That’s Business

Every business sector has its flaws, and finance is no exception. There’s always a catch when you’re dealing with money, and at FaaSfunds, we’re here to make sure it’s not a Catch-22. With so much to understand and be careful of dealing with business funding, we’ve made a guide to help you make smart financial decisions.

There will never be free money. Even if you apply for grants or seek investments from angel funds, there’s always going to be requirements and paybacks that not everyone can meet. Loans aren’t free money, either, and there are several things you should be aware of before you apply. Since money is a business itself, lenders are out to make a profit off of your debt, so it’s good to be aware of their practices.

According to Harvard Business School, small businesses are the driving force of American job creation. In the 15 years leading up to the 2010 census, small and new firms were responsible for creating two out of every three new jobs. Small businesses are obviously vital to the American economy, so why is having one so hard? In order to have a successful small business, it’s important to understand every aspect of your finances and maintain your debt. Here, we’ll explain the good and bad sides to maintaining business finances and getting funding.

Business Debt

Debt isn’t technically a bad thing, as long as you know how to use it. According to the Federal Reserves Small Busines Credit Report for 2018, 70% of businesses have outstanding debt. But the thing is, lenders are going to let you acquire new debt if they trust you to pay them back, and the only way to do that is to have a proven track record or repayment.  

The Bad News

According to Steve Goodrich, managing partner of North End Financial, in an article for Fundera, the single best predictor for paying off debt is the number of years a company has been in business. Roughly 50% of companies survive past the five-year mark, and if they can make it past that, it’s a pretty good indicator that they’ll succeed in the long run. After that five year mark, it’s significantly easier to get funding. 

But what about in the meantime? That’s the catch with getting a business loan – if you’re a new business and don’t have a track record yet, it’s a lot harder to get a loan. The odds are seemingly stacked because already established businesses that turn a profit are usually the only ones likely to get funding. Startups are hard to get business funding because there’s no way to evaluate them.

This is where personal credit comes in. Often, when a business is just starting, owners and founders have to get funding based on their personal credit score. This can be good and bad. If you’re just starting a business, it’s a good idea to try and build up your personal credit first.

The Good News

The good thing about trying to find business funding as a new business is that there are options, albeit they’re rarer. How does any business get started, then, if it’s so hard? The answer lies in raising capital. For more technology/online-based, scalable businesses, they’ll often go to venture capitalists and investment funds. For more concrete, community-based businesses, options can be more limited.

Grants are hard to acquire, but finding investors can be a little easier if you have a solid business plan. There are sites specific for pledge crowdfunding (Kickstarter, Indiegogo), and even newer sites popping up for something called equity crowdfunding – where accredited (and according to some state laws, non-accredited) investors can give money to companies and instead of receiving a product or swag, they receive a stake in the business.

There are also loans structured specifically for startups. The Small Business Administration has a microloan program, which gives small loan amounts to budding businesses at very reasonable rates.

If you’re looking for a traditional loan, or feel it would work best, people were the least dissatisfied in 2018 getting financing from a small bank, according to the Federal Reserve. Of those who got small bank loans last year, only 46% reported facing challenges, as opposed to 53% with large bank loans, and 63% with online lenders. 

Within those numbers, however, the reasons for being dissatisfied varied. The most cited issues with small banks were their waiting times for approval and funding, and the most cited issue with online lenders were their high-interest rates and unfavorable repayment terms. 

But then there’s the logistics of getting business funding, like how much of a credit risk your business is. Small banks only approve 47% of those considered “high credit risk,” as opposed to 76% for online lenders.

These are all the things you’ll have to take into account when trying to get business funding. If you have bad or little business credit, an online lender might be your best option, even though they have higher interest rates.

Do Lenders Want You To Succeed? 

The world of finance isn’t really structured to help small businesses succeed. It’s more or less structured to keep big businesses successful. Just remember, lending is a business too. If you can’t pay or keep up with their terms, they’ll do whatever they can to get money from you. If you’re starting a new business, there are some things you should keep in mind that will not only set you up for success but also help you make a case to get funded. 

Tech market intelligence platform CB Insights compiled a list of the top reasons that startup businesses don’t make it. At the top of the list was a lack of market need – of the failed businesses included in the research, 42% of them failed because they didn’t fill a market void, or there wasn’t a demand for their product. It’s important to analyze the market you’re looking to enter – whether it be a tech market or a retail market – to make sure that there’s an actual need for your product. You wouldn’t make a lemonade stand in the middle of the winter in Minnesota, would you?

The next most popular reason businesses fail, unsurprisingly, was running out of cash. 29% of failed startups cited this as the reason they didn’t make it. Next came not having the right team, getting outcompeted, and then finally, pricing and cost issues. Most businesses surveyed were within tech-related fields, but even if you’re not a tech startup, there are valuable lessons to be learned from the failure of other businesses.

So What Does All This Mean?

