Category: Financing

As a small business owner in the Tar Heel state, you focus on the future with your hands on the present. You have plans to take your business to the next level. Luckily as a North Carolina resident, there are many types of loans from a variety of organizations and institutions to support your business specifically. Depending on your needs and plans, you’re sure to find business loans in NC that fits the bill.

You want to expand your staff; increase your product offerings; ramp up your credit; grow your inventory; invest in an exciting new opportunity. But to realize those plans, you need some financial support from a lender who understands you and your business on a near-personal level. You want a small business loan made just for you. Today, we’ll explore the offerings available to North Carolina residents and businesses so you can make your next move expediently.

Carolina Small Business Development Fund Loans

If you’re looking for business loans in NC, a great place to start is the Carolina Small Business Development Fund–a nonprofit and Community Development Financial Institution that “lend[s] to start-ups and existing businesses across the state, with emphasis on businesses that have difficulty accessing financing through traditional loan sources.”

Carolina Small Business offers a variety of core loan products specific to businesses in the state. For example, if you live in Mecklenburg County, have an annual revenue of less than $1,000,000,000 and don’t have any unpaid judgments, open tax liens, or principal and business bankruptcy in the past five years, you may qualify for the Mecklenburg County Small Business Loan Program. This program offers up to $75,000.

Are you rebuilding your business in the wake of a natural disaster? Consider the Small Business Recovery Fund. It’s designed to “provide gap financing as a complement to Small Business Administration [SBA] and other disaster recovery programs.” This loan grants a minimum of $1,000 to small businesses with no maximum amount. Other disaster-based loan programs offered by Carolina Small Business include the Hurricane Florence Recovery Loan Program.

Carolina Small Business also offers Veterans Direct loans if they’re in-state veterans and/or their spouses are, and Healthy Carolina loans to established businesses and new entrepreneurs involved in the “production, processing, wholesale, distribution, and retail of healthy food products.” This is only possible as long as they’re located and selling healthy foods and food products in food deserts. In addition, Carolina Small Business’s African-American Loan Fund assists African-American entrepreneurs as they develop and expand their businesses.

Mountain BizWorks Loans

Live in Western North Carolina? If so, you may qualify for a loan with Mountain BizWorks. Mountain BizWorks offers loans as low as $1,000 to as high as $250,000 for small businesses in your area. Their model is unique. This means that they “consider non-traditional collateral, offer flexibility in the loan structure, and loan decisions and relationships are managed locally.” What’s more is, they’re willing to work with you to discuss out-of-the-ordinary circumstances that might have hurt a once-strong score. Interest rates vary based on your individual circumstance. However, they promise an answer within two to three weeks of your loan application.

Carolina Farm Credit

Carolina Farm Credit specifically applies to North Carolina’s farmers and rural residents. They offer farm and land loans for agribusinesses. As a farmer, you can seek support in funding for farm improvements, equipment, livestock and operations. Carolina Farm Credit offers farm land and acreage financial options. This is a good option if you’re hoping to expand physically or just get off the ground.

Local Banks and Credit Unions

When it comes to finding the right loan for your business, banks and credit unions can be particularly helpful. Local banks may provide additional tools and resources and leverage connections to help you get a loan that suits your needs and credit that a nationally recognized bank might not be able to do. In North Carolina, there are many banks that value small businesses and their contribution to the economic well-being of the state.

BB&T

With 285 branches in nearly 200 cities, BB&T is one of the biggest banks in the state. Its options for small business loans in NC are vast. Borrowing options include loans through BB&T, and benefits for members who utilize the SBA.

Self-Help Credit Union

Self-Help Credit Union, another major bank in North Carolina, offers small-business and commercial loans, as well as:

• Specialty Loan Programs designed to promote local economic development and support “distressed and rural communities” across the state
• Neighborhood Stabilization Loans aimed at developers of affordable multifamily housing in specific places such as North Carolina
• United States Department of Agriculture Rural Development Loans
• And many more

Truliant Federal Credit Union

Truliant Federal Credit Union has branches throughout the state. They offer tools to help you assess your business’s finances and secure the right loan for your needs. Loan options include SBA loans, USDA business and industry programs, construction and auto loans, equipment financing and others.

First Bank

First Bank, located throughout the Carolinas, is another fantastic option for business loans in NC. As a local bank, First Bank is intimately familiar with the markets your business touches. They can use that knowledge to support you in making financial decisions. First Bank’s small business loan offerings range from SBA loans to credit cards to lines of credit and beyond. They suit solopreneurs, entrepreneurs, and business owners with dreams to expand their business, to reconfigure financial structures, finance major investments, and beyond.

SBA Lenders

There’s a host of SBA lenders dedicated to supporting North Carolina small businesses in securing loans. According to the SBA North Carolina District Office, these include “SBA 7(a) Lenders, 504 Certified Development Companies, and SBA Microlenders.” For specific details and contact information, see the SBA North Carolina District Office’s official list.

As a small business owner based in North Carolina, you have lots of location-specific borrowing options. While this list contains some of the best and most diverse options for NC business loans, it certainly isn’t every single available option. In fact, depending on the nature of your business, your location and your needs, you might even be surprised to find a loan that’s “tailor-made” just for you.

Funding your next business endeavor can feel daunting, time-consuming, and confusing. If you find yourself feeling overwhelmed by choice and unsure where to start, utilize the resources offered by local banks (or local branches of major banks), the small business administration, or the Carolina Small Business Development Fund. Or, for fast, personalized service, unique expertise, and an answer guaranteed in as little as hours after you apply, consider finding your best financing solution through Kapitus. Once you’re approved, you can hit the ground running and make those pivotal moves that take your small business to the next level in 2020 and beyond.

Are you exploring business loans for franchise purposes? You’re likely bringing some of your own money to the table to finance your dream. However, that doesn’t mean that you won’t need help with other startup costs, future expansion or ongoing funds. You might be surprised at how many options there are in the marketplace. This guide will help get you up to speed on the most popular franchise financing options according to two main objectives: buying a first/additional/multiple franchises and funding existing franchise operations.

Get ready to feel better about your financing options for the next chapter in your entrepreneurial career. Your franchise ownership goals are within reach.

Buying Your First/Additional/Multiple Franchise Locations

Whether you’ve got your eye on owning your part of a franchise or ready to expand your franchise footprint, you’ll need one of the many flexible-use business loans for franchises.

