Money rules the world. This is the unfortunate reality – and it’s especially vital when you run a small business. The health and longevity of your business depends on it, so naturally, it’s worrisome.

In a study of 3,000 small businesses, Intuit and Wakefield Research found that 69% of them had been “kept up at night by concerns about cash flow.” So, feeling stressed about money isn’t uncommon – in reality, it’s pretty normal.

Cash Flow – The Data

The Small Business Administration (SBA) regularly releases data pertaining to small businesses and their struggles. In 2018, it reported that the largest reason businesses close (25%) was because of low sales or not enough cash flow. This is down from 2007 (39.9%), but nevertheless, access to cash is the most important indicator of a business’s long-term success. 

The Intuit and Wakefield Research data also found out that 52% of U.S. small business owners have lost more than $10,000 by not pursuing a project or sale because of insufficient cash flow. This keeps businesses in a constant cycle of struggling for capital – if they don’t have the cash flow to invest in new opportunities, they miss out on a chance to create more. Even more, 42% of small business owners have experienced cash flow issues within the last year specifically. 

What about getting capital through financing? The same study found that many business owners aviod it (39%) because they’re deterred by the interest rates (29%), they don’t want to make payments (23%) or they fear they wouldn’t be approved anyways (19%). The Small Business Credit Survey (SBCS) also reports that, in order to address financial challenges, 69% of business owners use their personal funds. 45% took on additional debt, 32% cut operations, and 28% just didn’t pay (meaning there’s some crossover, that some did two or more of the options). And then, the SBA echoes the same thing – by far the largest option that business owners choose to handle cash-flow issues is using their own personal money. 

Not only does lack of cash flow create skepticism about business financing, but it also creates stress on employees. The Intuiet and Wakefield Research found that 43% of businesses had been at risk of not paying employees on time, and 32% actually had paid them late. Forbes says this can lead to employees having mistrust in their employers, and being swayed by other jobs. 

From all this data, it seems like the root cause of cash flow struggles is waiting for payment from customers. 53% of surveyed companies use invoices to bill their customers, and the average U.S. small business has about $53,399 in outstanding receivables. This creates a problem for owners because if they don’t have the money they’re owed, they can’t pay for other expenses. On top of that, they also can’t make further investments, keeping up the constant cycle of struggling for cash flow because they can’t pursue other projects. 66% of companies say that waiting for payments to process, even after it’s been received, is the biggest impact on their cash flow. 

What To Make of the Cash Flow Data? 

First of all, we have to say that if you’re vehemently concerned about your business’s financial health (as you probably should be), you should seek the advice of your business accountant, or you should get a business accountant if you don’t have one already. They’re financial specialists that know your business directly and can give the most accurate advice. 

Since you know all this data and research, though, it can help you be more informed and aware of the struggles that plague small businesses. Since this is all based on actual businesses and real people, the more prepared you are for these struggles, you can foresee them and combat them. Knowledge is power, right? Financial literacy is vital for new businesses, and the more research you do into your industry, the more prepared you’ll be.

If you’re interested in financing to combat cash flow problems, give FaaSfunds a try. We’ve got business credit consultants on call to help you with whatever you need to benefit your small business.

Do you know all the fees associated with small business loans? No worries, not too many people can keep track of them all. It’s a vast and complicated world of jargon and hidden terms. Unfortunately, on top of interest and down payments, there are several other loan fees that could be included in certain small business loan packages, and we’re here to help you break them all down into easily-digestible parts. 

Ongoing Administrative Loan Fees

These may be monthly. Ongoing administrative fees are other costs your lender might tack on to your loan for “servicing and maintaining” it. They might be a percentage or flat fee, but can really add up after a while. If you’re working with a reputable lender, you shouldn’t expect to pay these loan fees. 

Application Fees

An application fee covers the costs of the actual application. Any costs to the lender for processing and accessing your application are passed to you through these loan fees, but this practice is pretty uncommon amongst lenders, so you’ll run into it less often than you will other fees. 

Annual Fees

Annual fees are often a flat rate added to your loan once a year. These loan fees are supposed to be for the service of maintaining your account, but this is not a common practice. Watch our for them, and chances are you’ll be able to find a lender that doesn’t charge them. If you can’t, though, it’s always a good idea to try and negotiate these loan fees, especially if you’re paying fees for other things. 

