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The 5 C’s of Credit

December 8, 2020

By Ty Kiisel –

Small business owners looking for a loan need to understand the way their creditworthiness is evaluated to put their best foot forward — understanding the 5 C’s of Credit can help. As a general rule, there are three questions for which lenders need the answers:

1. Can you repay a loan?
2. Will you repay a loan?
3. What will you do if something unexpected happens?

Lenders might not ask them this way, but today I’d like to share with you the 5 metrics many lenders use to judge your answers.

Generally speaking, lenders are pretty risk averse (although some have a higher risk tolerance than others). I remember an economics class I attended many years ago where the instructor made it a point to make sure we understood the test questions, and the answers, before a big test. Our grade depended on how well we answered the questions, not simply if we got the answers right. He wanted us to be prepared and learn.

It might be a stretch to compare my economics class with applying for a small business loan, but understanding what the banker (or any other lender) is looking for, and judging your loan application against, might make it easier to answer the questions well and get your loan application approved. (more…)

4 Tips for Borrowing from Friends and Family

November 24, 2020

By Ty Kiisel –

It should be no secret in the post-coronavirus world that we should expect to see credit criteria tighten up as many lenders rethink their criteria or even step away from small business lending altogether. That’s what happened in the last economic crisis. Fortunately, that’s not true of all lenders, and there are still options available for creditworthy borrowers as well as options for small business owners with a less-than-perfect credit history. Borrowing from friends and family is one of those options.

Although borrowing from friends and family isn’t the first choice for most small business owners, it is perennially one of the best sources of financing for small businesses, from the smallest sole proprietorship to larger, more established small businesses. Although these loans are sometimes referred to as 3-F loans, referring to the friends, families, and fools who offer loans to small businesses, there are a handful of things you can do to successfully pull it off and still get invited to Thanksgiving Dinner. Here are the 4 things you can do to be successful at borrowing money from friends and family. Click To Tweet (more…)

Cost of Debt: How to Calculate Cost of Debt

November 17, 2020

By Susan Guillory –

When you take out a loan (also known as debt capital), your primary focus is probably on having working capital to grow your business or steady your cash flow. But there’s something else to consider: your cost of debt.

If you’re just focusing on your loan’s monthly payment and not diving deeper to analyze the true cost you’re paying, you might be spending more than necessary on your debt financing.

What is Cost of Debt?

There are two types of capital a business can use: equity financing and debt equity. With equity financing, an investor — usually a venture capitalist or angel investor — provides working capital in exchange for a percentage of equity, or ownership in the company.

With debt equity, a company takes out financing, which could be an SBA loan, merchant cash advance, invoice financing, or any other type of financing. The loan is repaid, along with an interest expense, over months or years. The term debt equity could be confusing, but is basically referring to a loan. (more…)

New PPP Loan Forgiveness Application 3508S: Will It Help You?

October 20, 2020

By Gerri Detweiler –

If you took out a Paycheck Protection Program loan for $50,000 or less, you may be able to use a new application — Form 3508S — to obtain forgiveness. This application does not make forgiveness automatic, but it will make it easier for some borrowers to qualify for forgiveness.

The big change here is that the application does not require borrowers to calculate a reduction in forgiveness if they reduced employee salaries or wages. The SBA, in the Interim Final Rule announcing this form, notes that this change is likely to have a minimal impact on overall forgiveness:

“There are approximately 3.57 million outstanding PPP loans of $50,000 or less, totaling approximately $62 billion of the $525 billion in PPP loans. Approximately 1.71 million PPP loans of $50,000 or less were made to businesses that reported having zero employees (presumably not counting the owner as an employee) or one employee. To the extent that these businesses have no employees other than the owner… they are not affected by these exemptions.” (more…)

How to Accept Credit Card Payments

October 5, 2020

By Susan Guillory –

Accepting debit and credit card payments in your business can help you make more money. The more payment methods you offer to customers, the more likely they are to shop with you.

But if you’re new to running your own business, you may not know how to accept credit card payments or what your credit card processing options are. How do you process a transaction? What are the fees?In this article, we’ll discuss the benefits of accepting debit and credit cards, selecting a merchant account, and using different types of payment gateways, depending on whether your business is brick-and-mortar, online, or mobile. Click To Tweet (more…)