Compound Profit Blog

Before you can begin to get business loans you have to be able to do two simple things. You have to be able to determine your business fundability accurately, and determine what your immediate needs and future needs will be.

Is Your Business Fundable?

There are several aspects that go into determining your businesses fundability when it comes to getting financing. The first thing banks look at is your businesses credit and then they will need to see some record of income and profits from that business if it has been in operation for any length of time.

If you are just starting out, those two aspects of business fundability are not always present. Some lenders may suggest using your personal credit to give your business credibility, but that is a dangerous game and one that should be avoided whenever possible. You can develop some business credit by opening vendor accounts and purchasing supplies on account, paying them back within the stipulated timeframe. Most vendor accounts are payable within 30 to 90 days. Make sure you completely understand the terms you are agreeing to and always meet your obligations so you create a separate credit rating for your business.

Income and profits from a startup are not available for a lender to determine your ability to repay a loan. If you have a solid business plan that is well thought out and does not suggest exaggerated expectations, a lender may use that to determine your businesses ability to repay a loan.

What are Your Needs?

It may be tempting to get a loan for as much money as you are eligible for, but that isn’t necessarily a good idea when applying for a business loan. First, if you ask for the maximum amount you can get it may make your debt ratio so high your business credit score actually goes down.

Another reason not to overburden your business with an exceedingly high loan is that you will be paying interest on money that you don’t actually need. Why pay more if you don’t have to? It can be tricky to determine exactly how much money you need, both now and in the future and you don’t want to cut yourself short. That’s another area where a very thorough business plan can help you understand your needs and give you the tools you need to make the right decisions for your business.

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There is a lot more to a business credit card than simply providing available cash. It is very important to have credit cards in your business name in order to protect personal credit ratings. However, depending on your needs there are other things to consider when it comes to what makes the best business credit card for your business. 

There are things like frequent flier miles and hotel savings that the right business credit card can provide for those that have to travel often on business. These are just a couple of the incentives that business credit cards offer. If your business doesn’t require you to travel, however, those may not be the right business credit cards for you, but that doesn’t mean that there aren’t others that will give you the bonuses you can use.

Types of Incentives Available

• Cash Back: Many business credit cards give you a cash back bonus simply for using the card. These bonuses may be general cash back on all purchases, or they may stipulate certain types of purchases. In other cases there may be several types of cash back bonuses on a single business credit card. For instance, the bonus from “SimplyCash®” business card from American Express OPEN that offers 5% cash back on office supply purchases as well as on wireless services. It also gives 3% on gasoline purchases and 1% cash back on all other purchases.

• Bonus Miles: If you travel heavily for business, or just want to take a much needed vacation you can choose a card like Capitol One® Spark Miles for Business that gives you thousands of frequent flier miles with no limits. There are no blackout dates for traveling, or any airline restrictions and you can even use the miles for cash back or gift cards if you decide you aren’t going to travel. Capitol One® also has a Spark card for cash if you prefer bonuses rather than miles.

• Bonus Points: Another form of bonuses are given as “points” toward special purchases. InkBold with Ultimate Rewards gives you 50,000 bonus points if you spend $5,000 in 3 months. If you have a lot of large expenses, or use your credit card for regularly recurring expenses this can be a very beneficial type of bonus.

• Hotel Bonuses: If you travel on business or for pleasure this type of bonus can save you a lot of money. Marriott Rewards Business Card is one of these types of cards. It gives you 1 point for every $1.00 spent, plus 2 free nights at certain locations throughout the year, no limits on the amounts you can earn, plus if you use your card to pay for hotel accommodations at a Marriott you will get triple points for each dollar spent.

What You Should Consider when Choosing a Business Credit Card

Remember that along with helping you protect personal credit, your business credit card will help you build your company. However, it’s important to determine what you need your card for in order to pick a card properly. If you need a business credit card to finance big, long-term purchases look for a card with a lower interest rate rather than big bonuses. In the long-run, you will pay a lot less for the overall purchases even after you take bonuses into consideration.

If you are using your business credit card to finance monthly expenses and make accounting easier, you will be paying off the entire amount every month, so interest is not a concern. In those cases, get the most for your dollars by choosing a business credit card with the most useful bonuses for your needs.