Closing Costs

Closing costs could be a name that encompasses many of the other loan fees mentioned in this list, so be on the lookout. They can include origination fees, processing fees, application fees or any other costs associated with packaging a loan. Closing costs are charged at loan closing – so, after you’re approved and are about to sign your loan documents, read carefully for these closing costs. Forbes advises lenders that, “When a lender mentions that you’ll have closing costs associated with your loan, you’ll want to know exactly what those closing costs are. That way, you can be sure that you’re being charged legitimate and fair fees.”

Collective and Overdue Fees

In addition to late payment fees, some lenders may charge collection and overdue fees if they have to actually take action to get payment from you. 

Credit Check Fee

A credit check fee is exactly what it sounds like – a fee charged from lender to borrower for having to check their credit. Checking credit of potential borrowers requires the use of software that usually costs the lender a fee, so sometimes they’ll pass that to the applicant. 

Guarantee Fees

Guarantee fees are usually charged only for SBA loans. When you take out an SBA loan, you aren’t getting the funds from the SBA, you’re actually getting them from lenders themselves. The SBA guarantees 75% to 85% of the loan, meaning that if your business defaults on the loan, the SBA guarantees that the percentage of the loan to the lender. They alleviate the risk for the lender. Because they’re taking on this risk, they charge the lender a guarantee fee, which they’ll sometimes pass on to you. It’s usually included in your loan and is deducted from the loan before it’s disbursed to you. 

The amount of these loan fees is determined by the term and loan amount and is based on the guaranteed portion, not the entire loan. For loans under $150,000, there’s no fee. For loans over $150,000 and terms of less than one year, the fee is 0.25%. For loans over $150,000 and terms over one year, the fees range from 3% to 3.75%. 

Non-sufficient Funds Fee

If your account doesn’t have enough money in it, the lender will sometimes charge you a one-time fee for an unsuccessful payment. This is similar to an overdraft fee charged by banks. 

Late Fees

Pretty obvious from the name, late fees are charged to the borrower when they’re late on their payment. These often range from $10 to $35 or can be around 2% to 5% of the outstanding balance. 

Lockbox Fees

These loan fees are pretty uncommon considering most payments are made online nowadays, but if you use a lender that requires payments via lockbox at a post office, they might charge you a fee for having that lockbox. 

Origination Fees

Done at loan closing, an origination fee is for evaluating and preparing the loan. Things like documents, notaries or attornies – these are all charges that can be carried over to the borrower via origination fees. Usually, they’re 0.5% of the loan amount. 

Prepayment Penalties

Prepayment fees are possibly the most seemingly irrational loan fees charged by lenders. If the point of a loan is to pay it off, why are they charging you for doing it early? The rationale behind prepayment penalties is that if you pay off your loan early, it isn’t generating as much interest, and therefore isn’t making the lender as much money. The prepayment penalty ensures they get all the money they would if you kept the loan to term. 

The good news, however, is that these loan fees are pretty uncommon with business loans (it’s more common for mortgages or car loans). Penalties are usually a percentage of the entire loan. 

Service/Processing Fees

Many of the loan fees in this list could classify as service or processing fees, but it’s just another term to look out for. They’re used to cover the cost of customer service or other services the lender may provide – like paperwork or administration. 

Unused Line Fee

The reason banks give out loans and lines of credit are to make money from them. If you have a line of credit from a bank and you’re not using it, then that’s not making the bank any money (typically, interest is only charged on the funds used from a line of credit). So, if you don’t spend over a certain amount of that credit line every month, the bank might charge you an unused line fee, which is often a percentage of the unused portion. 

Wire Fee

A wire fee happens when the lender is required to wire you the money via bank wire transfer, which is faster than the usual Automated Clearing House transfer. Since these are more expensive, however, that cost will sometimes be charged to you. 

What to do?

No to be presumptuous, but it’s likely that lenders will try to take advantage of any knowledge you don’t have about loan fees, and you could end up paying way more than you intended. Make sure you look out for these loan fees in contracts or agreements with lenders. You’re allowed to ask questions and negotiate some terms, so don’t be scared to bring it up when you’re getting a small business loan.

Have other concerns about small business loans and loan fees? Give us a call. FaaSfunds has qualified consultants to help with any financing needs you might have. Sign up today.


You might have heard of ROI. It stands for return on investment, and business owners use it as a method for decision making in trying to turn a profit. It’s a simple concept, in theory – it essentially means that in order to increase your business’s profitability, you should always shoot for a positive ROI – don’t make business decisions that give you a negative one.

But Wait, There’s More

Put simply, ROI is the result of the investment, but it has complex terms behind it. It’s a performance measure, and anything that measures performance involves some sort of math. The ROI formula takes the benefit of investment and divides it by the cost of the investment. The result is a percentage, and that represents your ROI. 

