Small Business Financing in the Time of Coronavirus

Small businesses need a financial safety net now more than maybe ever. As large swaths of the US economy remain closed, small business owners across America have had to shutter their businesses. These closures—or transitions to online-only or takeout business—-have put a strain on many small businesses’ working capital. 

So what can small businesses do? Thanks to swift work from the US government, small businesses can apply for financing through the SBA. Paycheck Protection Program (PPP) loans and Economic Injury and Disaster Loans (EIDLs) provide low-interest loans for impacted small businesses, but they’re not the only option. 

Lenders are still funding small business loans, and the products borrowers are most likely to qualify for right now are also the loans that provide the fastest funding and most flexibility. 

Paycheck Protection Program (PPP) Loans

If you’ve heard talk of one coronavirus financing option, it’s probably PPP loans. Created under the CARES Act, PPP loans are low-interest, potentially forgivable loans. Designed to help small businesses keep employees on their payroll, the maximum loan amount for each business is 2.5 times its average monthly payroll cost. That number includes items like wages, as well as paid vacation days, separation or dismissal allowances, and group healthcare costs. 

Funds used for approved purposes, which are all payroll related, over the course of the first 8 weeks of the loan (starting at the date of funding) are eligible for forgiveness. To have your PPP loan forgiven, you’ll have to provide documentation to prove that the funds were used for allowed purposes and apply with your lender. We don’t know the full extent of what the forgiveness process will look like because PPP loans have only just started funding and no borrower has yet reached the point where they can apply for loan forgiveness. 

Economic Injury and Disaster Loans (EIDLs)

EIDLs previously existed as a form of disaster financing through the SBA before coronavirus. Small businesses in designated disaster areas are eligible to apply, and the good and bad news is that all US states and territories qualify as a result of coronavirus. To qualify for the loan, small businesses need to prove that they’ve suffered “serious economic injury” as a result of coronavirus. Borrowers should be prepared for more documentation and a longer time until funding—approximately 60 to 90 days. 

To apply for an EIDL, you must apply through the SBA’s website. The application takes an estimated 2 hours and 10 minutes to complete. 

Emergency Economic Injury Grant (EEIG) 

60 to 90 days is a long time to wait for an EIDL, and on top of that, the SBA had trouble with elements of the rollout. To make it up to small businesses, the government agency has offered Emergency Economic Injury Grants (EEIGs). 

To be considered for an EEIG, your small business must complete the EIDL application. On the fourth page of the EIDL application, you can click a box that says “I would like to be considered for a loan advance of up to $10,000.” Click it. That’s all you have to do to apply for an EEIG

While the SBA uses the language “loan advance” on their EIDL page, it is a loan advance that doesn’t have to be repaid. Confusing? Yes. But essentially, the “loan advance” is used interchangeably with EEIG. If your business applies for an EIDL, you should ask to be considered for an EEIG to potentially receive up to $10,000. Importantly, the SBA also notes that you don’t need to qualify for an EIDL to receive an EEIG. 

Business Line of Credit

Ultimate flexibility for when you need it the most, a business line of credit allows small businesses to borrow against a predetermined sum. You can borrow as much as you need, repay it, and repeat as many times as you need or want to over the course of the loan term. 

A business line of credit is an ace form of financing in the time of coronavirus because it provides a financial safety net without the same obligations of a standard business loan. 

Accounts Receivable Financing

Are you waiting on unpaid invoices? Accounts receivable financing, also referred to as factoring, might be the solution for your business. This loan type allows you to leverage the money you are owed for working capital today. 

Short Term Loan

A short term loan is designed for when you need quick access to capital that you can also repay quickly. Short term loans are often funded in as little as 24 hours and can be an essential lifeline for small businesses that need fast cash. Short term loans are designed to be repaid quickly, so this loan is best used for when you have a clear sense of how you can repay the loan quickly to avoid rising costs associated with longer repayment terms for short term loans. 

ACH Loans

An ACH loan, often referred to as a “cash flow loan,” is another quick financing option, and it comes with looser requirements. ACH loans are based on a borrower’s daily bank balances rather than on credit score, making the loan type accessible to a broader swath of borrowers. Loan repayments are automatically deducted directly from your checking account, so you won’t have to worry about scheduling reminders for payments.

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on Lendio.com, FitSmallBusiness.com, and ModernHealthcare.com. Grant is also the author of the book “Rhino Trouble.” He has a B.A. in English from Brigham Young University.

Understanding and Building Your Business Credit Score

If you’re a small business owner seeking financing, lenders will consider multiple factors before approving a loan. They’ll be interested in your tenure, experience, and industry—among other things. Nearly all of these factors can be boiled down to one crucial question: How likely are you to repay the money you borrow?

