Why Can’t I Get a Small Business Loan on My Own? 0
By Tom Gazaway
Sometimes, as we work with business owners here at Hawkeye Management and go over their borrowing options, I’ll get this question:
“Well, can’t I just go out and get a loan myself?”
The answer is yes — of course, you can try to find a loan on your own. But if you do, it will probably take quite a while, and it’s unlikely you’ll get the very best loan option that is available to you.
Why is that? Because you’re not a finance-industry professional, and you probably aren’t aware of all the possibilities.
A finance pro will look at your entire credit history, and your business’s. They will learn about your situation, why you need the money, how long you need it for, and exactly what you plan to do with the money. All of those factors affect what type of loan you might be able to get, and at what terms and interest rate.
Maybe you have collateral that you are in a position to pledge against the loan. A finance pro could help you evaluate whether it would be prudent to risk those assets by using them to guarantee a loan. If so, and you want to put up that collateral, your loan costs will likely be lower.
There may be creative options you haven’t considered such as selling receivables, also known as factoring. These days some business owners are even getting high-interest loans against confirmed purchase orders, when they have no other way to finance manufacturing of presold merchandise.
If you have bad credit, you may think a high-interest, unsecured loan is your only choice. But a more affordable business line of credit might be available — if you know where to look. There might be only a handful of lenders in the country that would be willing to work with you.
Out of the thousands of lending institutions in the country, how would you locate them on your own? Likely, you wouldn’t. Or if you could, how long would it take you to find them, versus using a seasoned financial professional who knows all the players?
Working with a professional saves you time and helps you discover all the possible ways you could borrow for your business. Interested in locating the best small business loan option for your situation? Give me a call — I’m happy to help.
Photo via Flickr user wonderlane
How to Get a Business Line of Credit — Our 4-Step Process 0
By Tom Gazaway
Obtaining an unsecured business line of credit can be an elusive process. So we’ve decided to share some of what we’ve learned. We’ve been doing UBLs exclusively at Hawkeye Managment for the last three years, so we know what works and what doesn’t work.
This post kicks off a blog series that introduces the four-part process we use to help our clients get a UBL. We’ll explain each of the four steps in the process.
There are many people that will tell you that UBLs are too hard to get, or that they don’t really exist. As small-business finance professionals, obviously we have heard all the good and bad about UBLs, and want to share our insights with you.
To start with we want you to know — if you don’t already — that obtaining an unsecured business line of credit is probably going to be difficult without the services of a well-qualified consultant. Keep in mind that I said “probably,” because it’s certainly not impossible for you to go directly to a bank and get your UBL.
But whether you choose to do it on your own or to work with a third-party consultant, there’s a lot to know about UBLs. That’s why we’ve created this informational blog series. I also want to point out that many of the third-party consultants who claim to know how to access UBLs are, quite simply, scams.
We recommend you investigate any consultant you’re contemplating hiring by checking with consumer organizations such as The Better Business Bureau. Watch out for the one sure sign of a problem: up-front fees. If someone tries to sell you a cool program that sounds great, but you are asked to pay them before you obtain your financing, beware.
In the following four posts, you’ll learn the four key steps in the process of getting unsecured business credit. It’s a system that was developed by me personally, and we use it every day at Hawkeye Management. Keep in mind that this process does not exist anywhere else in its fullness. I didn’t buy a franchise and have this information given to me. It’s something I have done to help my clients. It’s been proven time and again with hundreds of our clients from across the country who have obtained their financing after choosing to work with Hawkeye.
Your comments and feedback on this blog series are welcome and appreciated. Feel free to email me with your questions.
Photo via Flickr user ivanpw
Why You Don’t Want Investors for Your Business 1
By Tom Gazaway
Aah, the lure of investors. Many business owners fantasize about landing a wealthy angel investor or even better, getting money from a big venture capital or private equity firm.
Getting private investors can seem so glamorous and exciting. Companies that land private equity investment put out splashy press releases and tell the world they’ve raised millions. Having private investors validates your business idea — other people like it enough to put in their money! — and it gives your business capital for growth that you don’t immediately have to pay back.
Sounds like a dream, eh? But there’s a lot of baggage that comes along with taking private-equity money that many small-business owners don’t know about.
