Category Archives: Business Finance

Should You Accept Bitcoins at Your Small Business?

It’s getting harder to ignore the rising popularity and ubiquity of Bitcoin, the most widely recognized open source, peer-to-peer payment system and digital currency in the world. As the digital “cryptocurrency” continues to generate serious attention, a lot of major companies and organizations have been taking notice.

WeAcceptBitcoinCurrently, there are thousands of businesses- online and off- around the world that accept Bitcoins as a valid payment for products and services. There are also countless supporting platforms that assist in the purchase and storage of Bitcoins as well as payment processing in the digital currency. Some of the big names in this space include Bitpay, Coinbase, and Bitstamp.

If you are enthusiastic about the Bitcoin movement and you are running a small business, you may have played with the idea of accepting it as a form of payment. But, on the logistical and legal side, such a move brings up a few, big important questions:

  • What is the right way to accept and account for Bitcoin transactions?
  • Is it legal? Will you get in trouble with the government?
  • How should you pay taxes on income received through Bitcoin?
  • How do you account for the currency’s volatility?

If you are going to accept Bitcoin, then you will need to use a third party platform to process the transactions in a safe and convenient way. If you are selling goods and services online, then you’ll want to use an online Bitcoin merchant solution. Some of these services allow you to automatically convert the Bitcoin to USD or any other major foreign currency. If you are running an off-line business, customers can pay using hardware terminals, touch screen apps, or they can use their wallet addresses through QR Codes.

In terms of the legality of Bitcoin and how you record your income for tax purposes, so far there is nothing illegal about processing Bitcoin transactions in your business. Most governments it seems are taking a “wait and see” approach to the digital currency and some of it’s major competitors, such as Litecoin.

For now, Bitcoin could be treated like a cash-based transaction. Consider how you normally record your cash transactions and then this process could be applied to your Bitcoin sales, and in order to decide what a Bitcoin transaction is worth, you could follow the IRS guidelines on how to value transactions made in a foreign currency.

Lastly, regarding Bitcoin’s volatility, the biggest factors to consider is what proportion of your sales you think will be processed in Bitcoins, and if your business can afford to sustain fluctuations in the value of those sales. Supporting the principles and ideals behind Bitcoin is worthy, but you don’t want to sacrifice your business for them.

In short, there are already thousands of businesses processing payments in Bitcoin. If you are considering joining their ranks, then make sure you have all the checks in place to do so responsibly.

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January 8, 2014
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7 Common Startup Financing Mistakes to Avoid

In the midst of all the excitement and effort surrounding the start of a new business is one of the most essential building blocks: startup financing. Yet, many aspiring entrepreneurs get this part wrong and in doing so, they cause significant damage to the business and even to their personal assets and credit.

dollarsBelow are 7 of the most common startup financing mistakes that entrepreneurs make as well as some tips on how you can avoid them within your own business:

1. Mixing personal and business accounts. Even if you are your business, and even if you will be relying on personal assets to help fund your business development and operations, keep your business accounts as separate as possible from your personal ones. This means having separate bank accounts, separate credit cards or other lines of credit, and maintaining detailed records of any personal funds invested in your business. If you are running a sole proprietorship or a straight partnership, then even with this separation, they’ll still be some overlap in your personal and business financial profiles, but it will still prevent you from many potential problems down the road.

2. Not putting enough money aside to cover personal expenses. When you start your business, you want to be in a position to make sound, long-term oriented decisions. But, this often means that you won’t see much of an income at the beginning. If you are desperate for money, you’ll be more likely to make decisions that may provide some short-term gain, but may cost your business in the long-run. So, before you quit your job to start your dream venture, make sure you have enough money set aside to cover your living expenses for the first 6 months to a year. If that’s not possible, then it may make sense to keep your job and make the startup process slower.

