Business Loan vs. Business Credit Card?

Business Loan vs. business credit card how do you decide which is best for you?

When it comes to financing, entrepreneurs and small business owners continuously debate business loans vs. business credit cards. In many cases, the final decision comes down to the state of the business, relevant market conditions and what makes the most sense for the company’s long-term strategic objectives.

Before weighing in on the debate, here’s a brief description of each financing option:

Business loans

Business loans can boost your cash flow on both a short- and long-term basis. Short-term loans are good to cover unexpected expenses. A traditional term loan enables you to take on larger projects, without harming cash flow.

For business owners with great credit, stable revenue, and a solid business plan, a business loan can be a great option.

Credit card

A business credit card gives a small business owner instant access to cash. It doesn’t come in a lump sum as with a loan, but rather as a set amount of funds available when and as needed.

Interest rates with a credit card are generally higher than with a business loan, but by paying each month’s bill in its entirety, this isn’t a concern. Often, the appeal of business credit cards is enhanced by various perks, purchase protections and rewards.

Business loan pros and cons

With business loans, a borrower often has a voice in determining the frequency and flexibility of payment deadlines. Payment frequency may be based on existing cash flow, or you can pay back larger amounts without prepayment penalties.

In general, a business loan works best for companies in need of working capital for investment to in large-scale expansion opportunities, such as equipment purchase, hiring more employees or launching a new location, etc. It’s also useful in refinancing an existing business debt.

On the other hand, with traditional lenders, business loans “can be more difficult to qualify for, and the lending process can take weeks or months,” according to The Ascent at Motley Fool.

Credit card pros and cons

With a business credit card, a sole proprietor or ambitious entrepreneur enjoys rapid availability to money needed to finance operations. It’s also a viable option if you wish to make ongoing purchases or regularly incur significant expenses (though, as noted, it’s best to repay in full each month).

There’s a great deal of psychological comfort in knowing you have access to funds if and when your business needs them.

At the same time, the APR (annual percentage rate) for a credit card can sometimes be as steep as 20%, which adds up. Also, if your business experiences an unforeseen dip in cash flow, you may find yourself facing considerable (and growing) business debts, due to high interest rates. And in some cases, there’s an annual fee to keep a card account open.

Finally, a business that borrows money up to the pre-assigned credit limit and still needs funds can find itself in a tight spot.

Loan options to consider

The good news about business loans is it’s no longer mandatory to go to a bank for a traditional loan. Funding options includes:

  • Online loans. Requirements are less strict for these stand-alone cash flow loans. But, revenue stability and a strong business plan are essential for approval.
  • SBA loans. In fact, the SBA (Small Business Administration) doesn’t loan money itself, but the government-backed agency does agree to back a certain percent of the loan, which makes it easier to obtain loan approval elsewhere.
  • Purchase order financing. This is a short-term loan covering up to 100% of supplier costs. The key factor is whether a big order is just about to close. Following the sale, the lender’s fees are deducted from the proceeds.

Still more alternative types of loans include equipment financing, invoice factoring, and revenue-based financing. A fuller description of these options can be found here.

Taking time to debate a business loan vs. business credit card is important. No business can afford to delay making a final decision. The good news for small businesses is that there’s a wealth of financing opportunities available that help keep the dream of business growth a genuine reality.

Do You Know Your Fixed Charge Coverage Ratio?

Usually when someone mentions a company’s coverage ratio, they’re referring to the ability of the business to pay its debt obligations. Specifically, they’re referencing a financial metric known as the times-interest-earned ratio. But, a company has more fixed obligations than its principal and interest loan payments. The fixed charge coverage ratio includes all of a company’s fixed obligations–not just its debt service coverage.

What are a Company’s Fixed Charges?

Every business has fixed obligations they must regularly meet, regardless of sales volume or profits. Here are a few of the fixed obligations in addition to loan payments that most companies have to make:

Insurance premiums covering vehicles and property
Rent for offices and warehouses
Licenses and fees
Employee wages and salaries
Lease payments on equipment
Property taxes

A company’s cash flow must be enough to at least pay these obligations or it could go out of business.

What is the Fixed Charge Coverage Ratio?

The fixed charge coverage ratio, FCCR, shows the ability of a business to pay all its recurring fixed charges before deductions for interest and taxes. The formula to calculate the FCCR is as follows:

Fixed Charge Coverage Ratio = (Earnings before interest and taxes [EBIT] + Fixed charges before taxes)/(Fixed charges before taxes + interest)

Let’s illustrate with an example. Suppose Company A has an EBIT of $110,000, interest charges of $10,000 and other fixed obligations of $115,000 before taxes (leases, insurance and salaries). Its FCCR would be as follows:

FCCR = ($110,000 + $115,000)/($115,000 + $10,000) = 2.0

The FCCR shows the amount of the company’s cash flow that fixed costs consume. In the case of Company A, an FCCR of 2.0 means the company generates $2 in EBIT for each $1 in fixed costs.

How do Lenders Use the FCCR?

Lenders use FCCR to gauge a business’s financial health and ability to repay its loans. They want to know that a company can meet all its obligations even if sales decline.

Generally, lenders prefer an FCCR of at least 1.25:1. Higher ratios mean that the company can more comfortably cover its fixed costs with its current cash flow. It also shows that the company can take on more debt and still meet its obligations. An FCCR less than one means the business does not have enough earnings to cover its fixed costs. In this case, the owner could be forced to dip into reserve savings to cover the deficit.

How Can a Small Business Owner Use FCCR?

A business owner can use it to learn where the company currently stands and look for ways to improve. Tracking the FCCR over time will let you see if the company’s financial health is improving or declining.

You should know your FCCR before submitting a loan application. An FCCR of 1.25:1 makes lenders less inclined to offer a loan. As a result, you’ll know that you need to improve your FCCR.