Yes, private investors give you money and wait three to five years for any repayment. That can sound alluring when you’re contemplating making loan payments or repaying a credit line. But there’s much investors want in return. In most cases, investors will:
- Require an equity stake in your company in return for their money. Often, it’s a substantial stake, too — 30 percent or more. That’s right, you’ve just given away a big slice of the ownership of your company. If you have a business idea that becomes huge, you may forfeit millions in future profits that will now go to this investor.
- Want a seat on your company’s board of directors. They want to be at every major meeting your decision makers hold. If you’re a maverick who likes flying by the seat of their pants and calling their own shots, this can really rankle.
- Want a say in major business decisions. Do you want to make an acquisition? If the investors oppose it, you may not get to do it. This is something that gets hammered out in the fine print of your agreement with your investors. If you’re not careful, you can find yourself unable to make important moves your company needs for growth.
- Want your business to be in a particular industry. The fact is, private equity isn’t available to most companies. Most investors are only looking for companies with high-growth potential in a few specific industries — software, Internet, healthcare, biotech, “green” tech. If you’re not in one of those sectors, private equity will be hard to find.
- Want you to sell the business or go public. After several years, investors start looking for an “exit” — a chance to realize their profits and get their cash back in their hands for reinvestment in the next startup. Unless you are raking in cash hand over fist, it’s unlikely your business will have enough cash on hand to pay back investors their original investment plus the high return they expect for waiting so patiently for payback. So there’ll only be three ways to fulfill your agreement with the investors: Find new investors to buy the first investors out, sell the company to another company, or sell the company to many shareholders through an initial public offering. The next thing you know, you’ve lost all control of your company — it’s now owned by another firm, or it’s owned by many public shareholders and you’ve perhaps got a tiny sliver of business ownership left.
When you consider all that, private equity doesn’t sound quite as sexy, now does it?
There was an interesting article in Inc. magazine recently, in which Zappos founder Tony Hsieh describes how he felt forced to sell his red-hot online shoe company to Amazon.com. His problem? He took on too much venture capital, and the investors acquired so much power that he couldn’t maneuver anymore. He felt like he’d lost control of the company. To get the investors off his back, he sold.
On the other hand, if you need to raise mega-millions to grow your business, private equity may be your only option. It’ll be difficult to get a business loan of that size as a young company.
But given the potential downside to private equity, it’s no wonder so many small businesses come to Hawkeye Management looking for debt vehicles to get the money they need for their business. If you have questions about business loans or small business credit lines, contact us for a no-obligation consultation.
Photo via Flickr user kevindooley
Business Debt vs Business Equity: Which is Best? 0
By Tom Gazaway
If your business needs money, there are really only two ways to get it. They get dressed up with a lot of names, but when you boil it all down, there are only two basic routes to the cash: debt or equity.
Debt: You borrow money and pay it back. The transaction is fairly straightforward. You get a small business loan or a business line of credit, paying interest for the privilege of borrowing the money. Your business repays the money on a schedule determined by the lender. Or you borrow the money on a credit card and pay it back. Or you borrow the money from Uncle Louie and pay it back.
You get the picture. In any case, the debt does not reduce the ownership stake you have in your business.
Another key point on debt: No matter how well your business does, the amount of your debt will not change – except for the obvious fact that as you make the scheduled payments it’s likely that you’ll pay down on the principal over time.
On the dark side, if your business goes bust, you will still owe the debt unless you declare bankruptcy. Either way, the unpaid debt may well impact your personal credit rating.
Equity: You give an investor an ownership stake in your business in return for use of their money. In three to five years, you need to pay off the investor with a substantial profit. Often, there are few options for how to generate this payoff. For most businesses, it’ll require either selling the business or taking the company public in an initial public offering. That last one is an option available to few businesses really, and they’re concentrated in a few industries such as technology and healthcare.
What many business owners don’t realize is that equity is almost always more expensive than debt. Why? Because the investor is providing what’s known as “patient capital.” The investor puts in their money and you don’t have to repay a dime of that cash for several years. In return for that patience, the investor expects a big payoff — far beyond what you expend simply paying interest on a loan.
The only time debt is more expensive than equity is when the business fails. Then, in an equity scenario, the business owner usually doesn’t have to pay the investor back. The investor has basically gambled on the company’s success, and lost. But nobody wants to get out of a debt that way!
