Lending Library

While there’s no specific loan product called a “payroll loan” for small businesses, there are several business financing options available that can be used to cover payroll expenses. This allows you to keep your operations running smoothly, even if you're experiencing short-term cash flow issues.

Benefits of Payroll Financing

Covering payroll is one of the top four reasons business owners get a loan with Lendio. 

Getting funding for payroll takes the worry out of supporting your employees each month when your cash flow is inconsistent. It's usually short-term financing that helps you bridge the gap on your payroll expenses, whether you're a seasonal business or simply have a long accounts receivable timeline. 

There are a few different types of payroll financing. Some are better suited for certain types of businesses than others. So it's smart to explore each option and find the one that makes the most sense for your unique company.

There are several perks to getting a business loan through Lendio to cover payroll costs, including:

• Multiple options for different stages of business - Choose a financing structure with repayment terms that work for you. There are many options out there, whether you're a new business or already established. 
• Easy application process - Lendio’s 15-minute application process is quick and easy to complete.
• Quick funding times - Depending on the lender, you could get approved and funded in just a few business days (sometimes even less). No matter how unexpected your financing needs may be, you can solve the problem in very little time. 

4 Types of Financing For Covering Payroll

Here are common options to explore for payroll financing. 

Term Loans

A term loan provides you with a lump sum that you can use as working capital to support your company's payroll and even other expenses, if you choose. The interest rate and monthly payments are both fixed, making it easy to budget for.

Compared to other financing options, a term loan's interest rate can be much lower. Plus, the online application is typically fast, and you'll enjoy a quick funding time once approved.

How to Qualify

In order to apply for a term loan, your business must be at least six months-old. There's also typically a minimum personal credit score requirement that starts at 600, and your company's monthly revenue needs to be a minimum of $8,000.

Lenders will also want to see a strong financial track record that demonstrates your ability to repay the loan. If you're a well-established business with solid financials and credit, then you could have a good chance of getting approved for a term loan to cover payroll gaps.

Line of Credit

A business line of credit (LOC) is a great option for payroll financing because you draw funds from your LOC only as you need them. If your cash flow issues aren't consistent, a LOC acts as a convenient safety net.

And once you repay your balance, your available credit replenishes. You can borrow funds again the next time you need to cover payroll or other operating expenses. Plus, you only accrue interest on the drawn funds, instead of one large lump sum.  

How to Qualify

To qualify for a line of credit, the minimum time in business requirement starts at six months. Annual revenue must be at least $30,000, and the minimum credit score to apply is just 600.

You can opt to apply for two types of lines of credit: secured or unsecured. With a secured LOC, you offer some type of collateral. Because of this extra layer of security for the lender, you may qualify for lower rates and a larger credit line. An unsecured LOC, on the other hand, doesn't require you to risk any assets, but you'll likely pay more for the credit line and qualify for a smaller amount.

Cash Advance

A cash advance lets you borrow against your business' future revenue. It's an option that relies more on your business finances than your personal credit score. Plus, a cash advance comes with a quick funding time. 

The repayment process is unique, however, and can vary. In some cases, your lender automatically withdraws a fixed daily percentage from your bank account. In others the lender will withdraw a fixed dollar amount daily or weekly. In the case of a merchant cash advance, the lender requires a fixed daily percentage of your credit card receipts. The repayment process continues until the full borrowed amount—plus a factor rate charged by the lender—is paid in full. 

How to Qualify

In order to apply for a cash advance, you'll need between four and six months of bank statements or receivables. The application itself typically takes just 15 minutes. Although the cost may be higher than those of other payroll financing options, you likely don't need to provide any collateral. Eligibility is primarily based on your sales, along with a minimum credit score starting at 500 and time in business requirement starting at three months. 

Invoice Financing

Another option for covering payroll costs is invoice financing (also called accounts receivable financing). It's similar to a cash advance except that, instead of basing your funding on future sales, it's based on your business' unpaid invoices.

You can apply to borrow up to 80% of your outstanding receivables, which can include inventory and purchase orders, in addition to invoices. Once your invoices are paid, you repay the balance to the lender, plus a factor fee of around 3%. 

How to Qualify

Eligibility requirements center around your receivables rather than your credit score or other factors. Plus, you can qualify with a shorter time in business requirement of no minimum to one year.

Stop worrying about meeting your payroll each month by finding the right financing solution for your business. Learn more about small business loans through Lendio.

The information provided is accurate at the time of the initial publishing of the page (INSERT DATE). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application.

Financing real estate development can be costly and expensive. From clearing the land and grading it, to installing roads and necessary infrastructure, there are a variety of expenses involved that can be cost-prohibitive for both individuals and real estate developers. This is where a land development loan, or a real estate development loan, comes in. It provides the funds needed to get any piece of land ready for development. 

