Topics:Credit Advice Business Loans 101 Business Tips Starting a Business Office Culture Marketing Business Tools Design Advice Technology Expert Advice Customer Service Budgeting Payroll COVID-19 Taxes Hiring Reviews Employee Engagement Negotiation
May 21st, 2022
April 7th, 2021
April 14th, 2021
Here at Best Company, we’re all about helping consumers access accurate information and helping businesses establish their online reputation. At the heart of these aims is a commitment to real reviews — especially when it comes to significant financial decisions, like taking out a business loan. ROK Financial CRO Patrick Manning understands the importance of customer voices for establishing trust, improving processes, and educating prospective borrowers about what to expect when they finance through an alternative lending broker. Manning walks us through these concepts and more in this interview with Best Company’s Head of Product Marketing, Justin Ashby. Ready to take the next steps for your business? Visit ROK Financial's profile to learn more about the company, its reviews, and its products. Learn More Topic guide by segment: Traditional lending vs. alternative lending (0:20)ROK as a comparative online marketplace (1:50)How reviews can build trust and assist prospective borrowers (3:50) How ROK has made improvements based on customer feedback (6:05)What makes ROK different from other companies (7:35) Tips for business loan comparison shopping (10:15) The transcript has been edited for length and readability. Ashby (BC): So talk to us a little about ROK Financial, how you may be different than some of your competition. It's an interesting industry that you work in — you do help quite a few customers as well. So, talk to us a little bit about your business. Manning (ROK): Absolutely. How are we different, right? And this [ROK Financial and Best Company] relationship really speaks directly to how we're different. You know, when it comes to business finance outside of traditional lending, which is where we operate. . . traditional to me is the Bank of America, Chase, Wells Fargo's of the world. When those options are not in play for a business owner, there's this alternative world that they have to turn to. And in that alternative marketplace, there are so many different lenders, there are so many different products. It's really hard to determine the real from the fake or where you should go. And the reason why it's so difficult is that these lenders that are in this private sector — they're not in the local community, they're not on the corner of Main Street, right? So when these business owners are searching for these options, they're looking online, they're not able to walk into a physical location. It's hard to know who you're interacting with and if they're the right company or not. What really separates us is number one, the fact that we put a big focus on having an online reputation, partnering with companies like Best Company, where we can be very transparent with business owners that are out there and say, “Hey, you know, don't take our word for it, don't just listen to our marketing.” Yeah, we do marketing because we need to let you know that we're here and what we offer. But at the end of the day, the reason why you should choose to work with us is for that reputation that we've put in place because of the fact that we are transparent and we get testimonials from our past clients. So you know what type of experience you know to expect with us. But what is ROK Financial? ROK Financial is a leading online marketplace for alternative business solutions — for any different type of business financing. We offer things from SBA lending to term loans, lines of credit, and even specific equipment financing. So, you know, various financial products that we offer specifically for small businesses. And what's really cool about us is we're a one-stop shop. So we offer this online marketplace that consists of 75 different lenders that offer 6 to 10 different products. And instead of searching for all these lenders and brokers who I mentioned have no online reputation or you're not really sure what you're going to get, you can come to ROK and you know what they're all about. They are very transparent. The reviews are online. But most importantly, we'll do that comparative shopping for you. You know, we'll get to understand your business, your needs, the opportunities or challenges you may be facing. And then we hand-select a group of lenders that we feel is the best fit for you based on what you qualify for and what you're looking to accomplish. And then we ensure we get you the best offer. So we're a service provider to small business owners. We go out there and we bring the best offers — the best lenders — to the table. We make them compete against each other to ultimately drive you, the business owner, the best offer. And this way you can cut down on time shopping and going through paperwork and you can stay focused on running your business and trust ROK to bring you that best financial product. If you're looking to expand the business or purchase inventory or do a remodel, there are so many different reasons as to why a business would need to borrow capital. And we're just here to ensure that when that time comes for you, that you're getting the best offer, you're not overpaying, and ultimately your information is protected and you're getting the best deal for your business or the best bang for your buck. Ashby (BC): Yeah, that's great. And I'd like to talk a little bit about that trust that you've built. You know, there's a lot of ways that you can kind of pay for reputation if you will. There are a lot of websites, a lot of places that will kind of prop up your brand. Now, you've utilized the Best Company platform because we don’t do that. There are no payment platforms so that you can get elevated in some type of rankings or anything like that. And you've got a lot of great reviews. I think you guys just surpassed more than 100 positive reviews and especially for your industry, where you're not dealing with millions and millions of customers, it's amazing how many of your customers have been willing to leave you positive reviews. Have you guys read those reviews and actually adjusted your product and offering according to what your customers have said? What have those reviews really meant to you? Manning (ROK): Oh yeah, I mean, absolutely. You've absolutely hit the nail on the head there. You know, we've used this platform and I also appreciate you pointing out that Best Company specifically is a platform where there's no pay-to-play model. This isn't a situation in which we're paying a fee to have positive reviews or a reputation built for us. This is very organic and is really built off the work of the team here internally and what they carry out on the phone with their clients. But yeah, this has been a huge opportunity for us to hear from our client base. Of course, we read every review. We're a smart group of people, right? We understand that the scariest thing for a business owner is borrowing money and sharing personal information online with somebody that they've never met face-to-face, right? So the biggest reason why we've utilized the platform is to bring that sense of security to those that are looking for financing and give them that layer of comfort — hey, here's past reviews. Here's what people who have worked with us, what they said. You will know that by applying through us, your information will be protected, you will have a positive experience. So number one, it's been a great way for us to bring that comfort level to our customer base. But then, more importantly, once we raise that comfort level we start to work together now — we want to learn from you. We have a saying here internally where we say, “Cover your belly button” and basically what that means is to be open to the feedback. We understand that there's always room for improvement — that's a core belief of ours, that we can always get better. This has been a great platform to hear from our customer base and empower them to give us that feedback. You know, we have heard certain things from our clients like, “Hey, at this point of the process, I would rather hear about a more confirmed offer before I share certain banking information.” So we took that feedback, and we instantly implemented it into our process. And we've gotten a lot of positive feedback since making that adjustment. Ultimately, what our business comes down to is efficiency. We want our application process to be fast and easy, so we're always looking at ways to innovate our process and new technologies that we can implement to make it a simple application or borrowing process. Hearing back and getting testimonials from our clients has honestly been like a cheat code in that sense because we're hearing exactly from the horse's mouth: “Hey, this is what we think would work best.” “This would really make our experience enjoyable.” And we take careful consideration to all of that feedback and try to implement as much of it as we can, all while maintaining the integrity of our process. You know, we do need to be a structured-process business. Ashby (BC): Yeah, that makes sense. My other question for you is, a lot of potential customers who are on Best Company are learning about different ways to access financing and they will come across ROK Financial and they may come across other companies as well. What would you tell those customers that are kind of analyzing the playing field, what other options are out there? How do you feel like ROK Financial really differentiates itself from the field? Manning (ROK): Yeah, it really keeps going back to this online reputation and the reviews and what people are saying, I mean, what else can you go off of? I mean, you don't know any of