It’s been noted time and time again that female entrepreneurs begin in the business world with a social impediment that their male counterparts don’t. But at the same time, today there are more female business owners than ever before. However, women are still statistically less likely to be approved for financing than men.
While there technically are no programs reserved specifically for supplying loans for female business owners, there are a number of resources available to women business owners to help them run and grow their businesses. Let’s discuss the state of women and the small business world on three levels:
- Why women are less likely to get approved for financing
- The top financing options available today, and how to better set yourself up for an approval
- Grants and other development programs created specifically for the benefit of women-owned businesses
Why Are Women Being Approved Less for Business Loans?
Even though women make up a growing percentage of today’s small business owners, there is still a large funding gap when you compare business financing secured by women with that secured by men. While there are many reasons for this gap, one of the largest is being unable to meet the basic qualifications set forth by most lenders. Below are some of the primary reasons women have more difficulty securing business loans than men:
Industry
Every lender considers the industry of a business when reviewing a loan package. Why? Because some industries are inherently riskier than others. One of these risky industries is retail which tends to have higher expenses and lower profit margins. Many women-owned businesses are in the retail sector.
What can you do about this?
Completely changing the industry of your business is likely not an option, but there are a few things you can do – regardless of the industry you’re in – to help improve your options for the future including:
- Figuring out ways to lower your business overhead
- Building a plan to increase your revenue
- Start by borrowing smaller amounts of money and ensuring that you pay them off on time
Time in Business
Regardless of who owns a business, if the business is in its early stages of operation (typically under two years in business), many lenders will not provide financing because the business does not have enough history to show it can maintain profitability and meet payment obligations. The number of women-owned businesses has been picking up significantly over the past couple of years, so many of them simply haven’t been in business long enough to qualify for conventional financing.
What can you do about this?
If you’re able to, you can opt to wait out this two-year period. But, in order to keep a business running – especially in its early years – financing is needed. Fortunately, there are some alternative lenders who are willing to be more lenient about this requirement if you show both good credit and at least six months of very strong revenue and consistent positive cash flow.
More Risk-Averse
There are a number of studies out there showing that women are more averse to taking risks than their male counterparts. This can show itself on many fronts in a business – including women being less like to bring in outside investors (they don’t want to have to run decisions by others) and being less likely to take on capital that comes with a higher cost, which limits their ability to take advantage of opportunities to grow their business.
What can you do about this?
Ultimately, being risk-averse can be a good thing – but in business, taking on some risk is necessary. If you have a legitimate growth opportunity in front of you, it could be to your advantage to reconsider what financing options you are willing to use. Absolutely still consider it as a risk, but be strategic in that consideration. Run all of the numbers. Determine if paying higher rates is worth the cost because, ultimately, your new endeavor will cover that cost of financing and give you additional profit at the same time. Truly consider if bringing in investors will impede your decision-making processes as much as you think. Only you can answer these questions and make the final call, but it is definitely something that you should research and consider strategically before making that call.
At the end of the day, it’s all a numbers game when it comes to lenders AND running your business. Improve your numbers and you improve your chances of being approved and growing your business.
Best Small Business Loans for Women
Let’s break down the types of loans that are available today, covering those that are not just popular but also attainable for many of today’s women business owners. There are several ways to connect your business with a business loan – from online lenders to traditional financial institutions. But before partnering your business with a lender, it’s key to consider each type of small business loan on the table and which may be best for you.
SBA Loans
The Small Business Administration (SBA) doesn’t technically offer loans themselves but instead guarantees loans carried out by partner lenders and traditional banks. Because of this guarantee by the Federal Government, the interest rate of SBA loans tends to be much lower – following the Prime Rate (this is the interest rate benchmark set by the Federal Reserve System on a nightly basis). Lower rates and a federally-backed guarantee make SBA loans a great option for reducing risk for both the lender and business owners.
SBA 7(a) Loan
The SBA 7(a) loan is often called the most popular of the SBA loans for women business owners. And for good reason: the SBA 7(a) loan is versatile. Business owners can finance up to $5 million with the 7(a) program. From real estate to payroll, an SBA 7(a) loan can meet just about any reasonable business need.
SBA Express Loans
SBA Express loans fall within the 7(a) loan program. They come with lower loan amounts than the standard 7(a), capping out at $500,000 but they also come with an expedited review by the SBA. Express Loans can be used for a wide range of business needs – from purchasing equipment or real estate or for basic working capital. If you are a female veteran business owner, this is an excellent option for you to consider as the Veterans Advantage Program allows for significantly reduced fees with the SBA Express Loan.
SBA Microloans
Microloans from the SBA generally have smaller payouts and shorter repayment terms, as the name would imply. Specifically, SBA-guaranteed microloans are offered up to $50,000. The most notable difference between a 7(a) and a microloan, however, is that microloans cannot be used for refinancing or buying real estate. SBA Microloans are a great loan option for women with businesses in the startup phase because they come with fewer requirements than the popular 7a loans
Term Loans
Term loans are one of the most widely used types of financing available to businesses today. Term loans are generally what most people think of when they hear the word ‘loan’. Term loans are an agreement between a business owner and a financial institution to give an approved loan amount with a set repayment schedule. That repayment schedule is the ‘term’ in term loans.
Term loans generally give the full principle of a loan upfront. Because of this, term loans can be very helpful for getting more cash flow into your coffers. Depending on what you are looking to finance, term loans can last either a fairly short amount of time or several years. Of course, term loans with longer terms and more capital at stake will generally require a higher credit score, more time in business, and a strong history of positive financial statements.
Learn About Your Financing Options
Let’s figure out the best loan for your woman-owned business.
Connect with a Kapitus financing specialist to see what type of business loan, or other financing options, can help you meet your goals.
Personal Loans for Business
If you’re in a pinch, it is entirely possible to take out a personal loan and use the funds as capital to better your business as long as your lender has no restrictions. If you have decent credit, a personal loan could end up providing you with better interest rates than a business loan, which is always a win. However, there are some drawbacks: personal loans typically come with much lower amounts than traditional business loans. In addition, you are potentially putting personal assets on the line if you fail to meet your payment obligations. When used responsibly, this can be a great option for women-owned businesses, particularly those in the beginning stages of the business journey.
Loans from Family & Friends
Taking out a loan from friends or family rather than a financial institution has a whole different set of rules. Rather than your financial record being the biggest indicator of your trustworthiness, you’ll functionally be relying on your social record. This is, once again, a rather common option for female entrepreneurs in the beginning of their business journey.
And while there are several big-name success stories of today’s Fortune 500 who started their way with capital from a friend or family, the main rule of financing remains here: only borrow the money you are certain you can pay back. Instead of just affecting your credit, you risk breaking the ties that bind.
