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!

Unless you have excellent cash flow or you’re fortunate enough to have plenty of your own money for your startup, most entrepreneurs wonder, how much can I get on a business line of credit? How to determine how much line of credit you can get for your small business might seem confusing, but you can figure out an estimate with a calculation or with the help of an advisor.

What is a line of credit, and how does it work? Whether it’s a personal credit card or a business line of credit, these are both lenders (either a credit card company or a bank, depending on the type) offering you a set amount of money to spend.

With credit, the institution extends a set amount that you, the borrower, can spend. You must make minimum payments, but you can also pay it off in full instead of being stuck with ongoing installments with credit. You can also use the credit line repeatedly, as long as you make payments and do not spend over your limit.

What is a Business Line of Credit?

A business line of credit is a form of lending from a financial institution like a bank, credit union, or Alternative Lender. These credit forms are not so different from a personal line of credit, which you can continue to reuse or pay whenever you like, within your limit.

Business lines of credit are a version of a small-business loan, yet they offer some flexibility that you won’t find in a traditional business loan. You can also repay or utilize funds multiple times, as long as it remains within your credit limit.

What Types of Companies Benefit?

Companies that have a surprise expense, need to purchase inventory, don’t have a traditional business loan, or could use some aid managing cash flow can benefit from a business line of credit.

What If Your Business Is Considered a Startup?

How much business line of credit can I get for my startup? Many startups don’t have any investors or can only get small traditional business loans. Suppose you need startup funding and don’t have enough cash flow to take you through dips in sales, need a buffer between client payments coming in, or are in an industry with significant seasonal fluctuations. In that case, a business line of credit could work for you. The amount you’ll be approved for depends on how long you’ve been in business, your credit score, and your monthly revenue.

What If You Have Bad Credit?

Small companies that cannot obtain a traditional business loan or those only approved for a small business loan because of poor credit can benefit from a credit line. Those who have less-than-ideal credit but also landed a significant client or business deal and need extra resources to help them until their credit score improves can also use a business line of credit. Traditional bank financing can be very difficult to get when you have a bad credit score. Choosing an alternative lender may be your best option. Speak with a Business Financing Advisor to fully understand your options.

Line of Credit vs. Credit Card

You should note that there is a difference between lines of credit vs. credit cards. The line of credit for a business can offer you a higher limit because the approval is based on your business as a whole, not just your personal credit score.. These credit lines also come through a lender such as a bank instead of a credit card company.

If you use a business credit card, you may get cash, but it usually comes with a higher APR and fees. Typically credit card penalties, such as late-payment charges, also apply to business credit cards.

Generally, business credit cards are better for those with a newer startup that has yet to establish significant finances. In contrast, a business line of credit is ideal for a company that has operated longer and deals with more substantial and ongoing expenditures.

Line of Credit vs. Small Business Loan

Both a business line of credit and a small business loan are considered bank-issued lending. Although in recent years, Alternative Lenders have closed the gap to also provide financing. However, a loan does not revolve the fund amount like a line of credit. You get the loan, and you repay it over time.

A business line of credit is often a smaller amount than a loan, but the credit is revolving, much like a personal credit card. You can repay it in full or in smaller payments, and you can use the credit again and again, as long as you make the minimum payments and stay within your total limit.

Know the Limits: How Much Funding Can You Have?

If you’re interested in this type of “loan,” one of the first things you’re probably wondering is:

How much line of credit can I get for my business?

A business line of credit does require more revenue and a more established company-even if it’s small-than a business credit card. For a line of credit, you can estimate the general amount you can ask for with a calculation.

Determining the Line of Credit Available

To calculate the estimated amount you may need for a credit line, divide your gross annual revenue by 365, which determines your sales (daily average).

Then total up your accounts receivable and add your inventory days-on-hand. Subtract from that the number of your accounts payable days-on-hand. This number will give your usage of cash.

Multiply your usage (AR days minus accounts payable days). This calculation can provide you with a general estimate of your needed credit.

Keep in mind, your limit, much like a personal line of credit, will depend on a few factors. For business lines of credit, you can expect the lender to consider how long you’ve been operating your company, your monthly revenue, and projected revenue. Occasionally, the lender will also want to know your personal credit history, especially if you are the company’s sole owner.

