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Play Pits, Building Resilient Businesses, Chantel PowellKapitus

BRB Stories: After Devastating Setback, Play Pits Takes First Place in Kapitus’ BRB Contest!

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Congratulations to Play Pits, an African American-owned producer of specialty deodorants made from all-natural ingredients, for being named the winner of Kapitus’ inaugural Building Resilient Businesses (BRB) contest. The Atlanta-based family business will receive $100,000 and 8 hours of complimentary educational consulting/advising sessions on its business. 

Embodiment of Resilience

Chantel Powell, Play Pits, Kapitus, Building Resilient Businesses, contest

Chantel Powell’s small business has endured the COVID-19 pandemic and a warehouse fire, making it one of the most resilient businesses out there.

For Chantel Powell, creator and CEO of Play Pits, resilience isn’t just a trait, it’s a necessity. The four-year-old company suffered through the pandemic shortly after it was created – a period in which nearly 40% of all black-owned businesses were forced to shut down. As if that weren’t enough, in September 2022, its Atlanta-based headquarters and warehouse (where all of its inventory was stored) were completely burnt to the ground in a fire – a catastrophic event that left Powell and her family reeling.

In the aftermath, however, instead of giving up, Powell and her family members are determined to rebuild the business and will use their $100,000 prize to help do so, making  Play Pits the very embodiment of everything for which BRB stands..

“It’s by the grace of God that we won the Building Resilient Businesses Contest because in the last few weeks, Play Pits has proven that we are the personification of a resilient business,” said Powell.

A Family Commitment

Play Pits. Chantel Powell, Kameron, Kapitus, Building Resilient Businesses, Contest

Chantel Powell was inspired to launch Play Pits by her son, Kameron.

After spending nearly six years as an executive assistant at Viacom International Media Networks and graduating Summa Cum Laude from Clark Atlanta University with a degree in fashion design and merchandising, Powell had picked up the skills she needed to pursue her passion for launching her own small business. All she needed was an innovative idea and a product to sell.

That idea came in 2017 when she picked up her six-year-old son, Kameron, from basketball camp. Like most active kids coming home after attending a sweaty sports camp, Kameron’s body odor hit Powell hard. 

“My exact words to him were, ‘You smell like a grown man!’” said Powell. She was determined to make him wear deodorant but didn’t want to use the typical ones that were filled with toxic chemicals. When she searched for deodorants that used natural ingredients, she found them to be boring products that she knew she would have to fight her son to get him to use them. 

Powell spent days in her kitchen using organic ingredients to make an all-natural deodorant that she felt comfortable with her son wearing. To her surprise, Kameron loved the deodorant and suggested that she make it for all his friends at camp.

“After my initial refusal, I quickly reconsidered once it hit me that Kameron had a genius business idea!” she said.

Hard Work and Self-Sufficiency

Like many seeking to achieve the American Dream, Powell put in a lot of hard work and $3,500 of her own money to start Play Pits. With no outside investments, she spent nine long months perfecting the secret formula to create the first all-natural deodorant free of aluminum, parabens, synthetic fragrances and other harsh chemicals found in most deodorant products, and one specifically designed for active kids. 

She officially launched Play Pits in March of 2018, and success came quickly for the new business. Powell saw 497% growth after just 20 months in business, with over 12,200 units sold. Play Pits soon had both out-of-state and international customers, and distributed through both Amazon and Target, as well as directly.

Powell also worked hard by engaging in one of the toughest types of marketing campaigns a business can engage in: word-of-mouth. Powell works extremely hard to market the company through social media and customer recommendations. She also doesn’t keep herself on the company payroll. “Every dime made is completely due to us bootstrapping our business, getting out there and hustling. It has been the best method for us to advance and grow Play Pits,” she said.  