Dive into land development loans below and learn everything you need to know about them for your next project. 

What Kind Of Down Payment Is Required With A Land Development Loan? 

While lenders are willing to fund a land development project, they typically require a larger down payment, since the land does not have that much value. The value could increase once it’s developed, but buyers could default on payments before any significant value has been established. Because of this, lenders often require a down payment between 25% and 30%.

Can The Land Itself Act As Collateral For A Land Development Loan? 

The land can act as collateral to secure the land development loan, but there are two things to keep in mind that may prevent this from happening:

• The development loan is more than the purchase price of the land.
• The land is still serving as collateral for a land purchase loan. 

If the development loan is more than the current value of the land, then additional collateral may be needed. 

For the second scenario, the land will most likely not be able to be used as collateral because it’s already tied up with another loan. Sometimes lenders are willing to take the risk of securing a loan with an asset that has already been collateralized, but it’s not a guarantee. The reason is that, as the second lender, they would not have the first right to the asset if the borrower defaults on their loans. That's why many lenders are not willing to accept an asset that has already been used as collateral.  

Lenders that do accept collateralized assets typically already have an existing relationship with the borrower and have confidence in their ability to repay the loan. However, even with a positive history, they are still likely to charge a higher interest rate than they would otherwise.

What Are The Interest Rates For Land Development Loans?

The interest rate on property development loans will vary from borrower to borrower, depending on the loan amount, credit score, down payment amount, and collateral used to secure the loan. Overall, land development loan rates are higher than small business term loan rates because of the greater risk. 

Also, keep in mind that interest rates aren’t the only cost associated with a land development loan. Other costs include:

• Appraisal fees
• Loan origination fees
• Survey fees

Speak with a loan officer to get a better understanding of land development rates and commercial mortgage rates. 

How Long Is The Repayment Period For A Land Development Loan?

Repayment periods for land development loans are usually between 3 and 10 years, but exact lengths vary between lenders and borrowers.

Pros and Cons of Land Development Loans

How Much Does it Typically Cost to Develop Land?

There are many factors that impact the cost of developing land. Assuming the land has already been purchased, variables that influence how much it will cost to develop land include:

• Geographic location
• Size of property
• Location of property, which may require:
• Rock removal
• Tree removal
• Grading
• Permits needed, which may include:
• Zoning
• Building
• Environmental
• Infrastructure needed, which may include:
• Power lines
• Sewer lines
• Water lines
• Roads
• Sidewalks
• Internet

Depending on what needs to be done and where, land development can range from tens of thousands to millions of dollars. 

Are There Other Types of Construction Loans? 

There are several types of construction loans, some of which include mini perm loans, A&D loans, and interim construction loans. Here's what you need to know about these options.

• Mini perm loans - Typically has a three- to five-year loan term and is used to finance the construction or renovation of a commercial property, often requiring a balloon payment at the end of the term (although this can often be avoided through refinancing)
• A&D loans - Standing for acquisition and development, can be used for both the purchase of land and its development 
• Interim construction loans - Covers the costs of construction, with borrowed money coming in installments, and lenders typically only requiring interest-only payments during the actual construction process  

A land development loan helps cover the expenses related to getting undeveloped land ready for construction. Land clearing, grading, and installing infrastructure can all be very expensive, and a land development loan helps pay for those costs. However, there are other types of commercial real estate construction loans that may also work, too. Other options include mini perm loans, interim construction loans, and A&D loans. 

Learn more about commercial property loans today with Lendio. 

When most entrepreneurs need funding to start or grow their business, they quickly learn one key fact: They need a business plan.

Just as you need a resume to apply for a job or a completed application to gain admittance to a university, business plans are required to apply for business financing.

And like resumes and college applications, business plans are viewed as a necessary evil by most entrepreneurs.

Yet, this shouldn’t be the case. Because unlike completing your resume or college application, the process of completing your business plan has been proven to improve your success—not only in gaining funding, but when executing on your business.

Why Business Plans are Important for Securing Funding

Business plans are a critical part of most business loan requirements. Funding sources like lenders and investors often review written company materials before investing. In the public markets, they review annual reports and other financial filings to determine the health and prospects of a company and whether or not they should invest.

The same process holds true when assessing private companies like yours. You need to present a business plan that paints the right picture of your business: one that gets investors and lenders excited to work with you. Here are some reasons to invest the time in creating an in-depth business plan. 

It Acts Like an Annual Report

Look at your business plan like a public company’s annual report. In an annual report, you’ll quickly notice that it’s much more of a marketing document than a research report. Annual reports include quality pictures and graphics, they highlight the company’s top accomplishments, and they paint a pretty picture of future prospects

You should also include market research on competitors. Instead of a massive data-dump, however,  paint a picture of your company's path to success in the future. 

