Since the financial crisis, it’s harder than ever to convince banks and traditional lenders to buy into your big idea, so it’s not surprising that more and more business owners and entrepreneurs are turning to alternative options. When you’re just starting out or trying to grow your small business, it’s tempting to take advantage of any available influx of capital, but not all small business loans are created equal, and when you start to take out multiple loans at the same time, that’s when your problems really begin…
What is Loan Stacking?
When a borrower takes out more than one loan simultaneously, this is known as “loan stacking”, and it’s as precarious as it sounds for you and your business. While multiple, short-term business loans might give you a temporary sense of financial freedom and possibility, it’s easy to forget that those lenders are all going to come calling at some point.
Ultimately, loan stacking means tying the fortunes of your business to multiple lenders–and that suddenly doesn’t sound quite so tempting, does it?
What are the Risks?
Keeping track of multiple debts and payment deadlines, and managing several different creditors, can become a full-time job in itself, and adds a whole new level of stress to the running of your business–something that you definitely don’t need! Many quick-fix online loans require weekly or even daily repayments, with interest that spirals at a frightening rate, and most businesses just can’t sustain this level of debt.
Loan stacking puts pressure on your cash flow from every angle, stretching your resources to breaking point, and therefore begins to actually restrict what you can do and how you can grow (which is the opposite of what you intended when you took out the loans). You might even find yourself taking out new loans in order to repay the existing ones, which is never a healthy cycle.
With more than one creditor at your door, there’s a higher risk that you will default on at least one loan, and this would seriously damage your credit rating for the future. Many lenders even include anti-stacking policies in their loan agreements to protect themselves against having to compete for your resources and assets; they are well aware of how risky this practice is and how unstable your business could become, and they want to be sure that they’ll be able to get their money back. Taking out multiple loans simultaneously could therefore invalidate your initial loan agreement, sending you into automatic default and even risking legal proceedings.
So What Are Your Options?
Loan stacking is most risky when used for emergency cash flow, and when the loans are all similar products. Any loan you take out should have a distinct function and an obvious return: what are you using it for and how is it going to benefit your business?
At Rapid Finance, we offer a suite of different products and financing options for everything from equipment and property to debt consolidation, so even if you do take out more than one loan, they each have a clear role to play in your business strategy. They don’t compete with each other because they don’t cover the same functions and rely on the same assets. From bridge and asset-based loans to a merchant cash advance, you can select the product and repayment terms that support the way you do business.
Many online lenders pride themselves on being quick and easy, without tons of credit checks, restrictions and hoops to jump through, and of course this is appealing–especially if you need funds fast. But this does make it easier to stack up multiple debts that soon become crippling for your business, and some lenders will even intentionally exploit this. At Rapid Finance, we guarantee an easy application process and fast approval so that your business doesn’t suffer while you wait for much-needed funds, but we make sure to understand your situation and offer the products that are most appropriate to you.
Don’t put your business at risk for a quick fix! At Rapid Finance, we believe in supporting your business to grow and thrive in the future by helping you to make smart financial decisions today. Call us now to find out what we can do for you.
How many times have you heard that it’s hard to get funding? It’s a common refrain and every entrepreneur has wondered how to better raise capital. The truth is that it’s not nearly as hard as you think. Here are some common myths about funding a business and how they don’t hold up in real life.
VC’s Just Want Harvard And Stanford Grads
There are plenty of examples of Harvard and Stanford dropouts starting billion dollar companies. You can probably name a few just off the top of your head. The truth is that those people are the exception to the rule. Many entrepreneurs don’t have that academic pedigree and most get started much later in life. You don’t have to have the same trajectory as Mark Zuckerberg or other famous entrepreneurs. Let your ideas do the talking.
You Need Specific Industry Experience
This is another common myth. When it comes to software engineering it certainly helps to have a Silicon Valley background. There are plenty of other cases where entrepreneurs built on their industry experience to launch a new product. That industry experience is a stepping-stone but it’s not essential. Many entrepreneurs have built disruptive companies without direct experience in that industry. Elon Musk founded Tesla after revolutionizing the digital payments space. Figure out what core skills you bring to the table; you’ll probably find that they are much more transferrable than you think.
