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How Alternative Lenders Can Help You Get a Loan, Grow Your Business, and Build Good Credit

In order to grow your business, capital is critical. While larger businesses might have stock offerings or equity loans from major investors, small businesses often have to rely on loans. A loan can be the key to accelerating business growth – it means a small business owner can buy new equipment that will increase production, hire new employees, or purchase new inventory. However, getting a loan often means your credit will be put under the microscope, which can spell trouble for small business owners trying to get a traditional loan. For small businesses it makes sense to look for a lender that can understand their unique situation. That’s where alternative lenders come in.

 

Small businesses may have bad marks on their credit due to past problems with liquidity (their ability to meet their short-term liabilities), and that can hurt their chances of obtaining a traditional loan. However, alternative lenders understand that a short-term liquidity challenge should not be extrapolated to assume that the business will become insolvent. For example, smaller businesses have fewer customers, and if one of the customers is late paying their invoice, this can greatly impact a small business’ ability to pay their bills and meet other financial commitments. This is just one of the nuances of credit decisions that are unique to small businesses and that alternative lenders like IOU Financial handle on a regular basis.

 

What are credit decisions based on?

A business’s credit is based on a multitude of factors including: the length of time in business, the amount of debt a company has relative to its credit and to its cash flow, and payment history. However, sometimes a new business has trouble getting any credit, and having no credit available can sometimes be looked at like having maxed out your credit – not good. Gaining new credit through something like an alternative loan can actually be a positive for a credit score. By building good credit, as you make payments on that credit and pay the balance down, your company’s credit rating will improve. A better credit rating means a company is more likely to gain access to new credit in the future, and it also impacts the interest rate they will pay on that credit. A loan to make improvements can also help companies increase revenue, another way a business can improve its credit.

 

What do alternative lenders base their decisions on?

Alternative lenders like IOU Financial know that credit is important, but it is just one chapter of the story. There are things beyond just credit score that we look at. We want to see the whole picture of your small business: Are you generating revenue? Is your revenue increasing? Where does your revenue fall in line with your expenses? What are your day-to-day bank deposits? For a business to be financially healthy the balance of assets, liabilities, and equity should be analyzed as well as an assessment of solvency and liquidity. In sum, you need to have the cash flow to pay your bills and make payments on the potential business loan. Of course, we will also see what the loan will be used for and if it will decrease expenses and increase revenues. A holistic assessment is necessary.

 

Want to see what alternative lending can do for you? Talk to an IOU Financial Small Business Loan Consultant and learn about the ways IOU Financial can help you get the capital you need.

5 Reasons to Choose a Small Business Loan Over Crowdfunding

On May 16, equity crowdfunding became a reality in the U.S. as a result of Title III of the 2012 Jumpstart Our Business Startups (JOBS) Act. The new rules allow a small private business to raise up to $1 million a year by selling shares to the general public without first registering the stock offering with the Securities and Exchange Commission. On the surface, this might seem like a boon to owners of small businesses, but closer analysis reveals that this well-meaning rule has a number of flaws. On the plus side, it does infuse up to $1 million into your business, but the price you pay for that money might make you think twice:

  1. New partners: If you are the sole owner of your small business, you might not like taking on a bunch of junior equity partners, each with a separate opinion, potentially offering advice on what they think you are doing wrong. Dealing with feedback and input from small or large investors can be a huge distraction, might influence decisions on how to run your business.
  2. Due diligence: The rules for equity crowdfunding subject you to a higher degree of time-consuming due diligence than what you’d experience through, say, a business loan. The reason is that your share sales must be mediated either by a broker dealer or an online funding portal, both of which are registered with the SEC and subject to its reporting standards. Basically, this means you have to allocate precious time and significant effort preparing disclosure documents about your small business, and then wait for the dealer or portal to its part.
  3. High costs: Did you know that you could spend anywhere from $30,000 to more than $100,000 simply to prepare the documents required for equity crowdfunding? Yikes! You’ll need to fork over paperwork for an SEC filing statement, legal disclosures, financial information and more. You must spend this money before you even know whether you’ll be successful in your capital raising efforts. And that’s not all – you’ll also have to pay the broker dealer or fundraising portal a share, usually 7 percent, of the money you raise. That’s $70,000 on a $1 million sale of shares, plus all the documentation costs.
  4. Ongoing reporting: Your paperwork nightmare doesn’t end when you sell your crowdfunded shares. The SEC requires that you produce reports periodically, because the agency is charged under Title III with monitoring the private market. This may likely require you to hire a lawyer and/or accountant to prepare this reporting properly.
  5. Limiting your options: Accepting funds from equity crowdfunding now can make it much harder to get any attention from venture capitalists or angel investors later on. Typically, these investors dislike petty shareholders even more than owners do.

