BRB Rules

Honoring Black Business Pioneers

Keeping up with the News

One of the most famous African American entrepreneurs is Chistopher J. Perry, who founded the Philadelphia Tribune in 1884. The paper began as a voice for the African American community, which was marginalized at the time. The paper became a voice for civil rights and assisted African Americans in finding jobs during the Great Depression.

The paper is still around today and has won several awards for its stellar journalism. Perry’s commitment to journalism and civil rights is still felt as the paper covers both national and global events and is recognized as one of the foremost news sources in the city.

Oyster Pie and Freedom

In 1825, a free black man, Thomas Downing, became the first black man to open an independent restaurant, Downing’s Oyster House in New York City. The restaurant specialized in oyster pie, fried and stuffed oysters – and most importantly – was a stop on the Underground Railroad for slaves seeking freedom in Canada.

However, black individual contributions to traditional American cuisine began much earlier. In 1790, French-trained chef James Hemings, a slave who was considered the property of the nation’s third president -Thomas Jefferson, opened a small restaurant in downtown New York City. That restaurant, which served diplomats and members of Congress, is credited for making macaroni and cheese, crème brûlée, and french fries common staples of the American diet.

Moving on up

When John T. Ward, a free black man moved from Richmond, VA to Columbus, OH with his wife to start a farm, he may not have been even been aware that he was going to make history as the nation’s first black man to own a small business and the proud tradition he would leave behind.

After using his farm as a stop on the historic Underground Railroad until the end of the American Civil War, he joined his son, William S Ward, in 1881 to launch EE Ward Moving & Storage, the nation’s first and oldest black-owned business. The company was acquired from Ward’s descendants by family friends, Brian Brooks and Otto Beatty, in 2001 and is still in operation today as an industrial moving company.

Insurance Boon

In the late 19^th and early 20^th centuries, African Americans were forced to live in largely insulated communities due to unjust segregation and Jim Crow laws, especially in the South. This led to a boon in independent small businesses in these communities. African American insurance companies especially began to crop up because of this, and the most prominent of these was the North Carolina Mutual Life Insurance Company.

The insurance company quickly grossed $250,000 by 1910 ($8.3 million in today’s money) and is still one of North Carolina’s largest life insurance companies today. Black-owned insurance companies are still prominent today, mainly in the South. The National African-American Insurance Association, formed in the early 20^th century to help empower African Americans in the insurance industry, is still around today.

A lot to Celebrate

According to the US Census Bureau, the number of black-owned small businesses grew to 134,567 in 2023, with about $133.7 billion in sales revenue and $40.5 billion in combined payroll. Just under 30% of those businesses are in health care and the social assistance sector, the largest percentage out of any minority-owned small business group.

Kapitus is proud to celebrate every black small business owner who has followed in the footsteps of John T. Ward by overcoming the odds and following their dreams and passions to launch and successfully run a small business.

Vince Calio

Content Writer

Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

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Business Lessons from Prohibition

Being a Business Owner

by Vince Calio5 minutes / January 17, 2025

On the anniversary of prohibition, explore how businesses dealt with the new law (legally, of course), and apply those same lessons to your business today.

When the infamous Prohibition era began in the US on January 17, 1920, it didn’t just mark the rise of speakeasies and organized crime dealing in the illegal liquor trade, it also marked a time when many small businesses were forced to make massive changes to keep up with the times.

While this dry era became well known for producing the likes of Elliot Ness and Al Capone, it also serves as a stark reminder of how quickly small businesses must adapt to changing times. Several changes came about due to prohibition that you may not even be aware of. Did you know that the prohibition era gave rise to appetizers being served at restaurants?

That’s right, local restaurants – at least, the ones that didn’t try to skirt the 18th amendment banning alcohol by running secret speakeasies – quickly pivoted to offering customers finger foods such as deviled eggs and oyster toast before their entrees as a way to make up for lost revenue due to the outlawing of alcohol, thus making appetizers a common staple at restaurants today.

Also, many small distilleries turned to producing pasteurized milk since the pasteurization process was similar to the distillery process. Beer producers began offering “near beer” beverages that had 0.5% or less alcohol content, which was legal at the time. Most distilleries began producing medicinal alcohol, which was still legal during that era, and produced products such as cough syrup and medicinal whiskey. Restaurants began seating single women at tables instead of the bar area (yes, it was normal to relegate single women to the bar area back then).

Changing with the Times

While the prohibition era still fascinates the public, it certainly wasn’t the last time small businesses had to quickly pivot due to societal changes or natural disasters. In recent memory, small businesses had to quickly pivot due to circumstances like the COVID pandemic and natural disasters. Curbside takeout orders became a common offering at restaurants during the pandemic, as well as an explosion in online retail shopping and remote work.

In short, the lesson learned from prohibition and other eras of change is that small businesses always need to be ready to pivot to new offerings and new ways of doing business when the times demand it. While the Bob Dylan song “The Times They-are-a-Changin” certainly remains a classic tune, the need to be prepared for change is as urgent as ever, especially with a new presidential administration coming in.

There are several ways small businesses can be prepared for sudden changes in the business and cultural environments:

Keep up with new technology. One of the most important ways to be prepared for change is to keep up with emerging technologies that pertain to your specific business. That means researching new manufacturing equipment, machinery and business software that can help your business stay modernized.
Listen to your customers. Cultural norms are always changing, and your business needs to change with them. It’s crucial for your business to regularly listen to customer feedback so that you can keep up with the times. For example, your business may benefit from showing support to the “woke movement” or protecting the environment. It would benefit your business to implement customer feedback software that enables your clients to share feedback through email or texts.
Keep your business plan updated. Your business plan is a blueprint for how your business will grow and stay profitable. It’s important to have one when applying for certain loans, but moreover, it should serve as your business’ GPS. Regularly update it to reflect how it is serving your customers’ changing needs.
Plan for contingencies. Always have a back up plan for your business in case of disasters or sudden market shifts. While this includes having business insurance, a back up plan also should answer more fundamental questions such as where will your business operate in case of a fire or natural disaster? Are you qualified for small business financing to enable your business to quickly pivot due to a sudden and seismic market shift, such as what we saw during the pandemic?
Maintain a strong cash reserve. Change can come without warning – as we’ve seen recently, a wildfire or hurricane can destroy your business’ inventory, or a war breaking out halfway around the world can cause gas prices and inflation to suddenly skyrocket. One of the best ways to be ready for sudden changes is to maintain a healthy cash reserve. As a small business owner, it would be prudent to set aside a portion of your business’ revenue every month towards a cash reserve that you can use when needed.
Be flexible. One big regulatory change that could be coming is the potential ban of the social media platform Tik Tok, which could affect the way many small businesses do marketing. If this is the case for your small business, then it would be prudent to diversify your marketing strategy to include other social media channels.

Let Prohibition be a Reminder

While the prohibition era is often fondly remembered, it also serves as a stark reminder that small businesses always need to be ready for sudden changes in the economic, cultural and environmental landscapes. The need to be ready is especially important today, as world events such as a presidential election, natural disasters, wars around the world, sudden spikes in inflation and supply chain disruptions have all had a major impact on the small business climates.

Small businesses need to constantly have an eye out for change and be ready to pivot. As a small business owner, you need to take the steps that are necessary to ensure that you can quickly change with the times and be ready for any sudden changes that may come your way.

Vince Calio

Content Writer

Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

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New SBA Financing Rule in Effect

Manage Your Money

by Vince Calio5 minutes / November 19, 2024

SBA amends rule making it easier for small businesses to refinance debt to lower interest rate.

The US Small Business Administration has amended its Direct Final Rule to make it easier for small businesses with outstanding SBA loans to refinance to lower interest loans given the Fed’s half-point interest rate cut earlier this year and subsequent quarter point rate cut in November. The new rule amends existing regulations on the SBA’s 504 loan program to make it easier for small businesses to refinance their existing 504 loans for physical property and equipment, or refinance existing 7(a) loans.

The Federal reserve cut rates by another quarter of a percentage point earlier this month bringing the target back to levels not seen since Spring of 2023 – so if you haven’t yet looked into the possibility of refinancing your SBA 504 or 7(a) loans, now is a great time to consider it.

Refinance Your Existing SBA Loan

The federal funds overnight rate was slowly hiked to 5.5% between 2022 and early 2024 to combat rising inflation. Since the annual inflation rate has cooled significantly from a high of 9.1% in June 2022, the Fed made the second of what is expected to be several rate cuts. If your small business took out a SBA 7(a) with a fixed interest rate or 504 loan during the second half of 2023 into the first nine months of 2024, the interest rate on your loan reflects the overnight rate when it was at its highest.

Put simply, the final direct rule streamlines the process of refinancing an existing 504 loan to a lower interest loan so that existing borrowers don’t have to go through a long application process or fill out a ton of paperwork. While this direct final rule is aimed at 504 loans, business owners with 7(a) loans that had a variable interest rate should have already seen the adjustments to their rates – which were automatic; and for those business owners who have fixed-rate 7(a) loans, it is still worth a refinancing conversation with your lender.

