Lending Library

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accounts payable: Money a company owes to vendors, suppliers, or lenders. 

accounts receivable: Money owed to a company. Think outstanding invoices. 

accounts receivable financing: Enables companies to borrow up to 80% of the value of their outstanding accounts receivable, giving business owners cash flow to cover expenses like payroll. 

accruals: Business expenses that have been incurred but are not on the books yet or work that has been done, but not invoiced. 

ACH payments: Payments made through the Automated Clearing House (or ACH) Network. ACH payments are made when one party gives another authorization to deposit or withdraw funds directly from a bank account—commonly used in direct deposit for payroll or automated payments for bills and loans. 

amortization: The process of spreading out a loan into a number of fixed payments over time. Your total payment stays the same each month. The percentage of principal vs. interest that makes up the payment fluctuates. 

angel investor: An individual who invests in a business at the startup stage, often in exchange for equity or convertible debt. 

annual fees: Fees that can be charged by the lender each year to cover the administrative costs of a loan. Most often seen with lines of credit or business credit cards. 

APR: Annual percentage rate. This is the annual cost of your loan. It includes the interest rate and any other costs assessed, such as origination fees.

articles of incorporation: The set of formal documents filed with a government body—usually your state— that documents the creation of a company. Think of it as the marriage or birth certificate for your business. 

asset: Something of value that you own. Appreciating assets like stocks tend to increase in value or in their ability to produce income. Depreciating assets like cars lose value over time.

asset-based lending: A loan or revolving line of credit that uses a company’s assets as collateral. This can encompass receivables along with assets like equipment, real estate, inventory, and raw materials. 

All good things must come to an end. This classic saying applies to everything from steak dinners to perfect sunsets, and it certainly has relevance to business partnerships.

There are positive scenarios for business breakups, such as a partner retiring or moving on to other opportunities in their life. On the flip side, there are also more volatile situations where personality differences, deception, or other factors that lead to the dissolution of partnerships. Unfortunately, in times like these, it can get ugly.

It’s important to remember that it's a process that has been happening since the first smelting businesses formed thousands of years ago during the Bronze Age. So if you’re in the midst of a partnership breakup and it feels overwhelmingly difficult, know that there’s a path forward and you’ll be fine.

“Selling to a partner is often one of the easier transfers to handle legally—not that partners don't have their battles and disagreements—but most buying partners want to make the transition smooth and get the selling partner out quickly and painlessly,” says attorney Mark J. Kohler. “Many times, I feel that partners are amenable and anxious to define the transaction and process so that they themselves can utilize the same method with a good conscience in the future.”

While it’s true that buyouts can be smoother than business-related transfers, it’s always advisable to do your due diligence and proceed with caution. This process starts with consulting an attorney that handles acquisitions. The attorney can help you understand the nuances of your state’s business partnership laws and form a proper strategy.

The goal at this stage is to outline the process and identify potential risks. Because make no mistake—a buyout always contains risks. And having a third-party expert involved is a proven way to mitigate them.

Here are 5 more steps to buying out a business partner:

1. Get an independent valuation

Before you can buy or sell anything, you need to know its value. You and your partners will likely each have some personal thoughts on the matter of valuation, so using a trusted firm to handle the valuation is always recommended.

To ascertain the value of your business, these third-party experts will estimate your future profits and correlate that with the projected rate of return.

2. Get on the same page

Once the firm has finished their evaluation process, you’ll have a solid foundation as you work to negotiate a buyout price that’s fair for all parties. These can be delicate conversations, so it’s helpful to have independent data available.

At the same time, remember that business valuations aren’t an exact science. There are myriad factors that are difficult to account for, yet play a role in the situation. For example, if your partner has decades of experience and plays a critical role in the business, they might ask for a higher buyout amount due to their prominent position. But you would also need to consider the decrease in valuation that could occur with the loss of their expertise, guidance, and connections.

Strive for fairness at this stage in the game because business valuation discussions can easily escalate into angry stalemates. To keep things progressing, as well as enhancing their company’s equity value, many buyers will acquiesce somewhat to the selling partner and accept a higher amount than they’d prefer.

3. Keep your options open

Both business valuations and former business partners can be unpredictable. It’s important to stay flexible throughout the process so you don’t find yourself holding the wrong basket, fully loaded with eggs.

Your attorney can help you navigate the process as it unfolds. Perhaps you’ll dissolve the partnership, rewrite the partnership agreement, or continue with the buyout. The important thing is that you react to each development strategically.

