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7 Things to Know When Writing Your Business Plan

Every business needs a strong business plan. Whether your motive is to attract potential investors or to have to a clear direction, your business plan is critical for your success. However, writing a business plan isn’t that easy. There are plenty of free online templates to help you out, but they don’t include all of the important details. Here are seven things to know when writing your business plan. 

Do Your Research 

The first thing you should do is research your market, your objective, and your product. You’ll have to spend twice the time evaluating, researching, and thinking about your business plan. To write a strong business plan, you need to know your company, your competition, your market, and your product as much as possible.

It’s up to you to know everything about your business and the industry before launching it. Read trade magazines and publications about your industry and find your target audience.

Determine the Purpose of Your Plan 

business plan can serve multiple purposes. It should provide you with a road map with different directions to plan your future and avoid any potential mistakes. You should keep this in mind if you’re self-funding or borrowing money to grow your business. For example, if you’re launching a fashion label, then you need to know the amount of money needed to start a clothing line.

If you want to attract potential investors, then your business plan should have a different purpose in mind. Since your business plan should attract investors, you want to make it as clear and concise as possible. When you clearly define your plan, make sure that you define your goals as well.

Create a Company Profile

The company profile includes the history of your organization, information on your audience and target market, the resources used, and the products and services you provide. It should also include how you plan to solve a problem and what makes your business stand out from others. When you create a company profile, you can include it on your website’s About page.

Company profiles are often seen on the company’s websites and are used to attract the right customers. Your company profile can also be used to describe your company’s mission and goals in your business plan. It’s one of the most extensive parts of your plan. Having a company profile in mind will make this step easier.

Document All Aspects of Your Business 

Investors want to know if your business will make them money before they put any money into it. They need to know the details of your business. Document everything involved with your business, including the cash flow, expenses, and industry projections. Don’t forget to include other details such as licensing agreements and your location strategy.

Create a Strategic Marketing Plan

A solid business plan should have an aggressive and strategic marketing plan. This includes having marketing objectives such as having a clearly defined content marketing strategy, entering into long-term projects with potential clients and extending or regaining a market for existing products. Of course, a marketing plan will come with its share of costs. You should include a section for allocated budgets for each of your marketing activities.

Adapt it to Your Audience 

The people who will read your business plan are lenders, bankers, employees, and venture capitalists. While it’s a diverse group of people, it’s only a finite group, according to Sewport CEO Boris Hodakel. Each reader doesn’t have the same interests in mind. If you know their interests, you can take those into account when creating a business plan for your target audience.

Bankers want the balance sheets and cash-flow statements, while venture capitalists will be looking for basic business and management concepts. You want to make sure that your business plan is modified depending on your audience. Keep these modifications in mind when creating various business plans. For example, if you’re sharing financial projections, that should be across the board.

Explain Why You Care 

When you’re creating a business plan for a banker, customer, investor, or team member, you need to show why you’re so passionate about your business. You can discuss some of your business mistakes and the lessons that you’ve learned. Explain what makes you stand out among your competition.

Maybe you’re someone who wants to change the world. You want to change the way that customer service is handled or the way online payments are made. Explain this in your business plan. Your passion will show through everything that you do. Explaining why you care about your business will help create that emotional connection with others so they’ll want to support your business.

Guest Post: About the Author

Tomas Smith is a production process specialist at Sewport – an online marketplace connecting brands and manufacturers, former advisor to various clothing manufacturing businesses. He is passionate about process optimization and all things related to garment manufacturing, writing and sharing his knowledge with the world.

5 Keys to Qualifying for a Small Business Loan

Are you looking to secure a loan to grow your business? The numbers aren’t exactly encouraging when it comes to approval rates. Alternative lenders approve around 56 percent of small business loans, while traditional banks (who have less experience with non-collateralized loans) only approve around 27 percent.

Despite these somewhat disheartening statistics, there are several steps you can take to strengthen your application and make the best case for your business.

Keep in mind that lenders are essentially risk managers. When they review your application, they’re looking at the amount of risk involved when it comes to your ability to repay the loan. Follow these five steps to minimize the risk your business represents and improve your chances of approval.