“Quietly, Play Pits has become the nation’s largest 100% black-owned deodorant company,” said Powell. “This grant money is going to be invested in scaling our company by allowing us to purchase larger amounts of raw goods and materials at reduced costs, increase our marketing efforts into youth and professional sports, and to add knowledgeable professionals to help us meet customer demand by expanding our product line and increasing revenue.”  

More Than Just Survival

As Play Pits recovers and rebuilds from the devastating fire, its mission to educate parents about the

Play Pits, Chantel Powell, Building Resilient Businesses, Contest, $100,000, Kapitus

Paly Pits has endured the pandemic and a devastating fire to come back better than ever.

dangerous ingredients found in commercial deodorants and to provide a healthier, all-natural solution for their children, remains the same. The business is still seeking to grow both domestically and internationally, and to never forget where it came from. Since launching, Kameron has been named the company’s Chief Inspiration Officer and is still active in sports, while Powell continues to work hard to market and sell the company’s products. 

“As we start recovery from this tragic event, this grant money is needed now more than ever as it will play a key role in helping us to rebuild, replenish lost inventory/materials, equipment etc., while still allowing us to continue our initial expansion plans,” she said.  

Kapitus secured line of credit small business lending

Pros and Cons of a Secured Business Line of Credit

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If your business needs to have fast access to cash, having a business line of credit (BLOC) in place can be invaluable. Before you apply for one, however, one of the first questions you need to ask is whether a secured or unsecured business line of credit is for you. Both options come with pros and cons, so it’s crucial that you carefully consider which is best for you.

What is a Line of Credit?

Secured and unsecured lines of credit are types of financing that give your business the flexibility to borrow funds at will with pre-agreed upon payback terms and credit limit. Whether you need cash to meet a business emergency or to meet payroll during the offseason, you can use the borrowed money to finance any aspect of your business that you see fit. 

Secured and unsecured lines of credits, however, have different risk profiles for the borrower, so they  usually come with different limits and interest rates. 

What’s the Difference? 

A secured BLOC is a form of financing that requires collateral to ensure that you pay back the borrowed amount, while an unsecured line of credit does not require collateral. 

An unsecured line of credit typically requires a high FICO score, a certain number of years in business (usually at least two years) and a strong cash flow. This type of line of credit normally ranges between $10,000 and $100,000, depending on the needs of the borrower, and comes with a variable interest rate often pegged to the prime rate plus several percentage points.

A secured line of credit, while typically reserved for business owners with lower credit scores, requires borrowers to put up valuable assets as collateral. That collateral can include real estate, equipment, present and future invoices and inventory. If you operate a pass-through business, you may even have to put up personal assets such as your house or personal savings. That said, however, a secured line of credit does have distinct advantages:

#1 Secured Lines of Credit Usually Offer Lower Interest Rates

The Federal Reserve has hiked interest rates five times so far this year with more probably coming, so cost of capital is a major concern for borrowers. Since a secured line of credit is collateralized with tangible assets, the lender takes on much less risk when providing this type of loan, so therefore, depending on your FICO score and the amount of collateral you put up, there’s a good chance that the interest rate on a secured BLOC could be lower than an unsecured one. 

#2 Your FICO Score can be Lower

Almost all lenders consider a high credit score to be one of the most important qualifications for financing, so if your FICO score is below 650, trying to secure a loan may be a frustrating experience. Since a secured BLOC is backed by assets, your chance of getting approved with a lower credit score is far higher than if you were applying for an unsecured line of credit.

#3 You Could Secure a Higher Line of Credit

A secured line of credit could come with a higher limit than an unsecured one.

While not in all cases, an unsecured BLOC usually tops out at $100,000 to limit the risk of the lender. Even for small business owners with great credit who are able to get approval for an unsecured BLOC, they often have to put up collateral if they want a limit exceeding $100,000. Depending on the value of the collateral being put up, a small business owner is more likely to obtain a higher limit with a secured BLOC than an unsecured one. 