You Need Connections To Get Capital
Having deep connections in Silicon Valley or on Wall Street definitely helps when it’s time to raise money. Building those relationships will certainly make your life easier. Are they essential? Absolutely not. In a strong economy, investors are willing to put money behind entrepreneurs and ideas that they truly believe in. It’s also easier than ever to get your business off the ground and start out solely online. Demonstrating success without abundant capital is the easiest way to convince investors to open their checkbook.
You Need Sales To Attract Investment
This might be confusing after explaining Myth #3. One way to attract capital is to show you can bootstrap and still make money. But what if you’re not there yet? Sometimes you need to sell your idea instead of a product that’s ready to hit the shelves. One way to get funding is to develop a unique, marketable, and more importantly patented, idea. You may not even need to develop a marketing or distribution plan. Investors may have the contacts to license your innovation to larger companies. Sometimes a good idea goes a long way.
The Process To Get Funding Is Hard And Complex
This is another myth that’s easy to disprove. It’s easier than ever to get capital; you just need the right partner. Rapid Finance specializes in getting small businesses the loans and credit they need without the hassle of going to a big bank. You can take out merchant cash advances, secure loans against invoices or other assets, or finance major business expenses. You can focus on growing your business while Rapid Finance finds a way to make your vision a reality.
Many entrepreneurs take these myths for granted-don’t make that mistake! Getting funding isn’t hard if you’ve got a good idea and can execute. Contact Rapid Finance today and see how you can get the financing you need.
Every successful business had to begin somewhere. Apple started in Steve Jobs’ garage, after all. While you’re probably not aiming toward worldwide corporate domination, you know your business plan has solid potential… as long as you can get funding. Too often, traditional lenders seem willing to hand over cash only to businesses that are already operating at high volumes. If you’re in the early stages of building your business, you need to know that funding is available to you through a variety of approaches. Alternative funders look at the full array of strengths that you bring to the table, rather than just the size of your business. Here’s how:
What Makes a Business Strong?
Monthly gross sales aren’t the only measure of a company’s health, especially when you’re just getting started. Here are some earmarks of a strong business, regardless of its size:
Right amount of Inventory
If you’re selling products, one indicator of your management ability is the amount of inventory that you have on hand. Too much may mean extra expenses for storage and insurance, or even that your stock might become obsolete before it moves. Too little inventory can leave you unable to meet the demands of an upcoming busy season. Planning ahead for extra funding so your inventory stays at target levels is a sign of good judgement — and if your schedule is tight, alternative funding has a fast turnaround time.
Financial Ratios in the Expected Zone
Different industry sectors normally have different ratios of gross profits to net sales, for example, or of net income to total assets. Sometimes an entire industry will experience a temporary downturn, and savvy lenders understand the background context for such trends. When your financial profile looks good compared to your competitors, that’s a great indicator of creditworthiness.
Good Sales Track Record
If your company is young, you don’t have years and years of history to show — but even a one or two-year timeline can paint a picture of the direction you’re heading in. When you know that future sales will be solid, as long as you can get a cash boost today, a merchant cash advance may be the perfect funding option for you. Payment periods are flexible, because they are based on a percentage of daily receipts. You can get the fast funding you need, without the stress of locking yourself in to fixed payments.
Do you have happy customers tweeting and posting about their interactions with you? Small businesses succeed or fail based on how happy their customers are, and if you have a social media presence, you’ll know what people are saying about you. More importantly, you can enter the conversation. Log in at least once a day, to boost your positive feedback and respond sensitively to any negative reviews. Sometimes customer suggestions are the most valuable source of new product ideas.
Get the Funding That’s Just Right for You
Choosing the right financing solution is a major element in helping your business grow sustainably. You don’t want to get locked into the wrong kind of loan early on, because new businesses usually operate on narrow margins. It’s essential to talk to people who make it their business to help small businesses turn into livelihoods and futures. At Rapid Finance we do everything in our power to try to get the funding you need.