It Sets Clear Milestones

The process of writing a business plan is a good exercise for internal stakeholders as well. It helps you formalize your company's goals and identify the steps you need in order to get there. Funding sources want to see that the business has a strategic plan for every anticipated stage of growth.

It Minimizes Risk

With milestones and a strategic vision in place, you'll have the focus of where to prioritize financial and human resources. You can identify potential issues based on those strategies and create backup plans before issues arise.

What to Include in a Business Plan for Funding

There are four primary components of a business plan: executive summary, the market analysis, financial details, and the funding request. Here's what to include in each section to maximize your chances of success.

Executive Summary

Start your business plan with an executive summary that provides a quick overview of the most important points from the rest of the business plan. It’s also a chance to introduce the company as a whole such as its mission statement, products and services and management team.

Market Analysis

Detail the target market need or pain: All great companies solve a real customer need or pain. Create a solution and understand both the size of your market and the future trajectory. Is it growing or shrinking? 

Detail both your direct and indirect competition. If there is a real customer need or pain, other companies must be trying to solve it already. In your plan, you must detail how they are solving the need currently. For example, when eBay first launched, it realized that the need for selling personal products was being met by yard or garage sales (indirect competition). This proved that there was a market need or pain.

While researching competitors for your business plan, explain what both their strengths and weaknesses are and pinpoint your strategy for differentiating your own company. 

Financial Information

Provide detailed information on how the company is currently performing and create a credible financial model. Creating a financial model that shows your company's sales skyrocketing could do more harm than good. Investors and lenders understand that all businesses have ups and downs and that all growth takes time.

In developing your financial model, think through the timing of your growth projections. How long will it take to hire and train the right employees? How long will it take to repeatedly get your marketing message in front of customers until they buy? These processes generally take longer than you initially think. And during this time, you are often incurring expenses and generating less revenue than projected, which could result in a cash flow crunch.

Be careful to consider slower growth scenarios so you don’t run out of cash.

Funding Request

There are a few key sections to include in your requests for funding.

First, clearly state how much total funding you need, as well as the timeframe over which the funds will be used. Instead of grabbing a random number, give a detailed explanation of why and how the funds will be used. 

Also, outline any specific terms and conditions you need. Are you looking for an installment loan, line of credit, or another type of funding structure? All of these details should be answered as part of the funding request.

Finally, provide information on any loans you already have and what your expected repayment plan for the existing loan and the new loan would look like.

The right business plan will get investors and lenders excited to write you a check that allows you to dramatically grow your company. And the right plan will keep you and your team motivated and on track to achieve your long-term objectives. So, don’t treat your plan as a necessary evil. Rather, treat it as an investment that can give you a significant ROI.

When financing major equipment for your small business, many lenders may require you to purchase a specific type of insurance that protects the value of your purchase. It's called equipment breakdown coverage and helps you pay for repairs caused by covered events. Here's what you need about this type of insurance and why it's so important. 

What is equipment breakdown coverage?

Many businesses rely on equipment to keep operations running smoothly. Whether you run a restaurant with tons of kitchen appliances or a construction business with heavy equipment and machinery, it's important to keep everything up and running so you can keep your customers happy and your balance sheet healthy.

Equipment breakdown insurance covers repair costs when certain events occur. If your equipment is financed, your lender may require you to have a policy in place. Even if your equipment is paid in full, this coverage can still be useful. Note that this coverage is separate from your commercial property insurance, which covers only damage due to external factors such as fire or theft.

When a covered event occurs, you can file a claim to get paid to fix the equipment. There's usually a limit to how much each piece is covered for, and you may also have to pay a deductible before your coverage kicks in.

What does equipment breakdown coverage cover?

Here are common events that are covered in most equipment breakdown insurance policies. 

Covered incident repairs.

Your list of covered incidents will likely vary depending on the type of equipment insured. Damage caused by power surges, burnouts, or other mechanical breakdowns are typically covered. And you could also be covered for any related inventory damage because of the breakdown. For instance, if your restaurant's refrigerator stops working, you could be reimbursed for any food spoilage in addition to the actual repairs.

Temporary or rush repairs.

Working equipment is vital to the success of your business. That's why your policy should also include coverage for rush repairs and temporary fixes. You need to keep operations running, even if it costs more to get a contractor out there the same day. You'll minimize the financial impact of your equipment breakdown on your broader business. Check policy details to understand any restrictions surrounding rush repairs. 

Lost business income.

There are many requirements your claim must meet in order to be eligible for lost business income coverage. But it's an important component that's usually included in this type of insurance policy. 

The idea is to get reimbursed for any revenue you couldn't collect because of an equipment breakdown. There must be a direct and well-documented correlation between the loss of income and damage to your equipment. There may also be a minimum interruption period you must get through before your policy goes into effect.

Property damage liability.