Now, we are not saying that raising capital isn’t a good way to pump money into your business. But we think that it’s a lot easier and cheaper to start with a business loan. In today’s lending market, a small business owner can receive a loan with no upfront fees, no ongoing reporting, and no time wasted on petty shareholders.

If you’re looking for up to $150,000, IOU Financial can get you funds with instant pre-approval and funding in as little as 24 hours. When you compare the cost of a loan with what is required by equity crowdfunding, it’s clear that you can save a bundle by finding the right lender and avoiding the hassles of dealing with shareholders.

 

4 Ways to Get the Best Deals from Your Vendors

Your vendors are your partners. Without them, you would not be able to stock your shelves or get the supplies your staff needs. Having good vendor relationships means less stress and better deals so you can focus on managing your business.

When working with vendors, you want to make sure that you’re getting a good deal, especially if you are just starting out. Fortunately, getting the most for your money when working with a vendor can be as simple as asking the right questions and being courteous. Here are four vendor management tips that can help you keep costs down while growing your business and keeping your vendor happy, too.

Do Your Research

The first way to make sure you get a good deal is to shop around before you sign on the dotted line. Researching and comparing vendors will give you a good sense of current offerings and prices. If you already have an ongoing relationship with a vendor, dedicating some time annually to researching current prices and offers will keep you informed. If needed, you can use that research to negotiate a better deal than what you currently have.

Negotiate

Many business owners believe that the prices quoted by vendors are set in stone. While that may be the case sometimes, it is not always so. Use the research you have done to inform your discussion with your vendor if it’s time to negotiate a better deal. You may surprise yourself by the savings you can earn just by asking. Even if the price is non-negotiable, you may be able work out favorable payment terms and give yourself more time to pay off a balance by negotiating the terms of the deal.

Form Relationships

You make it a priority to wine and dine your clients, but don’t forget that forming strong relationships with your vendors can prove to be just as important. By making a personal connection with your vendors, they will be more willing to be your advocate. A good vendor relationship can benefit you in many ways, including discounted pricing, personalized service, expedited delivery, and faster and better support.
To maintain a good relationship, remember to be courteous if an issue or a mistake occurs and give your vendor a chance to make it right before escalating the issue. Show your gratitude for consistently good service so the vendor knows you appreciate their work.

Plan Ahead

Any vendor appreciates a consistent client, which requires you to plan ahead. While emergencies occur where you may suddenly need an influx of product overnight, generally, you should keep careful inventory and monitor your sales or usage history to create a schedule with your vendor. Once you develop a history and your vendor knows they can rely on you to be consistent, you may be able to negotiate a discount if you prepay for an entire order or order in bulk.

 

Need funds to pay off a big order or start expanding your inventory? Consider a small business loan so you can pay up front and get the most bang for your buck when negotiating with vendors. Contact IOU Financial for more information about how you can secure a small business loan in as little as 24 hours so you can have what you need on hand without stretching resources too thin.

Common Mistakes When Applying for a Small Business Loan

Common Mistakes When Applying for a Business Loan

If you run a small business, sooner or later you are going to need an infusion of capital. When you are ready to take the plunge and seek funding, you don’t want to make a mistake right out of the gate that could complicate your chances of getting a loan later. Things like not having a clear plan for your loan, not borrowing the right amount, and taking too long to make a decision can make an otherwise exciting time in the lifecycle of your business frustrating. Here are the most common mistakes we see small business owners make, and how to avoid them.