When you want to get your business funded, there are a lot of obstacles you’ll have to face. That’s the ugly side of business financing – it’s like a game of blackjack, and you have to play your cards right in order to guarantee you’ll come out of it successfully. Some of it is luck, and a lot of it is skill.

If you want help, though, that’s why FaaSfunds is here. If you’re starting a business and want to build your business credit, or you’re looking for funding options, or you’ve been around for a while and want to know what your next move should be – FaaSfunds is your go-to business finance tracker and funding advisor. We’ll match you up with the funding that best fits your business, no matter your credit score or financial history. If you want to know what FaaSfunds can do for you, click the button below to get started today.

Let’s break it down: what do you get at FaaSfunds that you don’t get with a traditional loan broker?

FaaSfunds is similar to a loan broker in the sense that we facilitate and consult business loan deals. We connect businesses that need funding to lenders. We have a marketplace of dozens of lenders ready to work with businesses to finance their purchases. Through this service, we open up business loan options to businesses who need funding. This relationship between us, business and lender are mutually beneficial – every party benefits and we pride ourselves in being able to provide the best deal, every single time.

With FaaSfunds, you’re able to get several key things you don’t get with a loan broker:

  • Faster service
  • Greater efficiency with our smart application
  • No “shotgun approach” to running credit
  • Decision-making control
  • Transparency

Faster Service

We get you the best deal without hesitation. Once you enter your credit information, you’ll know your options almost immediately. FaaSfunds, though our unrivaled software, is able to compare your financial information with data points from lenders, giving you your best chance of approval and best rates all at once. With a loan broker, you have to wait quite a while for them to apply your information to lenders, and even longer to hear back.

Efficiency

Our application is smart, and that makes it easy. This streamlined application process means you only have to enter your information once, and you’re immediately connected with the business loan options you need. This saves you time, and it saves you labor. Instead of having to apply to several loans, and instead of having to wait for a broker to do their thing, you’re able to do it for yourself almost immediately. That way, you can stress less and spend more effort on running your business.

We Don’t take a “Shotgun Approach”

Generally, a “shotgun approach” is a strategy used by loan brokers to shop your business loan in a way that applies you to several loans at once, and in turn, this runs your credit multiple times. Multiple inquiries into your credit can sometimes affect your credit score, bringing it down. At FaasFunds, we don’t apply you to several loans at once, we only show you the loans you’re most likely to qualify for and their rates, putting the best rates first. That way, you can choose which funding option you want, and only have one credit inquiry at a time.

Business Loan Flexibility

We offer flexible control of the decision-making process. Since you can fill out everything on your own and immediately see your options, this gives you the power to decide what you want. We won’t pressure you to choose something you don’t want, we’re only here to help you make decisions and figure out what’s best for your business. You can change your mind without getting trapped. Since you get to see what you’re options are, and you have the power to decide what you want, we just give you the tools and information to make informed decisions.

Business Loan Transparency

You’re able to see every step of the process. You can see where your application is in the funding process, and this means you’ll be informed every step of the way. There’s no more guesswork, now you can see what’s going on for yourself. We offer this open and transparent application process to make sure you know what’s going on, and you can know all your options.

To get you the best deal, we offer you all these things a loan broker doesn’t. At FaaSfunds, we’re changing the funding game but helping you to make informed financial decisions while still giving you control and transparency in the funding process. A loan broker is no longer the only one who can help you make business loan decisions, and even though FaaSfunds is via online software, we’re still a team of real people who care about your financial health. That’s why you’ll have a funding specialist readily available to answer any and all of your financial questions. We’ll help you monitor your business credit, and even after you receive a loan, we’ll be there to help you take a plan of action to improve your credit in the future.

Contact us today to find out what we can do for your business finances, and how we can help you get funded.

What are Broker Fees?

Often, when you make purchases online, you’ll notice a fee tacked on to your total when you check out your shopping cart. These are transaction fees. Whether it be concert tickets, a hotel or an Airbnb, there are included fees that cover the site’s facilitation of your sale. They’re connecting you with a seller (Ticketmaster, for example, sells tickets for an artist or a venue), and naturally, they’re going to charge you for that connection.

In this same way, broker fees are service charges by brokers for executing transactions. Brokers are intermediaries between a sale and a purchase, so their fees cover their facilitation services – they help buyers make informed purchases. It’s usually a buyer that pays them, not a seller.

What services do brokers provide? Usually, they’re responsible for consultations, negotiations and carrying through the actual sale. That’s what they’re being paid for – facilitating a sale, and providing this service to buyers and sellers.

In the equipment industry, equipment leasing brokers are connectors. They match businesses that can’t afford to buy equipment outright with lenders, and also with equipment dealers. Lenders finance the transaction, and the equipment dealers complete a sale. When it comes to getting business loans, commercial loan brokers connect you with commercial loans. They’ll take your business information and apply to different small business loans in order to find you the best rate and deal.

