Bad Credit? Know Your Options

If you are a trucking business owner, you know how essential your transportation business is, especially during the pandemic.

Several companies are struggling to stay afloat in these times, and it is not always easy to decide where to look for a loan. The situation can feel particularly hopeless if you feel that you have a bad credit score that prevents you from applying.

It is true that as a trucking company with bad credit, receiving a loan can be difficult. But it depends on where you are looking for financing. There are various types of small business loans you can apply for when you need financing for your trucking business.

Financial Benefits for Your Trucking Business

The first of the options for trucking business loans is equipment financing. If you are unfamiliar with the term equipment financing, it is a type of loan that trucking businesses can use to purchase equipment.

The idea is that instead of using your capital from the business you own, you can use this type of financing to cover the many equipment costs that trucking companies often need. After paying off the loan and interest over a planned period of time, you will own the equipment.

Luckily for smaller trucking businesses, things like equipment financing do not necessarily require you to pay large amounts out of pocket for your trucks and other equipment. This type of financing also means you have more time and money of your own to help your business and increase capital.

A more flexible loan option is a business line of credit. You have access to receiving funds as you need them, rather than taking out a fixed amount. This option can help you maintain your credit score, as it allows you to focus on small business loans where they are needed, making it easier to pay back debt on time.

You only have to pay interest on the funds you use at a certain time, and not the full line of credit. Your payback schedule depends on who you lend from, but it can be a weekly, monthly, or another set schedule.

Business lines of credit can help those who want the opportunity to grow their business but need help to do so. There are both secured and unsecured business lines of credit. With a secured business line of credit, you can choose which asset you will use for collateral.

The secured option may be the necessary option over an unsecured business line of credit if:

• Your business has not operated long enough per usual loan requirements.
• Your business has had credit difficulties in the past.

For unsecured business lines of credit, you do not need an asset for collateral. However, unsecured loans tend to be a higher risk for the lender. Therefore there may still be some security needed on their end in the form of a lien. It’s better if your trucking business has a good credit score for this option, but you can still apply and speak to an advisor.

Just Starting Your Trucking Business?

If you are starting your trucking business, you may be eligible for startup funding as a form of business loan. It can generally be challenging to get a loan when your business is six months old or less, and if your monthly revenue is lower than a certain amount.

You can apply for startup business loans for trucking here if you have been in business for less than six months, and your monthly revenue is $15,000 or less. These aspects of your trucking business might not qualify you for financing. However, it may be beneficial to speak with an advisor to go over your options.

How to Apply

If you are looking to apply for a business loan for your trucking company, you can easily apply for one of the options here. To make sure of the right opportunity for your trucking business, consider the following things:

• What are the business loan costs
• Is your APR manageable?
• Does your business have its own credit history, or will you have to use your personal score?
• How long has your business been in operation?
• Should you receive your loan from a bank or online lender?

Most of these questions have to do with credit scores and interest rates and what the lender offers you with those factors. For example, if your trucking business is fairly new or has no credit history, you may have to use your personal credit score to determine if you are eligible for a loan.

Bad credit scores also usually mean higher interest rates to pay back. If you can pay back a manageable loan, this can improve your credit score, particularly if you pay each payment back on time.

When searching for lenders, you want to make sure you are offered loans with good terms, such as fewer documents for approval, higher approval rates, and fast access and turnaround times.

Conclusion

The economy needs your trucking business, no matter how small. Receiving a business loan for your trucking company is still possible with a bad credit score. Make sure to check your options and apply to what best suits your company’s needs.

If we have learned one thing from this year, it would be that nothing is set in stone, things can happen that are out of our control. As a business owner, these hiccups can be detrimental to your business’s success. One industry that has been affected recently would be the clothing retail industry. Luckily, there are financing options in place to help when these hiccups happen.  Small Business Loans are a great way to upgrade your business, extend your cash flow, or to cover a hiccup. There are many options when it comes to finding the best business loan for your clothing store. 

Advantages of Obtaining a Small Business Loan

There are many reasons why a Small Business Loan would be beneficial for your business. They can be utilized to expand your business, hire new staff, supplement cash flow, and more. Whether it’s a loan for a small retail shop or an expanding business, there are many benefits. 

Easier Access to Capital

For businesses that are financially struggling, small business loans are the most accessible capital available. Banks are typically more cautious when it comes to approving businesses, especially when fluctuating finances. 

Repayment Terms

Most small business loans have pretty flexible repayment periods, making them a better option than other alternatives. SBA Loans offer some of the longest repayment terms available, offering up to 25 years depending on your situation. 

Building Your Business Credit

Receiving funding for a small business loan through your business can help you establish credit and build your business’s credit history. Building this positive credit history can provide your business with more loan options in the future. 

Supplementing Cash Flow 

It is common for businesses to experience cash flow fluctuations. A small business loan is helpful during these fluctuations to help supplement cash flow during a slow season. Having that cash flow cushion will also bring peace of mind that if needed, your business is taken care of. 

