12 best ways to get business financing

7/27/2019 12 Best Ways to Get Business Financing

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Business Financing in 201212 Best Ways to Get

Page 2www.lendio.com 2012, Ldi

TabLe of ConTenTsItrducti

1. frid, fmily, l

2. Lrg sba up t $5 milli

3. Pr-t-Pr L

4. Crwdudig

5. o Dck -- up t $150,000

6. suprir -- up t 0-$25,000

7. equipmt ficig -- n Limit

8. aR d Po ficig --Miimum $50,000

9. bui Crdit -- 0-$20,000

10. Crprt Turrud

11. acquiiti L -- Up t $5 Milli

12. Mrcht Ch advc

Hw d yu dcid which typof nancing is best for you?

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6

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9

10

11

12

15

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91% of business owners say they cant get

the credit they need. 41% of small businessowners cannot obtain financing.

91% of business owners say they cant get

the credit they need. 41% of small businessowners cannot obtain financing.

I small business is the engine that drives the

economy, capital is the uel. You cant run

without capital. You cant drive around thecorner to the 7-Eleven and back or a Slurpee

without a tank o gas.

American small business owners need uel.

Teyre standing in line at the gas station o

banks and credit unions begging, near dy-

ing to get their business moving. Washington

knows it. Tey know without capital, our

economy will continue to slump, as it hasor the last our years. Washington has tried

boosting the lending market, o course, with

a op, a belly-dive into that empty pool thats

le Main Street still asking, Where are the

unds?

where are the funds?

Teyre out there. Believe it or not, theyre out

there. Not around a dark corner, or in a dark

alleyway rom some shady dealer, theyre in

the swamp o misinormation.

Te unds are out there. In many ways, there

is more unding available than ever. Business

owners merely need to know where to nd it.

While there is no question that securing

nancing has changed over the last ew years,

other orms o nancing have emerged to help

business owners.

Business owners just need to know their op-

tions, the types o capital they can pursue,

and how to position themselves to grab those

unds.

Tis eBook will help business owners seek out

the right types o nancing so they can secure

the capital that will grow their business. It

outlines and compares 12 dierent orms o

capital and the qualications o each.

Graphic by Vector Open Stock

Theres a podcast about this whitepaperlisten to the business financing podcast>
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frid, fmily, flWhen all else ails, hit up people you know,right?

Maybe.

Borrowing money rom riends and amilycan be tricky i not done right. I things gosour, the last thing you want is to have moreconict at next years Tanksgiving.

For the saety o the rela-tionship you have, you wantto make sure that the loanrom amily and riendsis well documented, saidBrock Blake, Lendio CEO.You want to make sure thatyouve dened on paper theterms, structure, interestrate, expectation, paymentamount; whether it was a

gi, equity or debt.

Tat documentation saeguards the relation-ship between you and someone you have a loto trust with. Te last thing that you want tohave happen is, because you didnt structure it

well in the beginning, you create miscommu-nication where your riend or amily memberthought thought it was one thing and youthought it was another. Tat can really sourthe relationships you have.

With riends and amily, make sure to seteverything up clearly in the beginning. Youllbe glad you did. Also be careul o any guaran-tees when it comes to making a return on the

investment.

Dont ever guarantee, Blakesaid. Its so difcult to be a busi-ness owner and an entrepreneurand to be successul. I you guar-antee something, youre basicallysetting yoursel up or some-thing negative to happen. Makesure to communicate that thereis risk. Say something like, Hey,

Mom or Dad or Aunt Martha or Whoever itis, there is risk here. You know, Im going todo everything that I possibly can to make thissuccessul and produce your return, but I dowant you to know that theres risk here.

if things go sour,

the last thing you

want is to have more

conflict at next

years thanksgiving.

1. Whats your motivation behind doing this?

2. Are you doing this because youre doing me a favor?

3. Are you hoping to make money off it?

4. Is this an investment, a gift, or a loan?

Questions to ask family and friends before getting funds4

1


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Lrg sba up t $5 milli

Since 1953, 20 million businesses have re-

ceived direct or indirect help rom the SmallBusiness Administration.