Often, if you end up using a loan broker’s services, the fees will either be paid to them directly or included in the cost of the loan. Depending on the broker, they’ll only charge you if you get the loan, but some will charge you even if you don’t. In most cases, unless you possess a significant amount of knowledge about the financial industry surrounding loans, a broker can save you a lot of time and stress – they do a lot of the heavy work for you.  

What are Brokers Good For?

Commercial loan brokers save time. If you’re wanting to go directly to a lender, they’re not going to tell you all of your options – they’ll only tell you their option. Doing this individually for each lender takes a lot of time, so a broker does all that work for you.

Loan brokers usually get you a better loan rate than you could get on your own because they go to multiple lenders. Not to mention, they have experience in the industry – they know a lot about what they’re doing and they have established relationships with different lenders. They can interpret the terms and financial jargon, and help to clear things up for you if you’re not used to the complicated language.

But How Much Do They Cost?

Loan brokers are relatively unregulated. “Small business owners are increasingly likely to encounter brokers who are out for themselves,” said Brayden McCarthy for Forbes. “In fact, unscrupulous players have emerged like wolves in sheep’s clothing, and are deliberately building tricks and traps into the loan process to pad their pockets and ensnare borrowers in a cycle of high-cost debt.”

This leaves a lot of room for the business owner to get taken advantage of by predatory broker practices. It will take time and effort to research and choose a broker, and you’ll have to make sure you ask them all your fee-related questions upfront. The cheapest loan brokers will be those working with community banks and credit unions, and those helping to secure SBA loans. Their commission usually ranges from 1%-3%, but this is often only for small banks, and those types of loans are the hardest to secure, especially SBA loans.

Other loan broker fees range in price. Often, lenders will pay brokers compensation for referral, but that doesn’t mean that the broker will pass that on to you by making you pay less. Brokers can charge up to 25%-30% in commission on the loan you receive, which can be pretty steep, especially if you’re borrowing a larger amount.

What Does FaaSfunds Offer?

You should always be cautious about where you’re putting your money when it comes to loan brokers. If you’re iffy on the whole concept, FaaSfunds offers an alternative to brokers. We facilitate a loan just like a broker, but we use a much more efficient approach. Using an automated process, we instantly let you know the lender who will give you the best rates and terms, much faster than a broker can.

We don’t run your credit multiple times, either. FaaSfunds doesn’t apply you to the loans (also known as a “shotgun approach”), we only compare your financial information with data points from lenders, letting you know what you’re most likely to get approved for and which places will give you the lowest interest rates. By leveraging technology instead of human brokers, we’re able to offer funding with lower fees, as low as 2.9%.

We want to help businesses make informed funding decisions, sans the broker. We also offer consultation and advice, and when you sign up, we’ll give you access to a knowledgable advisor. We’ll answer any and all questions you have – we just want to help you make the best decisions possible for your business.

We keep mentioning our “FaaSmatch” algorithm – it’s how we match your business to the best lending options out there. But how exactly does it work? Let’s break it down.

The “FaaS” in FaaSmatch stands for “Financing as a Service,” which is what FaaSfunds does. We’re taking the broker out of getting a loan, and making it easier for you and your business to find the lending options you need. We’re a business-to-business service, and our finance-matching is the service we offer.

FaaSmatch is an algorithm because it uses software analytics to automatically sort through your financial information and compare it to our lending marketplace. This way, based on data points, it can match you up with the lender that will give you the lowest rates and best terms, along with the best chance for approval. By using this automated process, you can instantly see how different lending options compare, and you can understand which one will work best for your business.

Let’s Break it Down

What is an algorithm? By definition, it’s a process or set of rules to be followed in calculations and other problem-solving operations. They’re created by constructing a set of directions, much like a map, that can be reduced to three logical operations – “and,” “or,” and “not.” You can use algorithms to solve a Rubix Cube, or you can use algorithms to run search engines.  Algorithms are everywhere. They’ve become a colloquialism. They determine what’s advertised to us and they determine what shows up in our news feeds. FaaSfund’s algorithm is different. We saw the need for an easier way to find lending options, so we spent countless hours dedicated to doing just that.

Our algorithm, called “FaaSmatch,” is a set of programmed commands that looks at financial information and compares it to data from lenders. It looks at credit and other financial factors and analyzes it alongside compiled information from our lenders to determine which loan and lending options make the most sense for each business’s financial situation.

The Goal of the Algorithm

Stefan Friend, head of product development at FaaSfunds, explains that the goal of the FaaSfunds algorithm is to help users make informed decisions.

“It’s a simple way to match a business’s credit profile holistically to the right financial products for them,”  said Friend. “Using a proprietary algorithm, we take a close look at a business credit profile and score and weigh them against the criteria for certain financial products.”

This makes the funding process quick and easy, and without the need for a broker or extensive paperwork. The FaaSfunds algorithm automates the funding process so the business owner is in charge of their own funding, but FaaSfunds lets them see what their best option is.

“Ultimately what this does is help them have a better view of the best product for their business,” said Friend, “and allows them to have a firmer grasp on their business’s financial future.”