Get Cash Flow Under Control

In the eyes of a lender, cash flow is king. The strength (or weakness) of your business’s cash flow is one of the main factors lenders consider when deciding whether or not to approve your loan.

Ideally, lenders are looking for a history of positive cash flow — when more money is coming in than going out. They want to see that you have enough money to cover all of your monthly expenses, with enough left over to comfortably make a hypothetical loan payment. Dips into the negative are a red flag that indicate risk.

Depending on the lender, anywhere from 90 days to 24 months of your cash flow history will end up under a microscope. It pays to get serious about cash flow management now so you can build up a history that lenders are comfortable with. Intuitive online tools can help you get a handle on your cash flow, and simplify analysis with visuals like charts and graphs.

Check Your Credit

Always check both your personal and business credit before you apply for a loan, and fix any errors that may be dragging down your score. Depending on the lender and the type of loan you’re requesting, one or both reports may be pulled as part of the loan approval process.

Your business credit will likely be taken into account if you’re applying for an SBA loan, or a loan from a traditional bank. If your business is new and has yet to build up business credit, your personal credit will often be taken into account, along with that of other majority stakeholders. In lieu of business credit, banks often judge your ability to repay the loan based on your personal score.

Not only will your credit scores affect your chances of getting approved for a loan, they can impact your interest rate should you get approved. If either your business or personal credit score is low (below 600 for personal credit), take steps to improve it before you apply for a loan.

If your credit is less than stellar and you don’t have the luxury of time to improve your score, you still have options. Alternative lenders are generally more lenient when it comes to credit scores, and often weigh cash flow more heavily when making their lending decision.

Know What to Ask For

Asking for either too much or too little can hurt your chances of getting approved for a loan, depending on the type of lender you’re working with.

Need a loan that’s less than $500,000? Traditional banks may not be your best bet. Historically, they tend to lend higher amounts — and have less experience dealing with loans that may not be backed by collateral.

Alternative lenders, on the other hand, are more likely to lend small amounts, and the application process can be much faster and easier. The key, of course, is to show these lenders that you can repay the loan (see number 5). To increase your chances of approval with these lenders, only ask for as much as you can comfortably pay back.

Know Why You’re Asking

Would you let a friend borrow $10,000 without knowing what it’s for? The same goes for lenders. A surprising number of applicants fail to tell lenders exactly how they plan to use the loan. Always define how you’ll put the capital you’re requesting to work to grow your business.

A convincing business plan is a great opportunity to remove any doubts a lender may have about your ability to repay the loan. Laying out a plan for the funds you’re asking for will go a long way to boost a lender’s confidence in your business.

Prove You Can Pay it Back

This common sense step goes right back to your all-important cash flow. When a lender scrutinizes your financials, what they’re really looking at is your ability to repay the loan you’re requesting. If you ask for an amount without showing exactly how you plan to pay it back, your application will likely land in the rejection pile.

Cash flow projections will go a long way to show a lender exactly how you’ll cover those loan payments. Fortunately, showing lenders where your business is headed doesn’t have to be difficult. Those same online tools that helped you analyze your past and current cash flow can help you create a future projection that you can hand over with your application to improve your chances of getting approved.

Guest Post: About the Author

Eddie Davis – As VP of Business Development at FINSYNC, Eddie has the great pleasure of introducing a world-class financial platform to partners ranging from financial institutions to accounting, advisory, payment and others parties interested in facilitating better business through automation and analytics innovation.

 

Lending Terms Business Owners Need to Know

Many business owners haven’t had the opportunity to attend fancy college programs in business and finance. Nonetheless, there are many terms related to loans and credit that you need to understand, especially if you are about to apply for your first business loan. Here is IOU Financial’s rundown of important lending terms.

ACH Transfer:

An electronic, bank-to-bank transfer from one account to another, processed by the Automated Clearing House network. Lenders typically deposit loan proceeds and collect payments via an ACH transfer.

Annual Percentage Rate (APR):

An annual interest rate that reflects the cost of a loan, including fees. Because APRs are standardized, they allow you directly compare loans from different sources.