Liability coverage is a must for any business and your equipment coverage insurance should have a property damage clause. This provides reimbursement for anyone else's property that is damaged related to the equipment breakdown. 

Mandatory inspections

Another benefit of equipment breakdown insurance is that your policy may cover mandatory inspections. The goal is to identify issues before they arise, ultimately saving you (and your insurance company) money.

What equipment breakdown insurance does NOT cover.

Not all issues are covered by an equipment breakdown insurance policy. Here's what won't be covered, so you can plan accordingly.

• Damage from everyday wear and tear - Breakdown due to age or lack of maintenance is not included in most policies. 
• Software or data - Software-related malfunctions, even if purchased with equipment financing or equipment leasing, are not included in your coverage. You'll need separate business insurance to cover cyber attacks and any other issues related to software.
• Repairs beyond coverage limit - Your policy will come with a limit to how much you can claim with each covered event. It's typically based on the value of the equipment (or a percentage of that value).
• Deductible or coinsurance - Your insurance policy may come with a deductible, co-insurance, or both. A deductible is the amount you're responsible for with each claim before your coverage kicks in. Some policies may also include coinsurance, which is a percentage of the repair costs that you're responsible for.

How to use equipment breakdown insurance with equipment financing.

Most lenders require that you get an equipment breakdown policy whenever you finance your equipment. It's a smart financial safety net that keeps your important assets covered so you can avoid setbacks to your business when issues arise. As you explore adding more equipment to your business, remember this added cost of insurance as well. Preparation is always the key to success.

Learn more about how equipment financing can help grow your business with Lendio.

Private equity (PE) is often tangled with venture capital (VC) because they both invest in companies and use a variety of exit strategies, such as selling their stake during IPOs. However, there are some significant differences in the way they do business. Both invest in different types and sizes of companies, spend different amounts and even claim different percentages of equity.

Let’s have a closer look at the core differences between PE and VC firms, and try to characterize the variables that are pushing them to adopt one another’s strategy.

Private Equity

What is Private Equity?

Private equity is a form of investment that is much more hands-on than a venture capital investment. Instead of investing to own a stake in the company, a private equity firm acquires the entire company in the form of a buyout. 

Usually, the company in question is facing some type of difficulty or is distressed in some way. The PE firm evaluates the company and has a plan for how to resurrect it and make it more valuable. There's also usually an exit strategy in mind to sell the company within a few years in order for the PE firm to turn a profit. 

Who funds these private equity deals? In most cases, the answer is institutional or accredited investors. This includes investors such as:

• Pension funds
• University endowments
• Insurance companies
• Sovereign wealth funds
• High-net worth individuals or family offices

Types of Investments

Private equity funding can be packaged in a few different ways. The most common types of deals are buyouts, secondary buyouts, and carve-outs. Here's what each of these means.

Buyout 

This is the most well-known of private equity deals. A PE firm acquires an entire company to gain complete control of major decisions. The strategy can be used on private, public, or closely held companies. 

Secondary Buyout 

With a secondary buyout, a PE firm buys a company from another private equity group instead. The reasoning may be to fix a distressed company or to acquire a company to work with other relevant companies owned by the purchasing PE firm. 

Carve-out 

Instead of purchasing an entire company, a carve-out allows a PE firm to purchase a certain division of a company. It usually does not involve the parent company's core operations.

Venture Capital

What is Venture Capital?

A venture capital (VC) investment is a type of private equity, but instead of focusing on established companies, investors typically pick startups with the potential for major growth. VC investors can include individuals, investment banks, incubator programs, other types of financial institutions, and corporations.

In exchange for an investment, venture capitalists typically gain ownership of a percentage of the business. When profits are distributed or the company is sold, the investor gets that percentage of the total. 

For example, if a VC investor invests $250,000 for 15% equity, then the startup gets acquired five years later for $10 million, the investor's 15% stake will result in a $1.5-million payout. 

Types of Investments

There are usually two types of investments venture capitalists make in startups: an initial seed round of funding or a range of series funding as the company becomes more established.

Seed Funding

This is typically the first round of formal investment for startups. Some may have had a pre-seed funding round, which usually just raises capital from the founder's family and friends. In the seed round, the startup is still at an early stage, but has a concept and early proof of concept to entice VC investors.

Series Funding

As the startup becomes more established, it may opt to engage in additional rounds of funding. Each round is given a new title in succession: series A, B, C, D, and even E funding. Typically the company raises more money in each round.  

• Series A funding: $2 to $15 million
• Series B funding: $7 to $10 million
• Series C funding: average of $26 million

Private Equity Vs Venture Capital

Core differences: PE Vs VC Firms

Private equity firms buy established, inefficient companies, take total control, and make them more efficient to escalate revenue. They also attempt to capitalize on mispriced assets. 