The benefit of an investment is calculated by subtracting the cost from the current value of the investment. So your ROI formula is represented like this:

Return on investment graphic

The current value of an investment is the proceeds from the sale of the investment in question. The result is always going to be a decimal, but it’s easily convertible to a percentage. This expression as a percentage makes it comparable, so it’s easy to see which investments are best for your company.

Why is ROI Important?

ROI matters because it gives you insight into future business decisions. If you know, to some extent, what your return will be from making a purchase, it’ll help grow your business. Especially when it comes to getting a loan or financing business purchases, ROI is an important tool. 

ROI for Financing?

If you’re trying to get a loan or finance anything within your business, it can be important to use your ROI to calculate if the loan will generate enough revenue to justify taking it out in the first place. Loans always end up costing more than the thing you’re getting a loan for – these are the unfortunate facts of finance. It’s always a matter of planning to make sure the investment in one is going to benefit you in the long run, even if it will end up costing more. 

The point of an ROI is to compare it to other investments in order to see which one(s) make the most logical sense to pursue. So, if you’re trying to figure out if you should finance a kitchen or a new point-of-sale system, knowing your ROI is recommended. You can prioritize the investments with the highest ROI, and then slowly make your way through your portfolio of investments. 

ROI Calculation Breakdown

So, for financing, ROI would take the cost of the total loan – say you’re taking out a total of $12,500 (with interest and fees) for a new photo booth – and subtract it from the total value of the purchase. How do you find that? Well, in the case of a photo booth, it’s likely you’re running a business that rents them out for events. If you expect to rent it out for four events a month at $500 each time, that’s a revenue of $2,000 per month. And If you’re financing the equipment over a two-year period, you’ll pay $522 toward the total loan per month, for 24 months. 

You can figure out the ROI for the term of the loan. At $2,000 monthly over the two-year period, you can expect to bring in around $48,000. That’s your total value. Subtract your loan cost from this total value and you get $35,500. Finally, you divide that by the loan cost, as exemplified by the formula, and you get 2.84, or 284%

Obviously, this shows a very positive ROI and would represent a good investment. If you were running a party rental business, you could use this method to compare different pieces of equipment and figure out which would be best to recieve financing for.

ROI Shortcomings?

As with any method of financial calculation, ROI isn’t fool-proof, and it does have its shortcomings. The Harvard Business Review (HBR) makes the case that the “single most important limitation in this category results from the fact that ROI oversimplifies a very complex decision-making process.” It claims that the measure can be simple and easy, but also unrealistic. Because the rate of return is objective, and there’s no real way to know what you’re going to gross in revenue, so it says that relying on ROI can be thin ice to tread.

HBR also states that ROI remains constant no matter the economic trade-offs. It’s the same no matter the assets, time or number of investments. This can be problematic because it can ignore economic factors that could inherently influence profit acquisition for your company.

In the End?

With all this being said, the best idea when using any predictive measure is to always predict for losses, and not rely too heavily on subjective calculations. ROI can be good, however, for understanding a general idea about your investments and if they’ll be profitable.

Want to know more about managing your finances and loans? FaaSfunds is a free, business credit monitoring and managing program, and we can help with whatever you need to put your business on the path to success. Check us out today.

                                       

Starting a business is stressful, not to mention if you want to register as a limited liability company (LLC). An LLC takes aspects of different business types and combines them into one big (and sometimes complicated) establishment. But no fear, we’re here to clear it up for you. 

How is an LLC Different?

LLCs differ from say, a sole proprietorship, in the sense that the business owners aren’t usually personally responsible for its debts or lawsuits. When it comes to the IRS, though, LLCs have this odd assortment of tax flexibility, which can cause varying degrees of confusion when tax season comes. 

LLCs can technically choose their tax status – they can pick if they want to be treated like a sole proprietorship, partnership or corporation. If there’s only one owner (also known as a “member”) it’ll automatically be treated as a sole proprietorship. If there’s more than one owner, it’ll automatically be treated as a partnership. However, if you want your LLC to be taxed like a corporation, you can fill out a form with the IRS to change this tax status (here are all the hard details from the IRS if you’re looking to file your taxes as an LLC). 

So the real answer is, LLCs don’t differ in the eyes of the IRS because they’re filed the same way as other business types, and they’re usually filed on the owner(s) income taxes. They do, however, require more paperwork and higher fees. But the real reason an LLC is a common choice for business owners is that if for some reason your business must file for bankruptcy or gets sued, being an LLC would mean your personal assets are covered. In the eyes of the law, your business is separate from you. 