Application Pre-approval Rate:

The percentage of loan applications that a lender pre-approves. A good lender should have an application pre-approval rate of at least 85 percent and should provide the pre-approval within minutes.

Better Business Bureau Rating:

A rating from the BBB that assesses your business’ overall practices. The top rating is A+ .

Business Credit Report:

If you run a corporation, limited partnership or limited liability company, a business credit report functions for your business the same way as consumer credit report does for individuals. Providers include Dun & Bradstreet and FICO.

Fixed Loan Payments:

A fixed amount, paid daily, weekly, or monthly, to cover the interest charges and principle repayment of a loan. IOU Financial offers automated daily or weekly loan payments to avoid large monthly payments.

Funding Time:

The time it takes receive your loan proceeds after you submit your loan application. The funding time can vary from 24 hours (for online lenders) to weeks or months (for banks).

Interest Type:

Interest types are fixed and variable. A fixed interest loan maintains the same payments throughout the loan term. A variable interest loan uses an interest rate that can change over time, thereby changing how much you repay each month.

Loan Application:

A questionnaire you fill out to apply for a loan. Some lenders, such as banks, use very detailed and complicated applications that require large amounts of financial data. On the other hand, online commercial lenders often have short applications that you complete online.

Loan Renewal:

An optional feature offered by some lenders like IOU Financial that allows you to apply for a replacement loan when you repay a set percentage (e.g., 40 percent) of the original loan.

Loan Term:

The amount of time you have to fully repay your loan. If the loan term is for less that one year, it is a short-term loan. Loans with terms of one year or longer are long-term loans.

Maximum Loan Amount:

The maximum amount a lender will lend to you.

Prepayment Penalty:

This is a fee some lenders charge when you pay off your loan ahead of time. Always use a lender that does not charge a prepayment penalty.

Pre-qualification Requirements:

A set of standards that allow you to immediately prequalify for a loan from some lenders. The standards might include business ownership, frequency of daily deposits, time in business, average daily ending balance in your business bank account, and annual revenue.

Simple Interest Loan:

A loan that charges interest on a daily basis, meaning you only pay interest on the unpaid principle amount. Contrast this to a compound interest loan, in which you pay interest on your interest. IOU Financial is a simple interest lender.

Small Business:

Typically, a business with fewer than 250 employees. Many of the best lenders specialize in loans to small businesses.

Upfront Costs:

These are fees, such as origination and processing fees, that some lenders charge. Always choose a lender who charges no upfront costs.

Looking for more information about small business lending? Our small business loan consultants have the know how to answer any question you throw at them.  As industry experts, our staff is ready to find the answers even your toughest business questions!

4 Ways Business Loans Support Your Financial Status & Help You Achieve Your Goals

There are a plethora business opportunities in the world today, many of which did not exist decades ago. As technology advances, many digital trends influence the types of businesses that pop up. Even on social media platforms, there are businesses that cover how best to manage social walls and increase followers. One thing is important in all these, whether you are an online merchant or a manufacturer of kitchen wares, whether you render services or sell products, the core of business strength is capital.

The truth is every business needs a solid financial status to be able to thrive. Sometimes, there might be some hitches in the running of a business- like low inventory, the need to hire staff and grow sales, or the need to carry out a profitable marketing campaign. Considering a business loan might be recommended. Although some individuals try to be cautious, there are immense benefits that getting a loan offers.

4 Ways that Business Loans are Beneficial to You

Not every reason is valid enough to seek a loan. However, there are solid reasons that support this. Just like making a purchase comes with costs and benefits, getting a loan can have a positive impact on business when weighed against the cost. Here are 4 ways that this can benefit your business;

Expansion of Business Activities

More customers are coming into your store and you need more staff to cater for the increase in activities, or you need to add a new location to your business, or there are new products and services that your business can provide- if this is the case, you might need to expand your business to accommodate more hands on deck, or have new space for business activities.

It might be very demanding on the finances of your business when it comes to bearing the cost of adding another location or venturing into a new market, even though these moves can boost the profitability of your business.