If your company has become a huge success, on the other hand, then the investor expects to share in that bounty. The investor actually owns a piece of the business. So if you sell your company or do an IPO, the investor will get an owner’s cut of that payday. The potential payoff could be huge — and that’s all money you would have kept in your pocket if you’d gotten your growth capital through debt instead of equity.
For most business owners, this isn’t a tough decision: Debt is almost always the better way to go if enough of the necessary capital can be acquired through debt. It’s also common for a combination of debt and equity to be a good solution for some business owners.
Have questions about how to use debt to grow your business? Contact the business financing experts at Hawkeye Management. We’re happy to help.
Photo via Flickr user Jay Tamboli
Secured or Unsecured Business Loan — Which One is Right for You? 1
By Tom Gazaway
If you’re considering borrowing money for your business, one of the most basic questions you need to answer is whether you want to get a secured or unsecured business line of credit. Each loan type has its own advantages and disadvantages.
Secured loans are obtained by pledging some asset you or your business owns. The main advantage of a secured loan is that it usually carries a lower interest rate than an unsecured loan. You are putting up something of value against the loan — your business equipment, your warehouse, your home — so the lender feels less nervous about whether you will pay the loan back. For this reason, they’re willing to lend the money at a lower interest rate.
For the most part, you can obtain a larger loan if you are willing to secure the loan with an asset. If you have credit problems, you may need to get a secured loan, as it will be difficult to find a lender willing to trust you with their money otherwise.
On the plus side, having a secured loan can help you rebuild your credit. As you make regular payments, that will be reflected in your credit report and help build your credibility as a reliable lender.
However…if your business fails to pay on the loan, the bank will seize the asset — your business equipment, your home, your vehicles — and sell it to pay off the debt. If you get more than 30 days overdue on your loan, you may see this delinquency start to show up on your personal credit rating.
Many business owners are hesitant to get a secured loan and put their valuable assets at risk, especially their own home. You could be out on the street!
Unsecured loans do not require that the business owner put up an asset to guarantee the loan payment. These are also sometimes called “signature loans.” The lender is relying on your promise of repayment. Usually, unsecured loans are for smaller amounts than secured loans, and often are for shorter time periods than secured loans.
Unsecured loans ordinarily carry a higher interest rate than secured loans. Despite this, unsecured loans are far preferable for many business owners, as they do not want to take the risk of losing a valuable asset if their business runs into trouble and can’t make loan payments.
Would you rather pay a little higher interest rate and not risk losing your home or other valuable asset? Yeah — me, too.
Although times are changing and there are more exceptions to this rule than ever before, an unsecured loan often carries a cheaper interest rate than the business owner would pay if they simply used a credit card to finance their business spending. So it’s worth the time to explore whether you could get an unsecured loan for your business.
One final point to consider: Generally, the number of available unsecured loans is more limited than the number of unsecured lines of credit. That simple fact can often make a line of credit the better option to pursue for many small-business borrowers.
If you have questions about whether a secured or unsecured loan is the best option for your business, we can help. Contact Hawkeye Management via email or give us a call.
Photo via Flickr user Spirit-Fire
Do I Need a Small Business Loan or a Line of Credit? 0
By Tom Gazaway
Many business owners don’t understand all the differences between a business loan and a line of credit. It’s important to understand these differences as you consider taking on debt. That’s because the two types of debt really vary, from the process of getting the money to how the debt impacts your credit rating.
Here’s a look at the basic differences between loans and credit lines, and how each debt type can be best used to help grow your business:
Business loans are a good way to obtain money you’ll need to pay back over a long period of time. Vehicle financing, property mortgages and equipment purchases are all examples of business needs that would be best financed through a loan.
One of the prime advantages of a loan is the interest rate is often fixed for the entire length of the loan. So if you buy a car and get a five-year loan at 5 percent, that will be your rate the whole way through. This makes it easy to budget for the payment amount.
When you’re looking for a loan, one key factor to research is the interest rate. Depending on your credit rating and the amount you want to borrow, you may be seeking a secured or unsecured loan. Expect to pay a higher interest rate for an unsecured loan.
Disadvantages of loans include one-time use — you can’t come back and take out a little more in a year or two. Your loan amount is set. Another issue: If you have gotten a loan secured by business equipment or vehicles, you may need to notify the lender if you decide to sell these assets. Your loan will also stay on your credit report for a long time, until it’s completely paid off. Even if you’ve paid off the vast majority of the money, the loan still shows as an outstanding debt.
