Success for small business (and the economy for that matter) this year might be determined by securing the right business financing. While banks have tightened their terms, there have also emerged many more options for businesses to get capital in the last couple years. In this episode we talk about 12 sources of capital that will be big for small business in 2012. To dive into each source of financing, you can listen to the audio below or download the white paper.
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In this episode of the Entrepreneur Addiction Podcast, we discuss:
- Dan gets a karate trophy
- Friends, Family, Fools
- Large SBA
- On Deck
- Equipment Financing
- AR and PO Financing
- Corporate Turnaround
- Acquisition Loan
- Merchant Cash Advance
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If you can’t listen, here’s the transcription done by Shad Atkinson:
Voice: Fueling your business success, this is the entrepreneur addiction podcast, breaking the small business loan news you need if you obsess about your company. Heard exclusively on Lendio.com. And now here are our your hosts: Brock Blake, Dan Bischoff and Patrick Wiscombe.
Patrick: This podcast is sponsored by Lendio.com, the online source you need to find the right business financing to grow your company. So check them out: Lendio.com, to get your business growing right now. It’s the entrepreneur addiction podcast episode number eighteen. Can you believe we’ve done eighteen of these, Dan?
Dan: Eighteen weeks ago what were we doing? I can’t really remember.
Patrick: Um, nineteen weeks ago we weren’t podcasting.
Dan: That’s right.
Patrick: (laughter) My name is Patrick Wiscombe. That is the voice of Dan Bischoff the director of communication at Lendio.com. It’s always good to see.
Dan: Yeah, great to be here again.
Patrick: And we’ve also got the CEO of Lendio, Brock Blake. He joins us for the podcast. It’s been a few weeks since we’ve talked to you.
Brock: Yeah, how are you doing, fellas?
Patrick: Alright. Guys, we’ve got a terrific show. For the past few weeks we’ve been talking with entrepreneur authors. Willie Jolley was terrific. In fact they’ve all been really, really, really good.
Dan: They have been.
Patrick: Thanks to all of the authors that have come to our Entrepreneur Addiction Podcast. This week we’re going to get back to what Lendio does. That’s small business financing. Since we’re coming up on the twenty-twelve, we’re going to talk about the twelve best ways to get business financing in twenty-twelve. This is an white-paper you put together, Dan.
Dan: Yeah, we haven’t released it yet, but we’re going to be putting it our for a free download. You can go deeper into this if you’re looking into financing, so it should be a good resource. We’re going to kind of cover some of that today.
Patrick: You’ll be able to pick up this white-paper when, at Lendio.com/blog. Is that where you’re going to put it? Yeah, by the time this podcast comes out it should be on our site. You can probably see it if you’re looking at the blog, so hopefully that will be the case.
Brock: Patrick, I’ve got to jump in here. I’ve got to give props to Dan. Dan, is a machine.
Dan: Thanks, man.
Brock: First of all we’re going to through these twelve best ways to securing financing in 2012, but something pretty exciting happened this week. There’s an organization called SEO.com that does some unique case studies on companies that do a great job with content marketing, with their blog, with their podcast, with those thing to kind of get the word out of who the company is and what they’re trying to do. This week they did a full feature webinar on the work that Dan has been doing, and I’ll tell you what, we’re lucky to have that guy.
Dan: Hey, I appreciate it.
Patrick: Yeah, congratulations.
Dan: It’s a good webinar too if you actually watch it. They have some good advice about setting up a blog and those types of things.
Patrick: For the past few weeks, I think that Dan has single handedly turned Lendio into a media company with the amount of content that he’s generated. I’m genuinely impressed with what he’s done.
Brock: That’s true. He won’t tell you this, but he was just named employee of the month over at Lendio. He’s got a big ol’ fat trophy on his desk.
Dan: I’ve got a karate trophy on my desk. That’s kind of a tongue twister: karate trophy.
Patrick: Also, related to that, you’ve also switched business locations.
Brock: We have switched business locations. We’re still in the same city in the same state, but about a mile away in a brand new office. We’re very excited about it. It’s works really well with our team and our employees, and so it’s fun to take a step in that direction with the office space.
Patrick: Congratulations on building such a great company, Brock.
Brock: Thank you.
Friends, Family, Fools
Patrick: Alright, guys, let’s get into this. Let’s talk about the twelve best ways to get business financing in twenty-twelve. Let’s start with number one. We’ll do this in reverse order. Number one, Brock, is friends, families and fools. Why do you say that?