(Here’s a disclaimer, though – banking, trust and insurance industry-related businesses can’t be LLCs, and several states won’t let accountants, doctors, architects or healthcare workers be LLCs, either.)

Articles of Organization

If you want to start an LLC, you’ll have to file articles of organization in the state where you want to operate. They often only require basic information, nothing too complicated. Remember, the requirements and stipulations do vary by state, so you’ll definitely want to check specifically for what your state requires. However, most states will require these basic things before you file your articles of organization.

  1. A business name, and it has to end with “LLC.” It also has to be unique, and can’t be the same as another LLC in your state. They’ll also want it to not be confusing – such as including the word “bank” when you’re not a bank (Legal Zoom lets you search to see if your name is available).
  2. Location – where will your business be physically located? 
  3. Names and addresses of the owners (a.k.a. members). 
  4. A registered agent – this is the person or entity that accepts the legal papers of your LLC. It can be you or a co-owner. You can also appoint your business attorney as your registered agent, or you can get registered agent services from online legal services. 

It’s very important to make sure you’ve got all the local licensing requirements down. Counties and cities may have more specific requirements than the state does (FaaSfunds is in Charlotte, N.C., so we have a specific set of rules – the rules and applications for your city/county will be found on a similar local website). Certain industries are regulated more heavily than others as well, like food and beverage. Contact your secretary of state office to figure out these specific rules. 

You could also draft an LLC operating agreement, which isn’t required but is recommended. It simply outlines organization and structure for your LLC – like who will do what within the LLC, how much money has gone into it and who contributed it, along with other operating procedures. It’s a legal document, so once signed, it’s binding. By creating terms and having all active parties agree to them, it creates less confusion about everyday business. 

How To File Articles of Organization

First, you’ll file the articles online or by mail. These details vary by state – in North Carolina, the form is available to fill out online and has a $125 filing fee. Once you fill out the form, submit it and pay the fee, you’ll receive confirmation in the form of a certificate from the state, which can take a few weeks. 

What About After?

If you haven’t made an LLC operating agreement yet, now could be a good time. You should also apply for an employer identification number (EIN) if you have employees. This is essentially a social security number for businesses and is important in separating business finances from personal finances. This way, you can start to establish credit as a business and apply for loans and credit cards without intertwining your personal finances. 

If you want to know more about building business credit or getting a loan for your new LLC, let FaaSfunds help. We’ve got industry experts to provide you with credit advice and proven loan-matching software. Check us out today.

Personal guarantees are meant to protect the lender. Similar to a co-sign, personal guarantors are individuals who sign on to a loan with a business, and if the business can’t pay back the loan, the guarantor is personally responsible. This means that a lender can require cash payment, or they can seize personal assets, depending on the type of guarantee. It’s a legal clause, and is a way to make sure the lender gets their money no matter what. A guarantor can be you, as a business owner and individual, or it can be someone else not directly associated with your business – this is called a co-signer.

Getting a loan is stressful, no doubt. Especially when you throw in all the clauses and jargon, it can be a complicated process. In this post, we’re going to break down what personal guarantees are, and what you should know about them. 

Personal Risks

Personal guarantees aren’t that uncommon, and some lenders require them. They’re also used for those with less-than-stellar credit or those who don’t bring in enough income or revenue to theoretically make the payments. You should be careful, though, if you’re asked to be a guarantor – it puts your personal finances at risk if the business you’re signing for defaults on their payments. 

This would also mean it affects your personal credit score, so it’s important to make sure that the business you’re signing for – be it your own or your business partner’s – will be worth this personal risk. Because ultimately, it is a risk for you, and a form of risk management for a lender. It’s advised you consult with a legal professional before signing anything, but especially if a business loan includes a personal guarantee. There are several different forms and executions of personal guarantees, so it’s important to read between the lines.

The Lender’s Perspective

Lenders are running a business, too. From their point of view, they are trying to minimize their losses and maximize their returns. The only way for them to do that is to get their money back, and by making you sign a personal guarantee, this increases the chance they’ll get paid back. It’s like a back-up plan.

Limited Personal Guarantees

Limited personal guarantees have a set dollar amount on what can be charged to the borrower if they default on their loan. These are usually used when multiple business partners are personally guaranteeing a loan, and they define each individual’s piece of debt if the business fails to repay. 

There are two types of limited personal guarantees you need to be aware of, and it’s advised you look over agreements carefully to distinguish which you’re dealing with. 

