Developing a healthy business credit profile is essential for any new smaller company with sights on long-term growth. Even if you’re not currently looking to expand your small business operations and add more employees, there will come a critical tipping point at which you’ll need to expand your product and service offerings to keep your revenue objectives on track.
Whenever you build some aspect of your business that presumably leads to improved cash flow, you should expect significant expenses that, more often than not, require a weighty investment of upfront capital. It’s at this stage, where small business owners begin strategizing their next steps, that they start exploring the advantages of commercial financing to support this new phase of growth.
However, before accessing any new credit for small business you’ll need to set aside some time to develop a strategy for building a positive credit profile. So, how do you established business credit when you don’t have it in the first place? It’s a fair question, especially if this is your first time applying for commercially orientated financing.
So, how is business credit established? Just like in the consumer lending world, business creditors want to see that you’ve taken small steps to build a trustworthy credit profile. There are several lending and commercial banking options, which we’ll discuss in further detail below, that can help you achieve this. If you follow these steps, you’ll begin developing a positive business credit profile in no time. These tips will place you on a path that tells business creditors you’re unlikely to default on your obligations anytime soon.
Even if you have already established some business credit, continue reading. The following tips can help raise your score even higher while positioning you well for receiving the most favorable lending offers. A positive business credit history is vital to the growth and health of your company. After putting these few simple pointers into action, you’ll be well on your way to a stellar business credit rating.
Incorporate your small business
Before you access business credit, ensure that you identify as a business first. Legally incorporating establishes your company as a legal business entity. The primary advantage of incorporating is that it offers means of lawfully separating yourself from your business assets. The three main types of business corporation are as follows:
C-corps
S-corps
Limited Liability Corporations (LLC)
Establish a business bank account
Lenders like to see that your business assets have been legally detached and separated from your personal assets. This includes your personal finances. For a number of reasons, if you aim to establish a positive credit rating, using a consumer bank account to manage your business funds is always ill-advised.
For starters, opening a separate business banking account to exclusively manage your business capital comes with several accounting and financial tracking benefits. Business lenders like to see that you’ve taken the steps to open a business banking account. At the same time, it shows that you’re serious about managing your finances.
In addition, when you prove to potential creditors that you’ve opened a business banking account, you are also telling them that you’re sufficiently incorporated and have been working on your business credit profile. Likewise, you’re establishing a clear paper trail for your business payment history. This always comes in handy when applying for a business loan.
Always make timely payments
If your business is still in the early stages of development and you haven’t opened a commercial line of credit yet, be sure to pay all your bills on time. This action plan must include business utility bills, commercial rents, payments to vendor accounts, and especially any unsecured credit cards used for either personal or business purposes.
Small business owners are busy people. It’s easy to errantly miss a payment or overlook a bill. To ensure that your bills never lapse due to an oversight, set up automatic bill-pay for each account that offers the service.
Lenders often ask for non-conventional payment histories from utility companies and suppliers. It’s, therefore, wise to never fall behind on any bills you have from third parties. Remember that any delinquencies that end up in collections will show up on a credit report. Always stay on top of every bill, including all personal obligations outside the business.
A great place to start is with a business financing lender like New Bridge Merchant Capital. We make applying for small business lines of credit fast and simple. Our lines of credit help business owners like yours leverage a revolving account of up to $150,000 so they can add new products and services while expanding their business footprints.
Not unlike consumer trade lines, a revolving business line of credit from New Bridge Merchant Capital lets you continue borrowing money until the account reaches its credit limit. Whenever you use the line to make purchases or access funds, this sum is subtracted from the maximum limit. As you make payments and pay the balance down, you always can access more credit after paying the additional interest, if any.
For more on our business loans and line of credit services, contact us now to discuss how we can help put your small business on the fast track to profitable long-term growth.
Working capital is a type of short-term financing that small to medium-sized business leverage to manage their cash flow and ensure they don’t encounter expense shortfalls that could disrupt their normally functioning operations. Working capital loans are typically smaller in size when compared with other business financing types. At the same time, they have shorter repayment periods that rarely exceed 12 months.
Businesses may use working capital to cover daily operational costs like payroll, utilities, supplies, and commercial lease payments. Working capital loans provide small businesses with an extra layer of security that allows them to temporarily cover operating expenses when they’re unable to make these payments with their cash on hand.
Does my business qualify for a working capital loan?
Upon first analysis, being unable to cover operating expenses would seemingly point to an unhealthy operation or a business owner that’s failing to adequately manage company finances. However, this isn’t necessarily true. Just because you’re experiencing an expense shortfall doesn’t mean you’re business isn’t profitable or that you won’t qualify for a working capital loan.
Many enterprises depend on seasonal sales cycles for profits, while others are subject to slow-paying receivables over which they have little control. The point being, there are often times when times a thriving business may not have enough working capital on hand to cover all its expenses. Without access to working capital loans, organizations that fall into the above category risk shuttering permanently if they can’t make payroll.
With that in mind, let’s take a closer look at why business owners should be aware of their options for working capital loans to bridge cash flow gaps, upgrade to new equipment, and meet other unexpected challenges that go along with operating an expanding small enterprise.
What are the different types of working capital loans?
When lenders refer to “working capital financing,” this is actually a generic term that refers to a range of financing options that are used by businesses that need access to smaller amounts of capital to cover temporary disruptions to their normal cash flow. While it’s always a good idea to conserve excess capital, it is possible to accumulate excess savings to an extent where businesses miss out on key growth opportunities because they’re not reinvesting profits.
For instance, in the manufacturing sector, companies could face grave long-term consequences if they don’t upgrade to the latest automated machinery and execution software to keep pace with their closes competitors. If businesses like these don’t immediately change, they risk falling behind their industry counterparts indefinitely, and they may never recover the lost ground.
This is where working capital loans come into play. It allows businesses to make timely upgrades to their operations, acquire new real estate, and keep themselves afloat during off-season months when demand is low. Likewise, one-off geopolitical and weather events could disrupt a business point where it needs swift access to additional working capital to get its cashflows back on track.
Small business owners typically apply for short-term working capital loans from banks and credit unions. They differ from lines of credit in that they’re fixed-rate term loans and the total sum of which is dispersed all at once. The repayment period on short-term working capital loans usually doesn’t exceed 12 months.
Short-term working capital loans are rarely unsecured, meaning they require attached collateral before they’re approved. In some cases, if the business has maintained a positive relationship with its preferred lender over the course of years and has established a strong business credit profile, some banks and credit unions may waive collateral requirements.
Unlike your typical home loan, business credit is usually negotiable. Final loan approvals are almost always case by case, with businesses with positive established credit history gaining the most favor.
Small Business Administration (SBA) Loans
Many businesses turn to the US Small Business Administration when they need access to short-term working capital. The SBA guarantees its SBA7(a) to small businesses in need of low-balance working capital loans to bridge unexpected financial gaps. Dispersed balances on these loans can range anywhere from $5,000 to $5 million.
You’ll still need to access SBA working capital loans through one of their approved lenders since the government agency does not make loans directly. SBA loans are among the most desirable because of their low-interest rates and favorable repayment terms.
Bank overdraft protection
Sometimes called a bank overdraft facility, this is a prearrangement for working capital that allows companies to draw against their business bank account when they encounter expense shortfalls. Dissimilar to some consumer checking accounts, businesses are not penalized with overdraft fees. However, they are subject to paying interest.
This type of working capital funding is beneficial to companies with slower accounts receivables because it ensures they make payroll and cover their bills until they’re in receipt of the funds they’re owed.
Merchant cash advances
Businesses that accept credit card payments for goods and services can leverage the merchant cash option for working capital. In this case, credit card processors or their associated financing companies advanced working capital based on the merchant’s historical sales figures.
The credit card process access this data from the transactions documented at the point of sale. The advance is based on sales volume, and any additional formulas the credit card processors might use to determine which working capital amount to disperse.
Invoice Factoring
Working capital loans under the invoice factor model entail selling a portion or all unpaid invoices to a third party at a discount in exchange for the funds. This provides the businesses with an immediate cash injection in exchange for the outstanding unpaid invoices.
Invoice Factoring is decidedly one of the least favored ways to access working capital because the company must commit to giving a portion of its earned revenue in exchange for the additional support. It’s among the most expensive options, and rates can vary significantly from lender to lender.
Need working capital?
For more on working capital and it is a smart option for your business, connect with New Bridge Merchant Capital now for a free consultation.
There will eventually come a time when your business needs access to additional working capital to drive growth and profitability. It doesn’t matter how large your company is or if it has a long track record of proven success. Urgent unplanned expenses invariably come up, and this is when companies need short-term financing solutions the most.
Should you experience an unanticipated expense shortfall, an injection of working capital can make all the difference between your business pulling through a temporary rough patch and thriving again or shuttering its doors permanently. If you’re just now starting to search for business financing, you’ve assuredly discovered an array of available options. Among the most popular choices for accessing working capital is a business line of credit.
In this post, we’ll explore the defining features of a business line of credit before briefly reviewing a few case studies that illustrate why this type of financing is likely the best choice for your company.
What is a business line of credit, and how does it differ from a term loan?