4. Organize your financing

Most buyers simply aren’t in a position to pay their partners in cash. For this reason, it’s important to check out the various debt financing options and see what works for your needs. Loans from the Small Business Administration are often thought of as some of the best for this kind of transaction.

You’ll also need to determine the structure of your financing. With a buyout over time, you’ll pay set amounts of money to your former partner over time until the purchase is complete. With an earnout, the selling partner would also be paid over time, with the added condition that they stay with the company for a transition period to help improve sustainability. And lump-sum payments are just what they sound like, with a single transaction occurring and the selling partner immediately stepping away from the business.

5. Handle the details

After you’ve settled on the best way to progress, be sure to do so carefully. Lean on your attorney whenever you have questions or encounter challenges. Your attorney will take care of drafting the agreement to release your partner’s liability. Additionally, the attorney will prepare the other necessary paperwork so you can file all the correct documentation at the local, state, and federal levels.

You’ll also need to transfer various accounts that are in your partner’s name. Each time you do this, take the time to reset the passwords on the online portal. This step isn’t done to show disrespect for your former partner but to start again with a clean slate.

As you follow these steps, you’ll help ensure your buyout is as respectful as it is uneventful. Even the most friendly of partners can get their feelings hurt in this process, so the more you can do to keep it professional and streamlined will pay dividends in the end.

If things do become hostile, try not to take it personally. Your former partner is likely going through a major upheaval in their life. This is truly a time where patience is a virtue. Rely on your attorney and other third-party experts to help insulate you whenever possible, and thoughtfully make your way through this process so you can emerge triumphant on the other side without any collateral damage.

Do you want to take your small business to the next level? If so, you need to make every financial investment into your business count. 

Successful business owners combine due diligence, a deep understanding of business processes, and keen foresight to turn a small business into a profitable one. One key financial principle that business owners must understand is ROI. 

What is ROI? 

ROI stands for return on investment. With any investment, whether it is time or money, there is going to be a financial gain, loss, or break-even point. ROI is the analysis of this financial performance in the business world.

Here’s an example: you purchase $500 in stocks today. If you were to sell those stocks tomorrow for $1,500, you would have a gain—a positive return on your investment. If you were to sell those stocks tomorrow for $100, you would have a loss.

Why Does ROI Matter? 

Having the foresight to determine if an investment will result in a positive return allows you to make financial decisions that will ultimately help you successfully grow your business. 

ROI is especially important when it comes to business financing. If you’re borrowing money, you want to make sure the growth opportunity will generate enough revenue to justify the cost of the loan. Otherwise, you could find yourself drowning in debt. 

Calculating ROI can also come in handy if you’re trying to determine which investment makes the most sense for your bottom line. Here are some examples of how you might put an injection of capital to use: 

• Replacing outdated equipment or machinery
• Redesigning your website to take your brick-and-mortar shop online 
• Hiring a marketing manager to kickstart new marketing and advertising initiatives
• Opening a second location on the opposite side of town
• Diversifying your product line and services to sell more to existing customers and attract new customers 
• Franchising your small business to expand it nationally—or even globally
• Consolidating several forms of high-interest business debt under a new loan 

The investment path you choose depends on many factors. It depends on where your business stands now and what it has to offer. It depends on the market and future trends. It depends on how far you want your business to grow. And it depends on you, your team, and your combined strengths and weaknesses.

With all of these factors in mind, you will need to decide which of the above paths is most likely to create a positive ROI. 

How to Calculate ROI 

Calculating ROI can be a bit tricky if you start overthinking it. InvestingAnswers offers a simple ROI formula that small businesses can use to determine the return on investment for most ventures.

ROI = (Net Profit ÷ Cost of Initial Investment) x 100

Here are a couple of examples of this formula in action based on a few of the small business expansion ideas mentioned earlier. Please note that these are just examples of the ROI formula in use and not typical results of the specified investments.  

Scenario #1

Your business invests in a complete redesign of your website. The total cost of investment is $15,000, which includes a custom e-commerce website design and quality photos of your entire product line. 

After the first month, your new e-commerce store generates a net profit of $3,000. This net profit is calculated after deducting monthly website hosting fees, product shipping and handling costs, and additional costs associated with your new e-commerce store.

The ROI of your website redesign, for the first month alone, is ($3,000 ÷  $15,000) x 100 = 20%. 

Scenario #2 

Your business invests in a new marketing manager. The total cost of investment is $52,000 for the first year based on the new hire's salary, benefits, and initial training. 