If your current SBA lender isn’t willing to allow you to refinance, the SBA has updated its Lender Match tool to allow you to easily find a list of qualified SBA lenders that may be willing to allow you to refinance your existing SBA loan.

Refinance Debt for Property and Equipment

The Direct Final Rule also makes it easier for small businesses that purchased physical property or equipment – be it a brick-and-mortar store, farmland, office building or other fixed assets or equipment – to refinance the original SBA 504 debt incurred to purchase that property, thereby lowering their monthly debt obligations.

One of the most important features of the rule is that it removes the requirement for small businesses to demonstrate a minimum reduction in their loan payment from refinancing. Previously, borrowers seeking to refinance had to agree to a new minimum monthly payment as part of their refinancing agreement, especially if the agreement sought to extend the duration of their loan.

In its announcement, the SBA states that “By lifting this restriction, small business owners will have the freedom and flexibility to determine for themselves if it makes sense for them to refinance – whether to unlock savings and lower their monthly installments, or to access more capital from their fixed assets without increasing their monthly payments.”

The 504 debt refinance direct final rule was officially released on September 30, 2024 and became effective last Friday, November 15, 2024

2024 SBA Final Rules

This is not the first Direct Final rule implemented by the SBA this year. In March 2024, the SBA issued a final rule to adopt, without change, its July 2023 proposed rule 88 FR 48739 – which made it easier for small businesses to access capital from qualified SBA lenders. Through this rule, the SBA:

Reduced the qualifications for small businesses to participate in the Small Business Investment Company program, which helps small businesses in underserved communities gain access to capital.
Eliminated self-certification for service-disabled veteran owned small businesses, making it easier for veteran owned businesses to participate in the SBA’s VetCert program that makes it easier for those businesses to apply for federal contracts.
Updated Disaster federal Disaster Assistance Loan Program statutes to make it easier for small business to apply for disaster assistance, and
Increased the alternative size standard for the SBA’s 7(a) Business and Certified Development Company (CDC/504) Loan Programs by including inflation adjustments and contract size limits.

In September of this year the SBA also implemented a direct final rule that amended SBA Disaster Loan Program regulations with revisions to modernize and replace the current process on how it determines whether an applicant has credit elsewhere. In addition it increased the unsecured threshold for physical damage loans under Major Disaster declarations and for Economic Injury Disaster Loans (EIDL) under all disaster declarations.

Talk to Your SBA Lender

Some 7(a) and all 504 loans have fixed interest rates that reflect the federal funds overnight rate at the time the loan was made. If you have an outstanding fixed-rate SBA 7(a) or 504 loan that you took out when interest rates were at their highest, you should talk to your original SBA lender about refinancing, as refinancing could significantly lower your fixed monthly payments on your loan. If the need to refinance isn’t urgent, you may also want to wait a few months, as as there could be several more rate cuts to come.

Vince Calio

Content Writer

Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

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What is an Unsecured Business Line of Credit?

Manage Your Money

by Vince Calio11 minutes / October 1, 2024

Running a business requires access to capital to manage cash flow, cover unexpected expenses, or facilitate growth and expansion. An unsecured business line of credit is a form of financing that can help businesses operate and grow. A line of credit provides businesses flexible access to funds, allowing them to borrow as needed up to a predetermined limit.

An unsecured business line of credit doesn’t require collateral, allows borrowers to withdraw the funds they need, and gives borrowers more control over repayment options. In this article, we’ll explore how an unsecured business line of credit works, its benefits, how it compares to secured lines of credit, and how to qualify for one.

How Does an Unsecured Business Line of Credit Work?

An unsecured business line of credit offers access to revolving credit, much like a business credit card. Once approved for a line of credit, business owners can withdraw funds up to a predetermined limit at any time. You only pay interest on the amount of money you draw, and as you repay what you’ve used, that credit is available to borrow again.

While credit cards can be used for as long as your account is in good standing, a business line of credit has a draw period lasting two to three years during which you can make withdrawals. Repayment terms and rules can vary significantly based on your lender; however, it’s common for the draw period to be followed by a repayment period during which borrowers make monthly payments to repay what they owe.

Unlike a secured line of credit, an unsecured line of credit requires no collateral. Lenders will evaluate creditworthiness and determine a credit limit and interest rate based on the applicant’s personal and business credit scores. Lines of credit usually charge a variable interest rate, unlike loans where the interest rate is fixed. This means that interest rates may rise or fall as the market (and Federal funds rate) evolves. Even so, a high credit score opens the door to better lending terms and rates, while a low score may mean you’re offered a higher interest rate.

Benefits of an Unsecured Business Line of Credit

Many business owners take out secured loans when they need financing, but an unsecured business line of credit may be the more useful and flexible option. Here are some benefits of an unsecured line of credit:

No collateral required: Unlike with a secured lines of credit, collateral is not required. This means business owners don’t have to risk their personal or business assets to secure financing.
Flexibility: Business owners have the flexibility to borrow exactly the amount they need when they need it. They can draw funds as needed, up to their approved limit, without having to reapply for additional financing each time.
Lower interest rates than credit cards: Unsecured lines of credit typically have lower interest rates compared to business credit cards, making them a cost-effective (but temporary) alternative to business credit cards.
Limited interest charges: Business lines of credit charge you interest only on the amount you’ve drawn. If your credit limit is $250,000 and you’ve only drawn $25,000, you’ll only be charged interest on your $25,000 withdrawal. On the other hand, with a term loan, you’ll pay interest on the entire loan principal.

Drawbacks of an Unsecured Business Line of Credit

As with any type of business financing, an unsecured line of credit isn’t the best option for every small business. Here are drawbacks of unsecured lines of credit:

Higher interest rates than secured lines of credit: While unsecured lines of credit generally have lower interest rates compared to business credit cards, they often carry higher interest rates than secured lines of credit.
Tough qualification requirements: While secured lines of credit factor collateral into qualification requirements, in this case eligibility depends on your personal credit, business credit, revenue, and time in business, among other factors.
More Difficult to Qualify: Without collateral, lenders may set tougher eligibility requirements for each of those factors.
Lower limits: Unsecured lines of credit usually come with lower credit limits compared to secured options. This can be an issue for businesses that need larger sums of cash to finance operations and growth.
Potential for credit score impact: Because many unsecured business lines of credit require your personal credit score to qualify, missing payments on the line of credit could affect your credit.

Who Should Get an Unsecured Business Line of Credit

Unfortunately, there’s no one-size-fits-all approach for determining whether or not an unsecured business line of credit is best for any business. Instead, business owners need to assess their business and both the benefits and drawbacks of an unsecured line of credit. Generally speaking, established businesses with consistent revenue and good business credit are ideal fits for an unsecured line of credit. This means that small businesses that are new, have inconsistent revenue, or have no established business credit may not be suited for this type of financing. Business owners should also factor in the financial standing of the business before applying for any financing.

Secured vs Unsecured Line of Credit

A secured line of credit offers the kind of flexible access to funds that many business owners are seeking, but applicants typically borrow against the value of the collateral they provide. Collateral could be real estate, inventory, equipment, or vehicles. Providing collateral can make a difference to the borrowing limits and rates you are offered. Here are some important factors to consider if you’re weighing the benefits of an unsecured business line of credit against a secured alternative.

Unsecured business line of credit
Collateral Requirements
Interest Rates
Credit Limits
Approval Odds
Application Process
Risks Involved

Unsecured business line of credit
Not required, but borrowers must have acceptable credit scores.
Interest rates may be higher due to the lack of collateral.
Credit limits may be lower.
Odds of approval depend on the applicant’s credit scores. Good credit improves the odds.
The process is usually short and uncomplicated.
Defaulting usually results in credit damage. If the business owner provided a personal guarantee, they’ll need to pay off the debt using personal funds.

Secured Business Line of Credit
Required. Collateral can be a car, property, inventory, equipment, or even stocks or bonds.
Interest rates may be lower as the lender incurs less risk.
Credit limits can be higher since they’re usually linked to the value of the collateral.
Higher odds of approval since borrowers incur more risk.
Lenders must appraise the collateral which can make the application process longer.
Lenders typically seize the collateral if the business owner defaults on payments.

How to Get an Unsecured Business Line of Credit

Once you’ve determined that an unsecured business line of credit is the right choice for your business, you can apply for one following these steps.

1.Evaluate Your Business’s Needs and Credentials

Check your business credit score, operational history, and financial standing to gauge your eligibility. You’ll also want to determine the amount of financing you need. Consider your business needs and expenses to arrive at a figure that makes sense. Bear in mind that you won’t necessarily be maxing out your line of credit.

2.Compare Unsecured Business Lines of Credit and Lenders

Research different lenders and compare their offerings, including interest rates, credit limits, and repayment terms. Don’t forget to compare fees, including origination fees, late payment fees, maintenance fees, etc. It’s also a good idea to research the quality of service that different lenders offer. Consider factors such as customer service, reputation, and online reviews when choosing a lender.