How does a business line of credit work? A business line of credit functions like a revolving consumer trade line in the sense that you’re giving a predetermined credit limit you can borrow from as needed and pay it back later, possibly with interest. Use can then use the remaining credit again to make future purchases. Credit lines are dissimilar to term loans because you can continuing access funds as long as you have available credit.
What is a business line of credit used for, and how is it different from a term loan? A term loan is usually dispersed in one lump sum, and it’s less effective as a solution for working capital than a business credit line. You can use credit lines to purchase supplies, boost inventory, and cover other operating expenses as you need them before paying the revolving balance down later as the funds become available. Unlike a term loan, once you reduce the credit line’s existing balance, you can always access that same amount of credit again.
A term loan includes a fixed monthly payment, while payments toward your business credit line are determined by the balances you carry on it and your borrowing limit. You can pay your revolving line of credit down anytime, and, dissimilar to many term loans, this would not entail a prepayment penalty.
How do lines of credit benefit small businesses?
Every small business should have access to an emergency source of capital to cover its expenses in the event of an unexpected shortfall. In the case of a widespread economic downturn, business owners may discover credit conditions tightening. This means that access to other forms of working capital, such as asset-based or cash flow-baed loans, will be restricted, and the additional funds could be difficult to come by.
There could be other times when you find yourself waiting on a client to pay a large invoice, and it just doesn’t make sense to go through a lengthy loan application process, just to cover your ends for a few weeks. This is where a business line of credit comes in handy. You’ll have immediate access to working capital when you need it.
Businesses may also find that they need to access critical resources, like new machinery and equipment, the cost of which exceeds their excess capital, within an extremely narrow window of time. If they don’t have the excess funds to invest in these assets, they could miss out on steep discounts, and even risk falling behind their competitors who managed to successfully implement the new solutions.
Companies that are subject to seasonal fluctuations in demand often use their lines of credit to meet their financial obligations during slow months and handle other issues like labor shortages during times of peak business. Credit lines are among the best tools for managing market volatility a business can have.
Revolving lines of credit for business are simple to use and give you fast access to funds when you need them most. If you’re accustomed to using consumer credit cards, business credit lines work the same way. It’s easy to replenish your available credit and access it again when you need it.
Secured vs. unsecured business credit lines
Not unlike other loan types, business credit lines are separated into two types of credit: secured and unsecured. A secured line of credit is staked in the borrower’s collateral assets while an unsecured credit line requires no collateral. Most businesses prefer the latter because it doesn’t place their assets at risk.
Of course, lenders offer more favorable terms when collateral is involved because they can use it later, should the borrower ever default. There are pros and cons to both financing types. That’s why it is crucial to discuss all options with your lender to determine which product is best for meeting your business requirements.
Business lines of credit from New Bridge Merchant Capital
Opening a new business line of credit is a convenient and effective strategy to ensure you always have access to sufficient working capital. Consider applying for a business line of New Bridge Merchant Capital by reaching out to one of our senior business financing specialists now.
Have you recently launched a new small business? If so, you’re probably aware that startup costs are expensive, and that they only continue to rise. Virtually every new business comes with at least a few initial expenses. Even if you just need to cover an upgraded laptop and government filing fees to incorporate, you can expect to incur at least some upfront costs whenever you start a new business.
As you create your new small business, the more upfront capital you have, the better off you’ll be. However, with that mentioned, accessing suitable funds for your upstart can be challenging if you have a poor credit history. Fortunately, banks do make business loans for bad credit.
This type of financing typically requires you to pledge an acceptable level of collateral before securing the loan. In addition, borrowers with a poor payment history should expect to pay higher lending fees than they would if they had A credit.
How difficult is it to get a business loan with low credit scores?
Applying for poor credit business loans as a startup can be a challenge. The difficulties you can anticipate during the application process are largely driven by your credit score and the appraised value of any personal assets you’re willing to pledge as collateral. FICO scores range from 350 to 850.
Creditors typically regard anything below 500 as poor credit, while they consider scores of 720 and above to reflect a positive payment history. Although, you may encounter some exceptions to this rule.
Occasionally, business lenders, depending on the financing terms, may look for scores even higher than 720. Generally speaking, however, if your score falls within the 700 to 800 range, you’ll likely have a good chance at approval for a low-cost business loan with favorable repayment terms.
If you show poor credit but have been operating your business long enough to evidence tangible assets or any debts owed to the company, you should explore your options for accounts receivable financing (AR) or invoice financing. This option uses your unpaid invoices as collateral in exchange for a business loan disbursed in one lump sum.
Most often, under invoice financing, the creditor gives you 80% of the invoice value while collecting payments on your behalf until the outstanding balance is fully paid. AR financing is hardly your only option for business loan financing, however. Meeting other important requirements may still get you approved. Let’s cover some of these options in more detail below.
What are the options for obtaining a business loan with bad credit?
If your personal FICO score is low, and you haven’t been in business long enough to establish a business credit score, a few options still exist for obtaining startup financing. These choices may include funding strategies that don’t require collateral or a loan application, such as personal savings, private investors, and even web-based platforms like GoFundMe and Kickstarter.
With that aside, if you’ve recently looked at your credit, and know it’s at least above 500, you may still have options in the alternative business lending sphere. Exploring your loan options backed by the US Small Business Administration (SBA) is always a reliable starting point.
You can apply for government-backed SBA 7(a) loans, 504 loans, and microloans through an SBA-approved lender. The program is somewhat similar to the FHA lending platform for housing because it’s not as credit-score-driven as other business financing options. Nevertheless, in most cases, the SBA lenders look for a FICO score of 640 or higher.
If the SBA isn’t right for your situation, New Bridge Merchant Capital offers other alternative financing platforms, including business lines of credit and term loans that come with a diverse range of loan amounts and repayment options. Once approved, your business can access the funds after a minimal processing period. If your current credit score is too low to align with our underwriting guidelines, we’ll offer recommendations on how to raise your score and establish a favorable business credit profile.
Small business loans for bad credit and other financing solutions that don’t rely on personal FICO scores are constantly emerging. If, for some reason, your profile fails to meet our requirements, we’ll help broaden your search to include some potential alternatives that can get your credit back on the right track.
Getting your startup business loan approved with bad credit
The best strategy for finding a business loan approval with less-than-perfect credit is to get your credit score up to 680 before you start seriously shopping for business loans. If you’re unsure what your credit score is, FTC lending laws allow you to check your FICO score for free in a soft pull once a year.
Alternatively, you can always schedule a phone call with a business lending specialist at New Bridge Merchant Capital to discuss your financing options. Excessive hard credit pulls or asking lenders to run your credit at random can impact your score negatively. It is, therefore, critical that you speak with a finance professional before you do.
Some personal banking and credit monitoring services offer tools that keep a running tap on your credit. Take advantage of these if possible. If you know you don’t qualify for a particular loan product, hold off on the application process until you’re sure you are.
Owning valuable assets improves your chances of being approved for a poor credit business loan. You may have an opportunity to leverage your holdings as collateral. In almost every circumstance, however, you’ll need to meet additional requirements, and most creditors like to see roughly six months of seasoning on the business itself.
How to get started with a poor credit business loan application now
Whenever you apply for a business loan with a low credit score, entering the application process with a detailed business plan goes a long way in obtaining your approval. Taking the necessary steps to improve your personal and business credit profiles before applying is crucial.
The downside of seeking business loans for bad credit with a poor FICO is that it almost always entails higher borrowing costs. Poor credit business loans, however, represent one of the best paths to reestablishing your payment history so you can start enjoying the benefits of a strong credit profile again.
To learn if you qualify for the diverse range of alternative business lending products from New Bridge Merchant Capital, connect with one of our senior business credit specialists by dialing 844-228-0593 or get started online now.
Merchant cash advance (MCA) companies in New Jersey are here to help when a business is running short on cash. The lender can deliver funds in a few days, and they often don’t have strict requirements like traditional loans. If you want to learn more about how a merchant cash advance can help your business, here is our complete guide to this funding source.
What Is a Merchant Cash Advance? (MCA Loan Meaning)
While a merchant cash dvance may seem like a loan, it is technically an advance payment against a business’s future income. The lender will provide the company with a lump sum payment. That funding will be automatically repaid by a set percentage of daily debit or credit card receipts, plus an additional fee. The lender will often look at the business’s credit card processing statements. With that information, the lender knows whether the borrower can repay the amount through the daily sales from the card statements.
In New Jersey, Merchant cash advances are a quick and easy way to secure funding for a business. With a fast approval process, no collateral is required, which can benefit many small businesses. Also, these merchant cash advances are another option for those without perfect credit. A merchant cash advance can be used for a variety of business uses.
The fees for an MCA are usually higher than other types of loans and are often based on the borrower’s ability to repay the borrowed amount per month. Lenders will establish the rates based on the business owner’s creditworthiness. If a business has a solid stream of debit or credit card payments, the lender will be more likely to charge a smaller fee.
Why Apply for a Merchant Cash Advance for Your Small Business?
A business owner can use a merchant cash advance in New Jersey for various uses. Some business owners want to balance their cash flow during certain seasons, while others need to fill a gap in funding. Whatever the need, many business owners will find that these cash advances are a very beneficial way to get more funding for their business. A merchant cash advance is an excellent option if you are:
Dealing with seasonal money issues
Looking to purchase new inventory or expand business operations
Needing temporary cash flow assistance
Meeting payroll expenses
Paying due debts
Requiring cash to pay for unplanned expenses or payments
How Does a Merchant Cash Advance Work?