What it takes to Qualify for a Business Loan

Most Small Business Loan requirements 

• 3+ Months in Business: You can qualify for our top financing options with as little as 3+months in business. 
• Although limited, there still are Startup Funding options when in business for less than 3 months. 
• $15,000+ Monthly Gross Sales: The minimum revenue to qualify for financing options are $15,000 per month, or $180,000 in annual gross sales.
• No Minimum FICO: There are financing options for all credit profiles. There is no minimum FICO score required to apply! 

Not sure how to apply for a Small Business Loan? It’s easy! Complete our Simple 15-second Business Loan Application today and qualify for a Small Business Loan in 12-48 hours!

How Can Your Clothing Store Use Funding?

Cash Flow: A common challenge all retailers face is fluctuating cash flow. This can affect many things, like keeping up with inventory of the latest trends and popular items. Keeping up with inventory is essential when owning a clothing store. Making sure you have the capital to keep inventory stocked is essential in your business’s success. 

Hiring New Employees: With business growth comes the need for expansion and hiring more staff. In order to do so, you need the funds to do so. Expanding and hiring new employees is an investment, make sure you have the funds to invest. 

Payroll: One of the most important and cash flow dependent variables when owning a small business. Not making payroll can be detrimental to your business, retaining your staff is pivotal. Having that extra capital can be extremely helpful when experiencing a slow period in sales.

Advertising: A social presence and quality advertising is very important in our media saturated society. Having extra capital to produce quality advertising, such as social media, email marketing campaigns, physical hardcopy flyers, etc,  can launch your business to newer heights. 

Applying for a small business loan can be overwhelming, especially if you’re not sure who qualifies for a small business loan. Figuring out what option is best for your small business is important. Our business advisors are ready to help you find the best small business loan for your store! 

When a person takes out a loan, they have every intention of paying the loan back again, both personally and in business. However, sometimes circumstances overwhelm a situation to the point that an individual can’t pay back their loan and may default on it, but what happens if you default on an unsecured business loan?

Understanding what it means to default on an unsecured business loan right off the bat can help you make smart and responsible choices going forward.

Curious About Unsecured Business Loans?

An unsecured business loan can be an unsecured small business loan or startup funding if you’re new and don’t have established credit or collateral. An example of a secured business loan would be an asset-based loan, wherein the borrower possesses forms of collateral, such as real estate or equipment.

You can use an unsecured business loan calculator to get an idea of what your unsecured business loan rates would be if you’re just starting and need a reference. Keep in mind that the average interest rate for a small business loan can vary depending on many factors.

To understand what happens when you don’t pay back a small business unsecured loan or startup fund, you need to understand what an unsecured business loan is.

What Is An Unsecured Business Loan?

An unsecured business loan is a loan that doesn’t require collateral from a lender. There are many options for acquiring an unsecured business loan, including getting an SBA loan. This is a government-backed loan that sets guidelines to reduce the risk for lenders.

What Are the Consequences of Defaulting on an Unsecured Business Loan?

Negotiation, assessment, and refinancing are all advisable courses before defaulting, but if these don’t pan out, there are a few unsecured business loan default consequences:

• The loan potentially getting turned over to a collection agency
• Legal judgment against you or your company by the lender
• Your credit score is negatively affected

Although an unsecured business loan includes no collateral, your assets may still be at risk, even ones that are not associated with the business. Putting your personal finances and possessions on the line is often a part of a personal guarantee you’re often asked to give when getting an unsecured business loan.

What Is Personal Guarantee?

A personal guarantee is a person’s legal promise to repay the money lent to them by an institution. It’s the promise given in the absence of a business’ assets, which is common if you’re a startup and lack such assets.

If the loan is not repaid, payments are missed, and defaulting occurs, then a personal guarantee permits lenders to appropriate assets available to them to compensate for the loan.

Summary

It’s never a good idea to default on any type of business loan. If unfortunate events have affected your business it’s always best to reach out to your lender to discuss possible options. This prevents putting your personal assets on the line and risking legal charges and a tarnished credit score. Properly assessing your circumstances before getting a loan can help avoid this situation. You can consult ROK Business Financing Advisors to navigate options before acquiring a loan and if you need further help to keep yourself on track.

Construction financial management can sometimes see unique situations, and have to adapt quickly. A contractor has to deal with a myriad of matters, including equipment costs, payroll, materials, permits and licensing, insurance, and more. To streamline the process, what you need to know is how to plan your growth with a construction business line of credit. You need answers to questions like ‘how can I apply for a line of credit for a construction business?’

Construction Business Line of Credit

A construction line of credit is a financial instrument that allows your business to maintain operations by having extra cash on hand to: cover invoices on time, manage payroll and make purchases that allow you to keep projects alive. A line of credit allows for business growth, letting entrepreneurs operate with peace of mind.

A Line of Credit Can Grow Your Business

A line of credit gives you power. It benefits the construction business in many ways. Here are a few.

More Freedom

Financing like this is invaluable for managing costs and building growth. You enjoy greater flexibility as the business will have access to funds for paying bills or taking on new opportunities. You can expand the business, your creditworthiness, and your reputation.

Working Capital

Construction costs can be overwhelming. Through lines of credit, you always have cash on hand to manage your projects and expenses. This can be beneficial during slow sales cycles.

Getting Equipment

Not having what you need is a deterrent to being ready. A line of credit lets you rent or purchase as needed. Use it for skid steers, excavators, and other equipment that lets your team perform safely, timely, and effectively.