Take a look at FaaSfunds today and see just how well the FaaSmatch algorithm works for you.

If you’re frustrated about your business being denied funding, you’re not the only one. According to the Federal Reserve, only 47% of small businesses received the amount of funding they applied for last year. Of the 53% that are denied funding, 32% received some of what they needed, and 22% received none.

Make no mistake, funds are not unlimited and lenders can only approve so many business loans. There are, however, fundamental reasons that businesses get declined. At FaaSfunds, we’re here to break down those reasons and help your business get approved.  Here are our top four reasons why businesses get denied funding.

Low Business Credit

According to the Federal Reserve, businesses considered a “high credit risk” had the most financing shortfalls. In 2018, 91% of companies with lower credit scores (usually, under 620) that applied for less than $250,000 did not get the full amount of financing they sought. Lenders are less-inclined to fund high credit risks because they don’t have the personal guarantee of repayment. Meaning that since your credit signifies your history with paying off debts, a lower score often means – to lenders – that your repayment history hasn’t been stellar.

If you have bad credit and have been denied funding, there are several alternative ways of getting funded – some online lenders cater to businesses with low credit, and options like merchant cash advances and invoice financing sometimes don’t look at business credit. The interest rates are often higher and the terms shorter, but if you can manage to prove with these alternative funding options that you’re capable of paying off debts, it can improve your credit and your chances of being approved in the future.

Not Turning Profit

In 2018, 67% of businesses that broke-even or weren’t profitable were denied funding. Being profitable can be a huge determinant for lenders – they want to see that you’re bringing in enough money to pay them back. Forbe’s calls this “quality of cash flow.” They describe that “having high-quality earnings means a company’s financial statements show stable, persistent and predictable earnings that are related to the core business.”

It’s not always possible to be a profitable business right-away, so it’s important to show that you’re capable of paying off debts. If you’re not making a profit, you might have to provide significant collateral or prove that you make enough revenue to cover the loan cost. It’s also an option to add a personal guarantor to the loan, saying that should you default, they’ll pick up payments.  

Geography

The same Federal Reserve study found that geography can also influence if a business gets funded or not. 56% of businesses located in urban areas did not receive the funding they asked for, as opposed to 45% in more rural areas. This fact might sound a little odd, considering that urban areas have more people, but actually, rural businesses out-perform urban ones.

The reason behind this is because urban businesses are met with more competition, higher operating costs and higher taxes. It costs significantly more for a business in New York City to find and pay labor than a business in Albemarle, N.C. For more perspective, the average rent in NYC is $3519/month, while the average rent in Albemarle is $564/month. These lower expenses for rural businesses easily translate to profits. Rural businesses also tend to be older and have predictable expenses, and well-established businesses are more likely to receive funding. Along with these aspects, the fact of the matter is that it’s a lot easier to get funding from a small, rural bank than it is from a national bank.

On a less statistically significant level, according to the same survey, the Federal Reserve found that companies in New England had the hardest time getting funded while those in the East South Central (Alabama, Kentucky, Mississippi and Tennessee) had the easiest time. This is on par with the rural vs. urban divided in business funding. New England is more developed and has a population density of about 210 people per square mile, while the East South Central has a population density of about 98 people per square mile.

Business Age

Most businesses younger than five years old haven’t really established credit, and that explains why according to Federal Reserve data, around 63% of them don’t get the funding they ask for. These businesses are considered startup firms and don’t often have enough established business credit to qualify for funding.

Fear not, though, because there are a lot of options for startups to get the financing they need. Certain crowdfunding opportunities can help raise money via small investments, while the SBA has a microloan program designed for startups. You can also receive grants from companies and investors.

The Big Picture

Often, one single factor isn’t going to determine if you’ll get denied funding Each lender has different parameters for approval, and if you get denied by one, it doesn’t mean you’ll get denied by all of them. Lenders look at a variety of aspects and take many things into account, so don’t get discouraged if you fit a few of the profiles mentioned above. There are hundreds of funding options out there, and FaaSfunds is here to help you understand why you got declined, and look at your business finances and help you figure out your path to approval. Check us out today.

Most people have a credit card. Chances are you have one for yourself or your business, so you’re familiar with how simple and easy they are to use. Business lines of credit work in a similar way. Using credit for your business can be a great idea to boost your financial health and fund large purchases.

A line of credit isn’t technically a loan. It’s an agreement that establishes a maximum amount a business can borrow. A line of credit can be accessed at any time as needed as long as it doesn’t exceed the maximum limit. Interest is only paid on the money used, and once it’s paid back, you can use it again – much like a credit card.

And like a credit card, the lender sets a maximum amount and the business can draw from it using either checks or a card. Borrowers can request a certain amount, but they don’t have to use it all. This flexibility is the main appeal of a line of credit, which is the most ideal for emergency funds – just in case something happens and you need your cash quick. This can help you avoid taking out working capital loans, or “payday” loans, with incredibly high interest rates.