A merchant cash advance is a good alternative for those businesses with a steady revenue stream from debit and credit card sales. The advance lump sum amount is based on the business’s financial health. As previously stated, the borrower will agree to pay the lender back with a percentage of the daily credit or debit card sales. That advance amount and fees are known as a factor.
For example, if a business has borrowed $20,000 with a factor rate of 1.50, the lender will collect $30,000 from the borrower, which is $20,000 times 1.35. In this case, the fee for this merchant cash advance is 50% of the borrowed amount.
Many times, the repayment periods will range from three to 12 months. Usually, higher credit card sales mean that the business owners will quickly pay off the borrowed amount.
Look at another example. A lender could deduct 10% of the monthly credit card sales until the borrower has repaid $30,000. If the daily revenue totaled $4,000, the daily repayment would be $400. The merchant cash advance lender will take out that amount every day until the advance is paid back. From the example above, if the average credit card repayments were $400 for each day, then it would take 75 days to repay the loan.
How Much Does a Merchant Cash Advance Loan Cost?
A traditional type of loan will have an interest rate, but a merchant cash advance is different. A merchant cash advance will have a factor rate ranging from 1.14 to 1.48. The factor rate is the percent the business owner will owe on the loan. Unlike a standard interest rate, the factor rate is expressed in decimals.
In many instances, the merchant cash advance will include set-up, processing, and payment fees, which could double the cost of the loan. Business owners will pay only when they withdraw funds. Over time, the business owner can repay the withdrawal amount and additional flat fees.
Many business owners want to know the actual costs of a merchant cash advance. These total costs will depend on a few factors, such as:
Amount advance: the lump sum of cash advance to the business
Factor rate: the multiplier used to determine the business owner’s payback amount
Administrative costs: the required fees for the merchant cash advance, including origination, administrative, and closing fees.
How to factor these terms into the total amount of the merchant cash advance? Business owners can use a simple equation that includes the amount for cash advance multiplied by the factor rate, which is usually 1.15 or 1.25 times, plus any administrative costs.
Applying for a Merchant Cash Advance – New Jersey
The process is fast and straightforward when it comes to applying for a merchant cash advance. Generally, there is not a complicated loan application that needs an endless amount of documentation. Many times, businesses can get a cash advance in a few days. These applications can be completed online. Some of the business documentation needed include:
Bank statements
Business tax returns
Credit and debit card processing statements
Credit score
Driver’s licenses or state ID cards
Voided business checks
A merchant cash advance could be an excellent solution to financing gaps for someone with a new business, low credit rating, or limited assets. The eligibility for a merchant cash advance will vary from lender to lender. For example, one lender might require the owner to maintain at least $2,000, while others may need $5,000 in monthly credit cash transactions. Also, some lenders might not lend money to you if the business has been in operation for less than six months, while others may need the company to be in business for over a year.
While there are no standard minimum requirements for these loans, some of the typical ones include the following:
Must have a minimum credit score of 500
Been in business for at least a year
Have an annual revenue of at least $50,000
Must have a consistent cash flow
These factors will play a role in determining whether a business qualifies for a merchant cash advance, but they are not the only requirements. Depending on the lender, they may consider many other factors for approval. Before applying for merchant cash advice, always understand the requirement stipulated for the funding.
Merchant Cash Advance Underwriting Guidelines
Overview of Underwriting Guidelines
Merchant cash advance underwriting guidelines are the criteria that lenders use to evaluate the creditworthiness and eligibility of a business for funding. These guidelines vary from lender to lender but generally cover key aspects such as credit requirements, time in business, revenue documentation, collateral requirements, industry restrictions, personal guarantees, outstanding debt, and other relevant factors.
By understanding these guidelines, you can better prepare your business and increase the likelihood of obtaining a merchant cash advance. Let’s explore some of the essential underwriting factors in more detail.
Credit Requirements
Merchant cash advance lenders typically consider the credit history of the business owner and the business itself. While a perfect credit score is not always required, a good credit standing can significantly improve your chances of approval. Lenders may review credit reports from major credit bureaus and consider factors such as credit utilization, payment history, and any derogatory marks.
Time in Business
Lenders also assess the duration for which a business has been operating. Typically, they prefer businesses that have been in operation for at least six months to a year. Longer time in business demonstrates stability and the ability to generate consistent revenue.
Revenue Documentation
One crucial aspect of merchant cash advance underwriting is revenue documentation. Lenders need to evaluate your business’s cash flow and revenue streams to determine the repayment capacity. They may request bank statements, credit card processing statements, and other financial documents to verify your business’s income.
It is essential to maintain accurate and up-to-date financial records to present a clear picture of your business’s revenue.
Collateral Requirements
Merchant cash advances are unsecured financing options, meaning they generally do not require collateral. Unlike traditional loans where assets serve as security, merchant cash advances are based on future sales. This makes them accessible to businesses that may not have significant assets to pledge.
Industry Restrictions
Certain industries may face restrictions or limitations when it comes to obtaining a merchant cash advance. Lenders may have specific guidelines or preferences regarding the industries they serve. For example, businesses in highly regulated industries or industries with inconsistent cash flow may face more scrutiny during the underwriting process.
Personal Guarantees
In some cases, lenders may require personal guarantees from business owners. A personal guarantee means that the business owner takes personal responsibility for repaying the merchant cash advance if the business is unable to fulfill the repayment obligations. Personal guarantees provide an additional layer of security for lenders and may be requested, especially for smaller businesses or startups.
Outstanding Debt
Lenders will also consider any existing outstanding debt obligations your business may have. They assess your ability to take on additional debt and manage the repayment of multiple financial obligations. It is essential to have a clear understanding of your current debt load and demonstrate your ability to manage it effectively.
Other Factors Considered in Underwriting
Apart from the factors mentioned above, lenders may consider additional factors during the underwriting process. These may include the industry’s overall health, market trends, the business’s sales history, and the use of funds. The evaluation process aims to assess the risk associated with providing the merchant cash advance and determine the appropriate terms and conditions.
How Underwriting Decisions Are Made
Underwriting decisions are made based on a holistic assessment of various factors and the lender’s specific underwriting guidelines. Lenders consider the information provided by the business owner, financial documents, credit history, and any additional supporting documents. They evaluate the risk associated with providing funding to the business and determine the terms, rates, and amount of the merchant cash advance.
It is important to note that different lenders may have varying underwriting criteria, so it’s always beneficial to explore multiple options and compare their offerings before making a decision.
What Are the Advantages of Merchant Cash Advances?
For many business owners, the fast approval, quick funding releases, and easy qualification requirements are some of the biggest advantages of a New Jersey merchant cash advance. However, before applying for this type of business financing, you should know the advantages and disadvantages of these funding options. While a merchant cash advance can be a tremendous financial lifeline, they do have a few drawbacks that every business owner should know. With that, business owners can have realistic expectations about what these funding sources can and cannot do for them.
Take a look at the pros of a merchant cash advance.
Fast Approval, Processing, and Funding
A merchant cash advance is an excellent alternative to traditional loans when a business owner needs fast funding. These advances are a quick way to get fast money into the hands of a business owner. In some cases, approval can happen in less than 24 hours, with the funds showing up in less than three days. Many lenders do not have to abide by the same intensive regulations as traditional lenders, allowing them to expedite the underwriting process.
Lenient Qualifications
Before a traditional loan application is approved, the business owner must have an excellent credit score. That is not the case with a merchant cash advance. These lenders are interested in credit card processing statements over credit scores. The lenders will know whether the owner can pay back the cash advance with these statements. As a result, young businesses, startups, and owners with credit score problems can access business financing. While a strong credit score is not a determining factor for approval, it can help lower the factor rate, reducing the total cost of the merchant cash advance.
Flexible Payment Terms
The payment schedule for a merchant cash advance is fluid. These payment terms can be beneficial for businesses going through a seasonal lull. A merchant cash advance will require only minimum payments. That flexibility is usually not offered by other types of loans, like short-term loans that require payment no matter the business’s current sales volume. Merchant cash lenders require a minimum monthly payment for a specific repayment period. Any business owner applying for the merchant cash advance will want to check the fine print of the terms and conditions of this funding option.
High Borrowing Limits
Merchant cash advances do provide businesses with a higher amount of spending power. These advances can range from $5,000 to $400,000. The amount will depend on sales, which means a higher borrowing limit with a significant revenue stream.
No Collateral Required
Many traditional loans will require the borrower to put a personal saving account, home, or other property on the line for the funds. With a merchant cash advance, there is no need for that. Some MCA lenders may require a personal guarantee, but generally, there is no need to use collateral to secure the loan.
Use for Any Business Needs
Business owners can use a merchant cash advance for almost any type of business expense. Cash advances are a great option for many businesses if the owner needs short-term funding for operating costs or must use the funds for emergency expenses.
While there are plenty of benefits with a merchant cash advance, this type of funding also has a few disadvantages.
Cannot Help Build Credit
Credit scores are not necessary for the application process. In some cases, the lenders will not even pull a credit score. As a result, a merchant cash advance cannot help to build a credit score, which could allow you to qualify for better loans in the future. These loans are costly in the long term, especially if a business owner wants to boost their credit history.