Getting a loan can ease these processes by providing ready capital for new overhead and upfront costs. In considering this, it is important to have a proper plan and forecast to ensure that the new activity would be profitable enough to cover the repayment of the loan.

Increased Liquidity

For many businesses, inventory is an important component of commercial activities. It is important to keep your inventory replenished and of high quality. With a sales projection, you can forecast the profitability of acquiring more inventory and improvement in cash flow can help you achieve this.

Apart from inventory, day-to-day activities are also crucial to businesses; you might need to train staff, pay salaries or effect repairs on machineries. Loans can improve your liquidity and help you cover these activities smoothly.

Invest in Marketing

Marketing can be the very approach your business needs to pull in more potential customers. However, due to the cost that marketing entails, some businesses tend to put it on hold. This is because successful marketing campaigns require a tangible budget.

Since marketing is needed to spur business growth, investing in a campaign can increase your customer base. Taking up a loan can help you execute a solid marketing strategy, thereby increasing customers and improving the financial status of your business.

You Keep the Profits

Compared to getting investors for your business, one benefit that loans offer is that the profit you make is retained for you and your business. On the other hand, investors require that they have a share in the profits of your business.

With loans, you can venture into new business opportunities, expand your business or get needed equipment, all of which are beneficial to you in the long run even after the loan payments are made.

Every business needs financing no matter the nature. Although some are of the opinion that adding debt counters the growth of your business, with the right approach, debt financing can come in handy and boost your profitability. Not every business needs to take up a loan. There are several things to consider such as the terms of repayment and interest rate. It also requires proper planning and knowledge of the market so as to ensure that the profitability of the business can cover loan repayments and keep you in an excellent financial standing.

Every business envisages steady growth. With the above put in place, loans can improve your financial status and help you achieve goals. Its benefits can still be visible even after the loan has been cleared.

Guest Post: About the Author

Ali Khan is a Search Engine Optimization (SEO) specialist and a content marketer. He works as a search director in a reputable organization. His main area of interest is digital marketing management and SEO outreach. He writes unique and research driven content about SEO analysis, Social media, Physical fitness and more.

The Hidden Costs of Starting a Business to Look Out For

As exciting as launching your own business can be, it’s important to remember that success rarely comes for free. The saying “you need to spend money, to make money” is one that often comes up in the entrepreneurial world. However, while many would-be business owners know that they’re going to have to tap into their savings to get their company off the ground, they’re not fully aware of the expenses that can be involved in running a business.

According to one study from the Kauffmann Foundation, startup costs for a small business can average out at around $30,000. Of course, the amount it costs to get your organization running will depend on a number of things, including how much your product costs to make, and how much you have to pay for things like overhead and utilities.

While startup costs in any industry can pile up relatively quickly, knowing what to expect can mean that you’re better prepared when you’re planning for things like website development, real-estate, and initial inventory costs. Here, we’ll be looking at some of the hidden costs that business owners often overlook in the excitement of starting a new venture.

Insurance

When you’re first starting out as an entrepreneur, it’s tempting to think that all you need is an internet connection and a healthy supply of inventory to start making a profit. However, there are a lot of other expenses to think about if you want to launch your company successfully and protect it in the long-term. For instance, insurance provides you with a critical safety net in case anything goes wrong when you’re running your company.

Although you might not feel as though you need insurance at first, as time goes on, the need for various forms of protection is likely to increase. For instance, you may need not only small business insurance, but also liability insurance, omissions and errors insurance, workers compensation, and more.

How much you’ll need to spend on any policy will depend on various factors, including the size and type of business you’re running, your industry, location, and any previous issues you might have had. You can easily spend more than a thousand dollars each year on insurance alone.

Employee Perks and Benefits

While you may have already thought of “salary” as one of the many expenses you’ll need to deal with as a new company, a lot of entrepreneurs overlook the importance of those added extras that make employment so appealing to their staff. Benefits and perks are a crucial component of what you pay out each month, and according to some studies, the average cost can run to about 1.4 times the basic rate of pay.

