1. Bad Credit: Definition, Examples, and How to Improve
2. How To Get A Small Business Loan in California

1. Veteran-owned businesses
2. Business Loans, Grants, and Resources for Veteran Entrepreneurs
3. Funding Options for Veteran-Owned Businesses
4. Small Business Grants For Veterans

1. The construction sector is not operating at full capacity—here are some data that could explain why
2. The Impact Of Seasonality On Construction Businesses
3. Managing Seasonality in Construction: Maintaining Profitability

1. Top 10 Reasons Why SMEs Are Denied Business Loans
2. How To Handle Business Loan Rejection
3. 7 Reasons Your Business Loan Was Denied
4. What To Do If Your Business Loan Is Denied

 

The end of the year is a busy time for business owners. Not only is it time to take stock of financial reports, cash flow statements, and plan for the future, but it’s also a period when the focus must shift to efficient tax management.

Proper year-end tax planning drives long-term growth, ensures compliance, and helps businesses save money. In fact, rather than viewing it as an unnecessary burden, if more organizations were to make corporate tax planning strategies a part of their model, the impact on bottom lines could be tremendous.

So, how do business owners pay less taxes?

In this article, we’ll highlight three tips on how to invest business profits to avoid taxes, identify appropriate credits, and maximize deductions. Crucially, we’ll also look into the role that small business funding plays in implementing these strategies. It’s a lot to cover, so let’s dive right in.

Tax Strategy 1: Maximize Deductions and Credits

All businesses are eligible for deductions or tax write-offs.

For example, most equipment purchases that are found to be essential for operations qualify for a tax break. Under IRS Section 179, the full price of depreciating assets like machinery, computers, or cars can be deducted from the year they were purchased.

Similarly, several other expenses are covered, including operational costs like rent, utilities, and salaries. Depending on your business, you could also be eligible to write off advertising expenses, business meals, insurance, legal fees, and more.

Maximizing these deductions must be a key component of all corporate tax strategies, as they can have a huge impact on bottom lines.

There are also several tax credits business owners must consider when drafting end of year tax strategies. Some, like the Work Opportunity Tax Credit, are available to businesses that employ individuals from targeted groups. Others, like the Opportunity Zones Credit, are available to businesses that support investment in distressed areas.

Moreover, there are multiple industry-specific credits that are often overlooked. The R&D credit, for instance, covers all expenses related to the design, development or innovation of new ideas, products, techniques, or software. The Inflation Reduction Act of 2022 also introduced several additional credits for green energy initiatives.

Once all deductions and credits are assessed, business owners must ensure they qualify for as many tax breaks as possible. And this is where business funding comes in.

To be eligible for a Section 179 deduction in 2024, for example, the equipment must have been purchased or leased the same year. By securing financing for equipment, businesses can make these purchases before December 31, 2024, and benefit from a tax break. Similarly, a line of credit can help businesses fund R&D projects, invest in green initiatives, or fund expansions into opportunity zones.

Clearly, a little small business tax planning goes a long way.

Tax Strategy 2: Defer Income and Accelerate Expenses

Deferring income is another common tax tip for small businesses looking to reduce their burden for the current year. How you do this depends on your organization’s working model. Businesses that work on a cash system can consider deferring outstanding invoices for the following year. Those that work on an accrual system, which recognizes income once a job is complete, can choose to delay shipments.

Similarly, if you’re looking to reduce your burden for 2024, put off investments that will result in capital gains — such as selling real estate — until 2025.

On the flipside, if you’re looking for a year end tax tip to decrease your future burden, or have unused deductions to use this year, you could consider accelerating your expenses until December. To make this business strategy work, send out invoices early, complete projects before time, or consider pre-paying suppliers for products and services that aren’t due until the following year.

These two end of year tax strategies are especially effective if you identify that the tax rates for the following year will be higher or lower — or in case of any potential changes to tax policies. While efficient forecasting can help assess the appropriate path forward, funding can help you implement either of these tax saving options. A business line of credit, for example, can help manage cash flow, either to increase spending in the following year or tide over the period when invoices are unpaid.

Tax Strategy 3: Invest in Retirement Plans

A retirement plan doesn’t just benefit employees, it is an extremely effective tax planning tip for year end for employers as well. Now, under the recent Secure 2.0 law, startups that haven’t yet implemented a retirement savings plan for employees will have more incentive to do so.

From 2023 onwards, business owners with 50 or fewer employees can qualify for up to $5,000 in tax credits to offset 100% of the costs of setting up and administering a retirement plan. Employers can receive credits of up to $1,000 per employee to offset their contributions into the savings plan.

Furthermore, all employer contributions are also tax deductible. Depending on the type of plan, the participants, and the amount you contribute, you may qualify for several other credits — such as the auto-enrollment credit that allows businesses to claim $500 a year for the three years after they introduce the feature.

With that said, not all businesses can afford to increase employee contributions before the end of the year. In this case, it may be worth securing business financing to ensure that you have enough capital. Not only will this help reduce your tax liability, it can also:

• Helps attract and retain talent
• Improves productivity of your staff
• Secure employees’ long term financial security

Bonus Tip: Review Depreciation Options

Of all the tax tips for business owners, accelerated depreciation is the most complicated to understand and calculate. But it’s also one of the most critical small business tax strategies.

Rather than deducting the cost of equipment and property over time, accelerated depreciation can help write off significant purchases by the end of the year and reduce your liability for the following years. This has proven to be extremely beneficial for organizations as it helps manage immediate cash flow concerns.

