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How to Meet the SBA’s loan criteria

To be eligible for a loan from a U.S. Small Business Administration-approved lender, you need to meet a lot of standardized criteria - all of them listed on the SBA's website.

However, you'll need to do more than just meet the bare minimums, no matter what lender you're applying to. Listed below are four tips for making you and your business look strong when applying for small business financing.

If you can excel on these points, you can be sure your business will look as healthy as can be in the eyes of the lenders. 

Have your documents straightened out and ready to go
During the application process, you're going to be dealing with paperwork constantly. So you'll be putting your best foot forward if all your paperwork and financial documents are ordered, verified, and double-checked before the process even begins - that way, you can be sure you won't have any hiccups. Using software to help you keep your files digitized and verified is never a bad idea, in this regard. 

Keep your credit scores - personal and business - strong
Besides having all the necessary criteria met and documents in order, the most important factor deciding whether or not you'll receive small business financing support is your credit scores. So if you know you'll be applying for a loan in the future, do anything possible to build and solidify them beforehand. Pay equal mind to your personal and your business score, too - most lenders will be taking both of them into account when making a decision. 

Have a plan for the loan
If you're asking for financing support, then you better have a plan for what you're going to do with it. The reason itself likely won't have much of an impact on the eventual decision - it could be equipment, additional real estate or anything else - but you're going to need to illustrate that you have a definite plan for what you're going to do with the funds you're borrowing. 

Spread out your search
All banks have different methods that determine who they loan to and how they do it. So make sure you're always considering multiple options when you're on the hunt for a loan, just in case you're not a good fit with one or more places that you end up applying to. Check out banks, credit unions and direct lenders like OnDeck to see which can offer you the specifications and standards that fit the needs of your business most comfortably. 

 

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Who Offers Small Business Loans?

Nowadays, there are plenty of places that small business owners can turn to for financing. You may think that banks provide the vast majority of small business loans - but the truth is that there are many other places entrepreneurs can turn to for funds for their organization.

SBA's offerings
For instance, the U.S. Small Business Administration offers a "Loans and Grants Search Tool" that's sure to offer valuable help to businesses throughout the U.S. This program - dubbed a "wizard" - will help small businesses find government resources, grant offers and other potential financing opportunities that are a smart fit for their business' specific needs and qualifications. 

The SBA has three main categories of loans for small businesses: 

  • Basic 7(a) Loans, which are for starting, acquiring or expanding a small business
  • Certified Development Company Loans are for growing businesses with long-term, fixed-rate financing for large assets
  • Microloans, which have a maximum of $50,000

P2P lenders
The advent of the internet has also shed light on many new services, including peer-to-peer lending (P2P). In this situation, those interested can receive loans from other individuals without working with traditional lenders, such as banks and other financial institutions. Most often, these come in the form of unsecured personal loans.

Direct Lenders
Of course, banks will always be open to offer loans to qualifying businesses who would rather turn to them than apply for grants and other forms of government financial support. However, this leaves one major category out: direct lenders. Many individuals - whether they own and operate a small business or not - are likely unaware of the massive effect that direct lenders have on the business sector, and on the economy in general. 

OnDeck offers an alternative form of small business financing to businesses that can't or would prefer not to deal with banks - and its effect on the economy, in doing so, has been massive. According to a recent report, OnDeck has helped to create an estimated $3.4 billion in business activity to date. Perhaps better yet, OnDeck loans have helped to create roughly 22,000 jobs.

This all comes from the $1 billion that OnDeck has deployed to Main Street since the company was opened - showing how alternative loans, in addition to other forms of financing, help to create great success in the business sector.

So, next time you are looking for financing for your business, be sure to think about all of the different sources before you start your search. There are plenty of options available to think about!

 

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Top Uses for Small Business Loans

As we've discussed, small business loans are readily available from many sources nowadays, from traditional bank lenders to alternative lending firms such as OnDeck.