Not Knowing Why You Want a Loan

Seems like a simple enough step. Yet every year, we encounter applicants who have only a vague notion of what they will spend the loan proceeds on. They may understand that they need to increase sales and profits, but haven’t really planned or priced out the specific actions they need to take.

Fortunately, if you find yourself in this situation, it can easily be fixed. Create a spreadsheet that lists your business goals, what actions are needed to achieve them, and how much money they will cost. Your goals should connect back to your overall business plan so not only do you have a clearer idea of price, but you are also clear on the loan’s purpose in the “big picture.” You also need to do a cost benefit analysis to calculate how much your business will benefit by achieving the goals you’ve listed. Your cost benefit analysis doesn’t have to reach military precision, just a reasonable estimate of how you think events will pan out.

If you’re unsure of your plans, then seek outside confirmation before you start applying for loans. There are plenty of resources available from the Small Business Administration to your local chamber of commerce. When you’re satisfied with your plan, commit to it and apply for the loan.

Borrowing Too Little

Another problem applicants run into is over-optimism, meaning they have calculated the business’ borrowing needs based on a best-case scenario but missed the secondary effects of the loan. For example, you might rightly conclude that if you could borrow to increase your inventory, you would easily increase your sales volume. That might be true, but will you also need to increase store space or hire more staff? Not borrowing enough to cover secondary effects like space and staffing can mean, at best, returning for an additional loan, and at worst, failing to execute your plan and potentially jeopardizing your business because you ran out of money.

Borrowing Too Much

It feels good to see money in your business account, and you might think, hey – I might as well borrow extra “just in case.” There is nothing wrong with building contingencies based on a worst-case scenario into your plans so you can make sure to still deploy your borrowings effectively. However, good contingency planning is specific and focused. What doesn’t make sense is to borrow way more than you need just to make yourself feel more secure, or worse, to mask fundamental problems with your business.

The risks are that you will waste money needlessly on interest payments and that you’ll fritter away the extra money on business whims rather than relying on solid planning. Then, when you suddenly need extra funds for a real reason, your access to credit might be limited due to the amount you already owe.

Don’t Dawdle

Take as much time as you need to formulate your borrowing plans, but once you’ve worked out what you need and have applied for a loan, don’t waste time deciding whether you should go forward or not.  It takes time for a lender to process a loan application. Some, like IOU Financial, might be able to give you a next day funding, but some might take far longer to pull your credit history, check out your current financials, and so forth. If you wait more than 30 days to make a decision, lenders will have to pull your credit history again. While IOU Financial does a “soft” pull that doesn’t affect your credit score, some other lenders do hard pulls that can damage your score. Furthermore, by needlessly procrastinating, you risk higher interest rates, and the problems that motivated the original loan request might suddenly get worse, perhaps making it harder to get the original amount approved.

If you have a good business and a solid plan for your loan, IOU Financial will be happy to quickly see if you qualify for one of our flexible business loans at a competitive interest rate. Do your homework, be clear on the amount you need to borrow, then contact us and we’ll get you the money you need in 24 to 48 hours.

How Your Assets May Not Be Working As Hard As You Are

Why A Cash Flow Loan is Better Than Collateral for Business

Assets are the things your business owns. They include short-term ones, such as accounts receivable, cash, and inventory, and long-term ones, such as plant and equipment, intellectual property and goodwill. A business’s job is to convert assets into revenues and profits. If you are not fully leveraging your assets to help your small business grow and thrive, you could be missing out on profits.

There are two major ways that assets can be put to work by your business.