In 2011, the SBA approved a record numberand record amount o lending to small busi-nesses; approving 61,689 loans, totaling $30.5billion, through its two largest lending pro-grams.

Especially in this economy, the SBA has givenbanks the condence to extend loans across

the country. It could be argued that in manycases, those unds would never have beenmade without the SBA backing those loans.Even with those numbers, the SBA has been asource o controversy.

Te SBA has always been criticized that itdoesnt do that much, said Bob Coleman,small business lending expert, and ownero Coleman Publishing, on a recent Lendiopodcast. But 6 percent o this years INC 500

companies started with an SBA loan. Only 4percent got a conventional loan. SBA nanc-ing has become very, very important to theentrepreneur.

Due to the Small Business Jobs Act and areturn to pre-recession lending levels, over61,000 small businesses had access to capital,said SBA Administrator Karen Mills. SBAhas provided small businesses with the toolsthey need so they can grow and create jobs. AsSBA lending levels continue to indicate a re-bound in small business lending, we will workthrough new programs to ll the gaps created

in the marketplace.

Te truth is, in many cases, businesses thatwouldnt have otherwise secured nancing,were able to because o SBA-backed loans.

sba loan detailsSmall SBA loans are generally unsecured orlightly secured loans that provide the lenderwith government guarantees o up to 90%(reducing the lenders risk should a borrower

deault).

A small SBA loan is unsecured or lightly se-cured and ensured by the government. Tereare no restrictions on the number o smallSBA loans you can get, except you can onlyhave one community express loan.

sba loan reQuirementsGenerally speaking, a borrower must havegood credit, an accurate business plan, 2+years in business, up-to-date nancial projec-

tions, revenue, collateral, and not all underrestricted business industries.

2

to Qualify

To Qualify: 2+ years in biz, collater-

al, documentation, revenues; prots;

Interest Rates: 5.8-8.5%

Time to Funding: 1-6 months
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Pr-t-Pr L

what is a p2p loan?

A peer-2-peer loan is an alternative to tradi-tional lending, in which the borrower receivesa loan rom anotherindividual(s) rather thana lending institution.Tose with money toinvest-or-prot can joina P2P lending networkand give out loans tothose who may notqualiy elsewhere.

Lenders compete witheach other to make loansin an eBay manner. It oen results in lower in-terest rates or borrowers than are available onunsecured loans rom nancing institutions.

P2P loans, also known as person-to-person,or social lending, has been around since 2005.P2P websites prot rom ees that charge thelenders and borrowers or their service. Tey

also perorm credit checks, and contract withthird parties to collect on bad loans.

growth of the industry by 2013Te Gartner Research Company reports thatby 2013, there will be $5 billion in outstandingbusiness loans. Tats up 66 percent.

Growth in P2P lending will be driven byinvestors seeking higher returns and borrow-ers shunning (or being shunned by) banks,according to the Gartner Research Company.

what can you use a p2p loan for?It can be used or personal use, small businessunding and debt consolidation.

Really, (P2P Lending) is a nice outlet or both

borrowers and lenders, and its going to bemore and more prevalent in the uture, saidMichal Herzenstein, proessor o marketing at

University o Delaware.

how much can youtypically getP2P loans dont need to behuge amounts o money.Leading P2P loan compa-nies, such as our partnersLending Club and Prosper,oer $1,000 to $35,000 orpersonal loans. Tey oerup to $35,000 or small

business loans, and debt consolidation up to$35,000. Current interest rates can range romjust less than 6% all the way up to just over 35percent.

are there fees with p2p loans?P2P loans carry several ees charged to theborrower. ypically, ees or these loans are

lower than traditional loans. ransaction eesare usually 1% o the sale price. Loan origina-tion ees, which are usually included in therate, range rom 0.5% to 5.00%.