3.Gather the Required Documents and Apply

Prepare necessary documentation, including financial statements, tax returns, bank statements, and business plans. Application requirements may differ from one lender to the next, so feel free to ask about what a complete application should include.

Most lenders offer a streamlined online application process that helps save time and energy. But don’t hesitate to contact your lender’s customer service team if you have doubts or questions.

4.Review Your Offer, Accept the Terms and Sign

Once you receive your line of credit offer from the lenders, carefully review the terms and conditions, including interest rates, fees, and repayment terms. Accept the offer only if it suits your business’s needs. Find out if your lender offers a cooling-off period during which you can cancel the application without consequence if you change your mind.

Unsecured Business Line of Credit Qualification Requirements

Lenders may place strict requirements on business owners seeking an unsecured business line of credit. As with any unsecured form of credit, the lender incurs more of the risk, so they’re more likely to be highly selective about whom they issue credit to. Here are a few factors that lenders may consider when evaluating your eligibility and creditworthiness.

Business credit score: Many lenders require a minimum business credit score, though the exact figure can vary. Generally, the higher your credit score, the more credit options you have available to you.
Personal credit score: Your personal credit score may also be considered, especially for newer businesses or smaller lines of credit.
Time in business: Lenders may require your business to have been operating for a certain period, often at least two years.
Bank statements: Business lenders may require up to six months of bank statements to verify the financial health of the business.
Financial statements: You may need to provide financial statements, including income statements, balance sheets, and cash flow statements. These documents give your lender a picture of your money management skills and business costs.

Unsecured Business Line of Credit FAQs

Is it hard to get an unsecured business line of credit?

Obtaining an unsecured business line of credit can be more challenging compared to a secured line of credit. Lenders typically have stricter eligibility criteria due to the higher risk involved. However, business owners can work to improve their credit scores to improve their odds of approval.

Can a small business get an unsecured line of credit?

Yes, small businesses can qualify for unsecured lines of credit, but they may need to demonstrate a two-year operational period, a strong credit history and good financial standing.

Can a new business get an unsecured business line of credit?

While it’s possible for a new business to get an unsecured business line of credit, it can be more difficult. New businesses may need to rely more heavily on their personal credit history and provide additional documentation to prove their creditworthiness.

Vince Calio

Content Writer

Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

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Complete Guide to Restaurant Loans

Industry Challenges

by Vince Calio10 minutes / September 30, 2024

Owning a restaurant can be rewarding, but often comes with financial challenges. Restaurants may experience irregular or seasonal revenue, while they must continue to make payroll, maintain equipment, and stock pantries, coolers, and bars.

Whether you’re launching a new restaurant concept, expanding an existing restaurant, or just need working capital to keep the bills paid when revenue fluctuates, a restaurant loan could be the answer. Restaurant loans can help restaurants grow and maintain operations without straining their finances.

What are Restaurant Business Loans?

A restaurant loan is a small business loan used by restaurant owners. The business loan provides financing that a restaurant business owner can use to support their restaurant operations. There are a variety of different ways that a restaurant loan can be structured, such as varying loan amounts and terms, depending on the needs of the restaurant and its owners.

How do Restaurant Business Loans Work?

Restaurant business loans work just like any other business loan – where the lender gives the restaurant owner a lump sum of money and the borrower will repay the loan with interest in agreed-upon monthly payments. These payments are fixed, making them easy to account for on a regular basis.

There are other types of financing that a restaurant owner could choose depending on their needs. For example, if the restaurant needs a dining room renovation, a lump-sum loan may be the right choice to purchase the equipment. But if the restaurant just needs available working capital to tap into when revenue is slow, another option, such as a business line of credit, may be the best option.

Restaurant Loan Benefits

A restaurant loan can offer a number of benefits for owners, including:

Cash flow flexibility

Most restaurants face unexpected expenses from time to time. Food prices may spike temporarily, or an oven or dishwasher may need a major repair or replacement. Rather than worrying about how you’ll have the cash flow flexibility to cover unexpected expenses, a restaurant loan can ease your mind and help you manage those costs.

Financing for growth

Business growth and expansion can become unmanageable if it occurs faster than you can finance it. Restaurant owners may use small business loans to help finance the growth of their business by purchasing new equipment, hiring and training more staff, buying additional inventory, leasing more space, or ramping up marketing. Loan financing may also pay for renovations to an existing space or equipment upgrades if needed to plan for future business growth.

Meet seasonal needs

In many cases, restaurants are seasonal businesses where the amount of revenue coming in fluctuates throughout the year. Restaurant owners may need extra funding to prepare for the upcoming season or to keep the bills paid during the slower seasons.

A restaurant loan could help with hiring and training seasonal staff, purchasing inventory, and creating seasonal advertising to prepare for the busiest time of the year. This funding may also help business owners during a slow season by covering costs to meet immediate needs.

Restaurant Loan Drawbacks

A restaurant loan can help you run your business smoothly, but it may also have drawbacks, such as:

Potential collateral requirements

Some restaurant loans require business owners to provide collateral to qualify for financing. That may mean securing the loan with funds in the business account, the restaurant’s building or food truck, or even the owner’s personal house, car, or retirement funds.

Consistent payments despite inconsistent revenue

Even though a restaurant’s revenue may be seasonal or inconsistent, payments on a restaurant loan must be made consistently. It’s important to plan how the payments will be made before taking out a loan.

Restaurant Loan Uses

A restaurant loan can be used for almost any expense a restaurant has, such as:

Restaurant growth – A restaurant loan could fund one or more new locations or the expansion of a current restaurant location.
Equipment purchases or repairs – Every restaurant needs equipment, but purchasing, maintaining, and repairing that equipment can be expensive. A restaurant loan can help cover the costs.
Payroll and other regular expenses – A restaurant loan can make it possible to meet payroll obligations and cover other monthly bills when cash flow is tight.
Food inventory – Stocking the restaurant pantry and freezer can be expensive. A restaurant loan can finance food costs so that your restaurant is ready to serve a crowd of customers.

Note that some business lenders will set stipulations for what the loan funds can be used for. Make sure that your planned purchases are approved before you accept a loan offer.

Types of Business Loans for Restaurants

There are a variety of different types of loans available for restaurant owners. The one that works best for you will depend on your specific needs.

Term Loan

With a small business term loan, a restaurant receives funding upfront and pays it back in installments — plus interest — over time. The loan must be paid back with regular payments within an agreed-upon term, such as one year, five years, or 10 years. Lenders may consider business and personal financial history and credit score for qualification

SBA Loan

An SBA loan is a flexible financing solution for a restaurant. Because a portion of an SBA loan is guaranteed by the U.S. Small Business Administration, lenders can typically provide these loans to borrowers with more favorable terms and interest rates than conventional loans. That may mean restaurant owners can take advantage of greater accessibility, lower down payments, and longer repayment terms than other financing options. However, SBA loans are difficult to qualify for and are not a viable option for every restaurant owner.

Restaurant Financing Alternatives

When a traditional loan isn’t the right fit for your restaurant, there are alternative types of financing that might work, including the following.

Line of Credit

A business line of credit for a restaurant allows access to a predetermined amount of funds whenever you need it, allowing you to only pay interest on the amount drawn from the total. The funds become available to borrow again as you pay down balances.

Business Credit Card

A business credit card works like a personal credit card, allowing a business owner to charge purchases up to a certain limit. Carrying your statement balance beyond the payment due date can incur interest charges. When the card has a balance, the business owner must make a monthly payment that includes both principal and interest owed.

Grants

Business grants are funds that are granted to a small business free of charge, with no need for repayment. Many different organizations offer small business grants, including government agencies, nonprofit organizations, and some large corporations. Typically, small businesses must complete an application and go through a competitive process to win a grant.

Equipment Financing

Equipment financing allows small business owners to purchase the equipment they need to keep their businesses moving ahead, without tapping into savings or working capital. Restaurants may be able to get a tax deduction when they use equipment financing, too, though you should connect with an accountant before filing your business taxes.

Invoice Factoring

If your restaurant provides catering or other services that involve invoicing customers, you could consider invoice factoring, which is a way of accessing capital by selling invoices to a third party. In return, the restaurant business would receive an advance based on a percentage of the total value of the invoices. In some cased, the third party factoring company may then assumes responsibility for collecting payments from the customers who owe the outstanding balances.

Crowdfunding

Many small businesses have accessed funding through crowdfunding on platforms like Kickstarter and gofundme. If your restaurant business has a unique or touching story that might attract the interest and support of a wide variety of individuals, crowdfunding may be a good option.

How to Get a Restaurant Loan

The specifics may vary based on the type of loan you want, but most restaurant loans require the following when applying:

Personal and business credit scores
Revenue of the business
Length of time in business
Size of the business
Collateral (if required)
Business Checking Account
Previous year’s tax returns and/or bank statements

From there, you should compare multiple lenders and restaurant loan options to find the best fit for your business.

Where to Get a Restaurant Loan

Restaurant loans are usually offered by traditional banks, credit unions, and online lenders, each of which comes with benefits and drawbacks.