Like using any form of credit or money that isn’t technically yours, they can have limitations and certain dangers, so it’s advised that they’re used responsibly.

Do You Qualify?

Qualifying for a line of credit is a little easier than other loans, but there are many variables associated with getting one. The maximum amount, duration, repayment terms and interest all depend on your business’s already established credit and revenue. Usually, new businesses may be able to qualify for smaller lines of credit while more well-established businesses can receive larger lines of credit.

How to Apply

Like most loans, you can get a line of credit at a bank or an online lender. Banks have long, intensive line of credit applications – they require a lot of paperwork and wait time. Online lenders will offer quicker, easier applications (and chances for approval), but will often have higher interest rates. You’ll need all the basic documentation to apply:

  • Valid driver’s license
  • Voided business check
  • Bank statements
  • Balance sheet
  • Profit & loss statements
  • Credit score
  • Business tax returns
  • Personal tax returns

What About a “Revolving Line of Credit?”

Line of credit financing is sometimes referred to as “revolving” because it usually doesn’t require you to apply again and again for a loan. This definitely comes in handy. Once you pay off what you’ve spent within your credit limit, you can use up to that limit again without applying again. It’s always there, and you don’t have to worry about filling out all the paperwork each time you pay it off. This is part of the allure of a line of credit – you save time, energy and stress by not having to apply for multiple financing options.

How do They Compare to Other Loans?

Business lines of credit traditionally have lower interest rates and closing costs, but can be pretty big on punishment. They have strict repercussions if you exceed your limit or miss a payment. Traditional loans, too, are usually used more for one time, larger purchases – like a company car. Lines of credit are best suited for repeated spending or cash flow. This doesn’t mean you can’t make large purchases with a line of credit, but often, traditional loans are better options for these types of expenditures because their interest doesn’t vary depending on what you spend.

Since business lines of credit are so flexible, they’re really attractive to use for recurring expenses. Things like:

  • Operating expenses
  • Payroll
  • Cash flow gaps
  • Emergency funds
  • Seasonal expenses
  • Investments

Do They Have Term Lengths?

No, lines of credit don’t usually have term lengths, but they do have different maximum amounts depending on where you get them. Online lenders usually will only offer small- and medium-amount lines of credit. These both don’t really have term lengths, but the “small” and “medium” refer to the maximum amount of money you can withdraw. You can withdraw and pay back funds whenever you want. Larger-amount lines of credit are usually only given out by traditional banks.

So how do They Compare to Credit Cards?

It’s true that they’re both forms of revolving credit, but credit cards have several limitations that lines of credit don’t.

  • Credit cards are typically paid monthly. Lines of credit usually are not.
  • Credit cards typically have higher interest rates.
  • Credit cards charge fees for cash advances and balance transfers.
  • Lines of credit give you access to cash. Credit cards do not.

What Will It Cost You?

Interest rates are set by the lenders and the market rates, and they vary widely according to your business specifics. However, these rates are often lower than a business credit card.

To help understand the costs associated with lines of credit, here’s an example:

You run a restaurant in a small college town. During the summer, when all the students head home or to internships, you have a lull in your business. In order to pay your expenses in June, July and August, you need some extra cash. You know that after these three months, your business will pick up significantly. So, you apply for a $25,000 line of credit.

With it, you end up spending $20,000 on your rent, payroll and supplies for those three months. If your interest rate was 10%, you’d pay back that $20,000 plus 10% in interest, for a total of  $22,000. Once you pay that off, you have $25,000 again and you can keep it to use when you have other lulls in business, like winter break.

This can all sound very overwhelming, but that’s why we’re here. When you sign up with FaasFunds, we analyze your business needs and finances and figure out if a business line of credit is the best option for you. We’ll also link you up with an industry expert to help you through tough financial decisions. Navigating the financial world is tough, so make it easier with FaasFunds.

Building business credit is like building trust. The more of a clean track-record you have with paying debts, the more likely you are to be trusted in the future with them. Think of it as a resume – if a resume exemplifies how well you’ve performed at previous jobs, your credit is a history of your finances, and how well you’ve paid off debts. Your lenders are your references, and they keep a trail of how well you’ve repaid them. They then report that history to compile a credit score. If you perform well at a job, it builds your resume. If you don’t, then not so much. If you have a good resume and you have a good track record with your employers, you’re more likely to get more interviews and job offers – credit works the same way. When used responsibly, it will get you approved for more – and better – loans.

Why is establishing business credit so important? It can deeply affect your potential to get funding. In an article published by the Small Business Administration, they cite that the Nav American Dream Gap Survey revealed in their 2015 study that 45% of small business owners did not know they have a business credit score, 72% didn’t know where to find information on it, and 82% didn’t know how to interpret it. This narrates exactly why learning about and establishing your business credit is so important.

Many business owners don’t understand their credit health, and it can in-turn affect the financial health of their business. Here’s our take on why business credit is so important.