It’s hard to qualify for a traditional small business loan through a bank, and it’s even more difficult to get funding through a Small Business Administration (SBA) loan. If you do make it through the 60 – 90-day application process, you still aren’t in the clear.
Traditional lenders have rules about how you spend the money from the loan, and there are serious repercussions if you don’t meet the requirements. The big question is why do banks care how funds are used once the loan is approved? And are there any other options that offer more flexibility?
The Basics of an SBA Loan
Traditional lenders, including the SBA, are not interested in taking risks. They want to be sure you will repay the money you borrowed. One of the ways they increase the likelihood that you will manage your finances properly is by putting restrictions on how proceeds from loans are used. For example, you can’t use these loans to pay off other debts. Unfortunately, as most small business owners know, sometimes that is exactly why you need the extra cash.
These are some of the programs currently offered by the SBA. As you can see, the type of loan you apply for depends on how you plan to use the money.
SBA 7(a) Loan – Working capital up to $5 million
SBA CDC/504 Loan – Purchase of commercial real estate that you will occupy
SBA CAPLines – Revolving credit line that your business pays back and reuses
SBA Export Loan – Funding specifically designed for businesses that export goods and services
SBA Microloan – Working capital up to $50,000
SBA Disaster Loan – Help for businesses that have been harmed by a natural disaster
The problem with these restrictions is that things change. You might need to rearrange your financial plans based on fluctuations in sales, economic ups and downs, or any number of other issues that comes up in the course of running your business. When you borrow from a traditional lender, you don’t have any flexibility. You can’t change your plans when it comes to how loan proceeds are spent. Fortunately, these restrictive programs aren’t the only option.
New Options for Small Businesses
Technology has made it possible for small business owners to connect with more lenders than ever before. Today, you have options beyond what a traditional bank or the Small Business Administration can offer. Non-traditional lenders have streamlined application processes and fast approvals, because they use technology to make things easier for you.
These lenders offer you flexibility, because they trust you to repay your loan. They understand that sometimes, you face unexpected obstacles, and you need cash quickly to keep your business afloat. Often, you can qualify for a loan, a cash advance, or a line of credit to be used as you see fit. There may also be options for more specialized products, like commercial real estate loans and bridge loans.
Rapid Finance is a leader in small business lending. Credit decisions are fast, and you don’t have to submit endless documentation. In fact, many borrowers have the funds they need in just 24 hours. Best of all, Rapid Finance doesn’t put restrictions on how you use your money. As long as it is used for your business, you can make decisions that are right for you.
If you’re a small business owner, your need for cash is often greatest in the period before you receive payments. The long-term health of your business may depend on your ability to purchase inventory or essential equipment ahead of time. This seems like such a simple equation … and yet, it can be discouraging to approach banks for a loan if your personal credit is less than stellar. Traditional lenders base their decisions on the personal credit of small business owners, even if that personal credit is bad due to issues that were beyond your control.
Securing Extra Funding is Smart Business
The challenge of getting funded can make it seem as if the savviest business owners somehow manage to avoid asking for any help. In fact, however, a lack of working capital can have a negative effect on your company. SBA figures show that 15 percent of newer businesses and 7 percent of well-established ones report that insufficient financing caused their profits to drop.
Alternative Funding Opens Doors
Until recently, if you were a small business owner turned down by a traditional lender because of personal credit issues, you didn’t have many alternatives. You might rely on a family member for funding, or you might spend precious years working at some other job just to save up money. With today’s new financial options, you have the chance to be respected for your hard work and successful entrepreneurship.
The Strength of Your Business is Key
It makes sense, once you think about it: Whether or not you can get a business loan should logically depend on the health of that business. Not on a personal track record that, as often as not, represents situations over which you have no control. After all, 20 percent of Americans have seen health care costs negatively affect their credit score, according to Consumer Reports, and more Americans (over 1 million) declare bankruptcy from medical debt than from credit card problems or mortgage defaults.