A traditional bank loan may come with lower rates, making it the most affordable option. However, banks often set strict eligibility requirements, and loan applications can take a while to process. Once approved, loan funds could take longer to disperse than other options.

Credit unions are excellent local resources for small businesses. They offer competitive rates and a more personalized service than many banks, though loan limits are typically lower than with banks. Credit unions can also have lengthy approval processes.

Online lenders provide a quick alternative to banks and credit unions. Application approval and fund dispersal can take a matter of days for some online lenders. Online lenders also offer flexible loan options, letting you find a restaurant loan that fits your business. However, many online lenders come with higher rates than banks or credit unions.

How to Choose a Restaurant Loan

To select the best restaurant loan for your situation, look for a lender that has experience working with restaurants. It’s also a good idea to compare lenders and rates and consider a variety of different products before choosing the one that works best for you.

When shopping around with different lenders, compare terms such as:

How much you’ll be able to borrow
How long you’ll have to repay a loan
The interest rate and fees
Collateral requirements
Personal guarantee requirements

Restaurant Loan FAQs

Is it hard to get a restaurant loan?

Most restaurant owners have a wide variety of business loans that are now available to them, especially through online lenders. Eligibility for a loan comes down to personal and business credit scores, the business’s financial health, and collateral if needed.

Do banks lend to restaurants?

Some banks make loans to restaurants, depending on the restaurant’s length of time in business, performance record, and financials. Restaurants that are not able to get a loan from a bank have plenty of other options for raising capital with online lenders and nontraditional finance companies.

How big of a loan can you get for a restaurant?

The size of a restaurant loan will depend on the lender and the qualifications of the borrower. Some new restaurant owners might qualify for a loan of $50,000, while more experienced restaurant owners might qualify for a loan that is much larger. Check with lenders to see what your restaurant business qualifies for.

Vince Calio

Content Writer

Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

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Why Should Small Businesses File Taxes Early?

Manage Your Money

by Brandon Wyson9 minutes / September 28, 2024

Filing business taxes early is rarely a bad idea. If you’re expecting a tax refund, filing early means you’ll receive the refund sooner.

But that’s not the only benefit, and there are plenty of advantages to filing taxes early. Keep reading to learn some of the reasons to get ahead of the game and file before the deadline next year.

6 Reasons to File Business Taxes Early

The life of a business owner is usually very busy, and it probably seems difficult to find time to focus on organizing your business financial information and filing your business tax documents. However, making time to do that sooner than later offers plenty of benefits.

Avoid Paying Penalties

First, if you file early, you don’t have to worry about paying penalties for not meeting tax deadlines. For example, imagine you plan to complete and file your returns during the first week of April, to meet an April 15 deadline. If on April 1, you face an unexpected circumstance—your business is flooded due to a storm, your top employee quits or takes a leave of absence, or you receive a huge rush order for your product—and suddenly, you are preoccupied with other things. Your good intentions for tax filing may get cast aside, causing you to delay filing and potentially rack up penalties.

Not only does the IRS charge Failure to File penalties and Failure to Pay penalties, but it also charges interest on penalties. Those charges accrue by the month or partial month that a return is unfiled and unpaid and can add up quickly.

Get Refunds Faster

The IRS processes tax returns and pays tax refunds as they are received. If you’re expecting a refund, you’ll be more likely to receive it early if you filed your tax return early.

Most taxpayers file close to the deadline, which means the IRS has a large backlog of returns to process right around the filing deadline. By filing early, you can avoid the rush and expect the IRS to process your return faster and send your refund sooner.

Prepare for Next Year’s Taxes Sooner

You can’t file taxes until the tax year is complete. But that means your business is already operating in a new year before you start working on tax filing for the previous year. When you file early, you can go ahead and close the books on the previous year and focus all your attention on the current year.

When you don’t have to worry about last year’s taxes anymore, you’re free to focus on determining the right strategies to minimize your tax liability in the current year.

Avoid the Last-Minute Rush

Waiting until the last minute to complete any project often results in mistakes. Everyone does their best work when they can do so unhurriedly. By filing your taxes early, you can avoid the last-minute rush, take your time and make sure you’re getting all the figures right.

If you plan to hire an outside tax advisor or accountant (which is highly encouraged), you may also save money by filing early. Tax professionals also get overwhelmed during the last-minute rush and may charge extra fees for rush jobs.

Opportunity for Tax Planning Strategies

When you file taxes early, you have more time to take advantage of various tax planning strategies that may help reduce your tax bill. For example, if you complete your tax return early and find that you owe more money than expected, you may still have time to take advantage of tax credits and deductions that could help you reduce your tax bill.

Reduce Tax Stress

Most business owners (80%) feel at least some stress at tax time, according to a recent survey conducted by Freshbooks. More than half (60%) of small business owners said they’d rather do one or more of the following than do their taxes: hanging out with their mother-in-law for a day, getting a mullet haircut, getting a root canal, removing a nest of angry bees, or licking a pole on the subway.

For most business owners, all the stress is due to a lack of preparation and waiting until the last minute. By making a commitment to file early, you can reduce your tax-related stress.

How to File Business Taxes Online

The easiest way to file taxes today—and the quickest way to get a tax refund—is to file online. The IRS encourages business owners to file taxes online and makes it easy to file and pay taxes online. Follow these steps to file online:

Assemble the right documents. You’ll need records of business transactions during the tax year to calculate income, expenses, and deductions.
Locate the right IRS tax form, based on your business structure. If your business operates as a sole proprietorship or a single-member LLC, you can report all business income and expenses on a Schedule C attachment to your personal income tax return. But if your business is organized as a corporation or you choose to treat your LLC as a corporation, you’ll have to prepare a separate corporate tax return using Form 1120 for C-corporations or Form 1120S for S-corporations. Multi-member LLCs are considered partnerships and usually file Form 1065.
Complete the form. Using your business financial information, complete the correct form with the figures from the tax year.
Submit your tax return online. The IRS provides several options for submitting your return online. You can also pay any taxes that are due online.

While the IRS does try to make the tax filing process easy, it is highly encouraged that you don’t try to tackle your taxes on your own – invest in a trusted accountant and/or tax advisor who can help you avoid making any costly mistakes.

How Early Can You File Taxes?

Typically, the IRS will begin accepting tax returns in mid to late January following the tax year. For 2024 tax returns, the IRS has announced that it will begin accepting e-filed returns on Jan. 29, 2025.

What is the Deadline to File Taxes?

Your deadline to file business taxes will depend on your business structure and the type of tax return form you are required to file. If your business is a sole proprietorship or single-member LLC, you use a Schedule C. A Schedule C is part of your personal tax return (Form 1040) and has no separate filing deadline. It’s subject to the same April 15 deadline as your personal return.

If you’re taxed as a C-corporation and file a Form 1120, you must file it by the 15^th day of the fourth month following the close of the tax year. For most taxpayers, that’s April 15.

If your business is an S-corporation or a partnership, you need to file a Form 1120S or Form 1065. These forms are due by the 15^th day of the third month following the close of the tax year, which is March 15 for most taxpayers. This form cannot be sent to the IRS with your personal income tax return; it must be sent separately.

Tips for First-Time Business Tax Filers

Filing taxes early is always a good idea. If you’re filing small business taxes for the first time, you may also benefit from these additional tips:

File the right forms. The form you should file depends on your business structure. If your business is a C-corporation, you need to file a Form 1120, and if it’s an S-corporation or partnership, you need to file Form 1120S or Form 1065. If you operate your business as a sole proprietorship or a single-member LLC, you’ll file a Schedule C with your personal tax return.
Separate business and personal expenses. It’s always wise to keep business and personal expenses separate, and if the IRS ever audits you or your business, blended personal and business expenses will be a red flag. Using a dedicated business account and funneling all business expenses through that account can be good ways to keep expenses separate. You should also have separate credit cards, loans and other types of financing for your business and personal credit as much as possible.
Explore deductions. Tax deductions decrease your taxable business income, which allows you to have a lower tax liability. Most small businesses qualify for many deductions, including business mileage, business interest and bank fees, legal and professional fees, business insurance, home office expenses, and business travel expenses.
Contact a tax professional. It’s a good idea for business owners to connect with a tax professional who is familiar with the federal tax laws as well as in the states and localities in which the business operates. The right tax professional can help you make wise decisions that can help limit your tax liability and ensure that your business remains compliant.

FAQs for Filing Business Taxes Early

At what point does a small business need to file taxes?

A small business must file taxes when it has earned $400 or more during a calendar year. The business owner must typically file taxes by March 15 or April 15 of the following year, depending on the type of business structure they operate.

What is the penalty for filing business taxes late?

The IRS charges failure to file penalties starting at 5% of unpaid taxes per month or partial month that the tax return is late. It also charges monthly failure to pay penalties when taxes are owed and unpaid. The IRS also charges interest on both the tax liability and the penalties.

What are the biggest tax mistakes business owners can make?

Some of the biggest tax mistakes business owners can make include failure to file returns, failure to pay taxes when due, and failure to separate business expenses from personal expenses.

Can you save money by filing business taxes early?

