Notes

Business Funding

What Business Funding is best for you?
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<br>It depends.
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<br>Do you want Equity Business Funding or Debt Business Funding?
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<br>Equity Business Funding is selling a portion of your company – i.e. selling stock, shares in an LLC, Venture Capital, etc – these are all equity based funding. These are based on the potential of your business, are forward-facing more so than debt (more based on potential than history), and for most small businesses, are frankly difficult or impossible to obtain, unless the business is already successful.
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<br>Debt Business Funding is taking on debt, typically with interest (or similar), and is generally based on the business as it stands now, much easier to obtain for most small businesses, and if your company is de-risked, may be smarter for you as the owner / founder.
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<br>Note there are Debt-Equity Hybrids such as “warrants” and Convertible Notes (i.e. “SAFE” – Simple Agreement for Future Equity), but these are rare for most small businesses. There is also one other source we’ll mention here: Crowdfunding, which may be debt-based or simply passion based; note that the vast majority of crowdfunding attempts fail to reach their funding goals, but for select businesses (say, an existing brewery with a passionate audience looking to setup another location) this may be worth pursuing.
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<br>Most business acquisitions are a mix of equity and debt – the investor wants you to have some “skin in the game”. A typical example for a business acquisition might be 70% new loan, 20% short term seller carried financing during transition, and 10% cash down, though most (not all!) business brokers would have you believe you need 50% cash down for every deal.
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<br>This is true for some sellers, but definitely not all, and most small businesses &lt; $1M / year earnings never sell.
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<br>Naturally, we like to help where we can!
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<br>Next, let’s look at…
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<br>Business Startup Loans
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<br>Here at Fremont Funding , we have access to several different types of business startup loans and other non-loan (i.e. line of credit you can draw on as needed) financing. If the business is brand new, you’re looking for startup business loans with no revenue.
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<br>Think of all Business Loans as a 3-legged stool. More legs is more stable – the legs are…
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<br>Credit
<br>Cash Flow
<br>Collateral
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<br>Note this applies for government small business loans as well and private lenders for business startup loans.
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<br>Most government loans to start a business refer to SBA loans, which can provide excellent terms provided you’re (a.) aware of the timeframes (typical turnaround is 90-120 days lately), and (b.) meet the criteria, which are strict and non negotiable, i.e. you can’t just shake hands over the tables like in old movies.
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<br>TIP: Credit is typically reliant on your personal credit score (“FICO”), but leveraging business credit (the credit score of the business entity) can get you access to higher limits. Debt based only on the business and not requiring personal credit at all is called non-recourse funding and is generally available only to very established larger businesses. If you have not started building corporate credit, we of course can help with that too.
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<br>SBA loans come in a variety of programs and guidelines, including the Standard 7(a), “Micro-loan” 7(a) Small Loan, SBA Express, CAPLines (credit line, not a term loan) and a few others specific to use such as Export Express, Export Working Capital, International Trade. Also worth mention is Veterans Advantage specifically for US Military Veterans.
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<br>Recent Updates: Small Business Loans Covid 19 Updates:
<br>For existing businesses, PPP loans with potential for PPP Loan Forgiveness we’ll cover in a separate article.
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<br>How to Get a Startup Business Loan
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<br>The short version: Apply with us online! We’ll guide you through it.
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<br>Note before you assume you need to know how to get a loan to start a business from the government, note that the SBA itself does not actually give you the loan directly, with the exception of certain Covid 19 funding specifically for payroll protection to existing businesses.
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<br>Also, note that government loans are not the only game in town – private funding may be better, depending on your priorities, the state of the business, and other variables.
<br>In short, try our online application and we’ll guide you though the various products. Our #1 specialty is financial engineering, in which we combine multiple products together, such as faster private market funding with low teaser rates, then later refinanced into longer-term SBA funding, combined with consulting on seller carried funding to buy an existing cash-flowing business – as just one example.
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<img width="345" src="https://lsbc.lu/wp-content/uploads/crowdfunding1.png">
<br>Common question: How to small business loans work for Covid 19 – we’ll cover this in a separate blog article, and note it applies only to existing businesses that were healthy prior to Covid.
<br>Frequently Asked Business Loan Questions:
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<br>Is business funding a loan?
<br>Most typically, yes…ish. Technically debt funding like Merchant Cash Advance is a line of credit, with payment most commonly as a % of daily credit card transactions, which is different than a “term loan” on which you pay back a set monthly amount. We carry many different products and can help you choose which is best for you, based on the options available to you, which varies widely by the “3 C’s” above, what you need it for, etc.
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<br>Can you get a business loan with no revenue?
<br>Yes, but in the 3 legged stool metaphor, that means we are leaning entirely on the other 2 legs – Credit and Collateral. If you want an uncollateralized (i.e. funding without being secured by a house, car, business equipment, etc) then it’s entirely based on your credit score (business credit and/or personal credit). As the risk goes up, so does the interest rate or repayment terms.
