As a small business owner, when you go to a bank for a business loan, instead of looking at the performance of your business, the bank will check your personal credit score first. This means, even if your business is performing well and profitably, a fair credit score of 600-650 could prevent you from getting a small business loan. A credit score of under 600 portrays you as a high-risk borrower and will make it nearly impossible to borrow even a small loan.A low credit score stops business loans being disbursed to profitable and stable businesses. Bad credit history will follow you and your business for years. For example, you may have owned a successful business for a few years and now you are looking for funds to expand into another city or purchase more equipment, but when you visit the bank, the loan officer turns you away. Why? The answer is easy – his decision is based on your poor personal credit history.
Credit scores
There is no standard scale that defines your credit score. That evaluation varies from a credit agency to a credit agency as they set their own criteria. A credit report from Equifax may give a person one number, while a credit report from another institution will very likely suggest a higher or lower credit score for the same person. Credit scores in Canada are officially assessed by two entities: Equifax and TransUnion.
The higher the credit score, the safer it is to lend to you
Credit scores typically range from 300 to 900
Credit score brackets:
800-900 – Highest bracket; excellent credit history
700-799 – Very good credit history; lowest interest rates available
650-699 – the Lowest score that can receive standard loans
300-599 – Low scores; less likely to receive business loans
Therefore, if you have a credit score of 649 or lower, it will dramatically reduce the chance of your business loan being approved. Since major banks first look to the business owner’s personal credit score, even exceptional business performance may not make you eligible for loans, or high-interest rates may apply to you.
What happens if you have a low credit score?
If the borrower has a bad credit score, other than a higher likelihood of being refused a loan by the major financial institutions, there are a few other ramifications:
Higher interest rates on loans and lines of credit
Difficulty finding business premises
Security deposits required by utility companies
Higher insurance premiums for business assets
Private lenders help small businesses with bad credit history get loans
Fortunately, there are ways of getting business loans for your company even if you - the borrower - have bad credit. To get small business loans with bad credit history, private lenders are one of the best options. These are more local lenders, better tuned to market conditions, who offer more flexible loan options. There are many private lenders that can provide small business loans. Bad credit history or credit score will make little or no difference to the loan, depending on the type of loan you opt for. Moreover, the application process is much easier and repayments are more flexible. It is possible that a private lender will ask you to open a business bank account with them before they provide you with funding.
How to get a business loan with a bad credit score?
Merchant cash advance (MCA) lenders provide cash advances, customize private terms and business equity line of credit to small business owners. This would be the best way to get a business loan with no credit assessment, and beneficial repayment terms if you happen to have a bad credit history. Instead of checking your personal credit score, a merchant cash advance provider assesses your business’ performance and monthly credit card sales.The MCA lender will give you an upfront sum of cash in exchange for a percentage of the business’s daily credit card income. The MCA lender will tie into the credit card processor directly to settle credit card payments so the business owner does not have to worry about missing the payments or dealing with administrative processes. There are many pros and cons of having MCA but regardless of that, it is still considered as the best way to get business fundings.A private term loan gives you the same perks as a small business loan from a major lending institution. However, the private lender does not give the same weight to your bad credit when deciding on the small business loan. Instead, the lender mitigates the risk with fixed daily repayment terms.A business equity line of credit is much less reliant on the credit history of the business owner. Therefore, if you have a bad credit history and require financing for your business, you can use your equity in the business as collateral. A business equity line of credit helps businesses resolve their cash flow issues, though it does require putting up a part of your ownership as collateral.
Start-up bad credit business loans
For entrepreneurs with bad credit seeking business loans for their start-up, private lenders and alternative lending are the best options. Where small business loan applications at major institutions have a less than 25% chance of approval, merchant cash advance (MCA) approvals stand at over 97%! This is because MCAs do not evaluate the business owner’s personal credit score, and only take into account business performance. Besides that, MCAs can be approved within 4-6 hours.Government loans and grants are also great options. Both have flexible repayment terms and offer additional business support to small entities. However, some of the government loans may require a good credit history and may have strict eligibility criteria.
Using business loans to rebuild your credit
Apart from using funds to expand their business, business loans can help borrowers improve their personal credit scores. Once you opt for an equity line of credit or a private term loan, make sure to pay on time and your credit score will improve over time. As a result, the better your credit score is, the lower your interest rates will be and you will have a greater chance to access financial lending markets.Borrowing is an inherent part of any business regardless of its size and the industry it operates in. Major financial institutions and private lenders usually lend to businesses with exceptional credit histories opposed to those with a bad one. Don’t let your bad credit history stop your business from getting the financing it needs. Options such as a merchant cash advance (MCA) will provide you with the required funding, as well as improve your credit card history in general. If you think it might be a good solution for you, do not hesitate to get in touch with us.
