How to Use Financing to Expand Your Business (Fundera / CoverWallet Webinar)

How to Use Financing to Expand Your Business (Fundera / CoverWallet Webinar)


Fundera is a marketplace for small business
financing solutions. We offer a range of different financing products
from Lines of Credit all the way through SBA and Bank loans that we can help provide small
business owners with depending on a number of different factors, including what you are
using the funds for, how quickly funds are needed and what you can qualify for. The beauty of Fundera compared to other financing
options is that we can become a one stop shop to find your business the correct financing
solution based on your situation, with all of this being FREE to business owners in addition
to not impacting your credit during the exploration process, which we know is top of mind for
all business owners — lastly, aside from financing options we also have a public BLOG
plug offering tips and insights to help maintain and grow your business, given your specific
need As previously mentioned, we have a number
of different products that we can help a business secure financing with. They range from: SBA & Bank Loans to Term Loans, Lines of Credit
and Invoice Factoring Now one might ask, what is the difference
between all of these products and what makes one product better than the next? Why do we offer so many products and avenues
a business owner can go? Those are completely valid questions. That is where there a number of things can
come into play, however the most important thing is what you as the business owner is
using the funds for. Whether you are using the funds for recurring
inventory needs or a remodel of your location, those are two entirely different use cases,
which can lead you down two different product paths. Let’s dive into the products now and what
are some of the use cases to give some more context Let’s start with some everyday needs that
a business owner might have Cash Flow gaps from payments you are waiting
to come in from jobs, payroll needs that occur multiple times throughout the year — potentially
in slower seasons, One of the bigger needs for businesses we
see is inventory purchases — typically businesses are purchasing inventory multiple times throughout
the year and flipping it. What happens when you purchase inventory every
2 months? You need constant access to capital. And lastly something that many business owners
dont think of, because honestly why would you, I get it, no one wants to think of the
worst case scenario, but (similar to what Jim at CoverWallet mentioned with insurance)
Emergency funds or “Rainy day” funds is a need that every single business owner in
America has. As scary as it is and we don’t want to come
to the reality of it, life happens, weather is a hurricane, family emergency and so on,
you never know when you might need a quick infusion of cash — All of these are prime
examples of why we ALWAYS recommend that a business owner should have a line of credit Why is a line of credit the best product for
these scenarios and not something else? Because it costs little to absolutely nothing
to have access to a line of credit. It is meant to be there in the background
for when you need to access funds. Additionally, you can draw as much as you
want from the LOC up to your approval amount. For example if you are using it to purchase
inventory and you need $20k with your max approval amount being $100k, you can draw
only the $20k you need. Once you purchase your inventory and flip
for revenue, you can pay back the line of credit and only pay interest on the $20k (vs
the $100k) for however long you have had it outstanding. You will have continued access to this line
of credit in perpetuity What about some other needs? Like hiring new employees, marketing campaigns,
equipment purchase and refinancing previous debt? While you can continue to use your line of
credit if you think this is a recurring need, which marketing campaigns or hiring employees
can fall into OR if this is generally a 1 time expense per year or simply comes few
and few in between, a term loan is a much better product for this use case The question becomes why is that? The reason being is that generally speaking,
Term Loans are a cheaper product for businesses. They are cheaper because you receive a lump
sum of cash deposited into your bank account and have set schedule of payments to repay
the loan over a certain period of time, whether that is 1 year or up to 3 or 5 years. With these loans, the lenders, (banks or alternative
lenders) know exactly when your payments are scheduled therefore they can calculate that
into their UW model VS a LOC, technically you do not have to draw ever, and given that
you can draw on the LOC randomly, it inherently increases the risk slightly for lenders. Now shifting a bit to the unicorn of financing
in the small business space, Long Term loans and SBA or Bank loans. Of course, this is what every business owner
dreams of and honestly, why not! These are going to be the best products on
the market — you can use these loans for various reasons, expansion capital to remodel
a new location, hiring employees, large equipment purchases or large one-time purchases. Why am I emphasizing large? Because these loans usually take a bit more
