Business Loans Blog and Resources

If you're shopping for a business loan, you've likely come across two common elements of the business loan application process, whether you're working with a traditional bank or non-traditional online lender: business collateral and personal guarantees. Read on to find out what they are and in what circumstances your lender will require them in your business loan agreement.  What is collateral? Collateral, in general, is a guarantee to a lender that if a borrower defaults on the loan — meaning they cannot pay the balance of their debt — the lender can take the pledged assets.  Collateral tends to be physical items or financial assets. For example: a home, cash, property, etc.  Collateral is important because it protects the lender. Without collateral, a lender would never really be able to ensure that they would get any amount of their money back. Because of this, the higher the worth of the collateral, the bigger the loan can be because the lender knows that they will be able to be paid back one way or another in an amount that is equivalent to the amount loaned. Business collateral follows this same purpose — it is a guarantee to the business lender that the borrower will either pay them back or surrender their collateral. Types of collateral  With business collateral, the assets that make up the collateral are usually business assets including the following: Real estate Percentage of income Ownership of the business Equipment Inventory Cash deposits Accounts receivable  The collateral used in business collateral for loans is not usually personal items from the business owner, but rather assets involving the company itself. When you pledge collateral, your personal or business credit rating doesn't matter as much to your lender because they have something tangible to lean on if you default.  With business collateral, the owner of the business is responsible for managing the loan and making payments. They are also responsible for the surrendering of business assets to the lender if the loan defaults. Often, owners will also have a personal guarantee on the loan as well as business collateral to cover them financially in the case of a defaulted loan. What is a personal guarantee?  A personal guarantee also follows the principles of collateral; however, a personal guarantee allows for a lender to seize personal assets as well as business assets if the business goes under. The business executive or partner promises in writing to repay the credit issued to a business, assuming personal responsibility for the balance if needed. In the event of default, you are backing the business.  A personal guarantee is like a double layer of protection for a lender. If the first layer — business collateral — fails to pay back a defaulted loan, a personal guarantee is there to pay it back. Types of collateral in a personal guarantee  The kind of assets that personal guarantees operate on are things like the following:  Cash reserves Investments such as stock ownership or a 401(k) Real estate Personal property A business owner does not have to be the one who makes the personal guarantee on a loan. Personal guarantees can also come from people outside of the company. In that case, it is like this individual or company is co-signing a lease. They agree to pay back any debts that are owed if the person or business taking out the loan cannot afford to repay the debt. To find an alternate guarantor, you can ask friends or family members if they will let you leverage their asset in exchange for a percentage of your business.  Can I get a business loan without pledging collateral or a personal guarantee?  If the idea of a personal guarantee makes you uneasy, you're definitely justified in that feeling. While a common provision in small business lending, a personal guarantee can put your personal or family finances in jeopardy. Only you can weigh the risks and determine if the business credit is worth the benefit.  Certain loan types, like traditional lines of credit or SBA loans, require a personal guarantee if you're a small business.  But, in general, a lender's requirement (or not) that you pledge collateral or a sign personal guarantee depends on the robustness of your company. Can you demonstrate that your business has a high tolerance for risk and will pay its financial obligations no matter what? Remember, these conditions are in place to protect the lender.  To reduce the need for pledged collateral or a signed personal guarantee in the eyes of your lender, your business should have one or more of the following:  Two or more years in business  Several employees hired  Solid cash flow Track record of profitability  Strong business credit  Sufficient financial business reserves  Sufficient personal assets to ride out financial struggles  Of course, startup companies generally lack the above and may require startup-specific financing to avoid the need for collateral or a personal guarantee.  