Over the years I’ve acquired a number of untraditional strategies that I use to help borrowers get the business financing they need.

#4.5 – Use a knowledgeable consultant

This first secret only gets partial credit (it’s a 1/2 secret) because it’s also part sales pitch.  In my years of working as a financial consultant I’ve seen many different approaches among consultants and brokers some of which are extremely effective while others feel shady and ineffective.  Understanding how consultants can be paid and their motivations can help you decide if you should hire a consultant.

Generally speaking consultants can earn a living by either 1) charging the client a fee; 2) earning a commission from the lender; 3) create an affiliate sales relationship; or 4) create informational content supported by ad revenue.  The most worrisome of these is when a consultant relies primarily on earning a commission from the lender as it creates the potential that many good lenders are ignored in favor of steering business to the lender who benefits the consultant the most.  At Business Loan Partners we believe it is best to be upfront with our clients by outlining our full fee in advance based on the scope of the work and then give the borrower the option to avoid paying that fee directly by looking at lenders who offer commissions.

A common objection to lenders who pay commissions is that this commission is passed through to the borrower and the borrower loses out whenever a commission is paid.  While that is true in some instances many times that explanation fails to account for the fact that many lenders who pay commissions don’t have the expense of a large salaried sales team and in fact paying a commission to a broker on a closed loan saves them money as they only incur an expense when a loan is funded.  Most big national lenders or even smaller regional lenders with big branch offices seldom pay commissions because if they did their business model would in fact force them to raise prices and pass along the expense of that commission to their customer.

To be clear Business Loan Partners puts the choice in your hands.  Say for instance after learning about your specific needs we determine a specific local bank in your neighborhood offers the best product to meet your needs.  It’s in our mutual best interest to refer you to them and get out of the way at little to no cost to you.  But if you want someone to guide you through the process and develop a business plan we can determine the appropriate option(s) and fee to match your needs.  Alternatively you may know that local lenders are unable to fulfill your needs and you want Business Loan Partners to pre-qualify your request and find a willing lender to fund your loan.  In that case we will search the best and most aggressive lenders in the market place and often lenders who are willing to pay a commission are also willing to take on a little more risk than your local bank.  In this way Business Loan Partners can find you financing solutions you might not even realize exist while providing the service for very little or no out of pocket expense.

#4 – Equity investment alternatives

In 2013 Business Loan Partners was approached by a start-up business looking for a $500,000 loan to replace funds from an Angel Investor that fell through.  This start-up originally planned on funding their business entirely from outside investors and had hired a professional staff and had purchase orders in place for a large equipment purchase.  Business Loan Partners was called in when an investor backed out leaving a $500,000 funding gap with businesses equipment purchase in limbo.

Given the need to fund the equipment Business Loan Partners found a leasing company that would fund the equipment for the business despite this being a business with no credit history or operational history.  SBA loans were not available to this business due to the ownership structure that results when investor funding is utilized.  Additionally the business was under the gun to complete this equipment purchase quickly which made traditional bank financing unappealing.

The leasing company that came to this businesses rescue provided a loan with only the equipment as collateral.  This satisfied all investors in the business and because this was a non-traditional lender their underwriting process took hours not months as is common with many banks.  Ultimately the business received the funds they wanted in a quick and relatively pain free manner that was more similar to working with an investor than a lender.

This example is one of many examples in which alternative lending solutions could replace many of the benefits of an outside investor.  If you are considering investors but would consider debt instead be sure to reach out to Business Loan Partners so we can discuss your exact needs.

#3 – Invoice Factoring has the potential to be a low cost source of financing

If you’re familiar with Factoring you probably believe it’s only for businesses with bad credit.  While often Factoring is a financing source used by businesses with credit challenges there are many factoring companies that provide low cost factoring solutions.  One of our clients received multiple Factoring offers with rates equivalent to 10% APR or less.  These Factoring lines ranged from $500,000 to $5,000,000 and in a few cases did not require a personal guarantee of the business owner.

