Business Lending with the following minimum requirements:

  • Having been in business for at least 3 months
  • Having at least $6,000 in regular gross monthly deposits
  • Having an active U.S.-based business checking account
  • Having a clear vision and purpose for the funds to prove an investor will be paid back within the given term

 

2. Exercise Patience

U.S.-based businesses shouldn’t expect business to be back to normal – even after the government shutdown ends. Once the SBA employees get back to work, they face a backlog of orders, requests and applications. Still, if you would like, start filling out your SBA applications now so that at least you’re among the backlog when they return to work.

 

3.Use Your Retirement Assets

If you have retirement assets of at least $35K, you can qualify for Business Directed Retirement Account where you can access your money tax free and direct it into your business. This is perfect if you’re looking to buy or start a business from the ground up.

Find out how to get this sort of access to capital by visiting www.globalbusinesslending.com

 

4.Get Line of Credit

Having a line of credit or other financial cushion can help a company weather a shutdown. Owners whose companies are dependent on government contracts, or whose customers are government workers, should make sure they always have a financial buffer.

They only take 24-48 hours to get an approval and you’ll have your line in two weeks, ranging from $20K to $350K. To find out if you qualify for a line of credit, call 855-200-0705.

You may qualify for this in the following ways:

  • With good personal credit 680 to 700+
  • Verifiable income for personal loans or use a business credit/Partner,
  • Strong depth and history of credit, few derogatory items, strong debt to credit ratio, few inquiries in last 12 months
  • No collateral needed
Tiffani4 Ways to Get Around SBA Loan Shutdown
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VCs and Crowdfunding Run Out of Gas in 2017

sharktankLast August, we posted a blog entry about the 3 Top Alternative Lending Sources for Small Businesses in 2016. However, a great deal has happened in the alternative lending space within the year which has knocked two of our top sources from their ranks…

In our blog post last year, we named venture capitalists and crowdfunding as two of the leading sources of alternative funding for small businesses. Just so you know. The rationale for using alternative funding sources such as these is that instead of applying for funding with banks – which have become far more discriminating since the recession in 2008 – a new small business with a clear business model can receive quick working capital without having to jump through hoops for a bank’s underwriter.

Now, in 2017, here’s why venture capitalists and crowdfunding are floundering within the alternative lending space.

 

  1. Venture Capitalists Are Pickier Than Ever

While many caught the Shark Tank bug within the past decade, small businesses were eager to pitch their “next big” idea, invention, product or service to venture capitalists like billionaire tycoon Mark Cuban or Canadian Mr. Wonderful Kevin O’Leary. Yep! But, if you didn’t get picked up a VC in the past year, then it doesn’t look good for you right now.

According to an April 24 article in Pymnts.com, “in 2014 and 2015, mutual funds, hedge funds and other investors dropped billions into companies that these days seem a little too quirky to ever get to an IPO or buyout.”

Sadly, as of 2017, investors have shown more interest in a business that they can predict will make money going forward. As a result, the stats are in — investment in U.S. tech startups plummeted by 30 percent in dollar terms last year from a year earlier.

“It’s not that no one is getting funding — it’s just that everyone is no longer getting funding,” the article stated.

What great about venture capitalists is that they can flood a new company with millions for a stake in said company’s future earnings. However, what if the business never earns? The VC loses his/her shirt.

“There’s going to be a shakeout” for companies that can’t show a profit, said James Beriker, the chief executive of meal-delivery service Munchery.

And, what if the equity ask is too much of a sacrifice for the business owner? Working with a VC can be a raw deal for a new entrepreneur.

 

2. Crowdfunding Is a Hassle for the Small Investor

Crowdfunding uses a website and an email campaign to persuade individuals to each give a small business donation, either for the joy of seeing the business take off or for a profit share in the business.

Last May, Title III of the JOBS Act went into effect, making it legal for anyone to invest in a private company, opening up investing in willing startups to any American, according to Fast Company.

Over 600 crowdfunding websites like Indiegogo and The Lending Club cropped up to make the dreams of millions of aspiring entrepreneurs come to life around the world.

Mark Lynn is the co-founder of L.A. apparel brand startup DSTLD who raised $1.75 million from 1,698 investors through equity crowdfunding on SeedInvest.

Individuals could invest in DSTLD for upwards of $500, with the largest being $50,000, so Lynn viewed it as a viable alternative to venture capital fundraising.

“Let’s be clear, it’s not an easier way to raise money. It’s just a different way to raise money,” he told Fast Company.

It’s not easier, Lynn said, because like any fundraising, it involves many man hours in marketing the company, interfacing with potential investors, and filling out paperwork to meet regulations. In fact, companies looking to raise more than $500,000 must undergo a financial audit by an independent third party.

Payment methods were also very limited. DSTLD and SeedInvest signed on with FirstData, a credit card processing and payments company, to accept their first batch of investments on the site. However, FirstData froze the transactions.