3. Not being realistic with time needed to become profitable. Right on the heels of the point above is the fact that many first time business owners fail to appreciate the amount of time and effort needed to really get a business up and running and generating some significant revenues. This is a major mistake than can lead to a number of other bad decisions, some of which are mentioned below. You should plan to not be profitable for the first year at least.

4. Not sticking to a budget. As I mentioned above, getting to the point where your business is generating profits may take some time. So, it is vital that you create and stick to a startup budget that covers at least the first year of operation. This will help to ensure that you spend money where it’s needed while avoiding spending more than your means.

5. Not properly estimating the costs of startup. Nothing in life or business always goes according to plan. In fact, most times it doesn’t. Yet, many aspiring entrepreneurs assume that everything will be smooth sailing with their startup process. Make sure you budget in extra funds to cover any “surprises” along the way.

6. Taking on too much debt. Even with the most well thought out business idea and plan of execution, there are no guarantees. Taking on a high level of debt in the hopes that future sales can be used to pay it off, can be very risky. It’s often better to start off small, start generating some revenues, and then slowly finance your future growth.

7. Not paying for professional advice and assistance. If there is one area where you really don’t want to be skimping, it’s in hiring a good account and lawyer. I know these professional services can get pretty costly, but if you’ve made the effort to hire good people, you will get more than your money back from implementing their advice and avoiding costly mistakes.

In short, if you really want your new business to be a success, you should make sure you are making the right moves in the most obvious areas, such as startup financing.

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Three Alternatives to Square for Mobile Payments

Square recently announced that it is giving it’s flat fee the ax, making many of its small business customers wonder if there are any cheaper alternatives. The company credited for challenging the mobile payments industry stated that it will be discontinuing a monthly $275 flat fee for businesses processing less than $250,000 in credit-based sales annually. These Square customers will now pay the same 2.75 percent swipe fee per transaction that larger customers pay.

IntuitSo, are there any real options now that Square is not as attractive as it used to be? You bet! Below are three alternatives to Square that small business owners should consider:

PayPal Here. I know that PayPal may not be the most well liked company around-especially among small business owners. But, it’s mobile payments service, PayPal Here, definitely has some great features that make it an option to seriously consider. Like Square, PayPal has a free app and card reader that you can attach to your mobile device, and you can accept a full range of credit cards, such as Visa, MasterCard, American Express, and Discover. But with Paypal, you can also accept checks for electronic deposit as well as create and send electronic invoices. Fees start at 2.7% per transaction, which is actually a little cheaper than Square, while a manually entered transaction will cost you the same as Square, 3.5% plus $0.15 per transaction.

The money is instantly transferred to your Paypal account where you can either transfer it to your bank account (a process that could take a few days) or access it immediately via a PayPal merchant debit card.

Intuit GoPayment. Depending on the amount of transactions you generate per month as well as how often you manually need to key in information, Intuit’s GoPayment service may be a cheaper alternative to Square. There are two payment options. With the first one, there is no up-front fee, and the cost per transaction is 2.75 percent. For manual transactions, the cost is 3.75 percent with no 15 cent charge. So if you process less that $60 in manual transactions a month, then Intuit is the cheapest option. If you process over $1,300 a month, then Intuit’s second option would be the best deal. In this case, you pay $12.95 a month, which gets you a swipe rate of 1.75 percent. The biggest downside to Intuit GoPayment is that the money doesn’t reach your bank account for two to three days.

Spark Pay. Spark Pay is a relative newcomer to the mobile payments scene, but it’s definitely a something to consider since it offers the best deal in terms of pricing for many small merchants. Spark Pay, which is part of Capital One, charges 2.70 percent per swipe or 3.70 percent for keyed-in transactions with no monthly fee. Pay a $9.95 monthly fee and swiped transactions are 1.95 percent, while manual transactions are 2.95 percent. Reviews of the service, however, have been mixed, with many users complaining that their accounts were canceled and that the reader and app didn’t work properly. So, proceed on this one with caution.