us when you start applying for financing, whether it's my company, another broker out there, or a direct lender. You don't know any of us from a hole in the wall, and with the direct lenders, there's this negative connotation around brokers at times. But we scream from the rooftop, we love to be the broker because to us, that's where we can provide the most value to you as the borrower. We’re able to gather a variety of offers from multiple lenders, then we get them to compete against one another to ultimately drive you, the end-user, the borrower, the best product possible. And then with the direct lenders, they have their product. When you're a direct lender, you can’t have 80,000 products, you have your product, and either that works for a particular borrower, or it doesn't. So for us, being a broker makes us very dynamic in what we can offer back to our customer base and ensure you that you are getting the most competitive offer that's out there. But like I was mentioning, just based on the reviews, right? And don't ever put all your eggs in one basket, you know. If you're watching this video, don't take my word for it, and it’s very nice for you to have us on here, but this isn’t about us just promoting ourselves and saying how great we are. By all means, look us up. There are multiple platforms that you can search “ROK Financial” and you'll see that we have thousands of reviews that maintain five stars or better, so we really do back our word in that sense. And you know, the proof is in the pie, we always say. Go look for yourself, don’t take our word for it. But that's the first thing you're gonna find: you should look at multiple options. I'm telling you to look at multiple options. But when you look at those options, if you see ROK Financial has thousands of reviews, a five-star rating, a huge online presence, social media, and constantly sharing content transparency into the workplace, this is their team, this is who you're talking to and working with. And then you look at the other companies and they don't even have a website or they have no reviews? Don't take that lightly. Don't be the guinea pig with something as important as your business. You know, most business owners have sacrificed something personal to get that business off the ground, whether it be their personal finances, their savings, or their personal credit score. A lot of people leverage something personal to get the business off the ground. This is your baby. This is something that's very important to you. So when you do finally decide to put your trust in somebody, definitely look at the reviews and start there. And then if you see multiple companies with good reviews and good feedback, then my advice from there is to go with the field. You know, if the reviews are real, you're clearly in good hands, there are other people outside of us, and we're not for everybody, we know that. But we're direct, we're honest, we're to the point, and even sometimes negative information could be good information. Some people will tell you, “Hey, you just don't qualify for this and you're getting that.” Well, we always believe in putting education behind that. Like, “Hey, do X, Y, and Z for your business. This is why you're not qualifying. This is what we can do to get you to qualify for that. But in the meantime, here's a plan that we can execute and get you going on where you're looking to go.” So that's just our approach. Definitely lean on the reviews — any company you decide to give your personal information to or apply for financing should be somebody reputable and there should be a track record of that listed somewhere online. Start there. Ashby (BC): Right — perfect, Patrick. That was great for any potential customers that are watching this. Obviously, if you're on ROK Financial’s profile page on Best Company, scroll down, read more about them, and check out the reviews. If you're seeing this anywhere else online, there is a page for ROK Financial and Best Company where you can learn more and get a hold of them that way. Patrick, thanks for spending some time. Hopefully, this gives some more context about your business and how they can access financing. Manning (ROK): Thank you. Visit ROK Financial's profile page for more information about their products.
You've toyed with the idea of running a business. You have a strong management background and believe that you could succeed as an entrepreneur if you had the right business model. However, you don't want to — or can't — buy an existing business or start one from scratch. If the above description resonates with you, you might be a future franchisee. Franchise or startup? Both paths involve potential risk and reward. Franchises are popular for good reason. A franchise investment can feel less risky than a startup in that you’re working with a proven business concept, operational model, and in many cases, regional or even national brand recognition. You’re given a playbook to guide your every action. But financing and running a franchise can still be financially risky, with hefty start-up and royalty costs (as high as 8 percent) along the way. Plus, franchisees are limited in what they can do creatively within their budgeting, marketing, and even employee training efforts. If you’re seriously considering the franchise route, there is much research to be done before you make an investment. You’re in the right place because we’re here to help you with two important components of your decision: 1. How to choose a franchise2. How to pay for a franchise We’ll incorporate lender insights, franchise consultant advice, and first-hand franchisee stories along the way. 1. How to choose a franchise Selecting a franchise investment involves a number of considerations, several of which we'll discuss here: Investment amount What industries are doing well What industries are struggling Local market research Company reputations Franchise consultations First, let’s define some key terms. Sometimes “franchise owner” is used to describe a person operating a franchise location, but they don't actually own the franchise. Here are the proper definitions according to Investopedia: Franchisor: The original or existing business that sells the right to use its name and idea; the franchise owner. Franchisee (pronounced fran-chai-zee): The individual who buys into the original company by purchasing the right to sell the franchisor’s goods or services under the existing business model and trademark; a small business owner who operates a franchise; a franchise partner. Franchise: A joint venture between a franchisor and franchisee. Investment amount It’s important to know what your financial limits are so you can be realistic about your options. Not everyone has $1 million to spend to become a McDonald's or Taco Bell franchisee. Startup costs will include the following — and this doesn’t include additional ongoing costs you’ll want set aside beforehand: Franchise fee (basically an entry fee compensating the franchisor for their hard work in building the brand) Territory fee Real estate costs (leasehold improvements, construction costs, etc.) Insurance Taxes Licensing, accounting, and legal fees Equipment (industry-specific and general office) Inventory Work vehicle(s) While you can find some rare opportunities in the $10,000 range, most franchises run from about $50,000 to $200,000 in startup costs. And, of course, there are plenty of franchise investments that will cost you in the millions. search Highlight: Plenty of lower-cost franchise opportunities require an initial investment of around $50,000 or less. Here are some examples that all rank in Entrepreneur's Franchise 500 list: Destination Athlete ($28,300–$93,610) JAN-PRO Cleaning & Disinfecting ($4,170–$56,020) Kinderdance International ($18,100–$46,750) Leadership Management International ($20,000–$27,500) TSS Photography ($20,415–$74,725) What industries are doing well The landscape of franchise success and failure can change frequently even in a stable economy. But in the wake of COVID-19, certain industries and brands are clearly performing better than others. Keep in mind that there’s no guaranteed pandemic-proof or recession-proof investment. Home improvement — With many businesses having employees work remotely, people have more time at home when they don’t need to commute. Businesses retailing construction materials, gardening tools, supplies, and plants, and other DIY products may be especially promising. Case in point: home improvement franchise Ace Hardware’s 2020 second-quarter revenue was $2.28 billion, an increase of 35 percent from last year. Home services — No matter how the economy is doing, there will always be homeowners. Home services like painting, flooring, yard maintenance, and plumbing services are considered essential. These types of franchises include Neighborly brand franchises like Molly Maid®, Mr. Appliance®, and Mr. Electric®. Telehealth — In the current pandemic, people are seeking assistance for non-urgent healthcare needs remotely in order to avoid contact with COVID-19. But telehealth services like video consultation and remote medical billing services are also convenient at any time and this way of receiving non-urgent care could soon become the new norm. While there aren't a lot of franchise opportunities in this industry yet, GoTelecare has a franchise business model operating in the United States and Canada. It's been around since 2012 and requires an initial investment of only $60,000. Senior care — This year, many families have relocated their loved ones from nursing facilities to be cared for in their homes. Thus, the demand for in-home care providers has increased and that trend is predicted to continue. Senior care franchises like Nurse Next Door and Griswold Home Care (which discounts the initial franchise fee 20 