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Choosing the Right Financing

There are a lot of different financing options available today. There are so many options that you might not be sure where to start. Let’s dive into some of the available options you have to see what works best.

Most business owners try to first apply for financing at their bank but according to the Department of Revenue, only about 1.1% of all business funding comes from conventional banks such as SBA loans. Your bank can help you with credit lines and loans, but you MUST have financials and good credit for approval.

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Google “SBA loan approval checklist” to find this page https://www.sba.gov/content/business-loan-checklist. This list is all that you will need for conventional loan approval.

MOST business financing that happens today comes from alternative lenders, NOT the big banks. These are lenders who have carved out “niches” in the business funding world.

They typically focus on only one aspect of your business to make a lending decision. If that one area of your business is strong, you can get approved even if you are weak in other areas. This is very different from SBA loans that look at the whole picture.

Alternative lending is much easier to secure than conventional loans and you can usually get approved and funded much faster also. The terms typically aren’t as favorable as conventional financing, but you can often get approved when your bank would tell you “no”.

I group alternative lending into 3 categories, credit, collateral, and cash flow.

We have discussed several funding types that are available based on your credit. Some use your business credit for approval while others use your personal credit for approval.

You can’t go into your bank and get multiple business or personal cards. But there are lenders who focus on this type of financing only, and can get you multiple high-limit business credit cards that report to the business reporting agencies and have great incentives such as low intro rates. Remember, you must have good personal or business credit to be approved and you can be approved even if you are a startup.

Collateral based lenders are also called asset based lenders. They can approve you for money even if you have bad credit, and in many cases if you just opened your business. The key is you need acceptable collateral to get approved.

Acceptable collateral includes 401k and stocks, inventory, equipment, real estate, a book-of-business (insurance agents only), a car lot inventory, purchase orders and account receivables (if from another business), commercial signs and graphic wraps, and other viable types of business collateral.

Vehicles are depreciating assets and typically won’t qualify. Rates and terms on collateral based funding are VERY good, sometimes better than conventional loans.

It’s not uncommon to get rates of 5% or less, even with bad credit. If you default, the lender just takes your collateral, so the risk isn’t as high as with other types of business funding.

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Most advances are forms of cash flow based financing. This is the fastest and easiest money you can get your hands on and you can get approved with bad credit and no collateral.

But you will need to show bank statements that prove you have over $10,000 in monthly deposits and at least six monthly transactions. You can usually get as much as 12% of your annual revenues advanced to you.

These are cash advances so the rates are not great, ranging from 8-45% depending on risk and you will usually be approved for a 6-18 month payback.

Once you prove yourself with your first advance, terms get MUCH better on future advances. This is why we find that over 70% of those who get their first advance come back and get more money ongoing.

There is A LOT of money available for business owners, more now than there has ever been in the past. You just need to know what type of financing to go after, once you know that you can more easily find what you need.

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