Steps for Women to Get Small Business Loans
Female loan applicants ought to start by laying out a plan that considers every step of the loan journey – from completing an application all the way through to how you plan on spending your capital if you’re approved AND how to recover if you’re declined for a business loan.
Step 1: Determine how Much Capital you Need
Before even looking at your loan options, sit down and find a firm figure as to how much capital you want and, further, how quickly you would like to get it. You should list out all of the items/services your business needs and then research the estimated cost for each. Once you have the list fully compiled, you need to prioritize them. From there you can gauge a range of financing amounts that will help you accomplish your goals.
Step 2: Look into Your Prequalification Options
Several online lenders offer full prequalification at no cost to you. Using pre-qualification is a great way to learn how lenders see your business. It can also help you determine just how much loan you can afford. Once you’ve got your prequalification numbers, it’s time to go back to your list of needs and shuffle as necessary.
Step 3: Select your lender
Choosing your lender should not just be based on interest rates. Choosing a financial institution or online lender is a mutual recognition of value and trust. Remember that your lender is pitching themselves to you just as much as you are pitching your business to them. Look closely at their reviews to see how they treat customers. Ask questions to see if their business practices will meet your needs, including:
- Will they work with you to come up with the right payment plan for your business?
- Do they allow early pay-off without any penalties or fees?
- Do they provide support to their customers even after they are funded?
There’s a variety of ways to determine if a lender is the right financing partner for you – it all just depends on what, as the customer, would like to see in that relationship and then finding the best lender to fit that wish list.
Step 4: Gather paperwork
The best lenders are generally quite upfront about their paperwork requirements but the most common paperwork to expect and have handy are:
- Six most recent bank statements.
- Two years of business tax returns
- Business Plan
- Financial statements, including your income statement and balance sheet
- Budget and cash flow projections
- Government documents including all business licenses, your business registration and your EIN
Not all lenders will require all of these documents, but some will, so the specific paperwork you need will be determined by the lender you select. Your chosen lender will be able to provide you with the full list that they require for underwriting and approval.
Step 5: Apply for your loan
This is the easy part. If you have a good financing partner, application processes ought to be smooth and straightforward.
Step 6: Compare offers
Lenders will often give you multiple term options, some lenders, like Kapitus, even have the ability to offer you different financing products based on your single application. The best lending partners will consider your business structure and guide you toward the terms that make the most sense for you. But it is also essential to do your own research and confer with all those who are involved with your business’s finances.
Step 7: Read the Fine Print
We all know it. But let’s say it again for the sake of how serious this is: always read the fine print of your loan agreement and make sure you understand everything in your BEFORE you sign on the dotted line.
Additional Financing Options Women Business Owners Should Consider
Beyond small business loans, there are several other types of financing that are worth considering depending on your needs and current situation.
Revenue-Based Financing
Instead of paying central attention to your credit score and personal financial reputation, revenue-based financing approvals are based more heavily on exactly what you would expect: your revenue. While there are still minimum credit score requirements to be aware of, revenue-based financing generally allows the strength of a business to speak for itself.
Revenue-based financing is not a loan. Instead, a lender will purchase a percentage of your future sales. This gives you cash on hand today for sales you wouldn’t make until tomorrow (or over the next couple of months). Because revenue-based financing is not a loan, there is no actual interest rate. Instead, there is a factor rate that will not change throughout your agreement with the lender. Repayment is made by paying a percentage of your daily, weekly, or monthly sales (depending on the contract terms with your lender) until the entire amount provided, plus the factor and any fees are paid back. Revenue-based financing can be extremely expensive, so it should only be used very strategically and is ideal for opportunities that would generate a large enough return to both cover the cost of the financing and put profit in your account.
Business Line of Credit
A business line of credit is functionally a borrowing limit that allows your business to take out capital until a predefined upper cap. You pay interest only on the portion of the line you’ve used. And, once you pay back what you’ve used, you can use it again, making one of the biggest advantages of a business line of credit is its flexibility.
For example, if you take out a line of credit with an upper cap of $50,000 and you only use $5,000 in a billing period, you would only pay interest on that $5,000 and not the entire $50,000. Further, if you pay the full balance of your line before the end of the month, you won’t pay any interest.
Lines of credit can be used for almost any business purpose, so it is a great way to cushion your bottom line and cover unexpected expenses.
Equipment Financing
Equipment financing is a great way to get expensive or timely machinery for your business. The logic goes that you approach a financial institution with the specifics on a piece of equipment you need for your business.
The institution can agree to pay either a percentage or the entire price of the machinery on the agreement that you will pay back the principal with the assistance of that machinery. The equipment in question also tends to act as collateral or in some cases the lender may demand to take out a lien on the equipment in the place of collateral.
Alternative Financing Resources for Female Business Owners
There are even more alternatives out there for women entrepreneurs who are looking for more ways to boost their business’ cash flow. If a loan isn’t right for you at the moment or if you’re simply looking to diversify cash flow sources, consider these options.
Business Credit Cards
There are several well-known financial institutions that offer credit cards tied to the credit score and creditworthiness of your business rather than you personally. Choosing the right business credit card, of course, has its own key considerations, so be sure to thoroughly research all options.
Crowdfunding
If your business has a fascinating plan for expansion or you’ve faced extraordinary hardship, you may want to consider creating a crowdfunding campaign. There are several women business owners who have found tremendous success through the help of others.
Consider the success story of Hannah Kromminga and her company Silfir. Kromminga caught the attention of the crowdfunding public because of the unique style and quality of her workwear made with sustainable materials. Because of some snappy videos and effective marketing, Silfir more than exceeded her funding goal.
And crowdfunding is a great way to get the capital your business needs while spreading the word about your business.
Grants for Women-owned Businesses
There are luckily plenty of small business grants reserved specifically for women business owners, minority-owned businesses, or female veterans. While loans will always expect repayment, grants are often obligation-free. Among the most reputable small business grants for women is the WomensNet amber grant which gives monthly small business grants to female business owners and has built an impressively active community of female business leaders.
Looking for a Business Grant?
Check Out These Grants for Women-Owned Businesses
There are several great opportunities for grant-based funding specifically set asidefor women small business owners. Find one that’s right for your business.
Small Business Financing and Becoming a Certified Woman-Owned Small Business (WOSB)
To take advantage of programs like the SBA and to improve your odds of qualifying and getting approved for small business financing, becoming a certified WOSB is essential. Becoming a WOSB also provides access to education programs and can help extend your professional and support networks.
To become a certified WOSB, you need to meet specific eligibility criteria outlined by the SBA. Here are the key requirements:
- Your business must be at least 51% owned and controlled by one or more women.