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<br>What is considered a business loan?
<br>A Business Loan is a pretty loose term – it’s simply funding provided for business purposes.
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<br>Can I get a business loan without credit?
<br>Yes – see above – but this is much more difficult. Generally, in these cases, we start by getting you credit from alternative sources, such as timely rent payments or payments you’ve made for utilities. Getting a “co-signer” isn’t typical per se for business loans, however, you can “piggyback” to improve your credit sometimes if you’re young or have immigrated by being added as an “authorized user”, then obtaining credit on your own, then removing the authorized-user-access (such as a parent).
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<br>Can a startup business get a PPP loan?
<br>The business must have been started prior to Feb 15, 2020 to be considered. Generally these are for Payment Protection and are not really considered a startup loan.
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<br>How do I get funding for a business with no money?
<br>Entire books are written about this, but the short version is typically with a mix of (1.) New Debt (i.e. business loan) + (2.) Seller Carried Financing for a transition period + (3.) New Equity, aka your down payment. Business acquisition is a fun puzzle, and contrary to what any business broker tells you, (1.) most small businesses simply close and do not ever get sold, or at best they have an informal “book of business” sale to a competitor, and (2.) seller carried financing is common, for a portion of the business. This allows you to use the cash flow from the business to buy the business itself. By getting creative, we may be able to structure alternative funding if the business is healthy, cash flowing, has some assets, and you have decent credit.
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<br>How do I get funding to start a business?
<br>The best time to start a business is when you already have a job, and the very best place to start is building the audience (the WHO, not what you sell). The simple fact is most small businesses fail within 3 years, but most people do it wrong too, and just blast in, focused on what they do, instead of starting with the marketing. Contact us if you want more options about this. Note this refers to a typical service-driven small business; if you’re looking at starting some capital intensive company (say, manufacturing), this is a more complex discussion but ultimately comes down 4 main categories: Capital, Team, Marketing, and Processes.
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<br>How does small business funding work?
<br>This varies widely but still follows the categories above – Debt, Equity, Hybrid, or Passion. Debt is definitely most common, and most accessible, and is based on the “3 C’s”: Credit, Collateral, and Cash Flow (ability to repay).
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<br>How do online businesses get funding?
<br>Online – often home based – businesses do have a slightly harder time getting funded, but correlated with this is many don’t make that much money over and above that of a job, and so the line between personal credit and true business funding starts to get pretty blurry. Naturally, we can help you navigate this if you have a healthy business that is generating at least $6k/mo minimum (speaking frankly: this won’t get you much – just being honest &amp; up front, though you can probably get something, which might help you grow if used carefully!).
<br>How can I get a business loan with no money?
<br>Business loans all start with a friendly chat, and there’s never a fee with that. For some loan products – such as commercial real estate funding – there usually will be up-front fees (example: Appraisal, or Environmental Study, Geological Surveys) etc. that fall into “due diligence”. In most cases the best next step is to have a friendly chat about where you are now, and what you’re working to accomplish.
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<br>I want Free Money to start a small business.
<br>You have 2 main options, both of which can be problematic: Passion (Crowdfunding) and Grants, which are usually from Non Profits and occasionally government (i.e. Veterans). We don’t represent any of those, but will cover those in a separate blog post. Some of these are very small ($500), or very specific (minority women applicants only) or specific to industry (purchase of timber land). While they do exist, these are not a common path most small businesses take.
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<br>I want free government money to start a business.
<br>I get it! We all do! See above.
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<br>I want to start a small business but have no money.
<br>This actually is great – start by identifying your clientele first and building a following. Start getting the branding together – logo, name, website, etc – even before you bother to set up a business license or anything. Often you can start a “stepping stone” small business – for example, if you plan to open a restaurant, start perhaps with a catering business, or luxury picnic services (it’s a thing!) to build a following and start the ball rolling. A lot of people use the “just build it and they will come” style of entrepreneurship, but that also leads to a high degree of failure. Let your clients tell you what they value and will pay for. If you have a solid idea for what you plan to do, we can also help you obtain, in many cases, personal financing as well.
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<br>I want free money to start a business for a woman.
<br>See above; there are some additional grants for women-led small businesses; the vast majority (99%) of small businesses are started out-of-pocket and/or with taking on debt.
<br>How to start a business with no money online.
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<br>There are dozens of businesses or ways to make money online, ranging from dropshipping (generating the sale, some other company ships direct to the client) to lead generation (generate demand for services to existing businesses) to media publishing (selling a book on Amazon) to selling services (on sites like Fiverr). Start with skills you have already, and if you don’t have any, develop a niche skill you’re passionate about.
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Read More: https://fremontfunding.com/business-funding