But what are the reasons that small businesses typically take these loans out? We've listed a number of common uses below - if any of them fit your current business scenario, it may be time to get in touch with a lender like OnDeck. 
1. Real estate
One of the top reasons to obtain small business financing support is often cited as the most important factor for any business: location, location, location. If your office or store location is way too cramped - and consumers are getting antsy as a result - then it may be time to get a loan, and open a 2nd location. Or maybe it's even time to move your first location from one building to another on the other side of town - few things can spur future sales as quickly as a move can.

2. Equipment 
No business can operate without the items needed to offer its products and/or services! So if you're running low on essential pieces of equipment, or even if there's just new equipment available that you feel could improve the offerings at your business, then small business loans may be the ideal way of obtaining it.

3. Inventory
Just as businesses can't survive without the equipment needed to provide their products or services, businesses also can't survive without those products themselves. As such, a need for additional inventory is always a good reason to obtain a small business loan.

4. Other working capital
The three points listed above are some of the most common reasons entrepreneurs obtain small business financing support. Yet there are many other reasons, too, most of which relate to working capital - whether it's needing more money for payroll, or for anything else. So whenever your business is in need of funds, call up OnDeck - whether it's for any of the aforementioned reasons, or a totally different one.

 

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3 Tips for Your Next Small Business Loan Application

If you’re thinking about obtaining small business financing - either from a bank or from a direct lender like OnDeck – it’s important to do some preparation work before you apply. We’ve put together a few best practices to consider before you start your application. 

1. Know your business credit score
Do you know your business credit score? A recent study from Entrepreneur Magazine estimated less than 10% of business owners do. Before you start a loan application process, you should understand where you stand credit-wise. To learn how to find your business credit score, click here

2. Have all your data ready and on-hand
Think of applying for financing like a job interview: you wouldn't want to hire someone who forgot to bring their resume and doesn't know anything about your business, would you? On the same note, lenders are looking for businesses that are organized and provide documents in a timely manner. So make sure all your documents – like bank statements if you are applying with OnDeck, or tax documents and business plans for your bank, are in order before you start the application process.  

3. Investigate your best options for lenders
Be sure to carefully investigate all of your options for obtaining business funds - from lines of credit through business credit cards, and everything in between - before you apply. That way you can always match you’re financing need with the best available option. Sometimes it's best to go to a bank, and sometimes you'd do best to go to a direct lender like OnDeck. The key is to research your needs, and to select where you apply for support based on your own scenario.

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What's the difference between secured and unsecured loans?

As a small business owner, it’s important to understand the distinction between “secured” and “unsecured” when searching for financing. 

Secured business loans
A secured business loans means that you need to offer collateral alongside your repayment.

By offering collateral, business owners afford lenders a way of knowing that they can collect on the balance of the loan if anything goes wrong. 

There are many different forms of collateral - ranging from inventory or equipment to your own home. Sometimes, secured loans can come at lower rates.

However, the downside is that if you default on the loan, you lose the collateral itself - and lenders often give lower value to collateral than a borrower or appraiser would, meaning that whatever you put up will be exchanged at a lower cost than it is worth. 

Unsecured business loans
An unsecured business loan is when the borrower doesn’t need to offer collateral or a comparable form of security to the lender. These loans take other factors into consideration when determining risk, such as the health of your business, credit ratings, reputation and other data. Sometimes, unsecured loans can come at higher rates than secured loans.   

Next time you are looking for financing, be sure to ask your potential lenders whether they offer secured or unsecured loans. It's an important part of your dialogue with your lender, and determining which financing choice is right for your business. 

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When is it the right time to turn to a bank?

Last week, we covered an appearance that OnDeck CEO Noah Breslow made on MSNBC, discussing how business owners can prepare before they apply for a loan. This week, we detail another set of tips he offered to small business owners: when is the right time to turn to a bank for a small business loan.

1. If you're a proven business looking for financing for a specific advancement
Only plan on applying for bank financing if you have a specific purpose, Breslow suggests. He told the news outlet that it's easy for banks to calculate the payoff on specific improvements to your business, making them more likely to offer a loan in those scenarios.

"A great example of a growth opportunity might be a restaurant that's expanding its outdoor seating so it can serve more customers," he said, "or a Lasik eye surgeon who might be investing in marketing to acquire more patients."