If your FCCR is low, you could look at ways to improve marketing and increase sales. Or, on the other hand, you could analyze fixed costs to see if any expenses could be reduced. Owners can use this information to find which projects they can pursue without straining the business’s financial resources. Constructing various “what if” scenarios of different loan arrangements and the effects of changes in revenues and expenses will let you see the resulting FCCRs in the future.

Besides a high FCCR helping you to get financing, it is also assuring to you and your employees to know that the business is healthy and on a solid base for growth.

A Small Business New Year Checklist to Help You Ring in the 2020s

After crunching for year-end deadlines, the arrival of a new year–and decade–gives you a chance to take a breath, reevaluate your business and get back on track. Depending on the seasonality of your products, January may be a good time to make changes and begin long-term projects to help your company run better. Here’s a list of items to consider adding to your Small Business New Year Checklist for 2020 and beyond.

Formal Goal Setting

This may be the year to start setting clear business goals if you haven’t done so in the past. What do you want to get out of your company? What are some areas of potential improvement? Are you happy with the amount of business you bring in, or would you like to try new strategies to increase growth? Setting formal goals with a supporting action plan can help you propel your business forward.

Implementing Process Changes

If something is simply not working and causing you unnecessary stress, the start of the new year is a good time to revamp a broken process. Does your equipment need to be upgraded? Have you outgrown your manual record-keeping system? Would you benefit from technology that streamlines financial recordkeeping?

Develop a Budget

Goal setting and strategizing are big picture tasks. Experienced owners also recognize the importance of setting a detailed budget to keep spending in check. At the very least, start tracking your business spending. Open a separate bank account or credit card to help determine where the company’s money goes. Look for opportunities to improve profitability by lowering expenses.

Review Insurance Coverage

Has your business changed significantly in the last year? You should review insurance policies annually and add new items to coverages to reduce loss risk.

Tax Preparation

The beginning of the year is also tax prep season. Resolve to start the process early and know when your deadlines are. You may also want to research small business tax credits that you may qualify for.

Tax Planning

As you prepare tax forms for last year, keep an eye out for opportunities to save in the future. If tax laws change, research the ways they may affect your company. Consult with a tax expert, if warranted.

Facilitate Growth

You may need to invest in your business and prepare to handle more customers and higher sales volumes to increase growth. A new truck, expanding to another storefront, or hiring more employees will increase your expenses in the short-term, but also help to facilitate expansion. To help manage cash flow during growth periods, look into business financing options.

Start the new decade off right by using this small business new year checklist: set clear goals supported by tangible actions steps. Develop a budget and keep an eye on cash flow to determine how you’ll manage your company through the coming weeks and months. The new year is a chance to start over and improve your business aspirations. It is the perfect time to make improvements and upgrades to your company.

Understanding the SBA Microloan

The SBA Microloan program can provide small business owners with small-scale, low-interest loans with very good repayment terms to either launch or expand a business. Here is what prospective borrowers need to know.

What Is a Microloan?

The SBA Microloan program offers loans up to $50,000. They help women, low income, veteran and minority entrepreneurs, certain not-for-profit childcare centers and other small businesses startup and expand. The average microloan is approximately $13,000, according to the U.S. Small Business Administration (SBA).

Microloan lending is different from other SBA loan products from traditional financial channels. The SBA microloan program provides funds through nonprofit community-based organizations. These nonprofit organizations act as intermediaries and have knowledge in lending, management and technical assistance. They are also responsible for administering the microloan program for eligible borrowers.

Uses for Microloans

Microloans are applicable for working capital purposes or for purchasing supplies, inventory, furniture, fixtures, machinery and equipment. Ineligible uses include real estate, leasehold improvements and anything not listed as eligible by the SBA.

Microloans are a great option for businesses with smaller capital requirements. If you need additional financial assistance with purchasing real estate or help with refinancing debt, other SBA Loan Programs are available, such as the 7(a) loan or 504 loan.

Microloan Stipulations

According to SBA, microloans have certain stipulations. For instance, any borrower receiving more than $20,000 must pass a credit elsewhere test. The analysis from the credit elsewhere test determines whether the borrower is able to obtain some or all of the requested loan funds from alternative sources without causing undue hardship. No business or single borrower may owe more than $50,000 at any one time. Furthermore, proceeds cannot contribute to real estate purchases or pay for existing debts.

Microloan Qualification Requirements

Each microloan intermediary has their own credit and lending requirements. In general, intermediaries require some type of collateral in addition to the personal guarantee of the business owner.

Eligible microloan businesses must certify before closing their loan from the intermediary that their business is a legal, for-profit business. Not-for-profit child care centers are the exception and are eligible to receive SBA microloans. Qualified businesses are in the intermediary’s set area of operations and meet SBA small business size standards. Another requirement is that neither the business nor the owner are prohibited from receiving funds from any Federal department or agency. Furthermore, no owner of more than 50 percent of the business is more than 60 days delinquent in child support payments, according to SBA.

Prospective microborrowers must also complete SBA Form 1624.

Microloan Repayment Terms, Interest Rates and Fees

Microloan loan repayment terms, interest rates and fees will vary depending on your loan amount, planned use of funds, the intermediary lender’s requirements and your needs.

The maximum repayment term allowed for an SBA microloan is six years or 72 months. Loans are fixed-term, fixed-rate with scheduled payments. Interest rates will depend on the intermediary lender and costs to the intermediary from the U.S. Treasury. The maximum interest rates permitted are based on the intermediary’s cost of funds. Normally, these rates will be between 8 and 13 percent.

Microloans aren’t structured as a line of credit nor have a balloon payment. Microloans are malleable if the loan term does not exceed 72 months, but not exclusively for the purpose of delaying off a charge. They allow refinancing. However, any microloan that is more than 120 days delinquent, or in default, must be charged off, according to SBA.

