The word “etiquette” gets a bad rap. For one thing, it sounds stodgy and pretentious. And rules that are socially or morally prescribed seem intrusive to our sense of individuality and freedom.
But the concept of etiquette is still essential, especially now and particularly in business. New communication platforms, like Facebook and Linked In, have blurred the lines of appropriateness and we’re all left wondering how to navigate unchartered social territory.
At Crane Co. we have been advising people on etiquette for two centuries. We have even published books on the subject covering social occasions, wedding etiquette and more.
Boil it down and etiquette is really all about making people feel good. It’s not about rules or telling people what to do, or not to do, it’s about ensuring some basic social comforts.
So here are a few business etiquette rules that matter now whatever you want to call them.
1. Send a Thank You Note
I work at a paper company that manufactures stationery and I’m shocked at how infrequently people send thank you notes after interviewing with me. If you’re not sending a follow-up thank you note to Crane, you’re not sending it anywhere.
But the art of the thank you note should never die. If you have a job interview, or if you’re visiting clients or meeting new business partners especially if you want the job, or the contract or deal take the time to write a note. You’ll differentiate yourself by doing so and it will reflect well on your company too.
2. Know the Names
It’s just as important to know your peers or employees as it is to develop relationships with clients, vendors or management. Reach out to people in your company, regardless of their roles, and acknowledge what they do.
My great-grandfather ran a large manufacturing plant. He would take his daughter (my grandmother) through the plant; she recalled that he knew everyone’s name his deputy, his workers, and the man who took out the trash.
We spend too much of our time these days looking up impressing senior management. But it’s worth stepping back and acknowledging and getting to know all of the integral people who work hard to make your business run.
3. Observe the ‘Elevator Rule’
When meeting with clients or potential business partners off-site, don’t discuss your impressions of the meeting with your colleagues until the elevator has reached the bottom floor and you’re walking out of the building. That’s true even if you’re the only ones in the elevator.
Call it superstitious or call it polite but either way, don’t risk damaging your reputation by rehashing the conversation as soon as you walk away.
4. Focus on the Face, Not the Screen
It’s hard not to be distracted these days. We have a plethora of devices to keep us occupied; emails and phone calls come through at all hours; and we all think we have to multitask to feel efficient and productive.
But that’s not true: When you’re in a meeting or listening to someone speak, turn off the phone. Don’t check your email. Pay attention and be present.
When I worked in news, everyone was attached to a BlackBerry, constantly checking the influx of alerts. But my executive producer rarely used hers and for this reason, she stood out. She was present and was never distracted in editorial meetings or discussions with the staff. And it didn’t make her any less of a success.
5. Don’t Judge
We all have our vices and we all have room for improvement. One of the most important parts of modern-day etiquette is not to criticize others.
You may disagree with how another person handles a specific situation, but rise above and recognize that everyone is trying their best. It’s not your duty to judge others based on what you feel is right. You are only responsible for yourself.
We live in a world where both people and businesses are concerned about brand awareness. Individuals want to stand out and be liked and accepted by their peers–both socially and professionally.
The digital landscape has made it even more difficult to know whether or not you’re crossing a line, but I think it’s simple. Etiquette is positive. It’s a way of being not a set of rules or dos and don’ts.
So before you create that hashtag, post on someone’s Facebook page or text someone mid-meeting, remember the fundamentals: Will this make someone feel good?
And remember the elemental act of putting pen to paper and writing a note. You’ll make a lasting impression that a shout-out on Twitter or a Facebook wall mention can’t even touch.
00:12 Christine Lagorio: So Mark we have been working on this world’s coolest office package for two years now I think it’s time to sit back and reflect. What actually is a cool office?
00:22 Marc Kushner: A cool office. Well you know I work, I’m an architect, I work in an office, and I run an archaizer, and I think fundamentally a cool office is one that functions really well as an office. And then I think the potential for working with an architect, working with a designer and making it really cool is to kind of pump that up. And find the opportunities to make it a special place; a place that makes people work better together, that makes people excited to come to work. I think that’s what really makes it cool.
00:51 Lagorio: That’s great. We all work in offices but a lot of startups and small companies don’t necessarily have the budget for an architect or even a designer to consult. What are some little things they can do to keep the space in mind and make the space that they have available to them work well for them?
01:09 Kushner: Yeah I think. I think there are opportunities in the everyday kind of office experience. So we all need conference rooms, usually need a conference room, and a conference room comes with things like a table, and lights. And these can be really generic obvious solutions or you can take the time and challenge yourself and maybe your staff and actually turn it into a kind of experience to think about how that can become something else. So we saw some tables that were made out of old cast iron bath tubs right with a slab of glass on top which was a cute way to kind of up the ante on what a conference table could be. But then even the way that lighting is hung that it doesn’t have to be a geometric patterns that you can actually start express moments within the room that are maybe more important and find those little ways in to question the status quo of design.
