0:01 Intro Are you considering getting some financing
for your business? If so this video should make it a lot easier. If you’ve started
the process, you realize that business funding is a lot more complicated than consumer lending,
say if you've gotten a mortgage or an auto loan before. So we're going to take some time
in this video to break down all the different products in the market that you might find
as a business owner.
0:17 My name is Meredith Wood, editor-in-chief
at Fundera and I spend a lot of time walking through business loans with business owners
to help them understand the differences of what it can mean for their business, so I’m
going to do the same for you today. And if you have any questions about anything in this
video feel free to leave comments as you're watching this. We're always happy to answer
them and help clarify anything that we talked about during the video. So to jump right in,
the thing to know about the business lending market is that it’s not what it was 10 years
ago. There's now a ton of products that you can find online through online or alternative
lenders. So we're going to talk about both those today and what it can mean for your
business.
1:01 Bank Loans So the first product I want to talk about
is the one you're probably most familiar with, which is the bank loan or bank line of credit.
They are by far the most affordable product on the market for small businesses. Now that
being said, bank loans and lines of credit can be very hard to qualify for in terms of
eligibility. They can also take quite a bit of time. If you're considering getting funding
for your business and you need it in the next couple weeks a bank loan or line of credit
might not be your best option, but if you have the time it's definitely something for
you to consider. So what are the requirements for a bank loan? You’re going to want to
have a minimum credit score of 700, a minimum revenue requirement of $200,000 annually,
and a time of business of over two years.
So what do bank loans look like? The term is usually five to 10 years in range, the
interest rates are less than 10%, and it takes about one month to get this loan.
So the process of applying for a bank loan is certainly not an easy one. There's going
to be a lot of documents required. Every bank is going to ask for something different. But
if you're approaching the process and you want to be prepared, here's what you should
expect to have on hand.
What do you need to apply for a bank loan? Your resume for anyone who owns more than
20% of the business, a business plan, business tax returns, personal tax returns, your financial
statements, your bank statements, an explanation of what you will use the loan for, a debt
schedule, a statement of collateral if you’re going to use some, and you might be asked
for some legal documents like articles of incorporation, licenses, or more. Bank loans
and lines of credit are great products for business owners and while they can be tough
to qualify for and can take some time, if you're eligible for one it's a product you
should absolutely consider.
2:48 SBA Loans The next product I want to talk about is an
SBA loan. SBA loans are long-term loans that are partially guaranteed by the government.
SBA loans are similar to a bank loan in that they are longer-term loans that have really
great interest rates that start in the single-digit range, and they’re something that can be
really affordable for business owners who are both eligible and again have the time
to apply for this type of funding. So what are the eligibility requirements for SBA loans?
The minimum credit score is about a 640 plus, the minimum annual revenue is $150,000 dollars,
and you’ll about a time in business over two years. So what do SBA loans look like?
Well the loan amount is usually $5,000 to $5 million dollars in range, the term is about
10 years, and we’re talking about SBA 7(a) loans right here. The interest rate, right
now in Winter of 2019, is 8.25% and up. And you can get these loans in as fast as three
weeks. If you're watching this at a later date, those interest rates might be different
because these rates are based on the market as we all know fluctuates. So that's something
you want to double check on the SBA site before you apply.
So what do you need to apply for an SBA loan? A driver’s license, a voided business check,
your bank statements, a balance sheet, your profit and loss statements, your business
tax returns, personal tax returns, a business plan, a debt schedule, and a personal financial
statement.
4:16 Term Loans So the next product we want to talk about
is a long-term loan offered through online lenders. These are loans that again should
feel very familiar because they are traditional term loans that you already know because of
a mortgage or auto loan, but they're offered through these alternative lenders which make
the whole process quite easier and in some cases the eligibility requirements can be
a bit looser. So what do you need to qualify for a long term loan? You’ll need a credit
score of 650, minimum annual revenue of $120,000, and a time in business of over three years.