In short, before you pick any of these services, make sure you read the fine print, since there are slight differences among each service that can end up costing you a lot of money, such as how the service treats rewards cards. You can also see a side-by-side comparison of each of the major mobile payments platforms would perform for your particular business with this handy tool over at cardfellow.com.

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Can You Really Use Crowdfunding to Finance Your Small Business?

Over the past few years, crowdfunding has been steadily climbing the charts of ubiquitous Internet buzzwords. It’s inclusion in last year’s JOBS Act only added fuel to the fire and on the surface seems to give a nod of legitimacy to crowdfunding as a source of business capital.

teamwork-1-1254520-mAt first glance, it’s not hard to see the allure in harnessing the crowd to potentially raise significant amounts of money. But, if you were hoping that crowdfunding would bring the end to your financing woes, make sure you know all the facts. Raising money from this kind of model may actually not be an option for the vast majority of small businesses.

Up until this point, crowdfunding platforms have mostly subsisted on a perks-and-gifts model. This is the version popularized by Indiegogo and Kickstarter in which individuals donate their money in exchange for small gifts, honors, or products, but not stock.

In theory, the crowdfunding provision in the JOBS Act was supposed to allow ordinary investors the opportunity to invest in small or early stage start-ups online in exchange for company equity. The provision provides for entities to connect companies raising money with people who want to invest. These can be existing securities brokers, or they can be so-called “funding portals.”

Currently, only individuals who meet certain wealth or income requirements are allowed to invest in private companies in exchange for ownership. The Securities and Exchange Commission was tasked with creating the rules surrounding the proposed new form of equity-based crowdfunding, but the “final product” as part of the JOBS Act was so watered down and warped that it caused industry experts to proclaim “Investment Crowdfunding in the U.S. is Dead Before Arrival.

In a nutshell, the resulting legislation on a federal level will do little to nothing to create a new capital market of non-Accredited investors nor help “formalize” and grow the friends and family funding market.

The good news, however, is that there has been a growing adoption of state-wide crowdfunding legalization. A handful of U.S. states have recognized the value of forging ahead with their own state-wide crowdfunding legalization, something they are allowed to do as long as the investors and businesses operate within their states. Georgia, Kansas, and Wisconsin have already signed off on crowdfunding legalization, and North Carolina and Washington have followed suit with their own proposals.

So where does that leave your small business? If you happen to live in one of the states mentioned above, and you are operating a small or early stage startup, then crowdfunding may be a viable financing option to look into. If, however, you live outside these states and your business is not related to the arts, your chances of drawing money from the crowd are pretty slim. Crowdfunding may not be your financing silver bullet after all.

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How Can You tell If Your Bank Is Small Business Friendly?

I find it funny that some business owners may spend more time shopping for a $300 laser printer than they would shopping for a bank. Choosing a bank for your small business should involve more than just opening a new account at your personal bank or picking the nearest branch. You need to understand what services you require, how much they are going to cost you, and how open the bank is to working with small businesses.

Small Business Friendly Banks Actively Make Small Business Loans

handshakeOne sign that a branch is committed to small businesses is its history of lending money to business owners in the community. If you want to know how your local bank stacks up in the small business lending department, you should definitely check out this handy bank lending grader tool. The tool rates 6,800 banks in the United States based on quarterly FDIC call reports, as well as the total small-business loan balance for each bank divided by its total domestic deposits, and then assigns each bank a grade A through F. To get a good rating (A or B), the bank would need to use at least 10% or more of their deposits to make small business loans. The only thing to keep in mind is that this tool does not offer any insight into how much a bank gives back to a particular local community.

Other Ways to Rate Your Local Bank

What is the bank’s lending authority? What’s the largest loan he or she can approve without checking with higher ups? Relationship managers at community-based banks often have more discretion than those at a unit of a big institution. But, the distinctions between “large” and “small” banks have blurred with the industry’s consolidation. Many community banks have undergone mergers that now allow them to offer a wider range of services.