There are certain microloan fees and charges. You might have to pay out-of-pocket for the direct cost for closing your loan. Examples of these costs include Uniform Commercial Code (UCC) filing fees and credit report costs. You may also have to pay an annual contribution of up to $100. This contribution isn’t a fee and can’t be part of the loan. Late fees on microloans are generally not more than 5 percent of the payment due.

How to Apply for a Microloan

To begin the application process, you will need to find an SBA approved intermediary in your area. Approved intermediaries make all credit decisions on SBA microloans. Prospective applicants can also use the SBA’s Lender Match referral tool to connect them with participating SBA-approved lenders. Document requirements and processing times will vary by lender.

You may need to participate in training or planning requirements before the SBA considers your loan. This business training helps individuals launch or expand their business.

For more information, you can contact your local SBA District Office or get in touch with a financing specialist at Kapitus.

Financing for Business Expansion

How do you find financing for business expansion, when the time is right? No matter how successful a business might be, the decision to proceed with expansion inevitably comes with more spending, not less, and therefore a need to identify funding sources early in the process.

Often, the single best solution is to obtain a small business expansion loan. Traditional lenders (such as a bank) will naturally want to know what you plan to spend the money on, in order to finance your growth plans.

Reasons for financing growth

Typical areas where business leaders focus their expansion efforts include the following:

Opening a new location.

A retail business with a bricks-and-mortar presence may wish to expand to a second or third location. For this and other related goals, it’s important to gauge the anticipated costs.

As Inc. notes, “you’ll need to acquire estimates for leasing space, building out your location, hiring staff and procuring additional inventory.” To make sure the numbers work, conduct a “break-even analysis to determine how long you’ll need to support your new venture before it becomes profitable.”

Hire additional staff.

Your current workforce might not match the needs of expansion. You’ll have to find time, money and other resources to recruit new team members (to pay them, once they’re hired). This is an important area to focus on, so that you and your workforce aren’t stretched too thin by your company’s “growing pains.”

Purchase new equipment.

Technology or other business-related equipment represents another area impacted by expansion. Whether it’s needed to facilitate greater employee productivity, respond to increased fulfillment and delivery demands or other needs, funding for equipment might be a key part of your expansion plans.

Other expansion-related areas include large-scale product upgrades or a new product launch and/or breaking into a new market. All of these objectives require new sources of financing.

Options for financing for business expansion

If attempting to secure a traditional bank loan isn’t your ideal financing strategy, consider these alternative funding options:

Online loans.

These stand-alone cash flow loans are fairly easy to qualify for, because requirements are less strict than for a bank loan. Also, it’s not necessary to secure the loan with future business revenue or other collateral. But stable revenue and a solid business plan are essential factors for approval.

SBA loans.

The Small Business Administration doesn’t actually loan money, but they agree to back a certain percentage of the loan. They guarantee repayment to the lender, which in term facilitates loan approval. Many small businesses opt for this approach.

Purchase order financing.

These short-term loans cover up to 100% of supplier costs, as long as it’s determined a big order is just about to close. After the sale, the lender deducts their fees from the proceeds.

Invoice factoring.

With this approach, you transfer over an unpaid invoice to a financing company (the “factor”), and receive an advance on payment. The factor takes over collecting payment from the clients. After deducting their fee (which can be as low as 1.5% of the invoice amount), you receive the rest of the invoice amount. Under this arrangement, you’re not obliged to wait 30-90 days for payment on your products or services.

Revenue based financing.

This type of loan involves a quick, simplified application process. Lenders approve financing after reviewing historic revenue and use this to forecast future cash flow. You receive a lump sum of cash. The lender collects a specified percentage of future sales, either on a daily or weekly basis.


Financing business expansion through crowdfunding has become more popular in recent years. Online platforms like Kickstarter enable interested micro-investors to put up funding for your expansion plans, with numbers that can significantly boost your chances for successful growth.

Repayment, or debt crowdfunding, follows a similar approach to traditional small business loans. Here, the business owes money back to the individual lenders at a set (agreed-upon) interest rate for these deals.

Angel Investing.

It’s worth exploring ways to secure venture capital financing, or enlisting the services of an angel investor to help grow your business. Some investors seek to play an active role in a business’s next steps. A business owner must relinquish some equity in order to obtain investor funding.

Financing business expansion can be stressful, but knowing you have options can lessen the anxiety involved. Your expansion plans may or may not meet traditional lending requirements, but with the range of lending alternatives available these days, a growing business is likely to find the financing it needs elsewhere.

How to Choose the Right CPA Firm for Your Business

You feel pretty confident in the accuracy of your financial statements. But, you know that “trust me” won’t cut it with outsiders when you’re looking for a loan or investment capital. And, perhaps, you just want some reassurance that whoever is doing your books (even if it’s you!) is up to the task – and honest. If this is you, it looks like it’s time for you to to face the audit vs. review and compilation question. This is where CPAs, and the assurance services they provide, come into the picture.

Audit vs. review

There are tiers of assurance services and levels of scrutiny that CPA auditors can apply to your books, with corresponding confidence levels. It ranges from a “compilation” at the low end, to a full-blown audit at the top. Each has a different purpose, and price tag.

Cost depends upon the amount of time spent performing the service, and the level of complexity (also impacting time requirements and thus cost). The range is wide, say from around $2,000 to $10,000, $20,000 or more.

A compilation of financial statements technically does not belong in the same category as assurance services because the CPA isn’t passing judgment on the accuracy of your financial statements, as they do in the audit vs. review area. A compilation, which does not need to be performed by a bona fide CPA, is basically just a set of financial statements compiled by an accountant using your financial records.

The accountant (or CPA) who performs the compilation should know your industry enough to understand your numbers, and adapt them to standard financial statement formats. Those statements will then be understandable to anyone who needs to look at them.

If the CPA has questions about where some numbers come from, you need to provide clarification. If the accountant / CPA isn’t satisfied with your answers, they quit the engagement.