While there are no simple answers to this question, your business credit score is a user-friendly number that gives them a quick idea of your reliability. This score accounts for your business debt usage, personal debt usage, business debt coverage, personal debt coverage, business revenue trend, and personal credit.

“Just as the bank reviews your personal credit score and credit history when you apply for a car loan or mortgage, creditors review your business credit score and history when your business applies for a credit product,” explains credit expert Kimberly Rotter. “Your business score tells them how much of a credit risk your business poses based on past financial behavior.”

Given the importance of your score, it’s important to know how to build and sustain it. Inaction is always an option, but this is a situation where you ignore your meal ticket at your peril.

How Do I Find Out Where My Score Stands?

Lenders can access a handful of business credit score sources while considering your application. They include:

While you may be unfamiliar with these credit reporting agencies, that doesn’t mean you should let them manage your credit in the shadows. It’s always wise to take a proactive approach and regularly monitor your score.

There are plenty of ways to check your score with a fee, but here are 5 ways you can get an update at no cost:

Nav: This convenient service lets you check both your personal and business credit history. Nav can access the reports from Experian and Dun & Bradstreet, giving you a rounded view of your finances. As a bonus, Nav provides resources like a goal-setting tool to help you stay on an upward trajectory.

CreditSignal: Although this service only gives you access to your Dun & Bradstreet report, it offers a wide range of perks that make it a great option. One of the best things about it is that you can sign up to get alerts anytime your score experiences changes.

Credit.net: This more upgraded option includes a week-long trial that’ll provide free credit reports, but then you’ll be prompted to pay for the services if you wish to continue. A key advantage of the Credit.net paid packages is that they connect you with an expert who can alert you of issues and provide strategies for boosting your score.

CreditSafe.com: Here’s another try-before-you-buy option. You’ll get free access to your credit report, as well as CreditSafe’s suite of monitoring tools. The website’s dashboard is loaded with resources to educate you on best practices for managing your credit.

Apply for a small business loan: This approach is the most indirect method of checking your business credit score, as it’s merely a final step that many people neglect in the loan application process. If your loan application has been rejected, you’ll receive correspondence directly from the credit bureau that the lender used to verify your credit. You can respond to this letter within 90 days to receive a free business credit report.

What If My Score Isn’t What It Needs to Be?

Entrepreneurship is a volatile pursuit, so it’s common for small business owners to have blemishes on their financial track records. There are also track record issues for new businesses, as they haven’t had an opportunity to amass the data points necessary for a solid score.

In these scenarios, your personal credit score takes an oversized role. As mentioned above, it’s already 1 of the factors included in your business credit score. So whenever a business credit score is inadequate, your personal credit score can be used by lenders as they make their decisions.

The good news is that there are small business financing products that are particularly relevant for borrowers who lack a convincing business credit score. Due to their unique structures, lenders can look at other factors as they make their approval decisions, such as:

Business line of credit: This versatile type of financing provides revolving credit for a variety of business-related expenses.

ACH loan: Instead of focusing on credit scores, lenders base ACH loan decisions largely on the performance of your business.

Merchant cash advance: Your future earnings take center stage with a merchant cash advance, making your financial history less relevant.

Any of these 3 financing options can be helpful in the short term, but you’ll still want to focus on building your business credit score and getting access to a wider array of financing in the future.

While there are many strategies you can use to improve your business credit score, the most important element is awareness. Many entrepreneurs never check their scores, essentially throwing their hands in the air and saying whatever happens will happen.

This strategy is problematic because you’ll never know which aspects of your finances you should focus on improving without the insights available in your credit report. Additionally, up to 20% of credit reports contain errors. Your report may fall into this camp, so be sure to monitor your credit carefully.

If you find errors with any of the major bureaus, you need to take prompt action to get them corrected. You can follow the directions contained at the bottom of all credit reports regarding how to dispute incomplete or inaccurate information. You can also review this resource from the Consumer Financial Protection Bureau for additional information.

As you take an active role in your business credit, you’ll become a more powerful advocate for your small business. Building credit is a long and dynamic process, but every step forward, no matter how small, yields positive results for your business.

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on Lendio.com, FitSmallBusiness.com, and ModernHealthcare.com. Grant is also the author of the book “Rhino Trouble.” He has a B.A. in English from Brigham Young University.

The Great Debate: Should You Use an Open Office Layout?

The majority of companies in the United States use open office layouts. Whether that design includes communal work tables or low-partition workstations, these offices are a far cry from the partitioned offices of the past.