percent for veterans) are worth considering. Delivery and courier services — With retail sales decreasing and eCommerce sales increasing, there has never been a greater demand for these types of services. So what's the difference between delivery and courier? Standard delivery by well-known franchises like The UPS Store and Amazon Delivery partners typically are done by a driver with a full truck making their way through a route. Courier services like Central Courier provide more specialized, on-demand delivery and can be trained for special purposes (like HIPPA certification for medical transport). Food delivery — Be discerning with this because overall, the restaurant industry is struggling. Forty percent of U.S. restaurants were closed two months into the pandemic, a hit causing three times the job losses of any other industry. But delivery companies have fared better than sit-downs or drive-thrus. Both Papa Johns and Domino's pizza have had sales surge during the pandemic. And if the recent success of GrubHub and DoorDash are any indication of food delivery as a whole, a food delivery franchise like Time To Eat may be a good investment. Junk removal and hauling — In the early months of the pandemic, social media was filled with conversations about decluttering and other long-neglected household tasks. Junk removal and hauling franchises like 1-800-GOT-JUNK help homeowners and renters alike achieve goals and create needed space in their homes. Plus, running this type of business includes the benefit of team-building and community involvement. Moving franchises like Two Men and a Truck are also worth checking out. The coronavirus has slowed real estate purchasing approval and home moving in some ways but hasn't stopped it. Commercial cleaning services — It’s uncertain what the demand will be for commercial cleaning services if businesses stick with a remote model permanently, but for any public or private space getting foot traffic right now, sanitation is a priority and will be going forward. Franchises like Vanguard Cleaning Systems and Chem-Dry are a good bet. This is the type of franchise you can launch right in the middle of a pandemic. We reached out to Bactronix to hear about the new franchise location they launched recently in Suncoast, Florida. Devin Conner, director of franchise sales, said, “The growth rate of Bactronix has been incredible,” regarding this new franchise location and others. “This marks the company’s 25th operating location in less than four months.” Other industries — There are a handful of other franchise success stories and potential pockets for growth. 7-Eleven is doing so well it bought the Speedway chain of gas stations. Fastsigns, a signage franchise has done well with increased PSAs regarding social distancing and hygiene protocols. And with an increase in online learning, virtual educational technology companies and tutoring franchises may take off. What industries are struggling Unfortunately, it seems that for every franchise doing well, there’s one that’s failing. Restaurants — As mentioned, some exceptions to this are delivery-based restaurants and some drive-thrus. But recently a franchisee operating 49 IHOPS had to file for bankruptcy. Golden Corral suspended 35 of its company-owned restaurants indicating the franchised restaurants may not fare well either. Fast-casual food chains overall are not doing great. Hospitality and travel — Hotels, car rentals, travel agencies, entertainment venues, and event centers have all been hit hard. Hertz laid off nearly one-third of its employees in April. Marriott temporarily closed 25 percent of its hotels in the spring and while occupancy has increased since then, it remains to be seen to what extent the hospitality industry can bounce back. Local market research Franchisors usually have a pulse on promising cities for their brands. And franchise consultants can also be a good resource. But it doesn’t hurt to do your own preliminary research. Think about the following: What are your community’s needs? Is there a storefront you and your friends travel great distances to frequent? Is there a franchise you’ve ever thought, I wish we had this? Keep in mind that not all companies with multiple locations are franchises. Shop out locations. You may be able to land cheap commercial rent right now due to decreased demand with COVID-19 restrictions. There may also be available real estate for purchase. Read reviews If you've pinpointed some brands you're interested in, get a feel for each company's overall reputation online. Visit their social media pages and read comments from customers. And read reviews! We recommend our verified reviews here on Best Company. You can research companies by industry or use the search bar to type in a specific company. Within a company's profile, you can sort through the reviews by searching for key terms such as your state's name. Consult with a franchise expert Franchise consultants share their knowledge with prospective franchisees. Their job is to advise and support franchisees in their goals. Tom Scarda, CFE, CEO and Founder of The Franchise Academy and The Franchise Academy podcast shares his hard-earned knowledge with prospective franchisees. We asked him to share some of his experiences with franchise success and failure. BC: What is your background in franchise management? Scarda: I owned two separate franchises. One was a huge success. I sold it within five years of starting it and semi-retired at 41 years old. I purchased a second concept and failed miserably and lost almost my entire life savings. But that’s what made me an expert! Since then, I’ve written several books including the number one bestseller, Franchise Savvy, and have been coaching people on how to avoid the mistakes I made with my second try. I also host the Franchise Academy Podcast. BC: What factors did you prioritize in your research? Scarda: The main factors I considered when buying a franchise was essentially the cost of entry and whether I thought it had legs to grow. I didn’t know what else to consider at the time. BC: What was your process like in determining which franchise to pursue? Scarda: To find my first franchise, Maui Wowi Smoothies, I used a franchise consultant. She educated me on items I would not have known since I had never owned a franchise before. For my second franchise, Super Suppers (make and take dinner concept), I went it alone and that’s why I made mistakes. I did not do market research, and I didn’t think through the day in the life for me as the owner. BC: How did you finance your franchise? Scarda: I did home equity lines of credit for my businesses. BC: What is the most challenging aspect of running a franchise? Scarda: I think the most challenging thing about running a franchise is wearing 17 management hats at the beginning. We are taught to go to school, get a skill and apply it to a job. We are not taught to run a business. Even though a franchise could be considered a “business with training wheels,” it’s really difficult to run. I think new franchise owners are seldom prepared for what it takes to run a business. BC: What is the most rewarding aspect of running a franchise? Scarda: The most rewarding aspect of being a franchise owner is taking control of my destiny. To me, a bad day in business still beats a good day in a cubicle. 2. How to pay for a franchise If you're asking this question, you probably don't have the extra cash to pay the costs upfront. Of course, if you already have the capital, you can skip this section. But if you're in the camp of franchisees that need to borrow, you're in good company. And you've got options, so shop around. Learn about the different types of funding that may be available to you and decide which is the best route. Alternative business loans These types of loans are accessible through funding companies online. They have a leg up on traditional banks in that they can approve very quickly — a matter of hours — and fund very quickly — a matter of days. This is because alternative business loans generally involve simple applications, lenient requirements, and a variety of products that give you a good chance of finding a funding source that will work with you. Banks generally require more stringent conditions, a favorable credit history, and high capital and collateral. The tradeoff is that they may have higher rates and less favorable terms than loans from a bank. There are hundreds of alternative business lenders and several loan types. So what should you look for? National Funding works with franchise owners across all business verticals and has multiple solutions for prospective franchisees to consider including equipment financing, working capital, and short-term bridge loans. National Funding is ranked #4 out of the top-ranked business lenders based on more than 50 verified borrower reviews like the following: Customer Review: Patrick from Liberty, Missouri "I felt like they were customizing what they had with what I needed. It was effortless. Everybody that I talked to was super friendly and made sure that I had all my questions answered. The process was pretty easy. I did an online application. It didn't take very long. Very simple. I would recommend them to anyone. They are awesome folks to work with." According to Justin Thompson, Chief Revenue Officer of National Funding, “Franchisees are typically looking for a lending partner that understands time is of the essence, with the use of technology over the traditional route of heavy paperwork and long wait time” and key lenders are able to meet these demands. Thompson also says a business loan should have flexible options, such as terms, rates, and payment schedules, in order to fit the needs of the franchisee. During the COVID-19 pandemic, Thompson has noticed that franchisees are looking