Even if the accountant has no problem compiling the statements with a compilation, a letter accompanying those statements must be shared with anyone you give them to, making it clear that no opinions are expressed about their accuracy. The letter should describe the process used to perform the compilation, and any issues that arose.

Who Uses Compilations?

There’s a lack of assurance that goes with compilations. You might use them to seek a small loan or a larger one if you pledge sufficient collateral.

The entry level assurance services category is the review. According to the American Institute of CPAs (AICPA), the review service “is one in which the CPA performs analytical procedures, inquiries and other procedures to obtain limited assurance on the financial statements and is intended to provide a user with a level of comfort on their accuracy.” To produce a review, the CPA needs to gain a basic understanding of your business and your accounting procedures and principles.

Still, in performing a review, the CPA “does not contemplate obtaining an understanding of your business’s internal controls, assessing fraud risk, testing accounting records through inspection, observation, outside confirmation or the examination of source documents ordinarily performed in an audit,” the AICPA explains.

A review is only performed by a CPA who has no ties to you that could compromise the CPA’s independence.

“Material Modifications”

A report accompanies a report, giving the CPA’s opinion on any  necessary “material modifications” for statements. This will bring them in line with applicable accounting standards.

A review may get you by if you’re applying for a larger loan and prospective lenders will tell you what they need. They’ll provide a basic level of assurance, too. But a review is closer to a compilation than an audit, which involves significantly more digging on the CPA’s part. The audit is the gold standard of financial statement scrutiny. It provides what the AICPA describes as a “high level of comfort” in terms of accuracy.

An audit only reassures yourself, lenders, investors or prospective business buyers that your financial statements are solid. And if the auditor does have some issues with your numbers or your internal accounting quality control systems, anyone reading the audit report will know that, too.

A Roadmap for Improvement

Any reported weaknesses in your financial controls can give you a roadmap on how to improve them. Once you fix the deficiencies, your next audit report will be cleaner.

However, an audit report indicates that it only provides ‘reasonable’–as opposed to absolute–assurance of your financial statements’ integrity.

Think about an audit vs. review and keep this in mind: In an audit, the CPA can’t rely on numbers from last year’s statements as the starting point for the current year’s audit. Instead, the auditor might first need to perform tests on the prior year’s numbers (and possibly earlier years). That suggests that the sooner you have an audit performed, the less expensive it will be.

There are steps you can take to reduce the cost of an audit, or for that matter, a review. Make sure your bookkeeping system is reliable, and that your financial records are easy to decipher. Consider bringing in a pro in to clean things up before you engage a CPA.

The CPA tells you the documents you need for and inspection. Be sure to have all your papers ready before the review or audit.

Pick an appropriate auditor to get an efficient audit. Large CPA firms tend to be more expensive than mid-sized or smaller firms. You probably don’t need a large national firm. However, a firm that’s large enough to have experienced auditors might be cheaper than a tiny firm. If it can perform your audit more efficiently, take it into consideration.

The public accounting industry is highly competitive. Don’t hesitate to shop around. Before signing an engagement letter, gain a high comfort level with a firm. Check the firm’s client references, fees, promised turnaround times, scope of services, audit procedures and technology infrastructure.

Choose wisely and build a strong relationship with a CPA firm. This can benefit you not only in assuring your financial statements are trustworthy, but ultimately help you to build a strong financial foundation for your business.


Can I Get Approved for the 7(a) Loan Program

Any small business owner who spends time searching for small business loans–both through banks and online–has likely come across the SBA 7(a) loan program. It’s one of the more popular small business lending options out there. With that, many small business owners look to the Small Business Administration (SBA) to help with financing.

One way the SBA helps small business owners is through their Loan Guarantee Program. Here, you’ll learn what you need to know about the SBA 7(a) loan program and the requirements for approval.

What is the SBA loan program?

SBA loans don’t actually go through the government. Instead, the SBA offers guarantees to participating lenders, including traditional banks, credit unions, online lenders and private lenders.

The goal is to make small business loans less risky for these lenders. This means that more business owners can secure funding to help grow their businesses.

Guarantees typically cover anywhere from 50 to 85 percent of the total loan amount, depending on the loan. The SBA has a variety of loan options, including the 7(a) program, the 504 program, microloans and disaster loans.

However, the SBA 7(a) program is the focus here.

What is a 7a loan?

SBA 7(a) loans are some of the most popular options available for small business owners. In the 2019 fiscal year, over $23 billion in loans saw approval. An average loan was for just under $450,000.

The flexibility of the 7(a) loan program makes it popular among small business owners. 7(a) loans are guaranteed up to $5 million. For loans up to $150,000, the SBA guarantees 85 percent. The SBA guarantees 75 percent for loans over $150,000, up to $3.75 million on the $5 million maximum loan amount.

If you default, the SBA will pay out the guaranteed amount. It’s one way the administration removes some of the default risks from lenders. This allows them to offer more attractive repayment terms.

Many small business owners would likely struggle to secure financing from traditional financial institutions without the SBA Loan Guarantee Program.

What are the SBA 7a loan terms and interest rates?

SBA loan terms are set with the long-term goals of small business owners in mind. Repayment terms are often based on your particular financial situation. However, most of these are paid back via monthly installments.

The set terms are as follows:

  • Real estate: up to 25 years
  • Equipment: up to 10 years
  • Working capital and inventory: up to 10 years

Another benefit of an SBA loan is that it sets a maximum with lenders on interest rates. Base rates are tied to Prime Rates, benchmark interest rates and additional spread rates.

The spread rate varies depending on the loan amount and the term. Typically, higher loan amounts with shorter terms have slightly lower spread rates.

The SBA has specific spread rates they use. But, the rates can change as the market rates do over time.

Are there fees involved with the SBA 7(a) loan program?

While you typically won’t find origination, application and processing fees with SBA loans, there still are fees to consider.

