BRB Rules

The Five C’s of Credit and How They Impact Business Financing Decisions

by Wil Rivera4 minutes / July 30, 2018

The 5 C's of Credit and How They Impact Business Financing Decisions

If you’ve heard of the five C’s of credit, you may assume that this phrase is only associated with personal credit; however, it’s also a tool used by lenders to evaluate businesses pursuing credit options.

Here’s why the five C’s of credit are important to your business; how lenders evaluate each of them; and how to best position your business when applying for financing.

What are the 5 C’s of Credit?

The term “five C’s of credit” refers to one way in which lenders evaluate the credit-worthiness of an applicant. It can be used for individuals and couples applying for personal credit such as a loan, credit card or a mortgage. But, it’s also used to help assess the “worthiness” of business credit applicants.

Lenders review how well a business meets each of the five C’s, and then use their findings to help make a lending decision.

1. Character

Character refers to the likelihood that a business will pay back borrowed money. Information for the Character portion of the five C’s of credit often comes from the history noted on a business’ credit reports. It will also include the business credit score generated from these reports. Business credit reports come from business credit reporting agencies such as Dun & Bradstreet, Equifax, and Experian.

These detailed reports contain particulars of previous borrowing arrangements – including total amounts borrowed and repaid, as well as delinquencies and late payments. The reports also include details of judgments, liens, and accounts in collections going back through seven years.

2. Capacity

Capacity is your ability to pay back the money borrowed from the proceeds of your business. Before a lender gives a borrower any money, they’ll want some evidence that the borrower (being the business), generates enough money to make payments on the loan. So Capacity is the proof that the business has the cash flow to not only make the payments, but to also cover all the business expenses, other debts and obligations, and pay the wages of its employees.

To evaluate a business’ capacity, lenders will review the financial statements and financial ratios of the business, including:

Debt-to-Income Ratio (DTI)
Debt-Service-Coverage Ratio (DSCR)
Current Ratio
Debt-to-Tangible-Net-Worth Ratio
Inventory Turnover Ratio
Accounts Receivable Turnover Ratio (ART)
Payables Turnover Ratio
Cash Flow Statement
Income Statement

When it comes to evaluating business capacity, a lender may also consider your managerial capacity. This is your business knowledge and professional experience.

3. Collateral

Any lender faces the risk that borrowers won’t return the money they borrowed. So lenders look for ways to reduce that risk and secure their loan, which brings us to the third C of Credit: Collateral.

Collateral is any asset used as security for the lender. Lenders could seize secured business assets of value such as real estate, equipment, and machinery to sell and recoup some or all of the unpaid loan if the borrower can’t pay it off. For example, a business may get a loan secured against vehicles or a commercial building.

4. Capital

Another factor that influences lenders’ willingness to loan money to a business is the owner’s equity. How much of your own money have you invested in your business? Your “skin in the game” indicates your financial commitment to the business. This equity, referred to as capital, gives lenders an idea of just how risky the owners consider their own business. Generally, the more of your own money invested, the better it is in the eyes of a lender.

5. Conditions

The fifth C of credit is one that you have little control over, yet it also influences business lending decisions. The current macroeconomic and microeconomic conditions could impact a business’ ability to pay back a loan. So lenders carefully consider the economic environment as part of a lending decision.

Demonstrate that you have a good understanding of current (and forecasted) economic conditions, and how they’ll potentially impact your business by referencing them in your discussions and correspondence with your lender. This shows lenders you’re a forward-thinking and responsible business owner who is committed to growing your business through changing economic conditions.

Once you know about each of the 5 C’s of credit, you can better understand how lenders use them to make lending decisions for businesses. And you’ll have a better idea of what to watch out for, and what to work on when making financial decisions for your own business.

Wil Rivera

WD

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That “Cheap” Business Finance Rate Could Cost You a Bundle: Interest and Your Business

Manage Your Money

by Wil Rivera4 minutes / July 17, 2018

That cheap business finance rate could cost you a bundle: interest and your business

The last decade has been an era of cheap money for businesses, with interest rates at historical lows. But those days may be ending. How you look at financing — in particular choosing between fixed and adjustable rates — may have to change.

These are the good old days.

Access to capital can often make or break a business. Each year, fifty-three percent of business owners kick in additional funding, according to the Small Business Administration. Almost a quarter add more than $50,000.

The adage that it takes money to make money is fine — if you have the cash on hand. If you don’t, it’s time to look at outside financing. But that may take some unlearning of recent lessons.

The global economic collapse beginning in 2008 was brutal, but it did have one benefit for some businesses: Because the U.S. Federal Reserve and other regulators slashed interest rates to stimulate buying, over the last decade the cost of money has been incredibly low.

Businesses who were approved for traditional forms of financing had enviable choices, including taking adjustable rates over fixed ones to keep borrowing costs down.

The Two Types of Interest Rates

A quick refresher: whether talking consumer or business financing, there are two general types of interest rates: fixed or variable.

A fixed rate is just that; the borrower pays a set interest percentage of the principal. Monthly payments don’t change.

Variable rates start at one rate. After some time, they shift to an amount based on any one of several common benchmark rates.

The Fed’s federal funds rate is one example of a benchmark rate. So is the prime rate, which is based on the federal funds rate, and is often what a bank’s best customers get. Another benchmark is the London Interbank Overnight Rate (Libor) — the rates banks charge one another on short-term borrowing.