Your Creditors’ Financial Strength is Also Relevant
Instead of scrutinizing your personal track record, alternative funding looks in a much more logical direction: How financially strong are your creditors? If the people who owe you money are reliable payers, that contributes to the creditworthiness of your business. Unpaid customer invoices represent a solid asset, and may make it possible for you to receive immediate working capital through invoice factoring. This type of funding gives you fast access to cash, basically just speeding up your receipt of money that’s already owed to you.
Your Business Assets Can Help You Get Funding
Often, small businesses have significant inventory and other non-cash assets. Reliable accounts receivable also qualify as an asset. You can apply for an asset loan based on the value of these goods. Unlike credit scores, which are the result of the credit ratings bureau’s secret formulas (and which are subject to a 20 percent error rate), your assets are clearly countable. So everything is transparent.
Another asset your business owns is your regular volume of sales. If your track record shows that you expect to sell a certain amount in the next few months, you may qualify for a merchant cash advance. This funding option never involves a question of credit, since it provides you up-front cash and is repaid via a percentage of your sales in future months.
Regardless of the source of your bad credit, you can build a bright future through your own business. It just takes a solid start and a funder who’s interested in helping you build the future you envision. Rapid Finance looks at the overall health of your business, not just your credit score.
The process of getting a traditional bank loan for your small business is frustrating. It’s nearly impossible to get a banker’s attention if you have questions. You are expected to fill out a long, complex application on your own, submit all of the supporting documentation that is required, and then wait. And wait. And wait. If you are lucky, two or three months later you get a decision – and when it comes to banks, it’s rarely good news.
Why does it take so long? Is there a faster way to get cash for your small business?
Banks Are Not Adventurous
Steve Jobs started Apple in his garage. Jeff Bezos started Amazon the same way. Today, these companies are two of the most successful in history. However, it is unlikely that either of these entrepreneurs could have gotten a traditional small business loan in their early days. Banks just aren’t adventurous.
Banks are worried that you will default on your loan, and they won’t get their money back. This is based on statistics – many small businesses do fail in the first five years. Banks simply don’t want to take the risk. That means they only lend to extremely well-qualified applicants. You have to complete a lengthy application and supply extensive documentation to prove that you are likely to pay the loan back. Often, your application is reviewed by a long list of small business bankers before a decision is made. That can easily take 60 – 90 days.
What About a Small Business Administration Loan?
The federal government knows that banks don’t want to lend money when there is a risk. However, the government also knows that small businesses are critical to the country’s success. The Small Business Administration (SBA) offers a compromise. If you borrow from a bank through one of the SBA programs, the SBA guarantees your loan.
Of course, a guarantee like that comes with strings. The biggest one is the amount of documentation you have to provide. This is just a taste of what the SBA requires before guaranteeing your loan:
Comprehensive business plan
Details on collateral
Getting the paperwork together is time consuming for you. It takes even longer for the SBA and the bank to review it. For many applicants, 60 – 90 days is a best-case scenario. Sometimes it takes longer to get an approval.
The problem with this lengthy application process is that you can’t handle small cash flow problems promptly, and you can’t take advantage of growth opportunities if an unexpected chance comes your way. Fortunately, there is good news. It doesn’t have to take a long time to get the funding you need for your business.
Fast Funding Solutions
The beauty of technology is that you can cut out lots of time-consuming steps when it comes to submitting an application. You can speak to a loan officer by phone and submit your information online in minutes. Thanks to new financing tools, non-traditional lenders don’t need as much documentation to make a solid credit decision. Sometimes, all you have to provide is basic identification and a few months’ worth of bank statements from your business account.
Rapid Finance is a leader when it comes to leveraging the power of technology to make fast credit decisions for small business owners. Many borrowers have the money they need in just 24 hours. If you need cash for your business, you don’t have to wait months for a decision. Call Rapid Finance at 800-631-3370 today.
If you’re late on filing taxes in 2019, there’s no need to panic. The Internal Revenue Service (IRS) is very clear on the fees and penalties that you can accrue if you file (or pay) late.