Hire On-demand

Your equipment is useless without licensed and trustworthy contractors. Your projects rise or fall on the talent you can afford. Lines of credit make it easier to hire extra contractors as needed or to invest in ones with greater experience and training.

Plan Your Growth

Business growth is about anticipating core construction business metrics, steps, and decisions in an effort to make things happen. These understandings have to align with your vision of the business’s future. It’s not only about explaining your intentions to clients, investors, and lenders but about what you expect.

Your financial future has to be part of the vision. You can retool an original financial plan, taking expansion into account. Break plans down by time periods with ideas of how each new year (or five year) period will end. Plans should answer these questions (and more, based on your anticipations):

• Where do I need to expand?
• What equipment do we need?
• Do we need to grow staff?
• What resources will improve production?
• What should my cash flow look like?
• Will financing be needed? How much?

Financial Projections

Financial projections can be based on where you want to build on sales forecasts and anticipated expenses. For instance, if you have tight cash flows, project and manage closer projection periods. Include a profit and loss statement and balance sheets.

Along with a sound history, well-prepared projections encourage credit lenders to work with you. Talk with financing partners. Work with current entities or, after you’ve built a reliable credit history, reach out to ones who offer greater opportunities. Even if you go in as a risk, knowing how to qualify for a construction loan with bad credit can improve your odds.

Efficiency, growth, and getting optimal lines of credit will require a detailed overview of operational needs. You have to know your construction business’s potential volume of output, individual employee output, costs of supply chain stages, and how a line of credit can balance things.

Lenders like the idea of tightly controlled expenses. Your operations plan will determine if a lender can trust your judgment with their money. Hopefully, your past with credit lenders will streamline the process. If you’re new, conduct your due diligence. Once you’ve entered into a contract, it may be difficult to change.

Requirements for Getting a Construction Credit Line

For a construction credit line, you’ll have a better cash flow, especially during slow periods. You’ll also have the funds to manage expenses, improve the adaptability of your processes, and build your business credit.

A lender may ask you to have some personal history in the construction industry to validate your trustworthiness. You’ll also need good personal credit. You don’t exactly need strong business financials, even if you’re working with a lender that already knows you. They have to see that you can repay on time. Lenders will want repayment sources. This is usually proof of payments expected from customers and clients.

At the minimum, lenders may need no less than six months in business and no less than monthly revenue of $15,000 to consider you. Lenders may not bring up a credit score needed for a construction loan, but a good score of 600 or higher wouldn’t hurt.

Lastly, online lenders have leaner qualifications. But these entities are definitely more likely to have lower credit limits and higher interest rates.

The Other Side of The Coin

You may be wondering, what are disadvantages of holding a line of credit?

• Depending on the lender and terms, fees and charges can add up. Pay-as-you-go isn’t ideal, even at low-interest rates. Compare annual fees, dig out additional costs, determine which financial product works best for you.
• Cash-on-hand can be easily mismanaged. A credit line should be an insurance policy when cash is short, not a go-to. Anyone can abuse funds and, unable to repay balances, you run the potential of ruining your business and reputation.
• Lines of credit may come in low borrowing amounts. This means they may not be able to provide exactly what you need at any given time.

Conclusion

Your construction business will always need plans for cash flow generation. It’s the only way to derive maximum profits and project product and service availability. With the construction business plan, you’ll be able to manage all stages of your supply chains in affordable, practical ways and, most importantly, grow your construction business. To learn more about a Construction Line of credit, apply with ROK financial to speak with a Business Financing Advisor today.

The U.S. Small Business Administration (SBA) offers disaster loans to businesses that have been affected by major events. The loans provide operating capital to get you through a hard time. What can you do with the loan? What happens if things don’t turn around, though? Can SBA disaster loans be forgiven?

How do SBA Disaster Loans Help Your Business?

First, you need to understand what an SBA disaster loan covers to help your business. They help keep your business going during and after a disaster. They can be used to rebuild if damages aren’t covered by FEMA ( Federal Emergency Management Agency) or insurance. They also help you cover operating expenses that were lost because of the disaster.

They are low-interest-rate loans to get your doors back open and keep you going until you can start making money naturally after the disaster. Most of the SBA coronavirus loans are economic injury disaster loans, which are known as EIDLs. They help business owners meet financial obligations that they couldn’t due to the pandemic.

Part of the EIDL grant is a new program called the Paycheck Protection Program (PPP). These are loans that were explicitly meant to keep your payroll going and keep your employees hired during the shutdowns from COVID-19. They are incredibly low interest but have a narrower use then EIDLs.

If you are wondering how to apply for an EIDL grant, follow the steps shown here, and you will get started on the process. If you need funds for other reasons, you can look into asset based loans or account receivable financing. If you already have one and need SBA economic injury disaster loan forgiveness, please continue reading.

Can SBA Disaster Loans be Forgiven?

Some SBA Disaster loans do qualify to be forgiven. You have to check before you take any loan to ensure that it offers forgiveness and what the parameters are for that feature.

For EIDL forgiveness, there are a few parameters. The only part of the loan that can be forgiven is the EIDL Advance. The rest of the EIDL loan does not qualify, and that part has to be paid off over 30 years.