The three most popular types of franchise financing are:

• Traditional loans
• Small Administration (SBA) loans
• Franchisor financing

Look at how each of these financing options can fit the needs specific to someone purchasing an initial franchise.

Traditional loans

When considering the different business loans for franchises, traditional business loans top the list. Proceeds can help purchase or expand franchise holdings.

Traditional loans are smart financing options for small business owners confident that they have the financials and good credit to qualify. With generous loan limits, highly competitive interest rates, and flexible terms, these loans will likely offer some of the best rates in the market. You’ll need to come to the table equipped with solid financials. The rigorous underwriting process is one of the reasons these loans typically offer the most competitive terms. Traditional loans might be an attractive option. Show three years of tax returns, a strong personal financial history and a good credit score. The lender will verify fund source you’re using for your down payment.

With traditional loans, your franchise choice could play a significant role in the approvals process. Lenders like to see big brand names with proven track records in the market. Franchises with few locations might hurt your application. These franchises haven’t worked in multiple markets and various economies. Yet, if you’re a new franchise owner, a traditional loan can use your personal credit and financial history to launch your new venture.

SBA 7(a) loans

The SBA 7(a) loan program is hands-down the most popular loan program. It’s a reliable option for financing franchise startup and expansion costs. When you use these types of business loans for franchises, you’ll find competitive rates and virtually unlimited use of funds. Loan Limits are generous, and flexible terms are perfect for a franchise on the rise.

The first step to qualify for an SBA (7a) loan is to make sure your franchise is listed in the SBA Franchise Directory. If they don’t list your franchise type, you can apply for participation in the directory (note: the SBA will require additional documentation).

Loan limits are up to $5 million and terms range from 10 to 25 years. Interest rates are generally in the single digits (7% to 9.5% is a good range to consider). Prospective borrowers will usually have to be in business for at least two years. This makes the SBA 7(a) loan a better match for existing franchise owners, or those purchasing a franchise in an industry where they have a proven career track record. Lenders will use your credit score and business financials for qualification. While the approvals process isn’t speedy, you’re rewarded with some of the best rates and terms, aside from traditional loans.

The only limit to an SBA 7(a) loan is borrowers can’t use the funds to finance franchise or royalty fees. If you choose to go the SBA 7(a) route, make sure you earmark other funds for these startup costs.

Franchisor financing

Many of the nation’s leading franchises offer direct financing to entrepreneurs. Of course, they want to make it simple for owners to get up and running. This one-stop-shop approach is potentially perfect for those looking to open their first location, adding a location, or purchasing multiple locations at once.

While the rates might not be as competitive as traditional loans or the SBA 7(a) loan, there’s something to be said for a streamlined process. As you consider all the options for business loans for franchises, it’s worth it to speak to the franchise and see what options are available. Be sure to have your attorney or accountant review any financing options offered by the franchise. Then you can compare the terms between a traditional loan, SBA 7(a) loan and the franchise’s direct financing side-by-side.

Funding Ongoing Franchise Operations

You may find times where you need a cash infusion to help fuel operations and growth. The best business loans for franchise needs in these cases is the one that matches:

• The reason you need the funds
• How long you need to repay the funds
• How much you need to borrow

Here are three financing options franchises can use to keep operations running smoothly and make specific improvements.

Traditional business loans

If you know you need a fixed amount of cash for an upcoming franchise improvement or expansion expense, a traditional business loan can help. With fixed terms and rates, small business owners can fund franchise expenses with a predictable impact on their monthly budget.

Repayment terms are often flexible, including payment frequencies based on your current cash flow. Traditional loans have stringent qualification guidelines, and not all businesses can qualify with ease. You’ll need to have existing operations with a proven balance sheet, a plan, and your financials in order.

Lines of credit

If you’re looking for a more flexible way to access the cash your franchise needs, a line of credit might be the ideal tool.

Lines of credit can be used for nearly every purpose imaginable. You can draw as much or as little as needed–and only pay interest on the funds drawn. Once you pay it back, your credit line is once again fully available for use. There’s no need to go through the qualification process again.

For businesses that may not qualify for a traditional loan, lines of credit can fill that financing gap. Credit scores aren’t weighed as heavily in the approval process for most lines of credit, either. These features combined make lines of credit ideal to fund everything from cash flow gaps to seasonal inventory ramp-ups. The sky’s the limit.

SBA 504/CDC loans

While the SBA 7(a) loan is an ideal fit for initial or additional franchise purchases, you’ll need a different SBA loan type for funding ongoing business concerns.

The SBA 504/CDC loan has a narrow scope of use. Funds must be used for acquiring, renovating, or improving real estate or equipment. A borrower’s franchise location must also be U.S.-based. This type of loan can help fund making improvements to franchise real estate, buying real estate, or even upgrading heavy equipment to speed operations.

As with the SBA 7(a) loan, your franchise needs to be listed in the SBA Franchise Directory to be eligible. While these loans are slower to fund than traditional bank loans and lines of credit, you’ll likely be rewarded with some of the best interest rates. With all of the options for business loans for franchises, there’s one out there that makes perfect sense for your financials, credit and goals. And, if you’re still trying to determine the next steps in your franchise financing plans, you can always reach out to a loan officer to discuss.

Rejection always hurts, and when it’s from the bank on a small business loan, it can sting a little bit more than it did in high school. Loans are the lifeblood of most small businesses, and without them, the company could crash and burn. In fact, according to the Small Business Administration, 27% of the small businesses surveyed stated they weren’t able to receive the funding they needed to expand their businesses.

However, there is hope. Many businesses have been rejected only to recover and secure the financing they need on the next application. Here are our tips to help you recover from a rejection.

Determine the Reason

First thing’s first, you need to be able to pinpoint your misstep to correct it in the future. Most lenders will give you the reason that your application was denied and it is usually one of two issues:

• Low FICO Score
• Not enough revenue

Before lending to a small business, just like any loan, they want to ensure that you have a solid history of repaying your debts on time and in full. If your business and personal credit scores are less-than-stellar, lenders will perceive you as a risky investment.

Additionally, lenders want to know that borrowers can make the minimum monthly payments on the small business loan. This is where your business’ cash flow comes into effect – they’ll calculate your debt to income ratio to see how you would be able to handle the monthly payments.