You may save money by filing business taxes early, as you will not have to pay rush fees to a tax preparer when you start the process early in the season. Also, by paying early, you can save money on any potential penalties you may have had to pay by filing late. If the IRS owes you a refund, filing early may also help you get the refund earlier.

What documents do you need to file taxes early?

To file business taxes early, you need the same documents you would need to file at any time. That includes business financial records that document all revenues and all expenses from the tax year.

Brandon Wyson

Content Writer

Brandon Wyson is a professional writer, editor, and translator with more than nine years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

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Does Business Credit Affect Personal Credit?

Manage Your Money

by Brandon Wyson8 minutes / September 27, 2024

business credit impact on personal credit

As a business owner, financing can play a significant role in expanding your business operations, managing cash flow, and exploring growth opportunities. Many business owners rely on various forms of financing, such as business loans and credit lines, to fund their business ventures. So, understanding the relationship between business and personal credit is essential, as it influences your ability to secure business financing and maintain financial health.

What is Business Credit and How Does it Work?

Business credit refers to the creditworthiness of a business entity. It functions similarly to personal credit but is specific to the business’s financial activities.

Business credit is established when a company borrows money or opens credit accounts with suppliers and lenders. These activities are reported to business credit bureaus, which compile credit reports and generate business credit scores.

Business credit is vital for various purposes, including securing loans, obtaining favorable terms with suppliers, and building a solid financial reputation. Lenders and vendors often assess your business credit to determine the risk of extending credit or loans. A strong business credit score might lead to better financing options and lower interest rates.

Why is Business Credit Important?

Business credit is essential for obtaining financing and managing business growth effectively.

For small business owners, a good business credit score could be the key to securing a small business loan, line of credit, or corporate credit card. This financing can be used to purchase inventory, hire staff, or invest in marketing and expansion.

Strong business credit could also help separate your personal and business finances, reducing the risk of personal liability for business debts.

How to Check Your Business Credit Score

Checking your business credit score is a straightforward process. There are several websites which allow you to check your business credit report. These sites include:

Dun and Bradstreet
Experian
Equifax
Nav
Data Axle
CreditSafe
Tillful

These platforms provide detailed reports on your business’s credit history, helping you understand your credit standing and identify areas for improvement.

Business Credit vs Personal Credit

While business credit and personal credit share some similarities, they operate differently in several key areas. Here’s a comparison of the two:

	BUSINESS CREDIT	PERSONAL CREDIT
REPORTING AGENCIES	Dun and Bradstreet, Experian, Equifax Business	Experian, Equifax, TransUnion
SCORE RANGES	0-100 (D&B PAYDEX), 300-850 (Experian, Equifax)	300-850
USES	Business Loans, Supplier Credit	Personal loans, Credit Cards, Mortgages
LINK TO PERSONAL SSN	No	Yes
IMPACT ON PERSONAL CREDIT	Indirect, if personal guarantee is required	Direct
LIABILITY	Business Liability	Personal Liability

How Does Business Credit Affect Personal Credit?

The relationship between business credit and personal credit can be complex, especially for small business owners who may often find their financial worlds overlapping. Generally, business credit does not directly impact personal credit. However, there are several scenarios where the two can be connected, creating an indirect influence that can affect your overall financial health.

For example, when you start a business, your personal credit history might be used to secure initial financing. In this case, lenders often require a personal guarantee, which means you’re personally responsible for repaying the debt if your business fails to do so. If this happens, your credit score becomes a crucial factor in the approval process and the loan terms.

How Do Business Loans Affect Personal Credit?

When you apply for a business loan, lenders may assess your personal credit score, particularly if your business lacks a substantial credit history. This assessment helps lenders evaluate the risk of extending credit to your business.

If you personally guarantee a business loan, you become responsible for the debt. This personal guarantee means that if your business defaults on the loan, the responsibility falls on you, and your personal credit score can suffer as a result.

Repayment behavior on a business loan can also affect your personal credit. If the business loan is reported to personal credit bureaus, the loan amount and repayment status become part of your credit report, influencing your credit utilization ratio and overall credit profile.

How Credit Inquiries Affect Credit Scores

Credit inquiries occur when lenders check your credit report as part of the loan approval process. These inquiries can temporarily lower your credit score. It’s important to manage the number of credit inquiries to minimize negative impacts on your credit score.

How Business Credit Cards Show Up on Your Personal Credit Report

Your credit report is a thorough detailing of several pieces of your financial activity, which sometimes include business credit card information, such as:

New Inquiries

When you apply for a business credit card, the issuer may perform a hard inquiry on your credit report. This can temporarily lower your personal credit score by about five points or less.

Credit Utilization

Business credit card balances may appear on your personal credit report if you provide a personal guarantee. High balances can increase your credit utilization ratio — how much debt you’ve accumulated divided by the credit available to you — potentially lowering your personal credit score.

Payment History

Timely payments on business credit cards help build a positive payment history. Conversely, missed payments can negatively affect both your business and personal credit scores.

Personal Guarantee

Some business credit cards require a personal guarantee, meaning you’re personally liable for the debt. If the business cannot pay, the responsibility falls on you, impacting your personal credit.

How to Establish Business Credit

To establish business credit, follow these steps:

Register your business legally (LLC, corporation, etc.).
Obtain a Federal Employer Identification Number (EIN) from the IRS.
Open a business bank account.
Apply for a business credit card, line of credit, or loan.
Establish trade lines with suppliers and vendors.
Ensure timely payments to build a positive credit history.

How to Build Business Credit

Building business credit involves consistent financial management and strategic credit use. Here are some strategies:

Pay bills on time to build a positive payment history.
Keep credit card balances low to maintain a good credit utilization ratio.
Regularly monitor your business credit report for accuracy.
Establish multiple credit accounts to diversify your credit profile.

By understanding the nuances of business and personal credit, you should be able to effectively manage both to support your business’s growth and maintain your financial health.

Business Credit FAQs

Does business credit show up on your personal credit report?

Business credit generally does not appear on your personal credit report unless you have provided a personal guarantee.

Does having a company credit card affect my credit?

If you’ve provided a personal guarantee for the company credit card, its activity can affect your personal credit. Otherwise, card activity won’t impact your personal credit.

Can my LLC affect my personal credit?

Your LLC can affect your personal credit if you’ve personally guaranteed loans or credit accounts for the business.

Is a business credit score linked to my personal credit score?

While business and personal credit scores are separate, they can be linked through personal guarantees and shared financial responsibilities.

Brandon Wyson

Content Writer

Brandon Wyson is a professional writer, editor, and translator with more than nine years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

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Financing Options for Nonprofits

Manage Your Money

by Vince Calio9 minutes / September 27, 2024

As a nonprofit owner, you likely understand that running an organization dedicated to a cause can be incredibly rewarding. However, one of the most significant challenges you may face is finding the necessary financing to sustain and grow your mission.

The financing process might seem complicated and fraught with obstacles, but rest assured, there may be more options available to you than you might realize. So, whether you’re just starting or looking to expand your nonprofit, understanding the various financing options available to you can make a substantial difference in your journey.

Is Nonprofit Financing Hard to Get?

The short answer is yes — securing financing for a nonprofit can be challenging. There are several reasons nonprofits might have a harder time obtaining funding than for-profit businesses.

One major hurdle is collateral. Nonprofits often lack substantial assets that can be used as collateral for traditional loans, making lenders hesitant to approve their applications. Nonprofits may also struggle to meet minimum revenue requirements set by lenders, as their income could be unpredictable and heavily reliant on donations and grants.

Despite these challenges, many financing avenues are available, tailored to meet the unique needs of nonprofit organizations.

Financing Options for Nonprofits

There are several financing options available for nonprofits, each with a set of benefits, drawbacks, and varying requirements.

Business Loans

Business loans can be a viable option for nonprofits seeking funding. These loans are similar to those offered to for-profit businesses, providing a lump sum that must be repaid with interest over a specified period.

Business loans could be used for various purposes, such as expanding your nonprofit’s operations, purchasing equipment, or covering operational expenses. One advantage of business loans is their flexibility in terms and loan amounts and relatively straightforward application process.

However, nonprofits may face challenges when applying for business loans. Lenders typically require a solid credit history, a detailed business plan, and collateral to secure the loan (though some lenders may offer unsecured business loans). Nonprofits often need help to meet these criteria, especially newer organizations without an established financial track record.

SBA Loans and Grants

The Small Business Administration (SBA) offers various loan and grant programs that can benefit nonprofits. SBA loans, such as the 7(a) loan program, provide financial assistance for multiple purposes, including working capital, equipment purchases, and real estate acquisition. These loans often come with favorable terms and lower interest rates, making them an attractive option for nonprofits. However, they can be incredibly difficult to qualify for.

In addition to loans, the SBA also provides grants specifically for nonprofits. These grants can be used to fund specific projects, programs, or initiatives aligned with the organization’s mission. While grants do not require repayment, the application process may be competitive and time-consuming. Nonprofits must demonstrate a clear and compelling need for the funds and present a detailed plan for using the grant.