#4 Secured BLOCs May Have Longer Repayment Terms

Securing your line of credit brings a host of benefits, and one of them is that your repayment term will usually be longer than with an unsecured BLOC. Putting up real estate as collateral can be especially beneficial, as the lender may increase the repayment term and the limit since the value of real estate usually increases over time. In some cases, the repayment term on an unsecured BLOC can be up to 10 years, whereas with an unsecured BLOC, it is usually far less. 

Cons of a Secured BLOC

While a secured BLOC does have its advantages, there are also potential drawbacks to consider before applying for one:

#1 You Risk Your Most Valuable Assets

To get approval for a secured BLOC, you need to put up valuable collateral. These can include your home or a highly valued piece of property. If your business relies on expensive pieces of equipment such as tractor-trailers or medical devices, or the future payment of invoices, those assets could be put up as collateral but would be at risk if you fail to pay off your debt. Therefore – just as you would with a personal loan – it is crucial that you make sure you can meet the repayment terms before you take out a secured BLOC.

#2 More Paperwork is Involved

You’ll probably need to consult with an attorney when applying for a

A secured line of credit will involve a lot of paperwork, as well as advice from a business attorney.

secured BLOC. That’s because you will need an expert to hash out the terms of repayment, especially if calamity hits and you are unable to pay back the amount you borrowed. An attorney can negotiate terms of what assets you will have to surrender in case you default on payments. 

#3 Interest Rates Vary

While the interest rate on a secured BLOC is generally lower than an unsecured one, the rate will still be variable, meaning that it will fluctuate as interest rates fluctuate. This underscores the importance of making sure you understand the exact terms of the secured BLOC before you take one on. 

A BLOC is not a Credit Card!

There is a common misconception that a line of credit is like a business credit card, but don’t be mistaken – the two are not the same. Yes, they both provide a line of credit and only charge interest on the amount you borrow. However, a line of credit ideally should be used for bigger, foreseeable expenses than a credit card since the interest rate is typically lower, and in some cases, you won’t get the cash from a line of credit for 24 hours. Plus, lines of credit have term limits and different repayment terms than a credit card. 

A business line of credit is a great tool if you need to get new office furniture or appliances, if you need cash for a business emergency, or if there is unexpectedly high demand for one of your products and you suddenly need to purchase more inventory. On the other hand, a business credit card is handy for sudden cash needs, such as picking up the tab for a business meal, or if your flight gets canceled during a business trip and you suddenly need to pay for a hotel room. Business credit cards also offer perks such as travel miles, but generally charge a higher interest rate than a BLOC. 

Carefully Weigh Your Options

A secured BLOC can give you great benefits if you need access to cash to grow your business or for an emergency. However, you need to carefully consider the terms of this type of financing, and like you would with your personal finances, you shouldn’t spend more than you need to.

Employee Retention Tax Credit Kapitus Small Business Lending accounting

Are You Still Eligible for Employee Tax Credits?

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Thousands of small businesses are checking to see if they are still eligible for the popular Employee Retention Tax Credit (ERTC). While the sun set for the ERTC in September 2021, there is still a chance to retroactively claim that tax credit in 2022, albeit through a somewhat lengthy tax filing process. If your small business didn’t take advantage of this tax credit at the height of the pandemic, you could still be eligible for free money.

Is Your Business Still Eligible?

According to the IRS, if you operated a small business in 2020 and 2021 you must demonstrate that your business suffered a significant loss of business or was forced to temporarily close due to COVID-19 and COVID-related government shutdowns, yet you still retained your employees (at least on a part-time basis), to still be eligible for the ERTC. 

