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Finance & Accounting

Business Loan Broker: Do You Need One?

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Finding and applying for business financing can be time-consuming and complicated, especially if you don’t have much experience with the process. Business loan brokers can save you time, offer industry knowledge and hopefully help you get the best small-business loan offer. But they aren’t necessary for every business.

Here’s what you need to know about business loan brokers to decide if one is right for your needs.

What is a business loan broker?

A business loan broker is an intermediary between small businesses and different lenders. After learning about your business and financial goals, the business loan broker uses industry knowledge, experience and working relationships with lenders to find loan offers with the most favorable terms and competitive interest rates.

Instead of applying directly to lenders on your own, business loan brokers reach out to them on your behalf, help you complete and submit your loan applications and answer any questions throughout the funding process.

Although these professionals can save you time and help you access lower interest rates, you may have to pay a broker’s fee for their services.

Business loan broker fees

Ideally, the lender pays the business loan broker, but in some cases, these fees are charged to the borrower. Anecdotally, fees typically range from 1% to 6% of the total loan amount but can reach as high as 17%.

Some business loan brokers will add their fees onto the interest rate of your financing, while others will charge you separately after you close on your loan. A reputable broker will never ask for payment upfront before you’ve secured a loan.

When to use a business loan broker

A business loan broker can offer personalized assistance when searching and applying for small-business funding. Although working with a broker isn’t necessary for all businesses, startups that are looking for a first-time business loan — or companies that need specialized financing, like a commercial real estate loan — may find it particularly beneficial.

You might benefit from a business loan broker if you:

  • Don’t want to spend time searching for and comparing lenders on your own.

  • Want a personal relationship with someone who understands your financial needs and can help you get more competitive interest rates.

  • Want assistance submitting loan applications and general advice throughout the financing process.

  • Are applying for a business loan for the first time.

  • Need a specialized type of financing, such as commercial real estate loans, SBA loans or business acquisition loans.

How to find a business loan broker

To find a loan broker for your small business, you have a few options:

Online research

Starting with an internet search can be a fast and direct way to locate business loan brokers in your area. You might also visit your local secretary of state’s website and search for brokers that are registered or licensed in your state, although not all states require licensure.

Professional association websites, such as the American Association of Commercial Finance Brokers and Small Business Finance Association Broker Council, can also be useful resources to help connect you with reputable brokers.

Local small-business organizations

Local Small Business Administration offices, Small Business Development Centers or similar business organizations might be good resources for finding business loan brokers. These organizations offer a variety of free resources and advice to help you finance and grow your business.

You can schedule an appointment with your local center to discuss your funding needs. Staff can help you decide if a broker is right for you and offer guidance for connecting with a reputable one.

Referrals

Talk to fellow small-business owners in your area or in online communities and ask if anyone has worked successfully with a business loan broker. Getting a direct referral from another entrepreneur who had a positive experience can help you feel more confident that the broker is reputable.

Reading reviews on websites like Trustpilot or the Better Business Bureau can also give you a sense of what other business owners have said about working with an individual broker or brokerage.

How to choose the right business loan broker

A good business loan broker should have relevant experience, work with a wide network of lenders and be able to meet your unique financing needs. It can also be helpful to research or ask about a broker’s credentials and training, especially since licensure isn’t required and the profession isn’t subject to federal oversight.

Here are some questions you can ask a broker to help determine if they’re the right fit for your business:

  • How many lenders will see my application? A broker should have a sizable network and be able to submit your application to several targeted lenders to help you get the best possible loan offer.

  • What does your process look like? Before agreeing to work with a broker, you’ll want to understand exactly what’s included in their services and how they operate. If you want someone who will complete loan applications on your behalf, for example, make sure you express that upfront.

  • How long does it normally take to get funded? Timelines may vary depending on the broker and their lender network. If you need financing quickly, you’ll want to make sure the broker has access to lenders who offer fast business loans.

  • Do you make more money working with specific lenders? You want to make sure that regardless of the potential payment, your broker is still looking out for your interests and trying to get you the best loan offer.

  • How long will I have to decide once I receive a loan offer? A broker should give you time — typically a few days — to consider an offer before you need to give a decision. If someone is pushing you to make a decision faster, you’ll probably want to find another broker.

  • How do you charge fees? A broker should be upfront and transparent about the way they charge fees and how much their services will cost. Avoid brokers that won’t provide this information or ask you to pay their fees before securing you a loan.

