Cash Flow Lending and Asset-based Lending: What You Need to Know

Business loans are one of the most commonly used resources for businesses of all sizes to secure the financing they need to grow their customer base, expand and generate more revenue. Whether you are an owner of a start-up company or a conglomerate, at some point in time, you may find yourself in need of additional capital. The good news is, if you need to secure more capital for your business, there are plenty of options available today.

Commercial business loans are lending products offered to business owners to finance the growth of their businesses by banks and other traditional financial institutions. Specifically, many small businesses use commercial loans to fuel their growth and finance their day-to-day operations.

When a business entity seeks external financing from banks or other financial institutions, there are generally two options available: secured and unsecured loans. Within these two broad categories, banks and financial institutions offer a wide range of lending options. Secured loans are lending products which need to be backed by collateral, which are valuable possessions, such as a business equipment or vehicles. Accordingly, with a secured loan, the lender can take possession of the collateral if you the loan is not repaid as agreed. In contrast, an unsecured loan is not protected by any collateral. Cash flow lending and asset-based loans are two of the most common types of unsecured loans. In this post, we will discuss these two types of lending options in detail to help you decide which type of lending product is most suitable for your requirements.

Cash Flow Lending

Cash flow lending is a type of lending product where a certain amount is borrowed from a bank or a financial institution based on the projected future cash flow of a business entity. Here, the lender or financial institution will grant a loan to a business based on its past and future cash flows. In simple terms, cash flow lending involves a business borrowing money from expected revenues it will receive in the future. Moreover, banks and other financial institutions will also check your credit ratings prior to approving a cash flow loan.

Cash flow lending can be helpful to businesses that generate significant amounts of cash from their sales but don't have significant physical assets (such as equipment) which could be used as collateral. Moreover, this lending option can be an effective solutions for seasonal businesses during times when business is slow to take care of expenses such as payroll obligations and office overhead costs. Moreover, cash flow loans can be used to pay salaries of employees during the off season, and your revenue picks up again, you can simply pay back the loan. In addition, the processing times for cash flow loans are typically shorter compared to other traditional commercial business loans. 

Before a lender accepts your cash flow proposal, they will examine your expected future revenues, credit history and rating and the enterprise value of your company. Although this financing option is very convenient for start-ups that lack any types of physical collateral, cash flow loans often involve higher interest rates compared to traditional business loans as, as they involve greater risk for lenders.

Asset-Based Lending

Asset-based lending is a type of lending product that allows businesses to borrow money based on the liquidation value of the assets on their balance sheets. For this type of loan, cash flow is not the primary determining factor to accept the loan proposal as lenders check out the inventory, accounts receivable and other balance sheet assets. Here, tangible physical assets such as real estate, land, properties, company inventory, vehicles, industrial machinery and equipment include assets that are offered as collateral while acquiring asset-based loans. If, in any situations, if a recipient fails to repay the loan or defaults, the lender can levy and sell the collateral to recoup defaulted loan values.

Asset-based loans are the best option for stable businesses with assets that can be financed. Asset-based lending can be a great option for businesses that require working capital to operate and grow.  

Moreover, it is important to know that these loans have a strict set of rules when it comes to the collateral status of the borrower’s physical assets. For instance, a business cannot offer the same property to more than one lender as a form of collateral – taking a second loan on the same collateral is illegal. Also, the due diligence process for this type of loan is lengthy and complex. Asset appraisals, the analysis of financial statements, accounting and tax inspection and other formalities are completed before issuing the loan.

Conclusion

Cash flow lending and asset-based lending can be great options to bring your business on track and provide the capital you need to cover your operating expenses or to expand your business. However, if you are still unsure which type of loan would be best for your requirements, it is best to consult your business advisor to discuss your goals, business needs and your capacity to repay the loan.

5 Exclusive Tips to Secure a Commercial Loan

These days, you have many options when it comes to taking out commercial business loans. From traditional institutions to alternative lenders, there are many choices of loans to choose according to your requirements. However, it is important to keep in mind that your loan application will need to meet several important criteria in order to be approved.  

If you want to secure a commercial business loan, there are some steps you can take to increase your chances of success.

