Funding Your Small Business in 2023

The Complete Guide for Sourcing Reliable Small Business Funding in 2023

 

Navigating the realm of small business financing is often complicated. Sourcing the right loan product for your company is hardly a simple task, especially when confronted with so many different lending options for which your business may or may not qualify.

In an effort to help streamline your search for small business funding, the team at New Bridge Merchant Capital has assembled this free, extended guide to discuss the pros and cons of several common business loan product. By the end, you should have enough valuable information to make an educated decision about how to approach your current funding requirements.

It’s likely that you’re already familiar with some of these funding options. But even if you’ve been exposed to these business lending solutions before, they’re still worth revisiting since this comprehensive review will address several frequently asked questions about leveraging external business funding.

Before we dive into the specifics of how these financing options work, let’s start by looking at some common questions business owners typically ask before financing their projects.

 

What do my personal and business credit scores look like?

 

The vast majority of consumer loan products rely on your personal credit or FICO score for establishing creditworthiness and ability to repay the loan. When, for example, you open an unsecured line of credit, as in a revolving credit card, or take a secured auto loan, the lending institution reports your payment history to the following three major credit bureaus:

 

Most banks and businesses that extend credit convey to the three reporting bureaus your timely payment while penalizing your score if fail to pay within thirty days of your monthly invoice. If you are late an additional thirty days on the account, your credit report will indicate 60 days past due, at which point your FICO score falls even further. This cycle repeats until the creditor finally sells the account to collections.

If you’ve been operating your business for any substantial length of time and have opened a business bank account, you’ll have a business credit score, as well. Your business credit profile serves the same purpose as your personal credit score.

Instead of evaluating your personal payment history, your business score evaluates the status of your business accounts to determine loan eligibility and interest. If you’ve taken out a business line of credit or leveraged invoice factoring or term loans to fund your business in the past, your business credit score aggregates public records, debt utilization, and your’s company’s risk profile to generate a score.

In the US, like your personal FICO score, your business credit score draws from three reporting bureaus. While Equifax and Transunion report business credit history, Experion does not. In its place, lenders rely on Dun and Bradstreet’s decisioning analytics to establish creditworthiness.

Your business and personal credit scores tend to overlap; however, there are a few key differences worth mentioning. While personal credit scores range from anywhere between 300 and 800, your business credit rates you on a scale of 1 to 100. Under either scoring model, the higher scores indicate a more favorable credit profile. Most lenders look for a minimum of 680 for a personal FICO and at least a 75 on your business score before dispersing funds.

Will the approval process involve customers and supply chain partners?

 

The answer to this question depends on the financing type. Take invoice factoring, for instance, a loan product in which you sell your outstanding invoices to the creditor in exchange for funding. The lender grants the financing based on your unpaid invoices.

Under this business loan program, the approval process will likely involve contact with your buyers. Of course, on the downside, you’re introducing a third party in your customer relationship. Not all business owners feel comfortable with this dynamic -especially since your creditor collects the invoice payments directly from the buyer.

Alternative, short-term working-capital solutions like invoice financing give businesses an effective means of quickly accessing the funds they need to cover their daily operating expenses.

Ultimately, the decision is up to the business owner to involve their customers with their business funding. Despite this element of customer involvement, loan programs like invoice financing can be a reliable way to access cash for the services you’ve already delivered.

How much business funding do I need?

 

As you engage the business loan approval process, it’s entirely plausible that the lender could agree to grant you more funds than you actually need. This might sound like a desirable problem for businesses, but remember to keep the precise objectives of the financing in focus to avoid drawing too many funds, as this only increases your borrowing costs.

Unless you’re taking out a revolving business line of credit, you’ll only end up paying interest on the funds you fail to use. The additional interest expenses of borrowing too much can quickly add up, impacting your bottom line and making it a challenge to remain profitable and access financing in the future.

What are borrowing costs?

 

While borrowing to drive business growth comes with countless benefits, this is hardly a good reason to ignore borrowing costs. No matter who you borrow from, you want to ensure you find the most attractive business loan offer.

Make sure to origination fees, prepayment penalties, subscription fees, and any maintenance fees between prospective lenders. This way, you won’t overpay for your loan. The extra fees you’re looking for are any costs -hidden or expressly stated- that are above and beyond the interest payments made.

All fees should be present on your loan disclosure sheet. Beware closing “estimates” or incomplete loan fee disclosures. You’re likely to discover the costs to originate your business will be considerably higher when it comes to sign for the funding.

How does small business funding work?