These fees can include:

  • SBA loan guarantee fees (which vary depending on the size of the loan; but they only apply to the guaranteed amount)
  • Credit authorization fees
  • Packaging fees and closing costs
  • Appraisal fees for real estate related loans
  • Late payment penalties
  • Prepayment penalties which apply to loans longer than 15 years that are prepaid within the first three years

The guarantee fee is the highest of all associated SBA loan fees. Keep these fees in mind as you figure your total payment amount.

The basics of qualifying for SBA 7(a) loans

The SBA has several eligibility requirements you must meet to qualify for any of their loans, including the 7(a). Since these are popular loans, you should understand the different requirements before you apply.

First, your business must be for-profit and based within the United States or its territories. Also, the SBA has size standards they use to ensure that the definition of small business gets met–since it varies across industries. This standard is generally a combination of employee size and annual average receipts.

Second, the SBA wants you, as the small business owner, to have a stake too. So, they require that you invest your own time and money into your small business. Also, eligibility rules state that you need to have been in business for a sufficient amount of time, typically a few years.

Finally, your business must be eligible for a loan. Some are not including real estate investment firms, rare coin dealers, companies involved in speculative activities, and companies where gambling is the primary activity, among others.

What are the SBA 7(a) loan program requirements?

Your job isn’t over yet, even once your business is eligible for a loan application. You need to meet the loan requirements, too. The SBA requires you to submit information on your “personal background and character”. This includes criminal history (if any), your citizenship status, work history in the form of a resume, past addresses, and other items as well.

You also need to provide a business plan. A solidified business plan goes a long way towards showcasing the strength of your business and your plans for the future. Don’t forget to include detailed information on how you’ll use your loan.

Other documents required are your business financial statements. You need to show your revenue and profitability. The SBA typically approves businesses with at least $100,000 in revenue each year. You should also provide a listing of any debts and your debt schedule, which can help highlight your expected cash flow.

Your personal credit score is important. The SBA and lenders will typically look for a FICO credit score above 650.

Finally, there is some personal risk involved with 7(a) loans too. The SBA requires anyone who owns over 20 percent of the business signs a personal guarantee on the loan.

While each lender is different and requirements vary depending on your situation, keep these requirements in mind as you move through the process.

Types of loans in the 7(a) program

Within the 7(a) loan program, there are different loan options beyond the 7(a) standard loan you can explore.

The 7(a) Small Loan program has all the requirements of the standard 7(a) loan with one significant difference: it offers a maximum loan amount of $350,000.

SBA Express loans are designed with quick turnarounds in mind. They have a maximum loan limit of $350,000. Note that the SBA guarantees 50 percent of the loan amount.

SBA Export Express loans are directed at exporters for lines of credit up to $500,000. The SBA guarantees 90 percent for loans up to $350,000 and 75 percent for amounts beyond that. It’s yet another option with quick turnaround times.

An Export Working Capital loan is for a revolving line of credit up to $5 million with a 90 percent SBA guarantee. This loan often has short terms of up to 12 months.

International Trade loans are set to meet the long-term financing needs of export businesses. The maximum amount is for $5 million, with the SBA guaranteeing 90 percent of the loan.

How can you use a 7(a) loan?

The SBA sets guidelines for both the general loan terms and how funds get used.

These include:

  • Expansion and or renovation needs
  • New construction
  • Purchasing land or buildings
  • Purchasing equipment, fixtures, or lease-hold improvements
  • Working capital
  • Refinancing debt (the SBA cites it must be for “compelling reasons”)
  • Seasonal lines of credit
  • Inventory costs
  • Business startup costs

Understandably so, it’s essential to know this information before you apply. Otherwise, you could lose your funding if you’re using it for unapproved reasons.

The Bottom Line

It’s easy to see why SBA 7(a) loans are so popular with small business owners. They provide funding with flexibility and attractive terms. If you meet the qualifications and requirements for an SBA loan, it just could be what you and your small business need to achieve your long-term goals. To learn more about SBA loans, click here.

Business Loans for Contractors: The Best Choices

Contractors need different types of capital to run their businesses. They use long-term capital to finance equipment purchases and short-term capital to smooth out temporary fluctuations in cash flow. Here are the best loans for contractors with descriptions of their collateral requirements, application procedures and repayment terms.

Line of Credit

A business line of credit is a valuable and flexible source of funds for a contractor. It allows you to make “draws” as needed against the maximum approved line of credit. You will only pay interest on the amount of loan drawn down. If you repay the loan, you can come back later and borrow again. These types of loans are known as “revolving” lines of credit.

Lines of credit help smooth out short-term fluctuations in cash flow. They can be used to meet payroll expenses, pay suppliers and provide cash during slow periods. They can be drawn down at any time.

Lines of credit are usually secured by the contractor’s assets, such as accounts receivable, inventory and equipment. The amount of the loan is based on the lender’s appraisal of the worth of the company’s assets and its financial leverage. For example, a lender might advance 80% of the value of accounts receivable but only advance 50% of the book value of inventory and equipment. The maximum line of credit would be the sum of these appraisals.

The application and approval process for a line of credit is usually very quick.

Equipment Loans

From vehicles to high-priced heavy equipment, contractors need all types of equipment to perform their work. Equipment purchases for large amounts should align with the useful life of the asset. Equipment purchase loans are payable over several years, usually up to five years with monthly payments.

Lenders will require down payments of 10% to 20% but will finance the rest of the purchase price. This enables contractors to buy big-ticket items that may have otherwise been out of reach.

The collateral for an equipment loan is typically the equipment itself. This leaves the contractor’s other assets, such as receivables and inventory, available for collateral for other loans.

Small Business Administration Loan

Because of their long repayment terms and low interest rates, SBA loans are highly desirable. Lenders guarantee up to 85% of loans to contractors. This way, they have solid security in case the borrower defaults.

