Business Financing FAQ's
Small Business Funding Options -
Q. What is revenue based financing?
A. Instead of a business being required to pay fixed interest payments like a typical bank loan, a revenue based loan is paid with a percentage of revenues. Small business revenue based financing helps you grow your business and it does not saddle you down with long-term, highly encumbering debt. With a revenue based loan, you will pay it off in roughly 6-12 months, which makes more sense for short-term expenses. Additionally, lenders are usually willing to replenish the loan after roughly 50% is paid down, so you can continue getting more capital along the way.
Q. What is a working capital loan?
A. At any stage of growth, fast, flexible funding is essential to the continued success of your small business. Working capital loans are typically 3 to 15 month terms and fixed payment options to accommodate your specific needs, so you can focus on what you do best, running and building your business.
Q. What is a cash flow loan?
A. For this type of business financing, lenders provide you funds and use your future expected cash flow as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future by giving the lender the rights to a predetermined amount of these receivables. These are primarily used for working capital or take advantage of short-term ROI opportunities. Your credit scores will be checked, but they play less of a role. As the name indicates, the lender is more concerned with inspecting your cash flow (usually bank statements) to approve your application. Turnaround time is another great feature of a cash flow loan, as funding usually takes place in a matter of days.
Q. What is an ACH loan?
A. For starters, an ACH small business loan can also be referred to as a cash flow loan, revenue based loan or a merchant cash advance. The ACH designation really applies to how the lender is paid. ACH or Automated Clearing House, refers to the lenders ability to withdraw an agreed upon amount directly from your checking account at agreed upon intervals, typically daily or weekly. An ACH small business loan should be considered a small business short-term financing option. The cost of the capital is more expensive, in other words you’ll pay a higher interest rate, but you’ll be able to access that capital much quicker than a traditional term loan from a bank or other traditional lending institution.
Q. What is a merchant cash advance?
A. A Merchant Cash Advance (MCA) can provide small business owners with an upfront fixed amount of cash in as little as 24 hours. The funding amount is based upon a percentage of the businesses credit card receivables or daily cash balances using historical credit card receipts and bank statements to determine the initial advance. The business pays back the advance, plus a percentage, often referred to as a discount factor, from a portion of their credit card receivables or cash available plus a percentage which is often referred to as a discount factor. The remittances are drawn from the business customer on a daily, or weekly basis until the obligation has been met. MCA's are great options for small business owners who may not have strong credit but have lots of credit card activity, or cash deposits, and need financing quickly.
Q. What is a business term loan?
A. term loan is what most people think of when they think of business lending. They are loans with a set repayment time, set number of payments, and have a fixed or variable interest rate. The terms of the loans vary, from 1 year to 4 years fully amortizing. You can use a small business term loan to meet virtually any business need, including purchasing equipment or inventory, working capital, paying back other debts, meeting tax obligations, or large single purchases. While bank loans require a wait of two to six months before disbursement, you should have your term-loan funded within in a day or two.
Q. What is a business line of credit?
A. Business credit lines were designed to help you meet short-term cash needs, such as purchasing supplies or additional inventory or covering operating expenses. Essentially, a business line of credit can help small businesses thrive and grow. A business line of credit is a good option to offset fluctuations in working capital when your expenses stay constant. A line of credit will give you access to funds to continue to pay bills on time or purchase additional inventory if needed. The advantage of a line of credit over a regular business loan is that interest is only charged on the funds you actually use. Additionally, your business can draw on the line of credit at any time that you need.
Q. What is a SBA loan?
A. Small Business Administration Loans (SBA) are generally the least expensive financing option for small business owners. The SBA 7(a) loan is the Small Business Administration’s most popular product and offers a flexible sum of cash that can be used for anything from managing daily operations to purchasing new products and refinancing high-interest loans. LVRG offers SBA 7(a) loans up to $350,000 in the most streamlined and efficient way possible. And, you can have funds in as fast as 7 days after the application is completed. *Minimum 2 years in business, 680+ credit score with clean history, and $120,000+ in revenue.
Reasons for Funding -
Buying Equipment – Could a new computer, desk, telephone, cash register or software come in handy? Money to pay for the purchase of necessary business equipment could help boost your profits. And if this cash isn’t readily available in your account, a cash flow loan, revenue based loan or MCA can provide you with these funds.