Venture capital firms, on the other hand, purchase only 50% or smaller stakes in startup companies that they believe have the greatest growth potential.

While PE firms invest in a specific company and concentrate their expertise on a particular sector, VC firms like to diversify and reduce their risk profile. Usually, VC firms are limited to technology, biotechnology, and clean air companies. VC firms also often limit their investment to $10 million in each company. PE firms are open to how much they invest, particularly since they're usually buying out an entire company.

The core difference between the two is where they put their money. PEs invest in established businesses while VEs invest in startup growth.

Risk and Return

VC firms understand that most of the companies they invest in will not be profitable. But  they expect that at least one of them will turn in huge profits and make the fund profitable. Because startups can be so unpredictable, they basically hedge their bets across multiple investments. 

Fred Wilson, a $1-billion, New York-based VC fund, expects that out of the 25 growth companies it has invested in, about 10 will fail, one will turn extraordinary profits, about five will give solid returns, and the rest will be wiped out. 

Another key difference between VC and PE? VC firms use only equity to finance their purchases, but private equity investors use both equity and debt.

Additionally, PE firms have concentrated exposure in one or a few particular industries, so they have to bear additional risk. Their holdings in the companies are so extensive that, if one of the companies failed, the fund would mostly fail. However, shouldn’t higher risk translate to higher returns?

Modern portfolio theory proposes that greater risk is compensated with higher returns, but here, VC firms, even with the higher risk, are targeting the same returns as PE firms, and actual returns for both, are also very similar.

Small business owners who want to retain full ownership of their companies will most likely want to avoid outside investment. 

Instead, apply for a small business loan to get the exact amount of financing you need without having to give up equity in your company. 

Crowdfunding is a term used to describe individuals coming together to support—and directly fund—projects by other individuals and organizations. For small businesses and startups, crowdfunding can be an engine for job creation and development.

Compared to other methods of raising money, crowdfunding is very new, but has nonetheless already provided many businesses with the capital they needed to jumpstart and expedite their growth and potential.

Types of crowdfunding.

Types of crowdfunding.

Prospective and established small business owners can use crowdfunding platforms to jumpstart their next project, and there are four models of crowdfunding they employ to do so:

• Donations, philanthropy and sponsorship - Like it sounds, this form of crowdfunding involves people donating money for nothing in return.
• Lending - Also known as peer-to-peer lending, this model involves individuals lending a certain amount of money to be repaid with interest.
• Equity-based crowdfunding - The company sells shares of the company.
• Rewards-based crowdfunding - Anyone who donates money receives a reward, such as a discounted product or swag.

Anyone with questions about crowdfunding should first decide what they’re willing to give (if anything) and how they intend to excite potential donors to invest in their company.

How crowdfunding works.

How does crowdfunding work for businesses?

For a business that wants to use crowdfunding to raise capital, the first step is to decide what type of crowdfunding it wants to pursue. All types are available to small businesses, but there are benefits and drawbacks to each. 

Businesses that want to avoid paying additional taxes may want to steer clear of a rewards-based crowdfunding campaign. While the reward is given in exchange for a "donation," to the IRS, it is a sales transaction and is considered taxable income. 

To start a crowdfunding campaign, you’ll need to choose a crowdfunding platform. Crowdfunding platforms revolve around a specific type of crowdfunding. They're all a little different and are often aimed at specific demographics.

Once you've decided on the type of crowdfunding campaign you want to run, you will need to create a campaign page that explains what you need the money for and how you intend to spend it. Successful campaigns often provide videos to help motivate and excite donors.

Do crowdfunding sites charge money?

Yes, they do. The amount varies with each site, but it’s not uncommon for platforms to charge 5% or more of the total funds raised, plus a transaction fee for each donation. If you have an exact amount you need for your small business, you’ll need to calculate the fees when determining how much you need to raise.

Can crowdfunding money be used for anything?

Any money raised through crowdfunding must be used for the exact purpose stated to the public. Therefore, if you state that you need the money to cover manufacturing costs, you cannot turn around and use any funds raised to purchase stock or real estate.

Crowdfunding pros & cons.

The pros and cons of crowdfunding.

Consider the following pros and cons when considering using crowdfunding to fund your business.

