Category Archives: Finance

Start your own business or take your current one

You have a vision, a plan, and the motivation to start your own business or take your current one to the next level. Everything is ready to go, all you need is money. For many entrepreneurs, small business loans are the key to fulfilling short and long term goals. So how do you get a small business loan? Is it difficult? Do you need to meet certain requirements? If you’ve asked these same questions, then you’re in luck; that’s exactly what we are going to discuss.

 

Have a Plan

When it comes to securing a small business loan, half of the battle should be fought with strategy. One of the best ways to get all your financial ducks in a row is to devise a solid, well-thought-out business plan. This will show any potential lenders that you’ve done the research and completed your homework.

Here are a few general things you should keep in mind:

  • What kind of business are you starting and what are your long and short term goals?Before requesting a loan, you’ll need to be able to concisely define your business to a potential small business loan lender. What is your product and who does it serve? What is your projected revenue? What tactics and strategies do you plan to employ in order to reach that revenue mark? You should be able to confidently answer those questions before you step foot in a lender’s office.
  • For what do you need a loan?When it comes to requesting a small business loan, you’ll need to have a detailed list outlining what exactly you need the money for. Working capital costs, equipment and operation costs, or long term development costs all constitute good reasons for requesting a small business loan.
  • However, if you’re seeking a loan to pay down surmounting debt, recoup for poor performance, or fulfill payroll obligations, then you may want to consider alternative means of support.
  • How much money do you really need?Next, you’ll need to determine how much you need. Though this number may not be exact, you should be honest and realistic with your estimates. If you overestimate, lenders may shy away; however, if you underestimate, you may find yourself in tight spot far too early.

Research Your Credit History and Know Your Score

While it may seem redundant and overstated, it’s absolutely essential to know your credit scores. Obviously, lenders put a significant amount of weight on your credit history. Knowing where you stand can help you evaluate potential lending opportunities.

Beyond that, knowing your credit history can help you identify and address weaknesses before you even go to a potential lender.

Happier Than Income or Paying Down Debt

The growing appreciation of behavioral psychology in investing is basically us admitting that we aren’t perfectly rational. When you make people automatically opt-in to 401(k) plans and make their contributions increase automatically, they save more. We value stocks more simply because we own them (“endowment effect”). We hate losing money more than we enjoy winning (“loss aversion”).

A recent research paper tells us (in my own words) that having liquid cash has a stronger correlation effect to happiness than having a bigger retirement portfolio, a higher income, or paying down your debt. This is coming from the NYT article Yes, Numbers Matter in Money Decisions, but So Do Emotions linking to the Kitces post Buying Happiness And Life Satisfaction With Greater Cash-On-Hand Reserves linking to academic paper How Your Bank Balance Buys Happiness: The Importance of “Cash on Hand” to Life Satisfaction. Here’s the abstract:

Our results suggest that having a buffer of money available in checking and savings accounts confers a sense of financial security, which in turn is associated with greater life satisfaction. The strength of this association was comparable to the effect of investments—which may themselves be liquid assets (e.g., money market accounts)—and slightly greater than the effect of debt status. By contrast, higher income and spending—the amounts going into or out of a person’s bank account—were not associated with increased financial well-being after liquid wealth was included in the model. This finding suggests that people with low liquid account balances may feel more economically distressed—and thus less satisfied with their lives—than their peers with higher balances, even if their incomes and spending, considered separately from their account balances, would predict high financial security.

A Secured Business Credit Card

For many businesses, credit cards are an essential part of your business activities. They can help you build your credit and obtain the assets you need to properly run your business. Unfortunately bad or non-existent credit may make it difficult to be approved for a credit card. For those denied approval for a credit card, if you are looking to establish or rebuild your credit, a secured credit card can represent a viable option.

So, what exactly is a secured business credit card? Quite simply, a secured credit card is one that requires a deposit or collateral up front. In most cases, this deposit must be made in cash, although there are some lenders that will accept collateral in the form of homes, cars, etc.