Correct the Problem

There are both short-term and long-term solutions. You can’t fix your credit score in a week, but if you make it a priority, over time, you’ll be able to improve it. In the short-term, you can, first of all, ensure that your credit report is error-free. It happens more often than you would think as 23.17% of all complaints to the Consumer Financial Protection Bureau in 2016 were about credit report inaccuracies.

Also, to improve your credit rating, you can take steps to pay off your debts to improve your debt to income ratio which will make you look more favorable to lenders.

To improve your revenue streams and to show the lender that your business is bringing in enough money to cover expenses and the loan payments, you should do your best to reduce expenses while increasing your profit margins. Improving cash flow can be a challenge for some small businesses. However, many are finding success after putting all of their attention and efforts into the process.

Other Things to Consider

There are a few things you can do to improve your odds of securing a small business loan, and are intended to make you appear more trustworthy as a borrower.

You can make a sizeable down payment on the loan to show that you’re serious about repaying the loan. You can also get a cosigner with an excellent credit score to make you appear more trustworthy. However, the cosigner would be on the hook for the loan as well, so ensure that you can confidently make the payments.

If you have a low FICO Score, you should also look into alternative financiers that could provide you with financial options. Big banks aren’t the only lenders out there. Additionally, a low credit score won’t necessarily take you out of consideration with alternative lenders.

What to Do Before Re-Applying

Before potentially going through the frustration and wasted time of a loan rejection again, you need to take a look at yourself and your businesses from the lender’s point of view; are there any red flags?

We recommend taking a hard look at your credit report. Even asking a lender’s advice about any problems they see. It may seem scary to ask them to point out problems, but the issues might arise when you re-apply for the loan anyway. So, it’s better to know beforehand.

Building and running a small business is hard. It takes conviction, leadership, sound management and, every so often, a much-needed injection of financing. In both good and lean times businesses are often faced with the decision to pursue some type of financing. However, applying for and acquiring small business loans and alternate financing can often be daunting – even if you’ve done it before. And traditional lenders do not make that experience easy.

The good news is that getting financing doesn’t have to be this hard. We help thousands of small businesses everyday and want to share secrets of getting good financing options quickly. So, we have compiled a simple checklist of actions you can take to make the process fast, simple and easy.

However, as you get ready to apply for a small business loan, you should consider the following questions carefully to be sure you are not surprised by any unforeseen requests or adverse decisions from lenders.

Six questions every business must ask in 2020 before applying for a small business loan | Download PDF

1. Should you apply for a small business loan?

While a small business loan is a great way to reduce the pressure on cash flows, you could have viable alternatives for relieving cash flow crunch like selling debt owed to your business and renegotiating contracts to allow for longer payment terms. Also, make sure you have considered all alternate sources of financing including friends and family.

2. Is a small business loan good for your business?

Understand the effect of repayment of small business loan on your cash flow. A loan does not change the fundamental working of the business. It strengthens a fundamentally sound business and quickly breaks a business that is fundamentally unsound.

3. Can you qualify for a business grant?

Unlike loans, you don’t have to pay back grants. Before applying for a small business loan, see if you qualify for a federal or private small business grant. However, grants can be highly competitive and may not fit your financial time horizon.

 4. What types of small business loans are there?

There are over a dozen types of small business loans and alternative financing options for small business. The most popular options are government-backed SBA loans, revenue-based financing and factoring. Download this eGuide to learn more about different types of small business financing.

5. When should you apply for a small business loan?

Apply only once you have determined that a business loan will help strengthen your business, and you understand the different types of financing options like Small Business Loans, Revenue Based Financing, Factoring, and Equipment Financing. Each of these options have unique requirements so make sure you understand them well before speaking with a lender.

6. Should you work with a small business loan broker?

Brokers are a great resource to get offers from multiple lenders. However, many online marketplaces like Kapitus, will get you offers from multiple lenders without the additional broker fee which is borne by the borrower.

Small Business Loan Application Checklist| Download PDF

1. Run a quick cash flow analysis on your business account

Cash flows are one of the primary indicators that lenders use to understand the health of your business. Showing 3 to 6 months of positive cash flow can get you approved faster. It can even get you better financing terms for your small business loan. You can learn more about cash flows and ways to improve them in “How to Prepare Your Small Business for Cash Flow Needs.”

2. Collect at least 3 months of bank statements

Your business accounts are another good indicator of your company’s financial health. Generally, lenders want to see a positive daily balance on your bank statements. Remember, a well managed cash flow will directly improve your bank accounts.

3. Identify unusually large deposits to your bank accounts and gather supporting documents to help explain them

While presence of unusually large deposits can delay finalization of loans, they are not necessarily bad. Many businesses, like construction companies, can easily explain their presence on the bank statements. Some businesses understandably have large swings in deposits and credits to their account. If your business is like that, you can expedite your loan application process and get really good terms on your small business loan by providing a copy of your account receivables and future contracts.

4. Get a copy of your free credit report and make sure there are no red flags

A strong personal credit goes a long way to assure any lender about the fiscal responsibility of the person running the business. You can get a free copy of your credit report from annualcreditreport.com. If you find any incorrect information on your credit report, contact each credit reporting agency (Experian, Transunion and Equifax) immediately to correct the issue. Keep in mind that while small delinquencies are understandable, lenders are uncomfortable with statements that show delinquencies on child support or recently dismissed (not discharged) bankruptcies.

5. Reduce the number of lenders to whom you owe money

Too many lenders pulling money from the business can create severe strain on its cash flow. Lenders want to know that the money they provide will help grow your business and not put additional strain on its daily operations. You may want to wait to finish your current loan obligations before going back to the market to raise more capital.

6. Resolve any open tax liens

Unresolved open tax liens can hurt your ability to obtain financing. If possible, try to get a payment plan on any open tax lien. A payment plan on a tax lien is far better than an open unresolved tax lien.

7. Get three business references

Trade references help to establish authenticity and credibility of your business. If you rent commercial space for your business, make sure that the landlord is one of your references.

8. Have tax statements handy when applying for a large sum

Lastly, businesses contemplating borrowing large sums over $75,000 should get a copy of their last year tax statement and business financial statements.

Obtaining small business loans doesn’t have to be a daunting process. Use this checklist before applying for a business loan or alternate financing and get the funds your business deserves.