“Silicon Valley firms were among the first to champion open workspaces, where employees sit shoulder to shoulder at communal desks,” explains an office design analysis in Forbes. “They tore down walls and eliminated private offices as outdated symbols of corporate hierarchy. An open layout seemed to convey a modern, break-all-the-rules attitude. It also provided a stark contrast to the soulless cubicle farms skewered by Dilbert comics and films like Office Space.”

The Benefits of an Open Office

It’s understandable why many businesses have embraced the open office layout. With walls and other partitions removed, it’s easier for your employees to connect. Better collaboration is often the objective, which makes sense from a practical standpoint. When you can look over to a colleague’s desk and immediately see that he’s sitting there, it seems you’d be more likely to stroll over for a conversation.

“It really creates an environment where people can collaborate; they can innovate together,” said Lori Goler, chief people officer at Facebook, which is known for promoting open office concepts. “There’s a lot of spontaneity in the way people bump into each other, just a really fun collaborative creative space.”

In conjunction with the collaboration, many businesses employ an open office in hopes that it will increase socializing and improve employee morale. Traditional workplace designs run the risk of reinforcing hierarchies, with corner offices for the elite, modest offices for the leaders, and cubicles for the working drones. By leveling the playing field, it’s easy to see how an office could become more cohesive.

Additionally, open offices are more cost-effective. They allow you to fit more people into a smaller space, with less furniture required. This savings makes open offices compelling for small businesses operating on tighter budgets.

The Drawbacks of an Open Office

Once you know the desired benefits of an open office, it’s important to review their effectiveness in practice. Many employees actually report issues with such layouts, ranging from obnoxiously loud coworkers to stinky lunches being eaten much too close for comfort.

Researchers from the Harvard Business School conducted what is widely considered the preeminent analysis of open offices. They traced employee movements with electronic badges, recorded office conversations with microphones, and kept tabs on interoffice email usage.

The result? The open offices in the study did not achieve the collaboration hoped for. Instead, face-to-face interactions plummeted by 70%. Conversely, email use went up 50%. It appeared that the extreme openness of the layout led to employee withdrawal. The only way to cope was less personal interaction.

“I don’t know that I had a clear hypothesis about this research question at the start,” explains the study’s coauthor, Associate Professor Ethan Bernstein. “You hear so much said about how much people don’t like open offices, but there’s also so much said about the vibrancy of an environment when you open space and data up, about the collisions and interactions that will happen there. For me, the promise of open offices was at least as compelling as the traps. Would everyone bustle with productive collisions or simply put their big headphones on and become numb to the space?”

It seems that Professor Bernstein’s theories regarding the inherent traps associated with open offices are legitimate. Participants in the studies did tend to put on headphones, hunch toward their computers, and try to block everything else out. Not only was this an effort to eliminate abundant distractions, but workers also felt the need to look busy all the time because they were in full view of their leaders and coworkers.

What Office Layout Should You Use?

While the Harvard Business School research exposed potential problems associated with the open office layout, these findings don’t mean it’s necessarily a bad option for your small business. Every office includes unique individuals who interact in dynamic ways.

If you’re wondering what layout would work best for your office, here are some considerations:

What do your people want?

You may have your ideas about what the office needs, but always make sure  your employees have a voice. After all, the quickest way to hurt morale is to impose major changes without using the type of collaboration your office layout would hope to spur.

How can you improve interaction?

Even if an open layout isn’t the best fit for your business, perhaps you can incorporate some of the positive elements. You can start by improving the socializing in your office by simply scheduling more opportunities for your people to get together.

Are you using sound masking?

If you have an open office concept and noise is an issue, you need to implement some form of sound masking. White noise helps minimize distracting conversations and sounds. The result can be happier, more productive people.

How flexible are things for your employees?

You can also reduce distractions and frustration among your people by offering increased flexibility. At the most basic level, you may let them customize their schedules (such as coming in earlier in the morning to get more unfettered work time). You can also think about letting them work a 4/10 schedule or even work from home once a week.

Whether you think cubicles are essential or can’t wait to make your office as open as an African savanna, it’s important to keep your people top of mind. What will help them feel most connected? What will help them be most productive? What will help them be most happy? Answer these questions first and your own business priorities will ultimately be served.

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on Lendio.com, FitSmallBusiness.com, and ModernHealthcare.com. Grant is also the author of the book “Rhino Trouble.” He has a B.A. in English from Brigham Young University.

10 Considerations When Shopping for a Commercial Mortgage

The primary purpose of a commercial mortgage is to help small business owners add “property owner” to their titles. This accomplishment is worthwhile, as it negates the need for you to pay rent to someone else. As a wise person once said, “Paying rent is like throwing your dollars into a bottomless void.”