What are My Options?

How fast can you get a business line of credit? The answer depends on your type of business, revenue stream, credit score, and other factors. ROK Financial can get you set up with a revolving business line of credit within just a few hours!

When getting a startup up and running, you may have the option of a business line of credit, a small business loan if you’ve already operated for a few years, or even AR financing for specific situations. Line of credit rates also vary, so if you need a more accurate estimate or want to know which lending option would work best for your business, ROK Financial Advisors are standing by to help.

When it comes to determining the cost of a small business loan, it depends on a number of different factors; the amount you’re looking to borrow, payment schedule and the type of small business loan you intend to apply for.

No matter what type of loan you are seeking, you are going to want to know exactly how much it will cost in the end. Knowing the true cost will allow you to make the right decision for you and your business.

Different Costs to Consider when Getting a Loan

Interest rates are standard costs associated with every type of loan. Interest rates vary based on the product, and the business qualifications. Time in business, annual revenue and credit score usually play a part in determining the final rate you will pay. The lower the interest rate, the lower the cost of the loan.

Not all interest rates are quoted the same way – a simple interest rate is an amount that a lender will charge on the principal only. An APR interest rate includes simple interest as well as fees that the lender will be charging you.

In addition to the interest you will pay on your loan, depending on your lender, you’re likely to encounter other fees tacked on to the final cost such as

• Documentation fees
• Origination fees
• Loan processing fees
• Account maintenance fees
• Guarantee fees
• Prepayment penalties
• Late Payment Fees

Not all fees are associated with every loan, and the costs are dependent on the lender.

Fees can significantly affect the price of a loan. It’s important to investigate exactly what the fees are so you feel comfortable with what you are being charged with.

How Much is a Business Line of Credit

Rates on a business line of credit vary from 7% to 80%. Mainly because they function differently from a term loan. On a term loan, you are charged interest on your total loan amount. On a business line of credit, you are only charged interest on the amount you draw from your credit line.

Fees also may be different on the total cost of a line of credit. Some lenders draw a fee each time you pull from your line, some may charge a fee if you do not draw within a certain period of time, and others may charge a fee just to keep the account active.

How Much is Equipment Financing

When it comes time to purchasing equipment for your business, and you do not want to deplete your bank account to do so, equipment financing may be a better option.

With APR ranging 8%-30%, the actual rate you will pay depends on the cost of the equipment, and your qualifications (time in business, annual revenue and credit score). The cost structure of an equipment financing deal is straight forward, you finance the full piece of equipment and repay the interest and principal over the fixed terms. The equipment is used as collateral, and once the payback period is complete, you will own the equipment outright.

How Much is a Merchant Cash Advance

Merchant cash advances can provide the most flexibility for business owners due to their structure but can sometimes be costly.

Merchant cash advances isn’t technically a loan, but rather a cash advance that is paid back by withdrawing a percentage of your credit card sales (typically on a daily basis). Since your payback is based on your sales, the more credit sales a business does the faster they are able to repay. This comes in handy for some business owners as well during slower periods of time for the business since the payback is reflective of the incoming cash flow, however in those cases it can take a longer time to repay the loan.

How Much is an SBA Loan

A Small Business Administration (SBA) Loan is one of the more affordable loan products out there. Determining the rate of an SBA loan is determined by the current prime rate plus points added by the lender. The SBA provides guidelines on the maximum rate they are allowed to charge on top of the prime rate.

The ARP on an SBA loan is typically 7% to 8%. The SBA does charge a small fee for guaranteeing the loan. That fee depends on the loan amount. For loans up to $150,000 the fee is waived, for loans greater than $150,000 the fee will depend on the length of the loan.

SBA loans tend to be more affordable because they are a true bank products (which tend have better rates) and because they are guaranteed by the government, it lowers the risk for traditional intuitions. On the downside, SBA loans can take months to be approved and processed, leaving some business owners strapped for cash or missing opportunities due to the long processing time.

If you are looking for an SBA loan, ROK Financial has direct access to lenders that provide an expedited process to fast track your SBA Loan. We offer competitive rates to cover working capital and growth expenses.