The variable financing rate will be some number of percentage points over a benchmark rate. When the benchmark goes up, so will the variable rate. If the benchmark drops, the variable rate does as well.

Most people are familiar with variable rates from mortgages and credit cards. They are common in small business financing as well.

Variable Rates Have Been Low

In the past, business owners chose variable rates that were initially low. The idea was that when the rate increased, either revenues would have grown enough to more than offset it or refinancing at a lower rate would eliminate the extra costs.

For the last decade, however, variable rates have acted strangely. Because benchmarks were so low, you could effectively get a great rate for the life of the financing. There was always the gamble that the rate would climb, but in hindsight, for years you could win the game. Variable became almost the same as fixed.

No longer. By June 2018, the Fed had increased the federal funds rate seven times in three years.

As job growth remains brisk and the economy improves, regulators could keep increasing their rates, making all the benchmarks increase. Variable rates will follow, making the era of super-cheap money over. Opting for a variable rate instead of a fixed rate could now cost you.

Create a Financing Strategy

If you’re looking for financing, you’re best off doing some calculations in advance to see how a variable and a fixed rate might compare. Consider that a variable rate loan might increase a couple of times during the life of the financing:

Look at how much the Fed has raised the key interest rate over the previous 12 months and assume for a moment that the increases will continue in the near future, given how low rates have been.
Calculate the full principal, the length of the business loan, and the initial rate. Then use an amortization schedule to calculate how much you pay in the first year.
For the second year, calculate with an increased interest rate (initial rate plus the last 12-month increased in a benchmark) and the remaining financing time. Use an amortization schedule to calculate how much is paid in the second year.
Keep doing this for at least one or two more years with benchmark increases.
Finally, calculate the remaining principle, time left on financing, and the “final” interest rate. (Remember that this is an estimate and there might be additional rate increases.)
Add the payments over all the years and compare that to what you’d pay with available fixed rates.

You might choose to run estimates for different numbers and amounts of rate increases. This modeling can help you manage risk and choose an option that works for your business.

Wil Rivera

WD

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Borrowing and Business: What You Don’t Know Can Hurt Your Finances

Manage Your Money

by Wil Rivera5 minutes / July 13, 2018

Borrowing and Business: What You Don't Know Can Hurt Your Finances

So, you’re feeling confident enough about your business to go shopping for a loan. Congratulations! But before you start looking you should understand these five important areas impacting loans, beginning with the difference between interest rates and APR.

What is APR?

APR is the annualized percentage rate, which measures the cost of borrowing money. It includes the total cost for the loan including covering all fees that the lender might charge.

By looking at the APR, you can objectively compare the costs of loans from different banks. That’s entirely different from looking at the headline interest rates that sometimes get advertised. Such headline rates frequently don’t include all the fees that you must pay to get the loan.

In short, if you looked only at the headline interest rates, then you might think you got a good deal when in reality you didn’t.

Always ask the loan officer for the APR in any loan. If they won’t provide it, then choose another bank.

LIBOR and interest rates.

The cost of a lot of business credit moves up and down in line with something called LIBOR, the London Interbank Offered Rate, which is an interest rate charged by banks to lend to other banks.

When the banks see little risk of lending to each other, then the LIBOR will be lower than it would be otherwise. When they see heightened risk of lending to each other, then the LIBOR typically rises as it did during the financial crisis.

Commercial businesses typically pay a fixed amount above the LIBOR for the duration of the business loan, see the Small Business Administration website for examples. The prime rate, which is a common benchmark lending rate for both commercial and consumer loans, is usually between 2.5 and 3.5 percentage points higher than the LIBOR rate, according to the FinAid website.

The LIBOR is also partly determined by decisions made by the Federal Reserve, which is a target interest rate for short-term overnight loans between banks. When that rate changes you can usually expect the LIBOR rate to change as well. In the simplest terms, if the Fed Funds rate rises then you should expect LIBOR to increase.

Recently, the Fed has been transparent about likely future changes in Fed Funds rates. If you regularly read the business press, you’ll be aware of most likely future changes in the costs of borrowing.

Fixed versus floating interest rates.

Not all business loans have interest rates which vary. Some have a fixed rate for the term of the loan. Such loans reduce the uncertainty about what would happen to the company’s profitability due to changes in short-term interest rates.

The cost of these loans is typically far higher than for variable rate loans. That’s because the bank takes on the risk of the interest rates changing over the term of the loan.

When a company purchases a long-lived asset, such as a factory building, it can make sense to seek out a fixed rate loan. That’s similar to seeking out a fixed rate home loan mortgage. Often, purchasing a building is a major expense and the predictability of the same monthly payment can help managers plan better for the future.

On the other hand, working capital typically gets funded through credit lines with variable rates of interest. That makes a lot of sense. When times are lean in business, then interest rates are lower and so are working capital needs. Conversely, when the economy is expanding, then although the cost of borrowing is usually higher, so is the demand for goods and services.

Sensitivity and the cost of borrowing.

Before you take out a loan, you need to understand what would happen to your profitability if the cost of borrowing increased.