3 To Qualify: Good credit above640, consistent income, no col-lateral required

growth in p2p lending

will be driven by investors

seeking higher returns and

borrowers shunning (or

being shunned by) banks.
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CrwdudigCrowdunding is the next evolution o peer-to-peer lending, and the latest in the concepto microlending to the Internet. Crowdund-ing is a term used to describe individualscoming together to support -- and directlyund -- projects by otherindividuals and organiza-tions.

Tere are two kinds o

crowdunding: equitybased and reward based.Equity is trading undsor ownership in yourcompany. Rewards-basedcrowdunding is tradingunds or various types o rewards.

For example, i you own a pizza restaurant andwere looking or rewards-based crowdund-ing, you could ask or $500 in exchange ora years supply o pizza, or naming a signa-ture pizza aer the investor. In equity-basedcrowdunding, you would ask or $500 inexchange or part ownership in the company.

For many small businesses and startups,crowdunding can be the ideal solution to get-ting nancing -- especially when nothing elseworks.

Crowdunding is only looking to get morepopular in the uture. Congress passed Te

Entrepreneur Access to Capital bill in No-vember, 2011, which will allow equity capitalraises o up to $1 million annually ($2 mil-lion i the issuer provides audited nancialstatements), rom an unlimited number onon-accredited investors. Te one limitation isthat individual investments will be limited tothe lesser o $10,000 or 10% o the investorsannual income.

David Lavinsky, ounder o Growthink, talkedabout the good news rom this bill:

Te good news is that the bill will dramati-cally increase the number o potential equity

investors in your companyby 30 IMES.

Beore this bill, In theUnited States you could not

use Crowdunding to raiseequity or your business,because equity transactionsare regulated by the Securi-ties and Exchange Com-mission.

Currently, there are approximately 1.7 mil-lion US households that meet the criteriao being accredited investors. But there are51.7 million US households with householdincome o $50,000 or above (that will be ableto write equity investment checks or $5K ormore), Lavinsky said. So, the good news isthat the number o potential riends and am-ily, and angel investors will grow dramaticallyonce this bill is passed.

Lavinsky tells the story o Scott Wilson, whohad an idea or a product that turned an iPodNano into a multi-touch watch. He oeredthe product on a Crowdunding site or a $25donation. Lavinsky said more than 13,500

people unded Scott, giving him a total o$942,578.

Not only can crowdunding generate unds,but by pre-selling your product, you aresimultaneously marketing it and gathering re-search about how well it sells. You can use thatinormation to make your product or servicemore appealing to your audience.

4for many small businesses

and startups, crowdfunding

can be the ideal solution togetting financing -- especial-

ly when nothing else works.


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3 tips for successfulcrowdfunding

asses your financial goalsIn order to start your Crowdunding projectit is important to assess what your nancialgoal is. Gauging your rst and second-degreenetworks is vital or determining the scopeo your project goal. Can your immediatenetwork be galvanized to und a $500 or a$5,000 or a $10,000 project? Create a simplebarometer based on the number o people inyour network i.e. Facebook riends, witterollowers, mailing list participants, etc. I eachperson gave $20-60, what would be the total?

Tis gure gives you ballpark indicators orbuilding reasonable expectations. Make thegoal the lowest amount possible to success-ully pull the project o. Te bigger your audi-

ence size and the more it is energized with adeeper connection to you and each other, thebigger your potential goal can be.

compelling descriptionA written description provides the most de-tailed inormation about you and your project.Tis should introduce who you are, the back-story o your project, include an intro to howcrowdunding works and most importantly

have a clear call to action i.e. the purposeo your project. When describing your projectbe sure to describe why its important to you.I the why is powerul enough or you, it willlikely resonate with others. Be clear on thewhy. Make it the best project possible. A com-pelling project takes both emotional and intel-lectual eort. Remember you are not reachingout to customers you are reaching out to yourcommunity who may also be customers.

launchOnce you have your project outlined with astory to tell, and your strategy in place, youare ready launch. Handpick 15 to 25 peoplein your network that love what you do andknow what you are all about. Tese shouldbe your loyalists the riends, amily, andans that trust you. It is very important tohave your rst ollowers primed and ready tocontribute to you right aer you launch your

project. Tis sets the stage or the next stepsand provides the public social proo o yourcredibility.

ake ownership o your crowdunding cam-paign. It is an active process, and you needto keep galvanizing your community aroundyour goal.