Brock: It’s the term call the Three F’s, and we’ve talked a little bit on a previous podcast about friends, family and fools. The Three F’s is kind of tongue in cheek. Sometimes they throw the Three D’s in there as well, which is doctors, dentists and dummies. But the reality is that there’s millions of small businesses that have started and grown off the backs of friends and families. Sometimes it’s your only option. Sometimes it’s your best option. Sometimes it’s your only option. An interesting thing about friends and families, a lot of individuals who are trying to get something off the ground, and they’ve got a parent or a sibling or an aunt or an uncle or a grandparent or a close friend that really wants to see this individual’s idea get off the ground, and so they figure out a way to help finance the deal. As we talked a couple weeks ago, I think there’s a couple of keys to success when you’re working with friends or family. Again, I mentioned it before, but one, make sure that your friend or family member knows whether that financing is a loan, if it’s a gift, or if they’re buying ownership. Make it very clear what the terms of the financing are. Then document it well. The more structure you can add… you know, sometimes you can think, “Well, this is a friend or family member they can trust me. I trust them. Just give me some money and we’ll be well on our way.” But what happens is when you take that approach, you’re setting yourself up to really damage a friend or family, the relationship with the friend or family member. So I highly recommend documenting it really well. What are the terms. What’s the rate. What’s the time frame on it. What are the expectations. And if you do that, and you set the expectation with your friend or family member, there’s always a risk, in business financing there’s always a risk that you may not be able to pay that loan back or you may not be able to give them a return or whatever. Make sure they understand that risk. If you do those things, it can be a fantastic option for you.
Patrick: Number two which is large SBA, up to five million dollars. Now, in order to qualify, at least according to the guidelines I have in front of me, you have to have two plus years in the business. You have to have a whole bunch of stuff. Gives us a little background on a five million dollar loan.
Brock: Yeah, so this is a SBA backed loan. The loan comes from a financial institution, a bank or credit union. They’re going to look for very certain qualifications, and I’ll just list a few of those. One is that they have to be in business usually two years. Now there’s sometimes there’s exceptions, but it’s rare. They need to be able to come to the table with some sort of collateral, whether that be real estate that you own free and clear. You’ve got cash in the bank. You’ve got some sort of asset where you have equity in the asset. So collateral is a main part of it. You need come in being well documented. I mean, that’s a large loan. And so if you come well documented with your financial history, the ownership of the business, a solid business plan, a very clear financial forecast of not only what you’ve done historically financially but what is the forecast of the next six, twelve, twenty-four months, and hopefully in that forecast you’ll be able to show how you’ll be able to repay that loan over time. That includes revenue profits and everything else. Usually with this type of loan it’s tied to real estate, and the interest rates are somewhere between five and nine percent, let’s say. Maybe more closer to six to eight percent.
Patrick: Is that high considering where interests rates are. Or am I mixing business interest rates with consumer interest rates?
Brock: Yeah, you’re probably mixing business with consumer. For a business loan it’s a really, really good interest rate. If you get down into the five range, it’s ridiculous. It’s very good. There’s not too many options where you’re going to get, for a business, lower than that. Because it’s SBA backed, they have the ability to reduce their interest rate quite a bit. So it’s a good option for a lot of people, but it’s not an overnight loan. It takes you usually, because there’s a lot of documentation—the lender’s usually going to review over all the documentation, they’re going to make sure they do their due diligence, it’s got to meet their underwriting criteria—so that’s usually going to take probably thirty days on the very short end of the stick and maybe as long as six months. I doubt it’s entirely six months. I mean, I would say on about average thirty to sixty days to finish until get the thing closed.
Patrick: We’ve talked about friends, families, and fools and making sure that it’s well documented. Large SBA loans up to five million. Now let’s go over peer to peer loans. What is a peer to peer loan. I know we’ve talked about it briefly, but let’s refresh everybody’s memory.
Brock: Yeah, so peer to peer loans are a very good option for individuals who are looking for loans less than thirty-five thousand dollars. So you need five, ten, twenty-five grand to get the business off the ground or get it started, peer to peer loans are a great option. Essentially what this loan is, is that it’s based on your personal credit and your personal income. So if you’ve got maybe a six-forty credit and above, you have consistent income coming in, then this is a great option for you. At Lendio, we work with several different organizations that have peer to peer lending platforms. You post a profile or submit an application, and based on your income and based on your credit score, the interest rate will vary. So the higher the credit, the lower the interest rate. The more consistent income, the lower the interest rate. You can fund very quickly. We have business owners, you know last month alone we had a million dollars of loans approved through this peer to peer channel, where you’ve got individuals coming in and in seventy two hours getting approved for a loan and going on their way to start or grow their business.