Though a deposit may not sound ideal, a secured business credit card or secured business credit card can be a valuable tool to build and repair your credit. The security deposit will ensure lenders that, despite your bad credit, you will be able to pay them back. Much like a regular credit card, you can use a secured credit card to make purchases or pay bills when cash is not an option. Your payment history will be reported to the major credit reporting agencies and an account that remains in good standing (no late payments) over a period of time can help you boost your credit score.

The security deposit required will vary from lender to lender, but all lenders will review your credit history, income or available capital, and perceived ability to pay on time. For those who have bad credit, that may sound scary, but keep in mind that this particular type of card is specifically for individuals or businesses with bad credit.

Typically, your credit limit will be equal to or a percent more than the required deposit; this means that the credit card company is lowering their overall risk by securing funds ahead of time. For example, if you’re approved for a $500 credit limit, you will be required to pay a security deposit of, or close to, that amount.

It’s important to note that this is not a prepaid credit card in which your deposit will be used against the balance you accrue. Instead, your deposit will be held separately, and you will be required to pay your bill in full without relying on the money you paid up front.

 

What Happens to My Deposit?

As mentioned above, your deposit is held separately, and much like a deposit for say, rental equipment, you will get it back as long as you live up to your end of the bargain. In this case, it’s making regular payments on your account and eventually reaching a zero balance.

When exactly you get your deposit back can also vary from lender to lender, but in all circumstances, your account will need to be in good standing. With that in mind, these are the most common scenarios in which a secured credit card lender will return your deposit.

In one scenario, the deposit can be returned to the cardholder upon their decision to close the account. Of course, it’s not as simple as just saying “I’m done, let’s close this down.” Your account must be in good standing and carry a zero balance at the time of closing.

The other, perhaps most desired, scenario is one in which the account holder has successfully reduced their perceived risk by maintaining a history of on time payments and manageable balances. In this case, the lender may determine to convert your account from a secured credit card account to an unsecured one and to return your deposit without requiring you to close the account.

 

What Risks Are Associated with Secured Business Credit Cards

Though the application and approval process may be slightly different, when it comes to fees, APRs, and credit reporting, a secured credit card operates much like a regular credit card.

Secured credit cards often have yearly fees associated with them, and though rates vary drastically from lender to lender, the APR can be quite high. Missing a payment or not paying in full can quickly land you in a dangerous and expensive place.

A new small business must face

One of the biggest challenges a new small business must face is obtaining the finances necessary to support their initial growth. In order to proudly turn on your physical or metaphorical “open for business” sign, you’ll need to have access to a significant amount of capital in the form of a small business startup loan.

As one might assume from the title, a business start up loan is a loan meant to help with the financial needs of a new business. Small business start up loan proceeds can go towards things like working capital; the purchase of equipment, machinery, supplies, inventory, and furniture; and the purchase or construction of real estate.

Where Do I Get a Small Business Startup Loan?

If you’ve already started your hunt for a loan, you’re well aware that there is a seemingly infinite amount of lenders and financing options out there. Each one will come with their own set of pros and cons, and perhaps you’ve discovered that most of the low-cost options are not available to business owners without a couple years of business under their belts. To help you get started, here is a list of 5 viable options to secure a business startup loan.

Conventional Business Lending

  1. Banks are traditionally known for their lending opportunities, and if you have a good relationship with yours, this may be a perfect place to go. When it comes to bank financing for business startup loans and lending, but banks will not typically offer conventional loans to new businesses. Through your bank you may qualify for:
    • Equipment Financing: Specifically designed to pay for the purchase of equipment and machinery, this loan is similar in structure to a conventional loan. However, the proceeds must only be used to purchase equipment or machinery.
    • Line of Credit: Similar in concept to a cash advance on a credit card, this option provides borrowers with a maximum amount of money from which they can withdraw funds. The borrower can take out as much or as little as needed as until they reach the maximum allotment. Typically, lines of credit carry a variable rate.
    • SBA MicroloansIn addition to the SBA 7(a) and 504 loan programs, the SBA also offers microloans which are typically made through development corporations and non-profit organizations. Approved for up to $50,000, a microloan through the SBA can be used for working capital or the purchase of inventory or supplies, machinery or equipment, or fixtures and furniture.
  2. Microlenders

    The SBA is not the only microlending option. Microlenders are non-profit organizations that offer small businesses the opportunity to secure financing in small increments (less than $35,000).
    When it comes to microlenders, be sure to check out these two options:

    • Accion: Available for up to $10,000, this is a great small business startup loan if you’ve been in business for less than six month and have an incubator-based or home-based business. Since the required credit score is 575 or higher, this is also a good option for borrows who may not have stellar credit.
    • KivaZip: Kiva operates on a largely community-based, trust-driven platform. Businesses can crowdfund business loans from philanthropic-minded individuals up to $5,000. These loans carry a 0% APR and are provided to struggling entrepreneurs who have proven their character, invited their own network of lenders, were unable to access other financial means, and have a business that has a perceived positive social impact.

Business Loans for Bad Credit

Although it may seem like you need to have stellar credit and multiple years in business to secure financing, in today’s lending environment that statement is far from true. In fact, there are over 44 different financing options available to business owners, and not all of them require an A+ personal or business credit grade.

Very poor credit will likely put you out of the running for the lowest cost loans such as bank loans and SBA loans, however you will find that some of those 44 financing options are still wide open to you and your business.

There is a trade off. Business owners with bad personal credit can often secure financing, but the more risk the lender assumes because of your poor credit scores, the more likely you are to pay a higher annual percentage rate (APR) to cover the extra risk.

This can seem counterintuitive—why would lenders charge more to the business owners who historically have the most trouble paying back debts? Doesn’t it make sense for the lender to charge less so the bad credit borrowers will have a better chance of paying it back?

That may sound better from the borrower’s perspective, but unfortunately it’s the lender’s money, and thus the lender’s ball game. Lenders charge a higher interest rate to individuals with low credit scores to offset a higher expected default rate. (Keep in mind that, although lenders are giving you a capital infusion to help you grow your business, they are trying to grow their business as well, which means maximizing their return on investment.)

Let’s take a look at some of the better options when it comes to business loans for bad credit.

Business Loan Options for Bad Credit

Microlenders:

Microlenders are institutions, often operating not for profit, that help low-income or underserved small business owners secure loans.. These loans are “micro” in the sense that they are usually only available in smaller amounts. Up to $35,000 is typical.

There are many microlenders, and each has their own set of rules and requirements. For example, Accion is a microlender that serves small businesses that need assistance with startup costs. A personal credit score of 575 or higher is required, so if you meet their other requirements this can be an option if your scores are lower than average.

The Association for Enterprise Opportunity (AEO) helps business owners find microlenders by state and business focus. Try a quick search and check out the microlenders’ individual websites to find out what their specific credit requirements are.

 

Kiva

Kiva is a microlender that deserves its own callout because of its unique model. It offers entrepreneurs 0% interest loans up to $10,000. The only catch is that entrepreneurs must crowdfund their own loans from the philanthropic individuals who use Kiva’s platform. Kiva has over one million donors and boasts a 94% success rate. To qualify, you must have a business plan and invite friends and contacts for initial funding.

Kiva also reports your payment history to Experian Business. This is great news for the future of your business—if you make on-time payments, you start to build a higher business Intelliscore credit score.

 

BlueVine

BlueVine is an option for B2B businesses who have long invoice cycles and often find themselves waiting to get paid for services or products they’ve already delivered. If this sounds familiar to you, or you experience irregular cash flow and would like to free up some of your cash, BlueVine advances up to 85% of your outstanding invoices up to $100,000. To qualify, you’ll need a 530 personal credit score, and your business must be a U.S.-based business-to-business (B2B) business.

Small Business Grants

When you’re starting a new business and investing your time, energy, and often your own hard earned cash into it, the promise of “free” money often sounds enticing. Chances are that you’ve stumbled across at least a few advertisements promoting business grants to help you fund your venture. So what’s the deal with business grants? Are grants available? Are you or your business eligible?

The answer to these questions depends on many variables, so we’ll get to that in a moment. First, let’s start off by defining, in loose terms, what a government business grant is (or in some cases, is not). Federal business grants are funded by tax dollars. Because of that, grant eligibility and approval is a very tightly run ship.

Furthermore, government business grants are appropriated through, well, the government (specifically Congress and the White House). As such, many of these grants are closely aligned to the agendas of a specific government agency like the U.S. Department of Education or the U.S. Department of Agriculture.