Funding is limited to the amount you can personally raise. Most crowdfunding re-sults do not mirror Scott above. Most are less than $20,000.

Your business idea is exposed to the public. While this may be good in many ways,you do risk creating copycats.

Funds may be subjet to the SEC, pending the status of the new bill mentionedabove.

An Intuit study says that 21% of projects dont receive any pledges, and 43% of allprojects are successful.

before you jump in to the crowdfunding game, consider


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o Dck -- up t $150,000

On Deck Capital is a business-to-businesslender that looks at risk a little bit dierentthan a bank. Credit isnt an issue. Cash ow is.

On Deck will still pull credit, but it will givea loan or $100,000 to someone with a 550credit score that a bank would never touch.On Deck gauges risk based on things like thepast six months o deposits into the checkingaccount and credit card swipes.

on deck looks at cash flow and an-

swers Questions like: Is the business gaining customers or losing

customers? Are deposits going up or down?

Does the business have enough money topay us back?

Is there enough cash ow?

o mitigate risk, On Deck takes a daily pay-ment out. So, i its a one year term, everysingle day a small payment comes out. Tisenables them to und businesses with lowcredit.

I the business goes through the whole monthand theyre short on money at the end o themonth, and they have a big payment they haveto pay, thats maybe the payment thats goingto go late, said Levi King, president o Lendio.But i its just a small amount that comes outevery day, and theyve looked at all the bankstatements and can see that no matter what,theyve always got $5,000 in their account.And were only taking out a hundred bucks aday, again, its just a dierent way o doing aloan that mitigates risk or someone that has alower credit score.

On Deck interest rates are usually higher thana traditional bank loan. But or many busi-nesses, On Deck makes perect sense.

As a business, you may choose to take onsome nancing at a high interest rate becauseyou have an opportunity in ront o you where

you can easily pay or that, plus have an ad-ditional return, King said. Te business thatsays yes to an alternative loan that is highercost, lets say a retail shop that needs to stockup or the holidays, i theyre buying goodsrom China or somewhere or 13 cents andmarking them up or $2, and they now haveto actor in an extra ew cents per product inhigh interest rate, they can cover it.

5 To Qualify: 1 year of constantrevenue. Credit doesnt matter.High volume deposits. Good forrestaurants, retail, etc.


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suprir -- fudig up t 0-$25,000

In recent years, startups have had the mostdifcult time getting nancing. Without timein business, without revenue, without anycredit, many lenders say, No way!

Te other real pain pointor business owners hasbeen getting a loan or$25,000 or less. For mosttraditional banks, smallerloan amounts are just notworth it.

Banks dont have an un-derwriting process thats quick and accurate,said Brett Child o Lendio, who works directlywith alternative lending partners. Te overall

costs or a bank is cost prohibitive and justdont make sense. But Superior can do it; theycan do small business loans quickly, and well.

Superior, one o our most valued partners, hasbecome the answer or startups and or thoselooking or smaller amounts o nancing upto $25,000. In 2010, they were the leading SBAlender in the nation in terms o total numbero loans unded. One o Superiors main man-

tras is to help the little guy that nobody elsewill take a risk on.

Superior oers SBA-backedloans, and in 2012 will becoming out with a smallbusiness product calledCommunity Express. Its arapid scoring system thattakes data rom 25 ques-tions and oers immediateapproval.

You can be approved up to $25,000 on thespot, Child said. Tis lls a huge gap thatother banks cant.