Patrick: So these are companies that are coming through Lendio.com, and your partners got them funded basically within seventy-two hours?
Brock: Yeah, it’s a really good option if you’re trying to move quickly and you’ve got those two things in your back pocket: good credit and good income. You can move very quickly like I said to get up to thirty-five thousand dollars. Again, at Lendio our job is to break down all these loan options for you the business owner and tell you which option is the best for you, and that’s free. So you come in. We look at all this data, and we say, “Okay, Mr. Business Owner, your best fit is peer to peer loan, and we recommend going to this lender for it.” Your chances of getting approved for that loan increase dramatically because we take all the guess work out of it. That’s why last month we had over a million dollars in loans just from peer to peer loans, and you’re thinking, “A million dollars, that’s…” And the loans are all less than twenty-five grand, closer to around fifteen grand on average. “That’s a lot of loans.”
Patrick: Yeah, it is.
Brock: A lot of business have been helped. It’s a good option for a lot of individuals.
Patrick: Alright, peer to peer loans is what we just went over. Now, Dave Lavinsky was on the podcast from Growthink.
Dan: Two times ago.
Patrick: Was that two weeks ago?
Patrick: Did you listen to that podcast? He was talking about crowdfunding which is where we’re going next. That’s why I bring that up. Have you heard that podcast from him on crowdfunding?
Brock: You know, I haven’t. I know Dave really well, but that’s one of the podcasts I haven’t been able to hear. I’m sure he dove into a lot of detail on crowdfunding, on how it works and the options for business owners.
Patrick: Yeah, he did a terrific job. Let’s get to crowdfunding right now. Give us your take on why crowd funding is a great source for small business financing.
Brock: Well, the interesting thing about crowdfunding is it’s… we’ve put it in here as one of our top twelve options for 2012 because really it hasn’t been an option until 2012.
Patrick: (laughter) That’s what he said too.
Brock: (laughter) There’s been so many regulations that have prohibited business owners from getting financing through this channel that I think we’re really, really excited about crowdfunding. Crowdfunding at it’s core is essentially like peer to peer loans, where you’ve got a lot of individuals contributing some money to a business. The difference between peer to peer loans and crowdfunding is peer to peer is a loan, as I’ve mentioned. Crowdfunding is a lot of individuals buying little pieces of equity of your business. You’re actually selling ownership to the crowd. It is likely a good option for business owners that are… I think it’s going to be difficult to raise more than a hundred or a couple hundred thousand dollars through crowdfunding, but if you’ve got a good business idea, and it’s something that appeals really well to other individuals, you want to leverage you network through friends and family members and each of them pitch in a thousand bucks, and you raise a hundred thousand bucks, what that does is spread risk across a hundred people. Each them only putting in a thousand bucks, they only each get a little bit of ownership, but it spreads risk and they still get some upside in your business. It’s going through the House. I don’t know if it’s back in the Senate, but it’s expected to be passed through the House and the Senate in Q1 of 2012.
Patrick: Didn’t he say a couple of weeks ago that it did pass the House, and they were just waiting for the Senate.
Dan: Yeah, it did pass the House and they were just waiting for the Senate. One thing that too that we talked about. There’s a reward-based crowdfunding. People get, say it’s a cup cake shop, he gave the example of say, naming… give fifty bucks to help fund it they’ll name a cupcake after that person. There’s equity based crowdfunding but there’s rewards-based crowdfunding. There’s a couple different options for people.
Patrick: Yeah, that was the reason I title the podcast “Fluffy on the Outside, Creamy on the Inside” because of the cupcake example. (laughter)
Brock: (laughter) That is a good example. You know, I didn’t cover that a lot. There is the equity based, but actually crowdfunding in the rewards based is alive and well today. I think there’s a half dozen sites: KickStarter and a few others that use that model, and I think they’re doing pretty well.
Patrick: Dan, you’ve got the next one.
On Deck Capital
Dan: Yeah, let’s move on to the next one. One of our partners is kind of an interesting way to get financing. They kind of take the credit out of business credit a little bit, or it doesn’t matter as much with OnDeck Captial. Brock, explain a little bit about what OnDeck does and how that partner of ours can help business owners.