1. Make a detailed and realistic business plan

First and foremost, in order to apply for a business loan, you will need to create a persuasive and well-crafted business plan to present to your potential lenders. If you don’t have the time or the expertise to create one, it is best to opt for professional services, such as the help of a professional business advisor. A comprehensive and solid business plan covers important details including your financial goals, liabilities, assets, cost-related accounts, your business expansion strategies, specific needs for a loan and other relevant factors for lenders to consider. Creating a persuasive and accurate business plan will increase your chances of getting approved for a business loan.

2. Prepare your financial paperwork

With the exception of cash flow lending, which requires almost no financial paperwork, before approving your loan, the lender may need to evaluate your financial documents. Some of the financial documents that your potential lender could request include profit and loss statements, a list of your assets and liabilities, income tax returns, BAS statements and other tax-related documents, existing loan documents if any, and past revenue reports. Therefore, you should prepare these documents ahead of time to show to the lender if asked.

3. Start preparing your application early

When it comes to preparing your application for your loan, it is best to start early. The process to approve your commercial business loan application can be lengthy, and it is best to act in advance to increase your likelihood of gaining access to funds when you need them.

4. Be realistic about meeting repayment requirements

Overestimating your ability to make timely repayments can result in larger incurred costs and other serious consequences later on. Therefore, it is essential to make realistic predictions about your repayments. To make accurate projections about meeting the requirements of your repayment schedule, it is best to consult a professional. Engaging a professional accountant or a business advisor will evaluate your business needs, help you calculate the amount you need and decide whether you will be able to make timely repayments. If you will not be able to meet these requirements, your financial advisor may ask you to reconsider your loan amount or to revisit your business goals.

5. Shop around

Before you choose your lender, make sure to do your research and review as many lenders as possible to get the best deal for your business loan. Don’t get disappointed if some lenders turn your application down due to their own specific criteria. To get the most competitive loan, compare loan options from multiple lenders and then choose the best option that suits your specific business needs.

Wrapping It Up

Follow the steps outlined in this article to maximise your chances of securing commercial business loans. If you are a new business owner and are not sure which lending product would best suit your needs, it is recommended to consult a professional, such as a business or financial advisor, who will help you secure the best deal.

A comprehensive guide to cash flow lending

Business owners sometimes need quick loans just to meet their daily expenses. When cash flows are inconsistent due to a bad seasonal phase or late payments, you might think of a loan. However, due to poor or insufficient credit history, you might not think about commercial business loans as most of the lenders check the credit report before lending loans. Don't lose hope as you can always go for cash flow lending. It is a quick and easy way to get a loan and we will discuss more it in this post.

Cash flow lending definition

When businesses need funds to run their day-to-day operations, they go for cash flow lending, a type of unsecured loan used to fund working capital such as payments, rent, inventory and other things. The loan is paid back once the cash flows are regular and the business is good. Here, you borrow funds from revenues that you are going to earn in the future.

One thing that you need to understand here is that cash flow loans are not traditional commercial business loans that require a thorough analysis, research related to financial health of the business, credit history and a credit report. Only one thing matters here is the capacity of your business to generate cash flows. This is the only eligibility.

How does cash flow lending work?

More often than not, cash flow leading is used by small and new companies with no available assets, a profitability proof or a good credit history to apply for commercial business loans. Sometimes, lenders exploit cash flow borrowers by charging high-interest rates and high original fees. Experts recommend to pay back the cash flow loans as soon as possible as it might harm your business if you fail payments.  

One of the ideal cash flow lending examples is a seasonal greetings cards company. The company makes most of its sales in November to February due to various festivals such as Christmas, the New Year and Valentine’s Day. Now, in summer months, cash flow might be low due to obvious reasons. Hence, to cover the cost of payments, rents and other bills, the company owner can apply for a cash flow loan and pay the loan back with interest in winter months when cash flow picks up.

What are the limitations of cash flow lending for businesses?

No matter how feasible we find these cash flow loans in dire situations, you need to know about some limitations associated with cash flow loans.

High fees

Lenders know that you are not in a good position to bargain and they exploit your situation by not only setting high-interest rates but also by charging high fees and penalties for late payments. If you fail to pay the instalments regularly, you might go dry very soon. Before applying for a cash flow loan, ask whether your company is in a position to pay back the amount with interest in a specific time? Can you handle late payment fees in case you missed scheduled payments?  

