When You Need Financing, Lower the Amount You Need to Borrow by Asking Clients for a Down Payment

August 14, 2017/in Financing/by Wil Rivera

Asking clients for a down payment will help lower the amount you need to borrow.

We’re all used to the idea that companies must get their products on the shelves in order to make sales and hence generate profits. But what if you could ask for a chunk of the cash before you even broke a sweat? It does happen. Automotive pioneer Henry Ford (founder of Ford Motor) did this with his network of car dealers. He asked all of them to commit to selling a certain number of cars in the forthcoming year and to pay for them ahead of time.

In simple terms, he got the cash long before he started to build the cars. It allowed Ford to stay in business without tapping the financial markets for cash. The story is detailed in The Path to Personal Power by Napoleon Hill. Although the book was originally written as a series of lessons in 1941, the message hasn’t aged. At a minimum business owners should consider asking for a down payment (perhaps the whole bill) on orders before beginning work for their customers.

Well Known Companies That Grew With an SBA Loan

Surprise! 7 Businesses You Know That Grew With an SBA Loan

July 26, 2017/in Financing/by Wil Rivera

Is your business ready to expand to the next level? If so, when considering options for financing your organization’s growth, don’t overlook the Small Business Administration (SBA) — they aren’t just for starting new businesses.

When more established businesses are ready to expand to the next level, the Small Business Adminstration (SBA) offers programs to help qualified businesses. Some of those businesses grew so much they became household names, like these seven big brands that may surprise you.

#1. Under Armour®

If you or your family members participate in any sports or physical activity, you know the name Under Armour. This $3.96 billion workout-wear company used SBA assistance to expand in it’s early years.

#2. Chobani® Yogurt

When Hamdi Ulukaya wanted to switch his business from making feta cheese to making yogurt, he needed larger premises. He used an SBA 504 loan to purchase an 80 000 square foot Kraft factory in New Berlin, NY, and today this $3 billion company employs 2000 workers.

#3. Chipotle®

Love Mexican food? The next time you visit a Chipotle Restaurant, keep in mind that when founder Steve Ells was ready to open his third restaurant, he did so with SBA assistance.

#4. Apple®

The SBA’s Small Business Investment Company (SBIC) Program has a long history of directing capital to innovative technological organizations. One of the most iconic tech companies to benefit? You guessed it -Apple. And the SBA’s Small Business Innovative Research (SBIR) Program funded the research for that handy fingerprint scanning technology on your iPhone.

#5. Nike®

Iconic brand Nike also has the SBIC Program to thank. The well-known footwear and apparel company used the program, which helps small businesses access private debt and equity financing, to grow beyond its small business beginnings.

#6. Ben & Jerry’s®

If you love ice cream (even if you just like it a little), chances are you’ve tasted at least one of Ben & Jerry’s wonderful flavors. It was SBA assistance that helped the Vermont-based ice cream company get going in it’s early days.

#7. Federal Express®

It may seem hard to believe that this behemoth of a delivery company (currently serving 220 countries, with 400,000 employees and projected 2017 revenues of $60.3 billion) was once a small business. Yet back in the early 70’s it was just getting started, and a SBIC program provided the extra capital boost required to expand it to the next level.

If you don’t qualify for an SBA loan right now, don’t despair — you do have other small business expansion financing options. Alternative funding companies offer solutions, usually through online applications and interactions, that you may not have known about. Another possibility is peer-to-peer funding, where private funders offer unsecured financing to qualified small business borrowers.

When you’re considering growing your business, research your financing options. And get inspired by this list of other small businesses that borrowed to expand, and never looked back.

7 For 2017: 7 Small Business Contests You Don’t Want to Miss

March 3, 2017/in Financing/by Wil Rivera

If you’re a small business owner looking for exposure, mentors or money, entering a small business contest could be your answer. Check out these seven business contests for 2017 offering a variety of prizes.

#1. FedEx Small Business Grant Contest

Now in it’s fifth year, the 2017 FedEx Small Business Grant Contest offers a first place cash prize of $25,000. Additionally, the Grand prize winner receives print and business services of $7500. Other prizes are reserved for the Silver and Bronze winners. However, businesses must be in the United States, with between 1 and 99 employees on the payroll.