Working capital – the amount left over after subtracting current liabilities from current assets – is the lifeblood of a small business. However, many people are still confused about its benefits and uses. Here are five things that many small business owners don’t know about this important resource that helps a company survive and thrive:

1. Working capital can help long-term strategy, not just short-term issues.

Most entrepreneurs focus on every single cost when they start their business. But like a world-class chess player, you need to think several moves ahead, and be aware of the capital you’ll need to expand into new locations, hire new employees or buy more equipment. A franchisee, for example, should be aware of upgrades that will be required. Working capital is not just a resource for short-term needs, but for the entire year ahead.

2. You should monitor your cash flow weekly or even daily.

Many small businesses only review cash flow twice a year – on April 15th and October 15th. It should be a weekly or even daily exercise. When a solid client who has always paid on time starts slipping, it could indicate problems that you want to be aware of as soon as possible. According to Investopedia, the most important way for a small business to analyze its working capital is by operating cycle – the average number of days it takes to collect an account.

3. You should benchmark against other industries.

Small businesses are often satisfied when their working capital practices are equal to or better than their direct competitors. Look at industries with similar characteristics instead, which can provide more ideas on how to strengthen your working capital practices.

4. Encourage customers to pay on time.

Many small businesses have found themselves in difficult circumstances, or have even gone out of business, when they were afraid to call out important clients who constantly drag out payments. “It’s a simple thing to get accounting software and monitor your working capital,” says Dr. Rebel A. Cole, a professor of finance at DePaul University in Chicago.”But that won’t matter if you don’t follow up when people fall behind.” To improve cash flow, consider offering a discount for cash on delivery or taking credit cards over the phone.

5. It isn’t only for your down periods.

Many seasonal or cyclical businesses only focus on cash flow during seasons when sales are down. Smart companies monitor tools and financing practices that keep good working capital practices year-round, which can lessen the impact of the down periods. “If you only worry about working capital when you’re cash-strapped, you will become cash-strapped,” Cole says.

As a small business owner, you’ve probably heard of the Small Business Administration (SBA) – in passing, at the very least. For most people, SBA loans are the first thing that comes to mind. The SBA is one of the largest loan backers to small business owners in the country. The reality? they have a lot more to offer than you think.

Curious? Good. Here you’re going to get an overview of the SBA. But, you’ll also see what it does and how it can help you grow your business.

What is the Small Business Administration?

The SBA is a United States Government agency. Created post-World War II, the SBA wanted to encourage and support America’s small business owners. They wanted to help boost the economy. The guiding principles of the SBA are the same today as they were at the very beginning.

As stated on its website:

“The U.S. Small Business Administration helps Americans start, build, and grow businesses.”

SBA loans might be the most well-known of the agency’s programs. But, the SBA also provides business counseling, disaster loans, federal government contracting, and other tools to help small business owner. Getting in touch with the SBA is easy. Its main campus is in Washington, D.C.. But they have dozens of offices across all 50 states and U.S. territories. Many of these offices host local events and in-office programs for small business owners to attend.

Small Business Administration Programs

The SBA runs a variety of programs that small business owners can take advantage of to grow their business.

SBA Loans

Access to capital is one of the biggest struggles many small business owners face. SBA loans are a primary source of funding for tens of thousands of small business owners across the country. In the 2019 Fiscal Year, the SBA reported over $28 billion through approximately 58,000 approved loans.

The primary SBA loans are the 7(a) and 504 programs. These loans are made through partner lending institutions with the SBA guaranteeing a portion of the loan. The SBA doesn’t directly loan to small business owners. The SBA 7(a) loan is the administration’s most popular. It provides up to $5 million in working capital at a low interest rate for business purposes. The SBA 504 loan provides up to $5.5 million. It can be used for real estate, equipment and other fixed asset purchases. While the 7(a) and 504 are the most popular programs, the SBA offers other financing options too.

They include SBA:

• Microloans which provide working capital up to $50,000.
• Disaster loans offer loans to businesses and homeowners who have been affected by nationally declared disasters.
• Express loans have a quick 36-hour turnaround for approval.
• Export loans provide capital for small businesses that have export financing needs.
• CAPLines are lines of credit.
• Veterans Advantage are loans for military veterans.

Each SBA loan program has specific terms, conditions and requirements. Be sure to check them before applying to any loans. Having a strong business plan and a good personal credit score are key factors for SBA loan applications as well.

Other SBA Financing Options

In addition to the loan programs above, the SBA offers a variety of other financing options for small business owners.

Small Business Grants

The SBA doesn’t offer small business grants directly. However, it does have a few programs that can help businesses focused on the cutting edge of innovation. These programs are the Small Business Innovation Research Program (SBIR) and the Small Business Technology Transfer Program (STTR). They offer grants for qualified businesses producing tech or science-focused research and development programs. These businesses will also have commercial potential.

Venture Capital

The administration also works with Small Business Investment Companies (SBIC), which invest in small businesses. While SBICs are independently owned and managed, the SBA provides oversight in terms of regulation, licensing, and funding.

Government Contracts

The U.S. Government is one of the biggest employers in the world. That’s good news for small business owners. The government has tens of thousands of contracts available at any given time. A portion of those are reserved for small business owners.

The SBA helps support small business owners when it comes to finding and securing government contracts. The administration even offers advice and guidance through online courses and in-person help. Topics include how to become a qualified government contractor.

The SBA also has specific programs to help Women-Owned Small Businesses (WOSB). They help Service-Disabled Veteran-Owned Small Businesses (SDVOSB). And, they even aid small businesses located in historically underutilized business zones. These businesses can be in the HUBZone program, to secure government contracts as well.

Small Business Services

The SBA also offers programs and services for small business owners that offer help to support and grow businesses. These programs are provided free of charge for small business owners.

SCORE

SBA’s Counselors to America’s Small Business SCORE program has chapters throughout the country. The program is comprised of a network of volunteers who serve as mentors to small business owners. SCORE program members can receive help with everything from creating a business plan to marketing. They receive help through in-person events, online courses and workshops.

Small Business Development Centers

The SBA also partners with many colleges and universities across the country to form Small Business Development Centers (SBDC). These centers work with local small business owners on a variety of training and development programs.

SBA Learning Center

Through its online learning portal, the SBA offers dozens of free courses. They cover everything a small business owner would want to know. Classes range from Social Media Marketing, to Accounting 101. All courses are free.