Personal guarantees

What do you have that can be used as collateral in cash flow lending cases? Don't think that you can get cash flow loans without any assets as collateral as lenders might ask you to place a general lien over your whole business as part of the loan agreement. In addition to that, the lender also may ask you to sign a personal loan guarantee. It means that you are personally responsible to pay back the loan.

Automatic payments

Automatic payments mean an arrangement in which payments are directly transferred from your account to the lender's account. Sometimes, lenders ask for automatic payments when you don't have enough money in your business accounts. When your cash flow varies from month to month, this request is common when you apply for a cash flow lending.

Asset-based lending and cash flow lending

Now, let's understand some key differences between asset-based lending and cash flow lending to have a better understanding of both types of commercial business loans.

Collateral

When you apply for an asset-based loan, your tangible assets such as properties, inventories or equipment are used as collateral. When it comes to cash flow lending, your expected cash flows in the future is your collateral. However, one thing we need to mention here is when you apply for an asset-based loan, the lender will check your cash flows too, but it is not a decisive term when you have good asset valuation.

Suitability

You also need to consider suitability when you are discussing asset-based loans and cash flow lending. Big organisations generally prefer asset-based commercial business loans as they have large balance sheets and a wide range of assets to use as collateral. When small organizations and entrepreneurs tend to opt for cash flow loans as they have high margins on their balance sheets and also don't have any assets to put as collateral.

So, if your business is tight on cash flow don’t forget to consider the points above to improve your situation.  Good luck.

Is it Reliable to Consider Debt Financing For Your Business?

To reach a determined business goal one needs to acquire capital through financing unless they have enough savings to enhance the business. There are plenty of financing options available which makes it even arduous to choose a reliable alternative.

Both small and large scale enterprises have different terms and requirements. Therefore, debt financing includes various choices to satisfy their transforming funding needs.

Here, we are going to discuss debt financing, a lucrative funding option, its benefits and shortcomings, and different options pertaining debt financing. We will incorporate every detail of debt financing to ensure you get an ideal financing resource for your next business deal.

Meaning of Debt Financing

In simple terminology, debt financing is all about accumulating money through a private lender or a bank with a guarantee of repayment including the interest amount. It is a kind of a loan a business raises according to its financial requirements.

Debt financing comprises business selling bills, notes, or selling bonds to the individual or institution in return of capital. Here, the investors are the creditors to the business and expect the repayment as per the terms and conditions of the agreement.

This method of debt financing is often employed by giant companies who have a strong financial record. That does not mean this method is not applied for small business funding. A small business owner can also procure a commercial business loan by this method from an alternative business lender. However, the repayment and the terms vary depending on the type of loan.

Functions of Debt Financing

Debt financing is a straightforward method to satisfy the needs of the business. When a company needs working capital, funds for acquiring equipment or reserves for new offices, considering debt fundraising is an advantageous option.

Every business owner has to determine their needs before deciding on a suitable debt financing option. Maybe, what works for others may not work for you.

One can consider the following forms of debt financing for their monetary needs.

Instalment Loans

This type of small business loan has a definite repayment and monthly payment considerations. A business here receives a lump-sum payment from the lender and they have to pay the debt in regular monthly intervals until the complete payment. Eg; terms loan, SBA loans, and equipment funding.

Cash Flow Loans

In cash flow lending, once the business is approved for a loan, they are entitled to get the payment from the lender. Here, the payments are done over a set period, whereas the repayment has to be made when the purpose of the loan is served.

This type of lending is exercised by small businesses for satisfying the temporary needs of the business. Invoice financing and merchant cash advances are two most peculiar forms of cash flow loans.

Revolving Loans

Rather than giving the number of smaller payments, this financing option gives an opportunity to the business for a rotational line of credit which one can use, refund, and repeat every now and then. Credit cards and business lines of credit are the best examples of revolving loans.

It is crucial to compare all the different lenders and choose the one which satisfies the business necessities. Research gives a new dimension in making a decision choosing a lending option with best terms, and the loan which is less taxing.

The small business lenders have comparatively broader eligibility criteria that constitute business revenue, credibility, age of business, and many more. In many instances, personal credit history has more importance than the credit history of the prospect enterprise.

Traditional loans, especially bank loans necessitate effective personal credit history, massive annual revenues, and the tenure of the business. Online business loans and other such forms are more flexible as per the terms and conditions of the loan.