What is the bank’s underwriting criteria? Smaller, regionally focused banks tend to understand local market conditions more than big national banking institutions. Small, local banks often provide more one-on-one access to a loan officer and put more emphasis on a borrower’s character rather than just applying a credit-score model.

Does the bank make SBA loans or is it a non-SBA lender? Does the bank work with the U.S. Small Business Administration (SBA) loan system? Federally subsidized loans help protect the bank against default, which makes it easier for banks to lend money- that is, once they get through all the paperwork! SBA loans are available to businesses whose credit histories, cash flows or collateral would be inadequate for them to obtain traditional bank loans, and the SBA typically offers more flexible repayment terms. For a list of SBA preferred lenders near you, you can search their online directory.

What business services does the bank offer? Here is where larger banks may have a leg up on smaller institutions. Ideally, you need to think about the long-term relationship. Consider not just what you need today, but services you may require in 18 to 24 months out. See if your local branch offers added benefits such as online services that help save time and money. These may include sending invoices, collecting payments, payroll and loan applications. Some banks may have requirements in place in order to access these services, such as requiring employees to use direct deposit.

In short, the search for the right business banking services should not be approached in the same way you would a typical supply or product purchase. This is all about finding the institution that is willing to build a relationship with you and your business. That’s a real value that can be leveraged in good times and in bad.

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How to Use a Business Rewards Card to Save Big Money in Your Business

Business rewards cards are long time tools of the trade for credit card companies. Offering eye-catching rewards and money-saving opportunities is a tactic credit card companies use to lure small business owners into a new account. If you have good credit, you can be disciplined with your spending, and you make the effort to research the best deals, then the truth is that you can really earn a significant amount of money this way. There are plenty of pitfalls to this practice, however. After all, the credit card companies are in the business of making money- not giving it away for nothing. So, before you run to take advantage of the next great offer, make sure you consider the points below:

credit cardGet in touch with your current financial reality. Rewards credit cards are used to encourage business owners to put money on their credit cards in order to earn the rewards. Credit card companies know that when businesses and individuals spend with credit they tend to overspend. If you currently have a large amount of credit card debt, then most business rewards cards are not for you. Even if you are accepted the interest you’ll pay on the outstanding balance will completely eat away any benefits you receive. In this case, you’d be better off with a good balance transfer credit card offering a low introductory APR (annual percentage rate). Bottom line: business rewards cards are the best for businesses with good credit, a relatively steady cash flow, and the ability to pay off the outstanding balance in full each month.

Figure out where you can most use the savings. Different businesses spend money in different areas. Does your business involve a lot of air travel? Does it involve significant gas consumption via long commutes or deliveries? Do you spend a lot of money on office supplies and equipment? Rewards cards tend to target specific purchase categories. If you are not sure where the focus should be then look for cards that offer a versatile rewards point system as well as other, non-points benefits, such as cash-back on purchases.

What are your spending habits? Are there groups of purchases, such as standard overhead expenses, that you can put on the card? In order to get the biggest reward and avoid falling into the trap of over-spending, one tip would be to have two business credit cards, each of which is only used for specific categories of purchases.

Read the fine print! I probably should be putting this tip in bright neon orange. Rules and requirements will definitely vary, and they are often subject to change with little to no warning. Make sure you are clear about the kinds of rewards being offered, any requirements you need to fulfill before receiving them, as well as any limitations on their use. You also need to be in touch with the realities of keeping the account after a trial period has ended. What is the APR? Is there an annual fee?

Keep your eyes open for new deals and promotions. Many credit card offers are given during a trial period, as mentioned above, and once the trial ends, higher expenses may kick in. Many savvy cardholders cancel their accounts just before the trial period ends and simultaneously open another account with a different credit card company to take advantage of a new rewards program. If you plan on doing this, then make sure you send yourself some kind of alert or reminder to cancel the original account.