for short-term, flexible products. “The long term 7–10-year bank loan isn’t suitable as they can’t be tied up for that long at the mercy of the bank,” he explains. Our lender reviews include other companies that have high praise for franchise financing specifically. Seek Capital: Customer Review: Tommy from Canyon Country, California "I had a great experience working with Seek! The process was handled smoothly and I was able to get the money I needed to order my equipment for opening my restaurant. It was hard because no lenders would help me since I don’t have any deposits since I just started my franchise. Go Seek!" Balboa Capital: Customer Review: Giuseppe Filippelli from Albion, New York "They were recommended by our franchiser. Getting the loan was a fairly easy process. Everyone involved was just really nice, kind, and very helpful. They were very concerned about making sure all the information was accurate." How can you qualify? In regards to determining a franchisee’s eligibility for a business loan, Thompson says, “Technology makes determining eligibility quite simple. We base eligibility on attributes such as cash flow, time in business, Standard Industrial Classification (SIC), and Annual Gross Sales.” To learn more about National Funding's business loans, The Bottom Line blog is a great resource. Franchisor financing Many franchise opportunities include an internal franchise financing option so you're not starting from scratch in your search for a funding source. This guided option has generally been tried and true by other franchisees for that specific franchise and may even include a discount over other funding sources. Your chosen company's Franchise Disclosure Document (FDD) will contain the financing information, including terms and conditions, through the franchisor or partner lender. Commercial bank loans As mentioned, bank loans generally have more favorable terms, most notably, lower interest rates, than alternative business loans. But they are more difficult to obtain. Bank loans often require collateral, in which you pledge equity in your home or business assets. And you may need to contribute 20 to 25 percent of the upfront costs out of pocket. Banks favor businesses with recognizable brand names and long track records of consistent cash flow. So if you're investing in a bigger-name franchise or you need a loan to expand an already-successful franchise, a bank loan might be for you. SBA loans Small Business Administration (SBA) loans are financed through banks but backed by the federal government. The advantage to these loans is that the SBA sets maximum rates, typically between 7 and 9.5 percent for SBA 7(a) loans. To qualify for an SBA loan, you need good credit and your franchise must be listed in their Franchise Directory. If your franchise is not in the directory, the franchisor must submit their FDD for the SBA to review for consideration within the Directory. Crowdfunding Depending on your financing needs, crowdfunding could be a feasible solution for financing a franchise. But there are important considerations surrounding crowdfunding, including limits on the amount you can raise within a 12-month time period, costs and risks of preparing a compliant disclosure document, and the need to hire an attorney with experience in franchise law and crowdfunding. There are pros and cons of both equity crowdfunding and rewards crowdfunding. Make sure you understand this method from all angles before you pursue it. Other methods While they have their own set of advantages and disadvantages, there are additional financing methods to consider include the following: Family and friends loan Home Equity Line of Credit (HELOC) Credit cards Take out retirement funds (Rollover for Small Business (ROBS) or by withdrawing funds from a ROTH IRA) Final thoughts from an employee-turned-franchise partner If you're still considering franchise management as your next investment and career, learning from franchisees will be invaluable. We asked Keith Novotny, a Cousins Subs employee-turned-franchisee to share some thoughts on his journey. Novotny joined the company at age 16 and has been a franchise partner for more than 17 years. BC: How did you decide to become a franchisee? Novotny: Because I was an employee at Cousins Subs before purchasing my first franchise, my determination came from first-hand experience working for the brand. The family-like atmosphere, encouraging leadership team, and commitment to the community struck me and guided me to my path to being a business owner. At Cousins Subs everyone is family and that philosophy encouraged and motivated me to take the leap of faith to purchase my own location and hire my talented team who have come to feel more like family. BC: How did you finance your franchise? Novotny: Candidly, I was fortunate to receive emotional and financial support from my parents. I essentially took a loan from them that I am paying back. I also worked with Commerce State Bank, a local bank in my community, to take out a loan. BC: What is the most challenging aspect of running a franchise? Novotny: Staffing is the most challenging part. It’s critical to my restaurant's success to have the right people in the right seats. More and more, it’s challenging to find young talent that wants to work and gives it their all around the clock. So, when I find the best candidates, I hire based on referrals. Word of mouth advertising has been really successful for me. When I hire from my teams’ networks, I’ve found a lot of success and fun! I mean who doesn’t want to work with their friends? BC: What is the most rewarding aspect of running a franchise? Novotny: Simply put, giving back to my community. I’m proud to own and operate two Cousins Subs franchises in my hometown. I’m even more proud to run successful stores that permit me to give back as much as I do. When asked by a community member to give back, I have a philosophy to not say "no." Even if I can’t help in the exact way requested, I always find a way to provide support. People like to support businesses that support them and their community they’re proud to call home. BC: Anything else you'd like to share with our readers? Novotny: Life is too short and it’s so important to go to work every day and enjoy what you’re doing with 100 percent satisfaction. As a franchise owner, it’s my goal to ensure each of my employees feels the same way. I also encourage future franchise owners to get outside of your four walls and network with other business owners. Not only is it fun, but you can also learn so much about how you can enhance your workplace. Ready to apply for your loan? Choose from the top-ranked business lenders to finance your franchise. Get approved today and obtain funds as soon as tomorrow. Learn More
You may make every effort to keep your personal and business finances separate, including registering your business as an LLC with its own TIN and using another bank account for all company finances. But would these measures guarantee that your personal finances are completely safe? It turns out that securing financing for your business can impact your personal credit score. While it should be your goal to protect yourself as much as you can from any financial shortcomings of your business, some lenders make this pitfall inescapable. Read on and learn how business loans affect personal credit. How would a business loan affect my personal credit? If you’re a growing business without a substantial financial history, or if you choose a type of loan that lenders consider high risk, you’ll likely have to furnish more personal information in an application and could be susceptible to an impact on your credit score. Your personal credit can be affected by business loans in a few ways: Hard credit inquiries Personal guarantees Lenders reporting to personal credit bureaus Hard credit inquiries To start, some lenders will check your personal credit score alongside your business credit score if you lack a financial history for your company. “This credit check, called a hard inquiry, can slightly lower your credit scores,” says Greg Mahnken, credit industry analyst for Credit Card Insider. “Generally speaking, as long as you aren’t applying for a lot of credit in a short time, hard credit inquiries won’t affect your credit by much or for very long.” Trouble will come if you field too many inquiries in a short amount of time, which could happen if you continuously receive rejections while seeking a business loan but move forward with applying. Mahnken warns that hard credit inquiries stay on your report for two years, so make sure you read all of the requirements for a particular product before applying and see if you can work with a company that does a soft credit pull. Lendio is one company that performs a soft credit check when you apply, meaning the check won’t affect your score. Personal guarantees If you haven’t been in business long, it may be hard to get a business loan without a personal guarantee. Signing an agreement to pay a business loan out of your personal pocket (or with your personal assets) should your company be unable to pay could make you hesitate. Some products are more likely to require a personal guarantee: SBA loans Business lines of credit Unsecured term loans Loans that require a personal guarantee typically come with perks, such as better interest rates and repayment terms. Other products are less likely to require a personal guarantee: Merchant cash advances Equipment financing However, these products can have their own drawbacks, such as higher interest rates and shorter repayment terms. Some companies have funding options that don’t require a personal guarantee in order to be more accessible. Fundbox offers lines of credit that require no personal guarantee. It can be nerve-racking to think your personal