48 Factoring Inc. Small Business Funding Blog

Small Business Financing Scams

No one wants to get scammed when seeking financing for a small business, but it happens every day. The desire for financing often overrides people's better judgment and they fall victim to scams. Check out some of the most common scams so you can avoid them.

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Advance Fee Scam
The advance fee scam is one of the most common small business financing scams out there. A fake lender asks for a processing fee in order to process the loan. The fee is often thousands of dollars. Once you pay the fee, you'll never hear from the scammer again. If someone asks you for money before giving you money, run away as fast as you can.

Equipment Lease Scam
If you need financing for equipment, you might fall victim to the equipment lease scam. These scammers seek out people who can't afford new equipment. They offer to rent them the equipment at a low price, and all on credit. You can get the rental, even if your credit isn't great. There's just one catch. You have to send in the first and last month's rent before the company will release the equipment. Just don't expect to hear back from the company after you send in the money.

Phishing Scams
Some criminals also try to get small business owners' personal information so they can steal their identities. They call or send emails and ask them for personal details. They make the owners think they are applying for loans, when in reality, the criminals are stealing the information.
Always go with a trusted lender when borrowing money. That way, you don’t have to worry about falling victim to a scam. Then, you can get your money and use it to help your business instead of spending your days and nights fighting to get your money back.

Are Bank Loans a Viable Option for Small Business Owners?

You're in need of financing and you're considering a bank loan. You might not realize what bank loans entail, though. These loans are much more involved than many business owners realize, which is why lots of people choose nontraditional financing.

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Minimum Loan Amounts
First, banks often make small business owners borrow large amounts of money. If you just need a few thousand dollars, banks won't help. You might have to borrow as much as $50,000 from a bank to even be considered. If you aren't ready to take on that type of commitment, a bank loan isn't right for you.

Credit Score Requirements
In a perfect world, everyone would have perfect credit scores. Unfortunately, life often gets in the way of that. You're not going to qualify for a bank loan unless you have a strong credit score, and the stronger, the better. Also, the higher your credit score is, the lower your interest payment will be.

Long Wait Times
Small business owners often need money quickly, which can be a serious problem for people who seek financing from banks. You can expect to wait one to two months to get your funds if you apply for financing from a bank. If you can't wait that long, a small business loan through a bank isn't a good option.

Collateral
The idea of putting up collateral is a scary thought for a lot of business owners, but banks often require it. You might have to put up your business or your home. Then, if your business fails, you could lose everything. That is a bitter pill to swallow and something you can avoid by seeking another type of financing.

Most small business owners find that bank loans aren’t the right option. Instead, they go with nontraditional financing, such as factoring. It is easier to get the money, and it's easier to pay it back.

Tips to Save Money for Your Small Business

Money is a big part of running a small business. You spend a lot of your time thinking about how you will secure the funds you need. You can cut down on the money you need by following some tips to save money. That way, you can borrow less money for your business.

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Only Borrow What You Need
Some small business owners waste money when securing financing. They borrow more than they need, which causes them to get buried in debt. They typically do this because banks have a minimum amount they'll lend. Instead of making this mistake, go with a nontraditional lending option. That way, you can get your money without getting too far into debt.

Get Rid of Your Credit Cards
Business credit cards are great, aren't they? Actually, they aren't. You might like the rush of charging it, but you are paying a lot of money in interest. Cut those credit cards up and pay them off. You will have a lot more money in your business bank account once you get rid of that monthly payment.

Stop Using Paper
If your office still uses a lot of paper, you're wasting money. You can reduce printing and storage costs while increasing efficiency by going paperless. This is a great way to save money for your business. The more you save, the less you have to borrow, so follow this tip.

Use Your Negotiation Skills
Don't be afraid to negotiate with your vendors. They're trying to make a buck, too, and they want your business. Negotiate for a better deal. You might save a lot of money this way.

You want your small business to run like a well-oiled machine. In order for that to happen, you have to save money. Follow these tips, and you'll be on the right track.

Should You Use Angel Investors?