2. You have an opportunity for significant savings if you get more financing
Another case where it's good to go to a bank is when you need a loan to purchase products that have high profit potential in the near future. 

"Imagine you're an auto repair shop, and you get a discount on wiper blades," Breslow explained to MSNBC. "But if you don't act now, you don't get to buy those wiper blades and mark them up and sell them at retail."

3. You can't keep up with the demand for the products you supply
If consumer demand for your products is outpacing the speed at which you can produce those products, you're definitely a good fit for a bank loan. Additionally, if you need to higher seasonal workers to keep up with demand, a bank loan would certainly be applicable.

"Seasonal hiring is a great use of capital from a loan," Breslow said.

4. You need to accommodate cash flow conversion cycles 
Many businesses have "structural issues" that require working capital - such as a medical firm that needs to pay nurses for work they do prior to receiving insurance payments that cover the costs of that work.

"The faster [a] business grows, the more capital they need - great use for a loan," Breslow said. 

5. An "unexpected speed bump" occurs
Businesses would do well to turn to banks if they're faced with an unexpected complication. For example, a pizza shop where the oven breaks, or a retail outlet that finds its entrance shrouded due to construction would both be organizations that may want to consider bank loans. However, Breslow also noted that this situation may be ideal for alternative small business financing support.

"If you can go to your bank, and you have a relationship, that's a good option," he concluded. "[But] that's also a time where the convenience and speed of online lending might be a really good fit for your business." 

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Thinking about applying for a direct loan? Read this first.

While applying for a direct loan is faster and requires less paperwork than applying for a traditional loan, it’s important to still be prepared. Noah Breslow, CEO of OnDeck, sat down with MSNBC to discuss a few best practices for small businesses looking to start the application process with a direct lender.  

1. Presentation matters
Although the application process for direct lenders is largely online rather than in-person, taking the time to organize your paperwork is key. It's important to have key items organized and ready, including your most recent bank statements and last year's tax return. 

2. Be honest
A widely known secret is that some businesses fudge their revenue projections before applying for a small business loan, in hopes that the extra boost will make a difference. However, that's a huge mistake: direct lenders vet these figures, and are more likely to give financing support to a small, honest business than to a large one embellishing its figures. 

3. Give your references a heads sup
Be sure to let everyone connected to your business and your application know that they may be receiving a call in the coming days. Lenders will call references like your landlords to check on rent or suppliers to check on your business' payment behavior.

"It's really important to give [your references] a heads-up," Breslow explains. "Make them aware of what you're doing."

4. Cash flow is king
Your cash flow is an essential factor when applying for financing - so always be aware of its status before you send in an application. Your bank account is your best reference, in fact. Lenders will check your cash flow, withdrawal and deposit trends, and even bounced checks. 

"It's very, very important as a business owner to funnel all of your funds into that account, and to manage it in a tight way," Breslow concluded. 

By keeping these four tips in mind, small business owners will be a step ahead in completing the small business application process. 

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Everything You’ve Always Wanted to Know about Angel Investing

In recent years, the number of accredited angel investors has risen sharply, providing many new financing opportunities for business owners. 

What is an angel investment?
An angel investment comes from a specific affluent individual and grants a large amount of funds to an existing business or a start-up. Traditionally, these investments are not treated as loans, but rather are exchanged for ownership equity or stock holdings. 

According to a report from RockthePostReport, angel investors delivered nearly $23 billion in 2012 in the US1

How and why do businesses obtain angel investments?
Businesses typically solicit angel investments to grow beyond the startup phase and fund further development of products or services.

As for how businesses obtain angel investments, there are a number of ways of doing so: an angel investor may approach your business directly, or they may be presented to you via a third-party organization known as an angel group or angel networks, or your business may seek them out directly.

How do I find an angel?
You can reference the Angel Capital Association’s directory or the Angel Resource Institute’s website to find an angel group near you. 

What is the difference between angel investing and OnDeck small business loans?
Angel investments are made primarily in exchange for company equity. The average angel investment is traditionally geared towards businesses that are on track to make at least $10 million in the next 3 – 7 years.   