No Incentives for Prepayments
Most lenders will require you to pay interest and the loan amount in a specific time. The faster the repayment, the less interest on the borrowed amount. However, since the merchant cash advances use a factor rate, it is a fixed amount that the borrower must pay back. That means borrowers will have to pay the same amount no matter how quickly they pay it back.
Difficult To Budget
Merchant cash advances have a variance in cost that can make it hard to budget on a weekly or monthly basis. Typically, when sales increase, the business has additional revenue to reinvest in other aspects of the company. However, it is different with a merchant cash advance. Higher sales will mean more correlated expenses, which can be difficult for any budgeting plan.
Potential for High APRs
Businesses of all shapes and sizes can access this type of funding. Unfortunately, these cash advances can be expensive for a company with a weak financial history or poor credit score. Merchant cash advances can carry high APRs. These cash advances are risky for the lender, and some businesses can default on the advance. The lenders often need to compensate by charging a higher APR. Along with that, merchant cash advances can be impacted by the repayment speed. More sales mean higher payments and APR for the cash advance.
Alternatives To MCAs
While merchant cash advances are a good option for many businesses, there are a few alternatives.
A business line of credit will expand the working capital for everyday expenses or short-term projects. The line of credit does revolve, meaning the borrower will have access to the total amount after repaying the borrowed portion. Also, businesses will only pay interest on the funds used, not the entire line of credit.
Another type of funding to consider is called invoice factoring. With this, the business can sell the outstanding invoice for quick cash. While the company will only get some of the money owed, it can allow them access to fast funding.
Get Approved for a Merchant Cash Advance
We will work with you at New Bridge Merchant Capital to find suitable funding options for your business. Contact us if you need help selecting the right loan, merchant cash advance, or line of credit for your business.
Achieving your goals for your business might require more money than you currently have available. Many small business owners have ideas for how to grow their businesses but encounter problems with bringing them to fruition because of inadequate cash flow. Even if your business’s cash flow is reliable and steady, it might not be enough to do the things you want with your company. In that type of situation, getting a NJ small business loan might be the answer to help you bring your vision for your business to life.
Before you apply for a business loan, however, it’s important to understand the various financing options that are available for small businesses and how they work. At New Bridge Merchant Capital, we have provided this overview of the various types of business financing options so that you have a better idea of which might work best for you.
Small Business Administration (SBA) Loans
Loans through the SBA are not issued by the agency. Instead, the agency serves as a guarantor for a portion of the loan amounts to encourage lenders to approve loan applications. Since they are partially guaranteed, these loans lower the risk of default for lenders, including credit unions, banks, and other financial institutions.
Lenders frequently hesitate to approve small business loans because of the risk. When the SBA guarantees a loan that a lender approves, the lender will need to get their loan criteria approved by the SBA.
There are various types of loan programs offered by the SBA, including loans to purchase inventory or real estate, for business expansion, or debt repayment. SBA loans offer simple repayment plans and lower interest rates than traditional term loans through banks. However, they also have very stringent criteria, so they are often difficult for small businesses to qualify for and can be as difficult to get as traditional bank term loans. Getting an SBA-backed loan can involve an application process that takes weeks or months and require you to undergo credit checks and put up collateral, so it is not the best option for everyone.
Traditional Bank Term Loans
A business term loan from a bank involves receiving a lump sum of money upfront for which you will immediately enter repayment. The payments will be due in regular installments with interest over a pre-determined period. Traditional business term loans are difficult for small businesses to get and are designed for larger, established companies. Banks typically view small businesses as too risky. As a result, most applications from small business owners are denied by banks.
The requirements are stringent and often require collateral to secure the loans. Banks will check the credit histories of both the business and the business owner. The application process can take weeks or months. Even if your business can ultimately gain approval, a traditional business term loan from a bank might not be the best option. If you get this type of loan, you will pay interest on the entire amount even if you only need a small portion of the loaned amount.
Credit Cards for Businesses
Getting a credit card for your business can provide access to funds faster than a loan. A business credit card can make sense for certain types of purchases. With a credit card, you can finance nearly anything you need for your business up to your card’s credit limit. As long as you are responsible with your credit card and make your monthly payments on time, you can access your credit as many times as you need while building your business’s credit history.
Getting a business credit card can be an option for business owners who do not have a strong credit history or collateral and need quick financing. While it can be a good option, there are several things to consider before applying for a business credit card.
Danger of Spiraling Debt
Just like consumers who fall into debt spirals with their personal credit cards, small businesses also run the risk of spiraling debt when they allow their balances and interest to accumulate to the point at which they struggle to pay their monthly payments on time. If you miss a payment, your unpaid balance will roll over. Interest will be charged to your new balance, so your next payment will go up. If you can’t pay the full balance quickly, this cycle can continue and create ever-increasing debt that is difficult to overcome without getting a large cash infusion.
Variable Rate of Interest
Business credit card companies can reduce credit limits or change the interest rates on cards at any time. When your business relies on credit cards for financing purchases, you can find that your interest rate suddenly goes up, or your credit limit is reduced without warning.
Dependent on Your Personal Credit
Most business credit cards are linked to the personal credit of the business owner. If you can’t make your payments on time, your personal credit score could be impacted.
Credit Limit
A business credit card will have a credit limit, and it can sometimes be difficult for a business to stay within a card’s limit. Some business owners try to get around this issue by using multiple cards, but doing so could invite a debt spiral as previously described.
Can’t Be Used for Everything
If you need access to funds to pay rent or make payroll, you might not be able to use a business credit card to make these types of payments.
Merchant Cash Advance (MCA)
An MCA is a financing option through which the lender provides a business with a cash advance upfront. If you are approved for an MCA, you will be given the funds upon your agreement to repay them together with a fee based on your business’s daily sales. You’ll typically be required to make payments out of your daily credit card sales until the full amount of the cash advance is repaid. For this reason, lenders that offer MCAs typically want to see that your business has numerous credit card transactions.
A great benefit of an MCA from New Bridge Merchant Capital is that the application process is simple and fast. If you are approved, you will receive the money quickly. However, if your business does not have a lot of credit card transactions, a different option might be better.
Invoice Factoring
Factoring companies purchase unpaid invoices from small businesses and give them a portion of the invoices upfront. These lenders retain a percentage of the invoices until the business’s customer pays it by making payments to the factoring company. This type of financing option allows businesses to receive the money they are owed upfront without waiting for payment from their customers. However, most of your business’s income must come from invoices that are paid slowly. You’ll also need to have a good credit history and a record of customers who consistently pay.
Lending Marketplaces
Lending marketplaces are platforms through which online investors can bundle their investments to loan money to small business owners. Online investors earn profits from commissions and fees from both other lenders and borrowers.
Business Line of Credit
A business line of credit is a flexible financing option that allows small businesses to draw only the money they need. If you get a business line of credit, you will only be charged interest on the amounts you draw instead of the total credit limit.
A business line of credit is a good option when you need access to cash from time to time and only want to draw what you need instead of receiving a lump sum upfront. When you are approved, you’ll have a maximum credit amount available. You can then draw what you need from your line of credit. As you repay what you have taken out, the available funds will be replenished so that you can use your line of credit over and over again.
If you have an unexpected expense, you can cover it with your line of credit. Lines of credit are flexible and can be used for nearly anything, including the following:
Meeting payroll
Paying business operating costs
Covering seasonal cash flow shortages
Other purposes
Most business lines of credit from banks are secured. However, an unsecured line of credit might be available through an online lender.
Online Lender
An online lender like New Bridge Merchant Capital offers an alternative source for small business financing and a hassle-free application process. When you apply for a business term loan, MCA, or business line of credit with us, your application process will be quick. There is little paperwork involved, and you can receive a decision within hours or a few days. You will need to provide your business and personal information during the application process. We offer collateral-free loans with terms of up to 24 months and low rates starting at 15.99%.
You can secure funds for many purposes through New Bridge Merchant Capital. We offer financing options to small businesses to purchase equipment, buy inventory, cover cash-flow gaps, expand business operations, complete renovations, and more. With a line of credit, you will only pay interest on the amount you use instead of the credit limit of your line of credit. As you make your payments, the total amount will be available to use over and over again.
It only takes a short time for you to register and apply online, and we can provide you with a credit decision within hours. Most of our customers have access to their funds within 24 hours, and we approve 83% of the applications we receive. We will analyze your business to determine whether you qualify through a fast process.
We offer collateral-free term loans, making New Bridge Merchant Capital convenient for small business owners. Our fees are easy to understand. You can receive funding for your business through a term loan with a repayment schedule of up to 24 months and use the money to work toward achieving the goals you have for your business.
Deciding Between Financing Options
There are many financing options available as described above, but not all of them will be good options for small business owners. You will need to consider each of the types of business loans and choose the type that will meet your needs the best.
Before you apply, you should consider the following information:
Your personal credit – If you plan to apply for a traditional term loan, your personal credit will be checked as a part of the underwriting process. Your credit score must be high to increase your chances of being approved for a traditional term loan or an SBA-backed loan. If your personal credit score is low, you might be rejected. At New Bridge Merchant Capital, however, we offer funding options to small businesses even if their owners have bad credit because we consider other factors.