Business loans need to be carefully structured. When done right, they may not appear on your personal credit report. This is why it’s important to consult with a business-finance pro when you go looking for a loan.
Business lines of credit are a good option if you need money on a more short-term basis. For example, a retail business may need money to purchase inventory, which it will then sell to customers within a few months’ time. You wouldn’t want to get a long-term loan that takes years to pay off on merchandise you’ll only have a short while. Other examples of good uses of a credit line include for working capital, to fund a short-term project such as a store remodel that will lead to higher sales, or to finance receivables awaiting payment.
By utilizing a credit line instead of a loan, you only pay interest on the money as long as it’s outstanding. When you sell the merchandise, you can pay back the funds immediately. With a properly structured business credit line, your borrowings won’t show up on your personal credit rating. But if the line of credit is reporting on your personal credit report, then your credit report would reflect that you actually have no outstanding borrowings on your credit line.
One key advantage of credit lines is that you only pay interest on your outstanding balance. As a result, your payment amount can go down over time, as you pay off your balance. You may also be able to set up your credit line so that you are only required to make interest payments, and can pay the principal off in a lump sum later.
Many business lines of credit do not use the interest rate to calculate the monthly payment but, rather, they only charge you a percentage of the outstanding balance. It will always be enough to cover the interest that accrued for the statement period. That’s good because it can keep the payment very low but it can also mean that your monthly payment may not be paying down very much on the principal amount.
With lines of credit, the interest rate isn’t always the most important factor to consider when comparing lenders’ offers. One might offer a lower rate, but structure the credit line so that your monthly payment is higher. If cash flow is a concern, that lower-interest line might not be the best choice. The other important concern is whether the credit line is going to be reflected on your personal credit report. A higher interest rate might be worth it if the loan won’t impact your personal credit.
Interest rates on lines of credit usually are variable and tied to some economic benchmark such as the Federal Reserve’s prime rate. Depending on how the economy is going, this can be a good thing or a bad thing.
You might get a credit line at a rate that gives you a payment you can afford. If the economy worsens, your interest rate might go down, making your payments lower and making it easier to pay down the principal balance. On the other hand, if the economy strengthens and interest rates rise, your credit line’s interest rate could go up, too. Now you might need more each month to make the interest payments.
Have more questions about whether a loan or unsecured business line of credit is right for your business? We’re happy to help. Contact Hawkeye Management today for a free consultation.
Photo via Flickr user Omar Omar
What it Takes to Start Your Business 0
By Tom Gazaway
I read some great advice recently in Entrepreneur magazine, on how to launch a side business while you keep your day job. Like Nike would say…”just do it.”
That doesn’t mean do it without planning. But don’t let fear take over and cause you to not pursue your dreams.
One of the toughest parts of getting a small business off the ground is finding the money. If you are starting, building, or growing a business and wondering how to finance your growth, then our company can help you make your business dream a reality.
We offer unsecured business lines of credit and small business loans. No up-front fees normally, no collateral, and no financials necessary. Don’t let lack of funds stop you from moving your business forward.
Photo via Flickr user dierken
The Problem With the Discover Business Credit Card 1
By Tom Gazaway
To cut straight to the point, the main problem with the Discover Business Credit Card is that Discover will report the monthly activity for this business card to all three of the personal credit bureaus. So the business-related expenses you charge on the Discover business card will impact your personal credit rating. Yikes!
Discover is not the only lender that does this, but it does beg the question, “Then what is the difference between this business credit card and a regular, personal credit card?”
Well, since you asked, the simple answer is NOTHING. This is all part of learning to build your business the right way.
OK, now I know this may not be a deal-breaker for everyone, but why in the world would you want to have a business loan or a business line of credit show up on your personal credit report? Especially when it doesn’t have to be there.
You wouldn’t… so let’s move on. The Discover business card does not traditionally have great rates, either, but if you know my stance on rates then that’s not really a big factor in a well-planned credit and lending strategy involving unsecured business lines of credit (UBLOCs) anyways.
Without creating a whole other blog tangent here about rates (we’ll do that another time) let’s just say that rates are always important, but they should almost never be the most important part of the decision-making process when we’re talking about a business credit line.
This doesn’t mean they’re not important, but you should not “shop rates” on credit lines — which represent short-term borrowing needs — in the same way that you might “shop rates” on long-term and fixed-rate debt instruments such as mortgages.