You should have a conversation with your accountant to see if you still qualify for the ERTC, but generally, to satisfy IRS requirements:

  1. You need to still have your gross receipts from 2020 and 2021. Your receipts from 2020 and 2021 should show that your gross income was at least 50% below what it was in 2019, or
  2. Under the Consolidated Appropriations Act (CAA) of 2021, businesses (including nonprofits, hospitals, educational institutions and 501c organizations) that were affected by closures and government-mandated quarantines and experienced a 20% drop in gross receipts in 2020 and 2021 compared to 2019 are still eligible.
  3. Under the American Rescue Plan (ARP) of 2021, businesses can be eligible for the ERTC if their receipts reveal a 50% loss in gross income in 2020 in the quarter immediately following the quarter in 2019 – not just to the corresponding quarter in 2019.
  4. The CAA also extended the dates for eligibility for the ERTC. The legislation stated that small businesses can still use wages paid through Q3 and Q4 of 2021 to claim a refundable tax credit of up to 70% of the qualifying wages, with a maximum of $7,000 per employee per quarter. 
  5. The Coronavirus Aid, Relief and Economic Security (CARES) Act of 2020 originally did not allow for small businesses that received a Paycheck Protection Program loan to claim ERTCs, but the CAA changed that. Employees that received a PPP loan can still retroactively claim the ERTX for past quarters by filing Form 941-X from the IRS.

How do I go About Applying for the ERTC?

Eligible Small business owners should speak to their accountants first, and then can still claim the ERTC when filing quarterly taxes using Form 941 Employer’s Quarterly Tax Return for applicable periods. If an employer does not have sufficient funds to cover the credit (because Social Security and Medicare taxes must be paid in order to be eligible), they can receive an advance payment from the government by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19 to the IRS.

Don’t Throw Away Free Money!

Economic times continue to be uncertain for small businesses, even in the waning days of the COVID-19 crisis, so you can’t afford to give up chances for free money. Talk to your accountant to see if your business may still be eligible for the ERTC. You could get up to 7,000 well-deserved dollars per employee for doing your part to keep people employed during the height of the pandemic.

Kapitus small business lending price increases

How to Handle Inevitable Price Increases

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Having to raise the price of products and services has become a huge headache for small businesses as inflation continues to skyrocket – the Consumer Price Index for all Urban Consumers (CPI-U) rose 9.1% in June – and workers continue to demand higher compensation. This has put a squeeze on small business owners, who are now facing the major challenge of figuring out how to continue to raise prices and stay profitable while not driving away customers in the process.

So how do you continue to raise your prices without off-putting your new and existing customers? It’s a dreaded task for sure, but it may not be as bad as you think. 

Small Businesses Have The Advantage

Have you gotten notices from large retailers, supermarkets or restaurant chains that they are raising their prices? Probably not. Large companies simply raise their prices and assume customers will pay them because they have no choice. Moody’s analyst Linda Montag said in an interview that large retailers will use stealth tactics to increase prices, such as selling smaller packages of products for the same price as previously larger packages, changing the design of their packaging and offering discounts on products and then implementing a price increase when those discounts have expired. 

“Consumer companies across the board have gotten very savvy about how to implement price increases without just slapping on five to 10% price increases,” Montag said in an interview with CNBC.

Larger companies also have teams of consumer researchers monitoring how high prices can be increased before customers refuse to pay so they can determine what their price thresholds are. The point is, if you’re a small business owner, your large competitors are doing the work for you in terms of sales research and price increase strategies – this is something you can definitely use to gain an edge over your larger competitors.

Speak to Customers Personally

As a small business, you have a smaller market share than your larger counterparts, so you can more easily inform your customers of price increases through email, text messaging or a note on your website personally detailing why you need to raise prices. Your customers may not be happy with the price increases, but most of them understand the current economic circumstances the country is facing, and they will appreciate the fact that you’re being honest and upfront with them. 