6 To Qualify: 650+ credit. Goodfor startups and small amountsof capital

you can be approved up

to $25,000 on the spot.

this fills a huge gap

that other banks cant.


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equipmt ficig -- n limit

Equipment Financing is used exclusively to

acquire business-use equipment, but can alsobe used to obtain cash on paid-o equipment.Approvals are typically based on credit score,collateral, nancial history, and value o theequipment.

Equipment loans and leases can be obtained asan SBA or Sale-Leaseback. ypically they re-quire collateral. Approvals are based on creditscore, collateral, nancial history and strength,

and the market value o the equipment.

Some equipment nancing programs mayhelp replenish cash ow, and more closelymatch the monthly revenue and expense as-sociated with the purchase. Many equipment

leaseback programs are good options or thosewho have purchased equipment and wishto use the proceeds rom new nancing as asource o additional working capital, or to payo existing high interest debt

Cash-starved businesses may want to considerleasing equipment to get access to things likecomputers, copy machines, ax machines,trucks, and more. Securing nancing or your

equipment, instead o buying, can reduce theamount o cash youll need to operate, start orraise unds or your business.

When you lease equipment, a manuacturer,dealer, or lender either buys or already ownsthe equipment you want. In exchange, youmake monthly payments to the owner (les-sor). Te monthly payment structure allowsyou to treat the payments as tax-deductiblebusiness expenses.

Short-term leases might cost you less thanbuying new equipment every year, and someeven have yearly computer upgrades built intothem.

7 To Qualify: good credit, downpay-ment of 10%Interest Rates: 8-25%Time to Funding: 1-3 months

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aR d Po ficig --Miimum $50,000

Account Receivable Factoring and/or Pur-chase Order Financing may be the best optionto receive the capital you need or your busi-ness. Tose categories serve as collateral orshort term working capital loans that you canobtain ast and cost eectively. Credit rating othe orderer is key in determining eligibility orthis loan category.

Accounts Receivable Financing (or PurchaseOrder Financing) is selling purchase ordersor accounts receivables or cash now, or usingpurchase orders as a source o collateral. Tistype o nancing is valuable when a contractor products or services is received, but thebusiness lacks the cash to ulll on the con-tract.

purchase order financingLenders will oen look at your margins morethan personal credit when determining ap-proval.

For example, lets say youre selling 1,000 ofce

chairs to XYZ company. You have a purchaseorder or a thousand chairs.

o get an idea o the gross margin, the lenderwill look at and ask, What do you need toacquire the chairs or? Whats your shippingcosts going to be?

Lets say your gross margin is 40%. Te lendermight give you an advance o 50% and youllhave to come up with 10% on your own tocover all your costs. And then when you getpaid by XYZ, then thats obviously your grossprot.

Tere are many options to secure A/R or P.O.nancing that may be available or you nowand a good t or your business.

8Interest Rate: 8%-30%

Time to Funding: 1-6 Months


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1. P.O. Finance companies like situations where all the parts have worked previ-

ously. A new start-up with their very rst purchase order is riskier than a company

who has been selling the same product from the same supplier over and over,

this time just happens to be a signicantly larger order.

2. The P.O. nance company must be paid in full when the customer accepts the

shipment, which means the borrower will also be using an invoice factoring com-

pany. The factoring company lets the P.O. nance company know the customer

has credit, then when the shipment is accepted, an invoice is produced and the

advance from the factor goes directly to pay the outstanding amount to the P.O.nance company.

3. The client borrower must have at least 30% prot margin on the transaction to

qualify.

4. Most PO nance companies require the goods to go directly to the end user. It

is rare they will allow the client borrower time to accept the goods, work on the

product (add things, put it together) and then re-ship the order.

things to know about purchase order financing4

the typical p.o. financingscenario is: A creditworthy customer who issues a

bona de P.O. an obligation to purchaseonce the goods have been delivered.

