SERVICES

Financing Services: A Merchant Cash Advance (MCA) is sometimes referred to as a “Business Cash Advance,” “Credit Card Factoring,” or a “Credit Card Processing Loan.” A business owner will receive a lump sum paid back via a fixed percentage (Holdback Rate) of future sales. Payments are automatically deducted each day, and the size of each one fluctuates with your sales volume.

A merchant cash advance is easier to qualify for than other small business loan options. Small business owners with little collateral, business credit history, or low fico credit scores may benefit from this option. The amount of business financing you qualify for from merchant cash advance companies depends on the amount of future receivables or the sales you’re projected to make over the upcoming repayment term.

With this kind of business financing arrangement, you agree to receive a lump sum payment of capital in exchange for your future sales at a discount. This is known as an “advance” on your future sales/receivables. The capital is distributed almost immediately from the merchant cash advance provider instead of waiting weeks/months to get the full amount from your future sales.

For example, let’s say you borrow $50,000 with a factor rate of 1.4. This means you’d owe

$70,000 in total. MCA providers deduct a 10% holdback rate of your daily gross sales via ACH. In the first month, you generate $100,000 in revenue. Based on your percentage, you’d pay approximately $455 per business day (In this case, 22 business days) to pay back
$10,000 for the month. In the second month, your sales drop to $70,000. Since the holdback percentage never changes, your daily payment would drop to approximately
$318.

Like other short-term business financing products, a merchant cash advance is designed to be paid in full as soon as possible. However, the total cost of funds decreases when your outflows are more spread out due to slow sales.

The business equipment financing option is very similar to term business loans, the only difference being it’s specifically for purchasing equipment. Because equipment financing is so advantageous, small business owners can purchase what they need with a low or no down payment, easy repayment terms, and save money with competitive rates.

In general, equipment loan alternative lenders and most equipment financing lenders will use the asset being purchased as collateral, so they’re protected; thus, the rate is lower and could increase the loan amount they’re willing to give. All of these points can help cash flow when you need to purchase equipment for your business.

How much can you borrow with business equipment loans?

Typically, the small business can get up to 100% of the loan amount needed to purchase equipment and equipment leasing. In some cases, a down payment and minimum credit score may be required for equipment financing. Since the asset is used as collateral, you’ll save money with equipment financing because the interest rate would be lower than other equipment finance options like unsecured business credit lines, invoice factoring, merchant cash advances, or other types of small business loans -Financing Services.

Let’s say you’re a baker. To increase your baking productivity by 3x, you need an industrial oven, which costs $75,000.

You can get a five-year term with as low as 3.5% APR interest (SBA) by applying for an equipment loan. But, again, because you’re using the oven as collateral, you’ll save money by getting a lower rate and potentially higher loan amount than you would with other funding products. Also, you most likely won’t need a personal guarantee with equipment finance.

After making your regular equipment financing loan payments for five years, the balance is paid off, and you own the equipment outright. Equipment financing is the best way to acquire expensive machinery for your business needs.

A business line of credit functions like a business credit card. You have a credit line that you can draw funds from at any time. If you’re carrying a balance, you’ll have a minimum payment. You only pay interest, and potentially a draw fee on the portion that you borrow. And when you pay off a part of your balance on time, that money usually becomes available to you again. This is because most business lines of credit are technically “revolving” lines of credit.

A small business line of credit should be a priority because it could be critical to a small business’s success. Unlike other small business loans, you don’t need to reapply each time you want to use the money available to you. And as the Small Business Administration (SBA) points out, small businesses need access to cash to survive and thrive.

Online lenders also make applying for and renewing a small business line of credit easy. Most lenders online don’t require financial statements or tax returns like traditional lenders might. While a small business owner might receive lower credit limits from many lenders for not providing tax returns or financial statements, the best business line of credit for their short-term financing needs may not require those documents -Financing Services.

Once you borrow funds from your small business line of credit, you will have to pay interest and have a minimum payment like a business credit card. Depending on the lender, your first payment could be due the following week or at the end of the month. Your interest charges depend on how quickly you pay off your total balance. If you repay what you borrowed on time, your business line of credit replenishes. For example, let’s say your monthly payment is $200, and your interest is $10. If you paid back $200, your credit line would go back up by $190 -Financing Services.

In some cases, you may have to pay a small fee (a.k.a. a draw fee) whenever you draw from your business line of credit. Typical draw fees range from 1.6% to 2.5%.

Let’s say you want to purchase a large one-time inventory order for $100,000. This would let you expand your in-store product offerings to meet your existing customers’ demand and reach new customers. Yet you don’t have $100,000 in your bank account.

So you apply for a small business loan. You negotiate a five-year term at a fixed interest rate of 8% with monthly repayments. You get the money and buy your inventory now. And the cost of purchasing that inventory gets spread over sixty months – this type of term loan is easier on your cash flow than, say, a merchant cash advance with a higher factor rate and payback that is due within six months to one year -Financing Services.

Let’s say you want to purchase a large one-time inventory order for $100,000. This would let you expand your in-store product offerings to meet your existing customers’ demand and reach new customers. Yet you don’t have $100,000 in your bank account.