  • Do you sell my information to third parties? Make sure that your information is protected before agreeing to work with a broker. A business loan application contains a variety of personal data, and a broker should be transparent about what they do with that information when you ask.

Business loan broker red flags

Unfortunately, not all small-business loan brokers are reputable. As you research and compare different brokers, look out for anyone with these red flags:

  • Isn’t concerned about your credit. Brokers need to check your credit to match you with a lender. Any broker claiming that they can get you a loan without a credit check is likely a scammer.

  • Has limited contact information available. You should be able to find multiple ways to contact a broker — a phone number, email address, physical address and a website. If it’s difficult to find information about the broker, go elsewhere.

  • Doesn’t have reviews or references available. A broker should have a list of previous business owners that they’ve funded and be able to provide reviews or contact information for references if you ask. If you can’t find reviews online, or the broker can’t provide any of this information, that’s a big red flag.

Alternatives to working with a business loan broker

Not all businesses need to work with a broker to get a loan.

Established businesses may be able to qualify for equally competitive interest rates on their own, and some small-business owners may prefer to handle the application process themselves. Other businesses simply may want to avoid paying a broker’s fee.

Here are two alternatives to consider when looking for small-business financing.

1. Use a business loan marketplace

A business loan marketplace helps you streamline the process of applying for financing and comparing lenders. You fill out a basic loan application and the marketplace uses their technology to match you with potential lenders.

Some marketplaces help you submit your information to small-business lenders and can provide you with potential loan offers, whereas others simply pass your information along to their partners. Unlike a business loan broker, these marketplaces typically do not charge the borrower a fee.

Using a business loan marketplace can be a good option for accessing faster funding, although you likely won’t receive the same level of personalized attention as you would with a broker.

2. Apply to lenders directly

You always have the option of applying to individual lenders directly, whether submitting a simple application to an online lender or working with a bank to apply for an SBA loan.

Established businesses with strong credit and solid financials will likely be able to access competitive interest rates even without a business loan broker, and they can avoid paying a broker’s fee by applying with a lender directly.

Similarly, if you have a previous relationship with a lender — or are certain of the one you want to work with — you can save time and avoid additional fees by applying with it first.

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Finance & Accounting

4 tips to find the funding that fits your business

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The facts are clear: Startups are finding funding increasingly difficult to secure, and even unicorns appear cornered, with many lacking both capital and a clear exit.

But equity rounds aren’t the only way for a company to raise money — alternative and other non-dilutive financing options are often overlooked. Taking on debt might be the right solution when you’re focused on growth and can see clear ROI from the capital you deploy.

Not all capital providers are equal, so seeking financing isn’t just about securing capital. It’s a matter of finding the right source of funding that matches both your business and your roadmap.

Here are four things you should consider:

Does this match my needs?

It’s easy to take for granted, but securing financing begins with a business plan. Don’t seek funding until you have a clear plan for how you’ll use it. For example, do you need capital to fund growth or for your day-to-day operations? The answer should influence not only the amount of capital you seek, but the type of funding partner you look for as well.

Start with a concrete plan and make sure it aligns with the structure of your financing:

  • Match repayment terms to your expected use of the debt.
  • Balance working capital needs with growth capital needs.

It’s understandable to hope for a one-and-done financing process that sets the next round far down the line, but that may be costlier than you realize in the long run.

Your term of repayment must be long enough so you can deploy the capital and see the returns. If it’s not, you may end up making loan payments with the principal.

Say, for example, you secure funding to enter a new market. You plan to expand your sales team to support the move and develop the cash flow necessary to pay back the loan. The problem here is, the new hire will take months to ramp up.

If there’s not enough delta between when you start ramping up and when you begin repayments, you’ll be paying back the loan before your new salesperson can bring in revenue to allow you to see ROI on the amount you borrowed.

Another issue to keep in mind: If you’re financing operations instead of growth, working capital requirements may reduce the amount you can deploy.

Let’s say you finance your ad spending and plan to deploy $200,000 over the next four months. But payments on the MCA loan you secured to fund that spending will eat into your revenue, and the loan will be further limited by a minimum cash covenant of $100,000. The result? You secured $200,000 in financing but can only deploy half of it.

With $100,000 of your financing kept in a cash account, only half the loan will be used to drive operations, which means you’re not likely to meet your growth target. What’s worse, as you’re only able to deploy half of the loan, your cost of capital is effectively double what you’d planned for.