For more information on business rewards credit card offers, see our top picks for small business owners.

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Why Has Bank Lending To Small Businesses Been Declining For The Past 15 Years?

Forget about what the media has been saying. If it feels like bank lending to small businesses has been on a decline over the last few years, it’s because it is really happening. Surprisingly though, this decline extends way beyond the past few years. According to data collected by the FDIC, small loans (those under $1 million) made to small companies have been a decreasing fraction of all bank loans for the past 15 years.

It’s an interesting find considering that the media has been quick to point fingers at the recent recession as the cause behind the sluggish small business lending rates. But if the recession isn’t to blame, then what is?

The answer is probably a few things. Scott Shane, over at Small Business Trends offers three possible reasons:

  1. Many big banks have gotten into the nasty habit of “securitizing” their loans, which basically means they’ve been making gobs of money by bundling loan products into bonds that can then be sold to third parties. Since small business loans tend to be unattractive as securitized products go, the banks have opted to reduce the number of these loans in favor or more securitizing-friendly loans. 
  1. A lot of small business lending happens at smaller, community focused banks. The problem is that over the past several years there’s been an overall consolidation of the banking industry and a lot of smaller banks have either closed down or were merged into bigger banks. With fewer small banks available to lend to small companies, the lending rate naturally went down.
  1. Lastly, the banking industry has become more openly interested in bragging rights and a bloated bottom line then in the customers their supposedly serving. Part of the shift in lending may be due to the fact that banks are simply focusing on their most profitable loans- you’ve got it, those over $1 million. These loans loans tend to be more profitable because they can rake in the revenues faster. 

These reasons definitely seem plausible, but there may be a few more as well:

  • It could be that for a variety of reasons small businesses are just seeking fewer bank loans. There has been a burgeoning of sorts of outsourcing and strategic partnerships over the past few years- both of which can effectively reduce operating costs. Smaller businesses have also been having a harder time trying to make a profit- especially over the last few years as costs in employment and healthcare have skyrocketed. Thus, they may be wary about taking on additional debt.

 

  • Over the past decade, alternative, non-bank financing companies, such as cash advance companies and accounts receivables factors, have stepped into the small business loan space. A fair about of small business lending is now being done by these alternative private lenders as well as credit unions, private banks, leasing companies, and private investors doing debt financing. Typically, these financing options are more flexible and easier to attain than your run of the mill small business bank loan so small businesses may simply be bringing their business elsewhere.
  • Finally, many more businesses may just be unable to meet the banks’ lending requirements and are thus not being accepted for financing. This lack of attractiveness may not just be a result of lower sales or poor credit (though they are probably playing a part). It could also be due in part to a broader shift towards intangible assets rather then tangible ones, as well as businesses sporting more flexible (i.e. less stable and known) setups- a situation that makes it harder to assess the risk of extending financing.

Whatever the case, the trend towards fewer bank loans for small businesses is an undeniable reality, and it’s something to consider if you plan on heading to the bank in search of financing for your small company.

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10 Questions to Ask Before Hiring an Accountant for Your Small Business

Now that the 2013 tax season has gotten into high gear, you may be considering using the services of an accountant- whether to help you with your tax preparation or to get your financial reporting in order.

But where and how should you start looking for the right candidate? Making a poor choice with a hired accountant can cause more headache and end up costing you more money than many of your other employees can because this person will have the ability to access and manipulate any sensitive financial data. So how do you find the right accountant for the job, especially if your knowledge of finance and accounting is limited?

Here are ten questions every small business owner should ask a prospective accountant before bringing this person on board:

1. Who are your clients and what industries are you familiar with? You want to be certain that your accountant understands your type of business and has experience working with clients within your industry. Companies in the construction industry, for example, will have a different setup and methods of operation that includes dealing with contractors and buying heavy machinery, than a restaurant or a store that may be dealing with tips and perishable inventory.

