SBA 504 Loans

Business owners planning to renovate their commercial space can apply for an SBA 504 loan if they have a good credit score of above 650 and own the real estate property. The business funding can be used to modernize, remodel, or make additions to the building space as required.

Usually, an SBA 504 loan comes in three parts – 50% of the loan is offered by a lending institution like a bank, 40% of the amount is funded by an SBA-approved Certified Development Company, and the rest 10% is taken as a down payment by the borrower. SBA 504 loans generally come with a small 5% interest rate, and they can have a term of 10 to 20 years. What’s more, borrowers can also include soft costs of commercial remodeling, such as the fees of the general contractor, into the loan amount.

Bank Loans

Traditional bank loans are the next best option to SBA 504 loans. Business owners having a good credit score and a significant amount of equity in their business can apply for the loan and get it approved for competitive rates. Usually, the borrower would also be required to make a down payment of 20% to 30% to secure a traditional bank loan for commercial remodeling.

An equity loan or line of credit by a bank works quite similar to home equity loans and personal lines of credit. However, the difference here is that the loan would tap into the equity that the borrower has in the business. Entrepreneurs can also apply for secured lines of credit for commercial remodeling. Yet the terms and conditions might differ in this case depending upon the lending party.

SBA 7(a) Loans

An SBA 7(a) loan would be the most rewarding option for businesses that do not qualify for traditional bank loans. This is especially the case when a business owner is planning to renovate an office or industrial unit that is leased. SBA 7(a) loans are usually considered as general purpose working capital loans, but the funds can be used for renovation and remodeling of the business space as well.

Although most of the lending institutions hesitate to offer a commercial remodeling loan for a leased property, they would be more comfortable to approve the funding when it is guaranteed by the SBA. However, the borrower should have a good credit score and the ability to put at least a 10% down payment in order to qualify for the loan. Note that the more the down payment, the higher are the chances of getting the loan approved. The rates are more reasonable here, and the term can be up to 5 to 7 years.

Asset-Based Loans

An asset-based loan would work best for business owners who have a low credit score, and cannot qualify for an SBA-approved business funding for commercial remodeling. However, the borrower would still have to be the owner of the business property to qualify for the loan, as these are secured by commercial real estate. Besides, it also requires a larger down payment to qualify for asset-based or hard money loans.

Asset-based financing is generally more expensive than traditional bank loans and SBA loans, but they can have reasonable interest rates. Besides, the term to repay the loan amount can also be very flexible, but it would depend upon the lending party and their terms and conditions. An asset-based loan can be great for business owners who have an old facility and want to renovate it into a modern industrial unit.

Online Loans

Online loans and business lines of credit are the easiest to qualify for, but they can be very much expensive depending upon the lending institution. The lender usually does not put much emphasis on the credit score of the borrower here. Besides, there is no need for making a down payment to secure the loan either. However, lenders might require the borrower to agree to offer a general lien on their business assets to get the loan approved.

This business funding option can be the best thing for business owners who have a bad credit score as well as for new entrepreneurs who do not have much experience in managing a business. The funds are released very quickly here and it can be used for virtually any business need. The only thing to take note of here is to manage the scheduled payments sensibly, so that the business assets put as collateral are not seized because of default.

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A startup business might need to source finances to meet its operational costs, while an already established company might need a loan or line of credit to ease its financial burdens, especially in case there is a delay in the payments receivable. Usually, a lending institution offers asset-based financing as the best alternative when a company is unable to show enough cash assets or cash flow to acquire an unsecured loan. This way, the lender can approve the funds based on the physical assets of the company as collateral.

Note that the terms and conditions of equipment secured lending depend on the value of the asset as well as the type of equipment presented as collateral. Generally, lending institutions prefer liquid-type collateral, such as securities and bonds, which can be readily converted to cash if the company fails to repay the loan in time. Financing on physical assets is usually considered to be riskier, which is why the loan amount may be much lower than the actual value of the equipment. Still, that can be a good option for businesses, which are looking to expand their operations, because they are more likely to be in a solid position to repay the amount as agreed.

The interest rates on equipment secured lending are also much lower than that on an unsecured loan or line of credit. This is because the lending body can recover most of the losses here if the borrowing company fails to meet the repayment terms. Yet again, the interest rates can vary widely depending upon the credit history of the company, the business cash flow, as well as the length of the loan period.