  1. Cash Flow Generation: Whether you are a merchandising company selling inventory, a manufacturer turning raw materials into finished products, or a service-oriented company relying on office space or equipment, you are using assets to generate revenue. The cash flow generated from your business assets can be put to work as the basis for obtaining a loan from an alternative lender. While banks look only at credit ratings, alternative lenders are usually much more interested in daily cash flows and lend based on healthy flows. A loan means working capital to pay down more expensive debts, purchase equipment, increase inventory purchases, expand operations, acquire a competitor or otherwise leverage your revenues so that the additional profits exceed the modest interest costs.
  2. Collateral: Another way to make your business assets work is to use them as collateral. Some lenders, often called factors, will make a loan collateralized by your fixed assets, such as plant and equipment, or backed by your accounts receivable or inventory. In an A/R loan, the factor advances you about 70 to 80 percent of the invoices it accepts, and then pays you the remainder, minus a financial fee, when the invoices are paid. This speeds up your business cycle by allowing you to purchase more inventory faster. It also relieves you of the headache of trying to collect from people or companies who are overdue. You can also sell your A/R for a fixed price to a collection agency.

Comparing the Two Methods

Both of these methods deliver capital to grow your small business, but there are advantages to cash flow generation instead of leveraging assets as collateral.

When you use assets as collateral in factoring, it puts pressure on your sales margins due to the fees you are charged when you pledge assets or the loss you take by selling assets. Also, if you sell your A/R, you could alienate your customers if they start being contacted repeatedly by a collections agency that is unknown to them.

In general, taking out a loan for cash flow generation is the better deal. Rather than tying up your main assets or, in the case of collections agencies, even selling them, you keep your business assets and maintain control. You also get a full sum of money rather than a percentage advance to use as you see fit, and you avoid the financial fees of factors. As long as you have daily cash flow and a solid plan, the profits generated from the additional inventory, expansion, or other project made possible by your loan will be a permanent gain that will let you pay down the loan comfortably. Now that’s putting your money to work!

If you’re ready to try cash flow generation, IOU Financial is a great starting point to find out what a loan can do for your business. You can work with a Small Business Loan Consultant to take you through every step of the process, and we approve 85 percent of applications we receive, including many people turned down by banks. Our base requirements are that you own at least 80 percent of the business, have been in business a year or longer, make 10 or more deposits per month, and have annual revenue of at least $100,000. To get started, give us a call at 866-217-8564.

 

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New Survey Sheds Light on Slow Adoption of EMV Cards

New Survey Sheds Light on Slow Adoption of EMV Cards

A new survey from TD Bank finds that several factors are holding back small business owners from quickly adopting cards with embedded chips, known as EMV (Europay, MasterCard and Visa) cards. EMV cards are more secure than the older magnetic strip variety, which means their slow adoption leaves more consumers vulnerable to credit fraud from counterfeit, lost or stolen cards. Slow adoption can also leave small business owners vulnerable to footing the bill when instances of credit fraud do happen.

On October 1, 2015, the liability for damages arising from credit card fraud shifted from the card issuers to merchants for all swipe transactions performed on EMV cards (the new cards still work with the older terminals). Surprisingly, the survey finds that about 19 percent of merchants were either unaware of or indifferent to the new compliance rules for EMV payment terminals, and only a minority of small businesses have installed them, with many reporting concerns about or obstacles with adopting the new technology. The latest information is that new POS terminals are operational at only about 25 percent of locations.

Conversion cost is a factor mentioned by 58 percent of small business owners (SBOs) in the survey as to why they have been slow to upgrade. Part of the problem is misperceptions about the cost of switching to the new payment terminals. Although several pre-deadline reports put the price at $1,000 per installation, actual costs reported by survey respondents indicated the average cost to be about $450 per installation. Many merchants work on tight margins, and for those who perform relatively few credit/debit card transactions, the perceived high costs of transitioning to the new EMV technology can seem a significant roadblock.

Although 73 percent of SBOs expressed little or no concern about their exposure to the damages of credit card fraud, it is hard to say that indifference to security is holding back the conversion process.  Only 13 percent of non-adopters admitted a lack of credit fraud concern, and 70 percent of adopters listed security as the foremost benefit. The survey reports that 58 percent of adopters say that the new cards are better at protecting consumers’ information, and 54 percent mentioned that installing EMV card readers shields their businesses from fraud liability.