People are working harder than ever. Chances are, you have put in some long hours at your job. While this is admirable, it is also important to make sure that you have a proper work-life balance. Here’s a look at the top benefits of properly balancing your life at the office and at home.
1) Reduces stress
According to a recent survey, due to Covid-19, the majority of the Canadians feel stressed during the day. With stress comes adverse effects to the body and the mind. Lots of that stress comes from fixation with work. Therefore, it is important to take your mind and your body away from the workplace to allow yourself time to depressurize from your daily responsibilities.
2) Prevents burnout
More and more people are switching careers. One of the reasons why people will leave a career after a few years is because of burnout. Therefore, it is important for people to have a chance to relax and not have to grind all the time at their job. By preventing burnout, you can continue on your career and potentially reach new heights at your job.
3) Ensures physical well being
No matter what your age, it is important to stay physically active. For those who work in an office for 12 hours a day, it is hard to get the physical activity needed to stay healthy. Thence, it is important for you to get out of the office, go for a walk or do some simple exercises to get the blood flowing and properly maintain your body. By staying physically active, you can lower your blood pressure, maintain a proper weight and prevent atrophy of your muscles.
4) It increases productivity
When you have a proper work-life-balance, you are able to get more things done. That’s because you will be refreshed and comfortable at your job which can lead to better productivity. It’s a good idea to give yourself at least 12 hours of free time between workdays to allow you to recharge and have full focus at your job.
5) Allows you to enjoy life
It’s important that you take the time to enjoy your life. After all, you will not look back on your life and regent not taking that extra business meeting. When you take the time to enjoy life, it will give you the energy to be more productive at your job. Be sure to give yourself time to take a vacation every now and then to feel better.
Need Help When Work Becomes Overwhelming?
If your business needs a little help, rely on 2M7 Financial Solutions to help you get back on track. We can provide your business with a merchant cash advance in one business day. Contact us today to learn more.
The business landscape is always evolving. In the last few weeks, the situation for many businesses in Ontario has changed drastically. You may be wondering where you can turn to find support in these challenging times.The good news is that there are plenty of supports for business owners operating in Ontario. If you’re looking for answers, try some of these tips and resources.
Federal and Provincial Support for Business Owners
Both the federal and provincial governments have announced funds designed to help business owners keep their doors open and their lights on during this time. If you’ve faced slashed hours or needed to lay employees off, then you may be eligible for business support funds.These funds could help you pay your employees during this time. Other funds are available to help businesses n Ontario manage their day-to-day operating expenses.
Check Government Websites for Resources
You may also want to look at the provincial government’s website, which has lists of programs and services for business owners like you. You can find one-on-one small business consulting and guidance, as well as workshops and more. You may also qualify for consultations with lawyers or accountants. Support is also available if you need grants, permits, or licenses. There are even resources to support mentorship and networking, available through Small Business Enterprise Centres.
Connect with Your Peers
Networking resources may be available through government-run resources. You may also find support through local small business organizations or trade federations. Even social media can help as you connect with your colleagues and peers.
Great Options for Creating Liquidity
In an uncertain market, business owners like you need financial options to help you create liquidity. Check in with your financial institution about measures they can provide to help you. You may also explore other options, like a merchant cash advance. The right funding options will help you create stability and flexibility when your business needs it most. Curious to learn more about your financing options? Get in touch with the experts and discover what a merchant cash advance could do for your business.
A big part of business is focusing on profit margins and productivity, but keeping a business operating healthily gets a bit more complicated than that. One of the concepts you can’t afford to neglect is working capital.Working capital is a necessary data point for any business, and while sometimes it’s taking a bit more time to understand, it is absolutely crucial for maintaining a healthy balance sheet and operating effectively.We’re going to go over what working capital is, why it’s important, and some of its uses in the business world. Let’s get started.
What is Working Capital?
Working capital is essentially what you have left after taking out all the money you need to pay the bills. Think of it like you would in your personal life with a normal job. You get paid, you add up all your household bills and debts, set that money aside to take care of those necessary expenses, and you can work with whatever you have left. If needed, you also have assets you can leverage such as your savings, valuables, and other things that can help beyond the cash you have on hand.In more professional terms, this is everything you have, assets and cash on hand, minus the liabilities you have such as credit card debt, the bills necessary to keep the business running, payable taxes, and more.How you determine your overall working capital is by adding up your assets and financial resources and subtracting the total amount required to pay your expenses.We’ll keep it easy with solid numbers, but your actual calculation will likely be slightly more complicated.Let’s say you add up your assets and have $100,000 in value. After you add up your liabilities, you calculate that you have $50,000 to pay in total. $100,000 minus $50,000 is $50,000. That's your working capital.