  1. Several guarantee – each individual knows at the beginning of an agreement the maximum they might owe, represented as a percentage of the loan. 
  2. Joint and several guarantee – this differs from a several guarantee in the sense that the percentages aren’t predetermined, and the lender can go after any individual guarantor to collect the full amount. This is especially dangerous because if your partner goes MIA after a business fails, you could be responsible for all repaying every penny. 

Unlimited Personal Guarantees

Unlimited personal guarantees mean that you’re agreeing to let your lender recover all of the loan in addition to any other fees associated with the loan, such as legal fees should the lender have to take legal action against you.

Unlimited personal guarantees offer the borrower, and thus the guarantor, essentially no financial protection if the business in question fails. 

SBA Loans

The SBA actually requires personal guarantees for their loans, but they call them “unconditional guarantees.” They require that individuals who have at least 20% equity in a company have to provide a personal guarantor, and they provide a form that details the stipulations of their unconditional guarantee. The SBA also warns that selling your company doesn’t get rid of your guarantee, and recommends waiting to sell your interest until you’ve fulfilled your guarantee, or your loan is paid off.  

Personal guarantees aren’t anything to be afraid of, but you should be aware of them. Like any loan, there will be risks, so it’s best to know about all your options. FaaSfunds can help with that – we’re here to show you the best loans for your financial needs, and to connect you with an advisor to help you make financing decisions. Sign up today.

Do you know about your business credit score?

Most people know about their personal credit and why it’s important, but many business owners don’t know about their business credit score. Your business generates credit, too, and it’s important to know and understand it because it can affect your likelihood of receiving funding in the future on behalf of your business. 

Why Do You Need Business Credit?

Your business credit signifies your business’s trustworthiness with business finances specifically, separate from your personal score. In the same way you need personal credit to secure personal loans and credit cards, you’ll need business credit to secure the same things for your business.  If you can manage to keep your business credit up, it can be incredibly beneficial to your business in the future, in terms of borrowing and credit card benefits. 

Establishing business credit is also important if you want to keep your personal and business finances separate. Not having these intertwined can help when you come to do your taxes, and in turn, make sure you’re keeping laws and regulations straight. 

Diving further into this – if your business is registered as a corporation, it’s a separate legal entity. If it’s registered as a sole proprietorship, there’s not a legal distinction between you and your business. This means that all of the business finances are tied to you, the business owner. This makes it even more important to keep the sole proprietorship finances separate from your own. If you get audited by the IRS, it could leave you digging through documents trying to decern which ones were personal and which were for business. Keeping everything separate could save you time, money, legal liability, and the treat of getting fined. 

How Do You Build Business Credit?

  1. First, establish it. If you establish an EIN (Employee Identification Number, like a Social Security number for your business) first thing, this is often the best way to separate your personal and business credit. This makes sure that you can start establishing your business credit because it acts just like your personal Social Security number would. 
  2. Build it. Once you establish your EIN, you should report a few financial products within your business to Dunn & Bradstreet, Experian or other credit institutions. Then, the most important part is to pay for everything when it’s due. One of the most influential parts of your credit report is whether or not you’re paying your credit and loan bills on time. If you don’t, it will significantly lower your chances of getting a loan with good rates in the future. It’s normal to take out a personal loan to start your business, because most lenders won’t lend to newer businesses. But once you have the initial money and revenue, take out a business credit card or line of credit. You can use these forms of funding to invest in your business, and payback on a regular schedule. This way, you can establish your credit, build your score, and get other forms of funding later on.
  1. Experian, one of the top credit bureaus that report business and consumer credit, says that checking your business credit regularly and making sure the information is correct and current is important in improving it. You should also dispute your score if you think it’s inaccurate. 

Along these lines, you should make sure you know exactly what factors are influencing your business credit. They’re calculated differently than personal scores and scale from 0 to 100. Directly from Experian, they’re based on:

  • Number of trade experiences
  • Outstanding balances
  • Payment habits
  • Credit utilization 
  • Trends over time
  • Public record recency, frequency and dollar amount
  • Demographics – like years on file, Standard Industrial Classification codes and business size. 

If you know what’s going into your score, you’ll understand how to get the most out of it. Pay attention to these factors and monitor them closely through a business credit checker.

Keeping Track of Business Credit

Figuring out your business credit can be complicated, and keeping up with it can be stressful. It’s another number you have to worry about, on top of all the other numbers involved with your business. So, why not let FaaSfunds help you out? That’s the whole purpose of the FaaSfunds platform – we offer several different types of business loans and lines of credit in our marketplace, but we also help you monitor your business credit and figure out how to improve it. Even after you’ve been funded, we’ll help figure out what to do after. Click the button below to get started, and make your business credit easier to deal with. 