What do long-term loans look like? The term is 1-5 years. The loan amount is usually $10,000
to $500,000 dollars. The interest rates are between 7% and 30%, and you can actually qualify
for this loan in as little as two days. What do you need to apply for a long-term loan?
A driver's license, a voided business check, bank statements, a balance sheet, your profit
and loss statements, your business tax returns, and your personal tax returns.
5:21 Line of Credit The next product I want to talk about is a
short-term line of credit. These are somewhat similar to short-term loans in the sense that
you can get them just as quickly and with similar eligibility requirements. When you
need money very, very quickly, it will definitely put you in a position where you're not getting
the most affordable financing for your business. But if you have a line of credit for your
business you have those emergency funds to go to if there is something last minute that
you need. So, if you're looking for traditional term loans right now, know that it's actually
a smart thing to possibly get a line of credit alongside a term loan for your business. So
what are the requirements for a line of credit? They can definitely vary greatly by lender
but typically you’ll want to have a minimum credit score of 550, a minimum annual revenue
of $100,000, and a time in business of over 6 months. What do these lines of credit look
like? The loan amount ranges from $500 to $1 million dollars, the term can be 6 months
to two years, the interest rate can be about 7 to 25 percent, and you can actually qualify
for lines of credit on the same day you apply.
6:30 Interest Rate The one thing I want to talk about the interest
rates here is you only pay interest on what you use for your line of credit. So that’s
something to consider as you're thinking about what this could cost your business. What do
you need to apply for a line of credit? Again this varies greatly by lender, but typically
you’ll need a driver's license, a voided business check, bank statements, a balance
sheet, your profit and loss statements, a business tax returns, and a personal tax return.
Now there are some line of credit lenders that will ask for much less than this so don’t
be shocked if you go apply for a line of credit and you don’t see all these documents on
there. But we’d rather be more prepared than less prepared.
7:05 Invoice Financing Now let's talk about invoice financing. Invoice
financing is something that has been around for quite some time, but I would say in the
past handful of years it's sort of gotten a makeover. You have both invoice factoring
and invoice financing, and the difference there is that with factoring these people
are buying your actual outstanding invoices from you and then they're in charge of pursuing
any outstanding debt on that. With invoice financing, the invoice more so acts as collateral
for any financing you receive. What do you need to qualify for invoice financing? A minimum
credit score of 500, there’s no minimum revenue requirement, and a time in business
of three plus months. You’ll see the eligibility requirements are looser here, because it’s
really more about your clients and their ability to pay back than your own.
What does invoice financing look like as a loan product? Well the maximum loan amount
is usually up to 100% of an invoice’s value, the term is until the customer pays the invoice,
and the interest rates are really a flat fee upfront, let’s say 3%, and then a specified
percent interest per week the invoice is outstanding. So if it’s one percent, that means you pay
one percent every week the invoice is outstanding until it’s paid back. And you can qualify
for invoice financing in as little as one day.
What do you need to apply for invoice financing? A driver's license, voided business check,
bank statements, outstanding invoices, your accounts receivable aging, and your accounts
payable aging. There are some lenders who will require less than this if you are able
to hook up your accounting software to their system in order for them to find this information
automatically
8:44 Equipment Financing All right, we're getting close to the end
here, I promise. I have three products left and they're definitely ones you're going to
want to learn about so stick with me! So the next one I want to talk about is equipment
financing. As you'll see we're sort of in this realm now where we're talking about things
that can specifically collateralize funding for your business. So if you're looking for
funding right now because you're trying to buy a piece of equipment, say, a new oven
for your restaurant, this is a type of funding for you to consider because the equipment
you're looking to purchase will actually collateralize the loan, which, as you can imagine, makes
it a bit easier to qualify for and helps with the pricing. What do you need to be eligible
for equipment financing? A minimum credit score of 630, a minimum annual revenue of
$130,000, and a time in business of at least two years.
