There are also times when your equipment breaks down with no warning
and business is at a standstill until it can be replaced or fixed.
Having cash available is essential to keeping your business moving
forward during both types of situations.
However, it can be difficult keeping extra cash on hand to put toward
these situations. Many shop owners leave enough to pay a regular cycle
of bills, payroll, inventory and rent, while the remainder may become
a “dividend” to the household. This is often the reality of running
your own business that is the sole means of income for your household.
While usually doable, this can leave you in a bind when the unexpected
Knowledge is Power
To make the most of your shop, you should know the different financing
options available, which ones make the most sense for your needs and if
you’re likely to qualify for them. To start, it’s important to have a
firm grasp of both your personal and business credit profiles before
finding yourself in need of a loan. You may be unaware that a bank
won’t typically make a loan if your personal credit score isn’t above a
certain threshold (a ballpark figure of 680).
Below we’ve broken down available financing options based on your
qualifications and needs. And, for additional insight, check out On
Deck’s website (www.ondeckcapital.com), which has free tools to gain further insight into both your credit profiles and your lending options.
Bank Financing: If your project is a full end-to-end
renovation, the opening of an entirely new location or starting a new
business, then a traditional long-term loan is your best fit. In
addition to assembling the items below, the approval process for a
traditional bank loan takes a significant amount of time anywhere
from three to six months.
1. Complete financial records (balance sheet, cash flow/income statements).
2. Business plan and pro forma financial statements.
3. Complete tax forms for household and business dating back two to three years.
4. Very consistent, positive cash flow and other necessary diligence.
5. And, finally, time long-term loans often take
months (and delays often come from getting your hands on the right
Examples: Bank Loans, SBA Loans
Short-term Business Loan: Here we mean real loans
not merchant cash advances that enable you to extend payments over
six, nine, 12 or 18 months at total costs that are similar to long-term
financing. The benefits are threefold:
1. It’s based on your business performance and not just personal credit;
2. It requires information that’s readily available
from your electronic records (bank account, credit card transactions,
3. The term is designed to allow you to spread out the
payment, but also have it paid down before your next opportunity
surfaces (you don’t want debt stacking up on your business). Short-term
business loans are typically less than $100,000, so new locations and
major “soup to nuts” renovations won’t fit the bill. These loans can
typically be funded in as fast as seven business days.
Example: On Deck
Using Personal Credit or Assets: More often than not,
most of your business credit is based on your personal credit. The
benefit is that applying for a commercial card or line of credit is
easy. However, there are two main drawbacks:
1. If you’ve already drawn on your personal credit, your score may have
been impacted (this is not a reflection of you, but rather of the
2. Loan programs based on personal credit are designed
for household use…so, while your project or repair may require $40,000,
you might only get $4,000. You could borrow against your home; however,
this is a difficult and time-consuming option that poses potential risk
to the household.
Examples: Credit Cards, Home Equity, Lending Club, Prosper.
Going forward, always remember that when tackling your next opportunity
or emergency, preparation is half the battle. Knowing exactly where you
stand credit-wise, as well as what your financing options are, will
help your business through its next transition.
Mitch Jacobs is founder of On Deck (www.ondeckcapital.com).
Through Jacobs’ work, On Deck is doing what banks have been unable to
accomplish for years effectively evaluating the credit worthiness of
small businesses and providing them access to capital. Jacobs received
the Ernst & Young Entrepreneur of the Year 2010 Award in the
Emerging Business Category for the New York Metro area. Contact On Deck
at (888) 269-4246.