Bank Loans vs. Alternative Funding: Weighing Your Options

BANK LOANS VS. BANK CAND ALTERNATIVE FUNDING: CRED 24h WEIGHING YOUR OPTIONS CARD BANK %24 BANK LOANS QUALIFICATION CRITERIA • Personal Credit • If your personal credit is shaky, you probably won't qualify for a bank loan. • Business Credit • Your business must be under current ownership for at least 2 years before most banks will even consider you for a loan. • Show past profitability through a strong credit score and income statements. • For them, it's ideal if you have taken out loans in the past to show that you're capable of paying them back. • Banks may use a company asset (e.g. building, equipment) to secure the loan, and smaller businesses may have to use personal assets. Display industry knowledge and experience to show that the money loaned won't go to waste. Try to ask for small amounts of money at a time to increase willingness to lend. BENEFITS • Banks tend to have lovwer interest rates because they're more selective in who they will fund. They have access to federal funds for their loans, which have low interest rates, so they can pass along that rate to customers. Generally, an established bank can provide you with trust and stability. • Banks are the most common way to receive financing, so if you don't qualify for one bank, you have a lot of others to consider. • Fixed monthly payments allow you to budget accordingly. SECURING A LOAN • Strict regulations for which companies a bank can fund. Responsibility to protect their customers' deposits. • Large banks approve less than 20% of loan requests. • Small banks approve only about half of requests. • Provide an organized, realistic business plan that explains how you will use the loan and plans for future growth. • Some larger banks will allow you to apply online (e.g. Wells Fargo), but others require you to meet in-person (e.g. Bank of America). • Example: Typical business loan from Bank of America • Required to secure your loan with business assets and (preferably) a certificate of deposit. • In addition to loan payments, you will also pay closing costs like a flood certificate, title fees, appraisal fees, and filing fees. Option to select a fixed or variable interest rate. Fixed interest rate provides you with the security of knowing what your payments will be throughout the life of the loan. • A variable interest rate may provide a lower payment amount initially to not burden the business, but it could increase in the future. 24 ALTERNATIVE FUNDING QUALIFICATION CRITERIA • Not nearly as strict as qualifying for a bank loan. Credit score is not always a requirement on the application. Some lenders will simply ask for an approximation of your credit score. • Credit card statements, income statements, and financing history are more important. You may need to provide business references to further establish your credibility, especially if you're a newer business. • A small business only needs to be operating for a few months prior to applying for funding. • Must not be in bankruptcy or be more than a few months behind on credit card bills. BENEFITS • Payments are made as a percentage of your company's sales instead of a fixed dollar amount. Especially helpful to businesses that experience seasonality or fluctuations in sales. You can receive funding in as little as 24 hours. • Bank loans can take vweeks or months to fully process. • Application process is much shorter (about an hour or less) and in most cases, can be completed entirely online. • Higher likelihood of being approved for a large sum of money than with a bank. SECURING FUNDING • Alternative funding sources approve almost two-thirds of loan requests. Like a bank loan, an alternative lender will generally require an actionable business plan about how you will utilize the funding and plans for future growth. Example: Typical funding application with Funding Merchant Source Complete the short, one-page online application. • Provide a detailed description of your business and your future plans once you receive funding. • Include proof of any rent/mortgage payments, credit card statements, approximation of your credit score, and any loan balances with other companies. • Once you complete the online application, you will| speak one-on-one with an FMS representative to further discuss your situation. BY: Funding Merchant Source SOURCES http://www.nytimes.com/2014/03/06/business/smallbusiness/cant-get-a-bank-loan-the-alternatives-are-expanding.html?_r=0 http://www.bankrate.com/finance/personal-finance/3-ways-to-get-a-small-business-loan-1.aspx http://www.finweb.com/loans/5-typical-bank-requirements-for-a-business-loan.html#axzz3aVa8JgGM http://fundingmerchantsource.com/working-capital-requirements-have-these-materials-on-hand-when-applying/ https://www.bankofamerica.com/smallbusiness/business-financing/working-capital/business-loans.go %24 Credit Card( %24 %24 CD IB %24 CD