How to Get Business Loans Even with Bad

How to Get Business Loans… Even with Bad Credit, No Collateral, or No Cash Flow

The Cash Access Problem • Most business owners go to their bank when they need money • But according to the Department of Revenue, less than 2% of all business loans come from the big banks

The Cash Access Problem • Banks deal with very conservative risk • And business lending is VERY risk as over 90% of businesses fail within their first 10 years • The result is that 89% of business bank applications are typically denied per the Small Business Lending Index • This is also why Bloomberg says “Funding a new small business? Don’t bother with banks”

The Cash Access Problem • Even though most struggle to get money, 86% of small businesses rely on some type of credit or financing for survival per the National Federation of Independent Business • And per SBA… the major reason for business failure is insufficient capital and lack of adequate funding

The Cash Access Problem • And since most small businesses can’t easily get money, that leaves over 9 million American businesses that need money and can’t get it, according to the National Small Business Association • Are you one of the 9 million who need money and can’t get it? • If so, you’re going to love what you’re about to learn!

The Cash Access Problem • If you’re looking for money for your business, there’s great news • There’s actually billions of dollars to be lent to small businesses • BUT, most of this money will NOT come from the big banks • The real problem isn’t that there isn’t money to borrow, it’s that most business owners don’t know WHERE to go to get approved

Conventional Financing (SBA Loans) Qualifications • All of the big banks and most smaller banks use SBA loans as their primary business funding program • These types of conventional bank loans are very hard to qualify for as the borrower must qualify per SBA guidelines and the lender’s guidelines

Conventional Financing (SBA Loans) Qualifications • SBA loans are also tough to qualify for because the lender and SBA will evaluate ALL aspects of the business and the business owner for approval • To get approved all aspects of the business and business owners personal finances must be near PERFECT to ever get approved

Conventional Financing (SBA Loans) Qualifications • To get approved for conventional loans you must have: • Excellent personal credit, with no derogatory reported items • Excellent bank credit, keeping over $10, 000 liquid in your accounts • Excellent business credit with a Paydex score of 80 or above

Conventional Financing (SBA Loans) Qualifications • You’ll need to have excellent financials that show good net profits increasing from year to year • You’ll need to show you manage that cash flow good per your business and personal bank statements • And you’ll need substantial collateral to offset what you’re borrowing, sometimes equal to 100% of what’s being borrowed

Conventional Financing (SBA Loans) Qualifications • Other items you’ll need to provide for approval include: • Profit and Loss (P&L) Statement – This must be current within 90 days of your application. Also include supplementary schedules from the last three fiscal years • Current and Projected Financial Statements – Include current and a detailed, oneyear projection of income and finances and attach a written explanation as to how you expect to achieve this projection

Conventional Financing (SBA Loans) Qualifications • Business Certificate/License – Your original business license or certificate of doing business. If your business is a corporation, stamp your corporate seal on the SBA loan application form • Loan Application History – Include records of any loans you may have applied for in the past

Conventional Financing (SBA Loans) Qualifications • Income Tax Returns – Include signed personal and business federal income tax returns of your business’ principals for previous three years. • Résumés – Include personal résumés for each principal.

Conventional Financing (SBA Loans) Qualifications • Personal Background Information • Business Plan • Business Credit Report

Conventional Financing (SBA Loans) Qualifications • Income Tax Returns: Most loan programs require applicants to submit personal and business income tax returns for the previous 3 years. • Business Overview and History – Provide a brief history of the business and its challenges. Include an explanation of why the SBA loan is needed and how it will help the business.

Conventional Financing (SBA Loans) Qualifications Personal Credit Report: Your lender will obtain your personal credit report as part of the application process. However, you should obtain a credit report from all three major consumer credit rating agencies before submitting a loan application to the lender. Inaccuracies and blemishes on your credit report can hurt your chances of getting a loan approved. It’s critical you try to clear these up before beginning the application process.

Conventional Financing (SBA Loans) Qualifications • • • Business Lease Bank Statements Business Certificate/License Loan Application History Proof of Collateral

Conventional Financing (SBA Loans) Qualifications • Legal Documents: Depending on a loan’s specific requirements, your lender may require you to submit one or more legal documents. Make sure you have the following items in order, if applicable: • Business licenses and registrations required for you to conduct business • Articles of Incorporation • Copies of contracts you have with any third parties • Franchise agreements • Commercial leases

Conventional Financing (SBA Loans) Qualifications • WOW, that’s a lot of stuff! • As a result most business owners struggle to get approved for financing because they and their business aren’t “perfect” as the lenders and SBA require • They don’t have collateral, cash flow, and the credit needed for approval

How to Get Approved for Business Financing • The great news is there a lot of funding options outside of these conventional bank, SBA loans • Alternative financing is one of the most popular options available today • You can also get private money, or crowd funding • You can even get business credit regardless of your personal situation

Alternative Business Financing

Business Financing Based on Strengths • Most alternative sources will lend you money based on your business strengths • So as long as you have a strength, you can be approved

The 3 C’s of Lending • The 3 strengths you’ll need one of to get approved include: • Cash flow • Collateral • Credit, good Personal or Business

Cash Flow Financing • Cash flow financing is one of the most popular types of business financing today • Most ads relating to getting business financing with bad credit, and no startups, is a form of cash flow financing • The two most common types of cash flow financing are – Merchant Advances – Business Revenue Financing