The PPP is eligible for forgiveness as well. If the company uses the entire loan on the allowed bills within a period of 8 to 24 weeks after disbursement, you could qualify for forgiveness. All you have to do is apply for it up to ten months after your payment period.

Terms and Facts You Need to Know

The following are terms and facts you need to know about SBA disaster loans:

How Much Can You Get?

The specific amount you can get from an economic disaster loan is affected by many factors. Your SBA EILD grant will consider what you lost during the disaster, how your business does in a typical year, and your credit history to set an amount. However, the maximum amount you can get for EIDL is $150,000. You can get the lesser of 2.5 times your monthly payroll costs or $10 million for PPP.

How Long Is the Loan?

SBA loan payments can be set at a few different dates. Your PPP can be over two or five years. Your EIDL is over 30 years. EIDL is payment free for 12 months after you get them. The PPP is payment free for ten months after the end of the covered period, either 8 or 24 weeks.

How Much is My Interest Rates?

Your SBA COVID loan has a low-interest rate. For your PPP, it is a fixed 1 percent. For your EIDL loan, it is 3.5 percent.

What Steps Can You Take to Prepare?

Wondering what steps you should take to prepare for SBA disaster loans? Here they are:

Before You Apply

There are a few documents you are going to want to have ready. Having all this information ready will make the SBA EIDL loan application go easier and move more quickly.

First, you want to make sure you have all your organizational documents ready. You will want information on how and how much your business has been affected by the crises. This proof includes lost revenues, canceled contracts, and supply chain interruptions.

You will then want financial statements ready, including your current bills and payroll information, income tax statements, and financial statements for the last three years. You’ll also need debt tables, cash flow info, and sales history.

Checking your credit reports could also be helpful, especially if you explain the negative scores they may have. Knowing your credit report is a good idea at any time, but before you seek a loan, it is essential.

Apply for the Loan

Once you have all this information, you will be ready to start your EIDL loan application. You can apply online, in person, or over the phone. Have all the paperwork you already gathered ready for this portion, and it will go smoothly.

Your Request is Verified

Your application will go through a verification process to make sure that everything is represented correctly. At this point, a loan specialist will consider your EIDL loan status and will decide whether you get the money or not.

Getting Funded!

If it is approved, you will sign for the loan, and you will get your initial money within five business days after closing. The loan terms can be adjusted depending on continuing changes with the disaster and your financial situation. This can include more money, different terms, and possible loan forgiveness.

Requesting Forgiveness on your SBA Disaster Loan

If you already received your SBA EIDL grant and wonder if an SBA disaster loan can be forgiven, you can apply and find out. The EIDL advance is forgiven from the start. All you have to do is keep documentation that proves it was used for the correct purposes. This may not be asked for directly, but it is important to have.

You will need your tax forms from the period, payment receipts, and account statements for all bills and payroll paid for with the payment. You will also need one of the SBA Forms 3508, 3508EZ, or 3508S. Your loan provider will let you know which one you need. Fill out the proper form, and your request for forgiveness will be reviewed.

Business can be a thrilling adventure, but it can cause a lot of stress when major disasters occur. When the worst happens, it can take everything you have to stay in business. Now that you know how to get an SBA loan and if SBA disaster loans can be forgiven, hopefully, you can get it and keep the doors open for years to come.

Speak To An Advisor Today

If you’re interested in applying for an EIDL, PPP, or SBA loan today, complete our simple online application and speak with a Business Financing Advisor. We’ll work with you to understand your needs and provide you with the best options available.

If you’re a small business owner in need of extra funds, you may be interested in a merchant cash advance.

You probably have a few questions, like: how does a merchant cash advance work? And, can I qualify for a merchant cash advance with bad credit?

A merchant cash advance may be the ideal solution to your small business cash flow needs, but it’s not always the most appropriate option. Let’s explore how merchant cash advance loans work so you can decide if it’s right for your small business.

What is a Merchant Cash Advance?

Let’s start by answering the most basic question: what is a merchant cash advance?

A merchant cash advance (MCA) is when a financing company provides money upfront in exchange for a portion of the business’s future sales. It’s not a loan, it’s a cash advance, which has its own benefits and caveats attached.

Business owners use merchant cash advances in industries where credit and debit card sales are the primary forms of transactions. Restaurants, retail shops, repair shops, and so forth easily fall into this category.

For an MCA, the provider will typically look at daily credit card sales receipts for the business. Based on the number of sales, the provider will determine how much cash they can provide. The receipts also help providers calculate how quickly a business will pay back the advance.

A percentage of every credit or debit card sale is directly transferred to the provider to pay back the advance. So, for a cash-short business, MCAs provide fast money that’s only due as the business accumulates sales. For many business owners, that’s an ideal trade.

How Does it Help Your Business?

Now that we know what a merchant cash advance is, let’s look at a few ways it can help your business.

Quick Money

As mentioned, an MCA provides money quickly, sometimes in as little as a few hours. For a small business owner, that can be a huge benefit.

Maybe there’s a short term opportunity you want to take advantage of, or perhaps you need a little help getting through a slow period. Either way, a merchant cash advance may be a good idea.