credit score will be affected if you’re unable to pay off a business loan, so you might be tempted to choose a product based on this factor alone. However, keep in mind that no option is a good choice if you don’t have a sound business plan, and even then, extenuating circumstances can occur. The best choice you can make is to select a lending option with great rates and terms that you are confident you can pay off with your financial planning. Lenders reporting to personal credit bureaus Lastly, check whether the lender you’re working with will report to personal credit bureaus in addition to the business ones. “If your business is a sole proprietorship or a partnership, it’s very likely that a business loan is going to appear on your personal credit reports,” Mahnken explains. “If your business is a corporation or LLC, your lender may or may not report to your personal credit reports in addition to business credit bureaus.” However, reporting to a personal credit bureau might not be all bad. “If you are returning a loan on time and following all terms and conditions, then FICO could go up as well,” says Bradley Stevens, founder of LLC Formations. “Otherwise, it could go down dramatically in the worst-case scenario.” How can I prevent a business loan from hurting my personal credit score? For the best-case scenario, you should be assessing the market need for your business and creating a strong financial plan. But it’s impossible to foresee every obstacle, so it’s better to protect your personal finances as much as possible from the start. You can check with a lender to see whether the company performs a hard credit pull or reports to personal credit bureaus, and ask the lender which products would require a personal guarantee so you can steer clear if possible. Ready to Apply? Learn more about business loans by looking at the top-rated companies and their offerings. Explore Your Options
When you’re trying to find a business loan, you’re trying to balance your risk with your reward. Naturally, many entrepreneurs value low interest rates because of this. While a low interest rate shouldn’t be your only measure of a quality lender or loan type, it can certainly inform your decision when choosing a loan. What is an interest rate, anyway? You might have heard interest rate and APR used together, but it’s important to distinguish the two. Interest rate — This covers the cost of borrowing the loan principal, shown as a percentage. This won’t include all additional fees, only the percent of a loan that will be interest. Interest rates can be fixed or variable. Fixed — This type of interest rate won’t change over the life of the loan. This can be a benefit if you get a good rate when you take out the loan. Variable — This type of interest rate fluctuates based on market changes. A variable interest rate can rise and fall, which could be a benefit if you catch a variable interest rate as rates decline. APR — The APR is the annual percentage rate, including the interest rate and additional fees such as origination fees, closing costs, application fees, etc. This is a more holistic approach to looking at the cost of a loan, so dig into this when you start seeking one out. How do lenders decide your interest rate? So what determines your interest rate when you’re looking at financing options? We asked some experts to weigh in. Jack Choros, Content Manager at CPI Inflation Calculator, opens the conversation with some financing facts everyone should know: “The success of any credit application usually relies on the five Cs of credit: Character — Will you pay on time? Capacity — Do you have the resources to pay off your credit? Capital — Is your business stable? Conditions — Can you agree to and meet conditions that lower the bank’s risk? Collateral — What can the bank take if you can’t pay?” What this boils down to will depend on your lender. “Some basic criteria that affect interest rates are your personal and business credit score, financial strength, use of funds, and time in business,” says Jay Chang, Senior Vice President of Sales Acceleration at Lendio. And traditional lenders sometimes have different criteria from online lenders. Some online lenders look at hundreds of data points to assess your loan application. Jeffrey Bumbales, Director of Strategic Marketing and Partnerships at Credibly, explains that no lender is going to be the same: “Each lender has its own proprietary scoring model. Your file will appear more or less risky (and thus, expensive) depending on how well you stack up against the model.” What types of business loans will typically have higher interest rates? Lenders consider several facets of your business when setting an interest rate. But there are some types of loans that, regardless of your flawless credit score and lengthy time in business, will generally have higher interest rates. What are they? Merchant cash advances and invoice financing “If a business opts for merchant cash advances or an invoice financing loan, interest rates will be high if measured annually,” explains Jared Weitz, CEO of United Capital Source. “Because these programs use ‘factor rates,’ which compute to one fee for the life of the financing, it’s not possible to measure these programs the same as we would a traditional business loan.” Fixed rate loans Jack Choros agrees that cash advances typically carry higher rates. However, he also mentions a couple other types of business loans: “Fixed loans typically are also financed at higher rates.” Remember what we said about fixed rates having the benefit of consistency? They can also have the drawback of a higher rate than a variable loan, because lenders can’t adjust interest for market changes. Business credit cards Choros continues, “Of course, business credit cards will be higher than all of those other credit facilities just because of the convenience it affords and the fact that credit cards are designed for paying off more immediate expenses.” A business credit card is a perfect example of a product with a high interest rate that isn't necessarily a bad thing. This lending option is intended for quick payoff, so it makes sense that there's a penalizing interest rate if you neglect it. With this in mind, Bumbales asserts that your interest rate “completely depends on the file. Some equipment financing products only require a 400+ credit score as the transaction is collateralized by the machine. In general, obtaining the best pricing is less about the specific product and more about the specific file.” Having a strong application will do more for you than choosing a loan type based on rate estimations. Which types of business loans typically will have lower interest rates? Typically, any secured loan options will have lower interest rates. A lender is more likely to give you good terms when you have collateral. Bumbales agrees: “Products that are harder to qualify for, are collateralized, or generally less risky tend to have more favorable pricing.” SBA loans Of course SBA loans come with great rates and repayment terms; they’re backed by the Small Business Administration, which reduces lender risk. Chang notes that they have some of the lowest interest rates. Naturally, SBA loans have many requirements. The SBA website mentions requirements including being a for-profit business, operating in the United States, having invested equity, and having no other lending options. Traditional bank loans Weitz also notes the low interest rates of SBA loans, but he mentions that traditional lenders also offer low rates: “In 2020 the annual interest rate for these types of loans is between 2 percent and 15 percent.” Traditional bank loans can have a slow approval time and lots of paperwork, but the payoff for more work is low interest rates. But similar to Bumbales’ advice on high-interest loan types, Weitz reminds readers, “The best thing to do is to shop around and make sure you are approaching lenders that meet your business size and financial requests.” Don’t choose solely based on loan type. How do you decide on a good business loan? For one thing, there’s a lot more to look at than an interest rate. Creating a plan of attack will help you shop for business loans with a clear goal in mind. Evaluate why you need a loan “Do your due diligence and vet out what you need the loan for and how quickly you can repay it,” advises Weitz. “This will direct you towards the better options for you. A low interest rate isn’t the only thing to look at when you are determining loan options, make sure you agree to any collateral requirements, duration of the loan, prepayment penalties and other fees that apply if you deviate from the loan guidelines.” Shop around “My advice to entrepreneurs seeking a good business loan interest rate is to shop at more than one bank,” says Choros. “Just because a bank may already have a lot of your business, doesn’t mean they will give you the best rate on a new loan or credit product. Don’t take anything for granted. There’s always a bank out there willing to give you a better rate as long as you’re willing to do some shopping around.” Determine the ROI “Examine the opportunity and the ROI on the investment and compare it to the interest rates,” suggests Chang. “Many borrowers look solely at the interest rates, but forget to compare it with the potential ROI.” So, what's a good interest rate on a business loan? As with most things in life: it depends. According to our sources, you can find annual interest rates as low as 2 percent for traditional bank loans and small business loans, but rates for these lending options typically hover around 3 percent to 4 percent on the low end. Determining the ROI for your loan will help you find the best interest rate and terms for your needs; you may find that a loan with a high interest rate and short repayment term is better for your business. What Interest Rates Do You Qualify For? Learn more about business loans you may qualify for by looking at the top-rated companies and their offerings. Explore Your Options