This means that a $50,000 wage could quickly become about $70,000 by the time you’ve finished accounting for healthcare, vacation time, and other perks. Make sure that you know exactly how much you’re going to pay altogether before you start promising your employees the world.

Alternatively, you could work with freelancers that wouldn’t expect the above-mentioned benefits. That’s not to say that you shouldn’t offer some perks. Something as simple, and comparatively less-expensive, as a monthly fresh-roasted coffee subscriptioncould do the trick or a gift card to a restaurant they mentioned they like.

Permits and Fees

Depending on the industry you choose to operate in, and the types of things you want to sell, you may need to invest in a number of fees and permits just to make your company legal. Some business owners don’t realize just how much cash can go into things like liquor licenses and retail permits. The best way to make sure you’re prepared is to do your research into the necessary expenses for your industry before you launch your business. For instance, you might need:

  • A fire department permit if your business deals with flammable materials
  • An air and water pollution permit if your company burns any materials or use products that produce gas (including paint sprayers)
  • County permits that allow you to trade within your chosen neighborhood
  • Sales tax licenses or certificates of authenticity
  • Health department permits if you run a business that deals with food and drink

Taxes

Taxes are one of the most frustrating parts of running your own business. When you were an employee of another company, the chances are that you probably didn’t spend too much time thinking about your taxes. While you likely paid your fair share, most of the hard work will have been automated by your payroll department. This means that you barely noticed the money going out of your bank account.

Unfortunately, when you become a self-employed business owner, things get a lot more complicated. Self-employment tax can cost a lot more than you might think, and it can also lead to other expenses that are associated with managing your cash flow. For instance, if you want to make sure you don’t make any mistakes on your returns, you might want to invest in a professional accountant.

Administrative Costs

Administrative costs are sneaky. A lot of companies assume that they only have to pay out once for things like phones, computers, printers, and office supplies, and then they’re done until something breaks. Unfortunately, administrative costs can become an ongoing expense when you think about the costs of software licenses, paper, ink, and even paperclips.

Individually, the everyday items you buy like office cleaning supplies and healthy snacksmight not cost very much. However, as your business grows, you may find that your administrative costs quickly add up to a significant price tag. Buying in bulk early can help to keep your expenses down in some cases.

Shrinkage

Finally, shrinkage is a common expense often overlooked by retailers who sell physical products. If you run your own brick and mortar business, or even when you’re selling physical items online, there’s always a chance that shrinkage can occur. In fact, some numbers suggest that shrinkage can cost retailers up to $45 billion each year!

Shrinkage can happen for a number of reasons, from packages that get lost during shipping, to issues with shoplifting and employee theft. Even something as simple as a paperwork error can cause you some serious problems with your cashflow. The good news is that if you catch the signs of shrinkage early, you can sometimes reduce your risk. However, most companies will find that’s impossible to eliminate shrinkage entirely.

Ultimately, there are plenty of expenses involved with running a company that are easy to overlook – particularly when it’s your first time as an entrepreneur. Making a list like the one above and making sure that you’re prepared for every expense can prevent you from facing a nasty shock when you launch your company.

Starting your business takes funding! IOU Financial is ready to help. Contact us to learn how you can get qualified for a small business loan of up to $300,000 in just 24-48 hours!

Guest post: About the Author

Raj Jana launched his own business when he realized that there weren’t enough sustainable solutions out there for those in search of their daily caffeine fix. When he’s not busy running JavaPresse, he shares his stories and experiences with the world through blogs and articles.

 

Is Now the Best Time for a Business Loan?

We are often asked whether now is a good time to take out a business loan. Our answer is usually, “It depends.” Let’s explain. Two sets of factors figure into the timing of a business loan – macroeconomic and microeconomic. We take a closer look below.

Macroeconomic Factors

In general, it’s a good idea to borrow when interest rates are low, as they are now. As you know, the Federal Reserve has raised rates several times in the last two years, and more rate hikes are imminent. While rates are still low, you don’t want to wait for them to get any higher, so quick action right now is a smart idea. If interest rates were falling from a high level, you’d want to wait till they fell to an affordable level. Other macroeconomic factors that might influence timing is the occurrence of financial or political shocks, or the general tightening of credit, both of which might discourage you from short-term borrowing.