Your business’s credit history – Your business should have a history of making its payments on time. Many lenders consider the credit histories of small businesses before they will agree to approve loan applications. Make sure you pay your suppliers and vendors on time to build good business credit.
How long you have been in business – It is easier for established businesses that have been operating for several years to get approved for business loans than for newer businesses. New startup companies typically have trouble securing loans because of the risk involved.
Your business’s annual revenues – Your options for business loans or alternative financing will depend on how your business generates income and its annual revenues. You should also take your revenue into account when figuring out how much you can afford to take out while meeting your payment obligations.
How quickly you need access to funds – The application process for traditional bank business loans and SBA loans is lengthy and complex. In some cases, it can take several weeks or months for a bank to make a credit decision. If you need access to funds quickly, our business financing products are likelier a better choice.
Talk to Us Today
If you need funding for your business, you should take advantage of our business financing options to meet your needs. Contact New Bridge Merchant Capital today to learn about our term loans, business lines of credit, and merchant cash advances to determine which might work for you. You can also submit your online application today to get access to the funds you need quickly.
Business term loans are used to purchase the assets needed by a business, such as equipment, inventory, or land. Assets often secure these term loans, but other conditions can apply. While other types of loans are more familiar to borrowers, many business owners need to realize that a business term loan could be a valuable financial tool to help them succeed. If you want to know about a business term loan and how it can help you, here are a few things to know.
What Is a Business Term Loan?
These business loans are called term loans because the amount will need to be paid back over a specific amount of time. Some business term loans could have an amortizing term, meaning the balance will be zero at the end of the period. Other loans may require a balloon, or lump sum, payment at the term’s end. While term loans are usually used to purchase equipment or real estate, business owners can use them for short-term purchases to boost working capital. Many of these business term loans will have a repayment period of less than a year, but long-term loans could have a repayment term of up to 10 years.
There are three main types of business term loans: conventional, government-guaranteed, or hard money.
A conventional business term loan is typically found at traditional banks. Many business owners can walk into a local bank and apply for a term loan. However, these loans have stringent credit requirements. Often, the business owner will need to back the loan with collateral and ensure there is plenty of reliable cash flow to repay the borrowed amount.
Another type of business term loan is a government-guaranteed one. The most common is a Small Business Administration (SBA) loan. These loans allow businesses to qualify for funding, even if they don’t meet the requirement established by a traditional lender. A government-guaranteed loan is available to most companies as long as they meet a few conditions.
Hard money loans are based on the business’s collateral. The lender will place a value on the collateral and lend around half the amount. These loans often have high interest and higher payments. If the business cannot repay the loan, the lender can repossess the collateral to recoup their losses. These types of loans should only be used as a last resort. Generally, hard money loans do not have favorable terms for the business and could lead to serious financial consequences.
Getting approval can be challenging for some business owners. Usually, working with an online lender is more accessible than those traditional banks or financial institutions. An online lender offers more convenient and flexible terms than your local bank.
Secured vs. Unsecured
Business term loans can be either secured or unsecured. Any secured term loan will require some form of collateral. If the borrower defaults on the repayment, the lender will repossess the collateral and use it to cover any of the loan’s debts. With collateral, there is less risk to the lender. In many cases, getting approval for a secured loan is harder, especially for those with less-than-good credit. Also, the application can be more complicated than applying for an unsecured term loan.
On the opposite end, an unsecured term loan does not require any collateral. Instead, business owners must meet the requirement established by the lender for creditworthiness and income. Once the lender analyzes the borrower’s creditworthiness, they will determine the risk for the loan. During risk analysis, the lender will either approve or deny the application. The interest rate, loan amount, and fees will also be outlined. Like any loan, a great credit score means the likelihood of approval with lower interest rates.
Many lenders will require borrowers to have a minimum credit score. Sometimes, business owners can get a short-term loan with bad credit, but that will depend on the specific lender. Typically, these term loans require a credit score of at least 680. However, lenders will determine the time in business, revenue streams, and monthly transaction activity. Always review the specific requirements of a lender before submitting an application.
Choose a Business Term Loan for Financing
There are several reasons a business might want to choose a term loan for its financing. It allows the company to match cash payments with its asset use. When a big asset is purchased, all the cash is depleted at one time. Term loans can spread out the costs over a specific term, helping many businesses keep available money. These types of loans also allow companies to make bigger purchases than they might not be able to do with a traditional loan. Business term loans provide leverage, which can help grow a business in the long term.
What Is the Difference Between a Term Loan and a Line of Credit?
Many business owners may have to choose between a line of credit and a term loan. The answer depends on whether the business needs the total amount immediately or over a set period of time. With a line of credit, the company has access to a lump sum of money that can be withdrawn when needed. The borrower must pay interest on the withdrawn amount. The business can save money if it needs only a limited amount of funding. A business line of credit requires monetary payments to keep the line current. In some situations, the line of credit could have a set draw time when the business can withdraw funds. After that, the line of credit enters a repayment period and acts like a term loan.
A term loan provides the total amount of the funds immediately. A business can use all those funds at once or spread them out over time. With these loans, the interest rate charges will begin at the moment of disbursement. After that, the business will have to make payments on a fixed schedule until the loan is paid. Choosing the right loan will depend on how a company wants to use the additional funding.
Consider These Options for a Term Loan
When you need to make a large purchase for your business, consider a business term loan. You could be well-suited to apply for these loans if you meet specific requirements and have reliable revenue. These loans often give you the right leverage to grow your business.
Get Approval from a Commercial Business Lender
At New Bridge Merchant Capital, we have become a trusted leader in the finance industry. We will work with you to find suitable funding options for your business. Contact us if you need help selecting the right loan or line of credit for your business.
As a small business owner, you might have several ideas about what you want to do with your business but not have enough money to bring those visions to life. You might also have times when you have gaps in your business’s cash flow because of cyclical patterns in your company’s operations. A business loan is a good way to help your business grow or simply help to cover day-to-day business expenses during slow periods so that your cash flow won’t be interrupted and your business can continue operating at an optimal level.
1. Determine Exactly Why You Need to Get a Loan for Your Small Business in NJ
Before you think about applying for an NJ small business loan, you need to think about exactly why you need one. In addition to knowing exactly how you will use the funds for your small business, potential lenders might also want to know how the funds will be put to use and what they are for.
At the time you create your business plan, including details about the purposes of a loan is important. Many lenders want to see your business plan, so if you haven’t already created one, it’s a good time to do so. This process can also help you figure out which type of business loan you might need, and you might discover that alternative financing might be a better option than a traditional business loan.
Common Reasons Why Business Owners Might Seek an NJ Small Business Loan
Some of the common reasons that some small business owners might apply for funding for their businesses include the following:
To obtain startup capital – Entrepreneurs who are looking for startup capital generally won’t qualify for traditional business loans from banks and other commercial lenders. Instead, you might consider looking for loans offered by online lenders or microloan options to start a new business.
To manage expenses – If your business needs funds to manage expenses during a slow period because of its cyclical nature, you might want to consider a business line of credit rather than a traditional business loan. A line of credit lets you borrow only the amount you need with minimal restrictions and can help you bridge the gap in your cash flow.
To grow your business – If you want to use funds to expand your business or allow your company to take on larger projects, a term loan might be a good choice.
To be prepared for emergencies – Businesses can benefit from having an available cushion of extra cash in case of a financial emergency so that anything that might occur won’t sideline their businesses or cause disruptions in their operations. For this purpose, a business line of credit is a good choice because of the low cost of keeping it open and the accessibility of money when it is needed.
To purchase equipment – If you need to purchase equipment for your company, an equipment term loan can help you pay for the needed items.
2. Determine Whether Your Business Might Be Eligible for a Loan
Once you have created your business plan and understand why you need a loan, the next step is figuring out whether your business will qualify for a loan and the amount of financing it can afford. Before your business will be approved for a loan, the lender will evaluate your business to determine whether it can afford to take additional capital and make the associated payments. Lenders evaluate several factors during the underwriting process, including the following:
Business and Personal Credit
During the underwriting process, lenders will consider your business and personal credit as one of the largest factors they consider when evaluating the degree of risk approving your loan would pose. Many online lenders only consider the small business owner’s personal credit, but some commercial lenders also want to see a business’s credit history. In most cases, lenders want to see credit scores of at least 600. If you have a lower score, it might make sense for you to work on improving your credit before applying for a small business loan.
To improve your personal credit, get copies of your credit reports from each of the three major credit reporting bureaus and look for any inaccuracies. Contest any inaccurate information. If the credit reporting agency can’t confirm the negative information on your credit report within 30 days, it will be removed. You should also make sure you make your payments on time, and try to reduce your debt-to-income ratio by paying down some of your credit card balances if possible.
To improve your business credit score, ask your vendors to report your payment history to each of the three credit reporting agencies. Make your payments on time or early, and make sure you make more than the minimum payment on your business credit cards each month and on time.
Business Cash Flow
When you apply for a business loan, the lender will look at your business’s cash flow during the underwriting process. The lender will want to see that your business has a positive cash flow because that indicates that your business is likelier to repay the loan. A positive cash flow also shows that your company generates enough money to pay your operating expenses and cover its debt obligations. It also can show whether your business’s cash flow has been increasing over time as an indicator of its likely future health and stability.