 

Small business loans are given to businesses with well-documented cash flows to provide the additional working capital needed to purchase real estate, new equipment, inventory, and day-to-day operating expenses after a financial shortfall.

The US Small Business Administration defines a small business as any organization with 500 employees or fewer. Assuming you meet this criterion and qualify for small business funding, the creditor will proceed to review your qualifications for your preferred loan product.

Like personal, home, and auto loans, every business loan program comes with its own unique qualifying requirements that vary from creditor to creditor. As you begin the process of applying for business funding, you’ll invariably encounter several common business funding options.

Now, let’s take a detailed look at these business lending options in more detail below:

Traditional bank financing

 

Before the 2008 global financial crisis, traditional banks handled the lion’s share of the national business funding. In previous decades, as a business owner, you were likely to meet with an agent in person at a local branch where you disclose your credit history and financial details before signing the final loan documents and receiving the funding you need to cover your operating costs and continue driving your strategic growth objectives.

Banks have since tightened their credit requirements across the board, but this is especially true concerning newer companies. Aside from the Great Recession of ‘08, the COVID-19 pandemic brought several significant changes to the traditional lending environment. Business loan approvals declined by as much as half by the start of 2021, just one year into the global health crisis.

The year 2020 saw less than 14% of business loan applications approved. Businesses receiving during this time were well-established with strong financials and impeccable business and personal credit ratings. Even if you meet these stringent requirements and are fortunate enough to get through all the paperwork and the dozens of hoops you need to jump through during the loan approval process, you could wait months before receiving funding.

Traditional bank financing offers a few benefits worth noting, however. Assuming you can spare the additional loan processing time, conventional bank financing typically provides the most competitive interest rates and lowest borrower costs.

Generally speaking, traditional lenders can provide businesses with more substantial loan amounts on a fixed monthly payment schedule. They also prefer to build long-term relationships with their customers with their business banking customers.

 

Online business lenders and term loans

 

Traditional banks usually offer rate and term financing, but you can also access these same loan products from online business lenders. Online lending laws vary by state. Depending on your location and credit situation, web-based alternative business financiers can present viable business borrowing solutions.

As business loan approvals at traditional banks approved 13% of all business loans during the pandemic, approval rates for online-based alternative creditors granted loans to nearly a quarter of all applicants by the end of 2020.

Online creditors can typically process your file quicker and release the funds with fewer overall requirements than conventional banks and credit unions. Not all online lenders offer term loans, however. If you are searching for a term loan, New Bridge Merchant Capital can provide you with multiple options, and we work on your behalf to ensure you find the right loan product for your business.

When you take out a term business loan, the creditor releases the funding in one lump sum, typically at a fixed rate of interest, while you repay the balance over scheduled installments over the life of the loan. Business term loans can span anywhere from one to five years, with one year being the most common term length.

The primary advantage of business term loans, whether from a traditional bank or online lender, is that they usually fund higher loan amounts than the other funding options, which we’ll touch on in further detail below. Business owners prefer term loans for their larger, one-time investments that are too hefty to pay off in the immediate term.

 

Other benefits include:

  • A fixed amortization schedule over one to five years
  • Financing for a diverse range of benefits and objectives
  • Establishes business credit
  • May exclude prepayment penalties
  • Enhances future funding eligibility

 

However, not all term loans waive prepayment penalties, and most require higher credit ratings for approval. Borrowing costs for loan terms spanning one to two years can be steep, and creditors often require a personal guarantee or collateral assets before granting the loan. Like most loans, expect to pay origination and other fees at closing. Always remember to compare these costs against other offers.

Business lines of credit

 

Business lines of credit are like unsecured consumer credit cards or home equity lines of credit (HELOC). They provide you with a revolving line of capital that you can access when you need it. Unlike term loans, lines of credit give the ability to the outstanding balance down and replenish your existing credit for future use.

For illustration purposes, let’s assume you’re taking out an $80,000 business line of credit. Once approved, unlike a term loan, which is dispersed in one lump sum and paid back over a specified time, you’re entitled to draw funds up $80,000. Likewise, once you draw from your business line of credit, there is no amortization schedule or specified maturity date. You just have to make the minimum monthly payment.

So, in other words, like consumer credit cards, a business line of credit requires companies to pay interest on any outstanding balance they carry. Business owners may qualify for lines of credit with less-than-perfect credit, but they should expect to pay higher interest rates. Business lines of credit lack a fixed repayment schedule, making the loan interest more expensive than term loans, even for those with A credit.

Other details to keep an eye on when applying for a business line of credit are the fees associated with opening and maintaining the line. While you’ll almost always pay interest on the funds you withdraw, unlike term loans. In most cases, your personal and business credit ratings determine how much you can draw from your business line of credit.