Is this the right amount for me at this time?

The second consideration is balancing how much capital you need to act on your near-term goals against what you can reasonably expect to secure. If the funding amount you can get is not enough to move the needle, it might not be worth the effort required.

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Banking

Overdraft Protection: What It Is and Different Types

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Overdraft fees can be a major drain on your finances. Some banks charge more than $30 per overdraft and potentially charge that fee multiple times per day if you keep making transactions that overdraw your checking account. If you want to avoid these fees, you can typically opt out of overdraft coverage with your bank. It can be useful, however, to set up overdraft protection instead of opting out so you don’t find yourself unable to pay for something urgent.

What is overdraft protection?

Overdraft protection is a checking account feature that some banks offer as a way to avoid overdraft fees. There are several types of overdraft protection, including overdraft protection transfers, overdraft lines of credit and grace periods to bring your account out of a negative balance. Some other overdraft coverage programs might be a combination of these features.

Before you opt out of overdraft protection altogether — which means your bank will decline any transaction that would result in an overdraft — consider how you might need overdraft coverage in an emergency. For example, maybe you’re using your debit card to pay for gas on a road trip. You need enough fuel to get home but don’t have enough money in your checking account. Instead of dealing with running out of gas, you may want to deal with an overdraft.

How does overdraft protection work?

Here are more details about the main types of overdraft protection that banks tend to provide.

Overdraft protection transfers. When a bank allows you to make an overdraft protection transfer, you can link a savings account, money market account or a second checking account at the same bank to your main checking account. If you overdraft your checking, your bank will take the overdrawn funds from your linked account to cover the cost of the transaction. Many banks allow this service for free, but some banks charge a fee.

Overdraft lines of credit. An overdraft line of credit functions like a credit card — but without the card. If you don’t have enough money in your account to cover a transaction, your bank will tap your overdraft line of credit to cover the remainder of the transaction. Lines of credit often come with steep annual interest rates that are broken up into smaller interest charges that you keep paying until the overdraft is paid back. Be aware that a line of credit could end up being expensive if you use this option to cover your overdrafts.

Grace periods. Some banks offer grace periods, so instead of immediately charging an overdraft fee, the bank will give you some time — typically a day or two — to return to a positive account balance after overdrafting. If you don’t do so within that time frame, your bank will charge you fees on any transactions that overdrafted your account.

Other coverage programs. Some banks are taking a new approach to overdraft protection by offering what’s basically a free line of credit with a longer grace period for customers to bring their account to a positive balance. One example, Chime’s SpotMe® program, allows customers to overdraft up to $200 with no fees. The customer’s next deposit is applied to their negative balance, and once the negative balance is repaid, customers can give Chime an optional tip to help keep the service “free.”

Chime says: “Chime is a financial technology company, not a bank. Banking services provided by, and debit card issued by, The Bancorp Bank or Stride Bank, N.A.; Members FDIC. Eligibility requirements and overdraft limits apply. SpotMe won’t cover non-debit card purchases, including ATM withdrawals, ACH transfers, Pay Friends transfers or Chime Checkbook transactions.”

4 ways to avoid overdraft fees

  1. Set up low balance alerts. Many banks offer an alert option so you’ll get a text, email or push notification if your account drops below a certain threshold. These alerts can help you be more mindful about your balance so that you can put more money into your account or spend less to avoid an overdraft.

  2. Opt out of overdraft coverage. If your bank doesn’t offer overdraft protection — or if its only options cost money — you may want to opt out of overdraft coverage, in which case your bank will decline any transactions that would bring your account into the negative. Keep in mind that this option could put you in a sticky situation if you’re in an emergency and can’t make an important purchase because you don’t have overdraft coverage.

  3. Look for a bank that has a more generous overdraft policy. Many banks are reducing or eliminating their overdraft fees, so if overdrafts are an issue for you, do some comparison shopping to see if there are better options available.

  4. Consider getting a prepaid debit card. Prepaid debit cards are similar to gift cards in that you can put a set amount of money on the card, and once you run out, you can load it with more money. The prepaid debit card can’t be overdrawn because there isn’t any additional money to draw from once its balance has been spent.