Te client borrower who needs PO nanc-ing then negotiates with a supplier toulll the order.

Te supplier is asking or cash up ront ora guarantee o payment.

Te borrower has the order they are try-

ing to ll but lacks the capital to guaranteepayment to the supplier.

When the supplier eels condent theywill get paid, they produce the productand drop ship it to the end user whoplaced the initial order.


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accounts receivable (ar) financingTis is also known as actoring and is oenused or B2B businesses. Tere are situationswhere a company may be billing only tenso thousands o dollars today, but hundredso thousands o dollars within a ew months.Factoring allows the potential o uture pay-ments to be used today to make payroll, payexpenses or operations. Lenders will lend acertain percentage o accounts receivable.

For example, Lendio President Levi King onceowned an electric sign company, manuac-turing electric signs and awnings or othercompanies.

Tey would usually pay us 50% to start theproject, King said. We would manuactureand install, invoice them, net 30%. And so wewould always have a pile o accounts reciev-

able, o money that other businesses owed us,and thats pretty solid collateral.

Lenders will look at that collateral and de-termine whether its good or bad accountsreceivable, and then theyll lend on a certainpercentage o that number.

reasons to use factoring to get funding3

1. Credit

The decision to fund a borrower is based on the creditworthiness of theircustomers (in this case a government agency or large Prime contractor.)

They are the ones writing the check that pays off the advance and closes

out each transaction. So the borrowers Financial Statements (or lack of any)is not an impediment to getting access to working capital.

2. Speed

With a minimal amount of paperwork, a factoring account can be set upusually in a week to 10 days. Once the factoring agreement is in place youcan wait for the contract to start and have the ability to make payroll.

3. Availability

Unlike qualifying for a line of credit from a bank, a factoring relationship does

not have a top end. You do not have to come back and re-qualify for a largerline. The factoring relationship grows as your companys revenues grow.


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bui Crdit -- 0-$20,000

Many businesses across the United Stateswere built on the back o business creditcards, said Brock Blake, Lendio CEO, in arecent interview on K-alk Radio.

Business credit doesnt have the ring o ven-ture unding, nancing, or even a businessloan. But or a large majority o small busi-nesses, it is the best -- or only -- option.

A line o credit can provide a lot o reedom,and quick access to badly needed unds.

Business credit usually comes in the orm obusiness credit cards or bank account over-

dras, ranging rom a ew thousand dollarsup to $100,000, in some cases. Approvals aretypically driven by credit score, debt ratios,and credit inquiries. Small lines o credit gen-erally reer to overdra credit lines or busi-ness credit cards. Rates vary based on type onancing and a clients prole.

You can write checks rom it and do wire

transers, Blake said. I youve got reallygood credit, you can combine several startupcards to get up to $50,000 in credit lines. Youwant to be careul, but or some people thisis your only option. Use it but be disciplinedwith it.

9 Interest Rate: 8%-24%Time to Funding: 1-2 Months

you want to be careful,

but for some people this

is your only option. use itbut be disciplined with it.

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16/21



Crprt TurrudCorporate urnaround is another o our part-ners that is making a huge dierence or smallbusiness owners.

what do they do?

Get business out o debt. Mainly through debtconsolidation and restructuring. Tey takewhat you can aord monthly and use that to

negotiate with your creditors.

Now, beore you stop reading right here, weknow youre probably saying, Tis isnt aboutgetting nancing!

Sure theres a preconceived notion that debtconsolidation is like the dentist chair. Youprobably have already gotten a bad taste inyour mouth when you rst read the words,debt consolidation.

While its not exactly a way to get nancing,it is a way or businesses to save more money,and in many ways is better than getting a loanWith Coporate urnaround, you can create alot o breathing room by extending terms andlowering payments.

Tis will alleviate stress or many businesses,said Brett Child, who oversees alternative

nancing or Lendio. Its a good solution orthose with good credit and might save themmore money than getting another loan andadding another burden.