Pros:

• Serves as a marketing tool - Crowdfunding can be a company’s first exposure to the world and can therefore be used as a means to advertise to the general public
• Provides a forum for feedback on the project - It’s common for investors to provide needed feedback on a service or product they have invested in; this feedback may be essential for your company’s long term success in the market
• Fees are minimal - Crowdfunding platforms take only a small percentage of the funds you raise from investors 
• Inexpensive way to raise funds - No traveling is needed to speak with investors, nor does it cost that much to establish. You can spend money to launch and run a campaign, but the amount you spend is up to you.
• Can make it easy to communicate to your investors - With all of your investors in one spot, communicating to them is a lot easier.
• May not have to give up equity depending on which type of crowdfunding campaign you choose - Equity crowdfunding is just one type of crowdfunding. Other methods don’t require selling portions of your company, which means you will be able to keep more of the profits for yourself.
• Is a valid alternative to bootstrapping and debt - Not too long ago companies had very few options when it came to raising money, but crowdfunding has changed that.
• Can create excitement over your project or product - Smart companies realize that raising money through a crowdfunding campaign is only one benefit—the other is generating buzz and excitement pre-launch. 
• Provides partial proof of concept - While a successful crowdfunding campaign is not complete proof of concept, it is still a very good sign. Full proof of concept is only established once the product or service is launched and is financially successful

Cons: 

• Often limited on amount of funding you can raise - Companies can not raise more than $5 million in a 12-month period
• Exposes project to the public, risking copycats - it’s not uncommon for companies to avoid crowdfunding altogether if they are currently unable to afford a patent because some companies use crowdfunding sites to get ideas for new products 
• Funds may be subject to securities regulation - Companies selling securities via crowdfunding must comply with all federal security laws, regardless of the platform they choose
• Takes a lot of work to find investors - It’s unlikely investors will find your page on their own and give you money. Successful campaigns often involve full-blown social media activity to attract attention.
• Takes a lot of work to create a campaign - Making a donation page, shooting a video, and filling out all of the appropriate paperwork takes more time than you may be willing or able to give.
• Dwindled influence of the crowdfunding model - Thanks to too many scammers, some investors have grown weary of crowdfunding altogether.
• Does not necessarily show proof of concept - There are many examples of "successful" campaigns that did not translate to the real world of business. 
• Can be expensive to get going - If you contract your campaign’s creation, you may end up having to spend more than you want.
• Too much competition on crowdfunding sites - Just creating a campaign is unlikely to be enough, and it can take a lot of work to have your project stand.

Crowdfunding sites

Crowdfunding sites

Popular crowdfunding sites include:

• Indiegogo
• Classy
• Seedinvest
• FundRazr
• Fundly
• Startengine
• GoFundMe
• Mighty Cause
• Kickstarter
• Fundable
• WeFunder
• EquityNet
• Patreon

To choose the best crowdfunding site, decide which type of campaign you want to create and compare the fees charged on each. It’s rare for investors to scroll through campaigns. Instead, many learn about investment opportunities on forums and social media. Therefore, don’t worry too much about where you launch your campaign because everything comes down to how it’s promoted. 

Crowdfunding tips

Tips for a successful crowdfunding campaign.

Like any other type of business financing, crowdfunding requires strategic thought, upfront work and a commitment to reach out to potential investors. Consider the following tips when planning your crowdfunding project.

1. Choose the right site for you - Some sites occupy a specific niche, such as arts or nonprofits. Find the one that fits your business and your ideal donor demographic. You can run multiple campaigns at the same time through different sites, but you will want to consider how. 
2. Set a realistic target and time limit - Asking for too much or too little can affect your project’s chances of success.
3. Create a campaign video - A personal touch—which video excels at— can pay off. In fact, projects with videos outperform those without by 125%.
4. Post regular campaign updates - Keep supporters engaged to maintain momentum. The more buzz and excitement you can generate and maintain for your project, the more likely your donors will recommend your project to their peers. If done correctly, they may even promote your campaign for you. 
5. Connect with friends and family first - Begin with word of mouth among your inner circle, then promote your campaign on social media. Some donors are more likely to contribute if they feel the campaign is already in motion and gaining traction. 
6. Offer rewards - Supporters may be more eager to back you if you offer a small incentive. Just remember that doing a rewards-based crowdfunding campaign means you will pay tax on any money received. 

Crowdfunding is an exciting new way to raise money for your small business, and there are a lot of opportunities to be had. However, you may still require additional capital after your campaign ends even if it is successful. 

Learn more about your business funding options today at Lendio.

Financing your business with an SBA loan can help you invest in the things you need to grow your revenue. However, in addition to your financial documents and business plan, some SBA loans come with insurance requirements. When your loan terms come with collateral obligations, that property also needs to be covered with a hazard insurance policy. 

Here's what to know about hazard insurance and when you need it.  

Hazard Insurance Explained

Hazard insurance is a type of business property insurance that covers damage caused by accidents or natural disasters. Your insurance policy will outline "covered events." These are the types of events that may occur and cause damage. When that happens, your hazard insurance kicks in and covers the damage (within the limits of your policy).

Most hazard insurance policies include the following covered events:

• Theft
• Vandalism
• Fire damage
• Some water damage (caused by things like burst pipes, but not natural flooding)
• Storm damage 

In addition to covering the building itself, hazard insurance also covers the property inside. This includes any damage caused to:

• Furniture
• Equipment
• Inventory
• Tools

Limitations Of Hazard Insurance

Hazard insurance policies don't give your business an automatic blank check when a covered event occurs. Each policy comes with a coverage limit for both the building and the property within. So it's important to get a policy large enough to cover a worst-case scenario, such as a total loss.