Tips When Applying for Nonprofit Business Loans

When applying for a business loan as a nonprofit, it’s essential to be well-prepared and organized. Here are some tips to help you through the process:

Determine your financing needs: Clearly define how much funding your nonprofit requires and what it will be used for. This helps you present a strong case to lenders.
Try building business credit: Establish and maintain good credit for your nonprofit. This can improve your chances of qualifying for loans and securing better terms.
Prepare a detailed business plan: A comprehensive business plan that outlines your nonprofit’s mission, goals, and financial projections is crucial. Lenders often want to see that you have a clear strategy for using the funds.
Gather financial documents: Be ready to provide financial statements, tax returns, and other relevant documents demonstrating your nonprofit’s financial health and stability.
Research lenders: Look for lenders specializing in nonprofit financing or with experience working with organizations like yours. They may offer more favorable terms and conditions.
Highlight your impact: Emphasize your nonprofit’s positive impact on the community and the broader society. Lenders may be more likely to support organizations that make a difference.

Alternative Nonprofit Financing Options

In addition to traditional loans and grants, several alternative financing options could be available to your nonprofit. These options may provide more flexibility and cater to the unique needs of nonprofit organizations.

Business Credit Cards

Business credit cards can be a useful financing tool for nonprofits, offering a revolving line of credit that can be used for various expenses. They could help manage cash flow and cover short-term costs.

However, using credit cards responsibly is essential to avoid accumulating high-interest debt.

Pros:

Easy access to funds for day-to-day expenses
Can help build business credit

Cons:

High interest rates, if not paid off in full each month
Limited credit limits compared to other financing options

Revenue-based financing

Revenue-based financing could allow nonprofits to receive funding in exchange for a percentage of future revenue. This type of financing can be attractive because repayments are tied to the organization’s income, which may make it more manageable during slow periods.

Pros:

Repayment is tied to revenue
Reduced pressure during slow periods

Cons:

Can be more expensive in than traditional types of financing
Suitable for organizations with steady revenue

Business line of credit

A business line of credit provides access to a predetermined amount of funds to be drawn upon as needed. This flexible financing option may help you manage cash flow and cover unexpected expenses. Repayments are only required on the amount drawn, making it a more cost-effective solution.

Pros:

Flexible access to funds
Interest is only paid on the amount used

Cons:

Requires good credit to secure more favorable terms
May come with fees and higher interest rates than traditional loans

Crowdfunding

Crowdfunding has become popular for nonprofits to raise funds for specific projects or campaigns. By leveraging online platforms, nonprofits could reach a broader audience and solicit donations from individuals who support their cause.

Crowdfunding can be an effective way to generate funds quickly, but it requires a well-planned campaign and active promotion, which may be difficult if you’re strapped for time or don’t have the staff to be as active as necessary.

Pros:

Can reach a large audience
No need to repay funds

Cons:

Requires significant effort to promote the campaign
Success is not guaranteed

Nonprofit Grants

Grants specifically designed for nonprofits may provide essential funding without the need for repayment. Grants are often awarded by government agencies, foundations, and corporations. While the application process can be competitive, securing a grant could significantly boost your nonprofit’s financial health.

Pros:

No need to repay funds
Can provide significant financial support

Cons:

Highly competitive and time-consuming to apply for
Funds may be restricted to specific uses

Fundraising Events

Organizing fundraising events can be an effective way to generate funds for your nonprofit while engaging with your community and raising awareness for your cause. Events such as charity runs, galas, and auctions can attract donations and sponsorships.

Pros:

Engages the community and raises awareness
Can generate significant funds

Cons:

Requires extensive planning and resources
Success depends on event turnout and engagement

Corporate Giving Programs

Some corporations offer giving programs that provide financial support to nonprofits. These partnerships can be mutually beneficial, as corporations seek to enhance their social responsibility efforts while nonprofits receive the necessary funds to further their missions.

Pros:

Provides steady funding and resources
Can enhance your nonprofit’s visibility and credibility

Cons:

May require aligning with corporate goals and values
Competitive to secure partnerships

Earned Income Ventures

Nonprofits can generate revenue through earned income ventures, such as selling products or services related to their mission. This approach may allow organizations to diversify their income streams and become more financially sustainable.

Pros:

Creates a sustainable revenue stream
Reduces reliance on loans, donations, and grants

Cons:

Requires significant planning and resources to establish
May divert focus from your nonprofit’s core mission

Impact Investing

Impact investing involves securing funds from investors seeking financial returns and social impact. Nonprofits can attract these investors by demonstrating how their work contributes to positive social or environmental outcomes.

Pros:

Aligns with your nonprofit’s mission and values
Can attract socially conscious investors

Cons:

Requires demonstrating both financial returns and social impact
May involve complex investment structures

Where to Get Nonprofit Business Loans

Nonprofits can explore various institutions and platforms to secure financing, such as:

Banks

Traditional banks are a common source of business loans for nonprofits. However, securing a loan from a bank can be challenging due to stringent requirements, such as high credit scores and substantial collateral. Nonprofits with strong financial histories and collateral may find success with bank loans.

Credit Unions

Credit unions often offer more personalized service and flexible terms than traditional banks. They may be more willing to work with nonprofits, especially those with strong community ties. However, not all credit unions provide business loans, so do your research and find one that does.

Online Lenders

Online lenders can be convenient for nonprofits seeking quick and accessible financing. These lenders typically have a streamlined application process and may offer more lenient requirements. It’s important to carefully review the terms and interest rates, as they can vary widely from lender to lender.

Community Development Financial Institutions (CDFI)

CDFIs are specialized financial institutions that provide credit and financial services to underserved communities, including nonprofits. They often offer favorable terms, and a better understanding of the unique challenges faced by nonprofits.

While securing financing for a nonprofit can be challenging, there are many options that could be available to help you achieve your goals. Stay informed, be prepared, and continue positively impacting your community!

Nonprofit Business Loan FAQs

How does a nonprofit get a loan?

Nonprofits can obtain loans by applying through various financial institutions, such as banks, credit unions, or online lenders. The application process typically involves providing financial documents, a detailed business plan, and demonstrating the nonprofit’s ability to repay the loan. Building a strong credit history and establishing relationships with lenders may also improve the chances of securing a loan.

Can a nonprofit have a line of credit?

Yes, nonprofits can obtain a line of credit, which provides access to a predetermined amount of funds that can be drawn upon as needed. A line of credit offers flexibility in managing cash flow and covering unexpected expenses.

Does SBA help nonprofits?

Yes, the SBA offers loan and grant programs that can benefit nonprofits. SBA loans, such as the 7(a) loan program, provide financial assistance for various purposes, including working capital and equipment purchases. The SBA offers grants specifically for nonprofits, which do not require repayment. These programs can significantly support nonprofits in achieving their missions.

Vince Calio

Content Writer

Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

Read More Articles >>

What Is a Cash Flow Loan?

Manage Your Money

by Brandon Wyson12 minutes / September 27, 2024

Cash flow plays an important role in helping businesses maintain day-to-day operations, and cash flow loans can be an essential resource for businesses, especially those businesses that prefer to primarily qualify for financing based on their past and expected future revenue. Cash flow loans generally help businesses manage their operational costs, seize new opportunities, and bridge gaps in their cash flow.

What Is a Cash Flow Loan?

A cash flow loan is any loan meant to improve cash flow. Technically, there isn’t a specific “cash flow loan.” However, many cash flow loans refer to revenue-based financing, where the business owner doesn’t need collateral and qualifies primarily based on proof of past revenue and future revenue forecasts.

This means that if your business has a strong and consistent revenue stream, you might access this type of financing with lower credit scores and no collateral. However, each lender sets its own requirements, something to note when comparing cash flow loans.

What’s the difference between cash flow and asset-based lending?

Cash flow lending and asset-based lending differ mainly in the criteria used for qualification and the type of collateral required.

Cash flow lending focuses on the actual cash flow your business generates, using this as a basis to extend financing. Asset-based lending relies on assets like inventory, equipment, or real estate as collateral.

Essentially, if your business has sustainable and regular revenue but lacks substantial assets, cash flow financing could be the better option for your business.

How Cash Flow Loans Work

Lenders will look at your historical revenue and future revenue forecasts to determine your eligibility.

Repayments are made either through regular fixed payments or through a fixed percentage of your sales. Payments can be daily, weekly, or monthly, depending on the agreement. This structure may help you manage cash flow by aligning repayments with your revenue cycle.

For instance, revenue-based financing often involves lenders advancing funds that are repaid through a percentage of your future sales, allowing for flexible repayment aligned with your business’s cash inflows.

How to Use a Cash Flow Loan

Cash flow loans are versatile and can be used in various situations to support your business:

Cover a cash flow gap: Smooth over periods of low revenue.
Opportunities for revenue: Invest in new projects or ventures to increase income.
Purchasing inventory: Buy the necessary stock to keep your business running.
Fulfilling Purchase Orders: Ensure you have the resources to meet large orders.
Maintaining seasonal operations: Manage expenses during off-peak times.
Invest in Marketing: Fund marketing campaigns to drive sales.
Unexpected Costs: Handle emergencies or unplanned expenses.