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Invoice factoring is a form of financing where a business will essentially “sell” an invoice to a financing company for a slightly discounted rate, usually between 75 and 90 percent of the overall value of the account. The financing company than assumes full responsibility for the collection of the accounts payable, while the selling company receives a cash payment for the sale of the account. For many businesses, this is an ideal short-term solution to several issues.

Account Collection.

In the event of a delinquent or soon to be delinquent account, most businesses are not equipped to handle account collection through in-house channels. This necessitates the use of agencies and services designed to assist in the collection process. In the case of small businesses or start-up businesses, the loss of liquidity and time costs associated with the use of these services can be devastating. Invoice factoring allows troublesome accounts to be handled quickly and efficiently.

Growth Support.

Many new businesses are constrained, at least during the early stages of development, by the availability of capital to fund new projects. Invoice factoring ensures that growth and development is limited only by the overall volume and relative size of the projects being completed. Essentially, invoice factoring allows new business to grow at a rate directly proportional to production levels.

Time Sensitivity.

Financial investments are often defined significantly by the time sensitive nature of the specific investment. Invoice factoring allows business to take advantage of sudden and potentially profitable investment opportunities as they present themselves, regardless of current levels of liquidity.

Financial Records.

Unlike alternative forms of financing, invoice financing does not take into account the credit history or current financial status of the borrowing institution or business. When determining the terms and conditions of a specific account the finance company evaluates the value of the invoice account itself. This allows companies that may not have an extensive credit history, or even some amount of negative factors on their credit account, to obtain lines of credit. Additionally, the accounts can be evaluated much more quickly than a company wide evaluation can be conducted, speeding-up the overall process.

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The economy today is not doing so well, but this doesn't mean that you cannot obtain financing for your business. Here are ten ways your company can obtain the capital it needs.

1. Ask Someone In Your Family

If you are starting your own company, you could always ask a friend or relative who might have some extra cash laying around.

2. Use Your Social Network

Have you ever heard of social lending? It is like asking a friend for a loan, but doing so online and with millions of friends to choose from.

3. Put Up Your Own Assets

A bank might not be willing to lend your business money unless it has a solid track record, but you can put your own personal credit on the line. A house or car as collateral helps greatly.

4. Look For Angel Investors

Angel investors are people who are looking to invest in companies with potential. This isn't a loan, but the investment is an equity one, so they will obtain some percentage of ownership.

5. Sell Stock

The sale of stock will raise capital quickly for your company. Remember that you will be accountable to your shareholders if you go this route. They have the right to expect a profit, so make sure you can deliver.

6. Take Pre-Orders

Allow customers to pre-order and ask that they pay in full. This will raise capital before having to buy or ship goods. Think of it as a short-term loan.

7. Get those A/R To Your Bank Account ASAP

If a customer was delivered goods, but has not yet paid up, ask that the customer do so. You can even offer incentives to get that cash in a little quicker.

8. Micro Loans

A Micro Loan is a small loan that carries a smaller interest rate. A credit card could be as much as 22 percent APR for a small 1,000 loan, but a Micro Loan averages around 8 percent interest.

9. Sell Or Rent Assets

Renting an unused room could be a great way to raise cash. Selling your old copy machine could also be a great way to get some extra money quickly.

10. Credit Cards

If no other loan option is available, a credit card is a last resort. Beware of high APR's, but it could be a bailout when you are in desperate need of capital.

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The recent last minute agreement to raise the debt ceiling was only a temporary solution to our nation's biggest fiscal problem. No one really expected that the United States was going to default on its debt obligations, but the politicians certainly caused something of a world crisis in the financial markets.

While it is hard to say whether it is this administration's fault or the result of the previous administration's policies having to be addressed with an entirely different strategy, the fact remains that our country owes more than 14 trillion dollars.

The number is so big, it is hard to understand. Imagine 14 million attaché cases (18"x12"x4.5") each filled with a million dollars in hundred dollar bills. A trillion dollars would be more than enough to buy all of the homes that were foreclosed in 2007 and 2008. The 14.3 trillion dollars the United States is equivalent to being able to write a $2,000 check to every one of the roughly 7 billion people living on our planet.

Now that you have a clue as to the enormity of our debt, what does that actually mean? What impact does the current debt ceiling deal have on you and me? How does it affect small businesses?