When you choose to refinance something, you usually decide to do it because it makes your previous financing options or purchases more affordable. What exactly does it mean to refinance? Fundamentally, it’s when you decide to revise the terms of a previous credit agreement. Most often, you’ll refinance when nationally-set interest rates go down and can result in savings on monthly payments with a new agreement.

How Does Refinancing Work?

Refinancing is essentially just getting a new loan to replace an old one. The main motivation for refinancing is dependent on the market and the current interest rate environment, but if your business credit has improved, that’s also a reason to refinance a loan. Typically, during times of slow economic growth, interest rates will be lower to stimulate spending and investment. During times of expansion, however, interest rates will be higher.

Different Types of Refinancing

  1. Rate-and-term refinancing: when a borrower directly replaces the existing loan with one with a lower rate.
  2. Cash-out refinancing: when a borrower takes out a loan for more than they owe on the previous loan, so they can use the extra cash to pay off other debts.
  3. Cash-in refinancing: when a borrower pays cash for some of the remaining loans, in order to lower the loan-to-value ratio or get smaller monthly payments. 
  4. Consolidation refinancing: when a borrower takes out one, lower-interest loan to pay off several, higher-interest debts. 

The Best Strategies

How do you know when the best time to refinance is, or if you should refinance at all? First, calculate it (this one is specifically for mortgages, but the results are easily transferable to other loans), then, consider these factors:

Falling Interest Rates

The best strategy for loan refinancing is to pay attention to national interest rates. Interest rates fluctuate based on policy, global factors and the economy. If national interest rates fall, and you can get a new loan at one to two percent below your current rate, then it’s reasonable to consider refinancing in order to secure that lower rate and save money. This is an example of rate-and-term refinancing, where the existing loan is paid and replaced with one with a lower rate. 

Increase in Value

If the thing you used the loan to purchase – property, equipment, etc. – increases in its value (this will usually only happen with property because most equipment depreciates in value), that could be a reason to refinance. This idea works well with cash-out refinancing. With this, you take out more than your current loan amount left to pay and use the extra cash to pay off other debts. If your property has increased in value, you’re more likely to be able to take out more money than what you owe.

Credit Improvement 

The better your credit, the better your rates and terms on loans usually are. If your credit score and financial health have increased significantly, refinancing could save you money because it can lower your interest rates.

Consolidating Debt

The technique of consolidating debt means that a borrower takes out a lower-interest loan to pay off one or several higher-interest debts. This is a refinancing technique used with things like credit card debts – if you have several different credit card debts, it might be beneficial to take out a single loan to pay them all off, so you can only have one payment at a single, lower interest rate.

Things to Look Out For

Closing costs – Some new loans may have closing costs, which are usually based on a percentage. Make sure you calculate in the closing costs when you’re trying to figure out if the refinancing will save you money, because you could end up paying more even if the interest rate is lower. 

Prepayment penalties – Make sure the loans you’re paying off in full don’t have prepayment penalties for paying them off earlier than the agreed-upon term. If they do have prepayment penalties, make sure you calculate to check that their cost doesn’t outweigh the lower interest rates in the long run. 

Keep in mind – It often makes more sense to refinance early in a mortgage or loan repayment because you don’t own as much equity in the thing your financing (like property). Most loans amortize, and therefore most early payments go more toward the interest than the cost of the actual purchase. Later-on in a loan, you’re making more payments toward the actual purchase, so you own more equity in the purchase. When you refinance, you’re essentially starting over by taking out a new loan, and it will take you even longer to build up equity.

There are also things you shouldn’t do. Just because refinancing can lower the total cost of a loan doesn’t mean it’s always the best idea in the long-run. When you refinance unsecured debts with a secured loan, it can be a risk – which is sometimes the case when consolidating debts. This is because you risk putting assets – like your home or car – at risk for repossession or foreclosure. Another risk could be that you end up paying more because you extend the loan, as opposed to paying more per month but for a shorter period of time. If you start a new 30-year loan when you only have 10 years left on the original loan, it could add up to paying more, even if the interest is less.

Confused by all these options? If you’re looking to refinance debts, reach out to us at FaaSfunds. We have business financial experts that can help you make all the right choices for your business. Click the button below to get started today!

Grants are a small business’s dream. They are, are, after all, free money.

Business loans have to be paid back, but business grants do not. Certain entities will grant small businesses and startups money to achieve their goals. These entities include larger, international corporations (like FedEx or Visa), angel funds and government sectors. There are a TON of grants available, and countless funds set up to give them out. 