If you’re not familiar with Factoring in the simplest terms Factoring is the process where a lender buys a business’s invoices and pays the owner of the business a discounted rate for those invoices.  Because the invoice is being purchased Factoring technically is not a loan at all. Because of this the credit/value of your customers can result in outstanding discount rates.  Assume for instance that you have invoices from Fortune 100 companies such as Amazon, Google, Coke, etc.  Those invoices alone are likely to result in better terms for you as a borrower.

In the case of a prior Business Loan Partners client we were able to find him multiple Factoring offers from Banks that have a low cost of funds and were excited about his customers.  It also helped that this borrower had a long established business which lead the Factoring company to waive the typical personal guarantee that is all too common for Small Business owners.

#2 – Borrow from your IRA, pay no interest and get the down payment to buy the business of your dreams

Have you worked in Corporate America for years and accumulated either a 401k or IRA?  If you want to use that money to buy or start your own business there is a special exemption in the tax code that allows you to do so without paying taxes.  Essentially using this program your IRA is investing in your business instead of traditional stocks, bonds and other retirement plan investments.  You maintain full control of your business and you can supplement the IRA funds with a SBA loan or other financing.

This is a very powerful tool as your SBA loan down payment requirement may be as low as 10% so if you use $200,000 from your IRA you might be able to buy a $2,000,0000 business ($1.8 million SBA loan + $200,000 from your IRA).  How much can you make on a $2 million business?  Typically businesses will sell at +/- 3 times seller discretionary cash flow (cash flow is not only the businesses income but also includes expense add backs which the owner/seller incurred but were personal in nature such as the owners health insurance expenses).  Therefore a $2 million business should produce about $650,000/yr in cash flow.  Even after subtracting your loan payment that is $300,000 to $400,000 per year that you can expect from owning a business of that size.

Understanding the math of a business purchase allows you to then answer one of the most critical decisions if you pull money from your IRA – are you willing to risk your retirement funds on this business?  To some any risk of retirement funds is too big of a risk; if that is you then nothing I say will convince you otherwise.  But for many of us the idea of buying an established business that has already proven its ability to succeed in the market plus the opportunity to earn nearly twice your down payment in the first year allow provides the right combination of quick payback and risk mitigation that this is a decision well worth considering.

There are many factors that go into this type of financing and if you want to learn more please contact us at Business Loan Partners so we can discuss.  Key discussion topics include:

1. Will this program work with your 401k – technically 401k funds are not eligible but in many cases they can be put into an IRA so that they become eligible.   We want to help you figure this out upfront.
2. Minimum withdraw amounts – It is our recommendation that you only consider this for amounts of $50,000 or more because if this is the right solution for you we will refer you to a reputable specialist who charges a flat fee (varies by provider) for their services that ensure you don’t violate any IRS rules and regulations.
3. Complementary strategies – do you want to use an SBA loan in the fashion described above?  If so let’s spend time pre-qualifying you and advising the optimal order of applications so you pay as little as possible in fees while maximizing your odds of approval.

#1 – Don’t be afraid of Business Credit Cards

When used appropriately Business Credit Cards are your #1 secret weapon to obtain great financing.  Think about it for a moment, how many other lending products earn the bank money without charging the borrower?  Even if you pay off your bill in full each month and never pay interest plus use cards without an annual fee the bank which issues the card gets paid interchange fees from the merchant.  Merchants willingly pay these fees because they know accepting credit cards are practically a requirement if they want to maximize their sales.

Interchange fees make low introductory interest rates and reward programs possible.  As such many savvy borrowers routinely use credit cards, but wait there’s more….

Did you know some business credit cards don’t show up on your personal credit report?  In my opinion no business credit card should so up on your personal credit report but some banks disagree therefore you need to carefully choose the right business credit card which is where Business Loan Partners can help.

If you require a loan of 18 months or less and have good credit it is fairly likely you can find a 0% introductory rate credit card that can finance your business needs.  Because these cards are often approved based on your personal credit score they are relatively easy to acquire assuming you have good credit even if your business is brand new and using a business credit card that doesn’t report on your personal credit will allow you to avoid some of the problems that occur with personal credit cards.