For instance, if the cost of borrowing is $5,000 a month in interest and your company still would likely be profitable, then that is a good start. But then you also need to know if the business would remain in profit if the cost of borrowing increased. For instance, what would happen it the interest expense was half as much again, or $7,500 a month. Making theoretical changes and then calculating the likely outcomes is known assensitivity analysis. It is something that your Chief Financial Officer or accountant should be capable of doing.

If a change in interest rates of relatively small magnitude would vastly reduce profitability, then you might want to consider a smaller loan.

Likewise, when you conduct the interest rate sensitivity analysis, you may want to consider what would happen to the earnings if revenue fluctuated when the company also had a new loan. If even a small dip in sales would cause the company to lose money then perhaps it would make sense to be cautious by reducing the possible size of the loan.

Wall Street Prep has some useful tips on running sensitivity analysis.

Derivatives and interest rates.

Interest-rate derivatives exist to help companies guard against changes in the cost of borrowing. Rather like knives, when appropriately used, they can be a useful tool. However, when wielded incorrectly they can be harmful.

So-called interest rate swaps can be used to convert a variable rate loan to a fixed rate loan, and vice versa. These products can be useful, but the customers should have a high level of sophistication.

Unfortunately, in the United Kingdom, some banks inappropriately sold small businesses some of these products. That eventually led to losses by some buyers of these derivatives. Given that many of the people selling these swaps hold higher-level finance degrees it is frequently the case that the buyers are far less sophisticated than those selling the products.

Two things to take away from this episode. First, if you have any doubts that you truly understand the product then don’t buy it. Second, just because these problems occurred in the U.K. don’t think they couldn’t happen in the U.S.

Wil Rivera

WD

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5 Tips for Running a Lean Operation

Operating Your Business

by Wil Rivera7 minutes / April 17, 2018

The best things in life are simple. The same concept applies to running your business! Running a lean operation correctly is the most efficient way to foster growth without adding a ton of stress to you, your employees and your pocket book. The less moving parts needed to keep your business running efficiently, the better. If you feel your business is spiraling out of control, you’re tired of staying up all night just to get your work done for the day, or you feel like there is just way too much on your plate, it’s most likely because you’re trying to run a “flashy” operation, not a lean one.

The rule that small business owners must live by is innovate or die. If you aren’t consistently looking to make your business operate more efficiently, even in periods of expansion, you can’t expect your business to stick around for the long game. Regardless of the industry that you are in, these same rules apply. You must always be on the search for new ways to streamline your processes.

The good news is that achieving a lean operation is much easier than it may initially appear. Small changes will add up over time. Before you know it, your business will be back on track – minimizing costs and maximizing profits at every turn. Most importantly, you’ll be able to use the time you get back on establishing a healthy work-life balance.

How can you achieve a lean operation? Let’s discuss some tips and tricks you can use in your business to identify and remove unnecessary and wasteful processes. But first, it’s important to fully understand the meaning of a lean operation.

What is the ultimate goal of lean operations is to have?

The principles of “lean operation” were born in the manufacturing sector by Toyota in the 1980s. They were wasting far too many parts in their manufacturing process and decided to make a significant move: instead of building to meet specific sales projections, they began to manufacture vehicles as orders were placed.

Following these same principles, running a lean operation refers to removing unnecessary processes, products, or anything else in your business that may be causing additional financial stress. It’s all about keeping only the things that you need and getting rid of anything you don’t. Running a lean operation is a never-ending journey. It is not something you do one weekend.

The motto you need to commit to heart as a small business owner is “innovate or die.” If you aren’t innovating, one of your competitors is. Don’t be left in the dust, and consistently look for ways to improve and simplify your operations.

Tip 1: Make Time for Improvement

This first and most crucial step is to dedicate time to focus on finding operational inefficiencies. We recommend that you schedule time at the beginning of every month to sit down and focus solely on ways to innovate and improve your processes.

We recommend around 10% of your total working hours should be devoted entirely to this innovation process. It may seem like a lot, but using this time to focus on improving your business as you expand will pay off in the long run. Once you find the time to do it (maybe on days you know your workload is less) mark it on your calendar and hold yourself to it.

Tip 2: It All Starts with A Solid Strategy

Now that you’ve scheduled your monthly operational assessments, you must come up with a strategy to make the required changes each month. This is the time to set goals for your business—tangible financial metrics to measure your progress.

Do you want to increase sales without hiring additional employees? Or would you like to automate certain aspects of marketing your business, freeing up time for you to focus on other areas? Whatever your goals are, write them down and hold yourself to them.

Tip 3: The Pareto Principle

Also commonly referred to as the 80/20 rule, the Pareto Principle created by Vilfredo Pareto in 1906 after he noticed that 80% of property in Italy was owned by 20% of the population. He then began observing this same pattern in almost everything. The principle specifies “an unequal relationship between inputs and outputs. [It] states that 20% of the invested input is responsible for 80% of the results obtained,” according to Investopedia. Obviously, this principle is especially applicable to business operations.

Based off this principle, the Pareto Chart was created. The chart is a great way to visually represent which 20% of inputs are responsible for 80% of the outputs. It is a hybrid between a bar graph with a line plotting the percentage each of the inputs makes up. The y-axis of the chart is for frequency, and the x-axis is for your inputs. It can be a little tricky to figure out at first, but once you have a solid understanding, it can be incredibly useful in finding the snags in your operation.