Your hazard insurance policy will also come with a deductible—the amount you're responsible to pay before your coverage kicks in.

SBA Hazard Insurance Requirements

The SBA hazard insurance requirement applies to property that is used as collateral. Most SBA loans, including 7(a) and 504 loans, require some type of collateral in order to be approved. 

Because it's used as collateral, the property must be properly insured. That way, if there's any damage done that's out of your control, the building can be repaired or replaced and still maintain its value.

Here's the breakdown on hazard insurance requirements for each type of SBA loan:

• SBA 7(a) loans - Hazard insurance is required for loans of $25,000 or more.
• SBA 504 loans - Usually the property being renovated or purchased is used as collateral.
• Microloans - Hazard insurance is not required, but flood insurance might be.
• Economic Injury Disaster Loans (EIDL) - Hazard insurance is required for loans of $25,000 or more.

Types Of Business Property Insurance

Not all insurance companies refer to property insurance as hazard insurance. Instead, they may call it commercial property insurance. Here are some options to explore as you look for coverage required by the SBA.

Commercial Property Insurance

Commercial property insurance is the same thing as hazard insurance. Any covered events provide reimbursement for building repairs, as well as damaged items within the building. With this type of insurance, you would need to file a claim for your business. Then an insurance adjuster would assess the damage and provide you with reimbursement accordingly.

Flood Insurance

Anytime your commercial property is located in a flood zone and used as SBA loan collateral, you'll need a flood insurance policy as well. That's because damage caused by flooding is not typically included in most hazard or property insurance policies. 

To see if you need flood insurance, first visit FEMA’s online flood map tool to see if your property's address is located in a flood zone and then check your need for insurance when you apply for an SBA loan. If you do, you will need to pay an extra premium, but it will be worth the investment, if you're in an area at risk of flooding. 

How To Get Business Hazard Insurance For An SBA Loan

If your commercial property isn't properly insured, you'll need to purchase a hazard policy as part of your SBA loan funding process.

Follow these steps to ensure you're in compliance with your loan terms:

1. Choose a licensed insurance agent - Even though licensed insurance agents typically receive a commission on your purchase, they are best equipped to help you find the right business coverage for your needs. Specifically seek out one who is experienced in meeting SBA loan requirements. 
2. Compare policies - With the help of your insurance agent, compare the terms of all of your hazard insurance policy offers. Compare premium costs and coverage to make sure you get the right balance between the two.
3. Name your lender as the loss payee - It's standard practice to name the SBA, your lender, or CDC as the loss payee on your hazard insurance policy. They have a vested interest in ensuring the property is repaired or replaced. In some instances, they may monitor how the insurance funds are used.
4. Maintain your hazard insurance policy - Keep up with your insurance premiums to stay in compliance with your SBA loan terms. You cannot cancel or reduce the insurance policy unless there is some justification that the insured assets have been reduced or depreciated.

Getting proper hazard insurance is just one step in obtaining an SBA loan. Lendio's team of experts can help you throughout the entire process. Apply for an SBA loan now!

The U.S. Small Business Administration (SBA) offers a variety of attractive loans to small businesses in the U.S. SBA Express loans are one popular loan option you might want to consider if you need no more than $500,000 in funding. Just like other SBA loans, Express loans offer low interest rates and flexible repayment terms that you may not find elsewhere. 

Compared to other SBA loans, however, these financing solutions come with much easier applications and faster approval times. Let’s take a closer look at what SBA Express loans are and how they work, so you can decide if they make sense for your unique situation.

What is an SBA Express loan?

An SBA Express loan is part of the SBA 7(a) loan program, which is the most popular SBA funding option. Upon approval from an SBA-approved lender, you can use the funds for a wide variety of business-related expenses, such as commercial real estate, equipment, working capital, debt refinancing, or business expansion. 

You can choose from the standard Express loan or Export Express loan and lock in up to $500,000 in funding. While repayment terms depend on loan type and purpose, they go up to seven years for lines of credit, 25 years for real estate loans, and five to 10 years for other loans. 

The lender, loan size, and your financial situation will dictate the interest rate you may receive, but SBA Express loans cap out at the prime rate plus 6.5% for loans of $50,000 or less and the prime rate plus 4.5% for loans greater than $50,000. The chart below outlines the key components of these loans.

Types of SBA Express loans.

There are two types of SBA Express loans, including standard Express loans and Export Express loans. Let’s dive deeper into the details of each one.

Standard SBA Express loans.