Some of the ways you can soften the blow when you tell your customers of price hikes:

  • Keep explaining why. Nobody likes to pay more for goods and services, but most people understand the difficult challenges that businesses are facing right now. Inflation continues to surge, supply chain disruptions remain, and workers are demanding better pay. When you inform your customers of price increases, keep explaining to them the precise reasons why you need to do this. Most customers – especially lifetime customers – will understand, as they are most likely seeing price increases everywhere. 
  • Send personal messages. If you have the ability to do so, send individual emails or text messages to your existing customers letting them know that you have no choice but to raise products due to the rising costs of commodities, supply chain disruptions, high salaries, etc. Your customer will feel like you are speaking to them directly. There are several online services that can enable you to send these emails or text messages.
  • Undercut bigger competitors. The fact that large retailers, restaurant chains and supermarkets are increasing their prices could give you the opportunity to raise the prices of your most popular products, but not raise them as high as your larger competitors. This strategy could boost your sales dramatically if customers believe they can get products more cheaply from you. 
  • Inform your customers of price increases in advance. Letting your customers know a week or two ahead of your price increases gives them a chance to adjust their budgets and enables them to keep buying from you. Plus, they will appreciate the heads up.
  • Make sure to get customer feedback. Make sure you give your customers an opportunity to give feedback on and react to your price increases. Make room on your website for feedback or allow your customers to email you directly, even if they’re just venting about inflation and price hikes.
  • Find the Threshold. You need to raise prices to meet payroll and keep the lights on, but
    Freshbooks Kapitus Small Business Lending Financing

    Software such as Freshbooks can assist your business in finding the right price that your customers are willing to pay for your products.

    customers will only be willing to pay so much before they walk away. There are tools such as Fresh Books Markup Calculator or Mini Web Tool’s Markup Calculator that can assist you with that.

Get Creative in Product Offerings

If you must raise prices, try offering discounts to make customers feel like they’re getting value. One way to do this is to offer a bundle of products and give them the message that while prices have increased, they’re still saving money by purchasing those products as a group. Restaurants, for example, may go to a pre-fixe menu that will still be profitable and yet cost less than if a customer ordered items from the menu separately. Another simple example is a clothing store might offer a shirt-and-tie bundle when a customer purchases a new suit.

If applicable to your business, you can also offer flexible payment options on prices that are marked up. For example, if you own an electronics store, offer a long-term payment plan for a new laptop. If you’re an accounting or law firm, you may want to offer clients a monthly payment plan. 

Don’t Worry, It’s Happening Everywhere

While customers won’t be happy with higher costs, one factor that should put you at ease is that it’s not just you that’s hiking prices – both big and small businesses are doing it as well. Your best bet, and the simplest way forward,  is to keep track of the prices your competitors are charging, and stay in touch with your customers.

Trucking small business lending Kapitus alternative financing

Best Loan Options for the Trucking Industry

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The COVID-19 pandemic exacerbated problems that had already existed in the commercial trucking industry for years as demand for delivered goods skyrocketed in 2020 and 2021. Those problems included issues surrounding compensation, hazard pay, COVID-19 vaccine mandates as well as a general shortage of licensed truck drivers. 

While it may at first seem counterintuitive, these problems make 2022 and beyond a great time for trucking businesses to finance the expansion of their fleets and hire more drivers. Consider the fact that the demand for delivered goods, especially imported goods, will remain strong. 

Also, supply chain disruptions have created an urgent need for stronger transportation systems for consumer products, and late last year, the Biden Administration announced a program aimed at increasing the number of licensed truck drivers in the country as part of the $1.2 trillion Infrastructure Investment and Jobs Act. 

Kapitus trucking small business lending alternative financing

Kapitus is now offering long-duration loans specifically tailored to trucking companies.

These are, in fact, just some of the reasons Kapitus recently expanded its criteria for lending to trucking companies by offering equipment financing to purchase new or used commercial trucks via long-duration loans with competitive pricing. 

“When we get filings in, I would say that nearly 70% of the filings are trucking-related, whether it’s just box trucks for local deliveries, trailers and long-haul trucks,” said Kevin Morello, manager, asset-based finance for Kapitus. “These are comfortable deals [for lenders] to make because long-haul trucks are such strong cash flowing assets.”

