Working Capital Posts

Sources of Working Capital- Who is Lending Right Now

December 21, 2010
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SOURCES OF WORKING CAPITAL-WHAT ARE THE OPTIONS?

In today’s tightened lending environment, many business owners are looking for new sources of working capital in an attempt to replace sources of capital that may have been reduced or eliminated by many commercial banks that normally would serve small and medium sized business. The so called “credit crunch” has hit small businesses particularly hard in their time of greatest need, and because of this, they are searching for ways to replace this lost avenue for funding.Blog Directory

For most businesses, the path toward obtaining capital can be difficult, especially if there are credit problems due to the downturn. Below are three options that businesses can pursue to help develop the working capital that they need:

  1. Small Business Administration- The SBA is the best source for affordable working capital. The key thing to remember however is that the SBA is a loan guarantor, not a lender. The actual funds that are disbursed will come from a traditional commercial bank and may contain some of the lower business lending rates available. The SBA guarantees a portion of the balance against default as long as the loan follows SBA guidelines for underwriting. The level of the guarantee that the governments is typically in the 50 -75% range. However, the recent small business bill passed by Congress ups this guarantee on some loan types as high as 90% in an effort to get banks to make more loans. Will this goad SBA bankers and non-bank lenders to make more of these loans? The government can only offer the guarantee, but they cannot force banks to lend, so time will tell.
  2. Commercial Mortgage- This is viable option for those business that own property in the businesses’ name and have equity in the property. While a residential mortgage is increasingly difficult to get approved for, commercial lenders have the ability to be more flexible in their underwriting if the property has equity and a decent revenue stream. Check this option first as you may be able to get a balloon note which will feature lower early year payments with a large amount due later in the contract. Typically, this will get the working capital you need, as well as the time to pay it back before you need to refinance in 3 to 7 years.
  3. Merchant Cash Advance- For many options that cannot get an SBA working capital loan or a Commercial mortgage, this option may be their only choice. This option is not technically a loan, but a cash advance on future credit card receivables at a discount. Essentially, the merchant cash company may advance $40000 on future monthly credit card receivables of $65000, charging a very high effective interest rate. These advances also are hallmarked by the requirement to switch credit card processors as well as pay upfront application fees. The upside to this proposition is that these companies can work with difficult credit situations that other lenders would not normally approve.

Luckily, there are new options available for small businesses that feature the ability to work with tougher credit situations with interest rates that are 30-50% less than a typical merchant cash advance with no upfront fees and no requirement to switch processors.

Today, the sources of working capital that are available for small businesses are different than they were even two years ago. However, despite the public perception, there are good options available for those businesses that need working capital and may have had difficulty obtaining them elsewhere. Check out the link below to find out more.

No Credit Cards? – You Can Still Get A Bad Credit Loan For Business.

October 25, 2010
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Hello All- A lot of businesses know about merchant cash advances. The problem is, these high rate “advances” (NOT loans) only work for those businesses that accept the majority of their business with credit cards. If a business has been turned down at a bank for an SBA-type loan, they usually don’t have any options…until now. Check out the article below that outlines a new option for those businesses that may do the majority of their business with cash or on “net 30″ or “net 60″ terms.

Bad Credit Loans for Business- No Credit Cards? This Option is for you.

By Neal Coxworth

Many businesses have found themselves denied for working capital loans because few banks are lending in this post financial crisis climate. Most ‘bad credit loans for business’ are from merchant cash companies that make taking credit cards a stipulation of getting the loan disbursed. Unfortunately, many entrepreneurs need small business loans for bad credit who may have been approved a few years.

These businesses may not accept credit cards, and may have been shut out of receiving even a high rate merchant cash advance because they are a normal ‘cash’ business or a manufacturing concern that bills it’s clients net 30 or net 60 terms, receiving checks or wire transfers of cash as payment. These kinds of businesses have been the hardest hit as banks tend to hold onto their sizable cash reserves until economic conditions get better and so-called ‘alternative’ business non-bank lenders will only lend to those concerns that accept credit cards.

Such businesses may be defined by traditional banks or the SBA as bad credit, but still have a healthy business base and cash flow. Many times, business loans have been declined simply because a owner may have a bad credit score, even though the rest of the business fundamentals may be sound.