In order to be eligible to win, submit your application starting February 21, 2017 through April 25, 2017.

#2. Shopify Build a Business

Touted as “one of the world’s largest competitions for entrepreneurs,” Shopify Build a Business V11 will open this spring. If you own a privately-held company with annual sales between $1 million and $50 million USD, you sell online and are already on (or planning the move to) the Shopify platform, you could qualify to win. Winners get a 5-day business getaway in Fiji with business expert and mentor Tony Robbins; plus they include $1 million worth of “marketing architecture.” In the meantime, check back with the website regularly for the 2017 business contest opening date.

#3. 2017 US Chamber of Commerce Dream Big Award

The US Chamber of Commerce and Sam’s Club have partnered to hold the US Chamber of Commerce Dream Big Award to recognize and reward top small businesses across the country. 10 Blue Ribbon winners and 7 regional finalists are honored at the Annual America’s Small Business Summit. The grand prize winner will receive the Dream Big Small Business of the Year Award and $10,000. Last year’s summit was held in Washington D.C. in June. Although applications will be available in the spring, be sure to check the site for news on the 2017 contest.

#4. InnovateHER: Innovating for Women Business Challenge

If you’re a woman who’s developed a product or service to impact and empower the lives of women and families, the InnovateHER: Innovating for Women Business Challenge could be the 2017 business contest for you. Sponsored by the U.S. Small Business Association (SBA), winners of country-wide local competitions advance to the semi-finals, from which 10 finalists will get selected. Finalists pitch their ideas to an expert panel in competition for three awards and prize money totaling $70,000. With this in mind, send in your application by May 12, 2017.

#5. Arch Grants Global Startup Competition

So what do you think of the idea of relocating your business to St. Louis? The Arch Grants Global Startup Competition offers a $50,000 cash grant, as well as many free or discounted business services, mentoring and educational programming to the winners. Applicants should either already be in the St. Louis area or willing to relocate. Additionally, preference is given to companies that offer innovative products and services. The also must be established “beyond the idea stage.” Applications open on March 1, 2017, and finalists will pitch the judges on Pitch Days – August 16 and 17, 2017.

#6. Miller Lite Tap the Future

Are you looking for an opportunity to pitch your new business idea to a business giant? The Miller Lite Tap The Future contest awards finalists the opportunity to pitch Shark Tank’s Daymond John. The winner gets $100,000, too. If this sounds good, better get started – all applications must be in by April 14, 2017.

#7. 2017 Small Business Innovator of the Year – New Jersey

If you’re a small business owner operating in New Jersey with fewer than 500 employees and an innovative solution to a business or community problem, this may be the contest for you. Launched by the Asbury Park Press, applicants for the Small Business Innovator of the Year must fall into one of six business categories: healthcare, retail/wholesale, technology, real estate/home improvement/energy, engineering/manufacturing, or leisure/hospitality. The Grand Prize Winner receives $5,000, but take note, each sector has a different submission deadline starting with the March 15, 2017 deadline for the retail/wholesale sector and ending with a People’s Choice selection on August 15. For more information visit Small Business Innovator of the Year Rules.

Many state and local competitions also offer a variety of prizes for small businesses, so check out your local organizations and news outlets to see what’s available in your area. Do some digging – winning a business contest not only could give your business a cash-injection, but also let you expand your network of business peers, experts, and potential mentors or investors.

Small Business Financing – A Glossary to Get You Started

March 1, 2017/in Featured Stories, Financing/by Wil Rivera

Sometimes it takes money to make money, as the saying goes.

But when you don’t have the money and need to borrow, and you don’t have the bandwidth to study up on finance and accounting terms and conditions, the fat stack of documents you’re about to sign can prove daunting.

In this series, we will examine several topics that affect small businesses seeking financing using the example of two fictional local competitors: Buddy’s Bakery and Callie’s Cupcakes. While the respective (imaginary) businesses are doing well, the owners have a lot to learn when it comes to their finances.

In order to get Buddy and Callie started, we’ve defined a few financial terms that often come up in business; terms any business owner should familiarize themselves with in order to feel comfortable and confident when it comes to finances. While it’s impossible to know everything, you don’t have to have an accounting degree to understand the basics.