Other Outreach Programs

Additionally, the SBA also has a vested interest in helping women, veterans and minority business owners succeed. To that end, the administration has smaller outreach centers geared specifically towards these business owners. These programs offer a bit more specialized training and guidance.

Small Business Owners and the SBA

The bottom line? The Small Business Administration is a phenomenal resource for small business owners. They offer everything from classes and mentorship to a variety of funding options. The SBA strengthens the backbone of the American economy: small businesses and their owners.

When you’re a small business, cash is king. But you know what’s even bigger and better than cash? Free cash! However, unless you’re a trust fund baby or lucky enough to win the lottery (A bad investment BTW), then free cash is hard to come by. Aside from the two previously mentioned methods or a rich uncle, your main option for free cash is small business grants.

Don’t get too excited yet though

Small business grants have their pros and cons. Free money is usually a good thing, but just keep in mind, there are some hang-ups that come along with “free” stuff. So, before you decide this is the best funding option for your small business let’s take a closer look.

First, what is a small business grant anyway?

Think of a grant like a scholarship for small businesses. They usually come from federal, state, county or local governments, but sometimes private businesses or corporations will offer them as well. Just like a scholarship, there are a bunch out there, and they are usually set aside for “people” that meet certain criteria. Some are for online companies, some are for veterans, others for women and/or minority owned businesses. The list goes on and on, and they all have different application requirements.

Here’s the key to getting a small business grant.

It all comes down to research. There are thousands of grants available out there, but your chances of getting one really come down to two things: How much work will you put into finding one that you qualify for, and how much work are you willing to put in throughout the application process. Are you seeing a theme here?

Let’s get you up to speed on the process.

A good place to start is the Small Business Administration website at www.sba.gov. This is where you’ll find a lot of helpful information to start your search. Our best advice is to save it to your favorites and just explore the site. There is a lot of information to consume.

Next, try going to www.grants.gov. It’s a federal website as well that lets you search for available government grants. Just make sure you ensure you’re eligible for a grant before you spend too much time applying.

Last, it’s a good idea to check your state’s official web page. A lot of states offer not only grants to small businesses, but also tax incentives and other economic incentives for you to bring jobs to the state.

Now let’s talk about what you need to know as you begin your hunt for free money! And to be totally honest, some of these factors may outweigh the benefits of free money. So, to ensure you’re going into this with your eyes wide open, let’s begin.

1. Small business grants take A LOT of you and your staff’s time!

Like most government processes, getting a federal or even local government grant is very time consuming. It’s important to understand how much your time is worth, and then evaluate how much you’re getting vs. how much time it’s going to take to get the money. There’s a lot of paperwork and there’s a lot of required documentation/market reports/demographic reports/etc that will have your staff jumping through hoops. Just make sure it’s all worth it before you dedicate all that time – time you could be spending on your own growth strategy or business development

2. Don’t expect the money any time soon.

As we just mentioned in the first section, remember this is the government we’re dealing with here. Don’t expect things to move quickly. Once you submit your application, it can take weeks, or even months before you get a response or find out if you’re approved. Yes, it’s frustrating, but if you understand that’s part of the game, you won’t lose as much sleep over it.

3. The competition for small business grants is stiff!

This is FREE money we’re talking about here. You won’t be the only one applying. The brightest and the best will have their teams working to get this money, so be ready for fierce competition. The key is to know your strengths, and know how you can present your business in the best light possible. Show them why you deserve it more than anyone else! And another thing… make sure you’re applying for grants that fit your strengths as a company. That will significantly improve your chances.

4. Grants come with strings attached.

If you are lucky enough to be one of the few grant recipients, remember this usually comes with strings. Be ready to sacrifice a little privacy and understand you’ll have to do a little better job of keeping your “house in order”. Many grant issuers like to check in on your progress. This often means monthly or quarterly “check ins” where they will ask for proof that you’re meeting the requirements as outlined in your grant. Also, there can be other strings such as contingency agreements. I.E. State and local programs will give you the money contingent on matching funds or a loan to supplement the grant.

5. Small business grants may not be the money you want.

Grants usually come with rules on what you can use the money for. If you think it’s a get out of debt free card, think again. Federal and state grants are funded with taxpayer dollars so they do their best to ensure it’s used for purposes that will benefit the community as a whole, and not just to pay down debt for your business. (They want more jobs, improved technology, etc.) It’s not a loan. It’s generally a gift for a specific purpose.

Wrapping it all up.

Small business grants can be incredible opportunities for your business, but they can also be money pits that don’t have the ROI you imagined when you heard the word “FREE MONEY!” To determine if they are right for your business, do some research and keep all these factors in mind. Now that you’re informed, you’ll make the right decision!

Admittedly, some business owners neglect to review their financial statements monthly. Some, actually, only review financial statements yearly–and only for tax purposes! If you want a true ideal picture of your company’s financial health, you absolutely need to regularly monitor your financials, including your balance sheet. While lenders want to see that your firm is profitable, they are most concerned with whether or not you have sufficient working capital, a manageable debt to equity ratio and a strong operating history. Since your balance sheet provides all this information and more, you will definitely want to strengthen your balance sheet if you are seeking a loan.

Increase your working capital.

The more cash or assets you have readily on hand that can be converted into cash to pay your current obligations, the lower the risk you will default on a loan. In other words? Lots of cash and equivalents encourage a lender to lend. Working capital is short-term assets less short-term liabilities. Short-term assets include cash and cash equivalents as well as inventory and receivables. Short-term liabilities include all payables. Hence why lenders focus on working capital.

However, your working capital calculation can significantly differ from the lender’s. Lenders will drastically discount older current assets. If your inventory does not have quick turnover (this timing varies by industry), then lenders will discount its value from what shows on your balance sheet. Furthermore, if you are in an industry with shorter inventory lifespans such as retail and you have unsold inventory that is over two years old, when you sell it, you likely will only get a fraction of what you paid for it. Obviously, lenders cannot count on that cash for bill payment. They will thus exclude that inventory from your firm’s working capital calculation. The same applies to receivables. If your receivables are due in 30 days but 40 percent are over 90 days old, the lender will completely ignore that 40 percent. The exceptions are slow-paying industries such as industrial construction.

Since your old inventory and receivables will be totally excluded by lenders in their working capital calculation, convert those assets to cash. The cash will be included. Sell off your old inventory. Vigorously pursue all overdue receivables. To ensure your inventory turns over in a reasonable amount of time, only buy what sells or ramp up your marketing efforts. To square up your receivables within 30-day terms, create and implement strong accounts receivable and credit policies.