Growth

Along with providing a service to your customers, growth is usually one of the top long-term goals of a business. Building business credit is important because it helps prepare your business for the future. If you want your business to grow, you have to first establish some sort of credit. Business credit is used to determine if your business is qualified for different financial products. The more credit you have, and the better that credit is, the more purchasing power you have. Your purchasing power is exactly how much you have to invest in new assets, and if you maintain good credit, it runs parallel with your company’s growth.

Business credit also increases your chances of getting financed with favorable terms. If you build your credit, you’ll receive loan amounts, interest rates and term-lengths based on it. The higher your score is, the better these terms are – you’ll get higher loan amounts, lower interest rates, and ideal term lengths. Higher business credit can also get you lower rates on insurance.

Whether it be through a business credit card, a line of credit or getting a loan, building your business credit shows that you can pay lenders back. This builds your track record, proving you’ll be able to take out more loans in the future. Thus, contributing to your business’s growth.

Net 30, Net 60 Approval

It’s not only banks that use credit. If you deal with paying by invoice, having little or no credit can make it harder for your vendors or distributors to approve you for Net 30 or Net 60 terms. Why? Because if you don’t have credit built up, they don’t have anything to go off of. Since an invoice is essentially a form of debt, if you don’t have a record of paying back your debts, they’re less likely to trust you with a new one.

Visibility

Unlike personal credit, business credit makes your business public. Only you and a few other certain parties (lenders, for example) can see your personal credit. This isn’t the case with business credit – as long as an individual or company is willing to pay for it, anyone can see your business credit score.

Since business credit is public information, customers or partners can use that information to determine if they want to do business with you. This might sound intimidating, but most of the time, people won’t want to do business with a company that doesn’t have their credit information public. If you’re not actively building and adding to your business credit score, people will see, and that could mean less business for you.

Personal Credit vs. Business Credit

According to Experian, one of the credit score reporting agencies, keeping your personal and business credit separate is vital. It’s risky to intertwine your business finances with your personal finances, but there are other actual benefits of separating them. Many lenders and creditors are leaning away from relying on personal credit when trying to judge a business’s financial health because it’s not a great predictor for a business’s behavior.

Nerdwallet also says that keeping business and personal credit separate can be highly beneficial when it comes to tax season. It makes it that much easier to track your business expenses for tax purposes, and it’s always better to be on the safe side when it comes to the IRS.

How Can FaaSfunds Help Build Business Credit?

What if you could have on-demand assistance to help you establish your business credit? What if there was a way to manage personal credit and also see how it affects your business’s financial health? FaaSfunds exists to do just that. We’re here to help monitor and make suggestions to help your business credit and navigate the complicated world of making financial decisions. Don’t be part of that 82% that doesn’t know how to interpret their business credit – let FaaSfunds help.

Merchant cash advances aren’t really loans – they’re cash advances in exchange for a percentage of your debit and credit card sales. There’s no need for collateral, and it’s a quick way to get a cash advance for your business, even if you don’t have the best credit. Merchant cash advances work by agreeing to pay a percentage of your daily sales to the lender, this way you don’t have to prove your creditworthiness and can receive funds quickly. They can be paid back through Automated Clearing House withdrawals from your bank account, and since the payback is based on a percentage of sales, the amount you pay back increases or decreases based on daily sales. Merchant cash advances, often end up being the most pricey option for business funding – since they’re paid daily, it can cut into cash flow.

Do You Qualify?

Usually, businesses with little to no collateral, limited history or a lower credit score can still qualify for a merchant cash advance. Almost anyone can get one because most providers have simple eligibility requirements. It can be a convenient way to finance if your business makes a lot of revenue on debit or credit card payments – such as a restaurant or boutique. It’s not so great if you get revenue from invoices.

How to Apply

Merchant cash advance providers will look at your credit card processing statements to make sure that your business brings in enough revenue to pay them back. Some will look at your credit score but often won’t put too much weight on it. Their applications are often online via online lenders, so the process is simple and quick – you can often be approved the same day you apply. The documents you’ll need are:

  • Driver’s License
  • Voided business check
  • Bank statements
  • Credit score (maybe)
  • Business tax returns
  • Credit card processing statements

Factor Rates

Merchant cash advance lenders use factor rates instead of interest rates. Factor rates are usually given in decimal figures as opposed to percentages, and they’re calculated by dividing the financing cost by the loan amount. When all the math is figured out, these tend to be much higher than loan interest rates, unfortunately.  

Factor rates usually range from 1.14 to 1.48 and are determined by similar factors that determine interest rates for a loan – time in business, industry, sales, business credit – and also factors unique to cash advances, like average monthly credit card sales. Be aware that factor rates can be structured to make expensive loans seem cheaper, and you usually have to pay the interest upfront, so paying off your loan early won’t take away from your interest charges.

The average payoff time for a merchant cash advance is around eight or nine months, but can be between four and 18 months depending on your business.

Is a Merchant Cash Advance a Good Choice?