After the first year, new marketing initiatives generate a net profit of $120,000. This net profit is calculated after deducting advertising fees, monthly marketing software fees, and additional marketing spend.

The ROI of your marketing manager for the first year is ($120,000 ÷  $52,000) x 100 = 231%. 

Scenario #3

Your business invests in opening a second location. The total cost of investment is $225,000, which includes permits, POS equipment, inventory, payroll, and the retail space itself. 

After the first year, the net profit for your new boutique is $85,000. This net profit is calculated after deducting standard operating costs and taxes. 

The ROI of your second location for the first year is ($85,000 ÷ $225,000) x 100 = 38%. 

What is a Good ROI?

For most scenarios, any positive return is considered a good return on investment. If you want your business to have exponential growth, you will want to aim for the highest ROI possible. 

You’ll want to increase your sales without increasing your spend. You can employ several tactics alongside major investments and business expansions to increase your overall revenue. 

Focus on providing excellent customer service and remind all of your customers to review your business online. Your business rankings in search engines will steadily improve as it receives a larger quantity of positive rankings, leading to exposure among your ideal customers. Also, be sure to respond to your reviews, as that can help improve your local rankings, according to Google.  

Train all of your employees to upsell. If you can increase the average dollar amount of each sale, you will increase your business's overall revenue without having to increase marketing or advertising spend to attract new customers to your store. 

For small businesses with online stores, look for ways to improve online conversions. Place opt-in forms on every page of your website for visitors to share their email address to receive future sales promotions. Utilize A/B testing tools, like the one provided by Google Analytics, to test your product sales pages and determine which changes result in the highest conversion rates. 

Once you understand ROI, you’ll be able to make informed financial decisions for your small business that will lead to its success. After thorough research and some careful calculations, you may find that the path that seems riskiest may have the potential to generate the highest return on investment. And that will be the best scenario for taking your business to the next level. 

Understanding the concerns and challenges lenders face can help you avoid what lenders see as “red flags” and make yourself an ideal candidate for the next time you need a business loan. The age of online lending has brought a couple of new challenges. One of the biggest is loan stacking. 

What Is Loan Stacking? 

Loan stacking is the practice of taking out multiple loans from different bankers at the same time and letting the amounts “stack up.” Traditionally, if you took out a loan for $20,000, and then you received another loan for $40,000, you would use the second loan to pay off the balance of the first loan. 

Loan stacking occurs when you don’t follow that practice. As Brock Blake, Lendio’s CEO, explains, “Stacking means that you don’t pay off the other loan, just add $40,000 on top of that. So now, the customer has the $20,000 loan and a $40,000 loan. And so they’ve got $60,000 worth of loans outstanding, a larger payment, and in some cases that’s appealing to that business owner because they think more money is better. But then they get caught up in high payments.” 

The Dangers of Loan Stacking for Lenders

When a lender approves your loan, they set the amount based on what they think your business can reasonably repay. Even if the amount is less than you originally hoped for, it’s often for the best. Stacking multiple loans can come back to bite you if those payments pile up. You may find yourself behind on not just one, but multiple loans. 

From a lender’s perspective, loan stacking increases the risk that the borrower will become delinquent on their loan. According to a 2015 study conducted by credit reporting agency TransUnion, loan stacking accounted for $39 million of charge-offs, the point at which the lender deems it unreasonable to expect repayment. That number accounted for 7.8% of total charge-offs. 

In addition to borrowers inundated by payments, lenders have to look out for borrowers with malicious intent. Some borrowers will intentionally stack loans without any intention of paying them back. 

The Risks of Loan Stacking for Borrowers

We’ve covered this one already, but it’s worth repeating: stacking loans can give you a case of mo’ money, mo’ problems. You’re more likely to let payments build up, fall behind in repayment, or go delinquent on a loan—which is counterproductive to that business credit you’re trying to build.

Loan stacking may also jeopardize your ability to get financing in the future. As we’ve discussed, lenders really don’t like it when you stack loans (and with good reason). Some lenders include a clause in the lending contract that stipulates the borrower can’t stack loans. If you’ve signed a contract with a clause like this and your lender discovers you’ve stacked a loan, they may not lend to you in the future. 

While loan stacking may seem like it’s giving you more capital, it works against everything you’re trying to build in your business financing. It will affect your business credit negatively, and it may make it harder to qualify for another business loan. Barring yourself from access to future financing ultimately costs more than the benefit of a bit more cash in the short term. 

How You Can Protect Yourself

There are 2 main ways that loan stacking can occur—borrower-initiated loan stacking and lender-initiated loan stacking. You want to steer clear of both of them. 

