Forbes recently wrote an article in which they indicated that 8 in 10 entrepreneurs will be out of business within the first 18 months of their new venture. While there are many reasons given for why these businesses fail, it has been widely understood through many of these studies that one of the top reasons for their failure is the lack of access to affordable capital to finance their growth and also their survival. Mr Hunt’s clients understand this fact all to well as many of them require financing to survive seasonal slow downs, changes in their buying demographic or the fact that their business must evolve to capitalize on online opportunities. Whether it is buying more inventory, hiring new staff or improving their business location, one thing is sure each of these activities require additional capital from the business or its owner. The challenge for business owners is to find affordable, unsecured business loans or face a quick end to their entrepreneurial dreams.
Rob Hunt is a veteran broker of the insurance and business finance industries and in recent years has taken on many new and existing business owners as clients. One of Mr Hunt’s recent clients Steve and Lennett Logan have owned a private school in Riverside, California for over a decade. They have a beautiful school with excellent teachers and were anxious to attract more students by investing in more technology upgrades and increasing their bandwidth speeds. Investments in tech often pay off but require a significant capital infusion to bring their vision to reality. So like most business owners they went to see their bank to secure small business funding. Since they run well over a million dollars in annual sales and have been with their bank for years they thought their odds getting approved were high. Their business banker greeted them kindly and asked how business was, and then moved on to their loan application. The Logan’s actually have very strong personal credit, but like many business owners they often carry business debt on their personal credit and are skilled at showing deductions on their tax returns. This means they don’t show significant profits on their business tax returns and so for banks who now have much more stringent lending practices this makes it very difficult for business owners to qualify for small business funding. The majority of bank loans for businesses are now mostly secured by collateral like real estate, expensive equipment or even future sales which further rules out the possibility of a bank loan for most businesses. In reality, due to lack of collateral and assets most enterprises will not qualify for bank loans, but will instead need to find unsecured business loans. Most business bankers will tell you that perhaps half of all clients do not qualify for bank financing due to the requirements, but many of the more experienced business bankers will tell you off the record that in reality it is closer to 80% of business owners who will not meet bank guidelines to qualify for financing. Even with strong personal credit and a multi million dollar business the Logan’s found their business in the denied funding category at their local bank.
So what is the alternative for business owners like the Logan’s when it comes to small business funding? Unfortunately due to this void left by the lack of lending to small businesses under 10 Million to 15 million in annual revenues, a new business loan type has been created. These loan products are known in business broker circles as “daily payment loans” or “ach loan” because these loans come with short terms of 3 to 12 months typically with payment rates up to 50 cents on the dollar in payback to the lender. For example typical loan terms might be a $50,000 loan paid back over 6 months with payments coming out of the business bank account every week day Monday thru Friday. Typical terms might be that the business would pay back a total of $70,000 with approximately 20k in interest and fees. While many outside the business finance industry would consider such interest and fees as egregious, the reality is that for many business owners this is the only alternative that they have and without this option they really have no other financing opportunities. As long as the business owner is confident in their business model and can make a return on the money in the allotted time then they can win with what may be a somewhat expensive loan. The reality however for most business owners is that these daily payment loans are often not a long term solution and can enslave a business owner to the point that they will need to continue to take out these expensive loans in order to just get by. The biggest issue is the quick payback and the high monthly payments. In this example a 50k loan paid back within 6 months could have monthly payments as high as $10,000 per month. For many business owners it is not an easy task to pay back the loan so quickly and reap enough additional sales to cover the high monthly payment. Finding the right unsecured business loans continues to be a challenge for business owners who are desperate for a better financing solution.
Returning back to Rob Hunt and where this story began, Steve and Lennett Logan (the owners of the private school) met with Rob and together they tried to make sense of what to do to obtain small business funding? In reality the Logan’s were in a difficult situation, their personal credit appeared to be maxed out with business expenses being carried on personal credit and with their business not showing enough profits to qualify for bank financing. When presented the expensive alternative of a daily payment loan they were not particularly excited about that as a real solution either. At this point Mr Hunt came across a unique enterprise with a real game plan and a very unique business loan program that could transfer all of their business debt that they held personally to the business where it should have been to begin with. Additionally, the Logan’s could secure the money they needed to grow their business and take it to profitability in a multi step process that would end with business credit lines at 0% interest for the first 9 to 12 months (8% to 19% thereafter depending on credit worthiness) and affordable monthly loan payments calculated at just 1-2% of the balance. For example, a 50k credit line balance would have a monthly payment of just $500 to $1,000. Best of all, these credit lines would be available for the duration of their business and they could use them and pay them down without having to take out expensive daily payment loans year after year. This appeared to be just the solution that the Logan’s were looking for in the unsecured business loans category.