To finance long-term working capital needs and businesses with seasonal fluctuations, you can use funds from an SBA loan.

The hard part is that SBA loans are difficult to get. Only the most creditworthy applicants receive approval. Borrowers must have several years in business with good revenues and a strong credit history.

SBA loan applications require a considerable amount of paperwork and can take several months to get approved. SBA loans are highly desirable if you have the credentials and time to wait.

Accounts Receivable Financing

Under an accounts receivable financing agreement, the lender agrees to make advances up to a certain percentage, say 80%, of the contractor’s total accounts receivable outstanding. Repayment terms are either weekly or monthly. The contractor retains ownership of the receivables and assumes the risk of non-payment from the customer.

To make up short-term deficits in cash flow as needed, use funds from an accounts receivable agreement.

Invoice Financing

Invoice financing, also known as factoring, lets a contractor receive an advance against the company’s receivables. The factor typically will make an advance to the contractor of up to 80% of the invoice amount and collect the balance from the client at due date. Funds from factored invoices normally go into the contractor’s bank account the next business day.

In a factoring agreement, the lender, known as the “Factor”, purchases invoices from the contractor. They assume the responsibility of collecting the debt. Factoring fees can range from 2% to 4% of invoice value.

Approval for this type of invoice financing is based more on the creditworthiness of the contractor’s customers than the credit rating of the contractors themselves.

Loans for contractors range from lines of credit and receivables financing to meet short-term cash needs to equipment loans and SBA loans for long-term purposes.

Where Businesses Can Find Small Loans

Every day, business owners across America need small loans to help keep their business running. Sometimes these are short term loans, just to get the company through cash flow troubles for a few months. Conversely, some need small personal loans or auto loans to help improve the business and take things to the next level.

If you’re a small business owner and you’ve been thinking about securing a small loan, there are plenty of places where you can turn to for help.

Why Might Your Business Need Small Loans?

Before looking at short term loans, you need a clear understanding of your needs and financial situation. Borrowing money is a normal part of running a business. However, to get the short term loan you need is often based on your credit, collateral and financial statements.

Depending on your situation – including the length of time your business has been in operation and your cash flow – some funding sources might not be feasible. That’s why, when it comes to finding the right funding situation for your needs, it is essential that you consider all options.

It helps to have your financials, credit history, business plan and reasoning as to why you need the loan on hand, so that you can get a full idea of all of your options. Also, as you do your research, be aware of added costs including origination fees, interest rates, and late fees on installment loans so you have the full picture as you move forward.

Financial Institutions

Many small business owners turn to banks and credit unions to secure small loans. Often times, one of the first places to look is where you currently have business banking and checking accounts.

Banks also offer a variety of financing options, from short term loans to auto loans and small personal loans to lines of credit. The issue many small business owners run into with financial institutions, is meeting their strict lending standards.

Typically, banks will require you have good credit and collateral – at the minimum – as well as a demonstrated source of cash flow from the products and services your business offers. Any problems there and you’ll likely be denied.

Time can also be a factor. Securing small business loans from banks and credit unions can take anywhere from approximately two to six months. If your business has more immediate cash flow needs, you’ll want to take that timeframe into account. Another thing to take into account is that many banks will not provide loans below a certain threshold, as the return for much small loans is not enough of a profit for them.

Small Business Association

The Small Business Association (SBA) is a department run by the Federal Government specifically there to help small business owners throughout the country.

There are a few popular SBA loan options. The most common is the SBA 7(a) loan program. In this case, the SBA doesn’t provide funding for entire loan amounts, but does agree to guarantee a percentage of it. That guarantee encourages lenders to accept your application.

Also, the SBA has options for short-term microloans, which offer funding up to $50,000 and have slightly more flexible terms. These are often run through Community Development Financial Institutions (CDFIs), as well as some local non-profit organizations.

One thing to note about SBA loans is, like traditional bank loans, they tend to take longer to process. These loans also have specific terms and conditions to pay attention to as well. So, if you’re in need of quick cash, take that into consideration if you apply.

Online Lenders

Today, banks aren’t the only alternative when it comes to lending for small loans. Online lenders also provide funding for cash flow and other small business loans.

Often, online lender guidelines aren’t as strict when compared to traditional financial institutions. This can benefit small business owners, especially if the business is still growing, you lack a lot of collateral, or your business has a shorter credit history.

In terms of loan options, online lenders sometimes offer traditional small business and SBA loans, as well as lines of credit. For a lot of small business owners, a line of credit is an attractive alternative. Some of the issues that usually slow down an application process – including poor credit – are not typically used as a final deciding factor with online lenders. Plus with a line of credit, cash is often quickly accessible.

Online lenders also offer a bit more flexibility, especially when it comes to loan sizes (some will provide financing in amounts as little as $5,000), terms, timing, and repayment options. Most small business loans can be approved in a few days versus a few months. Plus, monthly payments or installments can be based on your business’ existing cash flow.


If your business is in need of a small short-term loan, microlenders could be an option. As mentioned above, many banks tend to believe loaning such small amounts unworthy of their bottom line. Microlenders often provide loans up to around $35,000 for small businesses that’re in particular areas or serving specific community needs.

Even though microlenders loan smaller amounts, they generally require detailed information about your business. That can include financials, credit history, cash flow, and business plans. The loan application process is based on the amount of information required, so it’s usually not an option for fast funding.

For business owners who are in the process of upgrading or lack collateral and only need a small amount of cash, this is another alternative.

Crowdfunding and Peer to Peer Lenders

Alternative funding has grown in popularity over the years. Two of these alternatives are crowdfunding and Peer to Peer (P2P) lenders. Although the terms are often used interchangeably, there are differences.