Brock: Yeah, OnDeck is a fantastic partner of ours. In fact, three of our team members were at dinner last night with one of their management team members. OnDeck is an innovative type of loan program that has come out over the last few years, and there focus is to lend to main street business owners. Now if you think about main street business owners, you think about restaurants. You think about dry cleaning places. You think about gas stations and auto repair and that kind of stuff. And those are the exact kind of businesses that OnDeck really focuses on. They want to lend to those businesses. Now the key to getting an OnDeck loan is really the performance of the business. Most of those businesses have pretty steady, consistent revenue. You’re a restaurant owner and you probably have fairly consistent revenue coming in the door month over month, and most of that revenue comes in the form of credit card. So when they go to underwrite your loan, what they’re going to look at, they’re going to look at the consistency of your revenue, the consistency of credit card transaction, the consistency of your bank account balance. Do you have a steady amount of, an average amount of income in your bank account? And the way they like to describe it is they’re really looking at the health of your business. It’s not so dependent on your personal credit score. There’s a lot of businesses owners who have good solid businesses when their personal credit has been damaged, so OnDeck is a great option. They’ll go up to a hundred and fifty thousand dollars, I believe, on the high end. Also the interesting thing about OnDeck is the way that you actually repay the loan. What they do is they do an AC transaction, where they’ll take just a little bit of the repayment out each day. So let’s say it’s a year long loan, they separate it out into daily payments, so it’s a very, very small payment each day so you can be…
Patrick: So it’s based on the receipts basically?
Brock: It’s not entirely based on the receipts, though there is some aspect into that. They just want to make it so that you can repay consistently. You can plan on it. It’s a small payment each day, and you know, it’s really been a good option for a lot of business owners. We send them a tremendous amount of business as well, and for those types of businesses or individuals that are main street, it’s a great fit.
Patrick: You know, I really like ACH type debits for one reason. Like you said, you make the payment on a daily basis and the percentage is… I won’t say the percentage is smaller. I guess it depends on what the terms are or what the interest rate is or whatever your discount rate is.
Dan: Should we explain what ACH is?
Patrick: Yeah, isn’t ACH just something that reaches into your bank account and automatically debits your account?
Patrick: Okay, that’s what I thought it was. I have a credit card processing account, and anytime a transaction comes through, they take the agreed upon percentage, and they automatically take that out of whatever the price was.
Dan: Yeah, that mitigates the risk a little bit, right, so they can be able to offer these loans to people with lower credit by doing that. Would that be right?
Brock: Yep. And the other thing I ought to mention is the interest rates aren’t going to be the same interest rates you’re going to get on a SBA loan or anything like that. The interest rates are going to be higher, and the interest rate varies based off the underwriting criteria, high or lower. But it’s really a loan for businesses that can’t get an SBA or other type of loan because their credit’s been damaged. It’s a good loan for others as well, but if you were to fit it in to the loan spectrum, that’s kind of right where I’d fit it in: For those who traditional financing isn’t an option for them.
Patrick: Alright, so OnDeck is one of your partners, and that is one of your top twelve best ways to get business financing in 2012. Another one of your partners, if I’m not mistaken, is superior. They have a lending program. Let’s talk about that.
Brock: Yeah, so Superior Financial Group is a great organization, good friends of ours as well. But let me mention that Superior Financial is not the only one who does this type of loan. The loan program is the community express loan program. It’s an SBA backed loan. It’s a loan that is great for startups. If you’re looking for 0 to twenty-five thousand dollars, and if you have decent credit… It doesn’t have to be great, but it needs to be higher than 650. And again the higher it goes the more likely it is that you’re going to get approved. But again you don’t have to have two years in business like with other loan programs. So Superior is the number one, when it comes to the community express loan, the number one community express lender in the United States. We send them thousands, literally, of business owners on an annual basis. They approve a very high percentage of the loans, and it’s a great option. It’s pretty good interest rates. The interest rates are typical SBA interest rates, so you’re looking at six to nine percent like we talked about before. And it’s a great organization, Superior. We just have a great relationship with them. So for the business owner out there that’s a startup that needs ten, fifteen, twenty grand to get off the ground, has decent credit, this is a great option for them.
Patrick: Dan, you’ve got the next one.
Dan: Yeah, the equipment financing. Sounds very exciting, right? Why is equipment financing in here, Brock?