Summary

The answer to “How much is a small business loan?” varies based on the type of financial product- among other things.

When you are looking for business financing, you want to make sure that you understand any costs that your business may incur throughout the borrowing process. ROK Financial’s Business Financing Advisors will help you find the right product for you and your business. Not only the financing you need, but the business financing you can afford.

To learn more, complete our simple 1-minute application to speak with an advisor today!

Spring and summer are the busiest times of the year for most automotive repair businesses. As the winter approaches, now is a good time for auto shops to take care of those items on their to-do lists, just as any good car owner would do for their car’s maintenance. If garage equipment is deteriorating or needing an upgrade, auto-equipment financing may be the right avenue for auto repair shops to repair and replace equipment.

What is auto repair equipment financing?

This type of loan works like a car loan. Lenders provide financing specifically for equipment businesses need to remain profitable.  The lender secures these loans by placing a lien on the equipment. As long as the borrower makes timely repayments, the borrower can keep the equipment. Once the auto repair shop pays off the lender, the shop owns the equipment.

A key distinction between most small business loans and auto repair financing is that auto equipment financing is secured. Unsecured loans carry higher interest and may not be readily available to those with poor credit.

Equipment Financing is available to repair or replace:

• Diagnostic equipment
• Frame racks
• Tire replacement machines
• Lifts
• Tow trucks
• Any equipment used to perform maintenance or automotive repair.

5 tips when considering financing auto repair equipment 

• Available cash: Obtaining a loan targeted to equipment enables an auto shop to allocate cash to other parts of the business, like payroll or marketing.
• Tax breaks: Businesses can deduct up to $500,000 on qualified equipment purchases on their U.S. income tax returns. They can also deduct the interest paid for loans on most types of equipment. Always consult your tax professional regarding tax breaks.
• Faster approval: The application is faster than traditional loans and doesn’t require a pile of documents. Approval usually only takes days.
• How to qualify: Higher credit scores, longer times in business, and higher sales provide applicants access to more lending options and better terms and rates. For those without these advantages, online lenders such as ROK Financial are the best option. Online lenders don’t typically require high credit scores and may even provide financing to startups.
• Know your financing options

While equipment loans are a great option for auto repair businesses in need of equipment, some auto shops may find other loan types that are more feasible for their operations.

1. Small Business Loans: Small business loans, like all other standard loans, may not be as easily available to those with poor credit, but they do have the best rates and terms. The Small Business Administration is a major lender and offers several types of loans, including equipment loans. While SBA loans have great rates and terms, SBA loan applications are lengthy, require extensive supporting documentation, and approval can take weeks. Learn more about the SBA loan process.
2. Business Line of credit: Unlike a traditional small business loan, a line of credit provides a business to borrow smaller amounts if the maximum amount is not needed. Some business lines of credit return or revolve to the maximum limit, usually monthly, once the borrower repays debt. Flexibility is the main advantage of this option, but the downside is that these loans carry higher interest rates than traditional loans. Borrowers will find better rates at banks, but banks won’t lend to anyone with bad credit. Online lenders provide business lines of credit for those with bad credit though.
3. Accounts receivable financing: Businesses can use their outstanding invoices to obtain financing. Businesses can either sell their AR to lenders for up to 90% of their value or use them as collateral for a loan. AR Financing acts a quick source of funding, but interest rates are higher than most other loans.

With so many financing options available to auto repair businesses, speaking with a qualified advisor can help owners make the best decision for their shops. Speak to a ROK Financial Advisor to discuss your financing needs.

What is an SBA Guaranteed Loan

A guaranteed Small Business Administration loan is not a guarantee of approval. Rather, it is a guarantee from a U.S. government agency with the full faith and credit of the U.S. to a private lender insuring a majority of the loan should the borrower default. SBA loans fuel economic development. In 2019, the SBA approved 58,000 loans and issued $28 billion in funding, according to the SBA.  The amount will surely be higher in 2020 because of the CARES Act, which infused an additional $376 billion in funding in response to the Coronavirus pandemic. The SBA issues many different kinds of loans, but what their loans have in common is that the terms and rates are better than most other lending options. 