Debt financing: Benefits and Drawbacks

Not a single funding resource is completely flawless. If the funding option is comparatively flexible for your business needs, you can definitely go for it. We have given various benefits as well as drawbacks of debt funding. Consider them!

Benefits
Easy Qualification of Loan

Acquiring a loan is not an easy nut to crack and sometimes it also becomes difficult to get eligible for the loan. Unless if you have a popular product or service and years of experience in the trade, investors won’t be considering your application.

Also, small business lending will be difficult in various forms of debt financing. Although there are some options which one can consider as they are not very stringent.

Business Don't Lose the Control

The other principal form of financing is equity financing where investors provide funds to the company and in return ask for the ownership. Thankfully, with debt financing, the businessmen have to pay the interest along with the principal amount. No worries about sharing the equity shares or business decision.

Loan Opportunities are Flexible

Between numerous business loans, it is always a tough decision to choose one out of all. One can pick the loan type that suits their needs and also where the repayment terms are comparatively smooth. Ensure to specify all the things before performing the final statement.

Drawbacks

Not a Budget-friendly Option

The interest rate is nearly 30%,  depending upon the credit situation of the individual, type of loan, and time in business. Some loans also have a triple interest rate, including the merchant cash advances. Therefore, this type of funding is not appropriate for every business type.

Personal Responsibility is Higher

Small businesses would also require to give a personal guarantee. In this clause, it is mentioned that if the business is unable to pay the debt, then the entrepreneur has to repay the loan with their personal assets. If there is no emergency, one must not keep personal finances at risk.

Forms of Debt Financing

We have included all the main areas of debt financing which can compliance the monetary requirements of the business.

Traditional Bank Loans

The traditional bank loans are both long term and short term that can help in uplifting the growth of the company. These loans are presented by various institutions such as banks, credit unions, and other commercial lenders. The only loophole here is that the eligibility criteria are too strict.

Business Credit Cards

Majority of the people these days have credit cards. Business credit cards are not completely different from personal credit cards. They do not get approved only based on business credit history, annual revenue or the age of business. Here, the approval is totally dependent on personal credit history.

The interest rate in business credit cards is more than 30%. A businessman can manage the operating expenses between the grace period of statement and the due dates. Rest amount can be paid as per the convenience of the business owner.

By using business credit cards, one also has the chance to win rewards on everyday expenses. Other benefits include 0% APR promotion, travel coupons, and expense management tools.

Business Line of Credit

A business line of credit is a rotational loan where a business person can obtain the capital whenever he/she needs them, up to a specified credit limit. Another advantage is that, there is a draw period where one can pay the interest amount. One can use, repay, and reuse the available credit as per the business obligations.

Small business lines of credit are one of the most reliable funding options. If the business is new, the interest rates are higher with a limited term. If one wishes to have better term opportunity, they must have a powerful business track record.

Equipment Financing

The small businesses are comparatively more benefited with these loan options as their needs are predetermined.  Also, the equipment or the vehicle that one is buying would be used as security. If the business does not have the position of repayment, the lender has the right to take the collateral.

The above-given secured financing options are not for every individual. Lenders have various criteria which need to be fulfilled. The approval process is not limited to basic characteristics like age of business or the turnover. Ensure you read all the terms and condition before applying for any loan.

Summing-up

Debt financing is not appropriate in the early stages of the business. As in start-up business, the income is low, the tax advantages of the debt will be minimum. When the business is thriving, only then the debt becomes a convenient option. Therefore, a large-scale business can consider debt financing for the growth of the business. In current time, financing lender like Marketlend provides a certified platform through which you can borrow funds for business expansion and even invest your money to get great returns.

Indispensable Ways To Build Up Business Credits At An Accelerated Speed

Being a newly minted entrepreneur, you probably do not know the terms and their importance in the uncharted terrain of your business. However, if you are a veteran player in the industry, you probably have come across terms like business cash flow loans and business credits. You know how a strong credit profile opens up unexpected business opportunities for you. A strong business credit qualifies you to access some better and fast financing options.

On the contrary, small business owners have much on their plate that they hardly get the time to manage their daily business operations. But, they need to take out some time and understand the business credit terms and how a strong profile opens up doors of great capitals. This blog shares some valuable insights on business credit score and its importance for survival in the business market.

