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.


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.


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.

Get Your Finances Straight for 2017

With 2017 upon us, it’s an important time for taking stock of your business’ finances and setting right whatever issues are unresolved. Here are 9 tips you can execute right now to get your finances straight:

  1. Update your business plan: Several sections may need updating. What was the last time you analyzed your competitors or reevaluated your marketing plan? It’s easy to let these things slip, but important to bring them up to date. You will, of course, want to also recast your financial projections and budgets for 2017 in light of current conditions. Check out our Business Budget Smart Sheet to help you whip your budget into shape.
  2. Stay informed about health care: Donald Trump has promised to repeal Obamacare. This will have unpredictable repercussions for companies with employee health plans. It would be wise to anticipate the worst, which is health insurance costs rising substantially. On the other hand, you may no longer need to provide health insurance, which might save you a ton of money. The best advice is to stay informed.
  3. Reassess your capital structure: Do you have enough capital to fund your operation and expansion in 2017. If you plan to grow your business at the start of the year, now would be an excellent time to line up a commercial loan from IOU Financial. Our streamlined process can provide loans of up to $150,000 in as little as one business day. Whether you plan to move to bigger quarters, increase your inventory or add another shift, an IOU Financial business loan can get you ready for 2017 with the capital you need, quickly and hassle-free.
  4. Set aside contingency funds: An excellent 2017 resolution would be to earmark some of your profits for a contingency fund to handle unexpected cash crunches. A proper emergency fund should be able to keep your business afloat for three to six months. You can, of course, supplement your contingency fund with a quick loan from IOU Financial. Unlike a bank, we respond to emergencies immediately with fast funding.
  5. Review your insurance policies: You should review at least once a year your liability insurance, key-person life insurance, health insurance and so forth. The insurance market is quite dynamic, and it’s always a good idea to find out whether money-saving policies are available.
  6. Stay informed about 2017 tax changes: We already mentioned the Obamacare changes that are brewing. Mr. Trump has also promised a giant tax cut for businesses and a relaxation of regulations, all of which could have a major impact on your business finances. If necessary, confer with a tax specialist to ensure you understand the latest rules.
  7. Check the latest salary guide: Every year, several publishers put out the latest industry salary guides. See how your pay structure compares to your industry statistics – you may need to modify you pay structure if you are looking to recruit good people.
  8. Use cash accounting to advantage: Many small businesses use cash accounting, in which income is recognized at collection and expenses realized at disbursement. To lower your 2016 tax bill, prepay expenses and delay collections. This will shift some profits into tax year 2017, giving you an extra year to hold onto them, when tax rates might be lower.
  9. Evaluate your offerings: Depending on what type of business you run, it might be a good idea to look at the products and services you offer and see whether some changes are in order. If you are a merchandiser, you can look at your mix of products and eliminate the weakest performers, and/or extend your range of merchandise to new areas.

One last thing: Happy New Year from your friends at IOU Financial!

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.


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.



3 Steps to Plan for Successfully Expanding Your Business

Expansion is an exciting prospect in the life of any business. Normally, it denotes that your business is doing well and will benefit from growing bigger. It’s also a challenging prospect, in that it can interrupt your normal operations and require additional resources, such as a business loan. Expansions are risky, and there are always obstacles in the way. What do you have to do to maximize the chances of success?

We’ll cover three steps to plan for a successful expansion: know your numbers, prepare a plan, and secure financing. While these steps don’t ensure success, failure to take them is likely to cost your business money, limit growth potential and even risk its survival.

Know Your Numbers

Before plans are even started, make sure these changes will really boost your business growth.  Determine whether your business needs the expansion based upon your cash flow: sales volume, your costs, and the difference between the two (your margins).

You might find that you’re not really growing and therefore expansion is not a good idea. If you find yourself in this position, work on removing obstacles to your growth before moving forward. These obstacles could include:

  • Not meeting your sales targets: Do you have the right marketing strategy and sales team? Do you offer the right product or service mix?
  • Not containing costs: Do you have a handle on your business expenses and keep them under control? Are you racking up bad debts due to poor collections?
  • Spread too thin: Are you working 100 hours a week and making bad decisions because you’re not getting enough sleep?
  • Not exploiting opportunities: Could you grow your sales and profits by buying more inventory, adding personnel/equipment or expanding your operations?
  • Not managing your cash properly: Do you sometimes run low on cash and have to postpone disbursements or purchases? Is your working capital too puny to optimize your revenues?

Prepare a Plan

You will never be able to anticipate 100 percent of what you’ll need for growth and expansion, but creating a complete business plan can reduce your unknowns. The plan should specify:

  • A roadmap to execute the expansion, including acquisition of new equipment, fixtures and other assets
  • Estimated one-time costs and new fixed costs, including financing costs
  • Anticipated changes to sales and margins
  • Amount of downtime expected
  • Timeline and strategy for recruiting additional staff
  • Anticipation of things that could go wrong and how much will be held in reserves

Make sure your business plan is detailed, complete, and written down.