Borrower-initiated loan stacking is the process where the borrower seeks out additional loans. This one is easy for you to avoid because all ya gotta do is... refrain from taking out new loans if you already have one (unless you pay off the first loan with the second, which is a whole different can of worms). 

But what if a new lender comes to you and offers you a new loan? Borrower beware. Some unscrupulous lenders comb public records looking for businesses that have recently taken out financing. They then try to sell those borrowers loans with poor terms, with little interest for how it’s going to affect your business credit score. 

The best way to protect yourself is to do your due diligence on any in-bound loan offer. You want to vet lenders the same way they vet you. If you have questions, talk to an expert. The same way you go to your doctor for questions about your health, you can go to your Lendio Funding Manager for questions about your financial health. They’ll help you understand the fine print, make sure you’re getting the best terms, and help you avoid anything that could hurt you down the road. 

The unemployment level in the United States is at its lowest point in 50 years, which means different things to different sectors of the economy.

For many workers, this is generally good news–it shifts the power dynamic toward employees. The theory is that they have more choice, although other factors are at play that prevent us from saying that 2019 is an unambiguously great time for labor.

Small business owners, however, may look at the statistics with some queasiness. An environment of low unemployment makes it harder to attract and keep good employees.

Some companies might respond to this environment by trying to “churn and burn” your staff. By reducing pay and the amount of training a workforce needs, some businesses attempt to adapt to a future where a constant stream of workers are hired for short amounts of time before they quit or are terminated.

Not only is this strategy morally dubious, but it is also costly. Studies show that the price of losing an employee can amount to tens of thousands of dollars, even for small businesses. One study contends that the cost of losing and replacing an employee can cost up to double the lost employee’s annual salary.

A survey of human resource managers found that some businesses believe over half of staff turnover is caused by employee burnout, defined as job dissatisfaction marred by poor pay and an overwhelming workload.

“As the economy continues to improve, and employees have more job options, companies will have to provide more compensation, expand benefits and improve their employee experience,” business author Dan Schawbel said of the findings. “Managers should promote flexibility, and ensure that employees aren't overworked, in order to prevent employee burnout that leads to turnover.”

Employee burnout appears to be an issue at businesses of all sizes across the country, but the survey, conducted by analyst firm Kronos, said it seems to get worse as employers grow in size.

“Though burnout touches organizations of all sizes, larger organizations seem to suffer more,” the researchers said. “One in 5 HR leaders at organizations with 100 to 500 employees cited burnout as the cause of 10% or less of their turnover while 15% of HR leaders at organizations larger than 2,500 employees say burnout causes 50% or more of annual turnover.”

Treating your employees well can have benefits that go far beyond the walls of your business. Happy employees are happy customer –a business that treats and compensates its workers fairly can impact its whole region.  

“Beyond boosting companies’ competitiveness, improving service workers’ jobs could have a huge impact on the US economy,” Zeynep Ton wrote recently in the Harvard Business Review. “It would increase the earnings and spending power of the working poor and reduce the enormous amount of public assistance they receive.”

Many HR experts today think about employee “engagement,” a term that attempts to explain how to hire and maintain top talent. Ideally, not only does an engaged employee have a decent work-life balance, but he or she feels fulfilled, at least on some level, by the job.

“Engagement has been the workforce buzzword for the past decade,” explained Mollie Lombardi, an expert in hiring matters, in a statement. “We talk about ensuring that employees are challenged, appreciated, and in sync with strategic objectives, but even when they have an intellectual or emotional engagement with their work they sometimes still feel overwhelmed.”

She recommends that employers take a customized approach to each employee. Compensation and workload are huge elements for keeping employees happy, but so is a feeling of achievement and community as part of a staff.

“While not all burnout can be eliminated, much of it can be avoided using critical strategies that balance consistency and personalization of schedules and workload; leverage managers as models for how their team can achieve work/life balance; and implement tools and technology that proactively manage burnout or otherwise support these efforts,” Lombardi continued.

Probably the oldest customer service mantra is that the customer is always right. 

Writing in Forbes, customer experience expert Shep Hyken believes that we should adapt this motto toward how we treat employees, with a bit of the Golden Rule thrown in for good measure.

In essence, an employer should treat employees the way you want your customers to be treated.  

“If top management berates those in middle management, leadership cannot expect line-level employees to be well-treated by their direct supervisors–even if there is something in a mission statement somewhere that makes the proper treatment of employees a high priority,” Hyken maintains. “The do as I say, not as I do approach doesn’t work.”