In the U.S., there are a couple of ways to accelerate depreciation.

The first, as we mentioned briefly earlier, is Section 179, which defines property as anything from HVAC equipment to roofing and beyond. In 2023, the deduction limit was $1,116,000, while the phase-out threshold was $2,890,000. In 2024, to claim the full deduction, the total purchase price of eligible property was increased to $3,050,000.

The second approach is known as bonus depreciation. It allows businesses to immediately write off a certain percentage of the price of an asset. In 2022, the TCJA authorized 100% first year bonus depreciation, but will phase it out over a five-year period. So, in 2023, 80% of the price can be claimed, and in 2024, 60%.

Businesses looking to take advantage of bonus depreciation will need to acquire assets before the provision is phased out by 2027. To help make such significant investments, and reduce your future tax burden, consider looking out for various financing options.

To weigh the costs of securing a loan vs the benefits of tax reductions, compare the figures using a small business loan calculator.

How to Save Taxes in the U.S. and Canada

At the end of the day, the best tax saving strategies require a lot of planning. Businesses across North America must familiarize themselves with the specific policies on deductions and credits, assess whether to defer income or accelerate expenses, and invest in their employees to unlock even more tax breaks.

Moreover, it wouldn’t be possible to implement any of these tax tips for small businesses without funding. Organizations can leverage a wide variety of equipment loans, credit lines — or even specific small business funding for women — to maintain cash flow and make investments that improve their future financial standing.

Learn more about business funding options:

• Small business loans
• Merchant cash advances
• Collateral loans
• Business line of Credit
• Business loans for low credit
• Invoice factoring
• Financing for equipment

1. Guide to business expense resources
2. Year-End Tax Planning for Your Business: 8 Strategies to Consider
3. Section 179: Definition, How It Works, and Example
4. 5 Tax Planning Strategies for Small Business
5. Small Business Tax Planning: 8 Ways to Save On Taxes in 2024

 

The primary function of a business loan broker is, of course, to act as an intermediary between providers and organizations. But, in actuality, the role is a lot more complex.

Brokers are expected to help analyze a business’s needs, assess their financing options, and navigate complicated application processes. By connecting businesses to the right lenders and favorable terms, a business loan broker can make or break a company.

This is a huge responsibility and one that requires a great deal of skill. If you’re wondering how to become a broker with a wide network of lenders or pick up some skills to market your services to clients more effectively, you’re in the right place.

In this guide, we’ll cover everything you need to know.

Understanding the Business Loan Market

Over the last few years, fintech providers have disrupted the market. Not only have the types of loans on offer diversified, but the application process has turned on its head.

Loans are disbursed faster than ever as qualification and repayment terms evolve by the day. For instance, those looking for a business loan in New York can choose between options like a merchant cash advance, a line of credit, invoice factoring, and more.

Becoming a loan broker in this landscape requires a solid understanding of not just specific loans on offer, but also the broader market conditions. It’s only when you study ever-changing economic factors, regulations, and industry trends that you can identify favorable terms, sidestep challenges, and help clients succeed.

Essential Skills for Business Loan Brokers

Finance brokers are expected to equip themselves with a diverse range of skills. This expertise goes beyond simply setting up meetings between businesses and relevant providers and includes:

• Financial analysis: A small business loan broker needs to understand their client’s financial statements to assess creditworthiness and loan eligibility.
• Negotiation: Brokers need to study the fine print and loan terms and use their experience and expertise to negotiate better deals from providers.
• Communication: Before a client seals the deal, brokers need to step in with their expertise and properly communicate the pros, cons, and long-term impact.
• Customer service: Clients can be demanding, which makes managing expectations a crucial aspect of being a broker.
• Compliance: In this highly regulated industry, brokers must understand the law and various policies to ensure compliance or risk dealing with hefty penalties.

To keep up with the market and outskill the competition, invest in yourself. As a professional, it’s crucial that you read reputed industry magazines and blogs, network with peers, attend seminars and conferences, and keep a finger firmly on the pulse.

Building Relationships with Lenders

As a loan broker, you are expected to develop a wide range of strategic partnerships with lenders. It’s only by building a network of banks, credit unions, and alternative finance providers that you can offer clients loans that aren’t available to the public.

To build stronger lender relationships, share new opportunities, be transparent about potential setbacks, and communicate the borrower’s requirements effectively.

Brokers who develop a comprehensive understanding of their client’s financials can help lenders analyze risk, which goes a long way in improving relationships.

This partnership, in turn, helps on the negotiating table. To get the best for your client, leverage your industry expertise and concisely outline goals. To get the best for the lender, be firm but also seek common ground and try to find a win-win situation.

Attracting and Retaining Clients

All organizations need an effective marketing plan.

When learning how to start a loan broker business, it’s crucial that you familiarize yourself with strategies to attract more clients. You’re probably aware of the benefits of a well-connected LinkedIn profile and a well-designed website. But to streamline your communication across these platforms, follow these tips:

• Understand your audience: Marketing strategies work best when they are targeted to a clearly defined audience. SBA loan brokers, for instance, operate within a clear niche and will only be wasting resources by targeting clients outside of the U.S.
• Highlight expertise: Leverage your industry knowledge (and the internet) to empower borrowers with the information they need to make better deals — and then outline why you’re the right person for the job.
• Be Honest: Transparent loan brokers who refrain from making promises they can’t keep, don’t just attract more clients — they get more loyal clients.
• Demonstrate value: Clients care most about results. To craft compelling value propositions, highlight previous results, or prominent services — such as loans for businesses with bad credit. Moreover, do this in simplified language.

