Bridging the Gap Between Banks and Online Lenders

I recently participated on a panel with several bankers during the PayNet event in Chicago, so this article in American Banker about banks needing a strategy around small business lending was especially interesting to me. Its author, Andy Peters, brings up a good point that has also been discussed around our office for years: Where is the bridge in the gap between banks and small business lenders like IOU Financial?

Bankers, of course, feel as though they are lending to many or most of the qualified candidates that come through their doors. But the reality is that many of those candidates don’t even make it halfway. Take the example of a small retail boutique owner who needs a loan but has little to offer in assets to secure it. Say this owner goes to her local bank and applies for a $20,000 loan. The odds are that she won’t get a loan approval, but will instead walk away with a credit card application.

From a bank’s perspective, loans of this size simply are not profitable. The cost and manpower required to process them don’t really move the needle for the bank. In contrast, however, IOU Financial can process thousands of applications a month by leveraging our technology over traditional manpower, which is exactly why we can extend services to small business owners needing capital to grow and succeed.

As it relates to small business owners seeking loans, community banks in particular should be thinking, “what happens to our relationship with this candidate if we don’t approve the loan?” and “where will the small business deposit the money it borrows?” For banks that want to retain these local clients (and reap the related benefits), there is obviously a lot at stake here.

The key is figuring out how traditional banks and small business lenders can best coexist to create the most optimal long term solution for the small business owner, while still meeting their own unique objectives. As the article suggests, finding this solution can open up new opportunities for virtually everyone involved.

Small Business Owners Find Alternative Solutions For Capital

A recent USA Today article featuring IOU Financial examined unconventional lending sources for small business. Even for healthy businesses, those with positive cash flow and strong financial history, getting loan approval from a traditional bank is difficult. Whether the size of the loan is too small or the cost to process and fund it is too expensive, there is a gap between the needs of the small business community and the ability of banks to fulfill them.

Today, small businesses have more alternative options than ever before; however, the cost associated with these can be prohibitive. As highlighted in the article, many small businesses have the desire to grow but need the capital to take advantage of the opportunity. We see viable businesses every day that have positive cash flow, a solid customer base, and rave reviews but lack the traditional assets or collateral needed to secure funding from a bank. What has made our work with small businesses so rewarding as the best bank alternative, is that they can move forward on achieving their business goals much more quickly with our easy, secure, online application and approval within days instead of weeks or months.

Tailored for retail type businesses, IOU Financial is able to make low-cost loans at low risk through advanced technology that makes fast, accurate, and fair assessments of all applicants, giving small businesses the alternative they need to seize growth opportunities fast. Small businesses drive the American economy, and we’re honored to help fuel their ambition.

What Are Our Customers Thinking?

Recently our President, Robert Gloer, made the initiative to reach out to our small business customer base to thank them and make sure that their experience with IOU Financial’s service and products are exceeding their standards. The feedback has allowed us to look at the process and product through our customer’s eyes, which is a vital component of any small business’ success.

We have had great suggestions on different topics, as well as commendations regarding our process and operations team. When asked what motivated this customer connection, Robert Gloer stated “I wanted to get inside the head of our business owner customers and make sure we are delivering what they expect. We are building and fostering long term relationships with our clients and want to make sure we stay in tune with their needs.”

We continue to fine tune our product and process to ensure that we offer the very best financing options possible. We understand that 22.9 million small businesses in the US are located in virtually every neighborhood, and those small businesses make up more than 99.7% of all employers, according to the SBA’s Office of Advocacy. These staggering numbers solidify the purpose and mission of IOU Financial in making business lending simplified for small business owners.

IOU Financial to Exhibit at 100th Thomas Hinman Dental Show

The Hinman Dental Meeting is the South’s premier dental convention, open to all dental professionals. Come celebrate a century of excellence at the 100th Hinman Dental Show March 22-24. IOU Financial is proud to have been selected as an exhibitor to this great show. Come visit IOU at booth # 1758. Here are few reasons our Dentist clients love IOU:  Low cost to borrow (on average we save clients $1250 per $10,000 borrowed vs. MCA’s); we don’t require payoff of other loans to get our loan;  we do not have a fixed amount of repayments, like a factor rate product; early payoff actually reduces a borrowers overall cost; fast, easy online application process; this is a simple interest loan and is typically tax deductible; loans are underwritten based on business cash flow and credit, this method allows for higher loan amounts than many other non-traditional lending resources offer.

3 Things You MUST Know Before Seeking Business Capital

No matter where you get your loan, there are certain variables that determine whether the loan is good or bad for your business. The good news is that if you consider these variables,  you will be educated and make the right loan decision that fits your business needs.