The last major obstacle reported by the survey (mentioned by 37 percent of SBOs) involves the amount of time it takes to set up and learn the new payment system  and the effort involved in educating customers about the new process (36 percent). The new terminals read EMV cards through partial insertion rather than swiping, and the transaction takes a few seconds longer with the new equipment.

While the survey indicates that SBOs face real and perceived obstacles to updating their point of sale systems, it’s important to consider that a single instance of credit fraud could easily exceed the one-time costs of upgrading systems to comply with new rules.  If your business is trying to figure out how to finance the installation and activation costs of new EMV terminals at your retail locations, it may be worthwhile to consider taking out a commercial business loan. Alternative lenders like IOU Financial look at factors beyond credit score, like daily cash flow, to assess whether your business is a good candidate for a loan that can be used for equipment upgrades.

If you’re interested in learning more about how commercial business loans can be used for technology and equipment upgrades, contact one of our Small Business Loan Consultants today at 1-844-750-5468.

 

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Banks Aren’t Lending: Kevin O’Leary Interviews DaVinci’s Pizza Owner

Today’s small business owner can struggle for months with a bank to receive the smallest amount of financing. Kevin O’Leary understands small businesses and got involved with IOU Financial to ensure small business owners always have access to affordable capital!

O’Leary interviewed Jason, owner of DaVinci’s Pizza, who waited for months only to be denied by a bank for a loan. When Jason found IOU Financial – he was approved and funded in under a week!

If you are a small business and working capital is the only thing holding you back from expanding, give IOU Financial a call. We can help restaurants expand their seating area, retail stores grow their product line, doctors update their equipment, and so much more!

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Could Your Partner Prevent You From Getting a Business Loan?

Taking on a business partner is both rewarding and risky. Your business maybe doing well, but if your partner suddenly has a personal financial setback, such as a bankruptcy or foreclosure, this could very well  prevent your partnership from getting a business loan, especially from a bank. However, there is hope. Private commercial lenders like IOU Financial use a variety of metrics that banks tend to disregard to underwrite business loans.

Many partners go into business by incorporating or creating limited partnerships in order to:

  1. Create a liability shield, in which creditors can’t go after the partner’s personal wealth to settle a debt.
  2. Ensure that the company bylaws specify that the business’ debts are shared equally among the partners, leading one to believe that no partner will be stuck with an unfair proportion of the company’s debt.

Suppose your partnership gets a bank loan that both partners guarantee, and a month later your partner goes bankrupt and can’t pay back their portion of the loan. From item 2 above, you might think that you are only 50 percent responsible for the business loan, and that your partner, though bankrupt, must still shoulder responsibility for the other half of the loan.

Unfortunately, this is not the case.

When your partnership gets a commercial loan, the guarantor partners are individually and severally liable. That means every partner is 100 percent responsible for the entire loan balance. Your partner went bankrupt, so his personal guarantee was discharged, leaving you responsible for the entire amount.

Your bank will want its money, and as for getting another business loan, they won’t consider it. These are a few of your options:

  • You can buy out your partner and then sell the partnership share to another person. If your small business is profitable, you may be in luck..
  • You can apply for a loan modification from the bank, removing the previous partner and avoiding default.
  • Apply for a debt workout, in which you make a settlement on the company’s debt.
  • Or, the least attractive of these options, the partnership files for bankruptcy.

A Better Alternative

Suppose your partner goes bankrupt, but you haven’t applied for your business loan yet. Instead of going to a bank, apply with IOU Financial. Sure, we look at the credit rating of the partnership and its partners, but we also look at the company’s cash flow. Under the proper circumstances, we may indeed be able to approve your business loan. If you have a good track record, been in business for over a year, realize at least $100,000 a year in business receipts, and maintain a daily balance of at least $3,000 in your business account, you definitely need to speak with us.

Here is another scenario. Your partnership already took a loan from IOU Financial, and subsequently your partner hits the skids. You still can refinance your existing loan with us once you’ve repaid 40 percent of the principle.

IOU Financial likes to say yes when banks say no. You can apply for a loan and receive a decision in just a few minutes. Contact us today to learn more about alternative lending that can help protect your assets and the integrity of your business.

 

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