If it seems like receiving a business grant, specifically a government-funded one, is tricky. And it can be. Here are some general guidelines and requirements that the federal government uses to determine business grant eligibility:

If your business doesn’t necessarily fit into the requirements listed above (many do not), there is still hope. State and local programs do exist, as do grant opportunities through other groups and organizations. For example, many large corporations offer grants through an affiliated foundation (i.e. Walmart Foundation Grants), as well as a number of networks that specialize in grants for women.

Additionally, businesses that can attribute to positive gains in local tourism, child care, and energy conservation, and healthy nutrition may also find grants to support their initiatives.

 

Where to Find Additional Information on Grant Opportunities

If you think your business qualifies for financial assistance through a grant, or if you’re simply not sure if you’re eligible, you can look for additional information by:

  • Visiting Grants.gov. Here, you’ll be able to search over 2,000 grants. You’ll also be able to enter keywords like “small business grants” to help you find specific results, as well as a list of requirements, tips, and other pertinent information to help you.
  • Check out SBA.gov. Specially developed to help small business owners, this site can help you find essential information about grants, loans and other financial assistance available. You’ll also have access to a community of small business owners who’ve probably had experience with the small business grant application hunt.
  • Visit your local and state government websites. As mentioned above, specific grants may be available through local and state governments. Check their sites to see what may be available for your business financing needs.
  • Search corporate or nonprofit organizations within your specific industry or location. Often times, you can search grant networks to help you on your search.

If you’ve exhausted all your options and you’re still not able to find a grant to help fund your venture, don’t give up hope! The truth is, many current or potential business owners find themselves in the same boat. Sometimes grants simply aren’t the answer. Luckily, there are other perfectly viable means to obtain the funds necessary to finance your business plans.

Finding business financing and services can be a chore. To save you time, we take your credit scores and search through financing offers, business services and other deals to match you up with best offers. See Your Credit Rating and Financing Offers for Free (No Credit Card Required).

What You Need to Know About Business Loans

Nowhere is the saying “you need money to make money” more true than in the crowded, competitive, fast-moving world of small business. As you seek to establish and grow your enterprise, access to capital (or the lack thereof) will be one of your biggest hurdles.

For small business owners facing expenses that just can’t wait, traditional approaches—SBA loans from banks, for example—can be burdensome, inconvenient, and ultimately disappointing. On the other hand, while the APR for a bank loan is usually around 6 or 7%, the APR for an online loan can climb above 30%!

It’s a simple fact that the faster you need a loan, the more you’re going to pay for it. That doesn’t necessarily mean you’re going to regret it, though—if it grows your business, keeps you afloat at a crucial stage of development, and ultimately carries you forward, the cost will have been more than worth it. Let’s take a closer lo

Kabbage isn’t a “business loan” product, rather they are offer a business line of credit. They are worth mentioning here because business owners can receive funds from Kabbage the same day they apply.

Minimum requirements: At least 1 year in business, with a minimum of $50,000 in annual business revenue

Time for approval and funding: Kabbage’s online application process usually takes around 7 minutes to complete, and you can get funds the same day.

Required paperwork: Along with basic information—business address, tax ID, credit scores, and SSN—Kabbage looks at the online systems used by your business. It takes data about your business from online systems like Amazon, PayPal, QuickBooks, Etsy, etc., in order to evaluate your creditworthiness.

How much can you borrow: $2K to $100K. Kabbage will give you a maximum credit limit that you can borrow against, always keeping in mind that you only need to draw on the credit line as needed, without ever having to use the full amount. You only pay interest on the funds you use.

How long can you borrow it: either 6 or 12 months, with payments automatically deducted from your bank account on a monthly basis.

APRS and fees: The APR for Kabbage loans ranges from 30% to 100%. Most of these fees are charged in the first two months, although you can save money by paying the loan off early.

Personal guarantee and collateral: While Kabbage doesn’t require a personal guarantee, it does place a lien on your general business assets for loans over $20K. Your business assets can be seized if you don’t repay the loan, but your personal assets can’t.