Microeconomic Factors

Loan timing is also a function of why you need the money and how you plan to use it. Some uses are good, some not so much.

Green Light

These are some reasons why now would be a good time to get a business loan:

  • Expansion: You are at a point where you are turning down business because you don’t have the capacity. If expansion is called for, you will need to finance extra space, or new equipment, or new hires, etc. The fact that you will be bringing in more business bodes well for your ability to repay the loan.
  • Cushion: If you have a seasonal business, a short-term loan can create a cash cushion to get you through the lean months. By evening out your cash flows, you can avoid emergency layoffs or panicked price cuts. This helps your business’ long-term prospects. You can repay the loan when the busy season returns.
  • Sunshine: The adage, “make hay when the sun shines,” has application here. When your business is in a good spot and has a high credit rating, getting a loan will be relatively easy. When you wait until you are in desperate shape, you might not qualify for a loan. If you can get an affordable loan during good times, it can add an extra layer of safety against liquidity problems later on.
  • Credit builder: A startup business has no credit history, but a business loan can be the remedy. Taking out a business loan and then repaying it on time will build your credit score and potentially give you access to larger loans in the future.
  • Opportunity knocks: Once in a while, a golden opportunity falls into your lap. A loan can enable you to jump on the opportunity, thereby strengthening your company and making repayment easier.

Red Light

Here are some times when you should avoid taking out a business loan:

  • Maxed-out: If you already have large loans and maxed-out lines of credit, taking on additional debt might drive you into default. Even if you can arrange another loan, the lender will probably demand exorbitant interest rates that will only increase your cash flow problems.
  • Uncertain purchase: If you are considering the purchase of a new business asset but aren’t sure whether you can afford it, reconsider the purchase. A business plan should lay out exactly how you expect a new asset to affect your business and how much it will cost. If you are unsure about how the loan terms will align with the new asset’s cash flows, go back to the drawing board until you are certain you know what you’re doing.
  • Band-aid: If your business mismanaged its financing, taking a loan might just be a band-aid that masks the underlying problem. A better strategy is to bring in a CPA or operations manager to help fix the problem first.

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.

Continued Expansion with Small Business Funding

Atlanta Movie Tours got its start because Owner Carrie Sagel Burns wanted to show off all the great filming locations around Atlanta and beyond. Since its beginning five years ago, the business has expanded to showcase all the great filming that happens around the Metro area, and has a retail gift shop downtown. Not only has it grown from one tour a week to over 20 with 40,000 guests, the organization also has 1,200+ reviews on TripAdvisor. “With that growth came overhead and personnel, investment in the business and capital and funding became necessary at times,” said Carrie. Carrie has borrowed from IOU Financial a few times.

“The IOU capital has helped consolidate our existing loans and get our daily rate under control for greater growth this year,” explained Carrie. “It helps me sleep at night!”

According to Carrie, what makes IOU different from other lenders is the commitment to excellent customer service, particularly the communication and online portal.  “I’ve worked with other small business loan companies and spoke with a few others and know that there are plenty out there who you can’t reach for questions, don’t have a way to check your status, etc,” said the small business owner.

“With IOU, you know you can always talk to someone. Plus, the online dashboard is a great way to keep an eye on the account without having to contact IOU directly.”

Here at IOU Financial, we can’t wait to see how Atlanta Movie Tours grows even further in the future. Looking for something fun to do in Atlanta? Check them out! Click here to book a tour: http://atlantamovietours.com We’ve got our eye on The Walking Dead options.

Carrie was able to expand her business with an IOU Financial loan.  Why not you?  Learn more about business lending and have a Small Business Loan Consultant call you today!