Crowdfunding is a way for a small business to raise money by asking people to provide funds in exchange for equity or future repayment. Equity crowdfunding is when a business sells a share or percentage of the business to investors. This type of crowdfunding is often used by businesses that grow quickly. Repayment, or debt crowdfunding, follows a similar approach to traditional small business loans. Here, the business owes money back to the individual lenders at a set (agreed-upon) interest rate for these deals.

P2P lending most closely follows the debt crowdfunding model. It’s a way for investors to provide cash flow. The business will pay the funds back, with interest, over a set time frame.

More established businesses with a steady cash flow to repay the debts monthly can consider these alternatives.

Business Credit Cards

While it’s not exactly a traditional-style loan, you might also consider getting a credit card for your small business. If you need only a small amount of cash relatively quickly and have the cash flow to pay your card’s balance down, it’s another option.

Many cards offer low introductory rates or balance transfers from other cards for a set period – usually up to 18 or 24 months. Sometimes, these cards have special perks or membership benefits and discounts that you can apply to your business.

Using a business credit card is another way to help separate your personal finances from your business finances. Additionally, it could help build up positive credit reports for your company. After all, having a strong business credit score can be the deciding factor when it comes to loan approvals.

You Have Options

Securing a small loan (or any size loan for that matter) is usually stressful for a business owner. However, it’s important that you understand there are a variety of options out there. Just because you might not fit the traditional requirements for lending, doesn’t mean it’s not possible to get the funding you need to help your business grow.

How to Construct a Business Action Plan to Get Things Done

You’ve probably heard about the importance of creating a business plan to plot the growth and development of your business. So you outline your goals to increase sales, reduce costs and improve profits. But then what happens?  Setting goals is fine, but they need something that brings them to life. Something that makes everything happen. That something is a business action plan.

Here’s how to construct an action plan for your business that brings your goals to life.

What is a Business Action Plan?

While a strategic business plan outlines the overall growth, direction and development of the company, an action plan converts those objectives to identifiable tasks.

Quite simply, an action plan is a carefully thought-out listing of all the things that have to be done to turn your goals into reality. Let’s take an example.

Suppose one of your goals is to increase sales by 10% by hiring an additional salesperson to make more outside calls to potential new customers. The steps to achieve this objective might be as follows:

  • Write up a job description
  • Post your the postion on jobboards
  • Review the resumes that you receive and select 10 candidates to interview.
  • Schedule in-office interviews over the next three weeks.
  • Take one week to go over interviews to choose a candidate and make a job offer.

Each objective in your strategic plan needs a detailed list, like the one above, of the tasks needed to accomplish the goal.

What are the Components of Action Tasks?

Effective action-oriented tasks follow the SMART outline. They are:

Specific – Setting a goal to increase sales is too general. But saying you want to increase sales by 10% is specific. This way, you take last year’s figure, suppose it was $850,000, add 10% or $85,000 and you have a new specific target of $935,000.

Measurable – Progress towards achieving a goal must be measurable. Weekly sales reports, for example, will track the movement along the path to a revenue goal.

Attainable- Employees must genuinely believe that it is possible for them to reach the objectives. If they don’t feel the objective is realistic and reasonable, they won’t even try.

Relevant – Goals must conform to the company’s business model and customer demographics. The goal should be worthwhile, match other company efforts and applicable in the current economic conditions.

Timely – Set a target date. Establish a deadline to keep the focus on tasks leading to long-term goals.

Which Resources are Needed?

Identify the resources needed to carry out each action task. How much will it cost? How many people will be needed? Will you need to purchase any additional physical assets?

In our example, someone has to write the job description, place the ad and make sure the ad is paid for. How many hours of an employee’s time will this take, and how much will the ad cost?

Communicate the Plan to Your Employees

Get your employees involved. Let them know what your plans are and explain how these actions fit into the company’s business strategy.

Ask for their input and solicit suggestions. Employees are much more likely to support your plan and participate in its implementation if they are part of its creation.

Designate a person to be in charge of each task. Someone has to accept responsibility for the execution of the assignment.

Set Timelines for Each Task

Each task must have a specific time to complete and a deadline. Without timelines, work will expand to fit the time allowed.

Monitor the Progress

Create procedures to receive regular progress reports for each action task. The responsible employees must be aware that they will be monitored, weekly if necessary, to make sure things are moving along. If obstacles appear or deviations from the expected timelines occur, adjustments can be made to get back on track.

Business action plans are the means to convert strategic ideas into reality. Tasks that are created with action plans using the SMART method with employe participation will have the highest likelihood of success.

Do You Know How to Make a Profit Plan?

Is your business designed to make a profit? Do you have a target profit figure in mind? If not, you should consider creating a profit plan for your business. While a business plan shows the results you hope to achieve, a plan for profits details how you intend to make it happen. It puts you in charge.

To increase the chances of reaching your profit objective, follow this guide and learn how to create a profit plan for your business.

What is Planning for Profits?

In a nutshell, planning for profits requires management to make a set of decisions that describe how a company intends to reach a target profit level. As such, his plan details what actions will be taken, who will do them and when they will be done.

In this sense, a profit plan is a pro-active road map that an owner can use to take the company from Point A to Point B. It discourages wandering off on side roads and keeps the business focused on the goals.

The process of creating a profit plan forces you to make realistic evaluations of the strengths and weaknesses of your company, also known as a SWOT analysis. The results of this analysis will form the basis for determining a practical and achievable profit objective, not a pie-in-the-sky goal.

How to Create a Profit Plan

You will use the profit objective from the SWOT study to identify what steps must be taken to reach this goal. Is it a rise in sales, a reshuffling of your product mix, an increase in selling prices or a reduction in expenses?

Using your historical financial figures as a basis, identify the changes that will be necessary to reach your profit objective.