- Your business must qualify as a small business according to the SBA’s size standards for your specific industry.
- Size standards are based on factors like average annual receipts or number of employees.
- The woman or women owning and controlling the business must be responsible for the day-to-day management and operations of the business.
You’ll also need to provide various documents to support your application, including:
- Articles of incorporation or organization
- Business tax returns
- Personal tax returns of the woman business owners
- Operating agreements or bylaws
Finally, before applying for WOSB certification, your business must be registered in the System for Award Management (SAM) database.
Choosing the Right Loans for Your Business
Considering the world of lending options available for women-owned businesses, it is essential to weigh the value – along with the cons – of each financing option available to determine which is best for your current business needs.
It is no small thing being a female business owner. In fact, each small business success from women today further opens doors for future generations of women business owners. So, don’t give up. Keep learning. Keep doing. Keep growing. Keep succeeding!
Business Loans for Women FAQs
National Small Business Week runs from April 28th until May 4th this year and there is no shortage of resources and events available to small business owners looking to increase their knowledge, boost their operations, or expand their network. There are more than a few ways small business owners can celebrate NSBW on their own, but the SBA, SCORE, NFIB, and other organizations are using this time to touch base with America’s small business owners through several events this week.
What is National Small Business Week
Since 1963, the federal government has recognized National Small Business Week as a moment to celebrate and reflect on the accomplishments of America’s small businesses. Every NSBW the SBA recognizes one small business from each US state and territory with awards for excellence, innovation, disaster recovery, among others. In addition to awards, the SBA and its partners use small business week to boost their outreach to small business owners across the country through great educational and networking events.
Small Business Week Events & Resources
From virtual summits, training programs, to even special podcast episodes, there is no shortage of ways for you to sharpen your business mindset throughout National Small Business Week. Most of the events listed here are only available during NSBW itself, so act fast!
SBA Virtual Summit
Without a doubt, the biggest event happening during this National Small Business Week is the SBA’s 2-day virtual summit for small business owners. Both days of the event are filled with virtual panels and presentations put on by the SBA, SCORE, and several of their partners including Visa and Amazon.
The summit is fully free to attend but you have to register online. In between the webinars and presentations, small business owners can take advantage of exclusive virtual Exhibit Halls and Inspiration Halls where you can hear real stories from successful small business owners and chat with or pick up free resources directly from the major cosponsors of the summit.
If you can cut time out of your busy schedule during this year’s NSBW, this virtual summit is one of the best ways to connect with other small business owners and find out about new resources.
NFIB Small Business Rundown Podcast
If you aren’t a listener already, there is no better time than now to check out the NFIB’s Small Business Rundown podcast. This is a podcast built for small business owners and tuned to their interests. Episodes tend to discuss government developments and how they could possibly trickle down to affect small business owners. But for this National Small Business Week, the NFIB took on a great human-interest story about how one small business owner met with her local and state representatives and eventually made a lasting impact.
If you’re looking to get more in tune with today’s small business interests and learn more about the finer points of policy, there is no better place to start than the Small Business Rundown podcast. The podcast is available on Spotify, Apple Podcasts, Amazon Music, iHeartRadio, and the NFIB website.
SCORE Mentor Virtual Networking
In collaboration with the SBA, SCORE is offering extended virtual mentoring services from April 30th until May 1st. You can sign up for the SCORE mentoring services through the same link as the SBA’s virtual summit. The purpose of these services is essentially to give small business owners a “first consultation” that will eventually link them up with their local SCORE office or more relevant SCORE services.
There is no better time than now to get connected with a small business mentor. SCORE and the SBA are using National Small Business Week to make it easier than ever to get connected with a mentor even if you have never used the service before. SCORE mentoring rooms are available in between each webinar and presentation during the SBA virtual summit.
The SBA T.H.R.I.V.E. Program
The SBA is using National Small Business Week to make one last push for applications for their T.H.R.I.V.E. Emerging Leaders Reimagined program. The SBA has overhauled the T.HR.I.V.E. program, making it one of the most comprehensive mentoring, networking, and education programs for small business owners today. The T.H.R.I.V.E. program is built to take existing small business owners and make them experts in their industries as well as resources to fellow small business owners in their area.
The T.H.R.I.V.E. curriculum takes place both online and in-person meaning that you can genuinely get to know your local area through its business owners in class with you as well as through your professors who are already experts through the SBA, SCORE, or university training. And on top of that, the program is completely free. Since the program is partially in-person, take a look and find out if your small business falls into one of the 68 locations that T.HR.I.V.E. runs.
Applications for the T.HR.I.V.E. Emerging Leaders Reimagined program closes on April 28th, 2024, and the program is due to kick off on June 18th. You can apply directly from the T.H.R.I.V.E. website. If you attend the SBA virtual summit, you’re likely to hear more about the benefits of the T.HR.I.V.E. program, as there are multiple webinars dedicated to explaining the inner workings of the program.
U.S. Census Academy Data Training
The Census Bureau is also taking part in the festivities this year by making a major outreach push for its data training program. In coordination with the SBA and SCORE, the Census Bureau is welcoming small business owners to learn more about how they can use Census data to help grow their businesses and better understand the makeup of their local area.
Some of the most useful training courses include an in-depth tutorial on how to build a statistical snapshot of your community using American Community Survey (ACS) 5-year estimates, how to pull up useful statistics with the Census QuickFacts tool, and even how to locate and analyze your local customer market the Census Business Builder tool.
The U.S. Census Academy is completely free and open to the public with no need to register. You can access all of the Census Academy’s courses directly from their website. In addition to their data training courses, the Census Academy also has a massive collection of saved webinars from past events that small business owners are more than likely to find useful.
Happy National Small Business Week
From us at Kaptius to all the small business owners who make our country fresh and dynamic, we wish you a happy and productive National Small Business Week. As much as this is a time to celebrate the accomplishments of our small business owners, this is also a key time for small business owners to regroup and take a second look at their plans and strategies for the upcoming year. Either through the SBA virtual summit, SCORE mentoring, or one of the several other resources available this week, there is no better time than now to invest time and thought into the future of your small business
National Small Business Week 2024 is right around the corner, running from April 28 to May 4! The week aims to celebrate the critical contributions that America’s small business owners make to both the nation and their local communities. Each day is packed with events and resources to help America’s entrepreneurs celebrate their growth and hone their business skills.
If you’re one of the millions of small businesses looking to bring the celebration a little closer to home, here are twenty ways small business owners can celebrate National Small Business Week – acknowledging their story, recognizing those who support them along the way, and highlighting the true impact that small businesses have on local communities.