Most of the time, these grants are reserved for specific types of businesses. The EPA gives out business grants, but only to companies looking to advance gree technology. Visa grants to startups with innovative fixes. Huggies grants money to “mompreneurs.” You get the drift. Usually, you have to meet specific criteria for grants, but sometimes there are grants for those who just want to start a business. FedEx awards $25,000 to 10 small businesses nationwide, and they’ve funded anything from skateboards to coffee shops. 

Is there a Downside?

There aren’t really any negatives to small business grants. There are, however, some stipulations. In the same way that the government will grant money to universities for specific medical research, those who give out small business grants will usually be pretty picky about what you spend the money on. If you’re starting a food truck that is all about sustainably-raised and locally-sourced food, chances are you’ll only be allowed to spend the grant money on free-range chicken and local vegetables, not on gas for your truck. 

They also often have strict criteria they require to qualify for the grant. Because many grants tend to be given out by specific agencies or foundations, or have social causes in mind, they’ll often require that your business be centered around a certain industry or cause, or be founded by an underprivileged social group. This isn’t always the case, but this is part of what makes them a grant. It’s much like a college scholarship – if you’re underprivileged or want to focus on something specific, you’re more likely to be given money to help you out. 

How Do You Get A Small Business Grant?

The process of getting a small business grant is different depending on which one you’re applying to. For most grants, you’ll be competing against several different companies, so often they’re competitive and difficult to get. First and foremost, you’ll have to apply. Some grants involve pitch competitions or video submissions, while some are solely based off of an online application. 

On the upside, there are a TON of grants available. Grants given out by the government can be found and searched via their grants.gov website. 

As for private and corporate grants, there’s not a searchable database. You’ll have to do a little bit of research to figure out whet’s available to you and what you’ll qualify for. However, Value Penguin created a list of 18 popular and beneficial grant programs to consider applying to, and the criteria required. 

There are also local grants available to businesses. In order to keep money within communities, many local cities offer grants, as do local businesses or universities. Like The Lumpkin Family Foundation, which offers grants to businesses in East Central Illinois only. There are programs and foundations that are founded specifically for granting money to budding businesses, such as NC IDEA in Durham, N.C. 

Essentially, grants are available everywhere and can be a very useful tool when you’re trying to start a business or gain traction as a small business owner. They’re not a loan and they don’t have to be paid back – which makes them massively appealing, albeit competitive.

They aren’t for everyone, though. Due to their strict criteria and longer application process, they require a lot of planning and commitment. If you’re looking for a more traditional way to fund your business that doesn’t require this process, you might want to look into other funding options, like loans or lines of credit. 

If you’re curious about other funding options, FaaSfunds is here to help you out. We offer a loan and credit marketplace to find the best option for your business, and a specialist to answer any and all of your questions. 

It’s probably true that every business wants more working capital. Working capital is exactly what it sounds like: capital that a business uses for daily operation. It’s an accounting term – it covers things like employee compensation and paying bills. It’s the money needed to meet your short-term payment goals and obligations. 

There’s a formula for it. To get your net working capital, you subtract your current liabilities from your current assets (assets – liabilities = working capital). It’s expressable as a ratio, too – just divide your current assets by your current liabilities (assets/liabilities = working capital ratio). This gives you a ratio, and usually, a healthy ratio is anything from 1.2:1 to 2:1. 

 For these calculations, it’s advised you only use short-term assets like accounts receivable and the current money in your business account, along with inventory that will become cash within the next 12 months.  Your short-term liabilities are your accounts payable, along with paychecks, taxes and other bills. 

Why Do You Need Working Capital?

Working capital is what you need, as a business, to keep operating. If you don’t have enough working capital,  you don’t have a functioning business. Working capital needs are different for different industries, especially ones that have seasonal revenue. This is why it’s important to prepare throughout the year to make sure your debts are managed, and your business has enough cash flow to operate. Bank of America gives four guidelines for figuring out if your business might need additional working capital cash flow:

  1. If your business has seasonal differences in cash flow – some businesses need extra money to prepare for a busy season, or to keep the business operating during the slow season. If you own a snow cone business, your peak season is during the late spring and summer. It’s likely you won’t have any business during the winter, so you might need extra working capital to get through it, or to prepare for the upcoming busy season.
  2. If you’re waiting for payments from customers, there are usually a few times you’ll be short cash to pay suppliers or employees. Greater working capital can fill that gap. If you’re a business that depends on accounts receivables, like a florist or caterer, working capital can help fill a gap in payment. 
  3. Extra working capital can help you take advantage of things that could help your business in the long run. If you find a really good deal on supplies, but only if you purchase them in bulk, working capital could give you the opportunity to do so.
  4. Some businesses have project-related expenses, or temporary employees or contractors. If you need to take advantage of a project venture, working capital can cover the cost.