What are Your Loan Options?

There are several financing options for trucking business owners seeking to expand their fleet or buy their first truck. One of the advantages for trucking companies is that lenders generally have a positive view of commercial trucking companies – especially the big semi-trucks – because the truck itself is a cash-generating asset, and if you do take out a loan for a truck, the vehicle itself becomes the collateral. The supply chain disruptions still being felt have also made trucking services in high demand, and therefore trucks are considered “business essential.” 

Like with any other lending, the type of financing you get to purchase either a used or new truck depends on your credit score and how long you’ve been in business; but there are a large number of traditional and alternative lenders. 

That said, your financing options when purchasing a truck vary:

#1 Finance Directly Through a Vendor

Much like the way you would purchase a car for your personal use, you can purchase a truck through a dealer, who would then search for financing options with several different lenders for you. Traditional banks such as US Bank, Wells Fargo and Bank of America offer lending programs specifically tailored to trucking companies. 

These loans typically offer low-interest rates and long durations, but don’t be surprised if you’re turned down. Traditional banks typically demand down payments which can be quite large, as an average-priced new semi-truck can cost between $100,000 and $200,000. They also have stringent requirements such as credit scores at least in the high 600s, minimum annual revenues and multiple years in business. While lenders still have an overall positive view of trucking companies, they are starting to see them as being a bit more risky in the waning days of the pandemic, as over 3,100 trucking companies went belly up at the height of COVID-19.

CDC/504 Loan

This loan is backed by the US Small Business Administration and is tailored for the purchase of fixed assets. It provides financing of up to $5 million and a term of between 10- to 20 years, and usually offers rates typically pegged to the current market rate of five- and 10-year US Treasury notes. 

These loans are offered through Certified Development Companies (CDCs) and the assets must be used to promote business development within a particular area and increase employment. Like traditional banks, this type of loan carries stringent requirements such as a high credit score and multiple years in business. If you qualify , these loans can be an excellent source of financing for a new or used commercial long-haul truck.

Alternative Lending

If you’ve been turned down for a loan by a dealer or traditional bank, you’re probably going to have better luck with alternative lenders – financing companies that fall outside the traditional banking sphere. Many of these lenders operate online and offer the same range of financing options as traditional banks, often with fewer requirements but at a higher cost of capital. Alternative lenders are just as legitimate and traditional banks, and typically can turn around a loan for you in less time than a traditional bank. 

If you choose to go with an alternative lender, be careful, as there are many of them out there. Do your research on which ones are most popular, legitimate and offer the most competitive rates. Some may make many appealing guarantees, but with any product or service that you purchase, it’s always best to keep that old adage in mind – if it’s too good to be true, it probably is. 

Equipment Financing

Since commercial vehicles are equipment, why not investigate equipment financing? If you don’t meet the strict requirements of traditional banks, alternative lenders may require a slightly lesser credit score, usually require less paperwork and can probably turn the loan around for you more quickly than a traditional bank. 

Additionally, alternative lenders often  don’t require a down payment when it comes to equipment financing. For example, according to Morello, Kapitus sees roughly half of our equipment financing  customers for commercial trucks require a down payment depending on credit score and time in business.

The downside of equipment financing for commercial trucks is that alternative lenders – much like traditional banks – often require a certain amount of time in business. Put simply, it will be easier to get financing to add to your existing fleet of trucks than to obtain financing for your first truck, since lending to an established company will always be deemed less risky than lending to a first time buyer.

“With trucking it’s challenging to finance your first truck,” said Morello. “So whenever customers come to us and it’s an owner-operator, or it’s a sole proprietor, that’s way more challenging than when you start building out your fleet. It’s also super rewarding when people come to us when they have a fleet of two or three or four, and then we can finance more than one vehicle for them.” 