Merchant cash advances have some of the highest fees of any lending option, making them the most expensive type of borrowing for your business. They can offer some decent alternatives to taking out an actual loan, but it’s mostly up to how you’d like your business to operate. Here’s what gives them some appeal to borrowers, despite their price:

  • They’re very quick. If you’re in a bind and need money to run your business, merchant cash advances will provide it quickly and relatively easy.
  • Getting a loan requires you to pay back the same amount each month, regardless of your sales. A merchant cash advance makes you pay a percentage of your sales, so during slower times, you’ll pay a lower amount, and thus not cut into your cash flow as much.
  • Merchant cash advances are also unsecured – they don’t make you offer up collateral. This is valuable for business owners who don’t have the means to put their property on the line.

What Will It Cost You?

The factor rate is calculated by dividing the cost of the loan by the loan amount. To figure out how much you ultimately payback to the provider, you should multiply the factor rate by the total cash advance amount. To make these fees more tangible, here’s an example:

If your factor rate is 1.30 on an advance of $10,000, your total payback is $13,000.

This means that, if it’s being compared to an interest rate, you’re paying back 30% of the amount you borrowed. This may be worth it if you are in a business bind, but in the long run, you’ll be paying significantly more than a usual business loan.

Always make sure you shop around to see if there are other borrowing choices for your business before you choose a merchant cash advance. This can all sound very overwhelming, but that’s why we’re here. When you sign up with FaasFunds, we analyze your business needs and finances and figure out if a merchant cash advance is the best option for you. We’ll also link you up with an industry expert to help you through tough financial decisions. Navigating the financial world is tough, so make it easier with FaasFunds.

Term loans are about as traditional, and popular, as it gets in terms of business funding. If, as an individual, you have student loans or a mortgage, then you have a term loan. As a business, term loans work along these same lines. The stipulations – requirements, interest rates, and terms – vary between banks and online lenders. Online lenders offer convenience and fewer stipulations, but shorter terms and higher interest rates. Banks are slower and have higher qualifications, but offer longer terms and lower interest rates.

A business term loan refers to any sum of money paid back with regular payments for a set term length. They have a fixed interest rate and the term is usually one to five years. They’re typically used for one-time, larger investments – like real estate or large projects.

Business Term Loans: Do You Qualify?

Many businesses can qualify for term loans, but it depends on your credit score, financials and how long you’ve been in business what your terms will be. Your loan length, size, and interest rate will vary based on these important factors. They also might require collateral to secure the loan, and you could lose that collateral if you can’t repay it. Depending on the provider, it’s often harder for startups to get larger term loans, but there are options out there.

How to Apply

Term loans, traditionally, come from a bank. The application process from a bank will be longer and require several physical documents. They’ll usually require a meeting or two. For an online lender, like Kabbage or Funding Circle, the application process is much easier and convenient. They all require the same information, but online lenders off a more streamlined input process. Some lenders may charge prepayment penalties or other fees, so make sure you ask about them before you commit.

What you’ll need:

  • Drivers license
  • Voided business check
  • Bank statements
  • Profit & loss statements
  • Credit score
  • Business tax returns
  • Personal tax returns

What are the Different Types?

Your only options for business terms loans come from either banks or online lenders. They each offer different tradeoffs, depending on what you’re looking for and your credit health.

  • Banks offer the lowest rates, but you need to have good credit and a strong financial history. These traditional loans also take longer to apply for and receive. Getting these traditional business term loans is also hard if you have no collateral to secure them with.
  • Online lenders offer quick access to funds. They’re very easy to apply for and have looser credit and business financial history requirements, but typically have higher interest rates.

Business Term Loan Uses

Business term loans are usually used for large business investments – things that would be pretty difficult to shell out the cash for upfront, or would cut into your cash flow. Term loans are a great option for large purchases because they spread out the payments and make them easier to handle. They’re best suited for things like:

  • Equipment – computers, industrial kitchens, etc.
  • Real estate – such as a new business location.
  • Production – building a new product or beta-testing software.

The goal of getting a business term loan is to come out of it with more money than you spent on it, so it takes a lot of planning and calculation to make sure you’re going in the right direction for your business. For a term loan, like any loan, you’ll end up paying more than your purchase because of interest, but if you play your cards right, it’s almost always worth it.

What Will They Cost You?

Business term loans are one of the simpler funding methods to figure out when it comes to total repayment, but they can still have very complex terms. Here’s a run-down of how the repayment works:

If you’re trying to build an expansion onto your restaurant, you need a loan to make that large, one-time purchase happen. After you’re approved for and receive a $100,000 business term loan and after you purchase the equipment and materials and hire a contractor, you’ll most likely have to start paying monthly payments. Those monthly payments will include a 12% interest over a 10-year period. If the interest is on the principal amount borrowed and not compounded, your monthly payments will be about $933 per month. This all depends on the loan stipulations and how the interest is compounded, but it can give you a basis of how business term loans work.

What Is Amortization?