Why is Working Capital Important?
Working capital is important in two main ways. At a first glance, it seems as if having as much of it available as possible, but that’s not quite accurate. Let’s go over both ways it can go and why balance is important.
What is Negative Working Capital, and Why it is Important?
This is the primary concern most business owners are going to have, and it’s certainly one that is most immediately noticeable.Negative working capital is when you use the formula we provided earlier, and you don’t have enough to cover your liabilities.That means you don’t have enough to pay your bills, essentially.If you don’t have the capital available to pay off your liabilities, you certainly can’t commit to any sort of growth, and the immediate future of your business doesn’t look promising, either.There are solutions to this that we will talk about later, but this is the worst-case scenario in a lot of situations.
What is Positive Capital, and Why it is Important?
Positive working capital is the opposite of negative working capital. It’s when you do have some resources left over to work with.For example, if you were the average homeowner working a normal job, you’d have some money left over after paying bills. Not all of it is “take home money”. Some of it has to go into savings in case you plan something big, like a major family trip abroad. The same concept goes for positive capital in business.That doesn’t mean that having it in extreme excess is optimal, though. In fact, it can mean that you’re making poor business decisions.If you regularly have way more working capital than expected, it typically means that you’re not taking advantage of growth opportunities, low debt situations, and other crucial parts of the business world.In the long term, this can mean that your business growth stagnant and that excess will start to decline eventually. It can also mean that you’re not providing reasonable upkeep for your business, which has major consequences, or it can mean that you’ve failed to account for various liabilities and your results are false; which is a major accounting error.In the vast majority of situations, you want to have your growth goals in mind, and you want enough to facilitate those goals. It’s also “working” capital. So, make sure it’s working for you.
How to Increase Working Capital for Higher Growth Potential?
Whether your business has a negative working capital amount, or you simply have larger growth goals you want to accomplish, increasing your working capital is usually going to be attractive. As long as you’re actually using it.Doing that can be difficult, but there are some key data points to target and strategies to use.Primarily, you’ll have two core options: You can increase the number of assets you have to offset your liabilities, or you can get rid of some liabilities such as debts that are close to being paid off.
Increasing Working Capital Assets:
Increasing your working capital assets is going to focus on improving your margins. The larger your margin is, the more working capital you’ll have left over assuming you don’t increase your liabilities. This is essentially the same as telling you to "earn more money”, which isn’t very constructive if money is the problem in the first place.If you’re already generating positive working capital, focusing some of those resources on short-term growth that helps with your margins is a strategy you can use. However, that’s a problem if you’re in the negative since you don't have anything to work with.For example, let’s say you have positive working capital, but you don’t have enough to focus on your goals. You might not be financially capable right now. Instead, pump some of that into marketing a big sale, increasing your inventory in high-demand areas, and similar things to earn more working capital.That’s where a working capital loan comes in, and we’ll get to that shortly.
Decreasing Liabilities to Gain Working Capital:
The other way to earn more working capital is to get rid of liabilities where possible. If there is debt that can be paid off in the short term, paying that off frees up a little more to go toward working capital amounts. If you can lower your tax liability, that’s another way to keep a bit more of your margin.It can also be possible to delay purchases. While growth is the ultimate goal, if you’re struggling to maintain a healthy balance sheet, delaying purchases until you can generate more working capital to accommodate them is crucial.For example, let’s pretend you’re a restaurant. You’re moving around $50,000, but after you pay your vendors, staff, and landlord, you’re only keeping $10,000, and that’s your networking capital. If you can consolidate some of this cost, for example automate ordering process and reduce waiter’s team, you can lower the liability cost and generate more profits.Again, this is something that a working capital loan can help with if liability removal strategies aren’t working or aren’t feasible.
What is a Working Capital Loan?
Alright, we’ve talked about a variety of issues that can pop up with working capital and damage your ability to grow, but now it’s time to start talking about real solutions.There are a lot of situations where you just don’t have any room to work with. You can’t boost your assets, because you don’t have capital, and you can’t remove any liabilities, because they’re all long-term, non-negotiable, and absolutely required.So, how do you get over that speed bump?Primarily, you can get a working capital loan.A working capital loan is a loan used to overcome cash flow problems; but it’s not just used in negative circumstances. Any business owner can benefit from one at a certain point, and it can be a positive experience.Here are some of the ways it’s used.
1. Funding Growth Goals
Sometimes, you’ll have growth goals, and you’ll have positive working capital, but you just don’t have enough funds. In that circumstance, you can use a working capital loan to get that extra bit of funding you need in the short term.For example, let’s say it’s the perfect time to open a new location, but you’re $20,000 short on the overall costs. A working capital loan can help.Of course, the payments will become liabilities later. So, it’s best to be in a relatively healthy position when using a loan for this purpose.