Secure Financing

Once you know your numbers and have a plan, you are ready to seek financing. Most small businesses are not able to finance the expansion of their location out of pocket without stretching their funds too thin and need a loan.  You might turn to a bank, but banks reject many loan applications simply because of credit scores, and the slow, tedious application process involves a lot of paperwork.

To save yourself a lot of time and hassle, you might consider a trusted alternative commercial lender. There are a variety of options online that can do microloans, cash advances, or small business loans targeted for specific purposes like equipment leasing or working capital loans. Alternative lenders may be able to weigh other factors beyond credit score, like the overall health of your business, and provide quick turnarounds, some even as little as 24 hours.


If you decide to go with an alternative lender, make sure to research and vet them thoroughly, and educate yourself about their rates and their repayment terms. The last thing you want to happen is to disrupt your cash flow.

If you follow these steps, you will be well on your way to planning for a successful expansion! You can contact IOU Financial if you have questions about these steps and how to make financing your expansion a reality.

Why Your Business Might Wow an Online Lender but not a Bank

Banks operate under a different set of specifications when it comes to business lending. They often offer many additional services, and as such, have traditionally taken a more conservative approach to selecting businesses to lend to. The most obvious characteristic that banks emphasize is credit score. Less than 800 (out of 850), and they’re usually not too impressed. Of course, with a credit score that high, it’s not hard to find organizations willing to lend you money.

Making It Real

Alas, most small-business owners can only dream of that kind of credit score. It’s no secret that when you’re running your own business, decisions have to be made that might negatively affect your credit score, even if you’re running a very successful enterprise. That’s why it’s a shame when we speak with an owner that thought the only place to secure a business loan was from a bank, and had been repeatedly turned down. Our mission is to reach business owners that know that there is more to a successful business than a credit score.

What’s the difference between how an online lender and a bank might view your business? Two words: cash flow. You see, online vendors value your cash flow as much as your credit score. If you have a business that generates day-to-day cash flow, we know that’s impressive, even if your credit score is sub-par. That’s just one of the reasons online lenders have a much higher loan-approval rate than banks. Here at IOU Financial, we pre-approve 85 percent of the business loan applications we receive.

Keep in mind that no loan officer at a bank was ever fired for saying no to a loan application from a business with a lower credit score. Unfortunately, their current lending procedures don’t take into consideration lots of other factors that can be used to measure a business’ health, growth, or ability to pay back a loan. Providing additional information that a bank hasn’t asked for can create confusion and almost never has a positive impact on gaining approval.

WOW Factors

Online lender on the other hand, look at a variety of other factors.  Wondering which ones really impresses us?  Here are 5 more factors that that you can use to wow an online lender:

  • You own at least 80 percent of the business you operate, or 50 percent if you partner with your spouse
  • You’ve owned or purchased a business that’s been operating for at least one year
  • Your business generates at least 10 bank account deposits per month (we’re talking about retail and e-commerce businesses)
  • You have at least $100,000 in annual revenue
  • Your business bank account has an average daily ending balance of at least $3,000.

Meet these criteria, and we’ll say. “Wow.” Unlike a bank, online lenders can typically provide you with an answer the same day or even immediately. Our advanced software quickly evaluates dozens of data points like the ones listed above to provide you with an immediate loan decision.

As an online lender we also appreciate the fact that your reasons for borrowing vary from one business to the next. True, almost half of our customers use our loans to purchase equipment, but a sizable number put the money to work expanding their business, plugging a temporary gap in cash flow, purchasing/building inventory, or pursuing some other goal.

Turn the Tables and Let an Online Lender Impress You

OK, we’ve made it clear how you can impress us. But we also want to wow you too. One way we do this is by taking the red tape out of our 3-minute business loan application process. Not only is it quick to apply, when approved, your money will be available within a day or two, and deposited directly into your business bank account.

Worried about the interest rate?  Believe it or not, online lenders; rates can be very affordable, and often much less than the cost of merchant cash advances. Your loan is repaid with fixed automated daily payments made directly from your bank account, helping you avoid big monthly payments that are due all at once. What’s more, at IOU, we never charge you upfront costs to apply or qualify for your loan, we are happy to renew loans once you’ve repaid 40 percent of the principle, we don’t charge pre-payment penalties, and we charge simple (not compound) interest on your unpaid principle.

So what are you waiting for? Does your business have some of the wow factors we mentioned? There’s no reason to wait. Find out for yourself how easy it is to apply for a loan today.

5 Things Your Bank Won’t Say About Small Business Lending

We are not out to discredit banks or bankers, but we do believe that many potential borrowers make unwarranted assumptions about banks that we’d like to clear up. The bottom line is that sometimes a bank is a good place to get a small business loan, and other times it’s not.