However, there is an choice from a non-lender that has entered the marketplace that can handle business principals with low credit scores and still make loans to so-called “cash” businesses that have an established track record. Additionally, the cost of these loans is usually 40-50% less than a comparable cash advance without any upfront fees. Manufacturers, internet companies, restaurants and other companies that have been most recently been “blacklisted” by many lenders may also be approved for working capital.

The so called ‘credit crunch’ has left many business owners that were once considered excellent loan applicants in the unenviable position of needing bad credit loans for business, whether or not they truly have bad credit. Fortunately, new options exist that will help expand with their businesses as they move forward into the future.

Small Business Loan Programs- What the New Bill Means.

October 18, 2010
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At the end of September, Congress gave President Obama a bill purportedly designed to help small business loan programs and small business lending. The bill, which had been hotly contested by Republicans throughout the year, was a dramatically pared down version of a proposed bill at the beginning of 2010.

The real question is, does this bill really help small business secure the working capital they need? In theory, the bill supports small business lending via the Small Business Administration guaranteed loan programs. Normally, such government sponsored small business loan programs guarantee anywhere from 50-70% of a small business loan against default for the lending institution that disburses the loan. The new bill raises this guarantee to 90% in some cases, theoretically lowering the risk of default and putting community banks in a better position to take on these loans.

However, whether this helps or not is a matter of heated discussion. The problem is not that banks do not have the capital to lend.  With all the government stimulus that has been targeted at the banking system, financial institutions are flush with cash. The problem is really one of perception, attitude, and outright hard facts. Whereas three years ago, banks were lending with impunity and making bad loans to business, they have now over-corrected, obviously chastened by the harsh default rates and bank failures of the last few years. It is a classic ‘”standoff” situation, where everyone from large banks, community banks, businesses and consumers are waiting to see who will make the first move in beginning to loosen loan approval requirements and spending habits.

Likewise, businesses are waiting to see when consumers will feel confident enough to buy the goods and services that their businesses have to sell. Consumers are waiting to see when there financial situation will stabilize enough to  begin their spending. So in the meantime, everybody continues to wait, and the uncertainty drags on. Unfortunately, no ’small  business” bill that can fully address this perception.

Making it easier to use small business loan programs and making it less risky for banks to lend is one thing, but the government cannot force banks to make loans for business. Added to this fact is that banks are more concerned of ever over tight oversight that has been imposed since the financial crisis began, worried that even a small uptick in defaults will result in federal regulators sitting in their offices for months on end, sifting through every detail of operations in effort to find wrongdoing or bad management.

The bill also provides a series of targeted tax breaks for small businesses, specifically directed at abating payroll taxes for adding new workers,the ability for Alternative Minimum Tax businesses to claim the R &D tax credit, and tax cuts for restaurant owners and other small businesses who chose to renovate or build new facilities. Certainly tax cuts are always welcome, but in this case they only really apply if a business is planning to spend additional money on hiring, expanding or doing R &D.

Small Business Loan programs are not in short supply. What is in short supply is the proper number of customers to make getting approved for such programs a reality for small business seeking working capital. Until the perception of risk changes for consumers, this problem will be a difficult one to eliminate, no matter how many pieces of legislation are passed

SBA Small Business Loans- The SBA 504 Business Loan

October 12, 2010
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The SBA has many loans to small businesses. One of the popular SBA business loan programs is the SBA CDC/504 program. The other is the SBA 7(a) program. Businesses who are interested in applying at their local bank or non-bank lender need to know as much as possible about what will be required prior to applying so they can be prepared.  Below you will see the different requirements and information regarding this small business loan.

Loan Program- SBA CDC/504

Target Businesses/Borrowers For this Program-This program is designed for those small businesses that are already established and operating at a profit. The business cannot exceed a “tangible” net worth of $7.5mm to be eligible for this program and cannot exceed a net income of $2.5mm for the most recent two years. The purpose of this loan is long-term economic development within a community. The program is geared toward those businesses with “brick and mortar” operations with long term, fixed rate funding.  CDC’s are certified development companies that work within a specific, designated community to help provide business financing along with the SBA and SBA approved lenders within that community.