Once a client has placed their trust in your service, nurture these relationships to earn repeat business and referrals. To boost this effort, prioritize communication, make your clients aware that you’re working in their favor, and empower them with industry insights that help them make better business decisions.

Navigating the Application Process

The loan application process can be time-consuming and quite complex. Brokers need to have a clear understanding of the type of loan that best suits their client’s interest, what documentation is required, and how to increase the chances of approval.

Regional factors also come into play. A small business applying for a loan in Saskatchewan is unlikely to be bound by the same rules and requirements as a large corporation operating out of California.

To streamline an application, brokers could:

• Only apply for the most relevant loans based on their client’s credit scores, annual revenue, and overarching business goals.
• Collect and compile all relevant documentation. While specific documents may differ slightly depending on the loan in question, in most cases, this will include financial statements, tax returns, and business plans.
• Help clients draft a concise document that explains what exactly they will use the funds for and how they plan to repay the loan.
• Look out for small mistakes in the application that could snowball into massive delays, or — in the worst case — outright rejection.

Overall, brokers enable clients to take a more comprehensive approach to their application — helping them explain their business model better, include more data-driven insights into their operations, and highlight potential revenue models.

Leveraging Technology in Brokering

Technology has come a long way in helping enhance the application process, too. Today’s brokers can rely on various cutting-edge tools and software to analyze a company’s financials better, communicate more effectively with lenders, and automate several manual, time-consuming tasks to complete applications in minutes.

Prominent examples include:

• CRM management tools: Allows brokers to monitor new vendor offerings while streamlining communication with clients.
• Loan origination software: Helps streamline the loan processing by tracking documents, ensuring compliance, and offering detailed reports on outcomes.
• Business intelligence tools: Automate credit score assessments, enable proactive risk management, and offer up a host of crucial data to secure better loans.
• Document collection software: Helps brokers access all crucial paperwork, automate reminders, and comply with data regulations — all from one platform.

Ethical Practices and Compliance for Funding Brokers

Business finance brokers must also familiarize themselves with various policies to ensure compliance. This can include licensing and certification qualifications, consumer protection laws, and data protection laws — each of which come with its own standards, expectations, and penalties.

Non-compliance with any of these legal requirements won’t just hurt your client’s chances of securing a loan, and risk you facing legal action — it’s a breach of ethics.

Clients must be informed about the terms and fees associated with a specific loan in the simplest possible language, while lenders must be made aware of a borrower’s repayment capabilities to minimize risk.

This transparency is key to boosting your reputation, and ensuring your commercial loan broker practice is seen as one that looks out for the interest of small businesses.

How to Start a Loan Broker Business of the Future

As the loan market evolves and newer forms of financing emerge, brokers can’t afford to be left behind. To stay competitive, enroll in an industry-specific course or a financial literacy program, and attend several webinars and online workshops. Moreover, seek out mentorship and guidance from successful business finance brokers.

It doesn’t matter if you want to attract more clients, or learn how to become an SBA loan broker in the U.S., professional development is the key to success.

If you’re looking to partner with an alternate financing provider with competitive pricing and terms, fast approvals, and no restrictions on how funds are used, submit your broker application to Bluerock Options today.

1. Canada Small Business Financing Program Guidelines
2. Terms, conditions, and eligibility | U.S. Small Business Administration
3. Business Loan Brokers: Do You Need One?
4. Guide to Business Loan Brokers

 

A business line of credit is a promising financing option for entrepreneurs looking for a quick capital injection. But it isn’t exactly like your average term loan.

So, how does a business line of credit work?

It’s similar to a credit card in that business owners can access funds from a revolving line of credit — as and when they see fit. However, the interest rates are lower than those of credit cards and are charged only on the amount drawn, along with a small fee.

Because of its flexible repayment terms, relaxed eligibility criteria, and competitive interest rates, a business line of credit has helped thousands of organizations replenish inventory, expand offerings, upgrade equipment, and fill cash flow gaps.

Does this sound like something your operation needs?

Follow these five steps the next time you’re applying for a small business loan.

Step 1: Evaluate Your Financing Needs

A business line of credit is not a one-size-fits-all financing option. It can be especially advantageous when used right or expensive if the terms are not properly understood. For this reason, it’s crucial for businesses to analyze their requirements before applying for a line of credit. Are you, for example, looking to secure financing to make up cash flow shortages, buy new property, or cover payroll?

Fortunately, there are few restrictions on how you can spend a line of credit. But with that said, depending on the provider and your financial history, the credit may not be enough to cover major purchases or real estate. Instead, an operating line of credit, when used responsibly, is best used for purchasing inventory, enhancing marketing budgets, and scaling operations over short terms.

The second consideration is how much credit you need. While some online lenders offer up to $500,000 in credit, it’s worth analyzing your exact business line of credit requirements, to keep costs low. Some ways to assess your needs include:

• Analyze cash flow statements to learn how much business you’re losing to pending invoices, seasonal slowdowns, and emergency expenses.
• Consider fixed and variable expenses to forecast future projections accurately.
• Use a business loan calculator to consider the impact of interest rates and repayment terms to identify how much credit you can afford to draw.