Small and medium scale companies with stable revenue and good value physical assets are the ones who generally go for asset-based lending. However, it can be an excellent option for large corporations as well to cover their short-term financial needs occasionally, such as for managing their employee salaries or for some extra raw material purchase.

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In general, your business credit report can affect the amount of funding you are looking to avail, the terms of repayment, as well as the interest rates on the loan amount. Note that a good business credit report is like an invaluable asset for the company, which means that you should take proper measures to protect and manage it. To start, you should review the information and data that is being reported about your business and its financial state. You can order a copy of your business’ credit reports from a credit agency for that. This way, you can also update the relevant information about the company in case it is being reported inaccurately.

By monitoring your business credit report in periodic intervals, you can ensure that the data is up to date and accurate. In addition, you can also identify any errors or changes in the report that could affect your business’ credibility, and fix the issues in time. Assessing your credit reports also allows you to keep an eye on who is inquiring about your business, and generate potential leads from it as applicable. Besides, that would also help you to prevent identity theft and report any kind of data breach to the law enforcement authorities.

Remember that when you initiate a dispute on inaccurate information being reported about your business’ financial standing, the credit reporting agency would investigate the same and update the data. In the meanwhile, you can learn how your credit reports are doing and take proactive measures to improve the scores. Controlling the spending limits and managing the business credit card expenses by employees are a few ways to protect and manage a good credit report. This would not only be of great help when you apply for business funding in the future but also avoid potential losses to the company.

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Preparing a solid business plan is the best way to estimate the costs, which you might have to bear in the future. It is recommended to prepare a business plan for at least 3 to 5 years, including financial projections such as the expected expenses and estimated revenue. After you have the details ready, see if you can manage the funds for the expenses or if you would can utilize revenue-based business financing to take care of the needs.

Keep in mind that it could take some time to generate a steady income, so taking cash out of personal resources to balance the business requirements might not be a good idea. Instead, it would be better if you consult with a financing company and explore the funding options for your business. Below are some of the common business startup costs that you should be aware of so that you can secure proper resources to meet them as applicable.

Equipment

The cost of equipment can vary greatly depending upon the type of your startup business. However, you can expect it to be somewhere around $10,000 at the minimum. The best option to deal with equipment cost is to avail an SBA loan or equipment financing.

Incorporation Fees

If you were planning to register your company to make it a corporate entity, you would need to follow the legal process to apply for the federal and/or state licensing or permits. This can incur incorporation costs anywhere between $50 and $300, depending upon the state’s laws and regulations.

Office Space

You can start small and rent an office space instead of buying a property to run your business initially. However, as you would need to spend a fixed amount per month to pay the rent, you should have a reliable resource to meet that requirement. Note that this can range from $100 to $1000 for each employee per month depending on the location and type of office space.

Inventory

If you were planning to start a wholesale, retail, distribution, or manufacturing business, you should have a clear idea of the inventory costs. It is advised not to stock too many products to start, but keep it good enough to meet your customer demands. You might need around 25% of the startup budget for inventory alone, which is why availing a separate inventory financing might be a good idea here.

Office Furniture 

If you were planning to start a services company that needs a typical 9 to 5 office environment, you would need furniture, such as desk and chair, for each of your employees, as well as furniture in the reception area. Although this would vary greatly depending upon the number of employees you are planning to hire, it is an important part of the business startup costs and should not be ignored at all.

Marketing

Promoting your business is quite simple these days with online marketing tools and social media. However, you might still need to spend around $100 to $250 per month on paid advertisements. Besides, you should also consider the costs of marketing materials like signboards and business cards when drafting the business plan.

Office Supplies

Office supplies such as computers, phone, filing cabinets, paper, and printer ink, etc., should also be included in the business startup budget. Although these seem to be minor expenses, the accumulated costs of office supplies can go anywhere from $100 to $1000. Usually, this would be around 10% of your total startup costs, but that would depend upon the number of staffs as well.

Utilities

No matter whether you own the building, or are operating from a rented space, you would need to pay the electricity, water, internet, and phone bills every month. You can estimate the cost of utilities based on the total area of your office space (excluding the internet and phone charges) at $2 per sq. ft.

Payroll

It might take some time to start generating revenue from the business. However, you should always have the proper resources to manage employee payroll from day one. Although the costs are based on the number of workers here, it usually comes around 25% of the total business startup budget.

Insurance

It is very important to protect your company with insurance. This would ensure that you do not have to face any great losses in case of an unfortunate event. The cost of insurance would depend upon the type of insurance you choose as well as the size of your business.