Corporate urnaround handles most businessdebts, including vendors, credit cards, andmany leases and loans.

10

Current revenues are belowbreak even

Taking less than a full salary

Past due with one or more loans

Using credit cards for thebusiness

Receiving collection calls orletters

If this sounds like you,

corporate turnaround may be your best option:

Cash ow is tight

Cant get nancing

Cant work on business anddebts at the same time

Want to avoid bankruptcy

Already tried negotiating onyour own


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acquiiti L --Up t $5 milli

I you need unds to buy another business, thisis your option.

Acquisition Loans can be used to acquire,renance, or purchase a business or ranchise.Tere are several eligibility actors which caninclude the value o the business, experience

o the owner, and the past perormance o thebusiness.

A business acquisition loan is used or nanc-ing a new acquisition, renancing, or ran-chise purchase. Oentimes an SBA guaranteeis used to secure the unding or the lender.Te lender will examine the businesss peror-mance, the experience o the borrower, andthe value o the business. Lenders generallywant to see a new business plan and nancial

projections.

4 things to know about an acQuisitionloan: Lenders are looking so see i you have in-

dustry experience

Need down payment (more the better, but

minimum o 10%) Lenders will look at cash ow o business

youre trying to buy A lot o moving parts since youre buying a

new business

11To Qualify: Industry experience,

down payment of 10% and good

credit.

Interest Rates: 4.75%-6%

Time to Funding: 1-9 months

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Mrcht Ch advc --$0-$100,000

It is important to note that this capital is avail-able to businesss o many proles:

Personal credit score down to 500 In businesss or 3 months

Industries that are considered high risk Minimal proftability Certain open liens and judgments

Tis type o nancing will allow a business toborrow against uture earnings. Requirementsor this type o nancing are extremely lenientdue to the nature and terms o the loan. CashAdvance purely borrows against credit cardswipes that your business has.

Repayment is unique. A withdrawal is madedaily rom the bank or merchant account in

small amounts. Te repayment terms are usu-ally 6 months to a year.

Tis type o nancing is innovative, unique,and easy to qualiy or, but must be used in theright situations. Generally, credit is not pulledand nancial documents are not required orapproval.

Te merchant cash advance industry providesworking capital to small and mid-sized busi-nesses in need o nancing or reasons such as

the purchase o new equipment or inventory,expansion or remodeling, payo o debt ortaxes, or emergency unding.

Te merchant advance industry has beenrapidly growing in recent years as the creditcrisis has lead to businesses not being able totap conventional sources such as banks andcommercial nance rms.

advanceTe nature o the merchant cash advanceproduct requires business owners to have apositive need or this alternative nancingproduct. While a merchant cash advance isnot a loan product, the SBA (Small BusinessAdministration) does cater to a similar audi-ence as the MCA (Merchant Cash Advance)industry. A traditional advance product un-

12To Qualify: Consistent monthly

credit card volume, no credit, fund-

ing in 24 hours

Interest Rates: 18%-22%

Time to Funding: 1 month

f

$2 $500

. h

. o

-

.


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derwrites the average visa/master card volumeover a our month basis. Unless a cyclical busi-ness the same monthly average will apply thetwelve most recent months o processing.

Te guts o this product are the actoring outure credit card receivables. ypically thereare no personal guarantees, or collateral.Because this is not a loan, there are no termsassociated with the purchase agreement. Tebusiness eectively agrees to sell a portion otheir uture credit card swipes today or a dis-count. Te agreements are usually structuredin assumptions o repayment, usually esti-mated in a six to nine month repayment cycle.

Payo is very simple. Te merchant agrees toa small withhold o their uture credit card

swipes. Tis process takes place until the prin-cipal is paid down.

businessBusiness Loans are getting more challengingand so the emergence o the Merchant CashAdvance industry is booming. Business cashadvances are accompanied by ast approvaland even aster cash in merchants bank ac-count. Underwriting is very simple. Teadvance doesnt show up on personal credito the owner. Businesses continue to show theneed or the Merchant Cash Advance productBusiness Week reports that the size o themerchant cash advance industry jumped 50%

in 2007, to around $700 million.

interested in a merchant cash advance?Answer these questions frst:

1. Are you incorporated? With a business bank account and processingcredit cards?

2. Do you have 3-4 months of operating history on the processing

account?