Once you start thinking with the 80/20 mindset, you will immediately start to notice the biggest sources of your problems. It could be that one employee is responsible for 90% of the accounting errors, or that two clients are responsible for 80% of your sales.

Tip 4: Improve Efficiency from the Bottom-Up

Changing your overall systems isn’t something that should start at the management level. Instead, your most significant improvements in efficiency should begin on the front-lines of your operation – with your outward facing employees and the day-to-day processes they follow.

It is also important to empower your employees to make suggestions instead of ruling with an iron-fist approach. Your employees are the ones that work every day doing the same tasks, helping customers, and making sales. If they have an idea of how their job could be more efficient and save them time, take the time to listen to them and be flexible.

Give every reasonable idea a chance, and you might notice huge effects on the amount of time you spend managing, the number of sales they’re making, and how much less stress you have knowing your employees are working in a system they helped to create.

Tip 5: Cut Out ANY Inefficiencies

We get it – your business is your life. You’ve spent years coming up with the perfect product or service; dedicated vast sums of capital to getting it off the ground; and (most important!) your time and energy to make it work. Making changes to your business can feel like you’re dismantling your livelihood. However, to make your business operate more efficiently, you’re going to have to rip off the band aid.

Nothing is sacred in your operation. It doesn’t matter if you’ve invested hours in coming up with what you believe to be the perfect financial reporting system—if it isn’t working, get rid of it.

Making your business thoroughly efficient is a never-ending journey and is a constant balancing act of managing existing processes and finding new ways to optimize them. As you grow, continually optimizing your operations will become even more critical to your business’s success. A larger business can make it more difficult to control every operational aspect and you might need to seek out expert advice from industry leaders. Whatever the case may be, always be on the lookout for new ways to streamline your operation. This will lead to a healthier bottom line, less financial risks, and new core company strengths.[/vc_column_text][/vc_column][/vc_row]

Wil Rivera

WD

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The Pros and Cons of 9 Restaurant Location Types

Industry Challenges

by Wil Rivera9 minutes / April 9, 2018

The Pros and Cons of 9 Restaurant Location Types

Do you decide on a restaurant location before or after the entire concept?

Restaurants involve both arts and science. Many of the decisions involving their creation and operations are driven by emotion or an artistic sense of what will appeal to the public and drive the success of the venture.

Most people have an idea of what they want their restaurant to be long before they find a potential site. Unfortunately for many of them, they are not willing or capable of making the changes that their market calls for. It is far easier to be a good matchmaker than back peddling a year or two down the road to re-engineer your concept. If you are totally set on a specific concept / menu, make sure you do your market research and ground work thoroughly before committing to a location.

Your concept / menu and brand are your business drivers. If people are attracted to what you are offering in food, service, ambience etc., your concept / menu should be strong enough to consistently attract patrons to fill your seats. It is your restaurants soul. If it doesn’t fit the market you are considering – move on.

Who is your customer?

Most restaurateurs have a fairly good idea of the type of restaurant they wish to open, even before they have a location. Rarely does it evolve the other way. Occasionally a more seasoned operator might find that one outstanding spot and create the right style of restaurant to fit that particular location.

In any case, before you do anything you need to answer the following questions:

Who is your primary target audience?
Who is your customer?
What is their price point?

Having definitive answers to these three questions is the key to the success of your new location.

Is it a young tech professional market? Hipster urbanites into eclectic funky places? Young families with mortgages seeking places that they can bring their kids? High income executives seeking more upscale environments? Baby boomers downsizing in a golf community? Whatever the market is – establish a clear vision of who you are trying to attract and serve. They may not be your entire customer base, but this will be the primary driver of sales.

Who lives and works here?

With the vision of your primary target audience upfront in your mind, you can begin the search. An old restaurant site search standard states – “85% of your patrons will come from no more that 3 to 5 miles from their bedpost”. People will eat out more in close proximity to where they live and work.

When people are in transit, opportunity and accessibility will drive dining decisions as evidenced by diners and other quick serve restaurants popping up along major thoroughfares and highways. It is more about pass by traffic than it is about who lives there.

Decide what is most important to you?

Did you stumble across what you believe to be a killer location without consideration for the target market or specific restaurant concept? Are you married to a single concept / menu that fits your skill set? Is it more important to be located in the new hot neighborhood or are you seeking population density or a certain income demographic profile? Is your budget the biggest consideration?

Make sure you get your priorities clear, because once on the hunt, emotions often take control of reason and many buyers find a thousand reasons to justify a really bad decision.

What type of location best fits your vision?

9 Advantages and Disadvantages:

1. Urban Commercial / “Downtown” – Primarily commercial neighborhoods. Usually in a major metropolitan area surrounded by offices with little or no residential zoning.

Advantages – strong demand generators such as offices and retail. Potentially good lunch and early dinner business. Could be a great Monday through Friday business. Depending on the city, you might even get more favorable rents.
Disadvantages – less local traffic because of light residential component. Serious drops in traditional dinner business and on weekends, vacation periods, holidays etc.

2. Urban Mixed Use / “Uptown” – Greater residential component. Mixed residential, commercial and sometimes offices. Smaller businesses and local shops may be the only demand generators.

Advantages – stronger dinner business and late night business with ability to build regular clientele. High concentration of urban apartment dwellers.
Disadvantages – less commercial / corporate office traffic. Lunch can be extremely tough in these areas.