So you apply for a small business loan. You negotiate a five-year term at a fixed interest rate of 8% with monthly repayments. You get the money and buy your inventory now. And the cost of purchasing that inventory gets spread over sixty months – this type of term loan is easier on your cash flow than, say, a merchant cash advance with a higher factor rate and payback that is due within six months to one year.

SBA stands for “Small Business Administration.” The Small Business Administration is a government agency, not a business lender. Applications for SBA Loans are not sent directly to the SBA. Instead, you must apply through one of three types of financial institutions: commercial banks, credit unions, or alternative business financing facilitators like United Capital Source. These loans help small business owners just like you start or grow businesses.

What makes an SBA Loan different than all other business loans is that the SBA guarantees up to 85% of loans up to $150,000 and up to 75% of loans over that amount and up to $500,000. This means that even if the borrower defaults on the loan, the financial institution would still get back 85% or 75% of the borrowed funds. The SBA also sets limits on the interest rates and fees lenders can charge.

The SBA, however, does not approve or reject applications. That’s all up to the financial institution, each of which has its own criteria for approval. Once the institution approves an application, it submits its own application requesting the SBA’s guarantee -Financing Services.

The 7(a) Loan

This is the most popular type of SBA Loan. It can be used for almost any purpose: hiring more people, purchasing new equipment, paying off existing debts, ordering bulk inventory, etc. You can access up to $5M, with repayment terms of up to 25 years for commercial real estate and 10 years for all other purposes. Interest rates range from 7.75% – 15.75%. There is a 1.7% guarantee fee for loans up to $150K and a 2.25% fee for loans greater than that amount. This fee might be presented as part of the total cost of the loan. There may also be an origination fee or loan packaging fee.

7(a) Loans cannot be used for certain purposes. These purposes include: purchasing a building that will be leased to another business, reimbursing a business owner for a previous investment in the business, and repaying debts owed to the US government.

The CDC 504 Loan
This loan can only be used to purchase major assets, like heavy-duty machinery and commercial real estate. In most cases, the assets being financed are used for collateral. You can access up to $5.5M, with repayment terms of up to 20 years. Interest rates range from 5% – 6.3%. Total fees cannot exceed 3% of the loan amount, and you’ll have to make a down payment of approximately 10% in most cases. What makes this loan unique is that you must specify the use of the funds. This will determine your borrowing limit, as well as whether you are approved at all.

For example, if you use the loan to create jobs, you must create one job for every $65,000 borrowed. Manufacturing businesses must create one job for every $100,000 borrowed. Your borrowing limit will be $5 million.
If you use the loan for something related to public policy (i.e., business district revitalization, minority business development, expansion of women-owned businesses), your borrowing limit is $5.5 million.

Lastly, your loan must also be used for purposes related to public policy. If you meet these criteria, your borrowing limit will be $4 million.

The SBA Microloan
This product only gets its name from the size of the average SBA Loan. You can access up to $50K, with repayment terms of up to 6 years. Interest rates vary, but the average is between 6%-9%. SBA’s Microloan product also carries no fees -Financing Services.

Accounts Receivable Factoring is sometimes called “Invoice Factoring.” It refers to when a business sells unpaid invoices to an accounts receivable factoring company or a “Factor” for a discounted rate. It is now the job of the factoring company to collect the payment from your customer. Once the factoring company collects from the client, they pay the small business owner the remainder of the invoice amount, minus factoring fees.

Invoice factoring loans are a solution for small business owners who experience a long lapse between when a service is rendered and when the invoice is paid. This type of financial transaction allows the business owner to receive payment on their accounts receivables sooner than they usually would have.

When you sell your accounts receivables to a third-party factoring company, the discounted purchase price gets calculated using what’s known as a factor rate. Here’s an example. Let’s say you sold $20,000 of outstanding receivables. And let’s say the factor rate is 3%. The purchase price of your receivables would then be $20,000 less minus the factor rate. So you’d receive 97% of $20,000. This means the factor would buy your receivables for $19,400.

However, this does not mean you would receive $19,400 immediately. Instead, you’re more likely to receive an upfront advance. For our example, let’s use 85% of the purchase price. So you would receive $16,490 now.

And then, once the factor collects on your receivables, you’d receive the remaining 15% (that works out to $2,910) of the purchase price of your receivables. If it takes longer than 1 month to collect on your invoices, you may be charged an additional 3% per month until the invoices are paid.

The Employee Retention Credit provides qualified employers with up to $26,000 per employee in tax refunds for the tax years 2020 and 2021. This COVID-19 employee retention credit is available for businesses that had to shut down or experience significant decline during the pandemic.

However, the IRS currently takes anywhere from 6-12+ months to issue the refund and recently stopped advance payment last year. But you don’t have to wait for the government because you can get an advance payment on ERTC tax credits through United Capital Source. We can help access the approved funds sooner with an ERTC advance payment on the expected credit -Financing Services.

Several lenders provide ERTC advance payments so businesses can access their funds sooner. As a business owner, you essentially sign over your rights to the ERTC in exchange for the advance.

When the IRS issues the ERTC refund check, it goes to the lender to repay the advance. Some lenders will charge a small monthly interest rate until the check is received, while others might charge a one-time fee.
Ensure your clients fully understand the advance payment policy before signing over ownership of the credit -Financing Services.