SBA Loan Options 2020

Standard 7(a): As the name suggests, it is the most common loan the SBA issues. Qualified small businesses can obtain up to $5 million in borrowing, negotiate for interest rates in single digits, and pay as little as 0.25% of loan amount in fees. The SBA doesn’t require collateral for loans less than $25,000 and approves most loans within 10 business days. 

Other SBA 7(a)loans offered include small, express, export, international trade, preferred lenders, veteran-owned small businesses, and non-revolving and revolving lines of credit.  

Disaster Assistance Loans: The SBA provides these low-interest loans to small businesses, non-profits, renters, and homeowners in a federally declared disaster zone. Businesses can qualify for up to $2 million in funding; homeowners can qualify for up to $200,000; and renters and homeowners can qualify for up to $40,000 to replace destroyed or damaged personal property such as vehicles and furniture. The SBA provided more than $3 billion in loans to victims of 2017’s Hurricane Harvey. 

Coronavirus Relief Options 

This year, Congress infused more money into the SBA loan programs through the CARES Act to address the economic crash resulting from the pandemic. The two primary funding options at small businesses” disposal to combat the economic downturn are the Payroll Protection Plan and the Economic Injury Disaster Loans.

• Payroll Protection Plan: The PPP is by far the more recognized name. Small businesses could apply for loans to cover payroll, thereby keeping people employed. The key feature of this plan is that the loans are forgivable. Unfortunately, the SBA stopped taking applications in August. Congress is at a standstill negotiating new funding for the PPP, but small businesses continue to cry out for an additional lifeline. Congress may inject new funding after the November election or when a new Congress takes office in January. 
• Economic Injury Disaster Loans: These loans are still available. Small businesses that lost revenue due to the Coronavirus can qualify. EDIL’s are not forgivable like the PPP but can be applied to normal operating expenses. Interest rates are $3.75% for businesses and 2.75% for non-profits. Term is 30 years, and no fees are required.  

7 Reasons to Choose an SBA Loan

1. Availability: While prospective borrowers will have to meet requirements set by the SBA and complete a lengthier application than from a private lender, SBA loans are available at most lending institutions. Since the federal government bears much of the risk, private institutions are more than happy to provide more financing than they would without government backing. The SBA assists with finding local lenders. 
2. Best rates and terms: Since the purpose of the SBA is to provide relief and not make a profit, borrowers will get the best rates and terms from these loans. The downside is that they are available only to those with good credit, but for qualified borrowers, terms include up to $5 million in long-term loans at the prime interest rate with a maximum 2.75% interest rate added. 
3. Low and zero down payment and fees No down payment required for loans of $50,000 or less. Fees are lower than most loans. Veteran-owned small businesses pay no fees on loans up to $150,000. 
4. Repayment options: SBA allows repayment for microloans up to six years and up to 25 years for real estate loans, terms not available for loans not backed by the SBA. 
5. Variety: The SBA offers nine different types just for its 7(a) loan program from $50,000 to $5 million to address small business needs from payroll to international trade. 
6. Assistance to underserved markets: Through its Community Advantage program, the SBA provides loans to low and moderate-income communities, businesses operating less than two years, rural areas, and women and Native American-owned businesses. 
7. Collateral requirements: SBA doesn’t require lenders to take collateral for loans up to $25,000 and provides guidelines to lenders for amounts greater than $25,000.  The guidelines are based upon the SBA’s desire to assist small businesses, not make a profit. As one of their own report’s states, “when loan servicing and liquidation activities are necessary, they should reflect a balancing of SBA’s interest in: (1) achieving the goals of the loan program, i.e., helping entrepreneurs start, build and grow viable small businesses; and (2) maintaining the integrity of the loan program, i.e., ensuring that the Agency can maximize its recovery if the Borrower defaults on the loan.”

SBA loan approval can be an arduous process for small businesses to maneuver. ROK Financial provides SBA loan and other lending assistance within seconds. Learn more about ROK Financials’ SBA loan options.    

No matter the device, proper equipment is essential to power the engine of a successful business and to generate growth. As any small business owner can attest, having the most efficient and productive equipment boosts the bottom line. Small business owners can also attest, however, that purchasing or even upgrading existing equipment is costly, and sometimes, equipment breaks at the most inopportune time. Fortunately, traditional and online lenders provide loans exclusively for and equipment. Obtaining these loans can keep a small business operation running smoothly. Equipment financing can have better rates than other types of business loans with less onerous requirements and quicker approval.