3. Central Business District (CBD) / Retail Corridor – most often in a suburban setting. This is where everyone in town comes to shop and recreate. Think of this area as the “Town Center”.

Advantages – Often has strong local traffic. Area filled with demand generators. A true destination for residents of surrounding real estate. Usually a center for retail, entertainment and other restaurants. Clusters of restaurants provide shared exposure to market and offer diners variety and increased frequency in the area.
Disadvantages – Traditional retail is experiencing heavy challenges with decreasing traffic and competition for internet retailers. Heavy restaurant competition might not be advantageous if too many similar concepts compete for limited dollars. These locations are subject to community business fluxes such as school vacations, holidays, bad weather etc. Lunches will very often be soft and the vast majority of sales will be derived on weekends. Also, very often the cost of real estate may be artificially high due to limited availability of space and restrictive zoning.

4. Regional Mall – Most often a recognized stand-alone – a broad market region that attracts customers from a wide radius and offers heavy variety of retail, entertainment and restaurant options.

Advantages – Originally these locations offered high foot traffic and concentration of customers seeking to spend considerable time at the location. The traditional retail environment is changing and compressing and they no longer attract the same traffic as in years past. Today the primary drivers of traffic to regional malls are very often the restaurants and entertainment venues like movie theaters. Clusters of restaurants provide shared exposure to market and offer diners variety and increased frequency in the area. Competition is usually restricted (ie. Only one Italian restaurant or steakhouse permitted). Plenty of parking.
Disadvantages – Dying traditional retail traffic. High cost for rent, common area charges and build out continue despite recent developments in retail contraction. Independent restaurants are forced to compete against well-financed national chains. These locations are subject to community business fluxes such as school vacations, holidays, bad weather etc. Typically the majority of sales will be derived on weekends. Operators are subject to strict mall operating rules governing hours of operation etc.

5. Big Box Retail / Freestanding Pads – Big draw retailers and discount houses like Costco and Walmart that attract regional car traffic but very little foot traffic. Freestanding pads in front of these locations are primarily the domain of national restaurant chains and high volume independent regional chains / operators.

Advantages – Big foot print. High exposure to highways and vehicle traffic. Big boxes are demand generators that give visual exposure to restaurant. A cluster of restaurants on pads offers greater traction. A true destination for residents of surrounding real estate. Competition is usually restricted. Plenty of parking
Disadvantages – Often have a high cost for build out and rent, common area charges. Deals for pad sites are typically for land leases requiring the operator to pay for the build out of the facility as many landlords have eliminated or reduced their contribution to tenant improvements even for highly qualified operators. If the developer / owner of the complex agrees to pay for build out with cost recovered through future rent payments, escalations can crush the long-term viability of the restaurant. High demand for these locations from well organized national chains and franchises make it difficult for some independents to compete.

6. Strip Center Retail – These smaller clusters of retail stores, restaurants and service providers like banks, supermarkets and Post Offices are built in line to address the needs of local communities.

Advantages – If tenant mix is good it draws people to the location for multiple reasons. Offers higher visibility as a destination for residents of surrounding area. Competition is usually restricted. Parking is usually positive. Rents are generally competitive.
Disadvantages – Most favorable location in many strip centers are the “end caps” otherwise visibility and logistics might be compromised. Tenant mix is vital to generating foot traffic. Poor mix results in negative perception of center with negative spillover on the restaurant. Parking may be at a premium with restaurant competing with other businesses for parking spaces.

7. Non Traditional Outlets / “Hermit Crabs” – these are anything from concession stands in food courts to snack shops in gas stations, to rest stop eateries on highways, to corporate dining rooms, or lunch rooms in office complexes.

Advantages – Captive audience. Limited hours of operation. Often little or no rent as an amenity to the building. Facilities often managed and maintained by sponsor / landlord.
Disadvantages – Little outside exposure to customers except in the case of rest stops etc. Limited hours compress your flexibility to build additional day parts for business.

8. Seasonal Operations – these can be anything from restaurants that operate at ski resorts to waterside with outside dining. These restaurants can experience radical business fluxes and are totally dependent on seasonality.

Advantages – High traffic in season. Local demand generators build solid market base. An operator can earn a solid return for the year within a few months of operation.
Disadvantages – Limited prime trade time presents considerable risk particularly if area is weather dependent i.e. if there is no snow at a ski resort one winter, or it rains every weekend at an ocean side resort town in summer. Operator very often must pay rent all year even if operating for only a few months a year. Building a new staff every year is difficult and expensive. Consistency is often in jeopardy from year to year.

9. Specialty /Ambience Driven / Charm Locations – unique restaurants that offer ambience as a primary motivation for customers. Quaint country inns, roof top restaurants with dramatic views, restaurants on cruise boats etc.

Advantages – Traffic is driven by the location / atmosphere making execution important. Very often the special occasion restaurant of choice. High recognition as supported by the unique character of the restaurant.
Disadvantages – Usually not the “everyday” restaurant, therefore has limited market. Most often a special occasion or recreational restaurant. Physical character of restaurant may not be strong enough to sustain interest of customers. Might be out of the way and if it isn’t supported by additional demand generators, it may not be viable.

Check out even more on how to improve your restaurant with “11 Best Ways a Restaurant Can Go Digital.” [/vc_column_text][/vc_column][/vc_row]

Wil Rivera

WD

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How Do Small Business Administration (SBA) Loans Work?