OnDeck offers true business loans and does not take any equity in exchange. We also lend to younger businesses than most angel investors – our minimum criteria includes being in business at least one year and having over $100,000 in annual revenue. 

To learn more about different small business financing options such as bank term loans or business credit cardsclick here

OnDeck is a Google Ventures-backed company with an A+ rating with the Better Business Bureau. The company offers small business loans nationwide to over 700 different industries. For more information about OnDeck small business loans, click here. 

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What is a Bank Term Loan?

Here at OnDeck, we've been sharing a variety of small business financing options, from business credit cards to receivables financing to business equipment leases, and more. This week, we'll be talking about bank term loans.

What is a bank term loan?
Bank term loans are issued by a bank and have long-term repayment plans - typically extending beyond one year. These loans normally come with fixed interest rates, and they allow banks to distribute funds in a way similar to lines of credit. Business owners can use bank term loans to draw funds as needed and must pay a fixed amount based on the remaining balance.

What are the different types of bank term loans?
Long-term bank term loans can run for as long as 10 or 20 years, and they often require collateral. Bank term loans can also run for much shorter periods, however, such as two to three years. Banks often refer to the shorter-term options as intermediate term loans.

How long does it take to apply, and how much does it cost?
This depends entirely on your bank, but you can expect the process to take several weeks. After filling out your application, the bank will conduct a full credit analysis of both you and your business. They'll also analyze your holdings, revenue, cash flow and other financial factors. 

Why do businesses obtain bank term loans?
Bank term loans are used for many different reasons, and are entirely dependent on the business in question. Common uses include purchasing real estate, a new facility, or equipment.

What is the difference between a bank term loan and an OnDeck loan?
A bank-term loan is dependent on your personal credit, and banks tend to lend to more established businesses looking for large loan amounts. OnDeck, on the other hand, looks at a variety of factors – not just personal credit – to evaluate the health of a small business. With our streamlined loan application process, you can receive funding in as fast as one business day.

A bank term loan might be an option for you, but always make sure to fully evaluate what works best for your business.

 

OnDeck is a Google Ventures-backed company with an A+ rating with the Better Business Bureau. The company offers small business loans nationwide to over 725 different industries. For more information about OnDeck small business loans, click here.

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What Are Business Credit Cards?

Business credit cards are yet another tool that small businesses have at their disposal to help manage their financing needs.  But what are they?

What are business credit cards?
A business credit card provides access to a line of credit with a set credit limit in order to make purchases and withdrawals. Like a consumer credit card, it carries an interest charge if the balance is not repaid in full each billing cycle. Unlike a business line of credit, business credit cards do not require collateral.


What is the difference between a true business loan and a business credit card?
True business loans, like those offered by OnDeck, lend the full amount upfront so you can be flexible with your capital. True loans have fixed interest rates while the interest rates of business credit cards can fluctuate with little notice.

What does repayment look like?
Unlike traditional loans, business credit cards don’t have fixed repayment periods. The terms are dependent on the type of card you have, and can be flexible due to the often unpredictable nature of business cash flow.

Will it build my business credit?
Maybe, maybe not. Some business credit cards report repayment while others don’t.

What is eligibility based on?
Credit card issuers will consider both business credit history and the owner's personal credit history. They'll also be looking at your business's licenses, permits, and insurance policies.

Are business owners personally liable for the debts incurred via the cards?
Maybe. Liability depends on whether or not the card carries commercial liability (wherein the business itself is liable for all debts), or joint and several liability (where both the individual applying for the card and the business itself are liable for the debts). So, if you're applying for a business credit card, be sure to confirm what kind of liability you're signing up for – or you might end up in an arrangement that isn't beneficial to you or your business. 

Are business credit cards subject to the same regulations as consumer credit cards?
Small business credit cards are not regulated in the same way that consumer credit cards are. The interest rates on business credit cards can be raised and altered by issuers much more freely than can be done with consumer credit cards. 

Make sure when you’re considering the different options for financing that you take all these factors into account. Pick the financing that’s right for you.

 

OnDeck is a Google Ventures-backed company with an A+ rating with the Better Business Bureau. The company offers small business loans nationwide to over 725 different industries. For more information about OnDeck small business loans, click here.

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