Ways to Celebrate Small Business Week
Here are some practical and fun ways American small business owners can give back to those who make their businesses strong during this National Small Business Week.
1. Learn the History of National Small Business Week
2024 is the 61st annual National Small Business Week. Over the years, the holiday has gone through quite a few changes. Formally created by President John F. Kennedy, NSBW was one of the first holidays established to honor American small businesses. Since its inception, NSBW has taken on some big growth in the form of the SBA’s annual small business virtual summit as well as an award ceremony celebrating small businesses succeeding in excellence in their field, innovation, or even disaster relief efforts.
To learn more about the storied history of National Small Business Week, consider reading more on the SBA’s website.
2. Get Festive on Social
There’s no better time than National Small Business Week for your small business to get posting! Tell your small business story or showcase the impact your business has on the local community. Use the “official” hashtags for the week: #SmallBusinessWeek, #NSBW, and #NationalSmallBusinessWeek
Get creative and try something you’ve never tried before. Look into coordinating an Instagram takeover with another small business or one of your employees, create your own NSBW hashtags for your business or ones that all of the small businesses in your community can use, or create a photo contest for your most dedicated customers.
3. Customer Appreciation
Customers are the reason small businesses thrive. Most of the time, people choose to work with small businesses rather than national corporations because of the personal touch and individual care that comes with it. With that in mind, make sure each and every one of your customers understands that they are valued this National Small Business Week (and every other week of the year too, of course).
4. Invest in your Education
National Small Business Week is a great time to celebrate your successes but at the same time, it’s great to regroup and think about how you can do better in the upcoming year. Specifically, think about certain fields or elements of your business you’d like to up your knowledge on. There are several great business education resources running throughout NSBW, so there is no better time than now to pick up a new skill or sharpen your existing ones.
5. Partner with Other Small Businesses
Small businesses are what make our communities fresh and vibrant. So, there are few better ways to celebrate local businesses than to team up with another business owner in your local area. Consider offering a special coupon or joint promotion for customers of both of your businesses. And what may start as an NSBW week partnership could easily grow into a huge networking opportunity for you and your neighbors.
6. Invest in Your Business
Reflecting on your business during NSBW means also reflecting on ways your business can expand or improve. There is no better time than now to finally make key repairs or finance an expansion. Especially if you effectively reach out to your local community, NSBW can be a great time to boost your revenue and invest it back into your business.
7. Give Back to Your Community
Your small business gives character to your local community. And your local community makes your small business stronger. National Small Business Week, then, is one of the best times to say thank you to the customers and community that give your business life. Consider sponsoring a local event or donating to a community charity to show your community that you see them.
8. Create an Exclusive Product or Service
Consumers are just as aware of National Small Business Week as business owners themselves. That means there is no better moment to remind your customers or clients of the holiday with a special promotion or exclusive product celebrating NSBW.
9. Say Thank You with Every Purchase
It may sound basic, but the best small business owners know that even the little touches like an extra ‘thank you’ or holding the door is all it takes to make a memorable experience for your customers. Take a chance to remind your customers about NSBW and why you’re so thankful.
10. Don’t Forget to Thank the Small Businesses You Work With
In addition to thanking the customers that keep your business going, don’t forget to thank the other small businesses that do the same thing. Your vendors and suppliers are likely small businesses too and keeping up good relations with them has more value than just social good. Keeping in good touch with your suppliers and vendors can lead to discounts and specials. Just be sure to return the favor when you get the chance.
11. Offer Sales & Discounts, Special Promotions or Offers
Especially if you’re planning on investing in your business during NSBW, it’s essential that you get your customers involved and get sales up. One of the best ways to remind your customers about NSBW is through special timed sales and discounts. Be sure to get the word out about your promotions on your social media and through other small businesses in your area.
12. Host a Live Event
As a small business owner, you are in a prime spot to become a community organizer. Consider setting up a live event at your store or somewhere in your local community to celebrate National Small Business Week. Be sure to invite as many local business owners as you can. Further, feel free to make your event anything from an award ceremony, gala, or even an educational seminar.
13. Celebrate your Team
Remind your team how important they are during this NSBW in the most extravagant way that you can. Your loyal and dedicated employees contribute significantly to the success of your small business, so be sure to remind your team how essential they are. Beyond verbal or written recognition, consider making some concrete changes like promotions or wage increases if possible. There is no better time than now to show your team how much they mean to you.
14. Look Back on Your Own Success
Take a step back and reflect on what you’ve accomplished over the past year. Small business owners tend to look ahead, which is usually a good thing when it comes to productivity and efficiency. But consider taking an afternoon or evening and thinking about everything you and your business have accomplished over the past year(s). Just a little bit of self-reflection can go a long way.
15. Tell Your Small Business Story
Have you ever sat down and told your small business story? Running a small business doesn’t necessarily sound like a riveting story idea at first glance but, anyone who’s run a small business knows that everything from your first day with the keys onward is a unique kind of always-on work.
Your days of perseverance and endurance are a story worth telling. So, consider documenting your small business story for your social media, sitting down with a local business-interest journal, or even just for your own sake.
16. Support Other Small Businesses
Especially if you are running an established small business in your local area, this is a great time to support younger or struggling small businesses. Look around in your local area or consider reaching out to your regional SCORE office to see what business owners may need a mentor or could benefit from a referral program.
17. Spread the Word about Small Business Impact
Any community that has lost its small businesses can tell you the true impact of dynamic and unique local businesses.
So while your business is still making a mark on your local economy, kindly remind your customers and clients why they should stick with small businesses rather than take up bigger corporate counterparts. Put together some statistics about the impact of small businesses or some real stories from the small business owners in your area and either post them on your social media or pass them on to a local paper to publish.
18. Take Advantage of Resources
This National Small Business Week, several of the biggest government and private authorities on small business – from the SBA to local small business development centers – are getting active and debuting great small business week events for expanding your network or upping your education. Several of the best and most exclusive events of the week, however, are only available until May 4th, so act quickly!
19. Get in Touch with Your Local Media
Consider contacting your local newspaper, radio, or television station to see what ways they may be willing to help the community celebrate National Small Business Week. Even just a small nudge from your business is all it takes to get more focus on the week! Most local media would snap at the chance to celebrate and honor local small businesses, so being that point of contact can be more than valuable.
20. Get Ready for Next Year!
It’s never too early to get your business in shape for next year’s National Small Business Week! In addition to your local festivities, consider nominating your business or another local owner for one of the SBA’s National Small Business Week awards. In addition to being great for morale, earning an SBA award is also a phenomenal networking opportunity, as there are more than 50 winners each year.
