Small Businesses Go With Alternative Financing Options
By: Michael Kneuer
In today's credit crunched society obtaining working capital for your business is becoming increasingly difficult. Banks and lenders are raising their credit score guidelines for business loans while Americas collective credit score is dropping faster than real estate prices. Banks, in addition to a sparkling credit report, require the business be open for 2 years before they will even look at funding them. Which makes things considerably harder. According to an SBA study 40,000 businesses close their door or go bankrupt each month. The majority of these businesses are within their first year and unable to get any funding from traditional sources. Not all businesses need money to keep from going under.
Many businesses, like I wish for yours, are succeeding, growing and need business loans or cash advances for new equipment and expansion. These businesses are in the same boat in the banks eyes. "How long have you been in business?" When I called my local bank to see what their requirements were for small business funding that was one of the first questions asked. I barely had a chance to explain what my business was all about, the banker just cut right in with "How long have you been in business?" I informed him that I was only 11 months in business. He could not get me off the phone fast enough after that. Click! No small business loan for me. So where now? The average business owner stands their looking at the phone, in disbelief, wondering where to turn next? There are other options.
The fastest and easiest method of obtaining working capital is a business cash advance. This is a great program provided your business accepts Visa and Mastercard as a form of payment. A cash advance is a form of accounts receivable financing where you utilize your future credit card sales to get the money your business needs now. Another common name for this type of funding is credit card factoring. It is not the cheapest form of financing but it is fast, requires little paperwork, and does not show up on your credit report as debt. It is also completely unsecured and there is no collateral for this loan. In order to qualify there are a few requirements:
- Processing credit cards for the last 4 months
- Processing $2,500 per month is Visa/Mastercard
- No open large tax liens or judgements
- Retail/Service/Restaurant business
- Certain business types do not qualify
The process is fast and easy and requires very little paperwork. In order to qualify for a cash advance you will usually need to provide the company with the following:
- Last 4 months of credit card processing statements
- Drivers License
The approval process usually takes 24-48 hours and you can be funded in as little as 7 business days. Cash advance amounts can range from $3,000 to $300,000. Like I said, the money is not a cheap form of financing. For an advance of $10,000 expect to pay between $12,500 to $14,500 for an advance that can range from 6 months to a year. This may seem steep but for that retail business that will turn that inventory over 3-5 times it can seem minute. For the restaurant that wants to expand and add 40 seats or garage looking to add a bay it will pay itself 10 time over. The fee is also tax deductible (see your tax advisor for your states laws and regulations).
The advance is repaid as a small percentage of your Visa/Mastercard transactions over the next several months. The benefit of this method of repayment is there are no set monthly payments. Each time you settle(batch) out at the end of your business day your processor will hold a small percentage of each transaction to apply to your cash advance balance. The other portion is deposited in your checking account like usual. This provides flexibility because if you have a slow month you will be paying less and not crunched for cash at the end and have to write a monthly payment check all at once. There is also no set repayment period for the cash advance. The average advance ranges from between 6-12 months but if it takes you longer because your sales slow a little, it is no problem.
The other option are business loan brokers. They can sometimes find you small business loans when you are turned down by your local bank. They charge a percentage fee from 7.99% and up on the amount funded. They require at least a year in business (2 for certain companies) and a 620 or better FICO. The loans interest rates are in the teens and usually come with a 5 year term. Most small business loan companies only funded loans $100,000 or larger. So if you are looking for a smaller amount you would be better off getting a cash advance.
If you are not taking credit cards, and have not yet been in business 2 years yet, but have decent credit you could apply for a business line of credit or a business credit card. There are many options when it comes to business credit cards. Make sure you read the fine print because some can be tricky. Also it is important to pick a card with the right rewards program so you can utilize all of the cards benefits.
The money to grow your dream is out there, you just need to look for it.
"We would accomplish many more things if we did not think of them as impossible."-Vince Lombardi
Article Source:http://www.submitarticlesforfree.com
Michael R. Kneuer is the President of Diamond Group Financial LLC, a merchant services company providing business funding options and business solutions to small and medium sized businesses. He has helped thousands of small businesses reach their financial goals.
Mike@DiamondGroupFinancial.com
www.DiamondGroupFinancial.com
www.MikesMerchants.com
Additional Articles From - Home
| Finance | Loans
|