What does equipment financing look like? The maximum loan amount is up to 100% of the equipment’s
value, the term is the expected life of the equipment, interest rates range from three
to 30 percent, and you can actually qualify for equipment financing in as little as two
days.
You can expect the maximum loan amount to be up to 100% of the equipment value. The
term will be the expected life of the equipment, interest rates are usually 3 to 30%, and you
can get this in as fast as two days. What do you need to apply for equipment financing?
A driver's license, a voided business check, your bank statements, your business tax returns,
and the quote for the equipment you’re financing.
9:59 Merchant Cash Advance I want to talk to you about a merchant cash
advance. Tread carefully here! These products are the most expensive products on the market,
and if you are currently looking at it I want to make sure I emphasize that you want to
check all your other options before this is something you consider. So with a merchant
cash advance, lenders actually purchase a portion of your daily credit card sales and
that's how the loan is paid back and the good thing about this is that when cash flow is
great, you'll pay back more when and cash flow is slow you’ll pay back less, but obviously
you're essentially giving over a portion of your cash flow every day which can be really
tough for businesses. What do you need to qualify for a merchant cash advance? A minimum
credit score of 550, a minimum annual revenue of $10,000, and a time in business of at least
two years.
So what does a merchant cash advance look like? The maximum cash advance amount is from
$2,500 dollars to $1 million dollars. The term is paid daily via your merchant account.
And the factor rate starts at 1.14 but can get much more expensive. And you can qualify
for merchant cash advances in as little as two days. And you can qualify for merchant
cash advances in as little as two days.
What do you need to apply for a merchant cash advance? A driver's license, a voided business
check, bank statements, business tax returns, credit card processing statements, and I want
to be clear; making sure you’ve also gotten offers from everywhere else before you apply
for this product. Like I said this product can get very very expensive so you want to
check the APR’s on this so you understand how much it is going to cost your business.
11:37 Business Credit Card The last thing I want to talk to you about
is a business credit card and you're probably like, what, why are we talking about business
credit cards when we're talking about business loans? And it's because a lot of new business
owners especially don't realize they can actually use a credit card to help finance your business.
You spend so much as a business owner and if you think about the cashback offer s that
some card providers offer, or the travel rewards you can get, it's essentially money you're
leaving on the table if you aren't choosing a great credit card. Of course, using a credit
card requires a lot of discipline and that's something that you absolutely need to adopt
as a business owner because credit, both personal and business is going to be instrumental for
your business going forward from getting financing to a trade line and all sorts of other things.
What are the requirements for a business credit card? Minimum credit score starts at 580 and
the higher your credit score goes the more options and better options you’ll have.
There’s no minimum revenue requirement, no time in business requirement. What does
a business credit card look like? Well the credit limit will depend on your home credit
worthiness, the term is month-to-month payments which you probably know from your own consumer
credit cards, and the interest rates will vary by the card but the nice thing is you
can be instantly approved for business credit cards. What do you need to apply for a business
credit card? Your business name, your tax ID number, whether that be your social security
number or your EIN depending on the type of business you have, you’ll need to give them
your business entity information, your estimated monthly spend, your monthly revenue, and other
business information depending on the provider. Applying for a business credit card should
be a pretty easy process but of course, if you have any questions, providers are great
about providing a lot of information up front so you know what you're getting yourself into.
13:17 Outro Whoa, that was a long list but this is what
I'm telling you the business loans market is so much more complicated and diverse than
we find on the consumer side. You’ve done yourself an awesome thing here by watching
this video and being introduced to everything that's out there because what's most important
is that you get into the right loan for your business, and right can mean a lot of different
things: it can be most affordable, it can be quickest, it can be fastest payback period,
it could be the lowest monthly payments. The right thing for your business is ultimately
up to you. So if you have any questions, visit Fundera.com right below or you can leave questions
or comments, and we're happy to answer them for you. Just know we're here to help you
through this process, but hopefully, it appears a little bit less intimidating after watching
this. Thanks for sticking with me on this, I hope it was helpful and more to come to
future.