 

OnDeck

OnDeck’s short-term business loan product exists as a way for business owners to quickly take advantage of opportunities or handle obstacles that they encounter. Unlike OnDeck’s merchant cash advance, an OnDeck short-term small business loan reports payment history to business credit bureaus, thus helping you build your business credit.

Minimum requirements: A personal credit score of 500 or higher, at least 1 year in business, with a minimum of $100,000 in annual business revenue

Time for approval and funding: OnDeck’s loan application process takes approximately 10 minutes. By applying online or over the phone, you can receive funding as quickly as within 1 business day after you’re approved. Being prepared—providing thorough information and having any necessary documents ready to go beforehand—can help speed up the process.

Required paperwork: Business tax ID, bank statements for the last three months, the SSN of business owner(s), merchant and credit card processing statements for the last three months (if applicable)

How much can you borrow: $5k to $500k. You will typically qualify for a loan that is 10% to 15% of your business’s annual gross revenues.

Business Credit Card Guide

Business credit cards offer a quick and secure way for business owners to get the funds they need to run their business smoothly, take advantage of growth opportunities, provide breathing room when business is slow, safeguard personal finances from actions of the business, and more.

We created this guide to set you on a path to make the most out of business credit cards. Here’s a taste of what’s inside:

  • The incredible advantages of business credit cards
  • How business credit cards affect both your business AND personal credit
  • How to find our your approval odds before you apply
  • The type of business card you should avoid
  • Hacks to earn rewards and flights from your business credit card

Nav offers dozens of the top business credit cards, and the most small business financing options available in one place. Sign up for a free Nav account to see your approval odds on business financing options before you apply.

 

Does my business have to have a certain amount of revenue to qualify?

Typically, no, as long as your personal income is sufficient to qualify. And if you aren’t drawing a paycheck in your business, you may use income that’s available to you to pay the debt, such as a spouse or partner’s income.

 

How can I get higher limits?

Issuers are often eager to extend higher credit limits to customers who qualify and may consider your request in as little as six months after you get the card. When you request a larger credit line the issuer may review your past activity on the account to create an internal score. For example, they may look at factors such as: How much do you charge? Do you pay on time? Do you always carry a balance or do you sometimes pay the card off? They may request updated information about your income as well. Keep in mind that issuers may review your credit and that may create a hard inquiry.

Separate Your Personal & Business Finances

You’ve been warned about mixing business and pleasure, but what about personal finances and business finances? At times, it may seem tempting to utilize your personal finances to help out when your business needs a boost, but it’s not always the best solution in the long run. Implementing a financial division between your personal and business finances can help you treat your business like the independent entity it is while safeguarding your personal finances.

Why is separating your finances so important?

Though there are many benefits to keeping your personal and business finances separate, two of the main reasons you should draw a line in the sands of finance are based on taxes and personal protection.

Do taxes ever really seem cut and dry?  If you’re in the majority, the answer is no.  If you’re not, then rest assured that many of us are incredibly envious of your taxation acumen.  One of the main reasons you’ll want to split your business finances from your personal finances is taxes.It is much easier to keep track of business expenses if you use a separate business account.

Once you have your shiny new business checking account, keeping track of things like expenses is essential to properly filing taxes.  From office expenditures to operational and inventory purchases, every receipt counts.  When it comes time to file your taxes (or hand everything over to your accountant), a thorough collection of business-only information is going to save you a lot time and a significant amount of stress.

 

Personal Liability

Separating your personal and business finances is important for tax reasons, but perhaps equally, if not more important is a separation of your personal finances for the sake of your personal security. Using your personal finances to back any entrepreneurial venture can be risky business, but not just because of the initial financial gamble.

Entrepreneurs often wind up signing personal guarantees for leases, loans and lines of credit. Sometimes that’s necessary–especially when your business is young and hasn’t established a strong business credit rating. But your goal should eventually be to avoid personal guarantees as much as possible.  The way you do that is by building strong business credit, so lenders can be confident that your business can and will repay its debts

 

Tips for Separating Your Personal & Business Finances

Now that we’ve distinguished two of the more significant reasons to keep your business and personal finances separate, let’s take a look at a few of the ways that you can proactively put this division in place.