Collateral
Some commercial lenders want businesses to put up assets as collateral in case they can’t make their loan payments. If you apply for a collateral loan for your business, the lender will want to see that you have sufficient assets to cover your loan obligations in case of default. The types of collateral lenders typically want to see include cash and negotiable securities. However, if you don’t have sufficient collateral, you might want to consider alternative financing through an online lender like New Bridge Merchant Capital for no-collateral small business loan options.
3. Figure Out Your Business’s Repayment Ability
To get financing for your small business, you will need to show that your business is already profitable or is on its way to becoming profitable. You will also need to show that you can afford to make the payments on your business loan. Lenders will calculate your repayment ability and profitability by determining your debt service coverage ratio (DSCR). This is the amount of debt your business has in proportion to its income and is calculated by dividing your business’s net income by its total interest and debt payments. In general, lenders look for a DSCR of at least 1.25.
4. Compare the Different Types of Business Loan Options
When you get ready to apply for funding for your small business, you need to understand the different types of loan options that are available. Here are the various types of financing small businesses might generally consider.
Business Term Loan
Business term loans are lump sums that are provided upfront and repaid in fixed installments over a set duration. The repayment period for a term loan might differ based on whether it is backed by collateral or is an unsecured term loan, but they generally might be available in durations of up to two years for unsecured loans or longer for secured loans. Term loans are good to use for expanding or growing your business, upgrading your business systems, or purchasing inventory in advance for the season.
However, a term loan is less flexible than a business line of credit. With a term loan, you will receive a fixed amount upfront and will begin repaying your loan once you accept the funds.
Term loans might be a good option if you need to expand your business, purchase new equipment, or have a new growth opportunity you want to take advantage of. It is a good choice for a business that needs to make lower payments that are spread out over a longer period. The interest rates and fees you might have to pay will vary based on the type of term loan you choose and the lender. At New Bridge Merchant Capital, our rates start as low as 15.99%.
New Jersey Small Business Administration Loan
The Small Business Administration (SBA) works with approved lenders to issue loans. The SBA guarantees a portion of the loan to make lenders more willing to approve borrowers. The most popular loan program for small businesses through the SBA is the 7(a) loan. The SBA serves as a guarantor to enhance the lender’s willingness to make the loan by decreasing the risk of default. Your business must meet the following requirements to get a 7(a) loan:
Have 499 or fewer employees
Generate under $7.5 million in annual sales
Operate in an eligible industry
Be a U.S.-based, for-profit company
Uphold the SBA’s policies or create jobs
Show a need for the loan
Use a form of alternative financing
An SBA 7(a) loan is a type of loan that might be good for businesses that struggle with cash flow problems since the loan can be restructured for longer maturities or lower monthly payments. It might also be an option for a newer business without established credit.
Business Line of Credit
A business line of credit provides a maximum available amount from which you can access funds whenever you need them as long as you continue making your payments as agreed. This type of financing functions similarly to a credit card. It typically won’t cost anything to keep your business line of credit open, and you will only make payments on the amount you draw rather than the credit limit of your line of credit.
A business line of credit is a good choice for covering unexpected gaps in your business’s cash flow. It’s also a good option to have a cushion of available cash in the event of an emergency.
Equipment Financing
Equipment financing is designed to help businesses partially or fully finance the equipment they need. It is typically easier to qualify for equipment financing since the equipment serves as collateral for the loan. If you can’t make your payments, the lender can seize the equipment.
Invoice Factoring
Some types of businesses choose invoice factoring, which allows them to access funds that are tied up in unpaid invoices. Factoring companies buy unpaid invoices and give a percentage of the invoiced amount to the business. When your client pays the invoice to the factoring company, the factoring company will take its fee out of the invoiced amount and pay your business.
Not all lenders offer invoice factoring, but it can be a way to get working capital for some businesses without incurring debt. This option is best for businesses operating in the B2B space that have account receivables.
Microloans
If you only need a very small amount, a microloan might be a financing solution. Microloans are primarily offered by non-profit lenders in specific states or regions and can be difficult to qualify for. Since these non-profits also depend on donations and grants, they frequently are restricted in how many loans they can make. These loans can be as small as $500 up to a maximum of $50,000. They are best for businesses that have very low capital needs.
5. Compare Lenders and Loan Companies
The next step is to compare different types of lenders.
Traditional Banks
Small businesses have the most difficulty qualifying for loans from traditional banks. It can take weeks or months to complete the application process, and banks typically require numerous documents. While a traditional bank might offer lower rates, it will likely require your business to have been operating for a minimum of two years with annual revenues in the hundreds of thousands of dollars each year. Banks also want to see personal credit scores of at least 700 and frequently require collateral.
New Jersey Small Business Administration
The SBA does not directly issue loans to businesses but instead is a government agency that guarantees portions of loans issued by lenders to small businesses. Its function as a guarantor makes lenders more willing to approve NJ SBA loan applications. There are a variety of different SBA-backed business financing options. However, since the SBA has strict requirements, it is just as hard to get an SBA-backed loan as it is to get a bank loan in most cases.
On average, to get an SBA 7(a) loan, you will need to meet the following minimum requirements:
Be in business for at least four years
Have annual revenues of at least $180,000
Have a credit score of at least 640
Non-Profit Lenders
Non-profit community lenders typically work with businesses in the local community. Typically, they only make micro-loans and are best for businesses that have very small capital needs. Since they are mission-driven, non-profit lenders generally don’t expect business owners to have perfect credit or high revenues.
On average, you will need to meet the following minimum requirement to get a loan from a non-profit lender:
Be in business for at least one year
No bankruptcy filings in the past 12 months
Have a credit score of at least 575
Need a very small amount of funding
Online Lenders
Online lenders fill in the funding gap by offering alternative financing to businesses. They typically have faster and simpler application processes than other lenders and require less documentation. It is also much easier to qualify for financing through an online lender than it is through a traditional bank.
For example, at New Bridge Merchant Capital, we approve 83% of the applications we receive, and having poor credit is not a problem. Our application process is fast and simple, and small businesses can also receive funding within 24 hours.
6. Gather Your Documents and Apply
Once you have decided on your lender and have determined how much capital you need, it is time for you to gather your documents and apply. To make the process simpler, you should have the following documents available as you complete your application:
Personal and business bank statements
Income tax forms for the last one to three years
Business incorporation documents
Current balance sheet
Current profit-and-loss statement
The prospective lender will need basic information about your business, including its name, tax identification number, and address. Depending on the lender, you might also need a business plan or a proposal that outlines how you will use the funds.
A prospective lender will want to see financial statements for both you and your business, including your tax returns, business, and personal bank account statements, and documentation of your annual revenue.
You will need to provide information about all of the business owners if you share ownership of your company, including your names, addresses, and Social Security numbers.
If you are applying for a loan that requires you to put up collateral, you will need to provide information about what you are offering and its value. To do this, you might need to have the collateral professionally valued by an independent auditor. You are less likely to need to put up collateral if you go through an online lender than if you choose to apply for a loan through a bank or one that is guaranteed by the SBA.
When you do apply for a loan, you will likely be required to sign a personal guarantee. This is an agreement that you will be responsible for repaying the loan if your business defaults. If there are other owners, they will also need to sign personal guarantees.
Make sure to check with your state’s Secretary of State’s office to check whether any liens have been placed on you or your business. If you discover invalid liens, get them removed. If you have tax or business liens that are valid, try to take care of them to improve your chances of being approved for a small business loan.
Make sure that your business is in good standing and is properly registered with the Secretary of State’s office. If you haven’t registered your business, you should consider completing the process before applying for business financing. In most cases, lenders consider businesses that have gone through the incorporation and registration process as more stable than those that have not.
Some lenders might also check your social media profiles, including LinkedIn and others, to gather more information about your business. They might also read online reviews about your business. If you find negative reviews online, respond to the comments to mitigate the impact they might have.
Contact New Bridge Merchant Capital
Getting a New Jersey business loan might be critical so that you can manage and grow your business. Make sure to know why you need financing and how much your business can afford to borrow. You can then decide the type of loan you want to apply for to meet your needs. New Bridge Capital offers great alternative financing options to meet the needs of businesses and offers a streamlined application process. To learn more about the options we offer, contact us today or start your application now.
Business ownership comes with many challenges, especially when you lack a large cash reserve for an emergency. Whether you have unexpected emergencies or need to cover everyday expenses, a business line of credit can help manage any short-term cash needs. What is a business line of credit, and does it differ from other types of loans? Here are a few points to consider when you need cash for your business.
What Is a Business Line of Credit?
Think of a business line as a credit line similar to a credit card. With a business line of credit, business owners often have instant access to the funds. This line of credit is usually dispersed through the business’s checking account or credit card. Like a traditional credit card, the amount will decrease as you draw on the cash. When the amount is paid off, the line of credit restores the available funds. Also, a business line of credit will have an interest rate that applies to any borrowed money.
These lines of credit are based on a review of the applicant’s credit history and score. The interest rate and limit will depend on personal and business credit. Additionally, the owner must renew the credit lines on an annual basis. Owners can use these business lines of credit to help fund any short-term expenses, such as:
Covering payroll
Cash flow emergencies
Seasonal slowdown
Building inventory
Financing accounts receivable
Like any business account, owners should only use these credit lines to fund business-related expenses.