Term loans are paid in a very complicated way – they amortize. This means that each loan payment doesn’t go equally toward interest and principal amount. Early on in repayment, lenders stack on interest payments and leave payment toward your principal for later on. Through the course of the loan, these payments will start to equalize and eventually the amount to pay toward your principal will surpass the amount you pay in interest. Your monthly payment is still the same amount, only the proportion of interest to principal changes.

Lenders do this so that just in case you pay off your loan early, you’ve still paid most of your interest to the lender. This means you save less than you’d think by paying off a loan before the term is over.

At FaaSfunds, we’ll figure out if a term loan works for your business, and we’ll quickly match you up with a lender that fits your needs. We’ll connect you to the top business term loan lenders, and get you approved in as little as a day.  When you sign up with FaasFunds, we analyze your business needs and finances and figure out if a term loan is the best option for you. We’ll also link you up with an industry expert to help you through tough financial decisions. Navigating the financial world is tough, so make it easier with FaasFunds.

One of the most frustrating factors of business ownership is waiting for payment.  Many businesses use credit to sell to large customers or clients through invoices, but using invoicing can mean that funds get tied up when you need them most. A delay in payment can mean a delay in funds needed for other things. If you need the money owed to you by your customers, then you can use invoice financing as a way to purchase things in the meantime.

Sometimes called accounts receivable financing, invoice financing allows businesses to borrow money despite the money owed to them by customers. This gives businesses a chance to borrow while not having to wait for customers to pay balances in full. Invoice financing frees up time to increase cash flow and invest in growth that you wouldn’t have if you had to wait for customer payments.

Invoice financing gives you a cash advance and uses your accounts receivable as collateral. Your accounts receivable are the invoices waiting for payment by your customers. With this form of short-term borrowing, you can sell your accounts receivable in order to receive immediate funds that can be used for other expenses. Invoice financing guarantees that you’ll see the money for your unpaid invoices right away. This helps to give a more predictable cash flow to fund your monthly operations. If your business is short on capital, invoice financing can provide a quick way to access cash that you’re waiting for.         

At FaaSfunds, we understand this is a common problem for business owners. In order to help businesses with unpaid invoices, we offer invoice financing in our marketplace. By signing up, we’ll analyze your business needs and see if it’s the best option for you.   

How Do You Qualify for Invoice Financing?

If you deal with invoicing large amounts of money, your business can qualify for invoice financing. More specifically, if you have a business-to-business model of financing and outstanding receivables. The receivables act as the loan’s collateral, so instead of worrying about your business finances, lenders are more worried about if the invoices make sense for them to finance. Essentially, the lender “buys” your invoices, and then takes the money back as soon as the customer pays it. Lenders are more concerned with the credit of those you’re collecting from then the credit of your business on its own, so the maximum funds you can qualify for depends on how many invoices you have and their credit.

How Do You Apply?

Understandably, your business invoices are the most important part of invoice financing. Many lenders have online applications that allow you to directly connect your business’s accounting program. This makes the process easy to move forward with, without any complicated paperwork. The documents you’ll need are:

  • Driver’s license
  • Voided business check
  • Bank statements
  • Credit score
  • Outstanding invoices

What Will Invoice Financing Cost You?

Invoice financing can be expensive, but it’s a service fee for having the cash accessible now rather than later. Here’s a breakdown:

  • Financers typically advance 85% of the invoice and keep 15% in reserve, subject to fees until the invoice is paid by the customer.
  • They’ll also often charge a processing fee on the 15% in reserve, often around 3%.
  • Lenders will usually charge a fee for every week your customers don’t pay, often around 1% per week.
  • So afterward, when the customer pays, you receive that 15% minus the fees. These fees, essentially, are convenience fees.

Some financiers will give you 100% of your invoices, but you must pay them back over a term – often 12 weeks. This is called invoice factoring. By doing things this way, your business doesn’t wait for the customer to pay their debt, the lender will often collect directly from your customer instead. So, the notable difference is that the financer is purchasing your invoices completely and they collect from your customer directly on your behalf. To help break down the costs, here’s an example:

Let’s say you’re a florist. You have a large order for a wedding, and you invoice your customer $20,000 for all the flowers they order and give them 30 days to pay it. If you wanted to fund that invoice immediately, you’d sell it to an invoice financer. They’d pay you 85% of it, $17,000, and keep the other 15% in reserve. In 30 days, when the customer pays the invoice, they pay the $20,000 to the financer. Then, the financer deducts their fees from the money they kept in reserve – 3% of the initial invoice, or $600 – then forwards you the remaining $2,400. If the customer didn’t pay their invoice within the allotted time, the financer would most likely charge an additional 1% per week, so it’s important you get your customers to pay on time.

This can all sound very overwhelming, but that’s why we’re here. When you sign up with FaasFunds, we analyze your business needs and finances and figure out if invoice financing is the best option for you. We’ll also link you up with a industry expert to help you through tough financial decisions. Navigating the financial world is tough, so make it easier with FaasFunds.