What is Equipment Financing?

Equipment financing is specifically used to purchase equipment for your business. Financing works similarly to a home mortgage.  In this arrangement, the equipment acts as collateral for the loan. If the consumer fails to pay back the loan, the lender takes possession of the property, but the consumer can use the property if he/she makes regular payments. Like a home mortgage, most equipment loan lenders will require a down payment, as much as 20%. 

Equipment Financing vs. Equipment Leasing

Some, understandably, confuse equipment financing with equipment leasing and may think the two are interchangeable. The two are different financing options though. In an equipment lease, a renter (lessee) takes possession of the equipment from the owner (lessor) for a period of time for an agreed-upon price. At the conclusion of the lease, the equipment returns to the owner. In equipment financing, a consumer obtains a loan to purchase equipment and takes ownership, while the lender places a lien on the property until the debt is repaid.

Equipment financing terms range from months to years. Qualified recipients can obtain loan amounts from $10,000 to more than a million. Some lenders have rates as low as 3% and increase from there. Traditional outlets like major banks will have better interest rates and terms, but loans at traditional institutions are typically available for established businesses and those with good credit scores. 

Can you qualify for an Equipment Loan as a Startup?

Finding available good terms for financing can be difficult, if not impossible for startups. Like all loans, consumers will have more options at better rates if they have good credit. Consumers can check their credit scores at annualcreditreport.com. 

Lenders require financial documents, business licenses, and tax filings. Traditional lending institutions provide better terms but take longer to approve. Traditional lenders are not a viable option for startups though. One reason is that traditional lenders usually require about a year of business operations. Online lenders can be a good source for startups looking for equipment financing. Rates and terms are not typically as good with online lenders as with traditional financing sources, and their process is faster. Before deciding on an equipment loan, a startup or any other small business should explore other financing options. 

Know Your Options

• Business Line of Credit: This financing option provides access to flexible funding up to a maximum limit. Unlike a traditional loan, this option allows a consumer to borrow what is needed, instead of the full amount. Some business lines of credit return or revolve to the maximum limit, usually monthly, once the borrower repays debt. Flexibility is the main advantage of this option. The downside is that these loans carry higher interest rates than traditional loans. Borrowers will find better rates at banks, but banks won’t lend to anyone with bad credit. Online lenders provide business lines of credit for those with bad credit though. 
• Small Business Loans: Small business loans are another option. These loans have the best rates available, but like all other standard loans, are not available to those with poor credit. The Small Business Administration is a major lender. The SBA provides billions in loans in a typical year, and the CARES Act provided $376 billion in added funding to assist businesses during the Coronavirus pandemic. Private lenders issue these loans, but the SBA with the full faith and credit of the U.S. oversees them and bears some of the risk. The SBA offers several types of loans, including equipment loans, up to $5.5 million. While SBA loans have great rates and terms, SBA loan applications are lengthy, require extensive supporting documentation, and approval can take months.    

Three Reasons why Equipment Financing is a Good Resource for Small Businesses

1. Equipment is vital but expensive: When a small business contractor’s crane breaks down or when a small financial firm’s computer crashes, they can’t afford to use inferior or broken equipment and stay in business. When equipment breaks, businesses need to replace it immediately but likely won’t have enough cash on hand to buy a replacement. Equipment loans allow businesses to address broken or outdated equipment and maintain their capital for other expenses.
2. Secure loan: The equipment purchased by the loan is used as collateral. Unlike unsecured business loans, secured loans come with better rates and terms since they are less risky to lenders. Once the borrower pays off the loan, the small business has an additional asset. 
3. Faster approval: Unlike traditional business loans that can take months for approval, equipment financing takes only days. 

Individual circumstances vary. ROK Financial advisors are available to discuss individual small business financing options.  

Are you a small business owner in need of cash right now? Consider a merchant cash advance. MCA’s can be a lifeline for businesses but before obtaining one, educate yourself on what they are and their pros and cons. 

What is a Merchant Cash Advance?