2. What is your availability? Are you looking for an accountant or an accounting firm to only help come tax time or are you looking for year-round help? Make sure that your accountant of choice follows the same schedule that you are looking for.

3. What are your qualifications? One of the things that you will need to determine before you go about hiring an accountant is what you expect to get out of the arrangement. Many financial experts suggest that small businesses hire a certified public accountant (CPA), because CPAs must go through rigorous certification requirements and will likely have more experience with broader financial planning issues. But, you have other options, such as an Enrolled Agent (EA). EAs are certified by the federal government specifically to handle taxes and are often former IRS agents with extensive experience dealing with audits. In some cases, a bookkeeper or professional tax preparer will be more than adequate.

4. Who will be doing the work? Be aware that many accountants outsource work to third parties. This can become an issue if you want to speak to someone who is familiar with your accounts. If you are working with an accounting firm, you should also find out who exactly will be processing your financial data.

5. What is your approach to accounting? 
You want to find out how aggressive your prospective accountant is. Some accountants want to write off everything they possibly can, while others are more focused on avoiding the red flags that can lead to an IRS audit. Decide which approach appeals to you and your business and then make sure your hired account abides by the same philosophy.

6. How much do you charge? Some accountants have an hourly rate while others have a set fee for certain tasks. Make sure you are clear about their billing preferences and any other expenses before deciding to take someone on.

7. Can you give me advice about my accounting system? If your accountant has been working with businesses in your industry then he or she should have a working knowledge of what works and what doesn’t in terms of financial recording and reporting systems. This person should also be able to advise you on what accounting software programs to buy for business use.

8. How will we communicate and exchange information? Make sure you are clear about how you will send financial information and documentation to your accountant. Will you be physically meeting with this person or will the exchange of information and meetings be electronically?

9. How often will we communicate? Every accountant will be different when it comes to the frequency of communication as well. So make sure that you are clear about this from the beginning and that you can feel comfortable asking questions when you need to.

10. Can you tell me about such and such tax deduction? If the accountant you’re speaking with is unfamiliar with typical deductions or financial reporting terms, you should be wary because that might be a red flag that he or she isn’t knowledgeable enough to handle your business’ financial accounts and information.  

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How to Fund Emergency Business Expenses

How can you get quick capital to help cover any unexpected emergencies or significant cash shortfalls in your business? Even if you have few assets, you may still have options as long as you put in little forethought before something happens.

Running a Business is Full of Bumps

One of the givens of running a small business is that they are going to be some bumps along the way. Those bumps get bigger if you are relatively new to running a business, you are new to a particular industry, or you are working in an industry known for it’s unpredictables- this includes many retail concepts or any business that is tied to agriculture. How you handle these snags can often determine whether or not your business survives and thrives or closes up shop.

A widely circulated statistic from the Small Business Association (SBA) is that over half of new small businesses won’t be around a mere five years later. It’s a sobering statistic that underlies the fact that running a business is hard. It takes not only a lot of trial and error and a lot of work, but also a combination of using the right tools and the right connections at the right time. Look at any interview, article, or book ever written about successful entrepreneurs, and you’ll see this same message over and over again.

A Plan for Emergency Financing Can Help Buffer the Bumps

One way to help soften the blow of a set back is to have a contingency plan in place. When it comes to accessing money to cover your back during a down time, you may have a few options:

Access a business line of credit. In an ideal world, you would just go to the local bank and set up a revolving line of credit to help you smooth out your cash flow and to act as a buffer should a sudden cash shortfall occur. But the truth is these days that banks are still reluctant to offer credit to smaller businesses. If you are one of the lucky few with great credit and a killer business model than you should give it a go at your bank and see if you qualify. Alternatively, you could get a low interest business credit card and use it for occasional charges just to keep the account open in case you need to use it for some future cash emergency.

Take a little money out each month. Put aside a small portion of your monthly sales and put it into a rainy day account. To make sure you actually put this money aside instead of spending it on your business, you can set up a payroll deduction or have withdrawals automatically sent to a designated savings account.