For many businesses, securing more financing is the key to accelerating growth. There are several effective pathways to getting a loan for your business, and there are plenty of good reasons to seek one out. We asked entrepreneurs for their stories with business loans, and they responded with their own accounts. If you’ve been wondering where entrepreneurs apply, how many times they apply, and what they apply for, check out their experiences. These individuals prove that success comes in many different forms. Ray Zinn, Silicon Valley’s Longest Serving CEO “I secured a loan with a bank — something that was and is still unheard of in Silicon Valley. “It wasn't easy to convince a bank to loan me the money to start my company but I personally guaranteed the loan which helped. Also, I ended up agreeing to some very onerous requirements which included having to be profitable from the very start, something else that is unheard of in Silicon Valley. No startup is profitable in its very first quarter, but we were.” Most entrepreneurs won't land a loan to launch their business; banks want to see evidence of profitability before they lend. In Zinn's case, he had to agree to a strict condition that many new businesses would not be able to honor. But Zinn says he wasn't looking to angel investors, venture capitalists, or friends and family to loan him the money — he was determined to run his company without the involvement of these types of investors, who can sometimes demand too much stake in a business. Zinn's method allowed him a degree of freedom that many startups can't match. Sarah Franklin, Cofounder of Blue Tree AI “I was thousands of dollars in debt before starting my digital marketing and SEO business, but had a clear goal and plan to become successful and be financially free. “I thought for many weeks about taking a business loan out and was unsure if I was ready for more bills. After a lot of research and mapping out ideas, I came to the conclusion that a loan would be the best start to grow my business. “Since I work in the online industry developing highly effective technology techniques and software, looking for an online lender was a no brainer. It well suited my job and lifestyle and would allow me to better my skills and knowledge in this realm of work. “It took me three tries before getting the loan I was applying for, but it sure was worth the wait. Once this was achieved, we properly set up a functioning system to reach big goals within our business.” Franklin applied with online lenders, which are sometimes less stringent with their requirements. Traditional lenders want to see a high credit score and a history of success, but they can offer you low rates if you're approved. Conversely, online lenders often examine several more factors to analyze the potential for success before approving an applicant. “It took me three tries before getting the loan I was applying for, but it sure was worth the wait.” Jacob Seiter, Founder of MyBestWallets “A time came when my business was flourishing fair enough and I decided to expand it. For this purpose, I required new employees and upgraded web design, as well as official equipment. After all estimation, I concluded that [even] after paying interest on the loan still, I could generate more revenue as per expectation. “I had chosen online lenders because we were taking the loan for the long term, not for a year, and required minimum interest rates. I had no issues in following the payment schedules. The most important thing was I got quick loan approval after applying to three lenders. “It helped us to target the related goals. . . . Now we have a planned expansion with remarkable success.” Seiter wanted a quick loan, and online lenders allow you to move faster than a traditional lender. Working through a loan marketplace, like Lendio, would allow you to apply to several lenders at once. Cassy Aite, CEO of Hoppier “We applied for a business loan because we couldn’t scale without hiring new people. We knew we had a good chance of increasing our revenue massively, but there was no way to do it without hiring new people — and we couldn’t afford to pay for that. So basically, we needed money to make more money, so we applied for a business loan. “We applied traditionally because we had been through the process before. We didn’t have to look for long — the second lender we spoke to approved our loan because we had solid data about our business, including CAC, LTV, MRR, and other relevant metrics. “The loan helped us grow from 10 to 50 people in just under six months. We used the money for salaries rather than complex growth hacks, and it paid back to us tenfold.” Aite's story exemplifies a common reason for securing a business loan: hiring more personnel. Tim Fulton of Small Business Matters asserts that the average revenue per employee for a small business is $100,000. It's not as clear-cut as more employees directly leading to more revenue, but if you quintuple the size of your workforce like Aite did, it's likely to pay you back. “We used the money for salaries rather than complex growth hacks, and it paid back to us tenfold.” Mike Bran, Founder of ThrillAppeal.com “I applied for a business loan after running my business for a year. The reason behind this was I started from freelancing and collected enough money to support my business for a year. Moreover, I wanted to understand the basics of business practically before taking any big move. So, I thought about applying for a loan when my business started generating a 27 percent profit. I had confidence in myself that now I can upscale it. I took out a loan to expand my business because, at that time, I was completely aware of my past mistakes and already had working strategies. “I believe in this digital era; we do not need traditional lenders. Online vendors have a massive database of individual investors and institutions. Moreover, I had the option to see my loan progress. I had a peace of mind by knowing that they have transparent fees and terms unlike most of the traditional lenders. My credit score was above 600, so my application got accepted in the first try. “Before taking a business loan, I prepared a detailed plan of using it. I was completely aware of my W's — what, who, why, when, and where. So, online lenders were my source for a loan, and my plan was ready. I was aiming to reach new clients. For this purpose, I needed digital marketing and increasing the workforce by 40 percent. We invested much in digital marketing because, at that time, we had enough budget to invest and to handle new orders effectively. As a result, my clientele increased and profit increased by 30 percent. I aimed to increase it to 35 percent, which I did not achieve. Still, I expanded my business successfully, which was the primary purpose behind taking the loan.” Bran spent time building up his business before applying to an online lender, and it only took him one shot to be accepted. Bran had the foresight to invest his funding in a service some small businesses overlook: digital marketing. By increasing his digital presence, his profit increased 30 percent, and it's a testament to his careful planning and strategic use of his loan. Paul Bromen, CEO of HelpfulHabitat.com and UponaMattress.com “After success with my first website UponaMattress.com, I was looking to buy another one. I had some money in the stock market I could have used, but I didn't want to pay taxes on my gains by selling. Taking out a loan meant that I could keep that money working. I knew that if I ran into trouble I could always sell the stock and pay off the loan. “I worked with a traditional lender for an SBA loan, but opted for a loan from a family member instead. The interest rate was about the same, but I was able to move much faster to capitalize on a deal. “The loan helped me quadruple my business and allowed me to pursue new markets. I gave my assistant more hours and hired two new writers.” Bromen already had a way to pay off his loan if things went south, which is more than many entrepreneurs can say. If you're a careful investor, you may see yourself in Bromen's story. SBA loans have plenty of perks, like long term lengths and a cap on their interest rates, but Bromen opted for a loan from family because he was able to move forward faster. We've mentioned that loans from traditional lenders can take a long time to get approved, but you can also wait a long time before the amount is usable. Could a Business Loan Finance Your Dream? Learn more about business loans that could help you start your own business by looking at the top-rated companies and their offerings. Explore Your Options