Brock: Equipment financing is really a good option for a lot of individuals because a lot of businesses have a, they have a equipment. They have trucks. They have computers. They have heavy machinery. You know, landscapers need to buy all kinds of tractors or other things like that. Or construction. Or dry cleaning equipment. There’s just a lot of different types of assets or equipment that businesses need to grow their business, and most people think, “Well, I need to go buy this new truck, and so I just need to either get an auto loan… Or this is a specialized type of truck. I just need to go get a normal, specialized type of SBA loan.” And that’s not the case. There are so many lenders out there that focus very specifically on equipment financing, and they’re very good at it. They have a very good idea of the value, the equity value of various pieces of equipment. So you need to have, just sort of for qualifications for these types of loans, you need to be able to have pretty decent credit, again I would say 660 or 680 and above. Usually they’re going to want to have a down payment. So if you’re going to buy a piece of equipment, they usually want you to put down ten percent down payment. The interest rate is going to vary depending on your credit, your down payment amount, and the type of equipment. But it can be as low as seven or eight percent, and it can really be as high as twenty to twenty-five percent. It varies a lot depending on the type of equipment. You know, you can move fairly quickly with these. Some move faster than others. It can be as short as a couple of weeks and as long as a few months depending on how much paperwork they need. I think it’s a good option for a lot of business owners who meet that profile, who have equipment or other large items that they need for their business.
Patrick: Alright, so equipment financing. You’re listening to the Entrepreneur Addiction Podcast. This is episode number eighteen heard on Lendio.com/blog. You’ve been listening to Brock Blake, who is the CEO of Lendio. Dan Bischoff is also in studio here with me, here at Lendio. He’s the director of communications, and we’re talking about the twelve best ways to get business financing here in 2012. Guys, we’re going down this list pretty quick. Brock, we’re down to number eight here, which is accounts receivable and purchase order financing. Give us some of the details of why someone would consider this type of a loan option.
AR and PO Financing
Brock: Yeah, so this is a good option for individuals who have one or two of those assets. Account receivables financing: if you’ve got a business where you go out, you close a deal, you get an agreement signed, but the payment terms are spread out over thirty, sixty, ninety, sometimes a hundred and twenty days, that is an asset that you can finance. We have lenders that will look at that agreement and say… Sometimes, I was talking to a business just yesterday. They closed a two and a half million deal, but that payment doesn’t come in until, I think it was, six to nine months. So when you start working on fulfilling that contract, two and a half million dollars, and that cash doesn’t come in, that’s a difficult spot to be in.
Patrick: Yeah, that hurts.
Brock: Yeah, so this is a great option for those types of businesses. They will look at that agreement, and then they will basically forward you that money now. Let’s say they give you 85% of that contract size now in exchange for the payment of when you get it. Or they’ll give you 90% or whatever. The terms vary. So there’s the option for the accounts receivable. The other option is purchase order. So you’re a business and you are selling a product or service. Let’s say you sell something to Walmart or you sell something to the government, the federal or state government or other things like that. And you’ve got a purchase order in hand, and you need to be able to finance the inventory. You need to be able to, you know, it’s a million dollar purchase order. They’ve signed it. They’re going to pay on it. But you need to go and pay for the inventory or whatever it might be. Again, that’s an asset that you leverage to an institution to help you finance that loan.
Patrick: Have you done that personally, Brock?
Brock: No. That’s actually one of the… We’ve obtained a lot of different financing over the course of my career, but that’s one that we haven’t actually leveraged up until now.
Patrick: That’s kind of an interesting option.
Business Line of Credit
Patrick: Alright. Dan, you have the next one. Yeah, this might not be the typical source of finance that people have when they think of it, but it’s business credit. That’s a really good option for many businesses, and Brock in another radio show, he said, “Many businesses across the US have been built on the back of business credit.” And, Brock, tell us why this is on the list.
Brock: You know, personally, I think sometimes business credit cards or credit cards in general get a bad rap. Sometimes they should. They’re usually higher interest rate loans. But the reality is that so many businesses, as you’ve said, so many businesses couldn’t have started, couldn’t have survived, couldn’t have succeeded if they didn’t have that line of credit that comes in the form of a business credit card. Really, that’s what it is. It’s a business line of credit that is revolving, that allows you… let’s say you’ve got a ten thousand dollar business credit card. You can use that and pay it down and use it and pay it down over and over and over again. I just think that it’s a great option. Sometimes it’s you’re only option. There’s some concerns that come with it. You need to make sure that you understand that what you’re getting yourself into. Sometimes the interest rates are higher. But if you can be disciplined and stay on top of it and pay it off and other things like that, I personally, I guess I’m speaking from experience: there were times in our business when that was the only option. We had two business credit cards, one for seven thousand and one for twelve thousand, and we used those in order to finance our business to a certain extent. And we’d pay them down, and then we’d find another situation where we needed to use it again. So I personally think it’s a good option. It’s a nice emergency type of fund if you need it. It really is a line of credit, and if you can stay on top of it, then it’s just like a loan from anywhere else.