3. Is the credit card volume averaging over ($2,000/month starter pro-gram) ($5,000/month conventional program)?

4. What potential open credit issues are there? Foreclosure, bankruptcy,judgments, tax liens, less-than 1-year ownership and other rules apply to theconventional program (although funding still capable, it becomes more chal-

lenging and mostly falls into the starter program).

5. Do you have 3 months of business bank statements? Bank cashow underwriting requires 3 months of business bank statements to value

cash ow for an advance on the bank activity alone. No credit card process-ing necessary. Repayment through daily debit on business banking day via

ACH (automated clearing house).


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merchantMerchants want to know how it works andwhat it will mean or them. Te business

owner must use the providers credit cardprocessor because the advance is paid backautomatically as a percentage o each batchsproceeds. Business cash advances are unques-tionably more costly than traditional bankloan nancing; it is simply an alternative tostrenuous applications to banks looking or allsorts o collateral on the business and person-ally on the owner.

Tis is a rapid nancing option that utilizesuture sales, hence no collateral on the ad-

vance. Cash providers contend that they cancontinue to collect rom credit card receiptseven aer a business has led or bankruptcy(when the automatic stay protects the businessrom most loan collection eorts). Credit cardunding is becoming one o the astest grow-ing nancing niches in the US. Cash advancesare not just or little merchants programs areavailable up to $5 million dollars.

Tis program recently started providing analternative to a split on the credit card receiv-ables. Its underwritten on the bank cash ow.Repayment as well out o the bank account,with a xed debit daily on business bankingdays.

Te program also unds nontraditional SICcodes o dierent business types like attor-neys, accountants and other business thatdont conventionally process credit cards.

Te starter market has evolved rapidly overthe course o the last three years. It essentiallycovers all o the all out o the conventionalcredit card advance program. Tis programsis geared to businesss that cant qualiy ora traditional advance. Less than one year inbusiness is, open liens, bankruptcies, oreclo-sure, judgments and high risk industry areunded in the program.

As long as there are businesss in need o astmoney, reliable and unsecured capital, thecash advance industry will continue to growand evolve. Te cash advance industry is onlyabout 10 years old, and has about 400,000businesses unded nationally.

However, beore you go start submitting yourinormation to a merchant cash advanceprovider, make sure you have all your ducks ina row.


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Hw d yu dcid which typ

of nancing is best for you?Many business owners think o only two waysto get business nancing today: get an angelinvestor or go to the local bank and apply ora loan.

Tat thinking is partly why so many smallbusinesses are not getting the capital theyneed. Its why business loan approval rates

hover around 10%. Many business owners aretrying to get capital rom the wrong sources.

oday there are many ways to pursue nanc-ing. But to secure the right nancing, each in-dividual, and each individual business, needsto pursue the types o nancing that will best

t their own unique situation -- whether thatsgetting the best interest rate and other terms,or quick capital.

Tats where Lendio comes in. Business own-ers can use Lendios system or two things: tobe matched to the lenders they have the bestchance o qualiying or, and to shop and com-

pare dierent types o loans and lenders.

Tere are more than 3,000 active banks, creditunions and other lenders in Lendios system.Sign up or Lendio now to nd the right -nancing or you.

Understand the 5 Cs: credit, character, collateral, capital, conditions

Be fully documented (showing tax returns, prots, revenues, nancial

statements, etc.)

Have a well-written business plan

State purpose of loan amount

Understand what loan will cost you in the end

things to know before applying for a business loan5

connect

Lendio is now freeget funding for your business>
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12 best ways to get business financing

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