“They had never seen anything like that before, transactions for an equity crowdfunding site. So we were in limbo for a month because we couldn’t process the payments,” Lynn said.

For a community of small investors, they don’t want their payments being held for a whole month. They don’t have the money to spare.

 

3. Why Merchant Cash Advance is the Answer

The industry of merchant cash advance has been around since the 1980s but truly took off during the last decade due to the recession in the United States. Small businesses who need loans can receive funds as low as $2,000 and as high as $3 million.

A business can be approved for a merchant cash advance at firms like Global Business Lending with the following minimum requirements:

  • Having been in business for at least 3 months
  • Having at least $6,000 in regular gross monthly deposits
  • Having an active U.S.-based business checking account
  • Having a clear vision and purpose for the funds to prove an investor will be paid back within the given term

The ironic thing about the switch in the lending environment is that MCA’s investors are the same hedge funds and private lenders who backed tech startups as VCs. Today, however, they are using their money to back the programs offered by merchant cash advance companies. The difference is that they don’t want equity. They want a shorter payback term.

It mitigates the risk for them because the pressure is on the new business to perform. No pipe dreams. No pie-in-the-sky business models. No top-heavy staff. Nice and lean operations are what business owners are encouraged to do with an MCA investment.

Last big difference: QUICK TURNAROUND.

While it might take months for a VC to make up their minds about your pitch or 60 days for a crowd to send in their donations, with an MCA, your business can be funded in as much as 5 days or in as little as 48 hours. It all depends on a business owner’s readiness and cooperation with an MCA underwriter who is train to work at lightning speeds.

TiffaniVCs and Crowdfunding Run Out of Gas in 2017
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Microlending: Is That Like a Merchant Cash Advance?

thumb8When you think microloan, you may think of funding a small shoe store in Kampala, Uganda or a grocery store in Phnom Penh, Cambodia?

And, while that may be true, you may not realize that small businesses in the U.S. and Canada can qualify for something very similar. It’s called a merchant cash advance.

TiffaniMicrolending: Is That Like a Merchant Cash Advance?
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Top 3 Alternative Lending Sources for Small Businesses in 2016

deBanked-56114226207137Since 2008, banks have made it even more stringent for merchants to qualify for small business loans. As such, there are very few sources for small businesses to turn to for quick working capital without having to jump through major hoops to qualify. Quite frankly, banks perform rigorous financial review (profit & loss sheet, detailed business plan, 2 years of tax returns, business owner’s blood type, first-born child’s dental records and food allergies…okay maybe not the last three) that would turn off and/or disqualify businesses that are both viable and income-producing.

But, guess what, it’s 2016, baby! Henry Fernandez doesn’t need to wait on a bank loan to grow his Italian ice shop neither does Janice Kennedy when she wants to put a new wing on her Irish pub or Leon Baptiste when he needs equipment for a new construction job. In fact, no proprietor has to wait on a bank loan anymore to grow, expand or, even, start his/her own business.

Here are the 3 top alternative funding sources for any business in 2016.

  1. VENTURE CAPITALISTS

Seeking funds from venture capitalists is a good source for growing businesses in the new millennium. You’ve all seen ABC’s Shark Tank, right? Where a bunch of millionaire and billionaire business tycoons listen to pitches made by aspiring and current entrepreneurs then decide if they’d like to get in bed with the guy selling the latest toilet tissue dispenser or the world’s first self-tying sneaker.

Here’s the catch: venture capitalists are looking for ownership stake in the business and they seek to deploy hundreds of thousands or millions of dollars, not small investments, because they are seeking multiple times return on that capital. Thus, venture capitalists focus heavily on the size of the market: if they don’t believe the market is large enough, they won’t invest.

Additionally, securing financing from venture capitalists is kind of like dating; the VC needs time to warm up to you. So, VCs want to get to know you – the founder. They want to watch you execute and make progress before committing to invest in your idea, invention or company.

  1. MERCHANT CASH ADVANCE LENDERS

The merchant cash advance industry has become popular in the past decade as it is known for underwriting high-risk loans – loans that banks wouldn’t touch with a ten-foot pole.

Companies like On Deck Capital and Merchant Cash & Capital in New York or Global Business Lending in Ft. Lauderdale, Florida qualify businesses without a credit check. Instead, they use more common-sense guidelines to ensure that the business they lend to is financially healthy enough to pay back a short-term loan.

They must prove things like having a monthly bank balance of $6,000, having been in business for 3 months and not be in an open bankruptcy.

The funds that these companies provide are technically not loans; the correct term is a merchant cash advance, which is a short-term advance of funds against a business’s future receivables. According to Entrepreneur.com, this 15-year-old industry is “booming, mainly because bank lending criteria have become so tight since the Great Recession that very few small businesses are able to qualify for bank loans.”

Businesses like restaurants, retail shops, contractors and service companies generally find these funds helpful because most times they need lump sums to purchase supplies, equipment or to expand their space. They can qualify for $2,000 to $3 million.