Manage Your Money

by Wil Rivera4 minutes / March 16, 2018

Next up in the “How It Works” series let’s take a look at how SBA loans work

Every business is unique.

What works for one may not work for another. With a range of choices, each with its own unique requirements and mechanisms, how do you identify which type of financing is best for your business and your needs at this time? You should start with the basics with a full understanding of your situation. You need to be clear about what you want/need versus what your business can take on. Whether you want capital immediately, or sometime later in a lump sum, or phased over time, take stock of your situation and needs first and then consider your financing options.

Let’s take a look at one of the most frequently used business financing options available to small businesses:

How SBA Loans Work – Small Business Loans through SBA

Government-backed Small Business Administration (SBA) extends aid to all small businesses via loans that help them to not just start up a business but to also sustain and grow that business. While the agency itself does not provide financing, it makes affordable loans available through SBA approved lenders like banks. These loans are designed to meet very specific business purposes, so it is important to understand each of these options before applying for an SBA loan. Though cheaper, you may find it difficult to qualify for these loans. Many individuals are disqualified due to insufficient collateral, low credit scores or falling within an unqualified category.

SBA loan programs are designed to meet major financial requirements of varied small businesses. These include microloans, real estate loans, equipment loans, and basic loans under the 7(a) program. You can use the loans provided through the 7(a) program for a variety of purposes – setting up a new business, acquiring a business, purchasing equipment and machinery, or as an influx in working capital, among others

How SBA Loans Work – Eligibility

The general small business loans from the 7(a) program are the most popular among all SBA loans. Since these loans are guaranteed by federal agencies, lenders can offer businesses very lucrative and flexible terms for these loans. It is no secret that the 7(a) loans through the SBA are by far the best way for any small business to get financing if they are able to qualify.

To be eligible for 7(a) loans a business must be for-profit; operate within the United States; show a business need for the funds, and – most importantly – show proof that you’ve exhausted all other avenues and financial resources before applying. This means, you will need to have used your own personal assets, reached out to family and friends, and be able to show that you applied for and had been declined by a traditional lender. It’s no wonder, then, that most small businesses find these loans out of their reach. In fact, a 2016 Forbes report points out that, “The head of the U.S. Small Business Administration has cited industry estimates that 80 percent of small business loan applications are rejected.”

How SBA Loans Work – What you should know

Lowest cost option for small businesses looking for financing to start up or grow a business.
Offered by traditional and alternative lenders and backed by government guarantee.
Multiple types of loans and grants depending on business type and need.
Businesses applying for a loan must first use other resources including personal assets.
Personal guarantee required by business owners or top management of the company.
Long application and funding process compared to alternate financing options.

SBA loans may be a good option when:

Working capital is needed to expand the business over the next few years.
Consolidating loans from multiple lenders.
Hiring new employees or opening a new location.
Recovering from declared disasters.
Your business is impacted by NAFTA.

SBA loans may not be an option when:

Working capital is needed immediately for a very short term.
Consolidating loans will require the company to take a loss.
Business owner cannot provide a personal guarantee.

Besides the general 7(a) loans, the SBA provides 7(a) loans to cover special situations like companies conducting business in underserved communities and companies looking to expand export activities. There are also microloans up to $50,000, and special programs to help businesses recover from declared disasters. To learn more about SBA loans visit their website right here. Many traditional and alternative lenders also help businesses navigate through the process of applying for these loans.

Want to learn more about your options? Here are the pros and cons of the revenue-based financing.

Wil Rivera

WD

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How It Works: Revenue Based Financing

Manage Your Money

by Bernadette Abel4 minutes / March 7, 2018

KEY TAKEAWAYS

Revenue-based financing provides small businesses with quick access to capital. But, it is not a loan. Instead is a purchase of your future sales.
With quicker approval times and lower credit score requirements, revenue-based financing can be a great financing option. But, it will directly impact daily cash flow as a percentage of your daily or weekly sales are deducted as repayment.
This form of financing is ideal for businesses with an immediate need for funding, those without adequate collateral, or those not meeting the criteria for traditional loans.

Are you looking for small business loan and alternative financing options?

This is by far the most frequently used option for small business financing. Revenue-based financing allows small businesses to take financing against their continued business success. The oldest form of revenue-based financing is the popular Merchant Cash Advance (MCA). This option truly aligns the interests of both parties. That’s because the financing partner only gets paid if the small business continues to be viable and successful.

It is no wonder then that merchant cash advances continue to see a healthy increase

A 2016 report on Merchant Cash Advance/Small Business Financing Industry byBryant Park Capitalnotes that, “the volume of merchant cash advances provided to U.S. SMEs has steadily increased over the last couple years, projected to reach $15.3 billion in 2017, up from an estimated $8.6 billion in 2014.”

Not surprising, considering quick upfront capital can make a huge difference to any small business. Typically, revenue-based financing provides a lump sum of cash to a small business. This is with the understanding that it will dip into a fixed percentage of the future sales. It’s a great option for any small business owner who is looking at short-term financing (between 6-18 months), cash flow and working capital.

A few years back, merchant cash advances were limited to those businesses that received customer payments via credit or debit cards – like bars, nail salons, restaurants, retailers, and other forms of B2C companies. But now, with advancements in the system, merchant cash advances can work for almost any type of small business.