Decrease your debt.

Lenders look at your overall debt, your interest-bearing debt or both, compared to your equity. A high debt burden could mean trouble. Acceptable debt to equity ratios vary by industry. A capital-intensive industry like manufacturing will require much more capital investment than a services-oriented industry like marketing firms.

If you have unused or chronically underused equipment, strongly consider selling it. The purpose of an asset is to help produce or deliver the goods or services your firm provides. If a large asset is just sitting there, it is not fulfilling its mission. Not only will selling reduce your debt, it will convert the associated asset from PP&E to cash on the balance sheet. Although both are assets, the additional cash is much more powerful because it increases your working capital. Remember, working capital indicates your firm’s ability to repay debt in the near term.

Increase your equity.

The lender wants to see that your company has a profitable history. She also wants to know that you reinvest in the company. Why? That shows you both believe in your firm and expect it to grow. Therefore, the owner’s equity piece is very important. Do you retain a sizable portion of the earnings or do you pull every last dollar out you can? If it’s the latter, stop. Your owner’s equity needs to be high enough to be compelling.

One way to both decrease debt and increase owner’s equity at the same time is to convert any shareholder loans to equity. Owners often provide loans to the company instead of injecting equity capital for several reasons. The most notable reason is that you can receive a loan repayment of principal tax-free. But, you must pay taxes on any distributions received. However, if you are seeking funding, a strong balance sheet trumps your lower taxes. Make that conversion and immediately strengthen your balance sheet.

Reviewing your financial statements is important as they serve as the barometer of your firm’s financial condition. This is especially true of the balance sheet. If your firm is in expansion mode, use one or more of these suggestions to proactively strengthen your balance sheet to qualify for a loan.

Suppose you need expensive equipment to run or grow your business. If you pay cash for it, your employees’ paychecks would bounce. Equipment leasing might be the rescuing you need.

1. What is Equipment Leasing?

Equipment leasing is a payment strategy accounting for around one-third of all equipment in use, from desktop computers to jumbo jets. “Evidence suggests,” according to the Commerce Finance Institute (CFI), “that an origin of leasing may have started… in the ancient Sumerian civilization.” Leasing has since evolved into an accessible financial resource.

The CFI defines an equipment lease as “a contract for the use of a piece of equipment over a specified period of time where the user of the equipment becomes the lessee and agrees to make periodic payments to the lessor of the equipment with specific end of term options.” In other words: you’re renting the equipment. Unlike renting a home, for example, the opportunity to buy the equipment outright when you enter the lease, is typically an option.

The accompanying illustration provides a breakdown of the categories of equipment leased today, and their share of the leasing universe. In the following pages we will explain when, why and how it is done.

https://www.elfaonline.org/data/market-trends/facts-about-industry-sectors (NEED TO CREATE AN IMAGE FROM THIS ARTICLE – BA)

2. When Should I Lease Equipment?

Before you begin to think of different ways you can bring in new equipment, whether by leasing, borrowing or even paying cash, give the idea a reality check. Ask yourself the same questions that a leasing company or a lender will probably ask you:

• Will the equipment meet an important business need that’s currently unmet?
• Does the cost of continuing to use the equipment I already have, in repairs and/or inefficiency, justify the price of acquiring new equipment?
• Is now a good time to get new equipment due to special “deals” in the market?
• How does the new equipment fit into my overall business plan?
• If I wait a little longer before bringing in new equipment, might more advanced models become available that will give my business more bang for my buck?
• What is my expected return on investment?
• Do I have adequate free cash flow to enter a lease agreement without needing to sacrifice more urgent spending priorities today or down the road?

Another important consideration pertains to your company’s tax situation. With an “operating lease,” you are unable to take advantage of an important tax code provision known as Section 179. That benefit is available to companies using a different kind of lease known as a “capital lease.” It’s also available to companies that buy equipment through borrowing.

If you haven’t payed a lot of business taxes lately and don’t expect to soon, you won’t get the full benefit of Sec. 179. It could make sense to use an operating lease. That way, the lessor—the company you lease the equipment from—gets that tax benefit. This helps you because the lessor takes into account the tax benefits factors when deciding how much to charge.

3. What’s The Difference Between Leasing Equipment And Financing Equipment?

When you lease equipment, you’re essentially renting it. Equipment “financing” means you buy equipment with money borrowed from a lender. You own the equipment. There are advantages and disadvantages to both approaches.

A third way to obtain business equipment is buying it outright without borrowing or leasing.

4. What Are The Pros And Cons of Financing?

Equipment financing pros:

• If you have a strong balance sheet and profitability, you might be able to obtain a very competitively priced loan to purchase the equipment at a lower total cost than leasing. Having the purchased equipment as collateral for the loan already makes the loan less risky for the lender than an unsecured loan. A strong balance sheet makes you more attractive to lenders.
• Depending on your financial strength, you might be able to borrow all of the money you need to buy the equipment without a down payment.
• As the owner of the financed equipment, you may be able to claim tax benefits such as Sec. 179 and deductions for loan interest.
• With a loan, you have the option to pay the principal balance off if you want to–without penalty. This allows you to reduce the total interest you pay, and ultimately, the cost of getting the equipment.
• If you own the equipment and can pay off the loan, you can dispose of the equipment at your discretion.

Equipment financing cons:

• Borrowing to purchase equipment could limit your ability to borrow for other purposes, if lenders believe you’re assuming too much debt.
• An equipment loan appears as a liability on your balance sheet.
• Depending on the size of your down payment for the equipment, the lender might need more assets to secure the loan than just the equipment being financed, possibly including personal assets. The equipment might depreciate faster than the amortization schedule for paying off the loan.
• The equipment could be obsolete before you pay the loan off.

5. What Are The Pros and Cons of Leasing?

Equipment leasing pros:

• For companies of average or even sub-par financial standing, equipment leases are generally easier to obtain than loans.
• It is often easier to obtain equipment via leasing without having to put any money down, than with a loan.
• The only “security” you need to pledge is the equipment itself—which technically isn’t yours anyway since you’re borrowing it from a lessor.
• Leasing equipment is known as “off balance sheet financing.” At least with an “operating lease,” the liability associated with your lease obligation isn’t reported as a liability on your balance sheet. Also, lease payments are treated as operating expenses–and tax deductible.
• At the end of the lease term, which should coincide with the time you want to replace old equipment with newer models, selling or otherwise disposing of it isn’t your problem. You just return it to the leasing company. This is helpful with high-tech equipment which becomes obsolete more quickly than other equipment, and thus more difficult to sell.
• Flexibility is a hallmark of leasing. There are many ways to structure a lease agreement.

