Monthly Archives: February 2017

Starting a new business and investing

When you’re starting a new business and investing your time, energy, and often your own hard earned cash into it, the promise of “free” money often sounds enticing. Chances are that you’ve stumbled across at least a few advertisements promoting business grants to help you fund your venture. So what’s the deal with business grants? Are grants available? Are you or your business eligible?

The answer to these questions depends on many variables, so we’ll get to that in a moment. First, let’s start off by defining, in loose terms, what a government business grant is (or in some cases, is not). Federal business grants are funded by tax dollars. Because of that, grant eligibility and approval is a very tightly run ship.

Furthermore, government business grants are appropriated through, well, the government (specifically Congress and the White House). As such, many of these grants are closely aligned to the agendas of a specific government agency like the U.S. Department of Education or the U.S. Department of Agriculture.

If it seems like receiving a business grant, specifically a government-funded one, is tricky. And it can be. Here are some general guidelines and requirements that the federal government uses to determine business grant eligibility:

Only non-commercial organizations (non-profits, educational institutions specializing in medicine, scientific research, education, technology, etc.) are eligible for government business grants.

 

Alternatives to Federal Small Business Grants

If your business doesn’t necessarily fit into the requirements listed above (many do not), there is still hope. State and local programs do exist, as do grant opportunities through other groups and organizations. For example, many large corporations offer grants through an affiliated foundation (i.e. Walmart Foundation Grants), as well as a number of networks that specialize in grants for women.

Additionally, businesses that can attribute to positive gains in local tourism, child care, and energy conservation, and healthy nutrition may also find grants to support their initiatives.

Secured Your Business Credit Card

For many businesses, credit cards are an essential part of your business activities. They can help you build your credit and obtain the assets you need to properly run your business. Unfortunately bad or non-existent credit may make it difficult to be approved for a credit card. For those denied approval for a credit card, if you are looking to establish or rebuild your credit, a secured credit card can represent a viable option.

So, what exactly is a secured business credit card? Quite simply, a secured credit card is one that requires a deposit or collateral up front. In most cases, this deposit must be made in cash, although there are some lenders that will accept collateral in the form of homes, cars, etc.

Though a deposit may not sound ideal, a secured business credit card or secured business credit card can be a valuable tool to build and repair your credit. The security deposit will ensure lenders that, despite your bad credit, you will be able to pay them back. Much like a regular credit card, you can use a secured credit card to make purchases or pay bills when cash is not an option. Your payment history will be reported to the major credit reporting agencies and an account that remains in good standing (no late payments) over a period of time can help you boost your credit score.

 

How Much Money Will I Need for a Security Deposit?

The security deposit required will vary from lender to lender, but all lenders will review your credit history, income or available capital, and perceived ability to pay on time. For those who have bad credit, that may sound scary, but keep in mind that this particular type of card is specifically for individuals or businesses with bad credit.

Typically, your credit limit will be equal to or a percent more than the required deposit; this means that the credit card company is lowering their overall risk by securing funds ahead of time. For example, if you’re approved for a $500 credit limit, you will be required to pay a security deposit of, or close to, that amount.

It’s important to note that this is not a prepaid credit card in which your deposit will be used against the balance you accrue. Instead, your deposit will be held separately, and you will be required to pay your bill in full without relying on the money you paid up front.

 

What Happens to My Deposit?

As mentioned above, your deposit is held separately, and much like a deposit for say, rental equipment, you will get it back as long as you live up to your end of the bargain. In this case, it’s making regular payments on your account and eventually reaching a zero balance.

When exactly you get your deposit back can also vary from lender to lender, but in all circumstances, your account will need to be in good standing. With that in mind, these are the most common scenarios in which a secured credit card lender will return your deposit.

In one scenario, the deposit can be returned to the cardholder upon their decision to close the account. Of course, it’s not as simple as just saying “I’m done, let’s close this down.” Your account must be in good standing and carry a zero balance at the time of closing.

The other, perhaps most desired, scenario is one in which the account holder has successfully reduced their perceived risk by maintaining a history of on time payments and manageable balances. In this case, the lender may determine to convert your account from a secured credit card account to an unsecured one and to return your deposit without requiring you to close the account.

How to choose the right loans for you

When it comes to loans, small business owners have a lot of options to consider. From selecting a lender to determining the type of loan you need, the path to financing can be a confusing one. Of the many places you may look, the Unite States Small Business Administration (SBA) could be a great resource for information on loans, and specifically, different loan programs that are exclusively available to small businesses.

Of those SBA loan programs, the SBA 504 and the SBA 7(a) programs represent options that, depending on your needs and intended outcome, can present many advantages to you as a borrower. It should be noted that SBA typically does not offer direct loans. Instead, these are guaranteed by the SBA and fulfilled through banks or Certified Development Companies (CDC’s).

 

SBA 7(a) and SBA 504 Loans

While both of these SBA loan types can help small business owners to grow or maintain their business, each differs in the purposes for which it can be used.

To start, let’s look at the SBA 7(a) loan. The SBA 7(a) loan is the SBA’s most popular loan program. If you want to take out a loan so that you can have access to working capital, purchase furniture and fixtures, make leasehold improvements, or acquire an existing business, you should consider applying for a SBA 7(a) loan.

On the other hand, if you need to finance the purchase of land or existing buildings or improvement to lands or existing buildings, purchase ground-up construction commercial real estate, or purchase heavy equipment or machinery to operate your business, you should consider the SBA 504 loan.

Under the umbrella of the 7(a) loan program is the SBAExpress loan. The advantage of the Express loan is turnaround time — completed applications will receive a response within 36 hours, a process which usually takes about one month. Express loans generally follow the same standards and uses as the 7(a) loan program.