Guest Post by LendioAccording to Forbes.com, personal credit scores are “algorithms that attempt to predict whether or not you will repay your obligations in the future.” These algorithms consider numerous factors, such as the promptness of your bill payments and whether you pay your monthly credit card balance in full (opposed to the minimum).Also, it’s worth pointing out that your personal score is separate from your business credit score. While the two share some common DNA, your business score is based on elements specifically related to the running of your company, such as your number of trade experiences, payment history, and outstanding balances. The value of your credit score Your personal credit score can be worth its weight in gold. For example, a strong score helps you qualify for better rates on a vehicle or home loan, which can save you thousands of dollars. And, most importantly for entrepreneurs, it can open the door for the capital you need to reach your business goals.The good news is that credit scores are rising nationwide. Research shows the average FICO Score is now above 700. Surprisingly enough, there are more Americans right now with scores above 800 than there are below 600.Wherever you fall within that point range, you can put your personal credit score to work to secure financing for your business. As with vehicle and home loans, the higher your score, the more favorable the terms will be. And some loan products on the market are quite lenient when it comes to your score, making them ideal for those who are new in the business or have a less-than-stellar financial history.Here are a few examples of loans where your personal score can help you with qualification, even if your score isn't high enough to impress anyone other than your mother: Merchant cash advances When speed is of the essence, this type of financing can be hard to beat. That’s because a merchant cash advance allows you to borrow against your business’s future earnings, meaning you won’t need to deal with mountains of paperwork detailing your financial past.Merchant cash advances can range from $5,000 to $200,000, and you can often get that money in about 24 hours. Because approvals are based more on the performance of your business than your personal financial history, people with low personal credit scores can often qualify as long as you’ve got at least $2,500 in monthly credit card transactions. ACH loans Similar to a merchant cash advance, an ACH loan is predicated more on your business’s finances than your own credit score. Lenders will focus on the average daily balance in your business account, then approve you accordingly.ACH loans fund much quicker than traditional loans, though the amounts are usually on the smaller side and the interest rate can be rather high. It’s worth noting that with this type of financing, the payments will be withdrawn directly from your checking account. Business lines of credit As a flexible form of financing, a business line of credit often jives perfectly with entrepreneurs who are launching a business. Similar to a credit card, a line of credit gives access to cash that you can use at your discretion. When you need money, you simply borrow (and then repay) the specific amount you need.The size of your line of credit can range from $1,000 to $500,000. And it can be used for everything from buying bulldozers to paying your employees. When it comes to qualifying, as long as you bring in at least $50,000 in annual revenue and have a credit score of 560 or above, you could be a solid candidate. Bolstering your credit score If your score isn’t quite where you’d like it to be and you’re interested in accessing a broader array of loan products, don’t worry. Credit scores aren’t a caste system where you’re locked into your current position. With discipline and strategy, you can improve your score and begin tapping into the benefits that come with it.For starters, never be passive when it comes to your credit score. Monitor it regularly and look for actionable ways to improve. You also might find errors that make you look riskier to lenders, resulting in less favorable terms and higher interest rates. Research shows as many as one in five Americans have such errors on their report.You may also want to consider partnering with a credit repair expert who specializes in repairing credit. They can quickly spot errors, identify areas for improvement, and provide multiple strategies for elevating your score. By focusing your efforts on credit repair, you could save thousands of dollars with lower interest rates, as well as having more doors swing open for you when seeking capital.Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble."
Guest Post by Rebecca Lake Running a small business doesn't necessarily mean staying small. At some point, you might decide you're ready to grow and scale your business up to the next level. According to Accounting Today's 2018 Small Business Accounting Insights Survey, 70 percent of small business owners expect their profits to increase in 2019. There's just one thing you might need to see those plans through: a reliable source of capital. When working capital isn't readily available, or you'd rather keep your cash reserves intact, getting a loan could be the next best option for your business. Using a loan to power growth allows you to maintain control of your business since you're not sacrificing any equity. And with so many loan options to choose from — including bank loans, Small Business Administration loans, and business loans from alternative online lenders — you can find one that fits your needs and cash flow precisely. If you need some inspiration for how to use a loan to expand your business, here are four ways you can put one to work: 1. Update or buy new equipment Equipment might be an integral part of your business. For example, if you own a construction company, you may rely on heavy machinery such as backhoes or front-end loaders to get the job done. Or, you might use computers and other office equipment to keep your tech startup humming along. Making upgrades or additions to your equipment inventory can help with your expansion plans if it allows you to serve your clients or customers more efficiently or grow your customer base. The downside? Buying or leasing equipment can be expensive. Taking out a loan to cover the cost means you don't have to make a dent in your cash savings. Another plus of equipment financing is that you may be able to use the equipment itself as collateral, rather than pledging business or personal assets. And having up-to-date equipment can give you a competitive edge within your industry or niche. 2. Increase your marketing reach A solid marketing strategy can be critical to your business success. Your marketing campaign should be designed to target your ideal clients or customers while producing a maximum return on investment, in terms of increasing revenues and profits. Opening up the scope of your marketing plan, or revamping it altogether, could encourage business growth if doing so enables you to connect with a wider audience. For example, you may have concentrated marketing on just one or two channels, such as social media or email. Launching a full-scale promotion that includes a combination of digital, radio, print, and television ads could substantially increase your business's visibility. A loan might allow you to plan a larger budget for marketing than you would if you were drawing the funds from your everyday cash flow. You could also use a loan to hire a team to handle the nuts and bolts of marketing and promotion for you if you'd rather direct your time and energy toward a different growth effort. For example, a web designer could update your website, and a social media manager could oversee your social campaigns while you work on developing a new product. 3. Expand your business offerings Adding new products to the mix can attract new customers if those products are highly sought after or you're one of only a few businesses offering them. New products may be ones you develop yourself or existing products you purchase from a supplier. In either case, a loan can help meet those needs. For instance, you could use a loan to cover the costs of researching and developing a new product line from start to finish, including purchasing materials, producing your initial prototype, and paying manufacturing costs. If you're purchasing completed products to sell, a loan makes it easier to buy in bulk so you have sufficient inventory to meet customer demand. A loan could also come into play if you're operating a service-based business. If you own a hair salon, for example, you may want to move beyond cutting and styling and broaden your services to include facials, brow waxing, manicures, pedicures, or massages.With a business loan, you could cover the initial costs of hiring and training new staff to handle those services, purchasing any necessary equipment, and advertising your newly expanded service line. 4. Upgrade your business premises One final way to use a loan to expand your business involves where you do business. Upgrading your business premises, either by making structural improvements or opening up a new location, can pay dividends in terms of growth. If you own a restaurant, for example, updating the interior or launching a second pop-up location can bring fresh attention to your business and draw new customers. Renovating your premises can also benefit your business if it leads to increased productivity among your employees. Remodeling your employee workplace so that it's more comfortable or has a better flow could make it more conducive to keeping your team focused and on task. The payoff to you is a business that runs more smoothly, with less time (and hopefully, less money) wasted. Match the loan type to your business expansion plans These examples are just some of the ways you could use a loan to expand your business; the possibilities are virtually limitless. Your needs or growth goals may be different, and that's important to keep in mind as you compare small business loan options. A working capital loan, for instance, may be better for short-term needs while a term loan could be a better fit if you're making a large-scale growth investment. As you consider which type of business loan is best, check the fees, interest rates, and repayment terms carefully. Ideally, the loan you choose to expand your business should fit not only your vision but your budget as well. Rebecca Lake is a financial journalist covering small business, investing, and personal finance. Her work has appeared online at U.S. News and World Report, Investopedia, and The Balance. She also works with top banking and insurance brands, including Citibank, Ally, Discover Bank, and AIG.