Use of Funds- The SBA governs how the proceeds from any loan disbursed through this program. Below are some of these requirements.

  • Purchase of land or improvements to existing structures including buildings, landscaping, street improvements, etc
  • Construction of new facilities or improvement of existing facilities related directly to the business.
  • Purchase of long-term machinery used in the business

Maximum Loan Amounts- The maximum loan amounts can vary from $1.5mm to $4.0  mm. Generally speaking, loan amounts rise if a project meets specific public policy goals such as community revitalization, job creation or community redevelopment of a business district, minority ownership, etc. See the SBA site for full details. Interest rates are pegged to a specified amount above US treasuries.

Credit Criteria- A personal guarantee by all principals with all supporting documentation is mandatory. (see above under ‘Types of Documentation Needed’) Additionally, the SBA will place a lien on the project being financed as collateral. This lien remains in force until the loan is paid.

SBA 7(a) Loan- Is it Right For Your Business?

October 9, 2010
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Small Business Owners- Navigating the world of the SBA can be daunting and intimidating to say the least. Looking at all the different types of programs, understanding the requirements, and actually creating and filling out the application is just plain difficult. But, the results can be worth it IF you get approved. For those of you looking to find out more, I’ve included this article on one of the most popular and well used SBA programs, the SBA 7(a) loan. Read the article to find out more


Loan Program – SBA 7(a) Program

Target Borrowers/Businesses For this Program- Many “general” businesses and business needs may be included under this loan guidelines. The money can be used for start-up, expansion, working capital, capital improvements as well as inventory and other types of uses{. The loans ARE NOT made directly by the SBA, but rather, are guaranteed by the SBA against default for a portion of the total balance. The actual loan is disbursed by a lending institution such as a bank or what is known as a “non bank” lender. The amount of the guarantee can range from 50-90% depending on the business application. Keep in mind that most banks will only go to the SBA loan programs after they have assessed the credit worthiness of the application. Because most guarantees are in the closer to the 50-75% range, many banks may see an applicant that meets the SBA qualifications and still opt to NOT make a loan. This is especially true in the wake of the credit crisis of 2008, as banks restrict their lending guidelines even for formally “qualified” applicants.

Types of Documentation Needed-

* Executive Summary of all principals outlining their qualifications for running the business.
* “Statement of Personal History” from the principals of any application explaining their past accomplishments, accomplishments and attesting to their character, paying their debts, and abiding by the laws of their community
* Formal Business Plan- that shows a doable and realistic timeline to business purpose, strategy execution, and a path to profitability and ultimate repayment of the loan. This document should also specifically outline how the funds will be used to help generate revenue to repay the loan and make the business viable. The more specific a business can be here, the better.
* Statement of Personal Financial Condition-This document should outline the current debts, assets and liabilities of all principals of the business and should be audited by a CPA if possible.
* Financial P & L of Business- A Profit & Loss Statement should also be produced showing current assets, revenues and liabilities of the business. If the loan is for a startup, it should be a pro-forma projection of these numbers and reviewed and/or audited by an accountant.
* Credit Report-This will be obtained on all principals as almost all SBA loans will require a personal guarantee as well as business guarantee of repayment. This means that if the loan defaults, it will be listed negatively on the credit report of all principals. All principals should obtain a free copy of their credit report is possible prior to applying to understand any issues that may be present prior to applying.

If you have been turned down for an SBA loan, or don’t believe you would be approved, click here for a quicker alternative

Obtaining A Small Business Cash Advance

September 23, 2010
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Merchant cash advances appear to be everywhere these days as businesses look for capital. However, it looks like you might want to read the fine print very carefully before investigating this option. While these companies can offer a lot in terms of flexibility, they can also take a lot in terms of cost, and ultimately, the long-term viability of your business. Check out the piece below for some details to find out if this option is right for you.

Where To Obtain A Small Business Cash Advance
By Neal Coxworth

Many smaller and medium sized businesses are stretching to make ends meet, and this is where the concept of a small business advance comes into play. Many businesses have been locked out of traditional business financing as those avenues have been restricted or shut down due to the bigger lending restrictions and tougher approval standards.