Want to learn more? Look no further.

What is Accounting Rate of Return (ARR)?

For starters, accounting rate of return, also known as “simple rate of return,” is used by a small business to decide the assets or projects it would like to invest. Calculating the ARR is useful if you are looking to determine the expected profit, or return, on the investments you make in your business. It is also often used to compare and contrast multiple projects.

In its simplest form, the ARR of a project is the following calculation: divide the annual accounting profit by the initial investment in the project. For a real-time application, let’s consider this scenario:

Buddy’s Bakery invests $250,000 in equipment.
The total profit it has made over the past five years is $50,000.
If we divide $50,000 by 5, we come up with an average annual profit of $10,000.
From there, we divide the investment of $250,000 by 5, making the annual average investment $50,000 per year.
To come up with the ARR, we simply divide the average annual profit of ($10,000) by the annual average investment ($50,000). This makes the ARR for the bakery investment 20%.

What is Annual Percentage Rate (APR)?

On the other hand, annual percentage rate, or APR, is a more common term. Anyone with a mortgage or credit card is probably somewhat familiar with the term and how it works. A loan’s APR provides a borrower with the bigger picture of their payout because it showcases the total price and accounts for the interest rate on an annual basis. In addition to interest, APR includes fees such as closing, origination and documentation fees.

Speaking of interest, it is something to look at on a deeper level when examining APR. For example, interest is affected by the life of the loan and its repayment schedule. And in some instances, loans are offered with provisions that decrease the interest rate as the balance is paid off.

What is Internal Rate of Return (IRR)?

IRR is a percentage that determines the investment return on capital expenditures or investments and ignores external factors. Also, IRR is an interest rate that equalizes cash spent on an investment with cash that comes in because of the investment. IRR can also occur when net cash related to an investment equals zero.

Its real-world application determines if the cost of a project, investment or expense was worth it; or, it is calculated to see if a business made money on a project or not. In the case of our competing bakeries, if Buddy’s cost of capital is 6%, any opportunity with an IRR of 6% or higher is a viable option he can consider. So, when his accountant presents him with an investment opportunity with a yield of 4%, Buddy knows this is not worth consideration because it falls below his 6% cost of capital. However, a few weeks later, when his accountant shows him an option with a 7% yield, Buddy knows this is worth a second look and possibly pursuing because it is above the cost of capital.

What is Annual Percentage Yield (APY)?

First things first. Written up as a formula, APY = (1 + r/n )n – 1

r = quoted annual interest rate; and n = the number of times interest compounds per year.

APY is the rate of return on an investment that accounts for compounding interest. This is assuming funds will remain in an investment vehicle such as stocks, bonds or CDs for 365 days. In one case, it can evaluate the true return on an investment. For example, if Callie invests $1,000 in a CD with a 12% interest rate, over the following 12 months, we can assume that with the bank compounding 12% interest every month for a year, it will grow to an APY of $1,126.83, or 12.683%.

On the flip side, APY also determines the true interest rate paid on a loan; and/or help a business owner to standardize a varying interest rate into an annualized percentage. In Callie’s case, she is considering bank loan and would like to know what the loan’s APY will be. If she uses the above formula for a 12 month $1,000 loan at 2.12% interest, at the end, she would end up paying $1,021.41, an APY of 2.14%.

What is Factor Rate?

If a business finds itself in need of short-term financing, one important component is its factor rate. One can determine this by dividing financing cost by a loan amount. Factor rates are typically in a decimal amount and vary from 1.1 to 1.5. Factor rates also rely on variables such as the average monthly sales, industry, and length of time in business.

In the instance of Callie’s Cupcakes, if she takes out short-term financing for $100,000 at a factor rate of 1.18 over a 12 month term, Callie will be repaying a total of $118,000.

With a basic grasp on these terms, Buddy and Callie can face their finances from a more realistic standpoint. It can empower them to find out what funds are going where. That will hopefully be an easier and smoother ride. But what do they know about the impact of cash flow on their respective businesses? Stay tuned to learn more.