How Does a Business Line of Credit Work?
When a business needs short-term funding, a line of credit may be a good option. As seen with the recent pandemic, unexpected challenges can happen. In some instances, a business may need more cash to pay utilities, rent, or payroll. When the business’s cash flow returns to normal, the owner can repay all the borrowed money with interest.
The interest rates can be fixed or variable. A fixed interest rate will stay the same over the life of the loan, but those variable rates can fluctuate depending on the overall rates in the country. Before applying for a business line of credit, it is crucial to know the type of interest rate. A fluctuating interest rate could be detrimental to the financial health of a business.
Generally, lenders will allow a business owner to repay the borrowed amount without fees. In that case, the business can avoid paying additional interest on the loan. There is often a grace period where no interest will accrue on the borrowed amount. Before applying for a line of credit, business owners must look at the payment schedules. Typically, lenders will require weekly or monthly payments to satisfy the loan amount.
Additionally, many of these lines of credit do charge fees. They can include:
Application or origination fees
Withdrawal fees
Late fees
Inactivity fees
Account maintenance fees
With these lines of credit, owners can draw on the funds as long as there is credit in the account. Like any loan, interest rates and other fees could add to the total amount owed on the credit line. In some situations, business owners can find themselves in financial trouble when relying on these lines of credit for their primary business funding.
What Is the Difference Between an Unsecured and a Secured Line of Credit?
A business line of credit may be secured or unsecured. With a secured line, the lender will require some collateral from the business, usually in the form of property or inventory. If the company cannot repay the line of credit, the lender can seize those assets.
On the other hand, an unsecured line of credit will not require any collateral. While assets are not used to secure the loan, a personal guarantee must be made, holding the owner liable for the borrowed amount. A lender can also put a lien on business assets if the owner fails to repay the loan.
With all that in mind, business owners must carefully examine the lender’s terms. Not repaying on a line of credit could affect the individual’s personal and company credit for years to come, even leading to a seizure of assets.
Getting a Business Line of Credit
Business owners who apply for a line of credit will notice the process is similar to that of a credit card or loan. There are a few steps to follow. First, the owner needs to know how much funding is required. Many business lines of credit range from $2,000 to $250,000. While it could be tempting to overborrow on these lines, the business will be liable for unpaid funds. In many situations, the lender allows a borrower to request an increase in the line of credit.
The eligibility for the loan will depend on a couple of factors, such as personal credit score and monthly business revenue. Most lenders will have a minimum credit score of at least 680, but some will still offer a limited line of credit for those with lower scores. Along with that, lenders want to see a specific minimum monthly revenue. Without that, securing a business line of credit could be challenging.
Business owners will need documentation for the line of credit during the application process. These pieces of information can include articles of incorporation, personal and business bank statements, business licenses, profit and loss statements, and other financial statements. The type of documentation required will vary depending on your lender.
Business owners must correctly fill out these applications. Any error in the business documentation, loan amount, or personal contact information could delay approval. An application should be up-to-date and accurate. Otherwise, it could lead to a denial from the lender.
Should You Apply for a Business Line of Credit?
A business line of credit can help in the short term, but is it a wise financial decision? That answer will depend on the business’s creditworthiness and need for funding. Business owners must approach any credit with some caution. Interest and fees can quickly accumulate, leaving the owners liable for additional business debt. Also, borrowing beyond the company’s repayment means could be tempting.
However, business lines of credit can help bridge any gaps in cash flow. A line of credit provides security and peace of mind for eligible business owners. You must approach any credit with caution to ensure the financial health of your business. Once you understand the basics of a business line of credit and how it works, you can decide whether it is the right choice for your company.
Find Funding from a Leading Lending Company
At New Bridge Merchant Capital, our reputable funding and exceptional customer service have made us a trusted leader in the business finance industry. If you need help selecting the right loan or line of credit for your business, contact us.
As summer winds down and September approaches, the back-to-school season becomes a critical period for retailers and educational institutions across New Jersey. The energy is palpable from the bustling streets of Newark to the quiet suburbs of Cherry Hill. For many businesses and schools, this time is not just about preparing for a new academic year but also about navigating significant financial demands.
The back-to-school season brings a surge in economic activity, but with it comes a wave of financial pressures. Retailers need to stock up on supplies and gear up for increased demand, while educational institutions must ensure they are adequately equipped to provide quality education. This heightened financial demand necessitates effective financing solutions to help these stakeholders thrive during this busy period.
This article aims to provide comprehensive financing options for New Jersey retailers and educational institutions, enabling them to manage the back-to-school rush effectively. By understanding and leveraging the right financial tools, these key players can meet their seasonal needs and ensure a successful start to the academic year.
Key Takeaways
Effective Financial Planning: Accurate budgeting, forecasting, and financial planning are essential for managing the back-to-school season’s increased demands.
Diverse Financing Options: Retailers and educational institutions can benefit from a mix of short-term loans, lines of credit, and merchant cash advances.
Supplier Relationships: Strong relationships and effective negotiation with suppliers can lead to better terms and significant cost savings.
Local and Federal Resources: Leveraging resources from NJEDA, SBDCs, and federal programs can provide additional financial support.
Expert Insights and Best Practices: Implementing tips and strategies from financial experts and successful business owners can enhance financial management during the back-to-school rush.
Comparison Table: Financing Options for Back-to-School Season
Criteria
Short-Term Loans
Lines of Credit
Merchant Cash Advances
Application Process
Detailed, requires extensive documentation
Moderate, requires proof of revenue
Simple, minimal documentation
Approval Time
Several weeks to a month
A few days to a week
1-2 days
Funding Time
Additional few days to weeks
Immediate once approved
Within a week
Repayment Terms
Monthly fixed payments
Flexible, based on amount used
Percentage of daily credit card sales
Interest Rates
Lower, ranging from 5% to 15%
Variable, based on usage
Higher, with factor rates ranging from 1.1 to 1.5
Flexibility
Less flexible, fixed repayment schedule
Highly flexible, borrow as needed
Flexible, repayment tied to sales performance
Best For
Long-term investments, predictable cash flow
Managing cash flow fluctuations, emergency funds
Short-term needs, businesses with high card sales
The Back-to-School Economic Impact in NJ
Statistics and Facts:
According to the National Retail Federation, families with children in elementary through high school plan to spend an average of $849 on school items in 2023, contributing to a nationwide total of $37.1 billion.
In New Jersey alone, back-to-school spending reaches millions, significantly boosting the local economy.
Small businesses, which make up 99.6% of all businesses in the state, see a significant portion of their annual revenue during this period.
Key Players:
Retailers: From big-box stores to local stationery shops, retailers are pivotal in providing the necessary supplies for students and educators.
Educational Institutions: Schools and colleges need to ensure they have the right infrastructure, materials, and resources to start the year effectively.
Suppliers: Those who supply goods to retailers and educational institutions face increased demand and logistical challenges.
Parents: They are the end consumers, managing their budgets to fulfill their children’s back-to-school needs.
Challenges Faced:
Retailers:
Inventory Management: Stocking the right amount of inventory without overextending finances can be tricky.
Cash Flow: Managing cash flow to handle the surge in demand and ensuring there are enough funds to cover operating costs.
Educational Institutions:
Funding: Securing adequate funding for new technology, infrastructure improvements, and educational materials.
Operational Costs: Balancing budgets to cover increased operational expenses such as utilities, salaries, and maintenance.
Suppliers:
Logistics: Meeting the tight delivery schedules and managing supply chain disruptions.
Scaling Production: Increasing production to meet the high demand during this period without compromising quality.
Parents:
Budgeting: Managing household budgets to accommodate the increased spending on school supplies, clothes, and gadgets.
Financial Strain: The cumulative costs can put a significant strain on family finances, especially for those with multiple school-going children.
By understanding the economic impact and the challenges faced during the back-to-school season in New Jersey, retailers and educational institutions can better prepare and leverage the right financing solutions to navigate this critical period successfully. Stay tuned as we delve into specific financing options tailored to meet these needs and help you make the most of the back-to-school rush.
Financing Needs for Retailers
Inventory Financing
Importance of Stocking Up for Increased Demand: The back-to-school season is a critical time for retailers, requiring them to have ample stock to meet the surge in demand. Having enough inventory ensures that retailers can maximize sales opportunities and provide customers with the products they need, from school supplies to clothing.
Financing Options for Purchasing Inventory: To manage the costs of stocking up, retailers can explore various financing options:
Inventory Loans: These loans are specifically designed to help businesses purchase inventory. They offer lump-sum funding, which is repaid over time with interest.
Trade Credit: Some suppliers offer trade credit, allowing retailers to purchase goods and pay for them at a later date, typically 30 to 90 days after delivery.
Short-Term Loans and Lines of Credit
Benefits of Short-Term Loans for Immediate Financial Needs: Short-term loans provide quick access to capital, which can be crucial for covering immediate expenses such as purchasing additional inventory or managing operational costs during the busy season. These loans typically have a shorter repayment period, ranging from a few months to a year, making them ideal for temporary cash flow needs.
How Lines of Credit Provide Flexibility: Lines of credit offer a flexible financing solution, allowing retailers to borrow up to a predetermined limit as needed. This flexibility is especially useful during the back-to-school rush, as retailers can draw funds to cover unexpected expenses or take advantage of bulk purchasing opportunities, and repay the borrowed amount as their cash flow permits.