When you are ready to apply for a loan, make sure you consider these three issues:

1. Cost of Capital

Understand your true cost of capital. It is one thing to compare this interest rate to that. However, there are MANY other factors to consider in truly understanding your TRUE COST OF CAPITAL. For example: most lenders charge points or fees or both upfront. Make sure you consider these fees when understanding your cost of capital. If you take your payment and multiply it by your term you will have your total of payments. Add your total of payments to your points and fees to get a more accurate picture of your true cost of capital. Example: IOU Financial / Merchant Cash Advance MCA, amount sought: $20,000.  $20,000 with a Term 6 or 12 month fixed term / 6-8 month repayment period Payment Type Fixed / Variable Average Cost on Dollar 1.18 / 1.38 Total Cost of Capital 3,576.00 / 7,600 With IOU Financial you pay back $3,576 over 12 months instead of $7,600 in 6 – 8 months. If you do want to payoff your IOU loan early you will pay less interest. If you pay back your MCA early, you will still pay the full amount.

2. Processing fees

Most lenders charge up front loan or processing fees. Make sure to ask your potential lender to define these fees up front so you won’t be surprised by hidden processing fees or balloon payments later on.

3. Say NO to Prepayment Penalties

Believe it or not, many banks will actually penalize you for paying your loan off early by charging you a prepayment penalty. Imagine your business takes off and you want to save yourself some interest and pay your loan off before its due date. Make sure that your loan agreement gives you the flexibility to pay your loan off early without any ridiculous penalties. Most small business owners make the common mistake of thinking that a bank is the safest, smartest place to obtain a loan. But when you start to educate yourself on all the lending choices out there – you’ll soon learn that a bank isn’t always the best choice when it comes to a small business loan.

Benefits of an IOU Financial small business loan:

  • No application fees
  • Origination fee of only 4.95% (only fee charged as long as loan is paid as agreed)
  • No pre-payment penalties
  • From your online access you can watch your account balance and interest charges drop daily.
  • Fast…. Easy…. and headache free. Pre-approval is immediate and your loan can be funded in as little as two days.

Source: Key Business Loan Issues from Dun & Bradstreet Credibility Corp.

How a Small Business Loan With IOU Financial Can Improve Your Credit Rating

If you’ve been in business at least a year, it’s time to take out a small loan to pay for some services or perhaps some new equipment… whether you need it or not.

Remember, building your business’s credit history is crucial. It doesn’t matter whether you spend the money or just open a savings account and keep it there – that’s up to you. Once you secure the loan, ask for 90 day terms. Repay the loan, in full, in 60 days. Wait a month. Apply for another loan for a slightly larger amount and again, ask for 90 day terms and repay the loan in 60 days.

You have now proven that you can be trusted to borrow and repay loans on time. When it comes to good business credit, there is what’s known as the “5-3-2 rule.” The recipe to establish a solid business credit record is to have:

  • 5 active trade accounts
  • 3 business credit cards
  • 2 small loans paid in full

You should also know that every commercial lending application you submit appears on your credit record – even if you were turned down. The bad news is that if you’ve been turned down by one lender, the next potential lender will see that you were already declined, thereby reducing your chances of getting your loan funded. So it’s critical to make sure you do it right the first time.

That’s where IOU Financial comes in.  We consider more than your credit rating, such as your daily cash flow, your businesses success track record, even your location and what kind of business you are, making it easier to get approved and get started building your credit rating.

Okay, so now you know that taking out a small business loan is a solid decision, but it’s complicated and time consuming to go down to the bank and bring all your paperwork, right? Once again, that’s where IOU Financial comes in.

You can apply online whenever it’s convenient for you. Even start a loan application and save your progress so you can finish it later. You’ll get an instant pre-approval and have your working capital in just a few days. It doesn’t have to be complicated – at IOU Financial, we believe in less paper, less people, and more technology. Click  the link below and get started right now.

Sources: Source: Dun & Bradstreet Credibility Corp. and

Good Business Credit Scores: It IS Personal

The old steadfast rules of personal credit health apply in large part to business credit health as well, in a variety of ways, which is why it is so important to get your personal credit in check, and then adopt the same philosophies in regards to your business credit as with your personal credit. It is vital to separate personal and business accounts (bank, credit, etc.), however, entrepreneurs must also understand that good personal credit health is essential to establishing a business line of credit in the first place, and ultimately to maintaining good business credit.

Personal credit worthiness and health can improve when an individual does the following:

  • Make loan payments on or before the payment due date. Some lenders do have grace periods and the key for most is not paying past 30 days from the original payment due date.
  • Keep a low balance/high credit ratio on debt, ESPECIALLY on revolving debt. When the balance of an account at or near the credit limit for that account, your creditor starts getting nervous about the risk – and the more anxiety they have, the more it takes a toll on your credit score.
  • Check your credit report! Reviewing your credit report is critical to ensure that you are aware of all the accounts that are being reported in your name.
  • Don’t let errors fester. Correct them as soon as possible, as there could be duplicate accounts reporting or plain errors in the account information on a debt.