Alternative lending sources have popped up to fill the space. Many of these are small business cash advance lenders. These “advances” are not technically loans but are regulated as “advances” against future credit card receipts. Usually, these cash advances are marketed to those businesses who may not be able to get conventional bank financing and need money quickly.

While this certainly may be many businesses in a difficult retail economy, what merchant lenders don’t always say is that these unregulated business advances often come with requirements to switch credit card payment processors, interest rates that are variable and in excess of 50%, and high upfront fees just to apply.

Additionally, many cash advance lenders also will take a daily percentage of sales as payments for their short term loan. Because they regulate the processing, they are able to require this percentage as yet another requirement of getting the advance. State usury laws do not typically apply to cash advances, only loans, so cash advance companies are able to require high levels of interest legally. The upside with these advances is that they can work with a much wider variety of credit scenarios than a traditional bank loan and a business normally gets the money much quicker.

Other alternatives to the cash advance have also cropped up recently as well, and have blended the best attributes of the cash advance while removing some of the more costly requirements. One of these is known as CCRF, or credit card receivable financing. This is a true, regulated business loan that has rates which are approximately 50% less than a merchant cash advance. However, as an alternative financing source, this type of loan can work with a wide variety of credit scenarios that would not be considered by a commercial SBA-backed type loan. Additionally, there are no upfront fees or stipulations to switch credit card processors.

As it turns out, the small business cash advance, while convenient, may not be the best way to go as new alternative business loan sources have come on the scene that build on the positive aspects of this product, such as convenience and underwriting flexibility, while removing the some of the more difficult aspects, such as high rates, fees and difficult funding conditions.

If you need a better, more cost effective bad credit loans for business, click here

Consolidate Debt and Ensure Financial Flexibility

September 21, 2010
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Consolidation of debt is becoming a popular way to manage the debts of an individual. In simple terms, consolidate debt means taking a loan to payoff all other loans. This makes simple to serve one loan instead of taking care of many other loans. It also reduces a burden to remember each loans installment and thus reduces the chances of default. It is generally an unsecured loan but in some cases can be secured against any collateral security also. In this case, interest rate offered is low as it is secured with the asset and lender can get back the amount by the sale of asset in case of an unforeseen situation. House and car are preferred which can help in recovering the amount anytime.

Consolidate debt is a solution to manage the outstanding financial obligation of an individual. It also reduces the number of creditors you owe to which increases your credit worthiness and improves your financial future. To consolidate debt one can take advice from the debt counselor and financial planner. This facility is available to consumers everywhere through online consolidation of debt after all the credit analysis. This will help an individual to lower down the monthly payments. One can work on it by themselves after the proper research with the various options available in the market. This concept of debt consolidation is very popular in US and UK and in India it is still at nascent stage. Debt counselor even helps in convincing the creditors and negotiates with them for the speedy solution of the long term loans. There are various advantages of there services like helps in eliminating late fees, lower interest rates, reduced the burden of monthly payments, avoids bankruptcy, stops the threatening collection calls from the creditors, etc. This all will help an individual in attaining healthy financial status and high credit score.

However there are few concerns also in this concept of consolidate debt. As this consolidates all the other loans which makes the higher total amount to be repaid in a very long span of time. Although monthly amount can reduces but the total amount to be paid becomes higher. So this does not attend the root cause of the problem of paying back loan but just only the way of managing it in a better way.

Summary: In short, through consolidate debt, the total funds of an individual can be managed and control over the inflow and the outflow of the cash can be done.

SBA Loan: 3 Tips on Obtaining an SBA Loan

September 14, 2010
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For many entrepreneurs, the idea of getting an SBA loan is either bewildering, or as appealing as getting a root canal. However, it is an idea definitely any serious business owner must consider, because the terms of the loan may be more favorable than any others available, especially in this constricted lending environment. While the application may be long, if approved, it may make the difference between success and failure for a business. The article below will give you a few tips for navigating the sometimes bewildering world of the SBA loan. Make sure you visit the SBA site also.

SBA Loan – How to Obtain an SBA Loan

by Neal Coxworth

Getting an SBA loan is a new experience for many entrepreneurs and fledgling business owners. Because it is some of the best financing out there for businesses, it is extremely important that a business do there homework before applying. Make no mistake, getting an SBA loan requires preparation and effort, but the favorable terms offered once an approval is granted could make the difference beating the odds and having a successful business, or failing a year or two down the road because your debt payments exceed your monthly revenue.