Dan: The next one you have on here is one of those that you really don’t think about when you think about financing. We have another partner called Corporate Turnaround, and they do something differently that could help businesses out quite a bit. Brock, talk about what Corporate Turnaround does.
Brock: Yeah, I think this is an interesting option for businesses as well. You know, what we’re trying to do with this podcast and with this white-paper at Lendio is we’re trying to say, “What are all the scenarios that a business owner could be in, and let’s try to find an option for that individual. Let’s not just think about that ten percent of businesses that may be the ideal business because ninety percent of businesses aren’t the ideal, and we always go through different phases.” This option, this Corporate Turnaround, is essentially for the business who already has loans. Those loans, they could be small; they could be large. But you’re in a tight spot where that loan has a high interest rate. You’re having a difficult time paying on the payment. You feel like it’s staking up against you, and you’re looking for a way to reduce the payment on that loan. So this organization does debt restructuring, debt consolidation, and their entire goal is: “Let’s work with the business owner. Let’s look at all of there loan programs that they have outstanding, currently. And let’s figure out how do we reduce that payment.”
Dan: Now, wait a second here. Before stop and think, “Wait, debt restructuring?” That raises some red flags for people, but we don’t want people to run away right now because this could be a good thing and often times better than adding on another loan with more interest rates.
Brock: Right. Sometimes people try to pay of a loan with another loan, and what you’re doing is just staking interest rates on top of each other. So what there trying to do is they’re trying to say, “Let’s work…” They’re very, very good. They’ve very experienced with businesses where they’ll look at a loan and say, “You know, your interest rate on this loan is fifteen percent.” And you’re looking at this other loan, and your interest rate on that is eighteen percent. And all of that, you’ve got 300 thousand dollars worth of loans at an average of seventeen percent. You’ve got this huge payment every month. You’re just, you’re just swimming. You know, there’s so many businesses like that, so okay, “How do we reduce those interest rates? How can you and I work together to work your financial situation in a way that, let’s try to reduce those interest rates to ten percent or twelve percent. Or let’s consolidate those loans into one loan where the one loan is less than the combined two.” They’re so good at it. They’re so very experienced, and they only way they make their money is if they do a good job and actually save you money. Then they get paid out of the savings.
Patrick: Now do they come in an run the business, Brock.
Brock: Oh, no.
Patrick: Then this is just the financing piece?
Brock: It’s just the financing piece. It’s just, you know, “Let’s help you get out of your bind and manage your cash more efficiently than the way you’re doing it right now. Let’s help you reduce those payments, reduce those interest rates, and if we’re successful than you pay us. If we’re not, then you don’t.”
Patrick: It seems like a pretty reasonable model.
Brock: Yeah, they’re a good organization, and again, these options, there’s various options for different people and different situations. So this is a really good option for those individuals. And you know what, the reality is, in business, that’s probably going to happen at least once throughout your career, where you feel like, “I can’t get out from under this.” It’s, it’s a great option for those people in those situations.
Dan: Might be the life raft.
Brock: Yeah. Exactly.
Patrick: Yeah. Alright, let’s move on to number eleven. We’re talking about the top twelve ways to get business financing in 2012. Brock Blake is CEO of Lendio, and Dan Bischoff also with Lendio. Hey, I’ve got a question, just an observation, just purely, “You have no idea that I’m going to say this.” I think this is where the brilliance of Lendio comes in here because Lendio allows you to get financing in all these different areas. I don’t see that out on the market. Or am I just missing the boat? It’s seem like you’ve just become, “Come to us because we’re going to help you regardless of whatever type of financing you need.” Is that an accurate observation?