While merchant cash advances give your business that financial backup, it’s also important to know that it directly impacts your daily/weekly cash flow. Good lenders ensure that the funds they advance to merchants ensure healthy growth in the business even when daily/weekly remittances are being taken from the business’s revenue stream. Uninformed merchants can easily fall prey to unscrupulous lenders who can overburden a business’s cash flow. Therefore, small businesses applying for a merchant cash advance should first make an objective analysis of whether this service is best suited for their business.

What you should know about revenue-based financing

Quick access and faster approval of the application.
Much lower credit score requirement compared to a traditional loan.
Qualification does not require secure assets.
A fraction of the company’s daily/weekly sales goes toward its outstanding financing amount.
Supports payments to be processed against both credit card and cash payments (ACH).
Instead of fixed monthly payments regardless of the business performance, the remittances are tied to the success of the business.
Flexibility of daily/weekly payments with the ability to true-up payments against the actual performance of your business provides peace of mind and extra cushion when times are lean.
There is an immediate impact on your business cash flow.

Revenue-based financing may be a good option when:

The small business will not meet SBA loan requirements.
There is an immediate need for funding.
The company does not have enough collateral for traditional long-term loans.

Revenue-based financing may not be an option when:

The funds will provide only temporary reprieve but cause irreparable harm to cash flow.
The business already has a number of outstanding loans or advances.
Your credit score is below 550. In this case, alternate options like Factoring may be more appropriate.

It’s important to remember that unlike other traditional loan options, which are usually backed by a collateral or federal guarantee, this financing type presents a great risk to the alternative lender. That is why it is a more expensive financing option compared to traditional loans. Businesses should therefore thoughtfully consider when this option makes sense for them and carefully vet the alternative lender.

Bernadette Abel

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Is Equipment Financing an Option For You?

Manage Your Money

by Wil Rivera4 minutes / February 16, 2018

Is Equipment Financing an Option for You.

Every small business owner will agree that running a business is very exciting and challenging. From managing an office filled with computers and printers, break rooms and vending machines to purchasing on-the-ground supplies for transportation services or construction businesses, every piece of equipment matters. That is why equipment financing can be exceptionally beneficial in easing some of the burden associated with these tasks.

To keep your business operating seamlessly, everything must be planned. However new opportunities seldom present themselves with a clean plan. Business owners may often find themselves in need of purchasing new equipment to make the most of a new lucrative opportunity.

Equipment financing eases these worries and bolsters your growth by catering to the needs of your business without any down-payment. Equipment financing is ideal for small businesses who have vehicle fleets, towing companies, construction contractors, medical practices, and those that have a large warehouse.

5 THINGS YOU SHOULD KNOW ABOUT EQUIPMENT FINANCING

1. It’s a great way to get a leg up on your competition

With equipment financing, you can have the most advanced equipment in your sector without adversely impacting the financial health of your small business.

2. Do your homework

Ensuring the right quality of equipment financing is a top priority for any small business owner. Carefully consider some basic parameters before entering into an agreement for equipment financing, including the amount of cash required, fees and alternate equipment upgrade options.

3. Questions to consider before pursuing new equipment

How will the new equipment add revenue or reduce costs for your business? How essential is it to supplement the growth of your business, cash flow, and profits? Then choose a lender whose terms suit your requirements.

4. Balance your cost and cash flow

While the approval process for equipment financing is fast and hassle-free, things can get quite tricky if you don’t balance your cost and cash flow. For example, the cash flow is impacted if you repay over a short term. If you select a long-term repayment, then you end up paying a lot of money on the lure of low payments. Therefore, choose a repayment term that is in sync with your cash flow and what you can do easily on a monthly basis.

5. Be aware of associated costs

These costs can include insurance and maintenance. Many businesses forget to factor in these costs when looking for equipment financing. Don’t let yourself be one of them!

Should I Use Equipment Financing for My Next Purchase?

Equipment financing may be a good option when:

The cost of purchasing the equipment is too high to sustain on current cash flow.
You want to maintain the option of changing the equipment in some time to keep up with the latest technology.
The new equipment will give you an edge on the competition.
The new equipment will open up a new market or new line of business.

Equipment financing may not be an option when:

The total cost of ownership of the equipment, along with the associated fees, maintenance and insurance costs will introduce too much risk in the business.
There are cheaper options for used / re-traded equipment that would provide the same benefit to the business.

Planned equipment financing not only saves money but also helps small businesses to pursue other business goals. Used wisely, it is a great way to fuel growth in the business.

Get Your Complete Guide

This guide will cover even more than just equipment financing, but the many other options you may have!

Here’s whats covered:

Top 5 Fundamentals of Small Business Financing
The Most Popular Business Financing Options
Tips for Maintaining Strong Financial Health
How to Choose the Right Business Loan for You

Wil Rivera

WD

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4 Smart Strategies for Restaurant Partnerships

Industry Challenges

by Wil Rivera4 minutes / November 8, 2017

How do you create a restaurant partnership?

People like to be social — and they like food even more. Consider the local buzz created around the opening of a new restaurant: features in the local paper, social media chatter and word-of- mouth from excited customers who all like to be the first to try the latest and greatest.