If you have any comments or questions let us know… but please avoid the Discover Business Credit Card in your search for business capital. If you are looking to start, build, or grow your company and need capital now — or you will in the future — contact us online, or stop by one of our offices at Hawkeye Management, in New Jersey or Arkansas. We’d be happy to explain more about who we are and what we have to offer you.
Photo via Flickr user The Consumerist
Credit Card Offers Ramp Up Again 0
By Tom Gazaway
It looks like more credit-card offers are starting to arrive in the mail again.
As stated in the Wall Street Journal recently, “Now that they know the new rules of the game, [card issuers] are beginning to extend new credit.”
Market-research company Synovate recently reported that 398.5 million solicitations were sent out in the fourth quarter of 2009…that’s a 46 percent increase from the third quarter last year.
The increase is substantial, and indicates that there’s some desire by credit card issuers to return to lending. It’s also important to note that this increase is still a long way from the 1.5 billion solicitation offers that were sent back in the fourth quarter of 2006.
It’s interesting that about 84 percent of those nearly 400 million solicitations mailed out in late 2009 were sent to “A-Paper” candidates — those with 720-and-above FICO scores. Mailings to borrowers with under 620 FICO scores made up only 6 percent of the total. So it’s also clear that this uptick in solicitations is clearly focused on prime borrowers.
If you’re a small business owner looking to start, build, or grow your business, my company Hawkeye Management, can help. We specialize in unsecured business lines of credit and unsecured business loans. Feel free to call us toll-free at 1-888-783-1503, or fill out our convenient online contact form.
Photo via Flickr user Andres Rueda
What I Learned From a Competitor’s Pre-Qualification Process 0
By Tom Gazaway
There’s always more to learn, no matter who you are and what you do. Occasionally, I walk through the application and funding process with one of our competitors. It allows me to see where we do things differently and better than they do and, on occasion, we learn something that we adopt into how we work.
So here’s my latest story of doing this.
A large competitor of ours provides unsecured business lines of credit (as do we at HawkEye). We’re currently going through their pre-qualification process. Our borrower has 720-730 FICO’s and the only real issue we expected to have them bring up is utilization – the credit report shows she has about $37,000 in “revolving” credit card debt. Of course, I know something about that $37,000 that makes it very deceiving, but I left things as they are to see how they evaluate this and how they advise us to deal with the situation.
So we start the pre-qual and the first red flag goes up when the ONLY credit report they need us to set up for our borrower is with creditchecktotal.com. Now, nothing against the good folks at creditchecktotal.com (which is owned by Experian), but CCT (as I’ll call Credit Check Total) does not use a FICO-based credit scoring platform…so they don’t know the FICO score as you start the process with them.
I do want to say at this point that this “red flag” of their not utilizing FICO scores in the pre-qual process is not a complete deal breaker, but it’s definitely something to note. It’s pretty well-known that FICO scores are facing a pretty serious challenge from VantageScore, but CCT is NOT using a VantageScore, either. So even if you think of VantageScore as a serious contender to the title of “Credit Scoring Big Dog,” this credit screening site doesn’t really add up.
So here’s what happens next. We submit our report to CCT for them to review. Our “rep” is a very nice gentleman. He certainly doesn’t strike me as highly knowledgeable and he doesn’t overwhelm me with any insight but, hey, sometimes sales is just a numbers game right? Talk to enough people and the sales will come…maybe it’s like the old theory that you have to kiss a lot of frogs to find your prince!
Anyway, he forwards our information to the underwriter. At least we’re getting somewhere now. The underwriter comes back and says that we need to pay down over $19,000 in credit card balances! She offers that some of this paydown could be with other credit cards, but that some of it would need to come out of pocket.
So here’s an observation that she is missing: At this point, after reviewing the credit file in CCT, she does not know that over $23,000 of the total debt is NOT the borrower’s. This is another one of the flaws of CCT — it does not identify Authorized User accounts or tradelines. So she cannot see that these accounts need to be treated differently than the other revolving accounts and tradelines.
This is where we’re at right now, so stay tuned for the rest of the story. There’s a few things here that don’t look so good, but let’s see how the rest of the story goes before we draw any conclusions.
Want to learn more about small business financing? Visit our free education center full of helpful articles to help you grow your business.
Photo via Flickr user somegeekintn