Brock: Yeah. I appreciate you saying that because that’s the reality. That’s what we do. We just made it free, and everybody was like, “Ah! Nothing’s for free!” Well, the reality is that it is. We get paid through our partners, and we are doing everything we can to make that easier on the business owner because, let’s face it, business owners today, they’re running their business. They’re worrying about cash flow. They’re worrying about sales. They’re worrying about employees. They’re worrying about all these things. They don’t have time to keep up with all the financing options that are out there. They don’t have time to think about interest rates. They don’t have time to think about underwriting guidelines. They don’t have time to think about lenders and who’s going to finance them and who’s not. So we’re saying, you don’t worry about that. You run your business. Let us worry about that. Let’s make this easier on you, and we’ll just put you in touch with the right financing options. And if we do a good job, the lender will pay us for that.
Patrick: So basically Lendio gets paid when the business loan gets closed, basically?
Brock: Yeah. We match them up to the right lender. The lender then pays us for that qualified client.
Patrick: The more that I hear about this, and I know that I’m involved with the podcast and have been for four and a half months, but being an impartial observer rather than just being the host of the podcast, some listeners listening to this, I’m going, “Man, there’s some real need for this. I think that’s the message that has to get out there that business owners really do have options as apposed to the traditional, “Let’s go into the bank on the corner, and let’s hope for the best.” Anyway, it’s just an observation. Alright, number eleven: acquisition.
Brock: Okay, so, acquisition loan. This is for the business that is trying to go out and buy another business or an individual who is trying to buy another business. So there’s specific loan programs where it’s acquisition loans. So the basic premise for the qualifications you need for this type of loan is, one, they’re really going to look for industry experience. If you’re going to buy a restaurant, have you had restaurant experience? If you’re going to buy a franchise, have you had experience running a franchise? That gives them a lot of comfort that you’re going to be able to succeed with that. So that’s one. They’re going to want to be able to have a down payment. Sometimes that down payment can be financed by the other business you’re looking to acquire. So let’s say you wanted to buy a business for a million dollars, the higher the down payment, the better, but usually it’s going to require a minimum of ten percent. So you’ve got to put down a hundred thousand dollars. They’ll finance the rest. However, let’s say you’re going to buy that business for a million dollars, and you’ve got the other business willing to finance, let’s say some of that million dollar purchase, I think it needs to be around twenty percent. And they will consider that as a down payment. So you can get eight hundred thousand from the financial institution. Two hundred thousand is actually coming in the form of a seller financed note. So you’re paying two hundred back to the seller. You’re paying eight hundred back to the financial institution. They’re going to look a lot at your personal credit, and they’re going to look a lot at your balance sheet. Do you have the ability to finance this or cover some of the payments? They’re going to look also a lot at the cash flow of the business you’re trying to buy. So they want to see, if you’re going to buy a business and a month over month they’re having profits, and there’s enough profits in order to be able to pay off the loan over time. It maybe sound a little bit more complicated than some of the others. It is because you’re looking to buy another business.
Patrick: Okay, that was acquisition. Dan, you’ve got number twelve.
Dan: The last one. You ready for it?
Dan: You want a drum roll. (drum roll sound from Patrick) There you go. Merchant cash advance. Let’s talk about it. This one’s also not so much based on credit but also on consistent monthly credit card volume. Brock, go and roll with this one.
Brock: Roll with this one? You don’t want to take the last one with all its glory?
Dan: No. With all it’s glory, man.
Merchant Cash Advance
Brock: So merchant cash advance loan is similar to the OnDeck loan we talked about. However, merchant cash advance is strictly focused on businesses that take credit card financing. So they’re going to do their underwriting based on your merchant credit card transactions that happen every month. So let’s say your restaurant or a business, let’s say it’s an online business. We’ve already talked about restaurants, so let’s say it’s an online business. All of your business comes through credit card transactions. You average on a monthly basis a hundred thousand dollars worth of credit card transactions. They will lend you money based on that history. Let’s say you’ve got six months of credit card transactions, on average about a hundred grand. It’s pretty consistent. It’s an asset they can use and give you a loan based on those transactions.
Dan: Based on what your future earnings will be, right?
Brock: Right. Yep. The nice thing about this is that your personal credit can be very low. I mean, we’re talking down into the 500 hundred range. You don’t have to be in business that long. You know, a lot of these others you have to be in businesses a minimum a year or a lot of time two years. This one you really only have to be in business three months, enough months that they can see some transactions. However, the interest rates are going to be quite a bit higher than some of the others, probably double. You’re probably looking fifteen to twenty-two percent interest rates because really this is a loan for those who don’t have any other options. They can’t get it because they don’t have those other options right now. So it can be as low as a couple thousand dollars. It can be as high as a half a million dollars. It’s an interesting option for businesses that receive business credit cards.