Step 2: Analyze Factors That Impact Credit Lines

Qualifying for a line of credit may be easier than a term loan, but lenders still evaluate a host of criteria when deciding terms. Businesses with good credit scores, for example, are usually able to secure more favorable rates, especially from banks and credit unions.

However, many lenders relax their requirements for businesses with poor credit. To secure a line of credit for a new business, the following factors may play a role.

• Business revenue: Many lenders will require businesses to show a minimum annual revenue to qualify. Some are more flexible than others.
• Financial statements: Lenders may also look into cash flow projections, balance sheets, income statements, and tax returns to assess creditworthiness.
• Vendor payment history: Businesses that make timely payments are more likely to secure favorable terms.
• Business plan: Businesses with comprehensive revenue forecasts, clear strategies for growth, and effectively communicated expansion plans see more success.

Moreover, lenders also consider the type of industry a business operates within when making the decision. They may tighten the reins in case of certain high-risk businesses.

So, to properly leverage business lines of credit, it’s crucial that you conduct a comprehensive financial health check-up. Consider the impact of factors like:

• Current pricing strategies
• Seasonal slowdowns
• Customer payment patterns
• Vendor payment terms
• Tax rates

And more.

Step 3: Research Potential Lenders

Banks were once the only major source of funding. However, the rise of FinTech services has significantly enhanced credit availability and eased requirements. Today, there are multiple types of lenders that offer lines of credit.

• Banks and credit unions: Traditional lenders could offer a line of credit for businesses with competitive interest rates. However, they are usually a better choice for those with solid credit scores, substantial revenue, and significant experience.
• Online lenders: Usually have much more relaxed eligibility criteria, varying interest rates, and faster application and approval times.

Some businesses may also qualify for the Small Business Administration (SBA) line of credit, which offers up to $5 million through one of its approved partners.

There are pros and cons associated with each option. When researching potential lenders, you should carefully compare them based on factors like the maximum credit limit offered, terms of service, requirements, rates, fees, and lender flexibility.

A bank may have stricter criteria as compared to online line of credit providers but may also have more favorable terms. Online lenders, on the other hand, have much faster turnaround times and higher-than-average interest rates. With that said, when used responsibly, online options can be very cost-effective despite fees and factor rates.

Another aspect to consider is whether the credit line is secured or not. A secured line of credit requires businesses to pledge collateral in return for favorable interest rates. This could sometimes be strong collateral, such as real estate, but in most cases, receivables are sufficient to access credit lines.

An unsecured line of credit, on the other hand, may have higher rates to offset the risk of not having any collateral. But, businesses with strong credit scores, clear projections, and experience can secure better terms, regardless.

Step 4: Prepare a Credit Line Application

Once you reach the application phase, most of the hard work is behind you. However, there are still several documents you’ll need to successfully carve out an application.

These include:

• Legal documents, such as business licenses
• Bank statements
• Financial statements, such as profit and loss reports and tax returns.
• Comprehensive business plans
• Collateral documents (if applicable)
• Existing liabilities (if applicable)
• Insurance documents

Certain lenders may require more documentation, or have an easier application and approvals process. But either way, having a strong business plan can help inspire trust.

To draft a compelling application, it’s not only crucial to have all paperwork in order, but also that you know how to present your case effectively.

While there are no set restrictions on how a credit line can be spent, it’s worth clearly outlining your plans to the lender anyway. Break down how much you plan to spend on various categories — buying inventory, investing in marketing, expansion, etc — and emphasize how the credit will contribute to your overall growth.

There are also some common mistakes to avoid when applying for a corporate line of credit. Many businesses, for instance, neglect to read the fine print, or fail to build accurate credit profiles, or even make errors in listing personal or business information. Mistakes like these can have an impact on processing and turnaround times.

Step 5: Apply and Negotiate Terms

A business line of credit application can be delivered in person or submitted online. During a one-on-one meeting, your lender may ask for additional information, such as your social security number, the purpose of your loan, and your annual revenue.

Similarly, to apply online, you will first have to upload relevant documents. Once that’s done, you may be prompted to consult with a financial advisor to discuss the specific terms before your loan is processed. As you’d imagine, doing it online is a lot faster — with credit lines often approved within 24 hours.

Meanwhile, when negotiating terms, consider some of the following questions:

• Are the interest rates fixed or variable?
• The typical draw period for a line of credit can be anywhere between two to five years. Which aligns best with your cash flow reports and financial projections?
• How equipped are you to make timely payments based on the outlined schedule?
• Have you accounted for associated fees — such as the draw fee, late fees, termination fees, among others?

The Bottom Line

Businesses looking for a quick injection of capital have several options at their disposal — with credit lines for small businesses often approved and processed in as little as a day. But to make the most of the financing option, it’s not only crucial to learn how to get a line of credit, but to take a methodical approach to identifying the best terms.

Businesses should properly evaluate their goals, analyze the factors and criteria that influence their application, and research various lenders to ensure that they come away with higher credit amounts and lower interest rates.

For any further assistance, don’t hesitate to reach out to a Bluerock Options manager, who will work closely with you to build strong applications and secure favorable loans.

1. Funding Programs: Loans
2. What is a business line of credit and how does it work?
3. Secured Vs Unsecured Line of Credit – A Comprehensive Guide
4. Common Mistakes To Avoid In A Business Credit Application

All businesses need loans. When it comes to buying new equipment, improving services, or innovating new products, proper financing is the key to unlocking increased profits.