When the powers that be finally came to some sort of agreement, the result was to add 2.4 trillion dollars to our nation's borrowing limit. As part of the deal, promises were made to cut spending by the same $2.4 trillion dollars. It is an attempt to stabilize our debt crisis and still allow the country to function normally and without having to go through a major financial disruption.

There is a price to pay for carrying so much debt. Standard and Poors, the financial rating agency recently downgraded the credit rating of the United States. The unprecedented move does not actually affect our ability to pay debt, but does create a question both at home and abroad about the financial stability of the world's greatest economy.

The Federal Reserve has promised to keep interest rates low over the next several years so not to cause a panic in the business community. While interest rates may go up on all types of consumer and business debt, they are unlikely to spike high enough to bring our slow economic recovery to a sudden halt.

Small businesses may suffer the brunt of the impact as not only may it be harder to borrow money, but the costs of running their businesses may increase. The fact remains that there is great uncertainty in what will be cut and if/when taxes will be raised.

Small businesses that are already struggling can be forced to close if taxes get any higher. The cost to hire an employee will rise. Government programs will be trimmed or completely eliminated. Who knows what will happen with Social Security and Medicare? Without doubt, everyone will be asked to cut back and sacrifice and that will mean additional hardship for the millions of small businesses in our country.

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Unsecured financing is an excellent option for a small business that needs to borrow money without a credit check. The loans must be paid back in a shorter time frame and do require a higher interest rate than secured loans. You have easy access to the money for emergency situations and do not need to use your home or business as collateral. There are very high interest rates on these loans because they are very risky to the lenders. Some lenders may not get their money back until after the liquidation sale of your business because there is no collateral required for the loan and you do not need to risk your home or business building with a lien on your property. You will however, have a financial obligation to repay the loan amount.

If your company is doing well, then an unsecured loan could allow you to improve your small business to a better level of profit. The unsecured loans are a handy tool if the banks will not extend you any more regular credit on your business. Many small businesses need to have more money, especially when they are growing. You may be able to service more customers, but simply not be able to finance the additional equipment that is needed for more production. The unsecured loans usually need to be paid back in a number of months or perhaps a very few years but if you believe that you will make more in profit during that time than you will spend on the unsecured loan, then the loans could be a good choice for you.

Even with a bad credit rating, you could receive unsecured financing that could protect your small business. You might not have the money that you need to repair a service truck that you use to replace gutters with your small business, so for you, having an unsecured loan would allow you to fix your truck and continue installing gutters. Without that truck, your business could be closed. Those unsecured loans do offer an option for the small business owner that may not be able to survive without getting the high risk loans but lenders do charge higher interest rates because there is a high risk of having to go to court for their money if the borrower can not repay the loan. However, with unsecured financing, you could stay in business and protect your investments.

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If you need to work from home because you are raising your children or you want to quit your job and start a new journey as an entrepreneur, this is a great year to do it. And while some people have had unique, original business ideas that have brought them a lot of money and fame, I recommend that you should simply copy what works – this will guarantee your success, especially if you manage to offer better prices, better customer support, or just a better overall shopping experience (this could be as simple as a friendlier, easier to use website, and so on).

Starting your own home business isn’t an easy task, especially when you need more than a couple of hundreds of dollars for the initial investment. And while keeping your job until your business starts to produce a consistent income stream is a sound advice, some of you might not be able to make use of this personal financing source. So how do you get the money for the initial investment in your company?

An obvious, and yet often overlooked financing method is to get a loan from one of your friends or family members. While this can also generate potential problems, because it can affect your relationship with the lender, everything should be OK, provided that you manage to repay him / her without any delay. If you go this way, make sure to keep the costs (and thus the loan) to their minimum possible value; you won’t need separate lines for phone and fax from the very beginning, you won’t need an expensive, color laser printer, etc – just borrow and buy the equipment that is essential in order to get started.

OK, so maybe your friends and relatives can’t lend you money, but I am sure that at least some of your friends or relatives run a small business, so don’t be afraid to ask for their help. Feel free to ask them as many questions as possible; most of them will be more than willing to answer your questions because they’ve been through this several years ago, so they can relate to what you are trying to achieve. Also, make sure to create an account at a social media website such as Twitter, Facebook or LinkedIn; follow several small business experts or join the proper business groups and you’ll discover many great resources that will help you learn the ropes. In fact, many experts are offering free seminars on these websites on a regular basis, so you can have access to quality training and information without paying a dime for it.