Equipment leasing cons:

• Because the leasing company is typically assuming greater credit and technology obsolescence risk rather than a lender making a loan to a financially strong company, lease payments often have a higher built-in cost structure than loans.
• You are obligated to make all of the payments prescribed by the lease contract. You typically cannot pay it off ahead of the original schedule. Or if you can and want to, you would incur a large financial penalty.
• Many lease agreements place the burden on you to pay for certain repairs and maintenance services.

6. What’s Involved In Entering A Lease Agreement?

The first decision you’ll face, after you decide on the equipment, is what kind of a lease agreement suits your needs. You’ll probably have several options, you just need to figure out which is best for you.

What can you really afford? While a leasing company makes its own judgments about that, you might want to be more conservative in the appraisal of your financial capacity. This will give your company plenty of breathing room for future financial needs.

Another task associated with entering an equipment lease agreement is which leasing company to work with (see Section 10). Some equipment manufacturers have their own “built-in” leasing companies. But, you owe it to yourself to be sure you’ve found the best deal before signing on the dotted line.

The final step in the process is persuading a lessor that you’re the kind of company with which it wants to do business. That may involve turning over reams of financial documents, along with good explanations of why you need the equipment and what it’ll do for your business. The process is like applying for a bank loan. However, it will probably be less rigorous since you aren’t borrowing money. You’re simply paying rent on property that you don’t own.

7. What Are The Main Categories of Equipment Leases?

There are two basic kinds of equipment leases: capital and operating. With a capital lease, you’re treated (for tax purposes) as the owner of the leased equipment. That means you can take depreciation deductions or, if you’re eligible, a Section 179 deduction. With an operating lease, you are treated more as a renter than an owner, and not eligible for that tax benefit. The only tax benefit is that lease payments are tax deductible.

Under Section 179 of the Internal Revenue Code, you are able–in 2019–to take a deduction for up to $1 million in equipment acquisition by purchase or through capital leasing. There are strings attached, however. You’re only eligible if a) you don’t acquire more than $2.5 million of equipment in that year (although you might still be eligible for a partial deduction) and b) the equipment is used at least 50% of the time for your business.

The Section 179 deduction is phased out dollar for dollar, for every dollar your equipment acquisitions exceed $2.5 million. For example, if you acquire $2.7 million in equipment, your maximum Section 179 deduction would be $800,000. The kinds of equipment eligible for deductions are restricted.

Any of the following criteria must be met in order for a lease to be treated as a capital lease.

• You automatically become the owner of the leased property at the end of the lease term.
• You have the option to purchase leased property at a subsidized price.
• The lease term is long enough to cover at least 75 percent of the “useful life” of the equipment.

8. What Are Some Subcategories Of Leases?

Under a capital lease, there are several subcategories. The most expensive (in terms of monthly payments) is the $1 buyout lease. You have the option to buy the leased equipment for $1 at the end of the lease term. In effect, you’re buying the equipment over the lease term, since the lessor is prepared to turn it over to you at that time for the price of $1.

This type of lease may be the easiest to qualify for as the lessor is getting more money from you. You might not want to use a $1 buyout lease unless you plan to buy the equipment, and expect to use it for years to come.

Another common capital lease is the 10 percent option lease. As the name suggests, it gives you the option to buy leased equipment for 10 percent of the original value when the lease is up. Your monthly payments might be lower than the $1 buyout lease since you’re only paying for 90 percent of the equipment. Yet, the interest rate the lessor uses to calculate the payment might be higher, because it’s assuming the risk that you’ll decide not to buy the equipment at the end of the term.

A variation on the 10 percent option lease is the 10 percent “purchase upon termination” (PUT) lease. You’re obligated to purchase the equipment for 10 percent of the original equipment cost when the lease is up. This is more of a financial risk to you, thus giving you lower monthly lease payments. Of course, you have to come up with the cash simultaneously.

What are the terms?

Terms for a standard operating lease, in which there are no special tax benefits (beyond writing off lease payments), is the FMV lease. It gives you the option of purchasing leased equipment for its fair market value (as set by the lessor) at the end of the lease term, return the equipment or renew the lease. It’s an operating lease because it’s more like a simple rental arrangement. Lessors set approval standards highest for FMV leases.

A fifth lease category, known as a TRAC (Terminal Rental Adjustment Clause) is a hybrid contract. Depending on specifications, it can be a finance or an operating lease. They’re used primarily for commercial vehicle leases.

9. How Much Does Leasing Cost?

The cost of leasing equipment varies. These are the factors determining the cost:

• The value of the equipment
• The competitive state in the market of lessors that specialize in companies like yours
• The interest rate environment
• The way credit and obsolescence risk are allocated between you and the lessor
• The assigment of which party gets the tax benefits

Also critical is your credit history. In a perfect world, the stronger your credit score is, the lower your lease payments will be. You can find lease payment calculators online to give you ballpark numbers for your own leasing situation.

10. How Do I Decide Which Equipment Leasing Company Is Right For Me?

When you start looking for an equipment lessor, you’ll find four kinds:

1. A company that just puts together equipment leases.
2. A “captive”: a subsidiary of a company making costly equipment.
3. A financial institution offering equipment leasing among a variety of other financial services.
4. A lease broker, who helps you find a suitable lessor.

Considering the long-term financial commitment involved, shop around. Your best bet might be a leasing company that specializes in working with companies like yours, and / or specializes in the kind of equipment you want to lease. Getting competitive terms is important, but so is the strength and integrity of the leasing company.

The challenges minority-owned businesses face when growing a business are multi-fold. A minority small business grant could give your business the access to funding it needs to grow with confidence.

According to the Forbes Finance Council, minority-owned businesses in the U.S. have soared. They’ve increased over 79 percent – faster than any other category of small business ownership. Yet despite this surge, challenges exist. Most notably, access to funding remains a challenge. That’s where minority small business grants could help fill the gap.

