Self-financed for over 30 years, the owner of Terry Trumbull Wholesale Meats recently wanted additional funds he could use to grow and expand his small business.
“Business is good!” Trumbull said. “I needed to hire an employee and I also wanted to buy a new refrigerated truck.”
Trumbull found that a traditional bank loan required too much documentation with unfavorable rates and terms. He looked to alternative lending. He first took out a short-term loan that required payments 25 days a month. “That really hurt my cash flow and it wasn’t helpful in reaching my overall financial goals,” he said. “I started searching online for a loan that would work for me.”
Trumbull ended up back with a bank loan after all, though this time through a non-typical online SBA provider called SmartBiz that makes getting an SBA loan with low rates and long terms easy. “The experience was fantastic,” he reports. “Fast and easy, just what I needed so I could get back to business.”
Does your wholesale meat business need additional funding? An infusion of cash can help your small business grow, expand and save money. While traditional funding sources like banks have been able to help in the past, that isn’t always the case these days.
As Trumbull discovered, the typical bank loan process takes lots of work, lots of time and can be disappointing. And, many alternative lenders are expensive.
Are you aware of the different options now available for funding your business?
• Look at an online SBA loan provider first. Small Business Administration loans have some of the lowest interest rates, longest terms and lowest monthly payments in the industry. If you can secure an SBA loan quickly from an online provider, this may be the best option. SBA loans can be used for a wide variety of reasons including consolidating high interest debt. Check with your lender regarding use of funds and documentation required to qualify.
• Consider peer-to-peer lenders next. If your business can’t qualify for an SBA loan, you may want to look to term lending options from companies such as Funding Circle, Dealstruck and Lending Club. With rates at typically 10% to 20%, these loans can be a good alternative if you don’t mind the higher cost.
• Choose cash advance lenders as a last resort. Beware of expensive cash advance loans and carefully consider the risks and rewards. For example, if capital is borrowed from a cash advance lender, it should ideally be a one-time transaction.
Once you’ve decided to seek out funding, it’s important to be aware of the following four factors and do your homework.
1) Beware of cost when leveraging technology
Online alternative lenders create financing solutions that are fast and easy. While that might seem like a slam-dunk, beware of extra charges – fast can be expensive when costs and fees add up.
With a non-bank online lender, interest rates on loans can be higher than a bank loan. The reasons vary – laws limiting interest rates generally don’t apply to short-term or business lenders, and loans can originate in states that don’t cap interest rates for business loans.
2) Cash is king
When you’re running and growing a small business, cash flow is critical. Short-term lenders typically structure loans to be repaid in months, not years. Like the first loan Trumbull received, accelerated repayment funds can be collected daily or weekly to reduce lender risk. But can your small business generate enough cash to cover those payments? Again, do your homework. Make sure your lender offers an affordable monthly payment that won’t stress your cash flow. Longer terms generally mean lower monthly payments.
3) Keep an eye on personal credit and business credit scores
Business and personal credit scores are important to a lender when looking at a small business seeking a loan. Credit scores show lenders how well you handle your finances and the finances of your small business. A low score can indicate finance management issues and decrease the chance that you’ll be granted a loan. In addition to risk assessment, credit scores are also important when looking at loan costs. High scores are usually needed to secure the best-priced loans.
Businesses receive credit scores just like private individuals. Factors that go into a business credit profile include how often you pay bills, credit history and available credit. A lender may have particular cutoff scores so you should always strive to achieve and keep a high business credit score.
As a lender, we recommend that small business owners avoid mixing credit and business credit histories. Combining the two can lower a person’s personal credit score. Additionally, using personal information instead of business information means your small business doesn’t establish a strong business credit history.
4) Keep your business records in order
Here’s an area where leveraging technology can save you lots of time and stress. These days, online tools make record organization easier. Consider utilizing a cloud based accounting system. Online accounting software for small businesses can manage invoicing, bank reconciliation, bookkeeping and more. Many of these systems offer a free trial. Try before you buy to find the best fit for your needs.
5) Beware of Teaser Rates
Heed the old adage, "If it sounds too good to be true, it probably is." Teaser rates are normally far below the common realistic rate for the service. Be sure to read the fine print so you know the terms of your loan throughout the life of the loan.
About the author
Evan Singer is a seasoned executive with broad experience in financial services and consumer industries. He is the General Manager for,SmartBiz,,the small business division at Better Finance, a venture backed technology based finance company.,