4 Must-Know Tips when Managing Restaurant Finances

January 27, 2017/in Financing/by Wil Rivera

Part four in our four-part series with culinary consultant Jenny Dorsey on her best advice for your restaurant brand, menu, staff and finances when you’re owning and running a restaurant.

Now that you understand key components to your restaurant’s brand, menu, and staffing, we close with financial tips for restaurant owners. Keeping on top of your restaurant’s finances is the most important step to ensure your restaurant stays open. Dorsey suggests four key areas to focus on when managing your restaurant’s finances:

Track All Costs — Including Hidden Ones

As a restaurant owner, closely monitor a spreadsheet that captures your total revenue, line item costs and gross revenue. Before you even open a restaurant, you should have an estimate of what all these costs will be. Every month, you need to track how close your actual expenditures are to your estimates. This way you can unearth hidden costs that crop up as you manage your restaurant. Adjust your monthly budget accordingly, so you’re always on top of what money is going out and into your restaurant.

“What are your food costs and labor costs?” Dorsey asks. “These are two really big ones for restaurants, so you should be tracking these closely. What are your overhead costs every month? Rent, utility, Wi-Fi … You need to know what that number is too. Even if you don’t sell any food, you still have to pay those overhead bills, at minimum.”

Dorsey also recommends understanding what types of financial changes come with restaurant seasons. For example, if you are opening a patio and staffing it for the summer, track those costs in your spreadsheet. Be sure to track the seasonal overage for turning up the heat in the winter as well. Finally, Dorsey recommends watching how your food costs raise or lower based on buying food in small quantities or bulk. This is a hidden line item that can save (or cost) your restaurant a lot of money.

Understand How Sales & Net Income Affect Each Other

You might be able to increase sales by making changes, such as adjusting the menu. But if you’re also increasing your costs, then more revenue means nothing. Dorsey stresses that it’s important to understand how sales and net income work with each other. Ensure that while you’re increasing sales, you’re not also significantly increasing costs.

“A lot of people think sales equal net income,” Dorsey says. “Sales are sales, and net income is your sales minus your costs. So, even if you’re constantly increasing sales, if you’re also increasing your costs then you’re not making any money. If you’re going to invest in something for your restaurant that’s not going to bolster your sales or net income right away, that’s okay, but then you need to recognize that. For example interior design might not pay immediately, but you might have increased future sales after really good Yelp reviews about the ambiance of your restaurant. Think about bolstering your sales in a way that has your income in mind.”

Don’t Underestimate Your Required Working Capital

Dorsey says restaurant owners make a common financial mistake: not accounting for the working capital needed to run their restaurant. Once you know your monthly costs, keep two-to-three months of working capital saved in case there is a downturn.

“You don’t want to be living and running your business ‘paycheck to paycheck,'” Dorsey says. “Things usually domino, and it can be as simple as if you didn’t make enough money to pay your utility bill, then you incur a big late fee, which means you can’t pay something else on time, and bills begin to spiral out of control. You perpetually end up in this cycle of not being able to pay your restaurant’s bills on time.”

If you can’t save enough to get ahead for two to three months, another option is to obtain restaurant and food service financing from a trusted source such as Strategic

Funding. This can provide you with working capital you can use in case business declines for a couple months.

Know Your Resources for a Loan & Use Them Wisely

Dorsey says there are three main sources where restaurateurs obtain financing:

Friends and Family: Getting financing from friends and family can be great because they know you and terms can be generous. On the other hand, if things go awry your business finances will become entangled with personal relationships.

“You should have some sort of formal contract in place, even if it’s your mom and dad lending you money,” Dorsey says. “It’s best to have as much legal framework around this relationship in case anything goes south.”

Crowdfunding: Dorsey says the best time to use crowdfunding platforms is if you’re trying to raise funds for a restaurant product or if you’re raising money for a beloved neighborhood location. However, she stresses it’s important to understand the legal implications.

“The challenge with crowd is if someone gives you $5, they technically own a very small share in your company,” Dorsey says. “If you have 5,000 backers, then you have 5,001 shareholders in your company and they technically have a say in what you do with your restaurant, no matter how small their contributions are. Because of this, it’s important to make sure the legal framework is set out before crowdfunding. Alternatively, there’s some platforms that are non-equity based, but in that case your backers will still expect to receive something tangible in return for their contribution, so think wisely about what you’ll be offering them.”