This type of buzz provides maximum impact during the launch of a business, but the local community can also sustain a business through its growth stages and attract enthusiastic investors. All it takes is establishing the right local partnerships.

For hospitality businesses, partnering with local suppliers yields huge benefits. The results of any marketing effect can be exponential because businesses can cross-promote. Also, a successful business that is deeply embedded in the local community is one that is sustainable.

With partners from local farmers to local banks, a well-established business is a beacon for investors. Here are some examples of partnerships in local communities that produce a win-win for all involved.

1. Team Up With Local Food Suppliers

Increasingly, eateries are partnering with local farms to promote the popular “Buy fresh, buy local” trend. For example, a restaurant might use grass-fed beef or locally raised chicken from farmers in the area, and they make sure to promote the supplier on the menu. In turn, the farmer promotes the local restaurants it supplies. All partners benefit from cross-marketing and increased visibility on partners’ websites and in local media.

Take Barrel 21, for example. This popular Pennsylvania distillery and restaurant features local suppliers on its website. The eatery relies on grass-fed beef, milk and corn from local farmers; bread from a local baker; and chocolate from a local chocolate maker. In fact, even “Dan the Fish Man” who line-catches the restaurant’s Alaskan and smoked salmon gets a mention on the site.

2. Partner With Craft Beer Brewers

Many restaurants boost brand visibility by teaming up with local craft beer brewers. There is great demand for new and unique products, and with creative names such as Dogfish Head Romantic Chemistry and Hoppy Ending Pale Ale, you may attract potential investors from around the country.

Often, a one-off beer gets pushed into the main restaurant so that customers can sample a new beer on a regular or rotational basis. Craft beer drinkers tend to spend more and become loyal customers who visit more frequently.

3. Collaborate With Food Cooperatives

In addition to local farms, local agricultural cooperatives can offer valuable relationships in terms of cost benefits and marketing opportunities. Fueled in part by the local food movement, cooperatives are on the rise.

These types of organizations host educational events, informal farm tours, annual meetings and social events for all members and the public. Partnering with a cooperative can also give a restaurant statewide reach that extends to supply chain stakeholders, not just patrons of local restaurants.

4. Get Involved in Community Events

Sponsoring popular local festivities such as holiday festivals, sporting events and cuisine- or culture-oriented markets can be ideal opportunities to increase visibility and goodwill towards and among the public and local businesses.

Restaurants can serve a sampling of their fare, sell products and have their name printed on merchandise for a more permanent reminder of their contribution to the social good. Consumers are demanding more responsibility by businesses, and Millennials in particular gravitate toward businesses that practice corporate social responsibility by giving back to the local community.

Food for Thought

The opportunities for partnerships go much deeper than simply promoting a beer or touting local grass-fed beef. In fact, the possibilities for partnership activities are limited only by the imagination.

Outreach to local communities and businesses is a smart growth strategy with a great deal of potential. Investors know that the restaurant business is a competitive industry with narrow margins. Pursuing ROI from local partnerships can benefit everyone involved.

Wil Rivera

WD

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Have the USPS Clean Up Your Mailing List

Marketing Your Business

by Bernadette Abel1 minute / August 3, 2017

Before you send out your next direct mail pieces, make sure your mailing lists are 100% accurate. It’s awful to have to pay for postage, only to find out later that you had incorrect addresses or duplicates in your list. Going through a 1,000+ contact list can be tedious and time consuming. However, there are ways to make this process easier.

The USPS actually offers and suggests various verified tools to clean up your list before it gets mailed out. You can submit a printout to the postal service and they will make note of any required changes. While there is a fee associated with this service, the money you save clearing out incorrect addresses in advance can cover that cost and then some. There are also other USPS verified sources that you can use to check and maintain your mailing lists, such as NCOA^Link. This licensed vendor will run your mailing list through their software and will update the addresses of people who filed a change of address through USPS.

Consistently utilize these services and you’ll never waste money on an undeliverable mail piece again.

Bernadette Abel

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What are the 5 C’s of Credit?

1. Character

2. Capacity

3. Collateral

4. Capital

5. Conditions

Wil Rivera

WD

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These are the good old days.

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Variable Rates Have Been Low

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Tip 5: Cut Out ANY Inefficiencies

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Decide what is most important to you?

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Next up in the “How It Works” series let’s take a look at how SBA loans work

How SBA Loans Work – Small Business Loans through SBA

How SBA Loans Work – Eligibility

How SBA Loans Work – What you should know

SBA loans may be a good option when:

SBA loans may not be an option when:

Wil Rivera

WD

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Using Business Loans to Cover Your Taxes

The Advantages of Online Lending

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KEY TAKEAWAYS

Are you looking for small business loan and alternative financing options?

It is no wonder then that merchant cash advances continue to see a healthy increase

What you should know about revenue-based financing

Revenue-based financing may be a good option when:

Revenue-based financing may not be an option when:

Bernadette Abel

Related Posts

Using Business Loans to Cover Your Taxes

The Advantages of Online Lending

Small Business Loan Application Checklist

5 THINGS YOU SHOULD KNOW ABOUT EQUIPMENT FINANCING

1. It’s a great way to get a leg up on your competition

2. Do your homework

3. Questions to consider before pursuing new equipment

4. Balance your cost and cash flow

5. Be aware of associated costs

Should I Use Equipment Financing for My Next Purchase?