Cash Flow Financing Qualifications • To get approved for cash flow financing you’ll need to be able to show 6 months of business bank statements and merchant statements • Those bank statements must reflect that your business make over $120, 000 in annual REVENUE, or about $10, 000 monthly • You can also get a merchant advance with $5, 000 in credit card revenue monthly

Cash Flow Financing Qualifications • You need to be in business for one year to qualify • You’ll need to have more than 10 transactions, or deposits per month into your business account • You can’t have more than 10 NSFs (non-sufficientfunds charges) • You should have some sort of balance left at the end of each month

Cash Flow Financing Revenue Lending and Merchant Advances – Short term loan of 6 -18 months – Loan amounts 10 k to 500 k – Loan amounts equal to 8 -12% of annual revenue – Rates of 10 -45% – 500 credit score accepted – NO collateral requirement

Cash Flow Financing Benefits • Personal credit isn’t a big factor of qualification, if you’re not currently in trouble now, such as being in a bankruptcy or having recent judgments or liens • You can get money super FAST, in as little as 72 hours • Approval is easy, just a quick bank statement review

Cash Flow Financing Benefits • You can easily renew your advance and get more money within 24 -48 hours with a review of 2 months bank statements… once you’ve paid down 50% of your initial advance • You can get approved when you’d get denied with most other sources, this is just one of the most forgiving business lending options available today

Equity Investors • Contribute money in exchange for a percentage of equity, or ownership, in your company • Think Shark Tank • Percentage of ownership based on risk, typically 20 -60% • Is a viable option for startups as no tax returns are typically required, the “idea” might be enough to attract an investor

Private Financing • Serves as SBA fall-out financing for loans that are close, but can’t qualify for SBA • Collateral is required, although often only 10 -30% • Tax returns are required for 2 years, so no startups • An Executive Summary is required • Lenders are looking for average credit of 650 +

Private Financing • Loans can be in the millions, even billions of dollars • Loan times take 30 -90 days to close and receive funds • Interest rates are usually 7% + depending on risk

Collateral Based Financing

Collateral Based Financing Acceptable collateral – Account receivables – Stocks, bonds, and other securities – Inventory – Purchase orders

Collateral Based Financing Acceptable collateral – Equipment – 401 k – Real estate – Floor plan – Book of business

Account Receivable Factoring • Up to 80% of receivables is forwarded • 1 year in business required • Must be receivables from another business or the government • Rates of 1. 25 -5%

Securities Based Lines of Credit • • 70 -90% LTV of stock value Rates as low as 2 -3% Working capital line-of-credit Challenged personal credit is okay

Inventory Loans • Minimum inventory loan amount: $150, 000 • General loan to value (cost): 50%; thus, inventory value would have to be $300, 000 plus • No lumped together inventory, like office equipment • Rates are normally 2% monthly on the outstanding loan balance • Examples of companies that might qualify include a factory or retail store

Purchase Order Financing • $5, 000 -500, 000 • You can get up to 95% of your existing purchase orders advanced • You’ll be issued a Letter of Credit

Equipment Sale-Leaseback • Borrow against existing equipment you own IF you don’t already have a lien • Lender will undervalue equipment by possibly up to 50% to determine a “fire sale” value • Major pieces of equipment only, lender won’t combine a bunch of small equipment • 1 st and last month’s payments required • Loans up to $2 million

401 k Financing 401 k or IRAs can be used Up to 100% financing Rates usually less than 5% You are basically investing your 401 k into your own business, instead of buying stocks in other businesses • There are no tax ramifications, based on proven IRS strategies • •

House Flipper Financing • • • 660+ FICO score Flipping experience required Must have cash on hand to put into escrow Up to 65% of after-repaired-value 8 -18% rate , 6 month term

Commercial Real Estate Financing • • • $75, 000 -20, 000 loan amounts Get up to 55% loan-to-value for refinances 20 -30 year loans Rates of 4 -8% 650 FICO score needed for approval Conventional and SBA 504 loans are available

Floor plan Financing • Use an inventor of cars to get a revolving line of credit • When each piece of collateral is sold by the dealer, the loan advance against that piece of collateral is repaid

Book-of-Business Financing • Commissions from the book of business serve as collateral • Only for insurance agents • Borrow 2 -3 times annual renewal commissions • Long term loan • Easy to qualify for, references are needed

Sign and Wrap Financing • Get financing for a graphic vehicle wrap or commercial signage • Loans range from $1, 500 -50, 000 • 3 -12 month terms • 620 FICO or higher needed for approval • Rates range from 8 -12%

Credit Based Financing

Unsecured Business Credit Cards • Approval amounts from $10, 000 to $150, 000 • Business credit reporting • Excellent personal credit with open revolving credit, low inquires, and utilization under 30% • Approval amounts equal to current limits • 0 -25% APR, 0% for 6 -18 , months, 9 -12% fee • Personal Guarantors are okay

Business Credit • No personal credit check or guarantee… in most cases • No cash flow or collateral requirements • Reports to business bureaus linked to your EIN • Immediate vendor approval, 30 -90 days for store credit, 120 -180 days for cash credit • Cash credit limits can exceed $30, 000 • Great “catch all” for those who don’t have a strength such as cash flow, collateral, or credit

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