Cash Flow Loan Example

Imagine a small retail business experiencing a surge in demand during the holiday season. The business decides to take out a cash flow loan to purchase additional inventory. They borrow $50,000 at an annual interest rate of 12%. Over 12 months, fixed monthly payments should be around $4,441.

Note that the interest rate and terms can vary widely based on your lender, the term selected, and the financial health of your business.

Types of Business Cash Flow Loans

Below are some of the forms of cash flow loans available, along with their unique features and benefits to help you make more informed business financing decisions.

Short-Term Loans

Short-term loans are typically repaid within 6-18 months and can provide quick access to funds for immediate cash flow needs. They are ideal for covering temporary gaps or seizing short-term opportunities.

Bridge Loans

Bridge loans are short term funding options used to bridge the gap between financing needs. For example, they can help businesses cover expenses while waiting for long-term funding to come through.

Business-2-Business (B2B) Lending

B2B lending involves loans between businesses. It can be a good option for companies that have established relationships with their suppliers or other businesses. One company sells its products or services to another business, and they handle payments, terms, and financial agreements.

Unsecured Business Loans

Unsecured business loans do not require collateral, making them accessible for businesses that lack substantial assets. Qualification is primarily based on the business’s revenue and creditworthiness.

Other Types of Cash Flow Financing

Each type of financing offers unique benefits and is suited to different business needs. Here’s an in-depth look at some of the most common forms of cash flow financing:

Invoice Factoring

Invoice factoring involves selling your outstanding invoices to a factoring company at a discount. This process allows you to quickly receive cash instead of waiting for your customers to pay. In some cases, the factoring company will even take on the burden of collecting the payments directly from your customers.

Benefits:

Quick cash flow improvement
No need for collateral
The factoring company may handle collections

Drawbacks:

Higher cost due to factoring fees
Potential impact on customer relationships, as they may interact with the factoring company

Revenue-Based Financing

Revenue-based financing involves receiving capital in exchange for a percentage of your business’s future revenue. Depending on the type of business you run, revenue-based financing payments can mimic traditional business loan agreements with fixed repayments on a specific schedule, OR they can be based on a fixed percentage of your daily sales receipts, allowing them to fluctuate with your business’s income.

Benefits:

Payments align with your sales, reducing pressure during low-revenue periods
No collateral required
Suitable for businesses with fluctuating revenues

Drawbacks:

Potentially higher overall repayment due to revenue percentage
Can be relatively expensive if business revenue is consistently high

Business Line of Credit

A business line of credit provides access to a revolving credit limit, similar to a credit card. You can draw funds as needed up to the limit and only pay interest on the amount drawn.

Benefits:

Flexible access to funds
Pay interest only on the amount used
Can be used for various business needs

Drawbacks:

Variable interest rates can lead to higher costs
Potential fees for maintaining the credit line

Cash Flow Loan Benefits and Drawbacks

Cash flow loans offer numerous benefits to businesses looking to maintain smooth operations and capitalize on opportunities without significant financial strain. However, they also come with some drawbacks that businesses need to consider.

Cash Flow Loan Benefits

Personal credit may be less important: These loans focus on revenue and business credit rather than personal credit scores, making them more accessible to business owners with less-than-perfect credit histories.
No collateral required: Businesses don’t need to risk assets or personal property to secure the loan.
Quick access to funds: The application and approval process is often faster than traditional loans, providing rapid access to capital.
Flexible use of funds: Funds can be used for various purposes, such as covering operational costs, purchasing inventory, investing in marketing, and handling unexpected expenses.
Helps manage seasonal fluctuations: Loans used for cash flow may provide necessary funds during off-peak periods, ensuring continuous operation.
Supports growth and expansion: These loans may help finance growth initiatives, such as launching new products or expanding facilities.

Cash Flow Loan Drawbacks

Higher interest rates: These loans often come with higher interest rates than other types of financing due to the increased risk to the lender.
Lower loan amounts: Cash flow loans may offer lower loan amounts compared to traditional secured loans.
Stringent eligibility requirements: Proof of consistent revenue is required, making it difficult for newer businesses with fluctuating revenue to qualify.
Potential for debt accumulation: Over-reliance on these loans can lead to debt, affecting financial health.

What Businesses Should Use a Cash Flow Loan

Cash flow loans can benefit various types of businesses, particularly those with consistent revenue streams.

Can a startup get a cash flow loan?

Yes, startups can qualify for cash flow loans, but it is rare and there are very specific conditions that must be met. Since startups typically have limited credit history and collateral, lenders focus on the business’s revenue streams.

Startups with strong, consistent revenue and solid future revenue forecasts often stand a better chance of securing a cash flow loan. These loans can help startups cover initial operational costs, invest in marketing, or expand their product lines.

However, the terms might be more stringent compared to established businesses, and interest rates could be higher to offset the lender’s risk. Also, many business lenders will still require startups to be in business for at least one year before becoming eligible for financing.

Can you get a cash flow loan with bad credit?

Possibly. Lenders look at your business’s ability to generate consistent income, which serves as a repayment guarantee. If you can demonstrate strong past revenue and promising future revenue forecasts, you might qualify for a cash flow loan despite a poor credit history.

This can be significant for businesses needing funds for operational expenses, inventory purchases, or unexpected costs, allowing them to stabilize and improve their financial health without the burden of credit requirements.

How do I Qualify for a Cash Flow Business Loan?

Qualifying for a cash flow business loan involves meeting specific criteria that demonstrate your business’s ability to generate consistent income. Lenders look for indicators of financial health and stability to ensure that the business can comfortably repay the loan.

Determining your business’s cash flow loan eligibility is the first step to getting a cash flow loan.

How to Get a Cash Flow Loan

Meet eligibility requirements, including:
- Minimum revenue: Lenders require proof of consistent revenue, typically through financial statements, bank statements, or tax records.
- Time in business: Some lenders prefer businesses operational for at least a year to 18 month as this demonstrates stability and resilience. However, it is important to note that many lenders require a minimum of two years of operational history. Before applying, it’s important to ensure you meet that lender’s time in business requirements.
- Personal credit score: While revenue is the primary focus, if you’re a small business owner you may be asked for your personal credit score. Good credit scores may improve your loan terms and interest rates.

Compare financing options and select the best fit
- Identify your needs: Determine the specific purpose of the loan, such as covering operational costs, purchasing inventory, or investing in marketing.
- Research loan types: Look into different cash flow financing options, including short-term loans, bridge loans, B2B lending, and unsecured business loans. Each type has its advantages and may suit different business needs.
- Consider repayment terms: Evaluate the repayment terms and schedules to ensure they align with your cash flow patterns. Fixed repayments might be preferable for predictable cash flows, while revenue-based repayments could suit seasonal businesses.

Compare lenders
- Interest rates and fees: Different lenders offer varying interest rates and fee structures. Compare these to find the most cost-effective option for your business.
- Reputation and reviews: Research lenders’ reputations by reading reviews and testimonials from other businesses. Reliable lenders with positive feedback are more likely to provide a smooth borrowing experience.
- Customer service: Consider the quality of customer service provided by the lender. Good customer service can be crucial if you encounter issues or have questions during the loan term.

Gather information/preparing your application
- Financial statements: Prepare up-to-date financial statements, including profit and loss statements, balance sheets, and cash flow statements. These documents help demonstrate your business’s financial health.
- Revenue documentation: Collect documentation that proves your business’s revenue, such as bank statements, sales records, and tax returns. Lenders may use this information to assess your eligibility and loan amount.
- Business plan: Having a well-prepared business plan could be beneficial. It should outline your business goals, strategies, and how you plan to use the loan.

Research cash flow loan options
- Online lenders: Explore online lending platforms, which often provide quick approvals and flexible terms. These lenders can be more accessible and faster than traditional banks.
- Traditional banks: While they might have stricter requirements, traditional banks may offer competitive interest rates and personalized service.
- Alternative financing: Look into alternative financing options, such as revenue-based financing and invoice factoring, which may be more suitable depending on your business model and needs.

Alternative Options to Cash Flow Loans

If cash flow loans aren’t the right fit, several alternative financing options might suit your needs better.

Business credit cards: Business credit cards offer flexible access to funds for short-term needs and can earn you rewards. However, they come with high interest rates if balances aren’t paid off in full and often have lower credit limits than other types of financing.
SBA loans: SBA loans generally provide lower interest rates and longer repayment terms, suitable for various business needs, but they can be more difficult to qualify for.
Traditional term loans: Traditional term loans offer lump sums with fixed rates and predictable payments, ideal for large expenses. However, if you have a weaker credit score, this route may not be the best option.
Equipment financing: Equipment financing helps you purchase or lease equipment, often using the equipment as collateral. It can be easier to qualify for but can have higher interest rates and is limited to equipment purchases.

Final Thoughts: Cash Flow Loans

Cash flow loans can be an excellent tool for businesses needing to manage their cash flow and take advantage of opportunities. However, it’s essential to understand the terms and conditions to ensure it’s the right fit for your business.