Happy National Small Business Week
Kapitus is proud to support entrepreneurs and small business owners every day of the year. Best wishes and thank you to the businesses that strengthen our local communities. We hope your business makes Small Business Week 2024 a little brighter through one of these 20 celebration ideas. Don’t forget to reach out to us on social media and tell us if one of your NSBW celebrations goes well or if you have your own small business week ideas!
If you are a small business owner weighing your financing options, it’s certain you’ve heard the term “SBA Loan” tossed around quite a bit. The Small Business Administration, however, manages several loan programs, all with their own unique use cases and requirements. Even if you’ve gotten an SBA loan in the past, you may still be surprised by how the SBA’s loan initiative truly works. From top to bottom, then, let’s look deeper into how the working capital from SBA loans goes from the Small Business Administration office to your small business. Further on, we’ll also look at the most popular loan programs from the SBA to better understand what type of loan may suit your business.
What is an SBA Loan?
At the end of the day, an SBA loan is still a business loan. This means that one party (typically called a lender) gives a pre-determined amount of money to another party, let’s call them a borrower. That borrower is then responsible for paying that principal back, often with a rate of interest. What, then, makes SBA Loans any different from a traditional business loan? There is one more party involved in SBA Loan agreements: a guarantor.
An SBA loan, then, is a traditional business loan where a portion of the principle is guaranteed by the SBA. This means that if the business can’t pay back its loan, the SBA will come in and pay back the guaranteed portion of the loan to the lender. This also means that loans backed by the SBA, like the popular 7(a) and 504 loans, tend to have more generous interest rates and repayment terms compared to traditional business loans.
What are the Most Common Types of SBA Loans?
While the SBA offers several loan programs, two are unquestionably the most popular.
SBA 7(a) Loan
SBA 7(a) loans are often the first choice of business owners looking for working capital. This is because the 7(a) program exists to promote business expansion and doesn’t restrict your spending to only real estate or repairs like other loan types. Terms for the average 7(a) loan range anywhere from 5 to 10 years. 7(a) loans are also adherent to the SBA’s set maximum interest rate which means, specifically, that 7(a) loans have an upper cap for interest. However, interest rates are negotiated between the borrower and lender, so it’s often still more than worth it to compare offers from multiple SBA lenders to see which offers you the lowest interest rate.
Business owners are often expected to front a down payment of at least 10% at the beginning of a 7(a) loan agreement. High-value 7(a) loans may sometimes require collateral, but it isn’t a universal requirement.
When you need liquid funds to meet the needs of a large customer purchase, purchase order financing can be an incredibly valuable tool. With purchase order financing, a lender will pay your suppliers to complete an order, and the supplier will then in turn pay you for the transaction minus a factoring fee and other costs. In short, this type of financing can ensure that your customers get the merchandise they are purchasing and that you get the profits from that purchase.
While purchase order financing can be a valuable method of making sure your transactions go smoothly, obtaining this type of financing does come with requirements. So if you’ve decided that purchase order financing is right for you, it’s important to go over a checklist of requirements before applying.
Purchase Order Financing Requirments
Before you apply for purchase order financing ensure you meet the below requirements are able to provide the documentation associated with them.
Requirement #1 – You Must be a B2B or BTG Entity
In order to qualify for purchase order financing, you must be a business-to-business or a business-to-government agency. This simply means that you must be doing business with either another business, such as a supplier, or with a local, state or government agency through a government or municipal contract.
Requirement #2 – You Must Sell a Tangible Product
The first requirement is that you must sell a product that can be touched and seen. This sounds obvious, of course, but what this really means is that purchase order financing cannot be applied to the sales of services, such as accounting services or medical treatments, it can only be applied to physical goods.
Requirement #3 – You Must Meet a Minimum Purchase Order Amount
Lenders offering purchase order financing charge a factoring fee based on the amount of the transaction, so they all require a minimum purchase order amount to make the transaction worth their while. The minimum amount of the transaction varies from provider to provider, with some financing companies requiring a minimum of $50,000 while others requiring a minimum amount of up to $200,000. Therefore, you should make sure the amount you need to fulfill your order is at least $50,000 just to be able to find a purchase order financing provider.
Requirement #4 – Your Suppliers & Customers Must Meet Minimum Credit Scores
In a purchase order financing agreement, financing companies are paying your suppliers directly then depending on them to deliver the goods or products. From there, your customers actually pay the purchase order financing company. Therefore, they will be checking the creditworthiness and reputation of your suppliers and customers before approving the transaction. The best way to meet this requirement on your end is to make sure you are doing business with reputable suppliers and accepting purchase orders from customers with good credit ratings.
This should be simple enough if the transaction involves a single supplier and one customer, but if it involves multiple suppliers, you should check with them early. You can request a credit check from them or check their business credit through Dun & Bradstreet.
Requirement #5 – You Must Meet Minimum Profit Margin Requirements
In order to approve you for purchase order financing, the lender will want to know if you can afford the fees. The best way for them to do this is to set a minimum profit margin for the transaction. Typically, the minimum profit margin ranges between 10% to 20% depending on the lender.
Requirement #6 – You Must Have a Minimum Time in Business
With most small business financing, you’ll need to have some time in business in order to qualify for purchase order financing. More specifically, however, is that you need to have engaged in the specified transaction with your suppliers before in order to qualify.
Requirement #7 – Your Financial Statements
You will also need to provide your company’s financial statements such as bank statements and other balance sheet information. More importantly, however, you will also need to provide information on any contracts you have with your suppliers and clients/customers.
Start Your Application Early
If you decide purchase order financing is right for you, you should start the application process early, as funding can take longer than with other types of financing such as a online working capital loans or revenue-based financing because more parties are involved in the transaction.
Cash flow stability is the lifeblood of any small business. Yet, even the most successful businesses deal with drops in revenue and unexpected expenses that can strain operations. Financing, then, can serve as a valuable tool to stabilize cash flow and maintain business operations. Let’s explore the various types of financing available to small businesses, strategies for leveraging them effectively, and the importance of prudent financial management to ensure long-term success.
What is Stable Cash Flow?
Cash flow is the movement of money in and out of a business, representing the inflow and outflow of funds. Maintaining a stable cash flow is essential for covering day-to-day operations, paying suppliers, covering payroll, and investing in growth opportunities. But as any small business owner knows, revenue streams can be unpredictable, and unexpected expenses can come up at the worst times. Without adequate cash reserves, businesses may struggle to weather financial downturns or capitalize on growth opportunities. This is where loans come into play, providing businesses with access to capital when cash flow is tight.
Loans for Cash Flow Needs
Small businesses have a range of loan options to choose from, each tailored to different financial needs and circumstances. Traditional bank loans are a common choice, offering lump-sum financing with fixed interest rates and repayment terms. These loans are suitable for long-term investments such as expanding operations or acquiring real estate.