Fortunately, small businesses looking for a quick capital injection can access a wide range of financing options. On the flip side, this problem of plenty can be overwhelming for entrepreneurs who set out to identify and secure favorable loans.

Those who make smart decisions benefit from lower interest rates, quick access to working capital, and improved credit scores. Those who don't do their due diligence are left with high costs.

How do you become one of the former?

Let's take a closer look.

Understanding Your Business Needs

No two businesses are alike - neither in scope nor in requirements. So, it makes sense to take various factors into account when assessing the different types of loans.

Financial Health and Business Goals

Every business owner must have a general understanding of the company's finances - how much money is in the bank, and how much is being spent.

But to secure favorable loans, you need to dig deeper. Business owners must study their company's historical financial data, analyze operations based on key performance indicators, and draft accurate cash flow projections.

Simultaneously, it's crucial to assess how the funds will help achieve business goals.

For instance, will it help support expansion by enabling the purchase of new equipment or enterprise resource planning systems? Or will it help bridge a crucial working capital gap?

Answering these questions will help compare the various commercial loans for small businesses.

How Financial Projections Influence Loan Selection

Similarly, future financial projections play a big part in helping secure favorable business loans. In this case, it's crucial to conduct comprehensive analyses of income statements, balance sheets, and cash flow statements to create accurate financial projections. This information will help you evaluate the funds you need and quantify how much the loan will help increase revenue over time.

Overview of Different Types of Business Loans

Businesses have access to various types of financing, each with its own pros and cons.

Term Loans

Term loans are disbursed as lump sums of cash, and repaid over a fixed duration. They can be provided by a bank, a credit union, or an online lender.

One of the biggest benefits of a term loan is that it is relatively inexpensive. On the other hand, it is harder to qualify for, especially when going through a bank or credit union. Usually, to earn favorable rates, businesses need strong financial statements and credit scores. That said, online vendors are more lenient with their requirements.

Short term business loans are often used to fund one-time projects or to fill working capital and cash flow gaps. Long term loans, on the other hand, support business expansion, whether through upgraded equipment, new staff, or increased office space.

Small Business Financing Loan

This government-sponsored program offers businesses in Canada financing of up to $1 million. The funds can be used to purchase land, improve buildings and infrastructure, or access new equipment. Up to $150,000 line of credit can also be used to fund intangible assets and cover day-to-day expenses.

Much like Small Business Administration loans in the U.S., CSBFL loans are provided by private lenders but guaranteed by the government up to 85%. These loans are known for lower rates and flexible repayment options. They are available to all small businesses and startups with annual revenues of $10 million or less, barring farming businesses.

However, to be eligible, business owners must have solid financials and may be expected to put up collateral of up to 25% of the loan amount. They must also submit an extensive proposal detailing what they plan to do with the funds and how they plan to repay.

Business Line of Credit

A business line of credit, like a credit card, allows businesses to draw as much as they need from a fixed credit line. Businesses can draw and repay as many times as they see fit, and interest is only charged on the money drawn. There is also a small fee.

This is an especially useful type of loan for businesses looking to increase marketing budgets, expand to new locations, or upgrade equipment. However, the biggest beneficiaries are seasonal businesses, as it allows them to purchase inventory in bulk, stabilize cash flow during slowdowns, and manage budgets throughout the year.

With that said, there are some limitations to revolving credit. For starters, it may require extensive documentation and - depending on your risk assessment- have higher than average factor rates. Moreover, easy access to credit may tempt businesses to overspend.

Merchant Cash Advance

A popular option for businesses seeking fast funding, merchant cash advances have proven to be critical for organizations with bad credit scores that process a large number of credit and debit card transactions.

MCA providers offer cash in exchange for a percentage of future revenue, with the funds offered determined by the lender based on daily credit card sales. Alternatively, payments can be made daily, weekly, or monthly from a checking account.

There are some risks associated with MCAs. Depending on the provider, the factor rate may be higher than the average interest rate of a term loan. Furthermore, the frequency of payments may also place some strain on a business's cash flow.

But, for those looking for almost immediate access to cash, fewer restrictions on how they can use the funds, and have low credit scores - these loans are necessary.

Invoice Factoring

Some businesses can trade unpaid invoices to a provider in exchange for 70-90% of their value. The factoring company then takes the client payments directly, charges a small fee, and returns the remainder with ​​terms typically ranging between 30 and 90 days.

This is called invoice factoring and is one of the easiest ways to access fast funds. This form of financing can be used to maintain working capital, cover payroll or inventory expenses, or even reduce the burden of having to collect unpaid invoices.

While it is one of the most convenient financing options, businesses should account for the costs. Fees are typically between 1-5% of the invoice's total for every 30 days that the invoice remains unpaid. As a result, it's best suited for businesses with reliable clients.

Factors Impacting Choice of Business Financing Options

With so many types of financing to choose between and factors to weigh, it can be tricky for businesses to know exactly how to secure funding that works for them. Here's how to get a small business loan with favorable rates.

Compare Interest Rates and Terms

Loan terms can be drastically different - not just for the various types of commercial loans, but also for various providers. When making a decision, compare interest rates, study the expected repayment schedules, and consider all fees to arrive at an annual percentage rate. Study your finances to ensure that you can make payments on time.