Repayment as a Percentage of Sales

Another plus to merchant cash advances is the repayment method. Since a business pays back MCAs using a fixed percentage of sales, repayment automatically adjusts based on how your business is doing.

If there aren’t any sales on a given day, you don’t pay anything to the MCA provider. Alternatively, if your sales are high, you end up repaying the advance that much faster.

Forgo Traditional Loan Requirements

Merchant cash advances also forgo typical loan requirements. Because you’re not working with a bank, you don’t have to provide collateral. And you don’t have to have good credit.

That said, you may need to provide a personal guarantee. That’s a signed document which makes you accountable should you fail to pay back the MCA.

What Type of Business Can Benefit?

Like we said, any business that relies on credit or debit card sales can use a merchant cash advance. Restaurants, auto repair shops, contractors, retail shops, and many other small businesses can benefit from them.

In general, if a small business needs cash to take advantage of an opportunity or issue, an MCA is a good option. Maybe inventory is available at a discounted rate, and you want to purchase it in bulk. Or, maybe your store’s heating system went down, and you need to repair it fast.

A merchant cash advance for startups is a possibility as well. If a startup business cannot secure traditional financing, sometimes a merchant cash advance is an option.

Typically MCA providers want to see that your business has been successful for at least three months, which disqualifies many new businesses.

If you own a business and have bad credit, a merchant cash advance might be your best bet for quick cash flow solutions because a good credit score isn’t required.

The provider may still pull your credit score during the application process. However, unlike traditional financing options, a poor score will not negate your chance of receiving a merchant cash advance.

Can I Qualify?

If your business relies heavily on credit and debit card sales, you likely qualify for a merchant cash advance. That’s true even if you have poor credit or wouldn’t qualify for a traditional loan.

You’ll need to fill out a quick application that asks for basic information like how many years you’ve been in business. The provider will also ask for annual or monthly sales numbers.

At ROK Financial, there’s no minimum FICO credit score required for a merchant cash advance. As long as you’ve been in business for at least three months with $15k in monthly sales, you’ll likely qualify for a top-financing option.

Knowing Your Options

Merchant cash advances are a great way to fix cash flow issues, but they’re not your only course of action. Other financing options may be a better fit given your situation.

• Small Business Loans are available to any business that needs to stabilize its operations. They come from banks as well as other lending companies and have traditional terms. Your sales don’t need to come from credit or debit cards.

• Startup Funding works well if you’re starting a business from scratch. Good credit is required, but you don’t need to show time in business or monthly sales records.

• Business Lines of Credit exist so that businesses can scale-up as they grow. The lender won’t provide funds as a lump sum but instead makes them available as needed.

Frequently Asked Questions

At this point, you may have a few questions about the ins and outs of merchant cash advances. Let’s see if we can answer them.

What Happens if I Default on an MCA?

When someone gives you a cash advance, it’s always best practice to pay it back. Given that MCA’s are paid back automatically as sales come in, this shouldn’t be a problem.

But, of course, sometimes it is an issue and what happens next depends on various factors. If your business closes, you’re not responsible for paying back the MCA. However, should you ever reopen the business, you retain responsibility for paying back the advance.

More so, if there’s any indication of fraud, the MCA provider can pursue legal channels to recoup their investment.

Will a Merchant Cash Advance Hurt My Credit Score?

Taking out a merchant cash advance has no direct impact on credit scores. Securing one does not hurt your credit score, and paying it off does not help your credit, either.

Do You Pay Interest on a Merchant Cash Advance?

It’s technically not interest; it’s a factor rate or fee. With an MCA, traditional lending terms don’t apply, but the concept is similar.

Factor fees usually vary but will be based on the provider’s evaluation of your business.

Merchant cash advance business loans are one way to secure fast cash for your business, even if you have bad credit. Talk to a ROK Financial advisor today and learn if it’s the right option for your business in a matter of minutes.

If you’re a business owner, understanding the different types of financing available for your company is critical for continuous growth.

One of these forms of funding is revolving credit. Never heard of it before? Wondering to yourself, “How does a revolving line of credit work?”

It’s a flexible type of financing that gives your company the option to borrow as much as you need up to a certain limit as many times as you need without the need to reapply.

Revolving credit lines may be a good option for certain business owners who want the assurance that they will have the financial resources they need whenever they need them.

To better understand this type of financing, let’s explore how this loan works and why it may be a good idea for your business.

What Is Revolving Credit?

So, what is a revolving line of credit?

The revolving line of credit definition is a type of loan that grants you access to a determined amount of money that you will be able to use until the maximum amount is reached.

As you continue to pay off your outstanding balance as well as any accrued interest, you will earn the chance to borrow against the same account again and again.

Many people using revolving credit will make their monthly minimum payment and bring (or revolve) the rest of the debt into the next billing period. If there is a balance on the revolving account, the next payment will likely include interest.

If revolving credit sounds foreign to you, is a credit card more familiar? Credit cards are a perfect example of one of the many types of revolving credit used in everyday life.

How Does A Revolving Line of Credit Work?

To answer the question, “How does a revolving line of credit work?” there are three components to understand: drawing money, payments, and fees.