Small Business Administration (SBA) loans, backed by the federal government, provide businesses with access to affordable financing and flexible terms, making them an attractive option for younger and established businesses alike.
Additionally, alternative lending options such as revenue-based financing and invoice factoring offer quick access to capital based on future revenue or accounts receivable, respectively. While these options may come with higher fees and shorter repayment terms, they can be useful for businesses in need of immediate cash flow to take advantage of an opportunity that would produce enough revenue to cover the cost of the financing while still providing the business with a profit.
Using Your Business Loan Effectively
When considering taking out a loan to stabilize cash flow, small business owners should think wholistically. First, it’s essential to assess the business’s financial needs accurately and identify the best type of loan for the situation. Conducting thorough research and comparing loan products from multiple lenders can help secure favorable terms and conditions. Additionally, businesses should develop a comprehensive repayment plan that aligns with their cash flow projections and revenue streams. By understanding the cost of borrowing and the impact on cash flow, businesses can make informed decisions and avoid overextending themselves financially.
Business owners should prioritize active financial management practices to maximize the benefits of loans and ensure long-term sustainability. This includes maintaining accurate and up-to-date financial records, monitoring cash flow regularly, and implementing effective budgeting and forecasting techniques. By staying proactive and disciplined in financial management, businesses can anticipate potential cash flow challenges and take proactive measures to address them before they escalate into larger issues.
Managing Cash Flow
While loans can provide a temporary solution to cash flow challenges, they often are not a substitute for sound financial management practices. Small business owners must prioritize prudent financial management to ensure the long-term success and sustainability of their ventures. This includes maintaining healthy cash reserves, managing expenses effectively, and diversifying revenue streams to minimize reliance on any single source of income. Additionally, businesses should prioritize building strong relationships with lenders and suppliers, as well as maintaining open communication with stakeholders to navigate financial challenges effectively.
Keeping Your Cash Flow Flowing
Leveraging loans can be a strategic approach for small businesses to stabilize cash flow and maintain operations during periods of uncertainty or even growth. Whether through traditional bank loans, SBA loans, or alternative lending options, businesses have access to a variety of financing solutions tailored to their unique needs and circumstances. However, it’s essential for business owners to approach borrowing responsibly and adopt financial management practices to ensure long-term success. By understanding the importance of cash flow stability, exploring available loan options, and implementing effective strategies, small businesses can navigate financial challenges with confidence and position themselves for sustainable growth and prosperity in the years to come.
It’s common knowledge that individuals and families should have at least six month’s worth of their expenses in a savings account to deal with emergencies. But did you know that having an emergency fund is a good business practice as well? The unexpected could come at any moment, and as the past four years have taught us the residual impacts of the unexpected can just keep coming and coming.
How and where do you start building out an emergency fund without negatively impacting your business right now? Let’s run through a few ways that you can use business financing to get you on the road to securing your business in the event of an emergency.
What is a Business Emergency Fund?
To start, let’s cover the basics: a business emergency fund is a savings account set aside to quickly cover unexpected expenses for your business. It is a fund that should be contributed to regularly and should not be accessed for anything other than a real emergency that could risk closing your business’s doors. To put it simply, this fund is your first line of defense when something risks interrupting your daily operations.
How Much Money Should an Emergency Fund Have?
The amount of money needed in an emergency fund will depend wholly on your business and its annual operating expenses along with other factors such as your inventory, receivables, and whether or not your business runs seasonally. All these factors, as well as your personal preferences as the business owner, will determine how much money you will need to handle what your business would consider an emergency. A good rule of thumb, though, is that your emergency fund should cover – at minimum three months worth of your business expenses.
Using a Business Loan to Boost Your Emergency Fund
If you are looking to quickly build or add to an emergency fund without impacting your existing cash flow and putting other business goals on the back burner, creatively using funds from a business loan could make that possible. Here are a few strategic ways you can use business loans (or other types of business financing) to build an emergency fund without sacrificing other areas of your business – some can lead to a quick build of an emergency fund and some require a long-game mentality.
Cover an Expansion or Improvement That Will Lower Overall Expenses
Using a business loan to expedite expansion or a business improvement is a classic way to boost your overall capacity and, eventually, your revenue. If investing back into your business means that you’ll make more profit down the line, you could allocate a percentage of all new revenue to invest in your emergency fund at a level that may not have been possible before making the improvements.
Let’s say, for example, an auto repair business has a plan to increase its capacity and efficiency by adding a new hydraulic lift to its garage. Using a business loan (or equipment financing) to buy the lift more quickly could increase the business’s rate of repair and eventually free up more working capital as a result. As long as the business eventually puts a percentage of that working capital back into an emergency fund, financing could help get that fund off the ground faster.
Cover Payroll to Expand Staff
Business loans are also a solid means for a business owner to cover payroll. Instead of using the loan to cover payroll when cash flow is low, consider, instead, using that loan to hire more employees or temporary workers which, in turn, could increase your profits over time. If high-achieving or strategically placed employees have the potential to make you more money more quickly, it can be more than reasonable to use a loan to expedite those workforce additions. It’s then, of course, essential that the business owner uses that capital boost to reinforce their emergency fund.
Refinance or Consolidate Current Debt
If your existing debt is spread across several lenders or is steeped in high interest, refinancing that debt could change up your monthly payments and give you more working capital. Especially if your business has a serious amount of credit card debt, it’s more than possible that refinancing or consolidating your business debt could help reduce your overall monthly payments. By bringing your monthly payments down and your working capital up, it’s possible your business could have more capital on hand each month to boost your emergency fund.
Buy Up More Inventory
Managing inventory is the basis of good daily operations. If you can find a way to pay less per piece for your inventory stock you’re confident will be sold, it may make sense to use a business loan to take advantage of bulk discounts to the fullest. If your business can turn that inventory win into a cash flow win, you can then reinvest that cash flow back into your emergency fund.
Using an SBA Disaster Loan
SBA Disaster Loans aren’t going to help establish an emergency fund unless your business has already been hit by a disaster. So, if your business is hit with a disaster and your emergency fund is either now depleted or never existed in the first place, applying for an SBA Disaster Loan could be a great way to quickly build back up your emergency fund and help get your business back on its feet.
Eligibility for SBA Disaster Loans is based on how the federal government and FEMA determine disaster zones. Keep a close eye on the SBA website to find out when or how your business could be eligible for a disaster loan.
Putting Loan Funds Directly into Your Emergency Account
The easiest way to use a business loan to build out an emergency fund is to simply directly deposit those funds into your emergency account. Of course, this would mean you already have the revenue coming in to cover the payments for that loan so this strategy should only be used when you want to and afford to quickly bolster that fund.