What is Business Credit?

Business credit score offers unparalleled advantages, and it is as important as your personal credit score. It is defined based on the business’s financial history. It ensures how efficient is your business finance to handle credits, including business credit cards, loans, and lines of credits. It is linked with the employer identification number of your business.

It is nearly similar to the personal credit scores but establishes the reliability of your business for the borrowers and loan providers. A good credit score defines your trustworthiness as a business entity. An added perk, you are eligible to get loans at low rates for a more considerable amount and also for the best deals of business credit cards.

How Does Business credit work?

All your financial activity attached to the EIN, be it the opening of the bank account, or acquiring a business credit card or paying the bills, everything gets recorded in the history of your business credit. All the records are submitted to the business credit reporting agencies and based on the credit reporting algorithm, they give a numerical value, which is your business credit score.

Every agency has its own ways of calculating the score, which is based on a standard evaluation method. The information garnered to these agencies provides a credit score on a scale of one to a hundred. The score table usually looks like:

Credit Score Range	Risk frequency
76-100	low
51-75	Low to medium
26-50	medium
11-25	High to medium
1-10	high

Small business owners should realise the importance of the business credit score and start establishing a strong profile since the early days. In the next segment of this write-up, we have discussed essential steps to build your business credit.

Business Incorporation:

The first and the foremost step to start building your business credit is to register your company officially by submitting the necessary paperwork. If you are a solo entrepreneur, you need to register yourself as a sole proprietorship and incorporate your legal entity. By doing this, you get the ball rolling in your business credit court, and this also offers you legal protections. You have an option to choose between 3 legal structures for incorporation.

1. Limited Liability Company (LLC): It is a process of incorporation that gives liability protection and financial separation between you and the business. It also offers more tax flexibility
2. S Corporation: With this type of incorporation, only profits of the business are taxable at the individual level. The entities incorporated under this type are considered separate legal entities.
3. C Corporation: C corporation type separates you and your business legally and financially. If you are planning to release your stock or go public, this type of corporation is ideal for such scenarios.

Get your Employer Identification Number(EIN):

It would be best if you get your business a federal identification number with the IRS. The process of application with the officials is online and quite simple and usually used to track your finances for taxation. For opening your business account, you will need an EIN or a social security number.

But providing your EIN is a better option because the payments and the bills are recorded in your business credit report. Additionally, when you apply for loans from the Australian Financial service accredited loan provider, you will need an EIN. Hence it is advisable to record all your business dealings under one roof using EIN.

Open a Business Checking Account:

As mentioned above, you need to keep your personal and business finances separate. Hence, it is necessary to open a business checking account and draw a line between your personal and business expenditures. This is one of the ways of securing your personal liabilities while you are doing business.

 Another boon of having a business account is that your accounting becomes much easier. You will be able to keep the track record of all incoming and outgoing cash from the business and thereby mitigate the chances of facing cash flow problems. You get to generate the business credit report online and manage the accounting. A business account opens the door for building the business credits, which shall help in the future.

Note: You will need EIN to register yourself with the bank.

Report your payments received from the vendors:

In order to have a stellar business credit score, you need to keep your expense report crystal clear. We know that as a business owner, you will have multiple paths for the incoming of credits from the vendors, suppliers, and more. However, these payments do not automatically turn up on the business credit report.

You have to ask them to report your payments to the business credit agencies. You should ensure that the practice is being followed in your business organisation and you are actually recognised for the good behaviour that you are following. Also, if your vendor doesn’t follow the report policy, request them, or choose another one.

Get a business credit card:

Since you have multiple lines of credits, you need to have a business credit card. A credit card will facilitate you to bear the day in and day out business operation expenses. This way, you would be able to keep your personal and business finances separate and move towards the first step of building an amazing business credit score.

However, spending your credits thoughtfully is your responsibility. Also, since you are just taking baby steps towards establishing your business credit, ensure that you have good personal credit score for getting qualified for the business credit.

Don’t miss on making payments:

If you have followed the above-mentioned steps, then you are already halfway and have established a strong business foundation. You need to follow the same mantra as you have followed in maintaining your personal finances. Hence, it is imperative for you never to pile up the expenses for paying them later.