1.) Who is the SBA? – The SBA stands for the Small Business Administration and was created to help small businesses in the United States. While there are other programs that the SBA offers besides financing, their loan program is one of the most well-known because it guaranteed by the US. Government and has favorable rates and terms, especially in today’s economic environment. It is important to note the the SBA DOES NOT make loans, but rather, guarantees loans made through private banks. The actual payments you make will be to a regular commercial bank, not the US government. The SBA creates the program and guarantees most of the loan against default. It is important to remember that if you have access to other low-cost business capital you will NOT be approved for an SBA loan. The program is intended for those businesses that do not have access to low-cost capital elsewhere

2.)What do I need to apply?- This is an open-ended question depending on what type of business you are trying to finance. However, the rule of thumb here should be you will need a large amount of documentation for any SBA loan. The reason why is that business loans are inherently risky given that most small business fail within 5 years of inception. Because the government is guaranteeing most of the loan, they set the documentation requirements to help mitigate this risk. Count on having to provide a detailed business plan, personal character essays/references, as well as detailed financial statements and projections. It is not uncommon for an SBA loan application to have in excess of 180 pages. However, the upside is that it could make the difference between success and failure for you business.

3.)What types of loans are available?- The SBA has several different loans designed for various business needs. However, I  with a  focus on the two most popular types as they will meet the needs of most of the people out there. The first is known as the SBA 7a loan. This loan is designed for small business and has the flexibility to meet the needs of most businesses. Loans are made through commercial banks, with a portion guaranteed by the SBA. Loan purposes include working capital, business renovations, equipment, furniture and fixtures, land acquisition and new construction as debt refinancing under certain circumstances. Duration of the repayment term can vary, depending on loan purpose between 10 and 25 years.

The SBA 504 loan is designed more for those businesses who may be part of a larger development or redevelopment within a community of city. This type of loan is typically just one of many used in a “financing package”, unlike the SBA 7A loan, which usually will “stand alone” as the primary financing vehicle. In an SBA 504 loan type scenario, a private bank will provide up to 50% of the financing, with SBA 504 loan picking up an additional 40% while the business borrower will contribute their own funds of 10%. It is importnat to remember that these types of loans are obtained also with the help of a CDC, or certified development company that is a non-profit corporation set up expressly for community economic development.

Getting an SBA loan may be the best decision you can make as a business person. The key is to allow yourself the an adequate amount of time to get acquainted with multiple requirements and “hoops” you need to go through to get this type of advantageous financing. While an SBA loan is the best option, it will never be a quick path to funding, so take the time to do your homework, and it will be time well spent.

3 Options For Bad Credit Loans For Business

August 29, 2010
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If you are a business owner, you have probably realized that most major banks don’t even offer loans to small businesses any more. Of course, there is always the Small Business Administration, whose government guaranteed loans offer an excellent option. However, the vast majority of small business do not have either the time, or ability to get approved for such loans. Into the gap have stepped a variety of options for business working capital loans. Some of these options have been around awhile, while others are newer entrants to the field that might actually present a real choice. Read below to find out more.
How to Get a Bad Credit Business Loan – 3 Things You Must Know
By Neal Coxworth

Finding bad credit loans for business may seem like impossibility as a business owner, given the restricted credit environment that we currently find ourselves in. The best option for any business owner is always going to be a loan backed by the Small Business Administration and funded through an SBA approved bank. The reason for this is that these loans usually have the most advantageous interest rates & terms. However, the majority of business owners will not qualify for this type of loan due to the restrictive underwriting requirements.

Below are three options a business owner needs to consider if they hope to get business working capital in the current environment, especially if the business or personal credit has taken some hits due to the recession.

1.)If You Own Commercial Real Estate - If you own the building or property that your business resides in and you have a good amount of equity, you may have a real option here that is comparatively affordable. The key thing to look at is how much you believe the property may be worth, how much you owe on it, and how much you are looking for in a loan. The advantages with this option are that even with bad credit, the rates will likely be the best of any option because you are securing the loan with real estate. Most commercial property lenders will go to 70% of the appraised value of the property, minus the amount you owe as a loan amount.