Cash Flow Loan FAQs

Are cash flow loans secured?

Cash flow loans are typically unsecured, meaning they do not require collateral. However, some types of cash flow loans may require collateral, so check with the lender before applying.

Is it hard to get a cash flow loan?

The level of difficulty of obtaining a cash flow loan depends on the business’s revenue and overall financial health. Businesses must also meet other requirements such as minimum time in business and minimum business and personal credit scores.

What are the interest rates on cash flow loans?

Interest rates on cash flow loans vary depending on the lender, business financials, and market conditions. It’s essential to shop around and compare rates from different lenders.

Brandon Wyson

Content Writer

Brandon Wyson is a professional writer, editor, and translator with more than nine years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

Read More Articles >>

Small Business Tax Tips

Manage Your Money

by Brandon Wyson9 minutes / September 23, 2024

If you have questions about business taxes, you aren’t alone. Filing and paying taxes are dreaded tasks for many business owners. But with a little bit of planning and strategy, you can tackle your business taxes and even learn to find ways to save money along the way.

10 Tax Tips for Small Businesses

There’s a lot to know when it comes to small business taxes, but these are some of the most important tax tips to know to properly manage your business tax strategy.

Find a Trustworthy Accountant

Smart small business owners are always on the lookout for ways to minimize their tax liability. Finding a reputable and trustworthy accountant with whom you can partner to not just file your taxes, but to help you build and regularly adjust a tax strategy. Small business owners need more than just an accountant who will prepare financial statement and submit their taxes – you need a partner who can work with you throughout the year, tracking revenue and spend to help avoid cash flow problems. At the same time, they are giving regular advice and insight to ensure you are able to claim all credits and deductions available to you and your business while also helping you to avoid any pitfalls that could get you into trouble with the IRS.

Keep Your Business Finances Organized

For many business owners, managing taxes is stressful because of their lack of preparation and organization, according to a recent survey from Freshbooks. If you develop an organized system of tracking revenue and expenses, and stick to the system throughout the year, it will be much easier to pull the data you need when it’s time to file taxes. Using a financial and accounting software program or platform can be helpful for recording, tracking, and organizing your tax-related information.

Maximize Deductions

Tax deductions decrease your business’ recognized income, which allows you to pay lower taxes, and many small businesses qualify for many deductions, including:

Business mileage
Business interest and bank fees
Legal and professional fees
Business insurance
Home office expenses
Business travel expenses

By tracking all business expenses, you may be able to quickly lower your business’s taxable income, which will reduce the amount you’ll owe in taxes.

Consider Tax Credits

A tax credit is different from a deduction: Rather than reducing your taxable income, a tax credit allows you to subtract the amount of the credit from the amount of tax you owe. Small businesses may qualify for tax credits for employing workers from marginalized groups, purchasing an electric vehicle, providing childcare for employees, increasing energy efficiency in their buildings, and taking other actions. During the COVID-19 pandemic, the government offered tax credits for businesses that kept workers employed, and some businesses are still eligible for those Employment Retention Tax Credits.

Create a Plan for Paying Taxes

Most businesses are required to pay different types of taxes, including income tax, payroll tax, employment tax, excise tax, and state and local taxes. To keep all of your tax obligations straight, your business should have a plan for paying them and budget line items to ensure you have the funds available.

Consider Deferring Revenue and Expenses

Business owners can control the amount of tax they owe each year, to an extent, by adjusting revenue and expenses. For example, if you think your tax bill may be higher than you’re prepared to pay, you can defer some revenue to the following year by delaying the sending of an invoice or pushing a project to the next calendar year.

If your tax bill is manageable for the current year but may be higher next year, you can also defer expenses to the next year by waiting until January to purchase or finance new equipment, for example.

Consider Accelerating Payments

If you want to reduce your taxable income and you have a business loan, consider accelerating payments on the loan. This means you make extra, voluntary payments to reduce the balance of your loan more quickly—and because interest on a business loan can be a deductible business expense, you’ll also reduce your taxable income while paying off your loan faster. Just be sure that the extra payments you make are not directly to the principal of the loan as principal payments are NOT deductible. One of the easiest ways to do this is, for example, make your standard January payment during the December before.

Remember Quarterly Payments

Business owners are typically responsible for making quarterly tax payments based on the business revenue during the previous quarter. Quarterly tax payment deadlines are in April, June, September, and January. If you miss required quarterly tax payments, the IRS will charge penalties and interest.

Note any Changes in National and Local Tax Laws

Tax laws change regularly, so it’s wise to stay informed about any changes in national and local tax regulations. If you have a tax advisor, they will probably be able to keep you posted on any changes that might affect your business.

Follow Tax Deadlines and Extensions

Your deadline to file business taxes will depend on your business structure

Sole proprietors and single-member LLCs would file a schedule C along with their Individual income tax returns. Individual returns are typically due April 15, unless this date falls on a weekend or holiday. Extensions can be requested by filing Form 4868 which would give you until October 15^th to file.
C-corps would file a Form 1120, which has a deadline of the 15^th day of the fourth month after the close of a tax year. For most c-corps that date falls on April 15^th. C-corps can also request an extension by filing form 7004.
Partnerships, multi-member LLCs and S-Corps filing deadlines will be March 15^th, unless you operate on a fiscal year basis. If you need to file an extension, you can request one using form 7004 which gives you until September 15^th.

More >> Why Small Business Taxes Should be Filed Early

Biggest Tax Mistakes for Small Business Owners to Avoid

Filing taxes correctly is important for both maintaining compliance and mitigating the risk of an IRS audit. Here are some of the biggest tax mistakes that business owners sometimes make and how to avoid them.

Not Separating Personal and Business Expenses

When you start a business, it may seem simple to purchase business supplies with a personal credit card or personal funds, and to mingle personal and business expenses. However, this is a mistake. Over time, as the business grows, earns revenue, and has more expenses, it will become increasingly difficult to separate personal and business expenses. As a result, it’s impossible to prove that business expenses qualify the business for tax deductions.

Misclassifying Employees

When a business has employees, the IRS expects to collect payroll taxes including Social Security, Medicare, and unemployment taxes. If you are paying workers without filing appropriate employment tax forms, you must ensure that you can justify that the workers qualify to be independent contractors according to IRS rules. If not, you may be required to pay employment taxes in arrears.

Failing to Keep Thorough Records

Without thorough financial records, it’s impossible to file and pay business taxes appropriately. Tax filing requires you to report accurate revenue figures, payroll figures, and other business expenses to make sure you qualify for any deductions and pay the appropriate amounts.

Small Business Taxes Checklist

When you’re ready to prepare for small business tax filing, use this checklist to make sure you don’t forget anything.

Gather financial information from the tax year.
Find the right tax form based on your business structure.
Consider tax deductions and tax credits that might apply to your business.
Consider deferring revenue or expenses.
Consider accelerating payments.
Remember to calculate any estimated tax payments into your final tax bill.
File by the tax deadline.

Small Business Tax Filing Requirements

Different types of business entities must meet different tax filing requirements. Here’s a look at the requirements for common small business structures.

Business Entity

Type of Tax

Tax Form

Sole Proprietor

Income tax

Form 1040/1040SR Schedule C or F

Self-employment

Form 1040/1040SR Schedule SE

Estimated tax

Form 1040-ES

Employment taxes

Forms 940 and 941, 944 or 943

Partnership

Annual return of income

Form 1065

Employment taxes

Forms 940 and 941, 944 or 943

Partner in partnership (individual)

Income tax

Form 1040/1040SR Schedule E

Employment taxes

Form 1040/1040SR Schedule SE

Estimated tax

Form 1040-ES

Corporation – C or S

Income tax – C corporation

Form 1120

Income tax – S corporation

Form 1120-S

Estimated tax

Form 1120-W (C-corp only)

Employment taxes

Forms 940 and 941, 944 or 943

S Corporation Shareholder

Income tax

Form 1040/1040SR Schedule E

Estimated tax

Form 1040-ES

Small Business Tax Tips FAQs

How do small businesses maximize tax returns?

Small businesses maximize their tax returns by taking all allowable tax deductions and tax credits to lower their tax burden as much as possible. They may also choose to defer revenue or expenses or accelerate owed payments (i.e. make your January payment in December) to further minimize their tax liability.

What business expenses are 100% deductible?

Many business expenses are 100% tax-deductible, including:

Furniture purchased exclusively and entirely for office use. Furniture must be deducted the year in which it was purchased.
Office equipment, including computers, printers, scanners, etc.
Business travel costs for lodging (hotels, motels) and transportation (car rentals, airfare, train fares, bus tickets, etc).
Business phone bills
Gifts to clients and employees up to $25 per person per year
Ordinary and necessary business-related bank fees
Advertising and marketing expenses
Employee training and education expenses

Is small business financing tax deductible?

The interest paid on small business loans is tax deductible for the business. However, the principal repaid on the loan is not a tax-deductible expense.

Brandon Wyson

Content Writer

Brandon Wyson is a professional writer, editor, and translator with more than nine years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

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