Unsecured loans If your credit score is particularly high, you may be able to obtain an unsecured working capital loan or line of credit based solely on your creditworthiness.  Limited personal guarantees  An unlimited guarantee or unconditional guarantee means the guarantor is required to pay all amounts due until paid in full.  However, some lenders will work with you on establishing custom terms via a limited personal guarantee that may reduce the dollar amount, time and/or percentage of the loan. For example, you can guarantee a certain dollar amount rather than the entire loan, such as the last $100,000 of the loan credit.  Net-30 vendors  Another way around a personal guarantee is to work with a vendor extending business credit with net-30-day terms for smaller cash needs. The relatively small term length doesn't allow for huge loan amounts, but the idea is that the risk of loss to the lender is smaller with such a quick turnaround time and borrowers are motivated by its positive or negative impact to their business credit profile. Even startup companies can generally work with a net-30 vendor.  How do I choose a business lender?  Whether you're just starting your business or require capital for an already thriving one, many lending companies can meet your needs. And while some require a personal guarantee or collateral within the loan terms, many companies are flexible in their requirements according to credit scores, time in business, and other factors as explained.  View the top ten business lending companies or jump straight to the following company pages for specific needs:  Fora Financial and National Funding for no-collateral-required loans  ROK Financial for startup financing  Rapid Finance for loan amounts up to $10 million  Lendio for a loan marketplace platform with access to hundreds of lenders  

It's another one of those nights: you start the day completely enthusiastic. You shower, put on your Sunday-best clothes, and think to yourself, "this is the day!" As you knock on the door, you hope against hope that this first encounter will lead to a profitable relationship . . . . . . and then you get REJECTED! No matter what you do, no matter how many doors you knock on, phone numbers you call, how much sweet-talking you do, you can't seem to engage the interest of anyone. "Is it the way I look?" you might ask. "The way I talk?" Before too long, you've decided that you're next best chance at really connecting with someone is to take your efforts online. I am, of course, referring to applying for a business loan. Though, come to think of it, applying for a business loan and dating actually have quite a few things in common: 1. Your Credit Score Is Really Important Wait. I thought we were talking about business loans and dating. Well, we are! According to The Washington Post, the quality of your credit score is actually a pretty accurate indicator of your future success in love. In general, people with higher credit scores tend to maintain longer lasting, more committed relationships than those with lower credit scores. Using over 15 years' worth of consumer data from Equifax's archives, the Federal Reserve Board surmised that people with a credit score of at least 700 at the end of the year were more likely than not to form a relationship during the following year (graphics courtesy of The Washington Post): And not only are these high-scoring couples getting together, but they are also staying together. As credit score increases, the Fed reported, the likelihood of separating decreases: The takeaway here? Having a good credit score indicates to both potential lenders and potential suitors that you know how to take care of your finances and that you are worth investing in. And as the number one problem for couples in America continues to be money, you can rest assured that seeking someone with a high credit score (while maintaining a high credit score yourself) is as good as gold. Of course, having a good credit doesn't necessarily guarantee that you'll find the man or woman of your dreams, just as it doesn't guarantee that you'll secure the exact business loan that you're looking for. But a good credit score can go a long way towards both your relationship and small business goals. 2. Both Are Worth Planning for You may have heard the saying, "a failure to plan is a plan to fail." The same could be said for both dating and applying for a business loan. Think about it: if you really want to get serious about your romantic life, would you really want to throw caution to the wind and "hope for the best"? In the short-term, it means actually planning your date ahead of time - no last-second invitations - and if you do get her to agree to a date, it's crucial you have some type of game plan other than, "watch me play video games," or "hang out for hours." According to Online Dating Magazine, failure to plan your dates in advances warrants a potential partner's automatic rejection of future dates. In the long-term, it means having an idea of where you want the relationship to go, if anywhere; you don't have to start naming your kids, but