Account for Credit History

It's no surprise that a good credit history unlocks favorable loan terms and opens you up to more options. But, even businesses with low credit scores have access to several types of loans that allow them to access funds within a day. These alternative commercial loans products are crucial in helping small businesses grow.

Lender's Reputation

Another crucial factor to evaluate when you compare business loans is the vendor's past customer experiences. Loan providers must be known to operate with transparency, communicate terms clearly, and have efficient customer service to boot. Look out for hidden charges in the fine print when you apply for a small business loan.

Speed of Funding

For many businesses, especially seasonal operations, getting access to quick working capital could be more crucial than securing a more favorable loan after a drawn-out application process. With the right provider, lines of credit, merchant cash advances, and invoice factoring payouts can be processed in as little as 24 hours.

How to Prepare Business Loan Applications

Regardless of the business financing option in question, there are certain documents and records that all businesses should keep ready to cover their bases and ensure that the application goes as smoothly as possible. This crucial paperwork includes the following:

• Financial statements
• Tax returns
• Budgets
• Business plans
• Legal documents (such as a business license)

Some of the most common mistakes businesses make when applying for financing include failing to account for potential delays, not having all necessary documentation in order, and insufficient research on the vendor's reputation.

The Bottom Line

Favorable business loans can go a long way in helping small businesses soar to new heights. But that doesn't make them easy to attain. In order to make the most of the options, entrepreneurs should carefully consider their financial status, compare the various types of business loans, and maintain appropriate documentation.

For any additional assistance, don't hesitate to consult with a financial advisor - a single good decision can have a massive impact on your bottom line, after all.

1. The Pros and Cons of a Term Loan
2. 10 Types of Business Loans
3. What Is a Term Loan? Definition and Guide
4. 13 Types of Business Loans: Find The Best Loan
5. 6 Documents to Prepare for a Small Business Loan Application

1. Understand Loan Terms Inside Out
2. Calculate Cost of Loan Carefully
3. Create a Comprehensive Repayment Plan
4. Optimize Cash Flow Management
   • Effective Invoicing and Collection Practices
   • Negotiating with Suppliers
5. Explore Debt Consolidation and Refinancing Options
6. Build Strong Lender Relationships
7. Finding the Right Balance for Your Business

Is it better to maintain cash reserves or make larger loan payments?

It's a question that small and medium business owners have struggled with for years. And to be fair, it's a tricky balance to strike. A longer loan term means more borrowing costs. But, for small businesses, draining their cash reserves to pay off a loan faster can also leave them vulnerable when liquidity is most critical.

To navigate this situation, entrepreneurs are on the constant hunt for strategies to streamline loan repayments and optimize cash flow in order to keep operations running smoothly. Often, this requires an immense understanding of various loan types, their implications, and efficient financial and strategic planning.

If, as a business owner, you find yourself struggling with these concepts, consider these effective strategies for business loan repayments - and make informed choices that support both your short-term needs and long-term success.

Understand Loan Terms Inside Out

No two loan terms are alike. Some small business loans have higher interest rates, while others have longer durations. Beyond that, many are loaded with penalties and fees, which are applied at the discretion of the lender.

Fortunately, this also means that loans can be negotiated. Whether you're looking to apply for a small business loan or streamline payments on an existing loan, it's crucial that you understand how various loan concepts relate to one another.

While some terms - like interest or principal - are well understood, others, such as amortization or ballooning payments, aren't. But that doesn't mean they're not crucial.

• Consider amortization or the process of paying off a loan in a fixed number of payments. An amortized loan requires upfront interest payments, but payments are spread over a long period. This can be a pro or con, depending on your needs.
• Ballooning payments, on the other hand, refer to large payments that are due at the end of a loan duration. They aren't often included in loan terms, but when they are, they come as a surprise to businesses that don't plan ahead.

Similarly, breaking other complicated loan terms down into simpler language can help secure favorable small business funding and craft more efficient repayment schedules.

Calculate Cost of Loan Carefully

Calculating the cost of a loan may seem straightforward, but there are several factors to consider.

What is the impact of interest fluctuations? How does amortization impact monthly payments? Are you paying a disproportionate interest over time?

Answering questions like these is key to better business loan management.

To calculate costs, it's not just necessary to account for interest but also calculate the annual percentage rate (APR). This figure represents the total cost of repaying a loan over a year, including both interest and fees. This is an important distinction to make, as loans could come with any number of fees that businesses fail to consider. Such as:

• Origination fees
• Closing costs
• Late payment fees
• Application fees

Furthermore, some loans may have prepayment penalties, which come into effect when a loan is paid off before the duration. Having such a condition included in the terms is a glaring red flag-as it only benefits the lender and never the borrower. While such penalties can sometimes deter businesses from paying off their loans early, it’s essential to evaluate them in the correct context.

This is because, in some scenarios, prepayment may make financial sense for your business despite the penalties. For instance, if the interest savings from paying off the loan early outweigh the penalty costs, it could be beneficial to repay the loan sooner.

Create a Comprehensive Repayment Plan

Armed with this knowledge, focus on creating a repayment schedule that neatly aligns with your cash flow goals. Some strategies for this include:

• Consider all payment plans: Loan payments can be fixed-rate, interest-only, revenue-based, or more. Consider which plan closest meets your needs
• Be realistic: Leverage various financial planning tools to realistically determine the maximum amount you can afford every month without hurting operations
• Budget for payments: Loan payments must be given equal priority as rent, payroll, and other non-negotiable expenses
• Monitor progress: Once a payment plan is initiated, monitor progress to streamline future payments and take corrective action

Companies can also leverage debt amortization schedules when assessing how to manage business loan repayments.

