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When it comes to getting a loan for your business there are an overwhelming number of options and routes you can take. Since it can quickly become daunting, we’ve created this helpful overview to get you grounded and familiar with the basics so you can get started with the business financing process faster than you may have previously thought.
Figuring out Your Business Loan Needs / Eligibility
The first factor you should take into consideration before embarking on business funding is figuring out what exactly your business needs not only as a dollar amount, but what you want to get out of the process. Thankfully there is an easy formula that all lenders use as a means to calculate the riskiness and viability of a given loan. The formula is as follows:
Net Earnings / Loan Repayment Costs = Debt Service Coverage Ratio
By dividing your total weekly, monthly, or yearly earnings by the corresponding amount of your payment installments you get your DSCR which is a pretty good indicator of whether you’ll be able to repay your loan at the end of the day. Lenders will often reference your DSCR when deciding how eligible you are for different business funding solutions. It’s a ballpark number that greatly helps during the risk assessment process. A DSCR of 1.35 falls right in the sweet spot of what most lenders are looking for, but a DSCR of 2 or higher is considered to be on the conservative side.
Consider the Importance of your Credit Score
Having a lender view your personal credit score may seem invasive for a process centered on your business, but the reality is that a good credit score and responsibly handled personal finances are a good indicator of how well you handle your businesses finances. If you’ve got a flawless credit score of 700 or above for example you’ll be eligible for a huge array of business financing options. On the other hand, if you’ve got a credit score in the mid-500 range or lower it may limit the number of loan options available to you.
Guide to the Different Term Loans Fundygo Offers
Term loans are the type of loan that most individuals are familiar with. It’s a financing system by which the borrower receives a lump sum of money and you pay it back with accrued interest down the road. Payments are made in regular intervals ranging from weekly, monthly, or yearly.
There are many different types of loans that fall under the category of a term loan, but one of the type of term loans that Fundygo specializes in is equipment financing loans. Equipment is a broad term that applies to many different facets of products a business needs to operate. This can be applied towards vehicles for inventory distribution and delivery, machinery to produce products, investments in expanded inventory so that your business can increase its offerings, or even a server room which can host an entire digital marketplace.
An SBA (Small Business Administration) Loan is a variant on the common term loan, the only difference being that it is backed by the federal government and has some of the most agreeable terms of any loan type. Since it is federally accredited in the event that you default on your loan, the federal government steps in and ensures the lender the money allowing lenders to take bigger risks on new and emerging businesses. SBA loans do require more documentation and rely more heavily on personal credit score but are absolutely worth the extra time and effort.
Line of Credit
A line of credit is much like a credit card in that only pay interest on the amount of money you borrow from your available pool of funds. It’s a great option for businesses looking for flexible plans and that don’t need a large sum of upfront capital. Keep in mind, however, that there are steep interest fees for late repayments.
Revenue Based Financing
If you’re worried about plunging head-first into a loan without knowing the stability of your monthly business earnings, revenue based financing is a great flexible option for emerging and established businesses. If you’ve experienced a down month, you’ll only pay a small portion of your repayment, and if you’ve had a month of booming sales you’ll pay a larger percentage out of your loan repayment. That way, you’re never taking a loss on your loan repayments.
Fundygo’s Secured Loans
Secured loans are a lot like term loans in that you’re granted a sum of capital at the beginning of the loan. However, by using sources of existing value as collateral secured loans are much easier to quality for as the use of collateral incentivizes the borrower to make repayments on time. Collateral can be anything ranging from owned real estate to a vehicle.
Equipment Secured Lending
Equipment secured lending is a lot like equipment financing in that you’re generating funds for an equipment or inventory investment, but with a secured loan there’s an added safety net of using the borrowed equipment as collateral. If you default on a loan on a piece of machinery in a standard term loan, you get to keep the piece of machinery at the end of the day because you purchased it. With an equipment secured loan the lender co-owns the machinery until the loan is paid off in full, meaning if you default on your loan the lender can repossess the equipment, liquidate it for its full value, and recoup the cost of the initial loan. This makes an equipment secured loan easier to quality for and is a great option for businesses that need to expand quickly but may not qualify for a term loan.
Residential Real Estate Secured Lending
With this type of secured loan you’re borrowing against the value of your existing home. It’s a great way of generating capital while starting a small business or expanding your existing business.
Commercial Real Estate Secured Funding
This secured loan utilizes owned commercial real estate as a means to generate funding for an established companies’ expansion. It’s a great option for larger existing companies to utilize the capital they’ve already invested in and expand their operations quickly and efficiently.
Credit Based Financing
Technically a form of secured loan, credit based financing allows you to borrow against your good credit score using your personal finances as collateral for a business or equipment loan.
How to Apply on Fundygo
Applying for business financing on Fundygo’s platform is a simple, easy, and streamlined process. You’ll need to submit your personal bio, bank verification, and business information as well as applicable tax forms. Once you’re in touch with our business financing experts we can help guide you through the application process and start growing your business in no time. We have a quick turnaround time on loan applications of all types and offer lump sums of anywhere from $10k-$2.5m.
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