Restaurant Business Loans: Dorsey says it’s important when obtaining restaurant financing to clearly understand how you can turn around the loan money and pay it back since you’re bound to terms. You can’t miss payments or float cash like you might be able to with friends and family.

“I think restaurant financing works especially well for owners with established restaurants or those very confident in their financial projections because you have a record of what that loan is going to get you,” Dorsey says. “For example, if you need $100K in financing to open a second location, you should know based on financials from your first location that you can expect to pay that back in X amount of months.”

Interested in obtaining operating funds for your restaurant? Visit Kapitus to learn more about how a restaurant loan could grow your restaurant this year. To find out more about how Jenny Dorsey can help your restaurant, visit JennyDorseyConsulting.com.

How an SF Fashion Startup Funded Their 3-D Technology Business

December 16, 2016/in Financing/by Wil Rivera

Julian Eison, founder & CEO of Eison Triple Thread (ETT), built his successful fashion startup in San Francisco by combining his love of technology and fashion — two of his passions since a young age. At 7 years old, Eison built his first computer. By the time he was in high school, he capitalized on a popular fashion trend using Gucci fabric to make and sell jeans during his lunch breaks. Now, Eison’s menswear line uses technology to offer customized, tailored garments. Here’s how Eison built ETT and leveraged financial bootstrapping and working capital. He grew his online fashion business into a unique retail showroom in downtown San Francisco.

“The concept for Eison Triple Thread was born in 2013 after a previous attempt in building an enterprise software startup failed,” Eison says. “The failure of my first startup was a necessary phase that I had to go through to discover my true strength and passion.”

Eison saw a menswear market that was saturated at the far ends of the spectrum. It was either disposable low-end fashions and high-end designer goods. Eison leveraged both his passion for design and knowledge of engineering for his second startup. Realizing the opportunity for broad-appeal tailored menswear within a mid-wallet price point, ETT was born.

Eison was able to bootstrap his new startup throughout beta product releases while working full time at private equity firm.

“Once I had a product that I knew early customers were generally happy with, I raised a pre-seed round of capital funding to further build out the brand and [the] Style Gallery,” Eison says. “Next, it was simply a matter of putting my money where my mouth was.”

To build ETT, Eison next focused on hiring talent. The platform required a team with the technology skills to build the interface and expertise in fashion and luxury retail. ETT uses 3-D body modeling to map a customer’s exact sizes and dimensions and create a unique digital pattern. Not only does the customer get to virtually try on the clothes, but the 3-D model guides ETT’s tailors in customizing the final garment’s fit. The customer gets a bespoke garment without needing to visit a store or tailor.

It wasn’t long before Eison proved his digital fashion concept was something men wanted and needed. Within two years of launching the service, he was able to open the Style Gallery. It is ETT’s first physical showroom in downtown San Francisco.

“Opening our physical location wasn’t something that was urgent on our end,” Eison says. “We let the opportunity to open a store come to us organically since we were able to deploy directly to our customers online. Like all great companies in Silicon Valley, we were operating out of my garage rent free. To save extra money, we also debated [using] co-work space and even moving to a nearby city to avoid the exorbitant rent in San Francisco. To other entrepreneurs looking into the same retail-to-physical-location dream, I would say stay patient and track the real estate market before making the move.”

This transition from an online-only business to an online business with a physical location has helped ETT understand their customer even better. In their physical location, ETT has gathered intel around their customers’ lifestyle. He understands their preferences and how this translates to the desires for different textiles, utility and function in garments. Through the in-store customer experience, they’ve continued to highlight the quality and authenticity of their brand. Meanwhile they grow beyond what they could have imagined.

Eison’s Forwarding Message to Entrepreneurs

He has simple advice to other entrepreneurs looking to grow from online to a brick-and-mortar location. Pay careful attention to creating an integrated customer experience that provides value and delivers on your brand promise.

Eison recommends:

Identifying your target customers, their needs, their likes and dislikes.