being clear about your expectations from a relationship will give you much better chance of securing one. The same things are true with business loans. Business.com warns small business owners against not being prepared for the loan application process. If you don't have a detailed business plan stating what you have to offer and what you expect do to with the money you're being lent, no one will lend to you. It's also important to present your lender with a plan for how you intend to pay that money back. Just like having a good credit score tells lenders and dating partners alike that you are responsible with your money, having a plan in place will demonstrate that you have a clear vision moving forward - and you want them to be a major part of it. 3. Flings Are Great! But They Have Consequences Whether you've seen a movie about it, or have a friend who's had one, the fling or the one-night stand remains one of the most (pardon the pun) romanticized and even stigmatized areas of the dating world. The basic idea involves a person who - either by choice or perhaps inebriation - will lower their temporarily lower their standards and their inhibitions in exchange for one night of supposed bliss with someone else. According to one statistic from Statista, nearly 60% of Americans have admitted to participating in such encounters: But just because so many people are doing it, does that mean it's worth doing? According to a study by researchers from Durham University in England, feelings following one of these encounters are generally negative. Nearly half of the women studied reported feelings of loneliness, emptiness, and even cheapness after a one-night stand; while the experience was fun in the short-term, it had some devastating long-term effects. Short-term loans can carry a comparable burden. A piece by Entrepreneur.com suggests that when you take out a short-term loan without reading the fine print, you could be paying for a lot more than you think. Interest from a short-term loan can actually compound at a much more aggressive rate than a regular business loan, especially when you request repeated extensions. So while they are great for fast cash, they can quickly get out of hand (almost as if that person you met last night turns out to be a serial stalker). The Asbury Park Press further warned against "fast, easy [short-term] loans" whose APRs can be as high as 50% or more. Unless you plan to have your short-term loan paid off in under a year, you might find yourself the victim of "unintended consequences," to put it lightly. 4. Don't Worry: There's Someone for Everyone So, after you first few rejections, you might get the feeling that you'll never find "the one." But as the song goes, you really might be "looking for love in all the wrong places." As the online dating market expands, the number of ridiculously specific online dating sites has increased. If traditional dating is not for you, you might try your luck with one of the following: Purrsonals.com - A dating site dedicated to cat lovers looking for love Amish-Online-Dating.com - A site for, you guessed it, the Amish. Although, you have to wonder what the Amish (a people who shun technology) are using to access the site. ClownDating.com - As scary as it sounds. FarmersOnly.com - "You don't have to be lonely at FarmersOnly.com." And the list goes on (and on, and on) . . . Believe it or not, there are third-party business loan sites that work very similar to these online dating sites. Magilla is one of these companies; it matches borrowers to potential lenders through its online apps. Just like with a dating app, borrowers create an online profile, answer 10 simple questions (including their business type, the amount of money they're asking for, and other preferences), and then they are given a list of potential lenders who might consider offering them a loan. So far, Magilla has connected lenders to borrowers seeking $55 million in loans! 5. Both Require Research When you think about all the social media technology out there, there really is no such thing as a "blind date" anymore. In many ways, dating has become more or less like online shopping; when we are surveying a potential partner, we study their social media profiles just like we would a product description, and dig through the comments section just like we scour product reviews. We peruse photos, interests, status updates and tweets, mutual friends, ex-girlfriends and boyfriends - all before we even meet the person face-to-face. According to an article on Mashable, one in four people send a friend request on Facebook before the first date. Long story short, we want to know as much about a person before we decide to pursue a relationship with them. Why should things be any different with a business lender? Here at bestcompany.com, we've done the back-breaking research for you. We've reviewed dozens of business loans companies using an expert-driven ranking criteria system, so you'll know who you're "getting into bed with" before you sign the dotted line.