  1. Banks Are Not Impartial

The small business loans you will be offered by your bank will be “products” that have been prepackaged for the “average” consumer. Certain products are favored and the bank pushes these, often offering incentives to loan officers who sell these products. This is not to say the products aren’t good, they just may not be good for you. Don’t expect you banker to tell you that, however.

  1. Most Bankers Are Not Credit Advisers

Even though bank officers may have fancy wood-paneled offices and wear expensive clothing doesn’t mean they have any certifications as credit advisors. For example, the average banker doesn’t have FICO Pro Certification, a basic credential that attests to knowledge of how credit scores work. Don’t expect this kind of expertise from the average banker, and if you need help with your credit history or score, be sure to speak to a qualified expert.

  1. Bank Loan Officers Are Not Human

Well, that’s a little extreme. What we really mean is that most banks use computer algorithms to determine whether you qualify for a loan and how much interest to charge you. Typically, the loan officer you visit takes down information and forwards it to the loan underwriters at the bank’s headquarters, who will not know or care one bit about any special circumstances attached to your small business loan request. For example, if you want to open a boutique in an up and coming area of town, some far-away analyst will look up the address, see that it’s listed as depressed and likely count that against you. In reality, the area may be on the rebound and your business plans may make a lot of sense.

  1. Banks Are Not the Only Alternative

Often, when entrepreneurs are turned down for bank loans, they feel that the door to credit has been shut on them. IOU Financial has made small business loans to thousands of such individuals, because they take the time to understand the full picture. Non-bank commercial lenders are looking for ways to say yes to your loan application. They have the flexibility to take into account a broad range of information beyond your credit score. Furthermore, non-bank lenders may be able to work out payment terms that banks do not offer. Banks can be a great resource, but remember that they are just one kind of resource – when it comes to small business loans, you have other options.

  1. Where Did My Loan Officer Go?

One dirty little secret among bank employees is that the good ones don’t remain at one place for very long. If your banker can draw a bigger salary from a competitor, chances are you’ll be assigned a stranger the next time you visit. Small business lending companies are run by entrepreneurs who are in it for the long run. If continuity of service and a personal relationship are important to you, think outside the box, er…bank, to include lenders where the owner is on premises and eager to meet with you.

For more small business lending advice be sure to subscribe to the IOU Financial blog.

The 3 Key Factors That Determine Your Rate for a Business Loan

There is nothing unusual about a small business seeking to borrow money. The two biggest questions the owner must face are:

  • How much will I be able to borrow?
  • How much interest will I pay?

The two questions are interrelated, because they are tied to how a lender evaluates your loan application. Whereas banks look almost exclusively at credit score, a good online lender such as IOU Financial takes a more holistic approach to your business and determines your small business loan rate accordingly.

The Holistic Approach

The three key factors we use to determine interest rates are:

  1. Credit Rating: Unlike a bank, we use credit ratings as just one component when underwriting a small business loan. The credit rating is a mix of your FICO score and your credit history. Because we look to other factors as well, a low credit rating doesn’t disqualify you from getting a loan at IOU Financial or force you to accept an astronomical interest rate. In fact, our rates are quite affordable and about half of what you’d pay for merchant cash advances. Folks can boost their credit ratings by handling credit responsibly, pay back loans on time, and keep your company’s debt-to-equity ratio reasonable.
  2. Cash Flow: Lenders set interest rates based on prevailing economic conditions and the risk that the borrower will default on the loan. One way to reduce that risk is to have a positive daily cash flow – that is, you collect more money than you spend on a day-to-day basis. IOU Financial considers this to be as important as credit score. You see, we don’t bill monthly the way banks do. Instead, you repay us daily in fixed, manageable amounts. If you show that you are consistently generating daily positive cash flow, we know that you will be a less risky borrower and can offer you more attractive rates.
  3. Financial Condition: Finally, we take a look at several indicators of your business’ risk. We want you to own the bulk of the company yourself, or share ownership with your spouse. Long-lived companies are less risky, so we want to see borrowers with businesses that are at least one year old. If you run a retail business (online and/or bricks and mortar), we want to see you generate monthly at least 10 bank deposits. Higher volumes can help with loan access and interest rates. It’s also helpful if you earn an annual revenue of at least $100,000, and that you average at least a $3,000 end-of-day balance in your bank account.

Affordable APRs

We use advanced computer algorithms to assess all three key factors when determining your loan APR. These quickly tell us whether you qualify for a business loan (85 percent of our applicants do) and how much interest you’ll pay. The nice thing is that we don’t charge fees for applications, processing or early repayments. You are charged simple interest on the amount you still owe, and no more.

We invite you to apply for a loan of up to $150,000 from IOU Financial. You’ll find our service is superfast and you’ll appreciate the low APRs available. Contact us today at (844) 750-8468!

For more lending advice be sure to subscribe to the IOU Financial blog.