Interacting with them monthly via a number of different channels — not just for sales.

Evaluating their social behaviors and public information to find patterns.

Using that information to build brand experiences.

For example, ETT discovered their demographic enjoys wine but generally is a novice in understanding wine. So they pair wine tastings and textiles for in-person events to add value to their customer experience.

Creating an integrated customer experience, Eison says will be a process that is iterative and constantly changing. “You need to truly understand your customer and have an omni-channel plan in place before making the leap,” Eison says. “It’s one thing to have a great product, but the barriers to entry are low, and the demand for great experiences is high. It’s important to create a valuable experience for your target audience because today’s consumer is unlike any previous generation.”

Strategic Funding provides needed operating funds to small businesses. Strategic Funding has helped hundreds of industries including: restaurants, personal services, construction, medical, manufacturing, agriculture, retail stores, automotive, and food stores.

Caught In a Business Credit Crunch? Short-Term Debt May Be the Answer

September 2, 2016/in Financing/by Wil Rivera

Whether you own an upscale boutique, serve as head chef at your own bistro or run a bookkeeping service, one thing is certain—it takes a steady supply of cash to keep your business up and running. When you need to purchase inventory, pay employees or replace a piece of equipment, if you don’t have enough reserved, it may be time to borrow.

And while getting a bank loan may seem like the best choice, there’s one potential snag. Generally, you need a good personal and business credit score to get approved. If your business’s credit file is thin or your personal credit is spotty because of some past slip-ups, short-term debt can be an alternative way to satisfy your funding needs.

Short-term debt and credit

Personal credit scores and business credit scores are two entirely different things. However, both are important when you’re applying for a long-term business loan. Whether you’re going through the Small Business Administration or just getting a business line of credit from your local bank, your credit scores carry a lot of weight in the final approval decision. The lender uses your credit to gauge your ability to pay off what you’ve borrowed over the loan term.

Short-term debt uses other criteria in addition to your business or personal credit to measure how much of a lending risk you are. Take a merchant cash advance, for example. With this type of financing, you’re borrowing money against your business’s daily credit card receipts. As long as you can demonstrate sufficient cash flow, the lender’s not going to penalize you.

Something like invoice or inventory financing works in a similar way. With invoice financing, your outstanding invoices serve as collateral for the loan. As long as the lender has no reason to doubt that you’ll be paid for those invoices at some point, bad credit’s not an automatic disqualifier for a loan. Inventory financing uses the value of inventory your business has on hand that you plan to buy as the collateral and again, a lower credit score isn’t a deal-breaker.

Who is short-term debt appropriate for?

The most important thing to keep in mind about short-term debt is that it’s meant to be repaid quickly. Instead of making payments over a number of years, you may be obligated to repay the loan within a few weeks or months.

That being said, some businesses are better-suited to be short-term borrowers than others. For instance, let’s say you own a beachfront souvenir shop that only operates during the spring and summer months. Using inventory financing to stock up on sunscreen, beach towels and other tourist buys might make sense. As soon as the inventory starts to sell, you can pay it off.

Restaurant owners are also prime candidates for short-term financing, especially when credit is an issue. If you do credit card sales on a regular basis, you could use that as leverage to qualify for a merchant cash advance. Having that option certainly comes in handy if you need money for a new range or you’re hoping to open up a second location but you’ve been turned down for a traditional loan due to low credit scores.

Additional requirements for short-term financing

While poor credit may not be a barrier for short-term debt, you shouldn’t assume approval is automatic. There are still certain minimum guidelines you’ll need to meet before a lender will hand over the cash. Some of the factors they can consider include:

Length of time you’ve been in business
Annual business revenue
Profitability
Business cash holdings
Outstanding debts
Unpaid invoices

Researching different short-term debt options is important so you can find the best fit for your business. Even more importantly, be sure to read the fine print in full before signing on the dotted line. You need to be clear on how much short-term financing will cost to ensure that the expense doesn’t diminish your business’s bottom line.

Strategic Funding provides needed operating funds to small businesses. Strategic Funding has helped business in hundreds of industries. Industries served include: restaurants, personal services, construction, medical, manufacturing, agriculture, retail stores, automotive, and food stores.