In the unlikely event that you can’t repay the balance, depending on whether or not the financing was collateralized, a defaulted credit line could place your business at substantial risk. Like revolving consumer trade lines, it is easy to run up a high balance that can be expensive to repay and take a substantial time to reduce.

Lines of credit help you save on borrowing costs, however. You only pay interest on the funds you use, and you don’t have to originate a new loan to access working capital when you need it.

Merchant cash advances

 

Businesses that deal substantially in credit card transactions benefit from merchant cash advances the most. Lenders that offer merchant cash advances provide funding to companies in exchange for their future card receipts. Let’s assume the creditor decides to advance you $100,000. The lender will then request a percentage of your monthly credit card sales until you repay the original loan balance.

Typically, merchant cash advances serve as short-term borrowing solutions, and the repayment period rarely exceeds 12 months. Generally speaking, although terms and conditions can vary from bank to bank, the lending institution will aim to recoup around 10% of your monthly credit card sales until as payments for the loan.

The principal upside to merchant cash financing is the short time it takes to process your loan application and disperse the funds. You’ll find this financing option includes less paperwork, there are no collateral requirements, and you can receive the funds in as little as one week. The amount you pay every month is determined by your credit card purchases for the month, so there is no fixed repayment schedule.

High annual percentage interest rates and borrowing costs are among the main drawbacks to merchant cash advances. Funding times for these types of loans are fast, however, and the approval requirements are lax when compared with the funding options listed above.

Merchant cash advances offer a great tool for covering your expenses quickly after a financial shortfall. But keep in mind the repayment period is unfixed, and you’ll have to deal with reduced cash flows until you repay the original loan balance in full.

 

Small Business Administration loans

Small Business Administration loans

 

Small Business Administration (SBA) are similar to Federal Housing Authority (FHA) loans in the sense that they’re government back and insured financial instruments. Since the government guarantees the loans and they don’t hold all the risk, lenders are usually amenable to approving businesses with riskier credit profiles, or they may consider funding smaller businesses that lack an extensive professional track, as long as they have two years of seasoning.

SBA loans can be an effective funding solution for business owners with less-than-perfect credit or no credit history at all, but there are a few caveats to SBA loans worth mentioning.

The cost to take out an SBA loan is usually more competitive than the alternatives. The interest rates are low, and the repayment terms are longer than other business financing options. Unfortunately, the SBA loan application process is rather involved, and, again, the loan requires you to have been in business for at least two years.

When you apply for an SBA loan, you should expect several weeks to pass before the final approval. Under most circumstances, the SBA requires you to pledge at least some collateral in exchange for the funds.

 

Small Business Grants
Small Business Grants

Business grants

 

Business owners can also access several business grant programs. After doing a bit of legwork, you shouldn’t have too much trouble finding grant money to fund your business if the requirements.

Federal, state, and private agents are potential sources for business grant funds. The best part about grants is they’re not loans, and there’s no requirement to pay them back as long you fulfill the conditions of the grant.

Downloads

Invoice financing

 

We touched upon invoice financing in a prior section. But we didn’t want to leave it off the list. To reiterate, lenders grant funding to small businesses that demonstrate unpaid invoices sufficient enough to borrow against their receivables.

If you’re interested in pursuing invoice financing to fund your company, or any of the business financing options discussed above, consider partnering with New Bridge Merchant Capital.

We’re an alternative business financier offering smaller companies like yours fast and secure funding solutions that ensure you have enough working capital on hand to cover your operating expenses and drive organizational growth.

Get started with New Bridge Merchant Capital by submitting your details online. Or, to get a better idea of what you qualify for, connect with one of our senior business finance consultants by phone now by dialing 844-228-0593.

The SMB Merchant Cash Advance Guide

The SMB Merchant Cash Advance Guide

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)

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

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?

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.

NJ Back-to-School Rush: Financing for Retailers and Educational Institutions

NJ Back-to-School Rush
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:

  1. Retailers: From big-box stores to local stationery shops, retailers are pivotal in providing the necessary supplies for students and educators.
  2. Educational Institutions: Schools and colleges need to ensure they have the right infrastructure, materials, and resources to start the year effectively.
  3. Suppliers: Those who supply goods to retailers and educational institutions face increased demand and logistical challenges.
  4. Parents: They are the end consumers, managing their budgets to fulfill their children’s back-to-school needs.

Challenges Faced:

  1. 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.
  2. 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.
  3. 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.
  4. 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.