 

Nine Things That Separate Good Business Lenders from Bad Ones

If you’ve ever had a bad experience applying for a bank loan, you understand how demeaning it can feel to be turned down. Regulation and low interest rates have made it tougher for banks to lend to small business. The tight-fistedness of the banks after the 2008 mortgage debacle created a vacuum which was filled by online business lending companies of varying quality. The best are a pleasure to work with, the worst are disappointing. Here are nine things to look for to distinguish the good from the bad:

Direct lender:

A direct online lender is a company that actually supplies the money it lends to borrowers. Many business-lending websites are mere matching services that send out your application to a network of lenders. That might sound good, but it’s not, because you end up paying much more for you capital. You see, the matching broker collects a fee from network lenders, who pass that fee onto you in the form of higher loan cost.

Ease of application:

Some lenders want extensive paperwork and documentation. A few operate over the phone, which is tedious. Look for a lender with a streamlined, paperless online application process that can be completed in minutes. And, perhaps it should go without saying, but we’ll say it anyway: Never pay an upfront fee to apply or qualify for a small business loan!

Quick approval:

There are two aspects to this. The first is that you’d like to be approved, so you will want to borrow from a direct lender with a high rate of loan approvals, say 85 percent. Secondly, you want the decision, and the money, quickly. A good lender looks beyond your credit score, makes a decision in minutes and gets you your money the next business day. A good lender will not do a hard pull on your credit. A bad lender may require extensive underwriting, which can waste days and still end up in a denial.

Sufficient amounts:

A business lender with a maximum loan limit of $25K or $50K won’t satisfy many small business borrowers who need more. Look for a direct lender who is willing to lend up to $150K.

Affordable rates:

A lean, efficient online business lender isn’t saddled with large overhead expenses that can drive up the cost of loans. Look for an interest rate well below the cost of a merchant cash advance. Merchant cash advance are not loans and can be very expensive.

Convenient repayment terms:

Hate that big monthly repayment that always seems to leave a gaping hole in your working capital? The best lenders take fixed daily loan payments directly from your bank account. It’s amazing how much more comfortable it is to spread the repayment over 20 daily installments rather than to pay it once a month. Only use lenders who offer fixed pay-back loans, so that you aren’t surprised by suddenly higher repayments.

Renewals:

Cash management is dynamic, and sometimes you need to renew a loan before the old one is paid off. Bad lenders won’t do this, but good ones will approve renewals after a certain portion, say 40 percent, of the original loan is repaid. This gives you the flexibility to take advantage of opportunities as they occur.

No prepayment fees:

Avoid a lender who soaks you with a prepayment fee or who charges you compound interest on your loan. Compound interest means you pay interest on your interest. Ouch! Go with a direct online lender who charges simple interest on your unpaid principal balance, and who never penalizes you for paying off your loan early.

Ratings:

Check a potential lender’s score from the Better Business Bureau and TrustPilot. If the score isn’t great, keep looking.

Not sure which online business lender to call? Try IOU Financial, a leading, publicly-traded small business lender. Contact us today for a no-strings-attached consultation.

Business Credit Basics: 3 Things You Need to Know Before Applying for a Loan

Applying for a business loan is a significant undertaking, and it’s a good idea to get your business operating as efficiently as possible before asking for a loan. The amount of preparation you’ll have to do really depends on whether you borrow from a bank or a commercial lender. A bank is going to grill you and demand a lot of information that a commercial lender will not need. Here are three things you need to get know when you apply for a bank loan, and how each one differs if you choose a commercial lender:

1. Know why you want the loan:

For some reason, banks feel the need to know exactly how you plan to spend every dime of your loan proceeds. We are not quite sure why this is so crucial for the bank to know, but the usual reasons include expansion opportunities, smoothing out working capital, investing in inventory or capital goods, and acquiring another company. Be prepared to show the banks how you will turn the loan money into profits (or how it will cut losses). On the other hand, a commercial lender like IOU Financial doesn’t really care how you plan to spend the loan proceeds. We assume that you know your business best, and we don’t like substituting our judgement for yours.

2. Know your books:

A bank is going to review all your books and records before approving a business loan. This includes all your past income statements, balance sheets, tax filings and all other public information. Be prepared for questions on why certain expenditures were made or why a particular strategy was worth the investment. You really don’t know what the bank loan officer or underwriting committee is going to ask. Sometimes, a line of questioning can lead to new questions in different areas, a process that can drag out for weeks or months. You can be sure the bank will calculate all your financial ratios, and will interrogate you on any that are below industry averages. We are really only looking for two things:

a. Does your business generate at least $100,000 a year in revenue?
b. Have you been in operation for at least one year?
If both are true, you are well on your way to obtaining a loan from us.