work to get through the process and get qualified as you should expect, given the terms and
rates they can offer, out to 10 years and 7-8% in rate. Now in order to qualify for something like
this, while I know this is the dream for many small business owners, it does come with parameters
but it is not as out of reach as many people think as long as you hit some key things — at
a high level, we are looking for 2 years in business, a strong credit score for all owners
and multiple years of a profitable tax return. Of course there are plenty of other factors
that come into play however, that gives you a general idea. The biggest sticking point here that is most
confusing to small business owners, is the profitability portion. What banks constitute as a business being
“profitable” is what is legally on your tax return documents. Now I understand the questions that come up
with this — that “my accountant told me to write off certain expenses in order to
show a loss / a lower profit so therefore I can pay less taxes” — I get it, frankly
I would do the same, who wouldn’t? However, unfortunately it is a double edged
sword with the banks and longer term lenders, they require the profit on the tax return
and its relatively black and white with them. So our general advice for business owners
looking for the best terms on loans, keep your credit high and show the biggest profit
you can on the return, even if its against your accountants will. Now if you are in the market for financing,
there are a few things that you should consider prior to exploring. As we just discussed, there are various routes
that you can go with products, so ensure that YOU have all the answers and have thought
about all the avenues you want to go, is key A few questions that you should consider: What is the general profile of your business? How long you have been in business What is the ownership breakdown What state are you registered in, etc How much capital are you looking for and in
what timeframe are you looking to get funded? Why are you looking for that much capital
and what are you using the funds for? This is the MOST important question that you
should consider, what you are using the funds for. Some business owners do not like to divulge
that info to our loan specialists or are vague…at Fundera we make sure to dive into that question
the most. Business owners should not think of this as
an invasion of your space, we are asking these questions because it allows us to provide
you the best product recommendation possible. Without us knowing what you are looking to
use the funds for and how it can help the business, how can a loan specialist help advise
you in the right direction? Word of advice: If you are on a call or speaking
with someone regarding financing and they are NOT asking these questions, it really
should be a red flag to you as the business owner. You want to make sure the product is fitting
exactly into your needs and this is how it allows us to do that
Now the “daunting” part — what documents am I going to need to gather for this process? Simple answer is, recent banks statements
and possibly business tax returns Longer answer is, it really depends what product
we are going to explore, some require just 3-4, others require 20+ documents. Again, not trying to beat a dead horse, but
it comes down to the use case of the funds One thing to be wary of as a business owner…if
someone is giving you quotes over the phone WITHOUT looking at any type of documentation,
bank statements or tax returns, there is no chance they are speaking with certainty and
I personally wouldn’t trust much of what they say There are many things that come into play
on your financials, with bank statements, it is the number of deposits, low ending balances
and overdrafts With tax returns, it is the ownership breakdown
and profitability If someone refuses to give you a quote without
looking at your financials, rather than getting upset because you didn’t get an answer,
that is actually someone you should run towards, they understand it is impossible to do so
without looking at anything Lastly, I want to review the timeline of the
process The perception of many business owners is
that it takes months to complete —- and you’re not wrong if you are talking to your
local bank. However, at Fundera we pride ourselves on
the speed that we fund all of the products we discussed in a much shorter timeframe…now
to be fair depending on what product, the timeframe will vary The process can take as little as 12-24 hours
or it can last a few weeks or a month. If we are going for the more sophisticated
products, bank and SBA loans, they typically will take 3-6 weeks, however if we are looking
for something with less documentation and a quicker turnaround, there are fantastic
products from 1-5 years that can fund within a day to a week. Thanks for listening everybody. For more information on financing, and everything
else you need to run your business, check out fundera.com/blog. Also be sure to subscribe to our Youtube channel
for more videos.

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About the Author: Oren Garnes

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