This schedule offers a comprehensive breakdown of loan payments. It allows you to see how much interest you're paying, how much of the principal you are covering, and the overall balance due at any given point of a loan's lifecycle.

Optimize Cash Flow Management

In Canada, cash flow problems are a common challenge that plague both small and medium businesses. According to a recent survey, 60% of all businesses said they experienced challenges while managing cash flow. This makes the dilemma of whether to maintain cash reserves or make larger loan payments a critical issue.

Draining your cash reserves to accelerate loan payments can leave your business vulnerable, especially if unexpected expenses arise or if your revenue streams are inconsistent. Without sufficient liquidity, you may also struggle to cover operational costs, leading to potential disruptions in your business activities.

To mitigate these risks, we recommend a balanced approach that protects your operational liquidity while improving cash flow.

If you are seeking to improve cash flow for loan repayment, these two broad strategies that could help:

Effective Invoicing and Collection Practices

Businesses can greatly benefit by eliminating manual invoicing and collection practices in favor of new solutions. The rise of cloud-based software and increased automation, for instance, has had a transformative effect on the process of requesting, scheduling, and following up on invoices. Electronic billing and payment options, meanwhile, can streamline the collection process.

Negotiating with Suppliers

By maintaining strong relationships with suppliers and negotiating effectively, you can optimize cash flow by securing better deals. Many suppliers offer early payment or prepayment discounts as an incentive for timely payments, which helps businesses manage their cash flow more effectively and stay on top of their loan repayment schedules.

Explore Debt Consolidation and Refinancing Options

Refinancing and debt consolidation are two popular loan repayment strategies. Refinancing involves repaying an old loan by taking out a new loan with better terms, while consolidation refers to the practice of paying off multiple debts by taking out a single loan with favorable interest rates.

There are many reasons a business would want to consolidate or refinance business loans. The most obvious is that interest rates have dropped since the last loan was financed or that you were able to secure more favorable terms.

Many businesses in Canada, for example, consider refinancing CEBA loans to relieve themselves of high interest rates.

Debt consolidation, meanwhile, also allows you to improve your credit score as you close multiple loans on time. However, if you are bound by prepayment penalties on any of your existing loans, it's more cost-effective to stick it out.

If you decide to refinance or consolidate business debt, ensure you work with a lender you trust. Negotiate terms carefully and maintain positive credit to secure better loans.

Build Strong Lender Relationships

Building better relationships with lenders relies on transparent communication. When you keep lenders in the loop and proactively address your financial situation with them, you build trust. This lets you secure favorable terms.

A lender who trusts you may be more willing to offer assistance programs or more flexibility in repayment schedules. This helps you avoid defaulting.

The best way to build a relationship with a lender is by maintaining a solid credit history. A positive financial record can help you negotiate better terms, access increased lines of credit, and benefit from lower borrowing costs.

Finding the Right Balance for Your Business

The nature of your business is an important consideration when deciding between maintaining cash reserves and making larger loan payments. While strategies such as improving invoicing practices and negotiating with suppliers are effective, tailoring these approaches to your specific industry or business model can also make a significant difference.

For instance, if your business is a seasonal one and experiences fluctuations in cash flow throughout the year, you may need to adopt different repayment strategies as compared to businesses with steady revenue streams.

Moreover, as a seasonal business, you might also benefit from structuring loan repayments in a way that aligns with your peak cash flow periods. This will ensure you have sufficient liquidity during slower months.

Customizing repayment strategies to fit your business’s financial needs not only enhances cash flow management but also supports long-term financial stability.

The Bottom Line

Managing loan payments can be a headache sometimes - especially when navigating the murky waters of small and medium business loans. But it doesn't have to be.

By following these business loan repayment tips, entrepreneurs can build a command over complicated loan terms, create more comprehensive repayment schedules, and gain access to the latest tools and techniques to optimize cash flow management. If you're looking to manage business loans and reduce debt, there's no better time to start than now. Consider consulting a financial advisor for more personalized advice and create a loan repayment plan before it's too late.

1. Loans Terms: Specific Terms Defined & How to Negotiate Them
2. How to manage a business loan: 6 tips
3. New survey data highlights potential for Canadian SMEs to increase efficiency as 60 per cent face cash flow management challenges
4. How to Build Your Business Loan Payment Schedule

1. What is a Secured Business Loan?
2. What is an Unsecured Business Loan?
3. Unsecured Vs. Secured Loan: A Comparative Analysis
4. Choosing the Right Type of Loan for Your Business
5. Impact of Credit Scores on Loan Choices
6. Future Trends in Business Lending

Business loans are an invaluable tool for any small or midsize operation finding its feet. The extra injection of capital offers more flexibility, allows for strategic investments, and can help finance revenue-generating equipment and inventory. However, the type of collateral a business can offer up as security for the loan plays a critical role in determining the loan’s terms — and the type of loans available to them.

Entrepreneurs looking to access capital often must choose between two types of small business loans — secured and unsecured. Secured loans, backed by physical assets such as real estate, usually offer better terms because they rely on tangible, guaranteed collateral.

Now, most small businesses don’t own physical collateral like real estate, necessitating the need to put up other forms of collateral — for example, unpaid invoices. This is referred to as receivables-based financing, and its collateral is often considered weaker from the point of view of the lender. This is because, unlike tangible real estate or equipment, receivables are future-based, intangible, and not guaranteed.