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Banks

Approaching a bank for a small business loan can work best when you can provide collateral. In addition to the funding options like term loans and lines of credit, a bank can also offer you commercial mortgage financing to buy or rent properties. However, you would need a good credit score to secure a loan from a bank. The cash flow would also be slower here, as banks usually release funds on a periodic basis. Note that small businesses generally find it very difficult to get a loan approved by banks because of lower sales volume and poor cash reserves.

Microlenders

Microlending can be the best alternative when you cannot secure a traditional loan from mainstream banks due to bad credit, lack of collateral, or low-rated company profile. Microlenders are non-profit institutions that lend short-term loans to small businesses, typically in the range below $35,000. However, the annual percentage rate or the total borrowing cost can be a bit higher in microlending when compared to bank loans. Besides, you would also need to provide a detailed business plan as well as financial statements for loan approval. Some lenders might also require you to give an explanation of how the funds will be used. All these can make approval of the loan a lengthier process.

Online Financing

Online lending can work the best for you when you do not have collateral but need the funding to be approved quickly. Online lenders can offer different types of loans up to $500,000, which can be great for small businesses to get going with their business ventures. The annual percentage rate can vary considerably here though, depending on factors like the type, size, and duration of the loan, as well as your credit history. The total borrowing cost can also vary from lender to lender, and some may require you to offer collateral as well. Regardless, the approval rates are much higher in online lending, and the funding is released much faster when compared to other types of small business financing.

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Below are some of the most common financial mistakes that startups make, which you can easily avoid to ensure that your business blooms to its greatest potential.

Not Having an Investment Strategy

It is very important to have an investment strategy planned so that you can allocate the funds for your business growth in time. You can apply for a business credit card to manage the small inward expenses, while an SBA loan would be especially helpful when you plan to lease business equipment or expand your business operations. Just make sure that the repayments are done in due time so that you do not accrue any unwanted interest amount.

Not Managing Personal and Business Accounts Separately

Using personal accounts for the business expenses is the silliest decision one can make. Although it might seem simpler at first, because you are the owner of the business, it would eventually make it very difficult to figure out which expenses were made for your business needs. Besides, keeping the accounts separate is also vital for filing your taxes properly and steer clear of any unwanted IRS penalties.

Not Including Own Remuneration

It is seen that most of the new entrepreneurs leave out their own salary when planning the initial budget. They think that it would help them in saving maximum funds for the other expenses of the business. However, this is an amateurish strategy – you would surely need some income after a couple of months, and if you tried to take that out of the allocated funds for your business without planning it beforehand, it will surely blow out the resources in no time.

Not Investing the Profits Back into the Business

It is seen that most startups fail because they do not have a reinvestment plan either. When the profits increase as the business starts to grow, first-time entrepreneurs forget the need to keep on investing for the future and look to take the extra income home. This is another silly mistake instead of taking more of the profits for self, reinvesting it into the business would surely help to reap more in the long run.

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A startup business might need to source finances to meet its operational costs, while an already established company might need a loan or line of credit to ease its financial burdens, especially in case there is a delay in the payments receivable. Usually, a lending institution offers asset-based financing as the best alternative when a company is unable to show enough cash assets or cash flow to acquire an unsecured loan. This way, the lender can approve the funds based on the physical assets of the company as collateral.

Note that the terms and conditions of equipment secured lending depend on the value of the asset as well as the type of equipment presented as collateral. Generally, lending institutions prefer liquid-type collateral, such as securities and bonds, which can be readily converted to cash if the company fails to repay the loan in time. Financing on physical assets is usually considered to be riskier, which is why the loan amount may be much lower than the actual value of the equipment. Still, that can be a good option for businesses, which are looking to expand their operations, because they are more likely to be in a solid position to repay the amount as agreed.

The interest rates on equipment secured lending are also much lower than that on an unsecured loan or line of credit. This is because the lending body can recover most of the losses here if the borrowing company fails to meet the repayment terms. Yet again, the interest rates can vary widely depending upon the credit history of the company, the business cash flow, as well as the length of the loan period.

Small and medium scale companies with stable revenue and good value physical assets are the ones who generally go for asset-based lending. However, it can be an excellent option for large corporations as well to cover their short-term financial needs occasionally, such as for managing their employee salaries or for some extra raw material purchase.

The post A Quick Look at Equipment Secured Lending appeared first on Business Financing, Line of Credit, Fast Business Capital :: Fundygo.com.