The downside here is that that processing time may take upwards of 90-120 days and the property will have to be appraised. Usually this appraisal fee is a hefty, low 4 figure expense that comes out of pocket with no guarantee that the value needed will be the one the appraiser actually comes up with. So keep in mind that while this may be the most affordable option if your credit is difficult, it may also take the longest, and you may end up empty handed if the appraisal comes in low.

2.) If You Have a lot of Equipment – Businesses that are equipment intensive such as restaurants, construction companies, etc may have an option for a secured equipment loan. This is a loan, usually in 3, 5, 7 or 10 year term with a balloon payment that is secured against the appraised value of the equipment that your business possesses to operate. Keep in mind you have to own the equipment outright, and not have being leased or financed to you currently. Minimum loan amount for a loan of this type is usually a $100,000, though you may find some lenders or brokers who will work with a slightly smaller amount. The rates are fairly reasonable for difficult credit situations because the loan is secured, but it may take 30 days or longer to get the funds and the equipment in question will need to be appraised.

3.) If Your Business Accepts Credit Cards – This option, known as a merchant cash advance, is the quickest of the three, meaning these loans can put funds in your hands in a matter of days or weeks. These loans, technically called “advances” usually come from credit card processing companies, or merchant cash advance companies. While they can get the cash quick, they also charge exorbitant rates as high as 50% with large upfront fees and may come with a requirement to buy new swipe equipment and switch credit card processing services. This unregulated “advance” is usually predicated off of businesses’ credit card receivables.

Credit Card Receivable Financing – This is a new player for bad credit business loan and is similar to a merchant cash advance, with low documentation and quick funding, but with interest rates that are 50-80% less than a traditional merchant cash advance. Additionally, these are true regulated business loans that carry no upfront fees or requirement to switch processors or buy new swipe equipment. As of this writing, they can handle owner credit scores down to 550 and a loan amount as high as $500,000. According to my source, they can usually get a zero cost pre-approval in 48 hours and fund the loan in 7-10 days.

How to Find Bad Credit Small Business Loans

August 24, 2010
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Here’s a post about a new company that is offering low documentation business loans, even if you have bad credit. It appears from their site that you don’t need audited financials or any type of business plan.  They also appear to be significantly less expensive  a typical merchant cash advance type working capital loan and can handle a number of difficult credit scenarios if necessary. If you are in need of quick financing at a reasonable cost, read on.

Obtaining Bad Credit Business Loans – Where Small Business Gets Working Capital
By Neal Coxworth

The past two years has been devastating for retailers and it makes getting bad credit small business loans difficult. Many owners are grappling with bad credit caused by the economic downturn. This downturn left many business owners delaying bills, pulling money from their savings and other tactics to keep their business afloat until things improved. When you are a small business, the best loan type to get is an SBA loan. In today’s highly restricted credit market, many small businesses will not be approved for this loan.

Before retailers had the choice to apply for new, more cost effective option, their primary method to deal with bad credit was to get an advance from the credit card processing company. These may seem like loans but are in fact unregulated cash advances that come with hefty interest rates. These advances have interest tacked on at rates higher than 50%, they usually have costly upfront fees, crippling daily payment amounts, and will come with a requirement to switch card companies and/or purchase equipment.

In this credit restricted environment the proliferation of cash advances has increased. Many times, these cash advances will crush the business that participated under financial burden. These businesses would see a large part of their net income go to these companies to pay for interest and high holdback or payment rates.

There are currently much more cost-effective bad credit small business loans. These loans are a new type and are formally called credit card receivable financing, are characterized by:

  • Rates at least half that of a merchant cash advance or lower.
  • No fees upfront.
  • No pressure or requirement to switch card processors
  • No requirement to buy any forms of equipment.
  • This is a real business loan and will build positive credit, unlike a Merchant Cash Advance.
  • Even if you have a credit score as low as 550 you can get a max loan of $500,000.
  • Approved within 48 hours of applying, get funded in 7 – 10 days, and available in every one of the 50 United States

Today’s economy is tough and small businesses need to know how to get the capital that they need without being taken advantage of by companies looking to make a quick, unfair profit at the long-term expense of the business.