3. Know whether your cash flow allows you to repay the loan:

This is a very important question that every lender, including us, is going to ask. Now, a bank is going to want to analyze your sources and uses of funds, your cash management policies, and your projected and actual budgets. The bank may want to know about your collection policies and examine your bank statements. If it sounds like an extensive process, well, it is. We have a different view – we only ask two questions regarding cash flow:

a. Do you generate 10 or more deposits each month into your business bank account?
b. Do you maintain an average daily balance in your business bank account of at least $3,000?
Assuming you own at least 80 percent of your business (or 50 percent if owned with a spouse), you can qualify for a commercial loan from IOU Financial with just a few facts. With a bank, you are more likely to feel like a trial defendant under cross examination. Perhaps that’s why it takes days or months to get a bank loan, while we can lend you up to $150,000 in as little as one day.

Contact IOU Financial today for a free consultation about your small business’ loan needs.

5 Common Misconceptions About Alternative Lending

Alternative, or non-bank, lending got a big boost in 2008 when the mortgage meltdown caused banks to roll up their welcome mats. In that era of recriminations, no bank wanted to go out on a limb and lend to anyone other than the most creditworthy customers. Today, businesses have learned that alternative lending, which includes commercial business loans, factoring, peer-to-peer lending and crowdfunding, can solve many problems quickly and efficiently without a lot of the delay and paperwork associated with bank loans.

Still, some business owners have negative misconceptions about alternative lending, so we’d like to clear them up:

Only bank-rejects apply to alternative lenders:

While it’s true that many businesses find it easier to qualify for a loan from an alternative source than from a bank, many owners prefer dealing with alternative lenders, as they tend to be more flexible, less judgmental and faster to respond. Many alternative lenders do not require collateral, can process an application in a few hours, and fund a loan within a day or two. One feature that IOU Financial borrowers truly appreciate is daily automatic repayment, which means a business doesn’t have to face a large monthly payment that can disrupt the business’ cash position.

You have to be desperate to seek an alternative loan:

That’s just silly. Alternative lenders would soon go out of business if they lent only to companies on their last legs. The real story is that banks turn down loans for all sorts of reasons, many having nothing to do with creditworthiness. Alternative lenders assess the risk of each loan and assign an interest rate that makes sense. Companies with less than stellar credit scores can borrow from alternative lenders when needed, such as when they have to smooth out their working capital cash flows. Any good alternative lender wants to see its borrowers succeed, not fail, and will usually work with business owners to come up with solutions with the right fit.

You can hurt your credit score by borrowing from an alternative lender:

Poppycock! There is no truth to that myth, and in fact the opposite usually applies: If you pay back your loan responsibly, your business’ credit score should increase. Remember, business loans do not affect the individual credit scores of owners, they are strictly for business. The nice thing about getting an alternative loan is that by doing so, owners don’t have to pony up their own personal funds, which could indeed affect their credit scores.

You need high margins to make alternative loans work:

Loans from alternative lenders help all types of businesses, not just ones with high margins. IOU Financial has only four funding requirements, and none have anything to do with margins. We require that you own and operate your own business, have been in business for at least a year, make 10 or more deposits per month and have average daily balance of $3,000 per month. Margins schmargins!

Alternative lending is unregulated:

This is a common misconception stemming from the fact that alternative lenders do not have the same capital requirements as banks. But alternative lenders are not banks, they do not offer time deposit accounts and all the other services available from banks. The business model and cost structure of alternative lenders are much different from those of banks. Nonetheless, alternative lenders must adhere to federal and state lending regulations that require truthfulness and disclosure. There is also the whole area of contract law that governs alternative loans.

The alternative lending industry is strong and vibrant, because it serves the needs of many small businesses that otherwise wouldn’t be met. If you would like to discuss your own borrowing needs, call IOU Financial today for a free consultation.