How and when you can pull money from your line of credit will depend on your lender. Most people will put a monthly payment toward their revolving credit to continue to draw money from their account as needed. Even if the account has a balance, you can continue to withdraw money until you reach your credit limit.

Once the account balance reaches its limit, the amount will need to be paid down before you can draw money again. The account balance may include costs from purchases, balance transfer, interest, and fees.

The more you can pay off, the less you’ll be charged in interest on the money sitting in your account balance. If possible, it’s a good idea to pay off the entire bill at the same time each month.

Many revolving credit lines charge fees. For example, look out for annual fees, foreign transaction fees, origination feels, and more. Alternative financing options can you help you avoid annual fees that would typically come along with a business credit card.

Why Choose a Revolving Line of Credit For Your Small Business?

Regular costs and expenses are an integral part of running a business. Things like inventory, staff, and benefits will always need to be paid. Since many business costs are “revolving” in that they carry over from one month to the next, revolving credit can be a helpful financial resource for business owners facing regular required payments.

Here are some of the top benefits of choosing a small business revolving line of credit:

• Draw, Replace, and Draw Again When Needed – As soon as you pay back an amount you borrowed, you instantly have access to that same amount of credit again.
• Enjoy Greater Flexibility Through Immediate Cash Access – When unexpected business challenges arise, having immediate access to cash offers more flexibility of response.
• No Real Estate Assets Needed For Collateral – Unlike other secured credit sources, a revolving line of credit promissory note won’t require any real estate assets as collateral.
• Better Interest Rates – Typically, the revolving line of credit rates are lower than other types of financing.
• No Prepayment Penalties – If you want to pay your debt off early, there are no additional fees or penalties.
• Lower Cost of Capital Through Higher Control – Since you are in total control of how much you draw each time, you’ll never have to worry about borrowing more than you can handle.
• Build Credit – As you use capital from your long or short-term revolving line of credit and pay the debt back, you will build your credit score.
• Grow Credit Line – As your business grows and you prove reliable, you can grow your credit line and increase your access to funds.

Revolving Line of Credit Or Small Business Loan?

You can determine the best kind of business funding for your organization by determining what you need the funding for.

Are you expecting to have ongoing regular expenses that you will need to pay for, such as payroll or working capital? In this instance, a revolving line of credit is usually best.

Do you anticipate less frequent, larger, fixed-cost expenses that you will need to pay for? If this is the case, you would likely benefit the most from getting a small business loan, also known as a term loan. SBA loans are an excellent option.

Know the Cost: Calculate Interest

In revolving credit management, your interest will be calculated based on the days in a year. One formula is used universally to calculate the interstate on a revolving loan or line of credit, making it easy to remember no matter how much you owe or what your interest rate is.

The formula multiplies the balance by the interest rate and then again by the days per month. This total is then divided by 365 days, giving you your final answer.

Mathematically, the formula is as follows:

(Balance of the Account x Interest Rate x Days in the month) / 365 days per year = Revolving Loan Interest

How a Revolving Line of Credit Can Save Money

How does a revolving line of credit work and save you money? If you want to know how to save money with a revolving line of credit, the answer may be simpler than you may think.

Rather than calculating an estimated total amount that you may or may not need to borrow for recurring business expenses through a one-time loan, a revolving line of credit gives you the flexibility to only pay for what you borrow.

Other funding options require you to pay back the full line of credit, regardless of what you actually use. As such, a regular business loan could put you in a sticky situation if you owe more money than you actually needed to borrow and are now faced with paying it all back.

Revolving credit lines allow you to borrow and pay the money back in smaller amounts as needed, giving you greater financial control over your business and enabling you to effectively scale.

Another question to consider, how much can I get? How much is determined by many factors. ROK Financial provides lines of credit from $10,000 – $5 Million.

Before Making a Final Decision

Keep in mind that some revolving lines of credit require minimum withdrawals and include fees. Typically, revolving lines of credit have lower lending amounts than traditional business loans. You can talk to a ROK Financial advisor today and get options within seconds.

Like many business owners, you may be struggling to stay afloat due to the Coronavirus and considering a loan for the first time. Or perhaps you’re looking to expand your business and need access to working capital. Whatever the case, the right small business loan can make all the difference in planning for the future.

Because the application process at traditional institutions can be lengthy and complicated, it’s helpful to know how to qualify for a small business loan off the bat. As well as other outlets that may be available to you and your business you may not be aware of, such as alternative lenders.

Small Business Loan Requirements

There are several different types of documents you may be required to provide when applying for a small business loan. While they may vary slightly from lender to lender, some of the most comm

There are several different types of documents you may be required to provide when applying for a small business loan. While they may vary slightly from lender to lender, some of the most common documentation that may be required can include the following:

• Tax returns, both personal and business
• Income statements
• Bank statements, both personal and business
• Articles of incorporation
• Commercial leases
• Personal identification, such as a copy of your driver’s license
• Your balance sheet

As you can see, you’ll have to provide documentation, and gathering everything you need can be time-consuming. Even if you are still deciding on a financing option, it’s a good idea to start collecting these items as soon as possible.

Conversely, if you’re faced with a bit of a time crunch, you may want to consider alternative lenders instead. For borrowers looking for a fast and simple process and access to funds quickly, this may be a better fit for your immediate business needs.