An MCA is a cash advance from a creditor based upon a merchant’s credit card sales. MCA’s aren’t loans, so they operate differently. Let’s say Phil’s Pizza does $10,000 in credit and debit card sales each month, and Phil’s Pizza and a merchant cash advance provider agree to an MCA. 

The lender will determine Phil’s ability to pay back the advance using a factor score. The score ranges between 1.1 and 1.5, the higher the risk, the higher the factor score. Phil and the provider agree to a cash advance of $10,000. If Phil’s factoring rate is 1.3, then the lender will charge him $3,000 in fees. Phil’s Pizza is obligated to repay $13,000 to the lender, but how Phil repays them differs from a loan. Since MCA’s are not loans, they are subject to different regulations and their terms differ from traditional loans.  Understanding what MCA’s are is key to determining which provider may be the right option for a small business. 

Important Terms to Know

1. Holdback: Unlike a traditional loan where a recipient agrees to pay back the loan in fixed amounts, credit card sales are the basis for MCA’s. The recipient agrees to pay back the lender based upon a percentage of credit card sales. The recipient agrees to “holdback” a percentage of the business’s credit card sales each month. In our example, Phil agrees to pay back the advance by giving his lender 17% of his monthly credit card sales. At this rate, Phil would pay back the advance in six months. If Phil’s credit card sales total more than his usual $10,000, he still repays on the agreed upon 17%. Thus, Phil would pay back the advance sooner, but Phil pays less if his credit card sales fall below $10,000. 
2. Factor rate: Factor rates are based upon industry, time in business, and especially credit card receipts. MCA’s carry high risk for the provider, so the rates are much higher than for traditional loans. The cash advance isn’t based on an interest rate. However, the annual percentage rate or APR includes interest and fees, so the APR can be calculated for MCA’s. APR’s will be in the double or triple digits, higher than traditional business loans. Factor rates aren’t amortized either.  

Benefits of a Merchant Cash Advance

1. Available to those with bad credit. If Phil’s Pizza’s oven breaks, he can’t afford to work with one less oven until he saves up enough funds to buy another. Phil could apply for a small business loan, but what if he doesn’t qualify because of a poor credit score?  Anyone with a credit score below 670 is defined as a subprime borrower. Subprime borrowers will find it almost impossible to get lending from traditional outlets like banks. But many online merchant cash advance providers don’t require minimum credit scores to qualify. 
2. Simple application and speedy approval. In our example, Phil needs a new oven now! National Pizza Day is coming next week, and his restaurant will be packed with pizza enthusiasts. MCA’s don’t require a lot of paperwork.  MCA approval leans heavily on credit card sales. Once approved, consumers can get access to cash in less than 24 hours. 
3.  No collateral required: Since MCA’s aren’t loans, applicants don’t have to put up collateral to obtain one. However, recipients might be personally liable for the advance. Some lenders require personal guarantees, allowing them to pursue individuals if a business fails. Discuss this with your lender before signing the dotted line. 
4. When sales are down, so are payments: Unlike loans, consumers aren’t required to pay a fixed amount if revenue is down. Missing payments, underpayments, or late loan payments usually results in added fees in addition to accumulating interest. MCA recipients may pay less one month without penalty. 

How to Apply

1. Gather necessary documents: While the required paperwork for an MCA is less onerous than a loan, applicants will still need to provide their Social Security number or tax ID, and credit card sales.
2. Apply: Applying and approval can happen in a manner of hours, not days. ROK Financials’ merchant cash advance application takes 15 seconds, provides up to $5 million in funding, and offers same day funding. 
3. Finalize the details: Once a small business has access to this cash advance, the operator has to pay back the advance plus fees. Work with the provider to determine your cash advance and the amount “held back” each month (payment options may vary between daily, weekly and monthly). 

Since MCA’s are not loans, the regulations vary state by state, and terms vary depending on lender. Lenders don’t provide payment history for cash advances to credit agencies. Consumers won’t build up their credit scores by meeting the terms of the advance. However, there are some cash advance options that may help you build your business credit. 

Since MCA’s are a non-traditional form of lending you may have more questions. You can speak with ROK Financial advisor for assistance to better understand these financing options.