The phrase “cents on the dollar” refers to a ratio or percentage of an asset’s original price or value. Cents on the dollar helps you calculate your profit or loss percentage in a transaction. In the most simple terms: you are paying a price of X for every dollar the item or asset is worth.  This metric can be helpful to identify when you’re weighing the price and overall value of a physical or financial asset, whether you’re getting it at a discount or paying a premium when you acquire it. Cents on the dollar can refer to bargain shopping, home shopping, or comparing loan options.  Calculator and concept application Are you considering a purchase and want to know the cents on the dollar ratio? Simply input the cost of the asset along with the value of the asset to get your cents on the dollar.  The formula is simple: Cents on the dollar=(Value–Cost)/Value If your result is 0.5, your ratio is “50 cents on the dollar” and you are paying 50 cents for every dollar — a 50% discount. If your result is 1.5, your ratio is “150 cents on the dollar” and you are paying $1.50 for every dollar — a 150% premium.  Cents on the dollar for a loan In the context of a business loan, a mortgage, or a personal loan, calculating cents on the dollar means taking interest and other expenses into account to see what you are paying for the loan.  When researching lending rates in the business loan industry, you’ll find that there is no standard way that lenders show borrowing fees. Interest rates are crucial to know but business loans generally involve additional fees that are not factored into the rate of interest.  To compare loan rates as accurately as possible, one way is to compare the cents on the dollar business owners will ultimately pay — taking into account interest and other fees — for a standard loan type, amount, and term.  For lenders that do not display rates Banks generally do not disclose sample rates online. Big banks such as Wells Fargo and Bank of America may not display minimum requirements for borrowing, wait time to funding, and, most important to small business owners, interest rates. Even though some sources may cite banks as having lower interest rates than online lenders, banks won’t necessarily share this information online.  However, banks aren’t the only ones that don’t disclose rates. You’ll find several online lenders who will not disclose even sample or case study-based rates until you fill out a contact form and speak to a loan officer or company representative. While not a hard and fast rule, this may indicate that these lenders have high interest rates. *For these companies not displaying sample interest rates, we are unable to calculate cents on the dollar you would pay. For lenders that provide sample scenarios and general rates Other online lenders give you a scenario of what you could pay, which gives you important information to consider as you start shopping around.  They do this by either giving you a possible interest rate when you borrow a set amount of money, or giving you a wide range that your interest rate could fall under, such as 5%–20%.  Overall, you only get a general idea of what your interest rate will be with these companies because there are too many factors that will change the interest rate. Factors that will change your interest rate include the amount you borrow, term length, credit score, the business you are in, and more. *When calculating cents on the dollar for these companies, we used the highest interest rates we could find to prepare users for the worst-case scenario. Interest rates in the examples following were also calculated based on a $100,000 loan over 12 months. For lenders that provide custom calculators In our opinion, the most transparent lenders are the ones who let you calculate your interest rate and other fees based on the amount you want to borrow and the term you borrow for. Companies with these types of calculators online include Lendio and Credibly. Calculator and business lender examples To view cents on the dollar for a loan, input the loan amount (what you’re borrowing) and the total cost of the loan, or what you’ll be paying back including interest and other fees.   The formula is as follows: Cents on the dollar=(Repayment amount–Loan amount)/Loan amount To compare the interest rates and ratios of some of the online lenders on Best Company, we calculated the cents on the dollar you would pay based on the information we could find on a particular day. You can follow this pattern with the lenders you're considering for your own business loan.  For companies that provided interest rates, we used the highest interest rate we could find to calculate how much you would actually be spending for a $100,000 loan over 12 months. For companies that provided calculators, we used that to calculate the cost of the same loan ($100,000 over 12 months).     CAN Capital Lending Club Credibly OnDeck Funding Circle Loan Amount $100,000 $100,000 $100,000 $100,000 $100,000 Repayment Amount $135,000 $132,000 $134,004 $136,000 $118,270 Cents on the dollar 0.35 0.32 0.34 0.36 0.18 Again, keep in mind that even interest rates given with online calculators are not necessarily indicative of the rates for which you will qualify. The following factors may also influence your interest rate and additional fees: Industry type Credit history Credit score Annual revenue Cash flow Regardless, cents on the dollar can be a useful preliminary calculation estimate as you comparison shop for the best loan for your situation.