You must determine the actions needed and who will be responsible for the results. For example, you might:

  • Invest in research and development to modify product features to meet changing customer preferences
  • Expand by opening locations in other regions
  • Purchase more efficient production equipment
  • Negotiate better prices with suppliers to reduce costs of production
  • Hire additional sales staff
  • Spend more on marketing

Once you have made these decisions, the required actions can be incorporated into your profit plan. These actions can include making projections of revenues and setting costs for manufacturing products or providing services and establishing,  In addition, it should also include budgets for overhead expenses. Any additional capital investments should identify the sources of financing, either funded internally or with outside loans.

The resulting document becomes the road map that defines the company’s activities for the coming year. You can set up reporting systems with benchmarks to measure progress along the way.

How to Make Your Plan Effective

An effective profit plan should have the following traits:

  • Key managers and employees must be involved in the planning and development
  • The analysis must be thorough and address all of the company’s important short- and long-term issues
  • The plan should anticipate future trends and changes in the company’s market environment
  • You should make provisions for changes when key assumptions prove invalid

What are the Benefits of a Profit Plan?

In addition to providing a clear direction for your company, a profit plan has other benefits. A profit plan is useful for:

  • Giving managers explicit financial goals and objectives
  • Defining specific performance metrics for employees
  • Educating employees on the direction of the company to gain their participation
  • For motivating key employees
  • Establishing a foundation for making strategic decisions
  • Creating action plans as a basis for monitoring progress and measuring performance

Planning to make a profit is an important mindset for every small business owner. Profit plans create a different perspective of making something happen rather than working hard and hoping to get good results. You can increase your odds of success by taking charge of the business and directing it where you want it to go.

Overcoming a Natural Disaster: How These Businesses Survived and Thrive

According to the Federal Emergency Management Agency (FEMA), overcoming natural disaster impact is a rough road for businesses.

The agency’s latest data indicates that 40 to 60 percent of businesses never reopen following a natural disaster. That number goes up to an astronomical 90 percent failure rate for companies that can’t reopen and resume operations within five days.

How can your business beat the odds if you happen to have a natural disaster strike?

The two businesses below have their own unique stories to share about overcoming natural disasters as well as tips to help any business survive and continue to thrive despite Mother Nature’s moods.

Three Brothers Bakery – Hurricane Harvey

The Jucker family business, Three Brothers Bakery, is a Houston-area tradition. Their three locations serve-up up baked delights for multiple neighborhoods. They’ve seen their pecan pie go nationwide through mail order. Their baked goods keep winning awards, and it’s almost comical to list all of their accolades.

Yet, it was four days of rain and four-and-a-half feet of water from Hurricane Harvey in late 2017 that turned their operations upside down. All three locations flooded. Business ground to a halt.

To manage the damage from Harvey, the Juckers took out $900,000 worth of loans from the Small Business Administration (SBA). “These loans were to survive,” says Jucker. “Most people take loans to grow. We could have built two new stores with those loans. That’s the impact.”

Revenue is still recovering, and they still get the question: “Why don’t you move your business?” That’s a rough one for people who don’t run businesses inside disaster zones to grasp.

“Businesses are different than homes,” Jucker says. “You can raise a home and be out of it while it is being raised or perhaps even tear it down and rebuild. We have a working bakery with lots of built-in equipment like ovens, coolers, freezers, and it is also our main store. It would cost millions to move it, and our store needs to remain because this is where the ‘horses come to drink’ as we have been here since 1960.”

Her best advice for other businesses in disaster-prone regions? Protect your business and plan for the worst.

Get flood insurance:

“No matter where you live, floods can occur. If you are not in a flood-prone area, [flood insurance] is very inexpensive.”

Gather your financials and inventory:

“When you are buying replacements [for damaged business property] that you might want to finance, these things could be important. If you want a loan, they are definitely important.”

Have available credit:

“Cash is king when you have no revenue, so we charged everything we could to preserve cash.”

Jucker’s also excited about the bakery’s growing mail-order business and encourages businesses to find revenue streams beyond their own backyard. This will keep revenue coming in, even if the neighborhoods served are affected by natural disasters.

The Boathouse Marina – Freak Maritime Storm

When Bill Bowman bought the Boathouse Marina in 2013, he wanted to be the king of customer service for the boating community along the Virginia coast. Anything related to overcoming natural disaster was furthest from his mind.

Colonial Beach wasn’t an area prone to disasters, so he set his sights on improving the marina’s services. Between 2013 and 2017, Bowman oversaw improvements that included a new captain’s lounge, ship’s store, restrooms and showers, WiFi, laundry, and more.

No one on the Virginia coast was ready for the freak maritime storm that came along in April of 2017. Gusts of 70-75 miles per hour destroyed the marina, causing over $1 million in damage. Bowman’s facility went without power for six weeks. Yet today, he’s here to tell the tale of how he and the marina made it through.

The area had countless downed trees and powerlines, so there was a curfew instituted for safety. “We did as much as we could during the non-curfew hours, cleaning up debris ourselves even when equipment and clean-up vehicles could not access our site,” says Bowman. He also rented and purchased electric generators and got the marina back in business for their clientele within four days.

Today, the marina has rebuilt, and Bowman’s vision for the Virginia boating community has come through stronger than ever. Beyond the improvements he’s made after the storm, Bowman has a keen eye on how he and other businesses can prepare for a disaster, however unexpected.

Make a call list:

“Prepare a call list that includes anyone who can help you deal with whatever may happen.” (Insurance company, contractors, etc.)

Train your team:

“Be sure all staff is aware of the plan and prepared to participate.”

Prepare for self-sufficiency:

“Don’t rely solely on outside services to help you. If they can’t get to you, you need to be ready to help yourself.”

These two businesses demonstrate that it’s possible to thrive even when the worst of Mother Nature comes calling. How will your business use their tips to create a plan to aid you in overcoming natural disaster? For additional resources to help your business plan in advance so you can be proactive instead of reactive, you can visit the FEMA website, review tips from the SBA, and reach out to your insurance providers and banks to explore options available.

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