Standard SBA Express loans are designed for qualifying small businesses that operate in the U.S. or the U.S. territories. The SBA responds to applications for these types of loans within 36 hours. With a standard SBA Express loan, you can borrow up to $500,000 and enjoy an SBA guarantee of 50%. While interest rates max out at the prime rate plus 4.5%, they ultimately depend on your qualifications, lender, and loan amount.

SBA Export Express loans.

SBA Export Express loans differ from standard SBA Express loans in that they’re geared toward exporters. If you’re in search of funding to support export activities for your business, this option is worth exploring. The SBA will guarantee 75% of loans that are larger than $350,000 and 90% of loans that are less than $350,000. Approval times are also shortened as the SBA will respond to applications in no more than 24 hours.

How SBA Express loans work.

You can apply for an SBA Express loan through an SBA-approved lender, which may be a bank, credit union, or online lender. To do so, you’ll need to complete SBA Form 1919 and any other forms the financial institution requires. While down payment requirements vary, 10% is typical and startups may have to put more down. 

Also, if you opt for an Express loan of over $25,000, you will need to back your loan with collateral. If you choose an Export Express, you’ll need to adhere to the particular collateral requirements set forth by your lender. 

Even though each individual lender will make their own eligibility decisions, the SBA will respond to Express loan applications within 36 hours and Export Express loan applications within 24 hours. This is much faster than the five to 10 business days the SBA usually takes for other types of loans. Keep in mind that funding times are also lender-dependent, but are typically completed within 30 to 60 days.

How to take out an SBA Express loan.

If you’re interested in an SBA loan, follow these steps to get one.

1. Determine your borrowing needs: Since SBA Express loans cap out at $500,000, it’s important to figure out how much money you need. If you’d like to borrow more than $500,000, you may have to explore alternative financing solutions.
2. Verify your eligibility: Before you go ahead and apply for an SBA Express loan, make sure you meet all the criteria. Your business must be considered a small business by the SBA and have reasonable owner equity to invest. Plus you’ll need to prove that you’ve already invested financial resources toward the business. In addition, you’ll be required to meet the individual lender’s criteria, which may include a minimum credit score of 650, at least two years in business, and strong annual revenue. 
3. Choose a lender: Not all SBA lenders are created equal. That’s why you should shop around and find the ideal option for your unique situation. You can always use the SBA lender matching tool on the SBA website to help you out.
4. Fill out SBA Form 1919: Once you decide on a lender, complete SBA Form 1919. Be prepared to share information about who owns the business, what you intend to do with the funds, the number of employees you have, and whether you’ve received any SBA loans in the past. Double-check your work to avoid errors and inaccuracies, which may lead to delays with approval and funding. 
5. Submit documentation: Some lenders will ask you to provide certain supporting documents with your application. These may include business credit reports, financial statements, personal and business tax returns, and a business plan.
6. Wait for approval: As stated, the SBA will respond to standard Express loan applications within 36 hours and Export Express loan applications within 24 hours. Once the lender receives the green light from the SBA, it’s up to them to approve your application and distribute the funds. In most cases, however, you’ll be able to close on your loan within 30 to 60 days.

Pros and cons of SBA Express loans.

Like most business financing solutions, SBA Express loans come with benefits and drawbacks you should consider, including: 

Pros

• Fast turnaround times: If you’re in need of an SBA loan with quick approval and funding times, the SBA Express loan may be a good option. Depending on the type of loan you choose, the SBA may approve your application within 24 or 36 hours. This is quite fast when you consider that it typically takes them at least five to 10 business days to approve other types of loans.
• Flexibility with collateral: As long as your loan is less than $25,000, the SBA doesn’t require collateral. If you don’t want to put your personal or business assets on the line, you’re sure to appreciate this type of flexibility. 
• Easier application: Compared to other types of SBA loans, SBA Express loans have simpler applications. It won’t take you as long to apply for them, so you can expedite the process of securing funding.

Cons

• Smaller borrowing amounts: SBA Express loans cap out at $500,000. While this might seem like a lot of money, it might not be sufficient if you have plans to purchase expensive equipment or acquire a business. You might want to consider the traditional SBA 7(a ) program if you need to borrow more money. 
• Must meet certain qualifications: Unfortunately, SBA Express loans aren’t available to just anyone. To take advantage of them, you must meet stringent criteria set forth by the SBA and the lender you choose. 
• Lenders may take a while to distribute funds: Even though the SBA approves SBA Express loan applications quickly, it’s up to the individual lenders to provide funding. Depending on the lender you choose, you may still have to wait weeks or even months for the money.

Bottom line

If you’re in the market for an SBA loan, but want to skip the lengthy application and longer approval times of the traditional SBA 7(a) loan, the SBA Express loan should be on your radar. Before you sign on the dotted line, however, weigh the pros and cons to ensure you’re making the most informed decision. Learn more and apply for SBA loans.