So you've already come up with a great business idea? You're probably working out the kinks of day-to-day operations, but you've probably been wondering what it takes to get a loan. When you finish this article, you'll know the difference between an unsecured loan and a secured loan and which to go with. What Is an Unsecured Business Loan? An unsecured business loan is based solely on an individual's financial integrity, business record, and character within the community. Based on these aspects, a lender may decide to provide a loan to an individual without requiring any collateral if they are in good standing. In order to obtain an unsecured loan, a business owner must have very good records and a great reputation within the business world. Because of this, unsecured business loans are often called "signature loans". With essentially a signature and good credit, you can attain an unsecured business loan. Because an unsecured loan does not require any collateral, there are much higher interest rates associated with them. Lenders do this to provide some form of protection for themselves in case the loan defaults. With higher interest rates, the lender gets some sort of profit off of the loan that can make up for collateral as a cushion. Interest rates vary as the market fluctuates, but as a business owner, you can plan on a substantially higher rate than a secured loan would have. Unsecured loans are a lot like credit cards in this way-credit cards do not require any collateral when you sign up for them. The lender assumes, based on your current and past credit, that you will be able to pay the loans back. The most obvious benefit of getting an unsecured business loan is the fact that you do not have to provide collateral. Your business assets are protected from being seized in the circumstance of a default on the loan. This is especially beneficial if you do not have a lot of business collateral to pledge. For example, your business may not be based on manufacturing physical products that you could provide as collateral, as well as the equipment to produce these goods and you would be forced to use personal collateral instead of just business collateral. Even though there are benefits for an unsecured loan, there are understandably some disadvantages as well. One of those disadvantages is that an unsecured loan is more difficult to obtain than a secured loan if you have poor credit. When a lender agrees to give you an unsecured loan, they are taking a huge risk on you. Therefore, their qualification terms are going to be more difficult to meet. Another large disadvantage, as before mentioned, is the interest rates associated with unsecured loans. When all is said and done, you will end up spending considerably more on an unsecured loan over the lifespan of the loan than on a secured loan. What Is a Secured Business Loan? A secured loan is a loan in which collateral is provided in order to secure the loan. The purpose behind this is to provide protection for the lender in case the loan defaults. In the case of a default, the lender can appropriate the collateral pledged. As always, there are different advantages and disadvantages to different kinds of loans. One of the advantages of a secured loan is that because collateral is pledged, interest rates on the loan are lower. The risk of lending to you is lower when you provide collateral because the lender can obtain the worth of what they lent to you through that collateral, either by keeping it or selling it. The lower interest rate means that you will pay less over the lifespan of the loan, and if you pay it off in a timely manner, you won't have to worry about surrendering your assets. Another advantage of a secured loan is that you will be able to get a loan of greater worth versus if it was unsecured. Lenders are willing to put more money towards secured loans because they are less risky. This is especially true if you have good credit as well as collateral. The combination of the two is a great reassurance to the creditor that you are a good investment who will pay back the loan. Good credit in secured loans is definitely in your favor, but it is not as crucial as in unsecured loans. Because you pledge collateral, the creditor will care less about your credit. This is especially beneficial to newer companies and business owners who haven't had the time to build up the business credit that is important in the eyes of creditors when securing business loans. One disadvantage of a secured business is, understandably, that you as a business owner have to provide collateral. This can be tricky in businesses that do not produce physical goods and do not have the equipment that makes those goods-both of which are often used as collateral. In business more oriented in financial transactions, the collateral will have to be pledged portions of profit, financial assets, property, and sometimes even personal collateral. For a new business that is not extremely stable, promising collateral can be a little bit intimidating. Another disadvantage of secured loans is that they take longer to obtain than an unsecured loan. Secured loans take more paperwork because of the assets and collateral involved in the loan agreement. This can be a major problem for businesses who need cash fast.
Microloans were established and are funded by the U.S. Small Business Administration. The idea behind microloans is to provide a quick start up for smaller companies or for lower income individuals. The limit for a microloan is $50,000, but most loans are usually under $20,000. The SBA provides these funds to lenders who then distribute the funds to qualifying individuals. Each individual lenders has their own requirements for qualification; however, there are some commonalities between all of them. Some of these commonalities include credit, personal guarantee, collateral, and sometimes special training or classes. Individuals must be 21 years old or older in order to qualify. In most cases, the individual taking out the loan must be the sole owner of the business that will be funded by the loan. Microloans can be used for a variety of purposes which include things like machinery, furniture, working capital, etc.-whatever it takes to start up a small business. However, microloans cannot be used towards purchasing real estate or towards paying off existing debt. In order to secure a microloan, individuals have to go through an application process with a SBA approved lender. On the SBA website, there are lists and links to loan providers. The application process is different for each lender. One example of such lender is Kabbage. Kabbage provides microloans from $500 to $100,000. The SBA itself also provides microloans to small business owners. They, of course, have their own terms and conditions, including what the microloans can and cannot be used for. The repayment process is different for each microloan because the loans are provided by the different intermediary lenders. Usually, the repayments include processes similar to normal loans. Microloans can have interest rates, just like traditional loans which will have to be paid off. The time frame of paying off microloans must be within six years of signing. Crowdfunding is one major alternative to microloans if you can't qualify for one or don't feel like it is the right fit for your business. Crowdfunding is basically mass fund-raising for your business. This can be achieved through networking or other means. Go Fund Me is a rising resource for crowdfunding. It is a way to use social media as a platform for fund raising. Users can ask their Facebook and other social media friends to donate to their business causes. For more answers to your business loans questions, check out our Business Loans Page!
A Merchant Cash Advance, or MCA, is the agreement between a merchant and a lender to allow for smaller payments on an amount borrowed, rather than larger payments over a longer period of time. In this agreement, merchants essentially "sell" a percentage of their debit and credit card earnings to the lender. The lender is not a bank. Because of this, they are not subjected to laws surrounding loans because the MCA is not technically a loan. Lenders can charge a much higher interest rate than banks because of this. The biggest benefit of a MCA for a merchant is that the payments are smaller in a shorter period of time rather than having to pay a bigger chunk of money monthly or quarterly. For lots, it is easier to make smaller payments, even though those payments are usually every business day. This also shortens up the time of paying back the debt, usually to under two years. MCA's are also easier to get. MCA's do not require as good of credit scores as traditional banks do. The biggest drawback of MCA's is, of course, the interest rates. As previously mentioned, MCA's are not governed like traditional bank loans are, which means lenders can charge much more than banks. Merchants have to be careful about which lenders they borrow from because of this. A term loan is also a set amount loaned to a borrower, however, banks provide these loans. Term loans are paid back in smaller amounts. Unlike MCA's, however, these payments are not daily. Also unlike MCA's, the payments are a fixed amount on a fixed schedule. MCA's are different payments every day based on the income that merchants get on a daily basis. Term loans are usually fixed on a time period under five years. Term loans are not based as much on financial assets like MCA's. Instead, the payments are often attained through the income produced by products that a business or merchant uses like machinery. The biggest benefit of having a term loan is, like MCA's, the loan is paid back in smaller amounts in a shorter amount of time. Contrariwise to this benefit, the biggest drawback to term loans is that a lot of term loans have a "floating" interest rate. This means that the interest rate fluctuates according to the market. This can be risky, especially to small business owners. However, there are some term loans that have fixed interest rates, but those can be a bit trickier to procure. For more answers to your business loans questions, check out our Business Loans Page!