Use your tax refund. Another possible option is to send either all or a significant portion of your tax return into your emergency fund. Though it may not be enough to fully fund the account, it can at least give the your emergency funds a boost.

A revenue windfall. If you happen to have an exceptionally strong period of sales, then you should try to send a portion of this money to your emergency account. Like the tax return above, you may not necessarily fund the whole account at this time, but you can get much closer to your goal.

Asset-based financing arrangements. Asset-based financing arrangements like accounts receivables factoring, business cash advances, and revenue based financing all have the benefit of being quick and easy sources of capital. Even more, they don’t rely on your business’ credit profile or industry. Asset-based financing could be used as an emergency fund backup, such as when not enough money was put aside.

In short, when it comes to your business financing needs, don’t forget to create a contingency fund for those unexpected expenses that can crop up, and where you are unable to put enough aside, know what other options are available to you. You’ll be glad that you did.

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A Quick Guide to the Confusing World of Alternative Business Finance

After the credit crunch and subsequent housing meltdown in 2008, the banking industry made a much publicized move to reign in small business lending. What had once been a moderate flow of small business finance to the nation’s smallest companies, then almost completely dried up. In it’s wake, various alternative lenders and other loan arrangements have all been clamoring for a slice of the business financing pie.

Though today, bank loans to small businesses seem to be making a come back, the truth is traditional financial institutions are still refusing to service countless small business owners- especially newer companies, companies with poor or little credit history, or those that operate in industries considered to be high-risk, such as food services or retail.

Thus, it’s no surprise that alternative lending among small businesses continues to surge. But even as alternative lending gets airtime the definition of just who qualifies as an “alternative lender” can get murky. The reasons: any non-bank lender technically qualifies for that description, and the alternative financing industry keeps expanding. Small business owners now can choose from a whole crop of new (yet similar-sounding) financing products that have only emerged in recent years.

So how can you as a small business owner looking for non-bank financing make sense of it all? The following are 10 explanations of the most popular forms of alternative financing available to small business owners:

Non-Bank Financial Institutions:

1. Credit Unions
Though they may look like banks from the outside, credit unions are non-profit cooperatives owned by their members. In order to maintain their non-profit status, credit unions have to restrict membership to a particular group of people, such as those attending or working at an educational institution, or residents of a particular community. The tax advantage associated with being a non-profit typically allows credit unions to offer lower interest rates on loans, and higher rates on savings accounts and other savings products.

Lately credit unions have been more aggressive in soliciting new accounts. The National Association of Federal Credit Unions (NAFCU) provides a list of its members online.

2. Community Development Financial Institutions (CDFI)

CDFIs are financial institutions that offer credit and financial services to economically disadvantaged and under-served communities within the US. These institutions may take on many forms including: a community development bank, a community development credit union, a community development loan fund, a community development venture capital fund, a micro-enterprise development loan fund, or a community development corporation. CDFIs are certified by the Community Development Financial Institutions Fund (CDFI Fund) at the U.S. Department of the Treasury, which provides funds to CDFIs through a variety of programs, yet they themselves are not government entities. The CDFIs were established by the Reigle Community Development and Regulatory Improvement Act of 1994.

To locate a CDFI near you, you can use this CDFI locator.

3. Micro Lenders

Microloans are short-term loans of small amounts, typically no more than $25,000 spread out over 5 years. There is a network of commercial microlenders and non-profits that offer these loans to small business owners. If you are a minority, have a low-income, or are seeking to start a business in an economically challenged area then your chances for being accepted for funding increase dramatically.

There are several umbrella organizations that deal with micro lenders and micro loans. The most popular are the SBA Microloan Program in the US, Accion USA, and Kiva.