Remember, it’s always, always better to file for an extension than it is to file late — and it’s always better to file than it is to not file. Even if you’re unable to pay your tax bill, filing with the IRS and working out a payment plan is the best option!
1. Failure-to-File Penalty
A failure-to-file penalty is just that — a fee for not filing your taxes by the deadline. The failure-to-file penalty is usually the biggest fee you’ll face when filing late. You’re expected to file a return regardless of your ability to pay your tax bill, so remember to file even if you can’t pay what you owe.
The failure-to-file penalty is, as of 2019, 5 percent of the unpaid taxes for each month (or partial month) that the return is late. For those of you with an eye for compounding interest, the fees start accruing the day after the filing deadline.
What’s the Maximum Fee?
On the bright side, there is a cap on the failure-to-file penalty — it cannot exceed 25% of your total unpaid taxes.
2. Failure-to-Pay Penalty
If you file late, you may also face a failure-to-pay penalty.
The failure-to-pay penalty is a bit more complicated to calculate. There’s a penalty of 0.5% of your unpaid taxes (which starts accruing in the same manner as the failure-to-file penalty). If the IRS receives no payment, it may issue a “final notice of intent to levy or seize property“. Once that happens, that 0.5% penalty doubles to 1%.
There’s some good news! If you filed for an extension with the IRS (and paid at least 90% of the taxes you owe), the failure-to-pay penalty may be waived.
That said, if you accrue both the failure-to-file penalty and the failure-to-pay penalty in the same month, the most the IRS will ask for is 5 percent of the total unpaid tax amount.
What’s the Maximum Fee?
Like the failure-to-file penalty, the penalty for late payment cannot exceed 25% of your total unpaid tax.
3. Filing Beyond 60 Days Late
If you’re more than 60 days late in filing your taxes (either with the standard tax deadline or an extended due date), you’re looking at an additional fee. This penalty will be determined by looking at the total unpaid tax — the minimum penalty applied will be either $210 or the entirety of the unpaid tax (whichever is smaller).
Second, you can always request an extension to file a later return. The IRS is not some monolithic agency without wiggle room — there’s plenty of opportunities to request extensions, work out payment plans, and even appeal to waive penalties for first-time mistakes.
Lastly, if you can show reasonable cause for not filing/paying your taxes by the deadline, the IRS will remove the penalties. The IRS will determine each “reasonable cause” case on an individual basis.
Filing Late Taxes in 2019
Filing taxes late is never a good idea, but sometimes life just gets in the way. If you’re late filing your return in 2019, you can figure out exactly what penalties you’ll face — and even get out of penalties completely if you have reasonable cause!
Our advice? Request an extension and talk with the IRS.
Communication and honesty beats filing late every single time.
Your taxes are due on Monday, April 15th this year. Like a lot of Americans, you may be wondering how the new tax laws will affect your financial life, especially if you own a business. For many people, taking the standard deduction is a better option this year. In past years, itemizing may have been a foregone conclusion.
The tax law changes represent a simplification, but for a lot of folks, understanding the new tax laws and applying them correctly opens up the possibility of making expensive mistakes.
Taxpayers can now deduct medical expenses paid out-of-pocket if they exceed 7.5% of their adjusted gross income. Previously, they had to have uncovered medical expenses that equaled 10% of their AGI. The limits on charitable deduction contributions went up from 50% of income to 60% of income. Student Loan Interest Deduction and Lifetime Learning Credit remain in place, but you can now use your 529 college savings plan to pay for private school or tutoring for kids in Kindergarten through 12th grade.
Business owners who handled the paperwork and filing of their taxes in the past should consider hiring a professional this year. Here’s why:
1. You can claim the Earned Income Tax Credit (EITC) or Child Tax Credit
Families with children under the age of 17 can claim the expanded Child Tax Credit, which doubled from $1,000 to $2,000. $1,400 of the credit is refundable. The phaseout threshold is much larger, too. Single filers who make over $75,000 per year couldn’t claim the entire credit in past years, but the threshold is now $200,000. Tax filers with a married filing jointly status who made more than $110,000 couldn’t claim the whole credit prior to this year, but that threshold is now much higher at $400,000.