Getting financing is one of the most important things you will do for your small business and one of the most confusing. During the process, the idea of using angel investors might come up. Before you move forward, you need to look at the pros and cons.

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Pro – It's Not a Loan
If you don't like the idea of paying back a loan, then money from an angel investor might sound really attractive. These funds aren't loans, as you don’t have to pay them back. On top of that, angel investors are willing to roll the dice, even when banks aren't, so you might be able to secure the money from an angel investor after a bank turns you down.


Con – You're Giving up Partial Control
Just because it’s not a loan doesn't mean it doesn’t come at a price. Angel investors don’t give people money out of the kindness of their hearts. They give people money in exchange for a portion of a company's equity. If you hit the big time, you could end up handing over a ton of money to the company. In other words, you might not repay a loan, but you could still pay back a ton of money. Of course, you won't have to pay back anything if you flop, but no one wants to flop.


Con – Lots of Pressure
Angel investors might be called angels, but don't expect them to be sweet all of the time. They expect you to get results, and they will stay on you until it happens. That can be a lot of pressure for a small business owner. Some owners thrive under pressure, but others crack. Regardless of how you perform under pressure, you will likely feel as if you have lost some of your autonomy when an angel investor is breathing down your neck.

Some people appreciate the funds from angel investors, but this type of financing isn't for most small business owners. Most people like to maintain their autonomy and want to retain control of their business. If you fall into that category, choose a different funding option for your small business.

Small Business Financing Trends

Financing a small business can be confusing at first. You don't know where to turn, so it's easy to get lost along the way. Analyzing small business financing trends is a good place to start. Use the trends to guide you along the way as you seek out financing. Then, you'll be ready to secure your money and fund your business.

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Online Financing Continues to Grow
Back in the old days, people had to go into banks to secure financing, but that's no longer the case. Now, you can apply for your financing online, and then the lender deposits the money into your account electronically. This continues to grow in popularity, so expect to see more and more small business owners applying for and receiving their funding online. Just make sure you do your research when choosing an online lender. Select a lender with a proven track record, and read all of the fine print. That way, you won't have any surprises when you get your loan.


The SBA Is Funding Loans – At a Price
You can also get a loan from the SBA. The SBA has a lot of money available to lend, and it is giving it out in droves. There's a catch, though. The volatile market creates high interest rates, so you can expect to pay quite a bit in interest if you go with an SBA loan. If you don’t want to pay those high interest rates, you need to seek another type of financing. With that in mind, this is a trend that you might want to avoid.
These are just two of the current small business financing trends. Keep your eyes open for other trends so you will be able to make the best decision for your small business. Then, jump in and secure financing so you can run your business.

Should You Use Your Retirement Account to Fund Your Business?

You are hard-pressed for money to fund your business, and your retirement account is starting to look really good. The question is, should you dip into that account or should you leave it alone? Let's look at the pros and cons of touching your retirement account.

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Pro – It's Tax Deferred
Many people think they have to pay lots of taxes if they use their retirement accounts to fund a business, but it's actually penalty free and tax deferred. Because of that, this it gives you the opportunity to fund your business without getting in over your head.


Pro – It's Not a Loan
Speaking of not getting in over your head, it's not a loan. You don’t have to make interest payments, and you don’t have to make monthly payments, either. That makes it easier to build up equity and cash flow in your business. If you want to get cash flow quickly, this type of plan can help.


Con – There Are Compliance Issues
This isn't something you can do on your own. You have to hire someone to ensure that you stay compliant, and that costs money. If you don’t feel like keeping a professional on the payroll, this is not for you.


Con – You Could Lose Your Retirement
You save for retirement for a reason. You need that money when you retire. If your business thrives, your retirement will do well. However, if your business doesn't succeed, you can lose your retirement savings. Then, you will have to work for the rest of your life.
While funding a business with a retirement account is certainly an option, compliance issues and the risk of losing your retirement are serious problems that can't be ignored. If you don’t feel like rolling the dice, consider a different funding option instead.

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