Asset-Based Financing:

4. Accounts Receivable (AR) Lenders

Accounts Receivable (AR) financiers (also known as “factors”) purchase a company’s accounts receivable at a discount and in return provide the company with fast working capital. The financing comes in the form of a cash advance, often at 70-85% of the purchase price of the accounts. Interest rates generally are higher with factoring since the lender is assuming a higher level of risk. Many times, small business owners who have little or no credit history or who need a lot of money quickly will turn to AR financiers.

5. Business Cash Advance Companies

A business cash advance is a form of receivables financing typically based on future credit card sales. In this setup, the cash advance provider purchases some of the transactions from the business at a discount, which generally ranges between 20%-30% of the amount funded. In exchange, the business receives a predetermined amount of instant cash usually used as working capital. The cash advance company then collects a set daily percentage of future credit card sales until the full loan is paid off.

Cash advance companies usually require that a company be in operation between 3 and 6 months, and some financing companies may also require a minimum sales volume.

6. Revenue Based Financing

Similar to business cash advances above, revenue-based financing allows borrowers to pay off their loans based on a monthly allocation of the revenue their business generates. Though, unlike the cash advance, a business’ whole revenue stream is considered. While interest rates are again on the higher side, this financing setup allows business owners to maintain ownership of their companies while not being forced to borrow against their homes and possessions.

7. Purchase Order Financing

Also called inventory financing or PO funding, purchase order financing is a short-term commercial finance option that provides capital to pay suppliers upfront for products or inventory so the borrowing company doesn’t have to deplete its available working capital. The products or inventory then serve as collateral for the loan if the business does not sell its products or otherwise cannot repay the obligation. Inventory financing is especially useful for businesses that must pay their suppliers within a short payment cycle or a longer period of time than it takes them to sell off their inventory. It also provides a solution to seasonal fluctuations in cash flow and can help a business support a higher sales volume by, for example, allowing a business to purchase bulk orders of inventory to sell later on.

8. Lease-Back Programs

Also known as a “sale and leaseback,” lease-back programs allow the owner of a property or other valuable asset, such as equipment or vehicles, to “sell” it to a lender and then lease it back during a set period of time. Under this arrangement, the original property owner can quickly free up working capital while retaining possession and use of the property.

Some leaseback arrangements allow the lessee the option to buy back the property at a future date. During the life of the leaseback, however, the buyer derives tax benefits from the arrangement, such as being credited for depreciation of the property.

Peer-Based Alternative Financing Arrangements:

9. Peer-to-Peer Lenders

Peer-to-peer, or P2P lending is a form of financing that occurs directly between individuals or “peers” without the involvement of a traditional financial institution. Loan amounts are typically small, up to $25,000 and have loan terms typically lasting anywhere from 1 to 5 years.

Much of the success of P2P lending is a result of the social networking power and infrastructure of the Internet. P2P lending sites, such as Lending Club and Prosper, offer an online marketplace where borrowers and lenders can come together. Often, there will be several private lenders per borrower who each share in partially funding a a given loan amount.

These sites typically provide identification and verification services as well as an assessment of the borrowers’ creditworthiness and the risk involved in lending to them. Clear, precise documentation covers the loan’s terms and conditions as well as the repayment schedule and tax payments as determined by both parties.

10. Crowd Funding

With crowd funding, business owners and entrepreneurs can raise the funds they need by requesting a small amount of money from a large number of people online. By tapping into the power of the internet, entrepreneurs can pitch their ideas to a large group of people, who, if interested will respond by donating a small portion of the money they need to help them reach their target.

Unlike more traditional forms of business capital, the money raised through crowd funding is not directly repaid. Recipients may instead offer their investors some specified item or service in return for their financial support, such as a free sample of their product. In some, crowd funding models, such as the one supported by Sellaband, investors also get a cut of the recipients’ future sales revenues.

So there you have. Any one of these ten alternative financing models can help you access the money you need to start, run, or grow your business. But not every model is suitable for everyone. So be sure to do a little research and exercise your due diligence before signing any dotted lines.

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