Purchasing Inventory – One of the most common uses for fast working capital is buying inventory. It takes products in stock to make business profitable, so it only makes sense to invest in enough inventory to make sure you always have enough to sell to clients.
Managing Cash Flow - Managing cash flow is vital for the health of any business, and you should look for ways to improve your cash flow while also protecting relationships with your vendors and customers. Creating a smart cash flow forecast can help maximize growth for your business, by spotting trouble before it arrives and making sure you always have enough money on hand to keep your business growing.
Paying Employees – Instead of running your business like a one-man show, a few extra hands could really help. Spending borrowed money on employee’s salaries can be the answer rather than disrupting your cash flow to cover this expense.
Expanding the Business – If your business is experiencing some success, you might want to start thinking about taking things to the next level. A lump sum of cash might be just what you need to get business booming.
Understanding Your Small Business Funding Options -
Q. What are business loan “terms?"
A. The phrase “loan terms” usually refers to the term length of your loan (however it is sometimes also used to describe other loan conditions). For example, loan terms can range from 3 months to 10 years, or longer—depending upon the nature of the loan.
Q. What is a personal guarantee?
A. A personal guarantee gives your lender the right to pursue your (the guarantor’s) personal assets if your business defaults on a business loan.
Q. Can I get a business loan after a bankruptcy?
A. Qualifying for a small business loan will be more difficult during the 10 years the bankruptcy appears on your credit report, but some lenders will work with your businesses if the bankruptcy has been discharged typically for at least two years.
Q. What is loan stacking?
A. Loan stacking is where a short-term loan or cash advance is approved on top of a loan or advance that is already in place with similar characteristics with no consideration of the borrowers ability to manage the debt. It often happens when a lender, who you don’t know and likely have never spoken to before, sees the UCC filing for your first loan (because it’s part of the public record), and contacts you to inform you that you now qualify for an additional loan. Loan stacking could put a business at risk of default and bankruptcy.
Q. Is business loan interest tax deductible?
A. Business loan interest may be considered a legitimate business expense and tax deductible by the IRS. You should consult with a trusted tax adviser to discuss how this applies to your business.
Finding the Right Business Loan -
Q. What is the best type of business loan for my business?
A. There are many options available for most small business situations. The first questions to ask to find the best loan for your situation are 1) What is my loan purpose? 2) How much capital do I need to meet that need? 3) What type of loan can I likely qualify for? The answers to these questions will lead you to the best loan for your business and situation.
Q. Do banks lend money to small businesses anymore?
A. Roughly 80% of small business owners who apply for a bank loan get rejected. In fact, over the past two decades, small business loans have fallen from about half to under 30% of total bank loans. That secular decline is due to a multitude of factors, including high transaction costs of small business loans and regulators that push banks to hold more capital against business loans than consumer loans, further driving up the costs of small-business lending. As a result, it’s increasingly difficult for small businesses to find banks willing to lend to them.
Q. What is a non-bank lender?
A. A non-bank lender is any lender that is not a bank. For example, online lenders, and equipment financing companies are frequently non-bank lenders.
Q. There are thousands of business loan companies out there. Why LVRG?
A. Small business finance is broken, plagued with predatory lenders and unethical loan brokers. With no regulation whatsoever, most funding companies are nothing more than call centers, ran by very young salespeople with zero knowledge, background, or experience in business, and/or finance. In fact, most loan brokers and online lenders simply auction off your application to the highest bidder, while destroying your credit. Small business owners are being misled at every turn, collecting "fake" loan quotes, comparing lending rates & terms that don't exist, clicking on banner ads for loan products they'll never qualify for, committing to funding offers that change at the last minute, and being duped into signing bait & switch funding contracts. Don't risk it!
Why LVRG? We are experienced and trusted small business finance professionals, each with an extensive track record in the industry. We’re making it possible for small business owners to obtain the right size capital, that enables their business to continue growing. Small business owners face unique challenges that require the partnership of an experienced funding company, not loan pushers in a cubicle. We are committed to building client partnerships, and the funding model of our firm is built around this principle. For no-nonsense small business financing, offered by a team of experts who not only care, but also have the wherewithal to advise you properly, LVRG is the smart choice.