Depending on the loan size, keep in mind that another small business loan requirement is typically collateral to back your loan. Collateral usually takes the form of equipment, real estate, or inventory, which the lender can take in case of nonpayment, typically collateral is needed when dealing with a traditional bank. Alternative lenders have non-collateralized options that may suit your needs especially if you do not have collateral available to secure your loan.

Personal Credit Score

Though your personal financials may seem irrelevant, don’t underestimate the importance of having a solid credit score-even if your business is an LLC or corporation.

Why? Because banks like to see how you handle your personal finances, as it’s an excellent indicator of how trustworthy you are when handling a loan. Personal credit is also one of the most critical requirements for a startup, a business type that often faces additional challenges securing loans.

A minimum credit score of 600 will give you access to a wide variety of loans, though this number is by no means a cutoff. And having a credit score above 700 opens the doors to many different loan options.

Got less than stellar credit? Don’t be discouraged if you’ve had issues in the past, as other financing options exist for those business owners. You can speak with a Business Financing Advisor at ROK Financial to help find an option that works for you.

Time in Business

How long has it been since you opened for business? Time in business is perhaps one of the most critical qualifications you’ll have to meet when applying for a business loan. Most lenders will only qualify you if you’ve been in business for two years, which is usually the minimum to make lenders feel comfortable about your business potential.

If you’re a newer business, there may still be some options for you. Some alternative lenders will qualify you with just one year of business under your belt. Applying for a loan with anything less than that? You’ll have to present a strong application demonstrating the importance and potential of your business.

ROK Financial’s popular financing options require only 6+ months in business!

Revenue / Gross Sales

As you may have already guessed, you will be asked to account for revenue or gross sales as part of your small business loan qualifications. When it comes to breaking down how to qualify for a small business loan, banks are interested in seeing that you’re making money to gauge whether you will be able to repay the loan.

Apart from revenue information, your balance sheet will provide valuable information about your assets, liability, and owner equity. And while lenders are interested in your demonstrated history, you’ll also have to project your revenue and expenses for the next three to five years.

If you choose to apply with ROK Financial, you’ll need to provide recent bank statements showing at least $15,000 monthly gross revenue, or $180,000 in annual gross sales.

Small Business Financing Options

Deciding which small business financing option is right for you is a critical part of securing capital. There are a variety of loan types to suit the needs of business owners, and some of the most common include:

• Business Line of Credit
• Government SBA Loans
• Merchant Cash Advances
• Term Loans
• Equipment Loans
• Unsecured Business Loans
• Working Capital Loans

SBA Loan Requirements

Government small business loans from the U.S. Small Business Administration (SBA) are another attractive option that deserves a special mention. You have to meet special requirements to qualify for an SBA loan, some of which include:

• Having a for-profit business status
• Having U.S-based locations and operations
• Meeting SBA size standards
• Operating in an SBA-acceptable industry
• Having exhausted other funding options

While applying for an SBA loan can be a demanding process, there are plenty of reasons to do so. First, you’ve just got to know how to qualify for a small business loan. These loans are usually easier to qualify for, and they offer lots of advantages, such as competitive terms, unique benefits, and business counseling.

Ready To Get Started?

If you’re not sure what the best financing options would be for you, that’s OK! Our team of Business Financing Advisors at ROK Financial can help you find the best business loan at no cost. Please complete our 15-second application to get options in just minutes and funding in hours!

A business line of credit can be a handy tool for small businesses. Not only does it offer you the flexibility to get through financially sticky times, but it’s borrowing power is much more forgiving than a traditional business loan. In this article, we’ll walk you through everything you need to know about a business line of credit, including the best things it can do for your small business.

How a Business Line of Credit Works

How does a business line of credit work? Well, a business line of credit is actually more like a credit card than a loan – hence a “line of credit.” Firstly, it’s a revolving loan, meaning you can borrow from and repay the loan as you please, as long as you don’t exceed your credit limit. You’ll also need to pay interest on whatever portion of the loan you’ve borrowed with each payment, just like a credit card.

There are two different types of business lines of credit. The first is a secured line of credit, and the second is an unsecured line of credit. The main difference between an unsecured line of credit and a secured line of credit is collateral. An unsecured line will not require anything to be pledged, while a secured line of credit will.

There are a few secondary differences between unsecured and secured lines of credit, too. Some of them include:

• Secured lines of credit can cover larger amounts
• Unsecured lines may have higher interest rates
• Unsecured lines require better initial credit
• Since secured lines are filed against collateral, you don’t always need a perfect track record

How to Qualify

How does a business line of credit work when it comes to qualification? Like with any loan, you need to show a good track record to qualify for a business line of credit. Just how good that track record needs to be depends on whether you’re applying for a secured or unsecured line of credit, as we said above. Either way, you won’t succeed without records that show your business is making consistent profits.

As you might expect, when you apply for a business line of credit, you’ll need proof showing that your business has been operating successfully. Some of the documents and records you can use as proof include:

• Several months of bank statements
• Tax returns
• Business-related financial documents
• Evidence of a business bank account in good standing

If you’re wondering how to get a business line of credit for a new business, the answer is that, depending on how new it is, you probably can’t unless you have success with another small business to prove your track record. If you don’t have that, you can always search for a bank or entity that will be more lenient in exchange for collateral.