Grants can help businesses fill funding gaps to fuel a myriad of initiatives. Initiatives range from payroll to hiring new talent or securing new office space. Loans and grants have a few crucial differences, though.

Unlike with loans, businesses don’t have to repay grants. Grants do, however, come with caveats. Generally, funds are used for a specific business purpose or industry. The application process for grants is often significantly more intensive than loan applications, too. Multiple businesses compete for the same pool of limited grant money. On the other hand, the strength of a financial-centric application serves as the basis for loan awards.

The good news? For small business owners encountering financial barriers, there are several minority small business grants available. The following grants can potentially give minority-owned businesses (including women-owned businesses) a leg up in their efforts to thrive.

The following grants follow in alphabetical order.

Amber Grant for Women

If you’re an entrepreneurial woman in need of a financial boost for your business, it’s worth looking at the Amber Grant for Women. Founded in 1998, this grant program makes monthly grants to women across the business spectrum. They encourage applicants to lead their applications with heart. There is a $15 application fee and the application is short. Grants doubled from the previous $2,000 to $4,000 beginning January of 2020. Recipients of the monthly grant award are eligible to win an additional grant of $25,000 at year’s end. This is on an annual basis.

Cartier Women’s Initiative Grants

Open to women across the globe, Cartier grants benefit women-owned businesses with an eye on growth. Annually, the grant program selects three finalists from each of seven global regions. The 21 finalists all receive exclusive networking and publicity opportunities. The seven regional winners then receive $100,000 in prize money each, and the two runners-up per region receive $30,000 each. Eligible businesses are woman-run, for-profit and in the early stages of growth. Also, you must be running for between one and five years, and meet some additional criteria). Visit the grant program’s website for a comprehensive explanation of the grants and the eligibility and application processes.

FedEx Small Business Grant Contest

Since 2013, FedEx has awarded over $700,000 in grants to businesses through its unique grant competition. Each year, there are ten grant recipients. To be eligible, you must own a U.S.-based business; have been in operation for at least six months; run a business that sells a product or service and have fewer than 99 employees. The FedEx Small Business Grant Contest isn’t exclusively a minority small business grant. However, minority-owned companies with considerable followings could leverage those loyal customers to help win one of the ten awards. During the application process, businesses need to upload a short profile, a video, business photos and a logo. Next, companies will encourage their loyal fans to vote for their business in the contest. While votes aren’t the only deciding factor, it can’t hurt to rally support. Grants in the contest range from $15,000 to $50,000 for the lucky winners.

First Nations Development Institute (FNDI) Grants for Native Americans

Since 1993, the FNDI has awarded more than 1,600 grants, totaling more than $34.9 million in 40 states. Their grants fund both technical and financial resources for organizations and projects that seek to improve the lives of Native Americans. Their website offers a variety of resources designed to support those curious about applying for grants. The website includes details about the application process, too. Applicants for this grant are Native-controlled, tribal-operated organizations. To see which grant programs are currently accepting applications, visit the website regularly. New programs emerge throughout the year.

Grants.gov

This website offers grant seekers a searchable database of thousands of government grants. Many of them are minority small business grants. Those seeking grants can search using the keyword, “minority”, and utilize additional filters to review current and upcoming grant programs sponsored by federal agencies. Some participating government agencies on the site include: the U.S. Food and Drug Administration (FDA), the National Space and Aeronautics Administration (NASA), and the Environmental Protection Agency (EPA). There are a total of 26 federal agencies that participate in grant listings.

Minority Business Development Agency (MBDA) Grants

The MDBA awards a series of minority small business grants–“cooperative agreements”–throughout the year. The MDBA operates within the U.S. Department of Commerce. They focus on helping minority-owned businesses access capital, contracts, and markets necessary for sustained growth. Grant program applications open periodically throughout the year. Interested applicants should check the website regularly for programs they’re eligible for as they’re announced. Eligibility criteria vary by grant program. Grants are generally a minimum of $200,000, and interested businesses can review a sample of previous organizations that have received grants here.

National Association for the Self-Employed (NASE) Growth Grants

Do you have a business goal that’s within reach? If only you had a little financial help to push you over the edge, right? Well, these $4,000 grants from NASE can be used for a wide array of business purposes. Additionally, awards are on a quarterly basis. Applicants must be members in good standing with NASE for a minimum of three months before applying for a grant. Applicants must be able to state how grant funds will be used. Requirements include basic business information like a résumé and business plan. There are several cost-effective ways to access membership to NASE to begin the eligibility process.

Office of Minority Health Grants

These minority small business grants from the Department of Health and Human Services (HHS) are specifically geared for agencies and organizations working to better the health outcomes for historically disenfranchised communities in the U.S. Grants range from $275,000 to $500,000.

Small Business Innovation Research (SBIR) and Small Business Technology Transfer (SBTT)

If your business creates or aims to develop cutting-edge biomedical research and development, these grants from the National Institute of Health (NIH) could be for you. While not limited to minority-owned businesses, this highly-competitive grant program has eleven leading government agencies participating. Agencies include but aren’t limited to: the Department of Defense (DOD), Department of Energy (DOE), Department of Health and Human Services (DHHS), the National Science Foundation (NSF), and NASA. Eligible businesses are American-owned, for profit and have 500 or fewer employees and should include a principal researcher employed by the company. For detailed eligibility and use of funds requirements, visit the SBIR website.

USDA Rural Business Development Grants

These grants from the USDA aim to boost businesses serving rural areas. These grants are awarded for narrow use and must be for organizations that plan to use the proceeds for “projects that benefit rural areas or towns outside the urbanized periphery of any city with a population of 50,000 or more.” Potentially funded projects include pollution control, rural transportation enhancements, rural business incubators and more. Additionally, Those eligible for these grants include (but aren’t limited to) minority business owners (including members of federally-recognized tribes), towns, communities, and even state agencies. While there’s no maximum grant amount, the USDA states that they give priority to smaller grant requests. Interested applicants can reach out to their local USDA office for application information.

Research. Apply. Grow.

There you have it! These 10 minority small business grants can help fuel the growth of businesses on the rise. As you consider available opportunities, keep in mind that the application process for grants is highly competitive. Most companies invest significant time and resources into developing the most compelling application possible to rise to the top of the pool. The key to a successful application process is to start early and give yourself the time to create a well-supported package that clearly states your goals, growth strategy, and how you’ll ultimately use grant funds to advance your initiatives.