While the dynamics between the nation’s employees and employers will continue to shift, treating your staff with dignity is a time-tested method for growing a business and saving money in the long run.

Started in 1939 by the proud son of small business-owning parents, Rick Segal, Mom and Pop Business Owners Day is celebrated every March 29. Mom and pop businesses make up 54% of all small businesses in the United States and are quintessential examples of the American Dream — hard-working men and women building companies of all kinds from the ground up.

The Challenges Mom and Pops Face

However, running a business is not always as dreamy as many business owners would like, especially when it comes to finding funding. According to a recent Lendio study, on average, mom and pop businesses take on significantly smaller loans than other businesses, but they leverage a greater percentage of their monthly sales in order to take on that financing.

“Unfortunately, the traditional lending ecosystem isn’t set up to support mom and pop shops,” says Brock Blake, CEO and founder of Lendio.

Mom and pops have an average credit score that is 30 points lower than other businesses. Additionally, their time in business tends to be nearly two years less than non-mom and pops,  and their monthly revenue is $35,000 less on average. These facts often sink a mom and pop shop’s chances of getting funding from traditional lenders.

Mom and Pops’ Unseen Value

Access to small-dollar loans allows mom and pop businesses to keep their doors open and increase their economic impact. According to a national study on the economic benefits of online lending to small businesses, for every dollar lent to a small business, its sales increased an average of $2.31. Even more, that same borrowed dollar creates an average of $3.79 in gross economic output to local communities.

The importance of independent businesses is undeniable. Local restaurants return more than twice as much money per sales dollar to the local economy than national chains. And in retail, independent stores return more than three times as much per dollar in sales than their big-box competitors. But their contributions extend far beyond the economic value they provide.

Mom and Pops in the Community

“Mom and pops aren’t solely focused on their own success,” says Blake. “These businesses create neighborhoods, enhance the sense of community, carry on local traditions, and contribute to local causes that big businesses just can’t.”

Lendio’s mom and pop customers come from all over the U.S., representing industries ranging from restaurants and healthcare to manufacturing and education. Lendio is proud to support these independent businesses on Mom and Pop Business Owners Day and beyond. Mom and pops represent 53% of the customers funded through Lendio’s online marketplace, and their loans account for 34% of the total loan volume funded. Through more than $260 million in loans, Lendio has facilitated financing for more than 7,000 mom and pop businesses across the country.

Yes, credit card interest is deductible for businesses. But with recent changes, how much you can deduct has changed.

Is business credit card interest deductible for small businesses?

Credit cards are a great tool that many businesses use to keep themselves running. If you don’t pay your balances in full at the end of each billing cycle, you’ll probably end up paying some interest.

The long answer to whether or not you can deduct credit card interest on your taxes depends on the situation. Let's take a quick look at when you can write off your business credit card interest:

• Most (if not all) business-related credit card interest. Interest you pay on business credit cards is deductible when used for business-related expenses. The interest deduction also applies when the debt is directly related to your business operations, even if it's a cash advance. As long as it went toward operating your business, you can write it off.
• Different forms of interest within the paid year. You can only deduct qualified interest during the year in which you incurred the debt or made the payments.
• Your business credit card's annual fee. Some business credit cards come with an annual fee. If you have one of these credit cards, then you can write off the annual fee on your taxes.

Remember to keep your credit card statements and receipts to smooth the process of filing your small business tax returns. The IRS provides a host of resources to help you understand this process better, but in some cases, it may be a good idea to hire a qualified professional to do your taxes.

When is your business credit card interest not tax deductible?

One reason to opt for a business credit card rather than using a personal credit card for your business is that interest on a personal credit card isn’t usually tax deductible. Unless you can separate expenses from personal ones on your personal credit card, it can be hard to write off the interest.

Additionally, how much interest you can deduct has changed with the Tax Cuts and Jobs Act. When you file your taxes, businesses can only deduct up to 30% of their interest payments.

How to make claiming credit card interest easier.

Claiming credit card interest on your taxes might sound difficult. Here are some steps to make it easier for you:

• Don’t use a personal credit card for business purposes. Maintain separate credit card accounts for easy accounting.
• See if you can find an automatic way of tracking your credit card expenses and the interest that you pay on them.
• Hire a professional accountant or tax lawyer who will evaluate your specific business situation and give you a clear picture of how you can take full advantage of your small business tax deductions.

Small business tax deductions can add up to a significant amount of money back in your pocket each year. Remember that hiring a professional can help you maximize your tax return so that you can continue investing in your business.