Where Can You Get More Working Capital?

So if you don’t have enough working capital, how can you find it? 

The best way to make sure you have enough working capital is a business line of credit. These are less like a loan and more like a credit card, but not entirely. They usually have lower interest rates than a credit card, and they aren’t one giant lump sum, as a loan. With a line of credit, you can take out a credit limit, but only use what you need when you need it, without collecting interest on the entire limit. This makes it similar to a credit card. It’s great for working capital because it’s there right when you need it, if you take it out in advance, and it doesn’t gather interest if you’re not yet using it. 

There are also working capital loans, which aren’t as ideal as a line of credit but can come in handy when and if there’s an immediate need for working capital.

Working capital can signify a measure of a business’s efficiency, liquidity and short-term health. If you need help meeting your working capital needs, contact FaaSfunds today and we can help you figure out a working capital solution.

Capital One, Chase, American Express – these are all credit cards on the market. You can use them for your personal finances, but you can also use them for your business finances. 

What Is a Business Credit Card?

To go back to the basics, a credit card itself gives you a credit limit, usually based on your credit history, and you’re able to spend any amount up to that limit. By using a credit card, you don’t spend your actual money until you go to pay it off, usually monthly. The amount you spend, however, acquires interest. Most business credit cards currently have an average interest rate of around 18.31%, according to  Wallet Hub. 

As for the business side of having a credit card, this gives you the ability to separate personal and business finances. It also gives your business a way to use credit for short-term expenses. If you have employees who regularly do work outside the business, take clients to lunch, or do handy work, having a business card can eliminate the need to compensate them for spending their personal money, making things easier as a business owner.

Why Do You Need a Business Credit Card?

Getting a business credit card can help build a profile and improve your chances of getting credit or loans in the future, along with helping you to get better borrowing terms. Just like a personal credit card, you can use it to buy short-term needs or provide a cushion for emergencies. It’s also usually a good idea to keep your business and personal finances separate, so using a company credit card is ideal if you want to separate the two for tax and legal purposes. This way, you don’t mix up your business debt with your personal ones, and you can keep organized.

And, as mentioned before, if you’re going to be doing a lot of client meetings or relying on employees to buy supplies, giving them a business credit card can save time and paperwork. If you own a small restaurant but rely on a manager to keep the place running, giving that manager access to a business card to make purchases on behalf of the business makes operations easier. If a light fixture needs replacing, or a window needs repair, having a business card can cover those costs all while making their purchase simpler. 

How Do You Get One?

Most lending institutions offer business credit cards, and the process is similar to the application for a personal credit card. Sometimes, you’ll have to back the business credit card with a personal guarantee, which is similar to a guarantor agreement or a collateral agreement. This will hold the individual applying for the card liable if the business defaults on payments, and could affect your personal credit score if that’s the case.  

You can get a business credit card using your personal Social Security number if your business doesn’t yet have an employer identification number. Card issuers will underwrite the application using the same process as they would for a personal credit card application.

As with most credit cards, they’ll have higher interest rates than other types of borrowing. Lines of credit will have lower interest rates but are very similar to credit cards. Definitely explore your options if you have a different type of spending in mind.

Which Business Credit Card Should You Get?

The type of card you should get depends on your business needs, your credit history, and several other factors. Your best options will vary, but Nerd Wallet’s top four business credit card recommendations are American Express’s SimplyCash Plus, Capital One’s Spark Cash for Business, Chase’s Ink Business Preferred and American Express’s Blue Business Plus.

These are just suggestions, and your best options will vary depending on the factors mentioned above. 

Keep In Mind

Every business should probably have some sort of business credit card, but remember that it’s suited best for certain kinds of purchases. Credit cards have higher interest rates than other forms of debt, so they should usually only be used for small purchases. Lines of credit are another good option that’s very similar to a credit card but with lower interest rates. They aren’t as easy to qualify for, but can provide a good working capital cushion if that’s what your business needs. 

Business credit cards are great ways to build credit, however. If you have a newer company and want to qualify for loans in the future, a credit card is an easy way to use small purchases to build credit. 

Never use a credit card for what a loan should be used for. If you’re looking to invest in a large purchase, such as for equipment or real estate, consider a business loan like a term loan or an SBA loan.  

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