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Business Ideas

Startup Business Grants: Best Options and Alternative Funding Sources

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Startup business grants can help small businesses grow without debt. But if you want free money to start a company, your time may be better spent elsewhere. Competition for small-business grants is fierce, and many awards require time in business — often at least six months.

Some grants are open to newer businesses or true startups. And even if you don’t qualify now, it can pay to know where to look for future funding. Here are the best grants for small-business startups, plus alternative sources of startup funding to consider.

How Much Do You Need?

with Fundera by NerdWallet

Government startup business grants and resources

Some government programs offer direct funding to startups looking for business grants, but those that don’t may point you in the right direction or help with applications:

Grants.gov. Government agencies routinely post new grant opportunities on this centralized database. If you see an opportunity relevant to your business idea, you can check if startups are eligible. Many of these grants deal with scientific or pharmaceutical research, though, so they may not be relevant to Main Street businesses.

Local governments. Lots of federal grants award funding to other governments, like states or cities, or to nonprofit economic development organizations. Those entities then offer grants to local businesses. Plugging into your local startup ecosystem can help you stay on top of these opportunities.

Small Business Development Centers. These resource centers funded by the Small Business Administration offer business coaching, education, technical support and networking opportunities. They may also be able to help you apply for small-business grants, develop a business plan and level up your business in other ways.

Minority Business Development Agency Centers. The MBDA, which is part of the U.S. Department of Commerce, operates small-business support centers similar to SBDCs. The MBDA doesn’t give grants to businesses directly, but these centers can connect you with grant organizations, help you prepare applications and secure other types of business financing.

Local startup business grants

Some local business incubators or accelerators offer business grants or pitch competitions with cash prizes. To find these institutions near you, do an online search for “Your City business incubator.”

Even if you don’t see a grant program, sign up for their email newsletter or follow them on social media. Like SBDCs and MBDAs, business incubators often provide business coaching, courses and lectures that can help you develop your business idea.

Startup business grants from companies and nonprofits

Lots of corporations and large nonprofits, like the U.S. Chamber of Commerce, organize grant competitions. Some national opportunities include:

iFundWomen. iFundWomen partners with other corporations to administer business grants. You can fill out a universal application to receive automatic notifications when you’re eligible to apply for a grant.

Amber Grant for Women. WomensNet gives two $10,000 Amber Grants each month and two $25,000 grants annually. Filling out one application makes you eligible for all Amber Grants. To qualify, businesses must be at lesat 50% women-owned and based in the U.S. or Canada.

National Association for the Self-Employed. Join NASE, and you can apply for quarterly Growth Grant opportunities. There are no time-in-business requirements for these grants of up to $4,000, but you’ll need to provide details about how you plan to use the grant and how it will help your business grow.

FedEx Small Business Grant Contest. This annual competition awards grants to small-business owners in a variety of industries. You can sign up to receive an email when each application period opens. To be eligible, you’ll need to have been selling your product or service for at least six months. Be mindful, though, that each grant cycle receives thousands of applications.

Fast Break for Small Business. This grant program is funded by LegalZoom, the NBA, WNBA and NBA G League and administered by Accion Opportunity Fund. You can win a $10,000 business grant plus free LegalZoom services. Applications open during the NBA season, which runs from fall to early summer each year.

Alternative funding sources for startups

New businesses likely won’t be able to rely on startup business grants for working capital. The following financing sources may help accelerate your growth or get your startup off the ground:

SBA microloans

SBA microloans offer up to $50,000 to help your business launch or expand. The average microloan is around $13,000, according to the SBA.

The SBA issues microloans through intermediary lenders, usually nonprofit financial institutions and economic development organizations, all of which have different requirements. You can use the SBA’s website to find a lender in your state.

Friends and family

Asking friends and family to invest in your business may seem daunting, but it’s very common. Make sure you define whether each person’s money is a loan and, if so, when and how you’ll pay it back. Put an agreement in writing if possible.

Business credit cards

Business credit cards can help you manage startup expenses while your cash flow is still unsteady. You can qualify for a business credit card with your personal credit score and some general information about your business, like your business name and industry.

You’ll probably need to sign a personal guarantee, though, which is a promise that you’ll pay back the debt if your business can’t.

Crowdfunding

If your business has a dedicated customer base, they can help fund you via crowdfunding. Usually businesses offer something in exchange, like debt notes, equity shares or access to an exclusive event.

There are lots of different crowdfunding platforms that offer different terms, so look around to find the model that works best for you.

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