When you own a property, your payments build in a way that gives you positive options in the future. You’ll have more control of the property, build your retirement portfolio, and create the opportunity to collect rent from others.

A commercial mortgage can be used for many kinds of property, including warehouses, offices, apartment complexes, stores, and restaurants. And the scope extends beyond just purchasing a property. You can also use this type of financing for new construction, renovating an outdated structure, removing yourself from a lease, or refinancing for a better repayment term.

Regardless of the details, these projects typically require financing that can help you convert your equity into cash.

“Commercial real estate isn’t cheap,” say the entrepreneurial experts from Small Biz Rising. “If you’re a small business owner who’s considering buying or further developing commercial real estate—whether that’s an office building, a shopping center, a hotel, or another business-related property—odds are you’ll need to secure financing from an outside lender. In most scenarios, that usually means applying for a commercial mortgage loan.”

In the financing world, there’s a spectrum of difficulty when it comes to qualifying for and obtaining various loan products. The good news is that commercial mortgages fall on the easier side of things. While SBA loans require piles of paperwork and have strict requirements, a commercial mortgage is a much smoother ride.

One of the main reasons for this ease is that you will secure the loan by using the property as collateral. As long as the property’s value appraises for a sufficient amount, you’ll bypass some of the hurdles associated with typical loans.

However, a commercial mortgage isn’t always a sure thing. Small business loans are always competitive, with lenders looking at a variety of factors before making approval decisions. What’s important is that you provide all the relevant documents, including property blueprints, purchase contracts, scope of work analysis, project budget, and a property market analysis.

Beyond the nuts and bolts of the real estate project, your finances will play a role in the approval decision. So don’t put too much emphasis on the property and lose track of the business side of the equation.

“You’ll need to gather an assortment of documents, including current business and personal tax returns, business-related financial records, personal and business credit score information, bank statements for personal and business accounts, asset and liability statements, profiles of business partners and directors, business plans, and possibly more, depending on the lender,” says Small Biz Rising.

While we’re on the topic of what you need for a commercial mortgage, here are 10 more considerations. Some are major details and others are fairly minor, but they combine to make your application more desirable to a lender.

These loans are big.

Real estate isn’t cheap, so your commercial mortgage will pack a punch. At their smallest, you’ll find amounts around $250,000. But the maximum can go up to $5,000,000 to fund larger projects.

Interest rates are favorable.

With your property serving as collateral to secure the loan, lenders will often feel comfortable offering you interest rates as low as 4.25%.

Repayment terms are also favorable.

Real estate projects are rarely quick. Luckily, neither are the repayment terms. Don’t be surprised to find terms extending up to 25 years.

Your plan can really open doors.

Business plans are always important when seeking financing, but they take on a whole new level of importance with commercial mortgages. Take the time to make sure yours clearly demonstrates your expertise and investment in the project.

Being an owner means added responsibility.

Remember that owning property means you’re responsible for the maintenance. And as sure as the sun will rise, issues will arise. It’s wise to account for upkeep expenses as you budget for your project.

Your business structure matters.

Sole proprietorships can be a solid structure for a business, but not when you’re seeking a commercial mortgage. It’s best for you to form a business with limited liability, such as a limited partnership, LLC, S, or C corporation.

Your past transactions are relevant.

Lenders will look beyond the real estate project to assess how likely you are to fulfill your repayment obligations. Plan on them evaluating your personal finances.

You need to be the majority in the property.

While commercial mortgages are versatile, they still have their limits. For example, you will need to occupy the majority of the building in order to qualify. Even occupying 50% isn’t enough.

Pay attention to the LTV.

Lenders will want you to put up a substantial amount in conjunction with any loan. A common range for the maximum loan-to-value ratio is 65-75%.

These loans can move slowly.

It’s true that commercial mortgage applications are easier than many other types of financing, but that doesn’t mean it’s always a walk in the park. In some cases, it can take a few months for one of these loans to fund.

Construction projects often boil down to a vast array of details. When you pay attention to the nuances and carefully manage your operations, you set yourself up for sustainable success.

On the other hand, if you neglect the smaller aspects of your project, the consequences can be swift. For this reason, take the time up front to organize yourself before you begin any applications. By getting your house in order first, you’ll be in a prime position to smoothly navigate the application process that follows.

Most importantly, this preparation and organization will shine through in your application. And robust business plans and comprehensive applications are proven to work wonders as lenders make their approval decisions.

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on Lendio.com, FitSmallBusiness.com, and ModernHealthcare.com. Grant is also the author of the book “Rhino Trouble.” He has a B.A. in English from Brigham Young University.