 

  1. CROWDFUNDING WEBSITES

Crowdfunding has also grown in popularity due to the very reason that merchant cash advance firms did — a lack of lending appetite from the major banks.

Crowdfunding uses a website and email campaign to persuade individuals to each give a business a small donation — $10, $50, $100, maybe more — within a fixed term. It has all become possible in recent years thanks to a proliferation of websites that allow nonprofits, artists, musicians and businesses to raise money. There are more than 600 crowdfunding platforms around the world with fundraising reaching billions of dollars annually, according to the research firm Massolution. The most common are Kickstarter, Indiegogo and The Lending Club.

If you are going to use a crowdfunding platform, you must have an engaging story to tell so that audiences can almost immediately attach value to your product or service. A business owner initially sources individuals from within his/her own network of friends, sending out correspondence through their email’s address book. The key is to gain interest from friends of friends or strangers, so that your network doesn’t exhaust quickly.

Here’s the tricky part: a business can raise thousands at the end of such a campaign, but most times can only keep the money they raised if their total funding goal is met. Also, be careful, a business risks getting sued if it promises customers products or perks in return for donations, and then fails to deliver.

 

TiffaniTop 3 Alternative Lending Sources for Small Businesses in 2016
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The Pains and Perks of Business Lending

The world of banking has changed dramatically, if not radically, in the years since September 2008 when Lehman Brothers went bust. The mortgage crisis ensued and then WHAMMO … banks decided to make borrowing from them a HUGE PAIN. Here is an in depth infographic explaining the differences between traditional and alternative business lending.

 

perks-and-pains-of-lending

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Why Banks Are No Longer Lending to Small Businesses?

Remember the days when you’d need funding to start or grow your business, and you’d get in your car and head down to the bank on the corner?

You knew your banker personally, perhaps even had kids in the same class at school, or would often see them at your favorite local restaurant. This personal relationship helped fuel a strong financial relationship; you knew exactly where to go to get the loan you needed.

But, the days of driving to your local bank for a business loan are long gone. Not only are community banks getting eaten up by the big banks, but bank lending to small businesses is at an abysmal rate. If you’re a small business owner, and you walk into a bank, you’ve got around an 80% chance of getting denied. Yep. That’s right.

Instead of sitting here, drowning in these depressing statistics, let’s take a look at why this drop in small business bank lending is happening.

See Also: 10 Things the Bank Will Ask When You Need a Business Loan

unsecured-loan

Why lending to small businesses is declining

When small business lending took a hit during the recession, most thought it was purely a victim of the economic downturn and would eventually inch its way back up.

However, that hasn’t been the case. The total dollar volume of bank loans to SMBs has declined by 20% since the start of the recession. And, it just continues to trend down. Here is why:

  1. Increased regulation. Post-recession, banks have had to tighten up their standards and be extra-cautious about the risk in their portfolios. Remember, they are making these loans with my money, your money, and your neighbor’s money. Hence the reason they have to be so cautious. Unfortunately, small businesses are inherently riskier than their larger counterparts, which makes banks think twice before extending them credit.
  2. Downturn in community banking. Small businesses have historically had more success finding a loan at a community bank than a big bank. In fact, community banks have 3 times the approval rates on small business loans than the big banks. But, our number of community banks have been declining since the 1980’s, inadvertently hurting America’s job creators. With fewer community banks, there is less opportunity for business owners to find a loan at a traditional banking institution.
  3. Less profit on smaller loans. More often than not, small business owners are looking for smaller loan amounts. In fact, our average loan size at Fundera is $40,000. Other data shows that about 80% of small businesses want loans that are less than $500,000. But, it doesn’t make financial sense for banks to provide these smaller loans. Why? It costs banks just as much to underwrite a $1 million dollar loan as it does a $100,000 loan. Therefore, they can make way more money focusing on larger loans. At the end of the day, banks are businesses too.

When you stop and look at the reasons banks have cut their lending to small businesses, it makes sense. But, it is still frustrating that business owners are having to face so much rejection. That being said, small business owners need to learn to approach their loan search differently. It’s no longer about expecting the banks to give you credit; it’s about being aware of multiple ways to fund your business and preparing to try a few different sources.

 

Beyond bank loans: Explore alternative lending

But, what are other sources of funding outside the bank? 

Meet “alternative” lending. Online lenders have started emerging over the years to help fund borrowers that can’t find capital at the bank, and given the decline in bank lending to small businesses, the alternative lending industry is booming. 

Alternative lenders are simply any non-bank lender. These lenders can most often be found online, as they don’t have physical storefronts like the banks. They include well-known companies like Lending Club and OnDeck, as well as hundreds of lesser-known companies. These alternative lenders are offering traditional term loans, invoice financing, short term loans, and more.

So, as you can see, there is hope. As these online lenders mature and their underwriting algorithms get smarter, online lending could very well become the “norm” and end up being able to compete with banks on price. 

Next month we will explore this new, “alternative” lending industry—what it is, the pros and cons, and what it could mean when your business needs financing.

By: Meredith Wood

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