Other Financing Options Relevant to Emergency Funds
Business loans aren’t the only way to keep your emergency fund in good form. Here are a few additional financing options you could use to strategically build or add to your fund.
Line of Credit
While a line of credit won’t necessarily help build an emergency fund, having a well-maintained line of credit could free up some of your working capital and allow you to invest back into the fund more fully. A great example of how a line of credit can help free up cash flow is invoice management. Imagine that a business deals with many invoices that can take several weeks or months to pay out. Using a line of credit to cover expenses and then eventually paying them back through those paid-out invoices is a great way to boost your working capital.
Business Credit Cards
A business credit card could be seen as another line of defense between an emergency and your cash reserves. While business credit cards generally have quite high monthly interest rates, using that card instead of dipping into your savings or operating expenses is a great way to ensure your cash flow (and your ability to invest back into your emergency fund) stays consistent.
Every Business Needs an Emergency Fund
No business is insulated from unexpected expenses. Building an emergency fund that can get your business through essential repairs or major changes can be the difference between whether or not your business exists tomorrow at all. Especially if your business is behind on its emergency fund targets, using a business loan to quickly free up your working capital could be just what is needed to get you on the road to building the emergency fund you need.
Everyone knows the common sales phrase, “consumers buy what they see.” This means that consumers are more likely to purchase what is visually appealing, be it from a small business with an appealing storefront, a clean and well-organized business space, a modern restaurant dining room, an attractive website, or even the way your products are displayed.
However, when time wears down your business’ storefront, or you want to change the inside of your establishment or website to reflect a new product or change to your brand, renovations can be expensive and severely cut into your cash flow. Fortunately, small business owners have several renovation financing options to choose from to renovate to give your business the makeover it needs. Financing can give you the funds that you need upfront without being a drag on your working capital.
Business Renovation Financing Options
Specific types of financing are best for specific renovations and situations. If you own the building your business is housed in and your roof is 25 years old and needs replacing, for example, that may require a different type of financing than, let’s say, purchasing new equipment. Here is a list of the different types of financing you can apply for to spruce up your business.
SBA CDC/504 loan
The SBA 504 loan is an ideal option for renovating your business’ physical space or buying new equipment. Specifically, the 504 loans are meant for upgrades of major fixed assets and long-term equipment that will promote business growth and job creation in the community. It is most often used by small businesses operating in underserved communities and can be obtained through a list of SBA-approved community development corporations (CDCs).
While the rates and requirements are usually lower than a loan from traditional and alternative lenders, the average borrowing amount is typically smaller – the average loan amount is slightly under $1 million, even though loan amounts can go up to $5 million. Additionally, your net revenue must be $5 million or less after federal income taxes for the two years before you submit an application. For more information, check out the SBA’s 504 loan website.
Equipment Financing Loan
An equipment financing loan is a specialized loan in which a financing company provides you with the funds to purchase a specific piece of equipment vital to your business that will be paid back with a fixed interest rate. This type of financing is offered by both traditional banks and alternative lenders. If you’re seeking to modernize your business with new, revenue-generating equipment, this could be an ideal option.
SBA 7(a) Loan
The SBA 7(a) loan is a term loan and because the loan is partially guaranteed by the SBA, it typically offers the best rates. The loan amount can be up to $5 million and can be used for a variety of reasons, including business renovations and purchasing new equipment. It is only offered through SBA-approved lenders, and the interest rate on the loan is typically pegged to the yield of the 10-year US Treasury bond, making it one of the cheapest borrowing options for small businesses in terms of cost of capital.
The 7(a) loan, however, is one of the most difficult loans to obtain, as the requirements for obtaining one are the toughest. Applicants must have high business and personal credit scores, a detailed business plan, and a profitable business, among several other requirements. If you are approved, the funding time could take weeks.
A Business Line of Credit
A business line of credit is an extremely versatile financing tool that gives your business a revolving credit line that can be used for any business purpose, including renovating your business. Lines of credit are offered by both traditional and alternative lenders, and you will only be charged interest on the amount you borrow. The interest rate on a line of credit is typically lower than what you’d be charged for a business credit card, and it provides you with cash to make purchases.
To qualify for a line of credit, you typically need a good FICO score (650-675) as well as a solid business credit score (65 or higher). The repayment terms on a line of credit can be tricky, however. Many line of credit providers require that it be repaid in full on a monthly or annual basis, and depending on the providor, you may be charged balloon payments and other processing fees. It is important to work out the terms of a line of credit before you take one on.
Term Loan
A term loan, also known, simply, as a business loan, is a lump sum of cash that a bank or alternative lender will provide that will be paid back with interest over the course of months or years. This type of financing can provide distinct advantages if you are looking to spruce up your business by renovating your storefront, modernizing your dining room or revamping your office or store space. A term loan usually offers a cheaper interest rate compared to equipment financing or a line of credit, and the repayment terms are at fixed intervals.
Much like with the SBA 7(a) loan, however, this type of loan is usually slightly more difficult to obtain than a line of credit, 504 loan or equipment financing. A term loan typically requires at least 2 years in business and strong credit rating and cash flow statements. Traditional banks often require a strong business plan to get approved, while alternative lenders do not.
Working Capital Loan
Working capital loans are short-term loans that often must be paid back in under a year and can be obtained only by alternative lenders. This loan provides short-term funds that can be used for immediate renovations such as fixing a leaky roof or replacing old furniture or equipment in your office or store interior. This type of loan usually has looser requirements than a traditional term or 7(a) loan. However, it is also the most expensive type of loan, as interest rates on this type of loan can be as high as 25% because approvals are usually based on less strict requirements.
Carefully Review Your Options
If your business is in desperate need of renovations, it’s best to carefully assess your needs and estimate the cost of whatever renovations you are seeking. Carefully choose which type of financing would be best for your business based on those needs, your creditworthiness and what you are willing to pay in terms of cost of capital. If you carefully choose, the financing you receive should propel your business into the future.
Business expansion is one of the primary reasons that small businesses seek out financing. But if your business is taking on its first big expansion or you are relatively new to the modern world of financing, finding the best financing solution for your expansion may seem daunting. After all, both expansion and financing are not one-size-fits all, especially when considering that different type of business growth call for certain types of business financing. How do you determine which type of business financing is best for your expansion plans?
Types of Business Financing that Fund Expansion
Let’s go product by product and lay out some use cases where one type of financing may fit better than another.
The Versatile Nature of Business Loans
It is very common to pair a business loan with expansion because business loans are so versatile. Business loans allow an owner to take out a lump sum of capital after making an agreement to pay that sum back over time with predetermined interest. So, any kind of expansion that calls for a lump sum of money, (that would mean most) could likely be expedited with a business loan.