So, in which circumstances is a small business loan secured or unsecured? What are the major differences between the two? And, which factors should a business consider when making the choice?

If you’re looking for answers, consider this in-depth guide.

What is a Secured Business Loan?

How does a secured loan work?

Essentially, a loan is considered secured when a business puts up a specific piece of collateral that can be claimed by the lender in case they default on payments. The collateral pledged could be inventory, machinery, or commercial real estate.

There are several benefits of collateral business loans. Some prominent ones include:

• They usually have more favorable interest rates and terms
• Lenders could potentially offer higher lines of credit
• They are easy to qualify for — as lenders prioritize the value of collateral over other factors like credit scores.

At the same time, there are drawbacks. The most obvious is that the lender is legally allowed to seize your prized asset in case you fail to repay.

Beyond that, to even secure such a loan, businesses must have assets valuable enough to back a large percentage of the loan amount. This collateral will also need to be appraised, which can potentially be a time-consuming process.

Lenders may offer other types of secured loans that are considered riskier— such as a business line of credit and merchant cash advance.

What is an Unsecured Business Loan?

Unsecured loans are also known as no collateral loans, because they don’t require borrowers to pledge assets to access working capital. Instead, their terms depend on factors like business credit scores and relationships with the lender.

Such loans help businesses grow during their early stages when they don’t have assets valuable enough to offer up as collateral. Consider two of its most prominent benefits:

• These loans don’t require any collateral, meaning less risk to the borrower
• They are usually approved and processed very fast, often within 24-48 hours.

At the same time, unsecured loans have their share of drawbacks. Without the assurance of collateral, lenders may charge higher interest rates.

These loans also have strict eligibility criteria — as they are contingent on a business’s credit history and reputation rather than the value of an asset. Furthermore, while businesses don’t risk losing an asset when they fail to repay, they risk tanking their credit scores and making it harder to secure capital in the future.

Lenders may offer several types of unsecured loans, including equipment loans, unsecured lines of credit, and more.

Unsecured Vs. Secured Loan: A Comparative Analysis

Here is a comprehensive overview of the difference between secured loans and unsecured loans based on crucial factors.

Choosing the Right Type of Loan for Your Business

How can understanding secured loan terms or an unsecured loan’s definition actually help when applying for a small business loan? Here are some factors to consider.

• Availability of Collateral: Without physical collateral, you may see more benefits in opting for receivable-based financing.
• Creditworthiness: If you have a poor credit history or not enough experience building up a good credit score, you may have no choice but to opt for unsecured financing or receivable-based options.
• Cash Flow Considerations: Assess your budget carefully to determine whether you’re capable of paying higher interest rates over time or if it makes more sense to risk putting up collateral in favor of a better cash flow
• Intended Use of Funds: A secured loan is generally more favored for long-term investments and expansion plans, while an unsecured loan is generally considered better for quick access to working capital.
• Risk Appetite: If you’re confident in your ability to repay, offering collateral can provide an added layer of security and potentially lower your interest rate.

Consider these examples: A relatively new IT startup that is looking for funds to scale operations and has a promising revenue outlook is more likely to opt for a loan without collateral — as it can’t afford to put up significant assets as a safety net.

On the other hand, a welding company looking to finance equipment for its workshop will benefit from pledging the new equipment as security and relying on the increased revenue and favorable terms to pay back a secured loan without defaulting.

Impact of Credit Scores on Loan Choices

While secured loans are contingent on the value of the collateral offered, it is always easier to get a small business loan with a better credit score.

Businesses with bad credit are unlikely to be approved for unsecured loans. But even in the case of secured loans, a better credit history can help you land favorable terms and puts you in a position to negotiate with lenders.

Here are some tips to maintain a good credit score:

• Update all information regularly and accurately with financial bureaus
• Make all vendor and loan payments on time
• Maintain a low credit utilization ratio
• If you can make payments on time, consider opening new lines of credit, as this can bring down the current credit-utilization ratio.

Future Trends in Business Lending

Are small business loans secured or unsecured? Well, in this digital age, the choice is not so clear-cut. The fintech industry’s impact on business financing has been revolutionary — offering small businesses a host of alternative lending options.

Many of these modern loans, including receivable-based financing, combine the best features of both secured and unsecured loans. This modern approach allows businesses with poor credit to access working capital by leveraging unpaid invoices rather than physical assets, reducing the need for collateral.

In the future, disruptive technology can also result in advanced credit assessments.

For example, FinTech firms have already begun implementing AI and big data to determine the creditworthiness of an organization in real-time. This will prove to be a game-changer for small businesses with limited credit history — and blur the lines further between secured and unsecured loans.

Conclusion

There are many factors that go into consideration when considering the right business loans for small businesses. Organizations not only need to decide on the type of loan based on credit scores and cash flows, but they also need to consider the long-term implications of the various options at their disposal.

Because every business’s needs and requirements are so unique, it’s crucial to consult with an expert who understands how business loans are secured when making the choice. A professional can help outline the ins and outs of business loan security, better define borrowing costs, and ensure that you negotiate more favorable terms.

1. Unsecured Loan: What It Is, How It Works And How To Get One
2. What Is a Secured Loan?
3. Is a small business loan secured or unsecured?
4. Is a Small-Business Loan Secured or Unsecured?