Business Lines of Credit

While commercial trucks typically have long shelf lives – like any piece of machinery – they need regular maintenance and repairs. This is where a business line of credit from either a traditional bank or an alternative lender will come in handy, because when a truck breaks down due to wear and tear, your company will lose money fast. 

A business line of credit can provide immediate cash when you need it to make emergency repairs and maintain a strong resale value for your truck. Like with any financing, it’s important to shop around to see which lenders offer the best terms and easiest  access to capital.

Know Your Options

The trucking industry is in high demand right now and that probably isn’t going to change in the foreseeable future. If you’re seeking to expand your existing fleet or purchase your first truck, it’s important to closely examine your financing options and research various lenders available to you. Getting the best rates and terms on your loans may be just as important as gaining new clients. 

What Type of Financing is Best for Your Small Business?

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Small businesses, slammed by inflation, supply chain disruptions and staffing shortages,  are expected to rely on debt financing heavily this year, as pandemic relief programs such as the SBA’s Economic Injury Disaster Loan and the Paycheck Protection programs have long since dried up. If you believe your small business needs to take on debt to survive this rough patch, however, you also need to evaluate which of the many financing tools available are right for you.

The good news is that there are several types of loans to fit your specific needs – whether you’re seeking money to keep your operations afloat; purchase vital equipment; keep your business running during off-season months; you’re seeking to expand, or you need cash for an emergency – there is an option for you.  Some loans carry more requirements and may be more expensive than others, so it’s crucial that you learn which is the most practical and cost-effective for your business.

Here are some of the most common types of small business financing to choose from, depending on your business’ specific needs:

SBA Loan

SBA Small Business Administration lending Kapitus

While pandemic-related assistance has dried up, the US Small Business Administration still offers plenty of financing options for small businesses.

An SBA loan is backed by US Small Business Administration and is sold through registered agents, be it a traditional bank or an alternative lender. One of the most sought-after loans by small businesses is the SBA 7(a) loan, as it often offers a comparatively low interest rate and terms of between 10 to 25 years and has a maximum borrowing limit of $5 million. This money can be used to grow your business, purchase new equipment or simply as operating cash.

However, just because you want a 7(a) loan, doesn’t mean you’re going to get one. The borrowing requirements are typically more stringent than what a bank or alternative lender would require for a term loan. These include a FICO score near 700, a required number of years in business and a strong, consistent history of cash flow. Other drawbacks of a SBA 7(a) loan include the fact that the turnaround time for the loan can be weeks, and collateral is often required for loans exceeding $350,000. In addition, SBA loans have a unique requirement which indicates that you must use “alternative financial resources, including personal assets, before seeking financial assistance.” 

If you believe your business qualifies for such a loan and you can wait several weeks to get approved and get the money, you should speak to a lending professional regarding what terms you can get.

Term Loans

Term loans, or business loans, are offered by both banks and alternative lenders and are viable financing options if you’ve been turned down for a 7(a) loan or if you need money quickly. The requirements of a term loan usually aren’t as strict as that of a 7(a) loan – for example, your FICO score probably doesn’t need to be as high as it would for a 7(a) loan.

The terms of the loan, such as interest rate and maturity date, are negotiated between the borrower and lender, and in some cases, especially with alternative lenders, you may get approval and funding within 24 hours. Similar to the 7(a) loan, you can use the proceeds for virtually anything related to your small business.

The cons of a term loan are that they are going to carry a higher interest rate than a 7(a) loan – depending on how much risk you represent to the lender – and typically offers terms of five- to 10 years, though they can be much shorter than this depending on the lender. While the requirements of a term loan may be less stringent than a 7(a) loan, you’re still going to need a strong FICO score, at least two years in businesses and a strong cash flow. Traditional lenders may also require you to put up collateral. 

SBA Microloan Program

The SBA also guarantees microloans – small loans of up to $50,000 – through intermediary lenders. These lenders often operate in underserved communities and work with minority- and women-owned businesses, and their purpose is to provide financial help to new businesses. According to the SBA, the average microloan is $13,000. These loans have a maximum term of six years, and interest rates are going to be significantly higher than a term or 7(a) loan, and often require the borrower to put up personal assets as collateral. 