Your relatives or friends can’t be of too much help? Then start browsing the net, looking for small business loans. In fact, since you are reading this article, why don’t you contact us, Compound Profit? We have financed many small businesses and startups, so we might have a business financing solution that’s perfect for you.

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If you are running a small or a medium sized company, you know that learning how to get business financing is often a long, painful, discouraging process. There are many reasons why this is happening, but it all starts with the lack of authorized, valuable information.

How does this particular market work? What documents must be prepared in order to maximize your chances to get financing? Are there different requirements for startups vs established businesses? Can a declining company get financing under good terms? And what happens if you don’t have any collateral to guarantee the loan? Can you still get business financing if your company has had some credit-related accidents in the past? These are just some of the questions that are asked by most business owners who are looking for sources of financing, no matter if their companies are struggling or blooming.

Some might believe that you could simply buy a book that discusses business financing and you’ll be all set, but the reality shows us clearly that theory and practice don’t match most of the time, at least in this industry, mostly because these books will usually target large corporations, so their methods can’t be applied by the small business owners.

 Let’s start by making a bold, and yet 100% true statement: the banks only provide a small fraction of the business financing money. It wasn’t always this way, but the banks are now afraid to take on even the smallest risks; this explains why getting financing from the traditional lending institutions has become almost impossible. If you run a small business and your credit records aren’t perfect, better save your time and energy and look for financing elsewhere.

Under these conditions, it’s not surprising that the alternative financing companies have expanded their activity, inventing more and more attractive financing options in their desire to attract the small business owners who were turned down by the banks.

But how can you maximize your chances to get financing? First of all, make sure to evaluate your company’s assets and income; you want to ensure that you’ve got a positive cash flow (or at least to evaluate the magnitude of your company’s cash flow problems). Also, be sure to evaluate your company’s credit score, as well as your personal score; these values will play an important role for many of the lenders. If there are problems on your credit sheet, don’t try to hide them; many lenders can help you fix them using a business credit builder, and then help you get financing, so make sure to ask for their help. Review the reports you’re getting from the credit agencies, signaling any of the potential errors right away – if you don’t see the errors or forget to report them, they’ll limit your ability to get business financing.

Finally, make sure to gather the documents which show that your company is trustworthy; the lenders will like that, because this gives them a guarantee that you’ll repay the loan. Also, don’t forget to do your research and learn as much as possible about the lender; you want to make sure that it has financing programs that fit your needs or (even better) can be customized according to your particular needs. At Compound Profit, we understand that each business is unique, so we look forward to speaking with you and finding out ways to help your business grow. Contact us for a complimentary consultation.

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The business financing companies have become more and more inventive, offering several business financing options that don’t require any collateral and streamlining the process, making it much easier to get access to funding when compared with the rules and regulations imposed by the traditional lenders. The reason for this is obvious: the alternative financing companies know that the banks don’t want to risk any of their money these days, so most of them are welcoming the clients who were turned down by the banks.

The current economical climate has made quite a few businesses shut down for good; nevertheless, the very same economical climate has helped other companies seize new opportunities and grow. No matter if you are struggling or thriving, getting access to a consistent funding source which allows you to purchase a new piece of equipment or to increase your inventory could be just that breath of fresh air that would help your company become profitable, or, if you are running an already profitable business, would help you grow much faster.

The good news is that getting business loans without any collateral or other assets is much easier these days; if your personal FICO score is good, you should be able to qualify for a business loan without too much effort. The amount of money that can be obtained through an unsecured business loan starts with a few thousand dollars and can easily exceed $100,000, provided that you have an established business with a proven credit history. Also, having good credit and debit card sales records will show the lender that your company is trustworthy, thus increasing your chances to get the loan.

The interest rates depend on your past credit history, so make sure to prepare for the loan by paying all your clients on time. Don’t worry about repaying the loan, though; most lenders will make sure to get small amounts of money from your credit account until the entire loan is paid pack, so you won’t have to worry about forgetting to pay the business financing company.

Compound Profit offers unsecured business loans and credit lines for companies of any size, so make sure to contact us for a complimentary consultation.

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