2. Overcoming Financial Speed Bumps
Every business will experience a speed bump in its financial growth at some point. Take COVID-19 for example. Nearly every business went from doing great to suddenly seeing a drop in assets for one reason or another.A working capital loan can help overcome those bumps.If you go into the negative slightly, you can get a working capital loan that helps you remove smaller liabilities and invest in ways to build up non-depreciating assets to grow your margins.There are strategies involved in using a working capital loan this way, but one can save a business and keep it above water in such situations.It’s a lot like when you accidentally spend too much of your check as an average person, and your car payment is coming up. You don’t want to lose your car. So, you get a personal loan to cover it until you’re in a better situation.
3. Waiting on Invoice Payments
In an ideal world, all customers would pay on time, and you’d know exactly when funds were going to arrive. Unfortunately, that’s not how it works.Sometimes, you’ll technically have plenty of working capital on the horizon, but invoices just aren’t getting paid on time.A working capital loan can work like an advance on those invoices to make sure you’re still able to make moves while you wait.
4. Taking Advantage of Opportunities
Sometimes, you’ll be presented with opportunities you don’t want to pass up. For example, maybe you rely heavily on a supplier’s hardware for one of the products you manufacture. For a limited time, they’re offering half-off on bulk shipments of that hardware.That can allow for tremendous savings in the future and a lot of potential for growth. However, you might not have the ability to fund it without throwing your balance sheet off balance.This is another situation where a working capital loan can be the little edge you need to come out on top. Its fast, gets the job done, and keeps you from missing such fruitful opportunities.
Understanding the Working Capital Cycle
Beyond noticing problems with your working capital and finding solutions, you’re also going to want to look at the working capital cycle. This will help you predict when you’re going to have certain assets available, and that allows you to plan for them efficiently.The working capital cycle is the time it takes for your assets to become cash that can pay off your liabilities.For instance, think about the customer invoices for a subscription service. You know that 1000 customers are set to pay their invoice on the 30th. That means that, while you have those accounts as assets, they aren’t realized yet. You don’t actually have the money. The time between now and those payments clearing is your working capital cycle. After the 30th, you would be able to pay your liabilities in this scenario.As such, you want to streamline your working capital cycle as much as possible to ensure everything is moving quickly and efficiently.The best way to do this is to ensure that your customer payments are covering your liabilities. Since waiting for accounts to clear usually takes the longest, ensuring that they pay the liabilities off allows your other assets to simply keep growing and building up more working capital.
The Risk of Certain Working Capital Assets
You’ve probably put together a decent understanding of what working capital assets are at this point. If not, the basics are your customer invoices, inventory, cash, and pre-paid debts.One of those is somewhat volatile, and you shouldn’t aim to build much of your working capital on it. That’s your inventory.Your inventory can be a risky asset. It can become obsolete, depreciate in value, and dramatically impact your working capital amount without any chance of turning into cash. Take fidget spinners for example. During the craze, everyone stocked up on them. That was almost guaranteed cash flow. However, when the trend stopped, that inventory became largely useless. Anyone with too much inventory consisting of that product saw their cash flow tank.This can happen with anything. So, it’s important to understand that risk, diversify assets, and have a solid plan to use your inventory; not just stockpile it for perceived working capital.Think of all the people who bought into Beanie Babies in the 90s, and then think of what happened a few years later when no one cared. The Beanie Babies represent your inventory, and no one caring represents your entire inventory devaluing like crazy. You don’t want things sitting around unless they are guaranteed to be necessary for the future.
The Three Types of Working Capital and How to Differentiate
Finally, there are three types of working capital, and while they all generally work the same way, you will need to differentiate between them.
1. Net Working Capital
This is all the working capital you have at your disposal, and it’s the general number that you’re going to want to keep tabs on.
2. Temporary Working Capital
This is your working capital amount in temporary situations. Think of things such as the speed bumps we talked about earlier, or maybe even expected boosts such as holiday sales. Since the causes for the fluctuations are temporary, you have to work that into your understanding of your working capital during that time period.
3. Permanent Working Capital
The name of this one is misleading. It’s not the amount you’re guaranteed to have all the time. It’s the amount you absolutely need to make it. If you make less, your business’s health starts dropping, and you either fix it or lose it.This is the bottom line of what you need to barely get by, and you want to calculate it regularly since your liabilities and assets will change regularly.
Get a Working Capital Loan with 2M7 Financial Solutions
If you’ve gone through this brief guide and realized you could really use a working capital loan to help your business for any reason, contact us to start the process.We specialize in advanced loans that can help your business seize opportunities, fix temporary problems, and continue operating in a healthy state.