Any kind of expansion – from mergers to real estate has the potential to increase profits, especially with an owner who knows their industry well. Using a business loan to strategically expand your operation is so common, then, because it fits so many practical use cases. Further, business loans tend to have much longer repayment terms compared to other types of financing. This means that business loans may be the preferred choice for expansions that take longer to break even or require a significant amount of capital upfront.
Expansion Through Equipment
If your expansion is going to require new equipment, then equipment financing is an excellent option to consider. Equipment financing, as the name implies, is a financing product specifically for acquiring equipment. This means that the total value of the loan should not exceed the price of that equipment, plus interest. Further, in many equipment financing cases, the equipment itself can be used as collateral for the loan. The terms of the loan, also, are often based on the life expectancy of the machinery itself.
Expediting your ability to acquire new equipment is a great way to increase your profits faster. For example, a trucking company could use equipment financing to expand its fleet. This trucking company could then increase its capacity to take on orders thereby meeting expectations for that return on investment.
Leverage Outstanding Invoices to Fund Expansion
By leveraging invoice factoring, small businesses can access immediate cash flow by selling their outstanding invoices to a factoring company at a discounted rate. This infusion of funds can then go toward growth-related needs such as expanding operations, hiring staff, investing in marketing, or purchasing inventory. Unlike traditional financing options, invoice factoring often doesn’t require traditional collateral (the invoice, itself, can typically be used as the collateral) and it doesn’t have a lengthy approval process, making it an attractive option for small businesses looking to expand quickly.
By staying proactive in managing finances and working closely with your factoring partner, small business owners can leverage invoice factoring as a strategic tool to fuel growth and achieve their expansion objectives.
Expansion Opportunites Funded by Future Revenue
Revenue-based Financing offers an alternative funding solution for small businesses looking to fuel growth. This financial tool allows businesses to receive a lump sum upfront in exchange for a percentage of future credit card sales. Unlike traditional loans, RBF are based on a business’s projected revenue rather than credit history, making them accessible to businesses with limited credit or those in need of quick funding. The flexibility and speed of RBF makes it an appealing option for businesses looking to seize growth opportunities without the constraints of traditional lending processes.
To effectively leverage RBF for small business growth, it’s essential to understand the terms and repayment structure. While RBF offers quick access to capital, they typically come with higher fees and shorter repayment periods compared to traditional loans. Small businesses should carefully evaluate the terms of their specific RBF deal and make sure they have a clear plan for repayment that won’t strain cash flow.
Make sure to explore multiple RBF providers to find the best fit for your needs, considering factors such as fees, repayment terms, and customer service reputation. By using RBF strategically and responsibly, small businesses can accelerate their growth trajectory and achieve their expansion goals.
Expand with Government-Backed Funds
Small Business Administration (SBA) loans offer a valuable avenue for small businesses to secure financing and foster growth. These loans, backed by the federal government, provide businesses with access to capital for various growth initiatives, including expansion, equipment purchases, working capital, and more. SBA loans often feature longer repayment terms and lower interest rates compared to conventional loans, making them an attractive option for businesses seeking affordable financing options. Moreover, the SBA’s guarantee mitigates risk for lenders, making it easier for small businesses to qualify, even if they lack extensive credit history or collateral. By leveraging SBA loans, small businesses can unlock the financial resources needed to scale operations, enter new markets, hire additional staff, and ultimately realize their growth potential.
Expanding Your Business and Your Receivables
Smart financing can be a strategic move for small businesses aiming to expand their operations and reach new heights of success. Whether through traditional bank loans, SBA loans, revenue-based financing, or invoice factoring, businesses have a range of financing options available to expedite expansion. However, it’s crucial for business owners to carefully evaluate their needs, assess the terms and conditions of each loan product, and develop a comprehensive repayment plan to ensure financial stability and success in the long term. By leveraging loans responsibly and strategically, small businesses can overcome financial barriers, seize growth opportunities, and achieve their goals, ultimately paving the way for expansion and growth that lasts.
Getting the equipment your business needs to operate is crucial; getting the funding you need to purchase that equipment is just as important. Obtaining equipment financing is often the key to purchasing the revenue-generating equipment you need to make your small business run, and it offers distinct advantages. Some of those being that you typically don’t have to have a down payment to purchase your equipment and that collateral isn’t required since the equipment you’re purchasing serves as the collateral.
Before opting for equipment financing, however, it’s important to run down a checklist of what you’ll need to obtain it so that you’re one hundred percent ready to apply when the time comes.
Obtaining Equipment Financing: a Checklist of What You Need to Apply
✔ Good Credit Scores
Just like a bank loan or line of credit, you will need a fairly strong FICO score to obtain equipment financing. While the minimum score varies with each lender, the range is usually between 650-675. Some lenders may be willing to approve equipment financing with a score as low as 625 but will charge an exorbitant interest rate, so be careful.
The same thing goes with business credit scores. Most traditional banks and alternative lenders want to see a business credit score of at least 70 (from Dun & Bradstreet), but the required business credit score also varies from lender to lender.
✔ Minimum Annual Revenue
When you apply for equipment financing, the lenders will naturally want to know if you’re going to earn the revenue needed to pay the back. Therefore, certain lenders – traditional banks in particular – want to see how strong your business is by requiring a minimum annual revenue. The minimum revenue will vary by lender, with some requiring $250,000 and others requiring as little as $100,000.
✔ A Strong Balance Sheet
Many equipment finance lenders will want to know that your business is profitable in order to mitigate their own risk. Therefore, almost all equipment finance lenders will require you to show them your business’ balance sheet (profit and loss statements) for the past several years.
✔ A Plan for the Equipment
Again, lenders want to mitigate risk. Therefore, most equipment financing companies will require a plan on how the equipment you’re purchasing will generate revenue. Make sure you can explain, in detail, how the equipment you are seeking to purchase will increase your profits.
✔ Minimum Years in Business
Brand new startup businesses, unfortunately, cannot obtain equipment financing, as almost all equipment finance lenders require that your business be established. Some lenders may require at least three years in business, though others require only 1.
✔ Minimum Value of Equipment
The minimum value of the equipment you’re seeking to purchase with equipment financing varies – some lenders will require that the value be at least $25,000, while others may require it to be as little as $5,000. Keep in mind, the value of the equipment can significantly impact the interest rate.
Watch out for Bad Players!
Now that you have your checklist, it’s important that you watch out for the bad apples – financing companies and lenders seeking to gouge you with especially high interest rates or lock you into unreasonably expensive contracts. To make sure you are dealing with legitimate players dig into their reputations through online reviews.
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