ETIC, reserved for low-income filers, may get you a refund that’s larger than the amount of taxes you paid to the federal government via payroll deduction in 2018. If you qualify, you may want to explore your options for getting help filing your 2018 taxes to make sure you get the entire refund due to your household.
2. Your gross household income is over $200,000
Households with gross income over $200,000 may have a more complicated tax situation than lower-income taxpayers, especially if they also own a business. The capital gains tax system underwent significant changes. The mortgage interest deduction fell from $1 million to $750,000. The SALT deduction is limited to a total of $10,000. Alternative minimum tax exemption amounts are adjusted for inflation, so this may represent a tax break for higher-income households.
3. You own a business
The pass-through business income tax laws changed, giving business owners who are sole proprietors, partnerships, S corporations, and LLCs the ability to deduct 20% of their pass-through income before paying regular income taxes. This change alone is enough of a reason to hire a professional to handle your taxes this year.
Are the new tax laws have you feeling confused?
You aren’t alone. If your household situation changed with the birth or adoption of a child, marriage or divorce, or death of a wage earner, it’s smart to seek the help of a tax expert. These changes to tax law are the biggest in 30 years. If you have concerns about understanding the nuances and applying them to your household’s finances, this is a great time to hire a professional tax preparer.
Also, the main tax difference between an S corporation with a corporation is that S corporations pass corporate income, losses, deductions, and credits to shareholders. This avoids double taxation, and makes S corporations similar to LLCs when it comes to taxes.
Keep that info in mind if you’re thinking about changing the type of business or establishing your business.
2. It’s all about calculating revenue against expenses
Ultimately, what you pay in taxes depends on your total profits, which can be simplified to be revenue minus expenses. What you need to produce is an income statement. This should clearly detail all your revenues and expenses.
Revenue includes all your sales, as well as bank account interest, capital gains, returns and allowances, and other unclassified income.
Expenses, as a guide in The Entrepreneur notes, includes labor, office rent, equipment purchases, automobile expenses, utilities, and more.
Given that there are a lot of things involved with filing taxes, the chances of paying more than you should in business taxes are high. For instance, you could leave out legitimate business expenses when filing taxes, and that means you’ll pay more than you should as your profits will seem higher.
You can make the tax filing process go much faster if you have all the info you need on hand. Consult this checklist:
Income statement: If you’re not already, start keeping records of all gross receipts and sales
Cost of goods sold (if applicable): This includes the cost of the materials along with labor, inventory and distribution expenses.
List of expenses: From legal services to insurance, include any money spent to support the company’s operations. Don’t forget about things like advertising, transportation, airfare, meals while traveling, and commissions paid.
Payroll documents: This should include payments made to contract workers and freelancers.
Last year’s business tax return: It’s a great reference, too (if you have it).
Bank and credit card statements: This will help track the money that’s coming in and going out.
Depreciation schedule: This covers the depreciation, or loss in value, of your company’s long-term assets, like equipment, buildings, and office furniture.
Asset purchases: Have receipts on hand if you’ve bought new equipment, vehicles, computers, etc.
4. Use all the resources available to you
The IRS has a lot of resources available on their tax center page. Use that as a reference. There’s also plenty of info available with companies like TurboTax.
Additionally, small business tax software like QuickBooks and inDinero can automate many of those time-consuming accounting tasks. It’s worth the investment when you consider the time you save and how you eliminate the potential for errors that happen when you manually record financial information.
The point is this: Small business owners have to wear many hats, and one of them is accountant. To make that role easier, utilize all the resources available. And, if you can, hire a CPA to help out.
Making tax season go smoothly
What perhaps is most helpful is good record-keeping processes. This will eliminate confusion and having to hunt down potentially lost documents and information.
In the end, tax season isn’t something that will excite your team, but if you make it the company norm to maintain clear and accurate financial data, filing taxes will be much easier this year. And your team can get back to what matters most: Building a sustainable, successful business.