Invoice Factoring

Invoice factoring is typically offered by alternative lenders and can help you with your cash flow if your customers are slow to pay. In this type of financing, a lender will provide you with cash for your outstanding invoices in exchange for a percentage of the money that is owed to you. You can choose which invoices to factor, and this type of financing won’t add debt to your balance sheet since the money that you’re “borrowing” is backed by money that is already owed to you. 

Invoice factoring is best if you need money quickly to keep your operations going while you’re waiting for your customers to pay, and if you don’t mind not getting all the money that is owed to you by customers. The turnaround time for this type of financing is usually very fast, sometimes happening in 5- to 10 business days.

Equipment Financing 

Equipment financing is a great tool to make sure you have the best, most modern machinery to keep your business running.

Whether you’re a small agricultural company that relies on row crop tractors; a contractor that needs bulldozers or backhoes for construction projects, or a doctor or dentist who needs the latest X-ray machine to treat patients, having high-quality, modern equipment is the lifeblood of your business. Machines, however, can cost a fortune, and your small business may not have the cash to pay for that machinery upfront. This is where equipment financing can serve you best.

Your FICO score generally must be in the high 600s and in most cases, you have to have been in business for at least a year. The advantage of equipment financing is that the equipment itself often serves as the collateral – not your personal assets. Ideally, the revenue that your company generates from the equipment you’ve purchased should more than cover the interest and principal payments you’re going to have to make. 

Purchase Order Financing

Obviously, your business needs inventory to sell in order to make money. However, you may not have the cash up front to pay for the inventory you need to meet a customer’s order. This is where purchase order financing comes in. PO financing pays your vendors upfront so you can keep your customers happy, grow your business and maintain your cash flow. 

In some cases, the lender may even take on the responsibility of payment collections from your customers’ orders, freeing you to run your business smoothly. To qualify, you generally should be a profitable business, and it’s your suppliers and customers – not you – that must have good credit. This type of financing typically requires a low factor rate as the cost of capital.

Business Line of Credit

A business line of credit, similar to a personal or business credit card, is typically an unsecured line of credit extended to you by a lender for an annual percentage fee. The limit on the business line of credit is negotiated beforehand and typically, the line of credit must be paid off at various, pre-agreed upon intervals. The benefits of this type of financing are tremendous. 

The APR is typically significantly lower than a business credit card (although you won’t get any rewards points that you might get with a credit card), and the credit can be used for just about any type of business need, such as keeping your business operating during non-seasonal times of the year or through a recession, cash emergencies and the need for sudden, unexpected purchases. 

The caveat is that a business line of credit may not be as convenient as a business credit card for smaller needs, such as a business meal or the purchase of a small piece of office equipment, so carefully consider which one is best for you. 

Revenue-Based Financing

Revenue-based financing is an expensive financing tool in which you essentially borrow against your future sales. If your company is about to launch a new product that you believe will be highly profitable and you need cash to support the initial promotion of it, or if the roof of your office collapses and you need emergency cash to get it fixed to continue your operations, for example, then RBF may be a useful financing tool. 

Before you consider this type of financing, however, consider that the cost of capital is higher than most forms of financing, as your company will be required to make pre-agreed upon payments equal to the percentage of your overall future sales plus a multiple of the borrowed amount. This type of financing requires your business to have a strong sales history, so it should only be considered for specific, short-term cash needs. 

Consider Your Options Carefully

If you decide that your business needs financing, carefully consider which type of product you choose, your needs and what you are willing to pay in terms of cost of capital. Seek counsel from your accountant or financial advisor. Keep in mind that lenders want to do business with you and don’t wish to have you use a financing product that you may not be able to afford, so they will be willing to work with and advise you as well. 

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