  1. Consider incorporating. incorporating your venture as a C Corp, S Corp or limited liability corporation (LLC) can provide tax benefits, but more importantly help protect your personal assets, provided you set it up properly and maintain it correctly.  By maintaining a corporate structure, you can protect your personal assets from business debts, losses and lawsuits. (Keep in mind, though, that if you sign a personal guarantee, creditors can try to collect from your personal assets if you default on a debt.) If you’re serious about creating a business, incorporating is a smart first step.
  2. Open a Business Checking Account. Once you’ve made the decision to start your own business, one of the very first things you should do is head to the bank and open a business checking account. There are multiple reasons why this is a healthy step for a business.  For starters, it will streamline cash flow and making record keeping much more efficient.
    Additionally, a business account lends itself to easy finance tracking – something that you or your accountant will vastly appreciate come tax time. As mentioned before, a separate business account can help signify to the IRS that your venture is a business and not just a side project or hobby, making more of your expenses tax deductible.
  3. Apply for Business Credit Card. Business credit is a big deal, and one quick and easy way to start to build it is by obtaining a business credit card. In addition to fantastic perks like building a credit history for your company, a business credit card will help you eliminate the need for personal credit cards for businesses purposes. Opening one of these cards will also help streamline business finances, and some cards reduce the risk of having your business transactions impact your personal credit. In addition, you may be able to deduct card costs (an annual fee and interest, for example), if you use it exclusively for business purchases. That may not be the case if you mix personal and business expenses on the same card.

Credit Cards for Bad Credit

Credit mishaps happen for a number of reasons, and perhaps one has happened to you. The good news is that there are a few business credit cards for bad credit which will give you the chance to build your business credit so that you can qualify for credit increases or new cards without having your personal credit called into question. (Solid business credit scores can open a number of other doors as well).

To save you time, we’ve put together a list of what we think are the best business credit cards for bad credit available to business owners.

For business owners looking to build their business credit, another option is a secured business credit card. A secured card requires a security deposit that can be used to pay your debt if you default. This is a way for credit card companies to minimize the risk of a bad credit borrower. Secured cards usually allow borrowers to charge up to the amount of their security deposit (below you’ll see a case where that isn’t quite true).

 

Our Top Picks:

 

1. Wells Fargo Business Secured Credit Card

Pros:

  • Rewards: 1% cash back or 1 point for every dollar spent: your choice. $50 annual fee after the first year to enroll in rewards program
  • Low interest: Prime rate + 9.90% APR
  • 21-day grace period on purchases

Cons:

  • Annual fee: $25
  • $50 annual fee after first year to enroll in rewards program

The Wells Fargo Business Secured Credit Card allows cardholders to secure a credit line between $500 – $25,000, depending on how much you are willing to deposit. With this card, the amount of your credit line is equal to the amount you deposit. This card has a very low interest rate and the annual fee is low at $25. The only big drawback is that cardholders who wish to earn rewards points on their purchases will have to pay an annual enrollment fee of $50.

 

2. BBVA Compass Business Secured Visa Credit Card

Pros:

  • Low interest: 16.49% (or WSJ Prime + 12.99%)
  • Rewards: 1 point for every dollar you spend. Choose your own categories in which you’d like to earn double or triple points.
  • No rewards enrollment fee

Cons:

  • Annual fee: $40
  • Only 90% of your deposit will be available as a credit line

The BBVA Compass Business Secured Credit Card works similar to the Wells Fargo Secured Credit Card, however your credit line will only be equal to 90% of your deposit amount. There is a higher annual fee at $40 per year, but there is no fee to enroll in the rewards program. Additionally, the annual fee for the first year is waived. The rewards for this card include double or triple points in the category of your choice, which is a great perk for business owners who spend a large portion of their credit on one category, such as gas or groceries.

 

Keep In Mind…

Secured business credit cards or business credit cards for bad credit can be good options for business owners with poor or fair credit who need a small amount of capital now. Even with a low credit limit, these cards can help you build business credit Before you apply, here are couple things you’ll want to do:

  • Know and monitor your credit score. You can monitor your personal and business credit score with a free Nav account.
  • Make sure a business credit card is the best option for you, and look into business loans if you think a loan might be a better financing option for your business.