Patrick: Alright. So for credit card transactions they’re forecasting and looking at what you’ve done and forecasting ahead. Do they get involved with the business at all, or do they just plainly look at receipts.
Brock: Nope. Hardly any of these organizations get involved with the business.
Patrick: So the day to day stays with the business owner.
Patrick: Okay. Alright. Guys, twelve best ways to get business financing in 2012. Dan?
How do you decide which business lending option is right for you?
Dan: I think one to maybe end this is… you know, we’ve got twelve of these that we’ve talked about, and there are more, but how do we decide, when is it okay for a business to except a high interest rate for something. And how does a business owner decide what’s right for them?
Brock: Simple answer: Use Lendio.
Patrick: (laughter) There you go.
Brock: I don’t want to come across as a big self promotion, but it just makes your life so much easier. You know, I’ll tell you a quick story. I had a friend of mine, he sent me an email. He asked me that exact question. He said, “Brock, I’ve got a friend who’s got a business, and they’re doing pretty well. They’re doing about a million dollars a year. He needs fifty to hundred thousand. What do I do?” And he wanted me to come back and give him all these instructions on how to do it and where and how to distinguish between this loan and that loan. And I just said, “I promise you…” You know, I just leaned back and said, “Just send him to Lendio.com and tell him to sign up, and we’ll take care of everything from there.”
Patrick: Well, because everything’s done on the back end. That’s what all the programing is all about.
Brock: We’ve built that technology to do it. And so he sends me an email and says, “Okay, I’ll do it.” He sent me another email, “Alright, I just signed up. Here are my four options.” And he told me which loan programs he had, and said, “Great. Well, pursue them and let me know how they go.” So he pursued the loan programs, but I said, “Keep me posted on how it goes for you, but I was really anxious.” Well, I literally just got an email this morning, and he sent me an email with the term sheet he’d just received, saying, “Thanks, Brock. It was as easy as you told me. I was just approved for forty-five thousand dollars.” He wanted fifty to hundred, but he was approved for forty-five through one of the lenders, and he was like, “This is exactly what I needed. It was easy. Nothing out of pocket. And I’m on my way with forty-five thousand dollars.”
Brock: And I’m anxious to do a video. Hopefully we can get a video testimonial out of the client, but at the end of the day that’s what we’re trying to do. We’re trying to say, “Business Owner, you have a lot on your plate, let us take that off your plate and make it easy for you.”
Patrick: You’ve created this company for that very specific reason. This has got to be just a little bit gratifying to just go, “Wow. We really did execute on what the overall vision was.”
Patrick: Alright. So you can read and listen to the podcast on Lendio.com. We’ve been talking about the twelve best ways to get business financing in 2012. This white-paper will be live on Lendio.com. Is it going to be in the blog section, or are you going to stick it in a different place.
Dan: Yeah, it’ll be in a couple different places. We should have a link to it from this podcast, and it should be easy to find.
Patrick: And be sure to download it.
Dan: And if it’s not, send me an email.
Patrick: (laughter) So alright, we’ll wrap it up there. So for Brock Blake the CEO of Lendio. It’s always good to chat with you because we don’t always get to chat with you every week.
Brock: Yeah, it’s great to catch up with you too and ,Patrick, if we don’t catch up before the Christmas holiday, I hope you have a great holiday season with your family.
Patrick: Thank you, Brock. Merry Christmas to you.
Brock: And I wish the same for all the business owners out there. This is a fun time of year.
Patrick: Dan Bischoff, director of communications at Lendio.com. Way to go on the employee of the month, and on a personal note, you’ve really done a terrific job turning Lendio into a media company for content.
Dan: Patrick was also the employee of the month this month, by the way. He’s got his own parking spot outside here on his radio station.
Patrick: “It’s the employee of the month!” No, I do appreciate that. Alright, so for Brock Black, Dan Bischoff, I’m Patrick Wiscombe. Be sure to pick up the podcast on Lendio.com/blog. You can also find an entire transcript of the podcast on Lendio.com/blog. So for Brock, Dan, I’m Patrick Wiscombe. Thanks for listening to the Entrepreneur Addiction Podcast. We’ll talk to you next week.
Voice: Making business loans simple, this has been the entrepreneur addiction podcast, helping you secure the capital you need, with your host Brock Blake, Dan Bischoff, and Patrick Wiscombe. Heard exclusively at Lendio.com.