Personal credit scores are derived from an algorithm of data that is weighted and measured. Business credit scores, on the other hand, are much more multifaceted, and vary according to type. Some scores look at bankruptcy risks, while others consider scores for potential supplies as well as risk scores for delinquency. For instance, a lender could see public records on a business credit report and decide that because of this the risk isn’t worth taking. Suppliers could view your invoice payment index as being outside of their tolerance level, and decide against going forward with a contract.

Some of the key factors that a business credit report could reflect (and which play into business credit scores) are:

  • Timely payment of invoices from vendors/suppliers. A report with this information may track how you pay invoices or analyze your payment index as (30, 60, 90, 120 days) from the invoice due date.
  • Credit utilization, referring to what debt you currently have v. the percentage of your unused credit, much like with personal credit reporting.
  • Company liens and/or municipally filed legal records are sometimes used in business credit reports.
  • Industry types are weighted in some reports to show any volatility that may exist in each industry type. This volatility analysis is formulated from historical data on known industry types.
  • Landlord information can be used as another marker for a score or reporting reference.

It is paramount now more than ever that business owners have a good handle on their personal and business credit reports. Long gone are the days of handshake promises. Decisions are based on hard facts and justifiable numbers. Early stage business owners should make efforts to secure business credit by way of credit cards or small installment loans. The latter can be another easy way to begin the process of establishing business credit. Overall, credit will continue to be very important in our lives personally and professionally. Lenders want and need the ability to measure the credit worthiness of an individual or business, which in turn affects the flexibility we have in our day to day lives, and in the condition and growth of small businesses.

Small Businesses Need Loans

Why aren’t they getting them? 

We’ve all seen the news and reports on how the “credit crunch,” as we so delicately call it, is preventing business owners with good credit from obtaining  financing. But why is it so hard? Without even addressing the disappearing role of community banks in the vitality of small businesses, the simple answer is that many of these business owners don’t have the resources or the time to “hurry up and wait.” That is to say, the traditional lenders that are left standing want financial statements, lengthy business plans, personal collateral, and a litany of other performance guarantees…and even if a business owner does have the luxury of dedicating enough resources to pull all of this together, they then find themselves waiting 90-120 days before their loan is funded.

In the meantime, that small business could be purchasing more inventory and new equipment. They could be creating jobs, working on product upgrades and physically expanding. Instead, that business, clearly in need of operating capital (hence the loan request in the first place), is stagnant, possibly losing revenue, or worse. This economic climate has certainly made small business owners more street smart. They want to buy more inventory because they know that purchasing more means cost per item savings. The list of extras that the business can go without is growing, and they’re ditching the old adage of “build it and they will come” for a hard nosed, cautious approach to expansion remodeling and hiring.

And it’s that fear of hiring that’s the most ironic aspect of these small businesses having trouble getting loans. According to Fed Chairman Ben Bernanke, small businesses employ roughly half of Americans, and account for 60% of new jobs. So what’s a small business to do? If you hire new employees, you risk an overhead increase you may not be able to afford (or sustain) and if you try to get a loan to support new hires and business expansion, you find yourself spending precious energy on a near impossible task. The backbone of the economy needs void fillers, which is where we come in.

Our mission at IOU Financial is to help small businesses by providing them with the necessary capital they need to strengthen their operations and focus on growth. To put a finer point on it, we’re looking to help small businesses help themselves by allowing them to use the strength of their cash flows to borrow money. It comes down to a need for reasonable requirements for loan fulfillment, faster financing at affordable rates, and a process that’s more organically suited to the day to day operations of a small business.

Small Businesses Need Love

We hear everyone say that small business is the key to our future, that small business is the strongest indicator that we (our economy) will emerge from this deep, dark recession, that 1 in 2 Americans in the private workforce are employed by or operate a small business. I could go on, but I don’t want to lose you. The point is… small business is important to our overall economy, and available capital is important to small businesses.

That is why when I read articles like, “Small Business Credit Cards Flourish as Loans Disappear – As Traditional Loans Dry Up, Banks are Funneling More of their Small Business Lending Through Credit Cards”  I think, WOW… There is truly no better timing for IOU Financial. The Small Business Administration (SBA) has significantly reduced the number of loans it has backed over the past few years. According to the Small Business Administration, the SBA has backed less than 45% of the total 7(a) loans this year* compared to the number backed in 2007 (*through 9/30/09).

With data like that, it is no wonder that most small businesses are leaning on credit cards to help fund their business. Enter IOU Financial. Small businesses need access to capital, and they usually need it fast. IOU Financial is positioned between SBA-type bank loans and Merchant Cash Advances (MCA), and that is a GREAT place to be positioned. Funding is much faster than typical bank loans and rates are much lower than typical MCA loans. Although IOU Financial can’t fund every small business (at least, not yet), the company has set it sights initially on businesses with daily cash transactions, and will expand from there.

Accessing capital on IOU Financial is easy. Small business owners simply log into, register, and complete an online loan application. The entire process takes minutes, and most loans are funded within 2 business days. Let’s revolutionize small business lending, and let’s do it together!