Merchant Cash Advances
How MCAs Can Help Manage Cash Flow During Peak Sales Periods: Merchant Cash Advances (MCAs) provide a lump sum of capital in exchange for a percentage of future credit card sales. This financing option is particularly beneficial during peak sales periods, as repayments are tied to sales volume. When sales are high, repayments are higher, and when sales slow down, repayments decrease, offering flexibility and easing cash flow management.
Pros and Cons Compared to Traditional Loans:
Pros:
Quick approval and funding process.
Flexible repayment terms based on sales performance.
Cons:
Higher overall cost due to factor rates.
Can lead to cash flow challenges if sales are lower than expected.
Case Study: Successful NJ Retailer
Example of a Retailer Who Successfully Navigated the Back-to-School Season Using Financing: A small bookstore in Princeton faced significant financial pressure during the back-to-school season. By securing a line of credit, the owner was able to purchase additional inventory and offer special promotions. The flexible nature of the line of credit allowed for timely repayments based on fluctuating sales. As a result, the bookstore not only met the increased demand but also saw a 25% increase in year-over-year sales.
Financing Needs for Educational Institutions
Technology and Infrastructure Upgrades
Financing Options for Upgrading Technology and Facilities: Educational institutions often need to upgrade their technology and facilities to provide a conducive learning environment. Financing options include:
Equipment Financing: Loans or leases specifically designed for purchasing new technology and equipment.
Capital Improvement Loans: Loans used to fund significant facility upgrades or construction projects.
Grants and Funding Programs Available in NJ:
NJ Schools Development Authority (SDA) Grants: Provides funding for construction and renovation projects in public schools.
Federal E-Rate Program: Offers discounts to help schools and libraries obtain affordable telecommunications and internet access.
Operational Expenses
Managing Increased Operational Costs with Appropriate Financing: The back-to-school season often brings increased operational expenses, such as hiring additional staff, purchasing supplies, and maintaining facilities. To manage these costs, educational institutions can utilize:
Short-Term Loans: Provide immediate funds to cover operational expenses.
Budget Planning: Developing a detailed budget to anticipate and allocate funds effectively.
Importance of Budgeting and Financial Planning: Effective budgeting and financial planning are essential for educational institutions to ensure they have the necessary funds to cover all expenses without compromising the quality of education. Regular financial reviews and adjustments can help institutions stay on track.
Public vs. Private Institutions
Different Financial Needs and Available Financing Solutions:
Public Institutions:
Rely heavily on government funding and grants.
May have access to state-sponsored loans and subsidies.
Private Institutions:
Depend on tuition fees, donations, and private loans.
Can explore endowment funds and private grants.
Specific Grants and Loans Tailored to Each Type:
Public Schools: Can access state and federal grants, such as Title I funding for schools with high numbers of low-income students.
Private Schools: May qualify for private foundation grants and special financing programs like the New Jersey Educational Facilities Authority (NJEFA) loans.
Case Study: NJ Educational Institution
Example of an Educational Institution Successfully Managing Back-to-School Expenses Through Strategic Financing: A private high school in Bergen County needed to upgrade its computer labs and classroom technology before the start of the school year. By securing an equipment financing loan and leveraging the E-Rate program, the school managed to cover the costs without straining its budget. Additionally, a successful fundraising campaign helped offset some of the expenses. As a result, the school was able to provide state-of-the-art technology to its students, enhancing the learning experience and attracting new enrollments.
By addressing the specific financing needs of retailers and educational institutions, and providing real-life examples, this article aims to offer practical solutions to help stakeholders in New Jersey thrive during the back-to-school season.
Seasonal Strategies for Financial Planning
Budgeting and Forecasting
Importance of Accurate Budgeting and Forecasting for the Back-to-School Season: Accurate budgeting and forecasting are essential for managing the financial demands of the back-to-school season. This period can significantly impact your annual revenue and expenses, making it crucial to plan ahead and allocate resources effectively.
Tools and Methods for Effective Financial Planning:
Accounting Software: Tools like QuickBooks, Xero, and FreshBooks can help you track expenses, manage budgets, and generate financial reports.
Forecasting Tools: Utilize forecasting tools such as Float or Pulse to predict cash flow and anticipate future financial needs.
Historical Data Analysis: Review past years’ financial data to identify trends and make informed projections for the upcoming season.
Negotiating with Suppliers
Strategies for Negotiating Better Terms and Discounts with Suppliers:
Bulk Purchasing: Negotiate discounts for bulk orders to lower per-unit costs.
Long-Term Contracts: Secure better pricing by committing to longer-term contracts with reliable suppliers.
Early Payment Discounts: Take advantage of discounts offered for early payments to reduce overall costs.
Importance of Building Strong Supplier Relationships:
Trust and Reliability: Strong relationships with suppliers can lead to better terms, priority service, and more flexibility during peak seasons.
Collaborative Planning: Work with suppliers to plan inventory needs and delivery schedules, ensuring timely stock replenishment.
Promotional Financing
Using Promotional Financing to Boost Sales:
Buy Now, Pay Later (BNPL) Options: Offer BNPL options to customers, making it easier for them to purchase larger quantities or higher-priced items.
Discounted Financing Rates: Partner with financing companies to offer customers discounted interest rates or deferred payments on financed purchases.
Examples of Effective Promotional Strategies During the Back-to-School Rush:
Limited-Time Offers: Create urgency with limited-time discounts on popular back-to-school items.
Bundle Deals: Offer bundle deals on school supplies and uniforms to increase average transaction values.
Loyalty Programs: Reward repeat customers with points or discounts on future purchases, encouraging them to shop more frequently.
Leveraging Local and State Resources
NJEDA Programs
Overview of Programs and Incentives Provided by the New Jersey Economic Development Authority:
NJ Ignite: Provides rent support for startups in collaborative workspaces, helping businesses reduce overhead costs.
NJ ZIP: Grants for purchasing zero-emission vehicles, promoting sustainability and cost savings in transportation.
How to Apply and Benefit from These Programs:
Application Process: Visit the NJEDA website, review eligibility criteria, and complete the online application form.
Maximizing Benefits: Utilize the provided resources and support to enhance your business operations and reduce expenses.
Small Business Development Centers (SBDCs)
Services and Support Offered by NJ SBDCs:
Consulting Services: Free or low-cost consulting on business planning, financial management, and marketing.
Training Workshops: Access to workshops and training sessions on various business topics, from digital marketing to financial planning.
Success Stories of Businesses Utilizing SBDC Resources:
Example: A small tech startup in Newark used SBDC consulting services to refine their business plan and secure a grant, leading to significant growth and market expansion.
Federal Programs and Grants
Overview of Federal Grants and Loans Available for NJ Retailers and Educational Institutions:
SBA 7(a) Loans: Offers flexible funding for various business needs, including working capital and equipment purchases.
E-Rate Program: Provides discounts to help schools and libraries obtain affordable telecommunications and internet access.
Steps to Apply and Maximize Benefits:
Research and Preparation: Identify applicable grants and loans, gather necessary documentation, and prepare a compelling application.
Consultation and Support: Seek guidance from local SBDCs or financial advisors to strengthen your application and increase your chances of approval.
By incorporating these seasonal financial planning strategies and leveraging available resources, New Jersey retailers and educational institutions can effectively manage the back-to-school rush and set themselves up for a successful year.
Expert Tips and Insights
Tips for Avoiding Common Financial Pitfalls During the Season:
Overstocking: While it’s essential to meet demand, overstocking can tie up your capital unnecessarily. Use historical sales data to guide your inventory decisions.
Ignoring Cash Flow: Keep a close eye on your cash flow. Delays in supplier payments or unanticipated expenses can quickly lead to cash shortages.
Failing to Negotiate: Don’t accept the first offer from suppliers or lenders. Always negotiate terms that are favorable to your business.
VIII. Conclusion
Recap of Key Points:
Budgeting and Forecasting: Essential for managing the financial demands of the back-to-school season.
Negotiating with Suppliers: Helps secure better terms and reduce costs.
Promotional Financing: Boosts sales and provides customers with flexible payment options.
Leveraging Local and State Resources: Access NJEDA programs, SBDC services, and federal grants for financial support.
Encouragement to Take Action: Proactively planning and securing the right financing can make all the difference during the back-to-school season. By implementing the strategies discussed, NJ retailers and educational institutions can navigate this busy period successfully and set the stage for long-term growth.
New Bridge Merchant Capital’s Role: At New Bridge Merchant Capital, we understand the unique challenges of the back-to-school season. Our tailored financing solutions are designed to meet the specific needs of retailers and educational institutions in New Jersey. From short-term loans to merchant cash advances, we offer flexible options to ensure you have the funds you need when you need them.
Call to Action
Free Consultation: Contact New Bridge Merchant Capital today for a free financial consultation. Our experts will help you identify the best financing options to support your back-to-school season needs.
Downloadable Resource: Download our comprehensive guide to back-to-school financial planning. This checklist will help you stay organized and ensure you’re prepared for the season ahead.
Contact Information:
Phone: 844-228-0593
Email: info@newbridgemerchant.com
Take control of your back-to-school season financing with New Bridge Merchant Capital. We’re here to support your success every step of the way.