What This Means for Your Small Business

How does a business line of credit work for your small business? Well, as you might expect, it gives you many of the same benefits as a credit card, just on a larger scale. There is no single best way to use a small business line of credit, as you can use it for virtually anything as long as you pay it back and keep the line of credit healthy.

However, there are several ways that small businesses consistently use their line of credit for their benefit. Some of these best uses include:

• Covering business upgrades to improve your small business
• Repairing or upgrading broken equipment
• Evening out business expenses during slow seasons
• Helping your business adapt to unexpected occurrences or events

Not only that, but don’t forget that a business line of credit helps your business (and yourself) build credit, too. How does a line of credit for business work for you? By creating that good credit history with an line of credit, you might qualify for bigger and better loans to help expand your business in the future.

Small Business Loan vs. Business Line of Credit

While you might think that business lines of credit are very similar to small business loans, they’re distinctly different options – especially from a lender’s perspective. The main difference between these two options is what the bank or lender looks at during the approval process.

Essentially, a small business loan, such as an SBA loan, concerns the revenue of your business the moment you apply for the loan. But how does a line of credit work for a business? A new business line of credit concerns your business’ revenue today as well as its profitability in the future.

Tips to Manage Your Business Line of Credit

As with any financial tool, the usefulness of a business line of credit entirely depends on how you use it. While business lines of credit can be incredibly helpful if you manage them properly, they can just as quickly bring ruin to someone who isn’t careful with their money management.

Firstly, business lines of credit are flexible, but they can come with a host of fees if you’re not careful. As these fees can vary from lender to lender, you’ll need to be careful to read any fine print before agreeing to anything. Just because a bank offers a low business line of credit interest rates doesn’t mean that the end price will be lower than another, thanks to these fees.

Your final key to success is resisting the urge to use your business line of credit for superfluous expenses. For many people, having so much borrowing power available on-demand can be too much temptation, and the potential for abusing this is real. To give yourself the best chance of success, be sure to reserve your LoC for approved business expenses only.

Summary

In the end, a business line of credit can be an extremely useful tool for any small business, but how helpful it can be depends on how you use it. If you make sure to use your business line of credit responsibly (aka, you don’t rely on it -you just use it as a safety blanket or a resource for upgrading your business), it can be a tool that can really take your small business to the next level. Speak with a ROK Business Financing Advisor today to learn how you can get a line of credit for your business.

When weighing your options for a loan, you may have come across asset-based loans. Just what is an asset-based loan? Essentially, this lending model requires you to use your assets as collateral, much like a secured business loan. This article explains the basics of an asset-based loan and how it works, allowing you to figure out if this is a viable option for you.

What is Asset Based Lending?

Many banks and alternative lenders offer asset-based lending. An asset-based lender advances funds based on a predetermined percentage of a secured asset’s value. What is the ratio on an asset-based loan? Usually, this will be 70 to 80% of eligible receivables or 50% of any finished inventory.

There are many reasons why a business pursues asset-based loans. This can be an excellent capital source if your company is growing rapidly, highly leveraged, going through a turnaround, or generally undercapitalized. If you need a quick cash infusion to get over a small hurdle in operations, this type of loan can help.

Distributors, manufacturers, and service companies with leveraged balance sheets often use these types of loans. Those impacted by seasonal demand or cyclical industry trends that impede regular cash flow may also seek out this type of loan.

Beware that asset-based loans do tend to cost more than traditional loans. The interest rates vary widely, and lenders may conduct added due diligence and audits – and ask you to pay the fees. Larger banks may also request a personal guarantee.

Leveraging Your Assets

There is more than one type of asset-based loan and how it works varies depending on the precise contract. The majority of lenders prefer to take accounts receivable assets as the primary form of collateral in asset-based lending. If this isn’t an option for you, you can still use other assets, including inventory, real estate, machinery, or other business equipment.

Options for Small Businesses

Asset-based lending is just one type of business loan a small business can pursue. Small businesses will generally put their accounts receivable and inventory on the line to secure such a loan and get immediate access to liquid funds.

If you have a small business, it’s wise to weigh your options when it comes to different program types. Determine whether an asset-based loan is the right fit for your business. The Business Financing Advisors at ROK Financial can help you determine if an asset-based loan is best for your business. Complete a 1-minute application to discuss your options further.

Qualifications

What is an asset-based loan? That part is clear. However, you’re probably now wondering how to get an asset-based loan. Ideally, you will meet the following criteria:

●  Present a positive financial history (in the form of good financial statements and reporting)

●  Possess commonly sold inventory, or large value assets.

●  Have customers who have a proven track record of paying their bills

You should also have a comprehensive financial reporting system in place because you will need to present a potential lender with accurate and detailed financial history information.

The Final Word: What Is Asset Based Lending?

This article answers the question, “What is an asset-based loan?” There are many reasons why a business pursues asset-based loans. Whether an asset-based loan is right for you depends on your precise business needs. Speak with an advisor today at ROK Financial to learn more and get options in minutes, and funding in as fast as just a few hours!