It will severely affect your business credit score and decrease your business reliability. Consequently, do not miss the payments, be it the rent amount, electricity bills, invoices, or your business cash flow loan payments. Ensure that you do not imbalance the credits and end up in a bad credit profile.

Keep up with the records from the agencies and review your personal credit reports:

Business credit bureaus collect various business information and have a different scoring method. Additionally, different lenders and suppliers report to them in a different manner. A disadvantage of having different lines of credit is, a lender or supplier may pull off records from the bureau of which you can lose the track record. Hence it is necessary to keep an eye on the finance credit reports registered with the agency.

At least once or twice in a year, make it a practice to check the reports and notify if any errors are found. The reason being, errors in the system affect your business credit score drastically. Also, while doing this, you can change or update the basic business information registered with the bureau. Thereby, you will be able to maintain accuracy in the business credits.

These are the benefits of having a stellar business credit score and trade efficiently in the market. This being said, you can also monitor and forecast the business cash flow and apply for commercial business loans or any other whenever required. Hence establish a good score and open the floodgates for funding and business deals.

Small Business Trends that are Inevitable for Start-ups

There was a time when small businesses did not have much competition but today due to the advancement in technology and easy availability of business capital, the competition has turned out to be massive. It is vital for a small business to pay attention to the latest trends and business news. By following the trends, you can see rapid sales of your company, effective operation and more importantly conquer the hearts of the customers by providing efficient services.

Starting a small scale business and managing it is not an easy nut to crack. However, we are in the middle of 2019 and it is high time to gear up for new small business opportunities and challenges. If you want a reformation in your business by applying new business ideas, we are revelling state-of-the-art trends which is advantageous for the growth of your business.

Automation Software is Strengthening Business Domain

It cannot be stated that businesses have totally accepted automation technology but today it is increasingly popular for small businesses. Whatever service you take like email marketing, customer service, data entry, or any other business strategy, automation has become a driving force to achieve more by applying less. On top of that, automation can also generate 58 million new jobs opportunities by 2022!

Automated technologies such as artificial intelligence may seem extremely “big” for a business but investing in them can accelerate your work and grow your business in leaps and bounds. The possibilities are limitless!

Cash-less Business Economy

2020 will be the year of celebration for small businesses as markets will be more affordable than ever. Smarter and smaller business with uniquely designed manufacturing methods will not only reduce the cost but also aid in the smooth streaming of a business. Currently, it is also easy to accumulate afterpay for business due to various business credit facilities.

Even where the cost of infrastructure is high, technology advancement simplifies the cost. Variable-cost basis and plug-and-play features provide marginal access to vast business infrastructure even for small firms. Being cash-less would be an added advantage for business as the transaction would be safe and transparent.

Distant Working is a New Norm for Everlasting Business

From years, there is a notion that if the employees are not in the business location, they are not working. Today the scenario is completely different and people are productively working from home or any other places. A research at Stanford also suggests that employees who work from distance have great concentration and probably accomplish more targets.

An employer must give a few days of work from home facility to all the employees. This flexible work schedule will enhance creativity and productivity by minimising the cost of electricity and water. Plus, this will also reduce the cost of the commute. The productive work environment is key for a company who wants to be successful in the coming years.

Women would be leading the Industry in Upcoming Years

Another way that women in business are thriving is because of their commitment to education. They are entering and graduating from college at a higher rate than men and are have an increasing presence in the health, education, and service sectors.

It is the most exciting time to be in business for every woman. Today, many women are actively participating in the company’s leading roles. Also, the gender gap in terms of earning has been narrowed down and it will ultimately vanish till 2020.

Social Media Marketing Would Be a Game Changer

As per the survey of Clutch, 70 per cent of small businesses utilised social media in 2018. This number is growing in the next few years. Due to this, it has become important for every business to do marketing in various social media platforms like Facebook, Linkedin, Instagram and Twitter. Hiring a social media influencer can also be beneficial in engaging the target audience for selling products and services. If you want more eyes to stare at your products, there is nothing better than social media marketing campaigns.

Parting Thoughts

Whether you have a renowned business or you are planning to start a small scale business, knowing the current trend is crucial.

Unlock provides excellent opportunities to small scale business by expanding their loan payment terms from 30 days to 90 days

By following the above-given business trends, one can achieve great profits by an uninterrupted workflow.