The name of the enterprise offering a unique solution to their financing needs was Fundia Capital (https://fundiacapital.com). Over the past 2 years the management team at Fundia noticed that it was difficult for most businesses to qualify for bank financing and that these expensive daily payment loans weren’t a great solution so they began developing a better solution for small business owners. So their unique funding program consisting of credit lines with affordable monthly payments was born. After the underwriting department at Fundia Capital had reviewed all of the information and financials provided by the Logan’s and their broker Mr Hunt, they had a conference call with Chief Innovator Leo Kanell who proceeded to explain the multi step process of helping the Logan’s to transform their vision in to reality with Fundia’s small business funding program being used as the fuel to propel their business forward. First he explained Fundia would arrange for a bridge loan to help to transition all business debt being carried by the Logan’s personally back to their business. Next after watching their credit scores and financial profile strengthen significantly Fundia would then secure several small business credit lines with affordable monthly payments and 0% interest for most of the credit lines for the first 9 to 12 months. Best of all the credit lines would not require complicated scrutinizing of their business tax returns and collateral would not be required. In other words these would be true unsecured business loans. For the Logans the Fundia Capital program was unique and without doubt the most affordable solution they had seen for their business.
So the first step of securing the bridge loan happened fairly quickly and then as planned the Logan’s were able to transfer most of their business debt that they held on their personal credit and the result was that their credit profile improved significantly. In fact their personal credit scores increased as much as 50 points on some of the credit bureaus. Everything looked good until the underwriting department at Fundia Capital discovered that there was an error on their business credit report that would lead to automatic loan denials. Many business owners are not aware of the fact that businesses are given credit scores from business credit bureaus like Dun & Bradstreet and Experian Business. In the Logan’s case a previous business owner who had occupied their business address had mistakenly had his F rated corporate credit placed on the Logan’s Business credit report. Fortunately for the Logan’s Fundia Capital’s experts knew just what to do. So Fundia Capital’s Chief Innovator Leo Kanell again went back to work and presented the mistake to the business credit bureaus who after some persistent persuasion corrected the error. Now the Logan’s business was ready for business credit lines.
The final step of the small business funding process was managed by Fundia Capital’s Chief Funding Officer Shawn Greenland whose passion for business credit lines is surpassed only by his satisfaction of securing as much capital as possible for business owners to turn their visions into the truth. In short order Mr Greenland immediately began connecting the Logan’s business with various lending institutions and regional lenders nationwide who were excited to bring the Logan’s business in to their lending portfolio and offer them unsecured business loans. His knowledge of the right business funding sources proved effective for the Logan’s organization. The end result was that after Shawn and the Funding department had finished, the Logans had over $350,000 in cash credit lines that they could use how and when they wanted to build their business. Their personal financial profile now was much stronger with most business debt being transferred over to the business. After the outstanding funding results, the Logan’s were surprised to find out that the Fundia Capital program also includes without additional charge 12 months of consulting to help continue to build the business’ credit profile and manage their credit lines efficiently. Many companies charge 4k to 5k for this service without including real cash funding. That combined with the funding results put the Logan’s business in a strong position.
Rob Hunt’s conclusion is that although it may be very difficult for business owners to qualify for bank financing for their startup or existing business there are small business funding solutions available with Fundia Capital’s innovative program for many of these businesses that do not qualify for bank financing. For many businesses expensive daily payment loans may not work well for them to grow their business in the long run. The Fundia Capital Funding program is different and provides an alternative with a much more affordable monthly payment that is conducive for long term growth for businesses. Perhaps Mr Hunt said it best when talking about the results that Fundia Capital secured for his clients, “thanks to Fundia Capital the Logan’s’ business is poised to take an already respected institution and make it the best private primary educational choice in our area.”