02:05 Lagorio: Right. And you’re talking about some of the entries that we just saw because we were just judging this year’s entries. What are some of themes that emerged from this year’s entries, anything that you saw different from last year that may be indicative of where office design is going?
02:20 Kushner: We saw. Well, first of all they were all fantastic, and it was really excellent to see the breath of entries. We saw some interesting things. We saw, a lot of brands were bringing in the products that they make into the actual office design. So like Wilson who makes tennis products have entire walls made of tennis ball material, kind of unraveled tennis balls, so that the actual you know stuff that people are selling everyday on the phone and working with and designing shows up in the, in the everyday office experience, which I think is really, I think that’s really successful. Adidas also did something really cool where, a lot of sports companies make obviously are. Well, they make really cool stuff. But Adidas did this really neat thing where they took inspiration from kind of in the locker room and the idea of how you store things in a office. So instead of it being traditional file cabinets there are sort of lockers for everyone that have a roll up capabilities and can be moved all over the office. So I think, you know bringing in the stuff that motivates the company in the first place into the design is a great cue.
03:30 Lagorio: That’s great. Was there. I guess was there anything else that you loved about this year’s entries? Anything else that really stood out or anything that you think is kind of showing a changing pace in or face of office design?
03:44 Kushner: Yeah we saw, we saw a lot of use of, I’ll just say the natural in the most general way. But I think it’s obviously part of a general trend worldwide, and what’s nice is that what’s been happening in Europe is now moving to the United States. The realization that natural lighting is not just a good ecologically move but it’s also you know a happy factor. And people are, are more productive and have a better experience when there closer to a window. So bringing nature in, sometimes it’s not efficient or effective to move everyone in the office to the window, but finding ways to bring nature into the office, as far as you know cutting holes in buildings or approximating nature; we saw some artificial landscapes which were pretty, pretty fun. And I think that’s a really nice trend that’s going on in the office space.
04:34 Lagorio: That’s great. Thanks so much Mark.
04:36 Kushner: Thank you and thanks to Inc.
Busting 5 Myths About Small-Business Lending
Co-founder and CEO, Fundera
Like your mother and your high school history teacher likely told you over and over again, you can t believe everything you read on the Internet.
With the growing accessibility of information freely available online, modern entrepreneurs in search of funding to grow their businesses have a huge leg up on generations past. Yet for every bit of accurate and genuinely helpful advice, there is an increasing prevalence of misinformation and myths surrounding the small business lending space. Unfortunately, much of that misinformation can give business owners bad information about how small business loans work, giving them a false sense of their own eligibility.
Don t miss out on opportunities to secure funding for your business due to false information. Let s separate fact from fiction and bust five of the most common small business lending myths we hear every day.
1. Approval takes forever.
Whether you re itching to move forward with a new business idea or you need cash quickly to cover an unexpected expense, one of the most common questions business owners have when applying for funding is, how fast can I get cash in hand?
You may hear from well-meaning friends and relatives that getting approved for a business loan can take weeks or even months, but that information is outdated. With new online loan applications, an organized business owner can complete her application in less than an hour, and it can be reviewed and approved within 24 hours of submission. Many lenders can even offer cash in hand in as little as two days.
While some borrowers may take additional time to gather financial statements or get their credit reports in better shape, once you hit submit, the approval practice is very efficient. Don t let the fear of a long approval process hold you back from seeking a loan.
2. New businesses never qualify.
The startup funding quandary is a difficult one. You need an established business to secure funding, but you need cash in hand to get your business off the ground. Seeking funding from venture capitalists or angel investors is certainly the most popular route for securing startup funding, but is it the only way?
Many startup entrepreneurs assume that they need to be in business for a few years and have established business credit before they can qualify for a loan. However, more and more lenders are specifically offering startup loans that require little or no business credit history to qualify.
Applying for a startup loan will involve more scrutiny into your personal finances than other types of business loans. Your personal credit score will be the most important part of the application. You may also be faced with less favorable rates than you would receive as an established business. But if you re committed to finding funding and open to the necessary conditions, securing a loan for your brand new business is possible.
3. Online lenders are con artists with unreasonable rates.
We get it. The online alternative lending market is relatively new, and people are skeptical of new things. Unfortunately, many unscrupulous online lenders and brokers have engaged in predatory and dangerous lending practices, giving the entire industry a bad rap.
But in reality, some alternative lenders operating online offer single-digit interest rates. Those offering higher rates often are working with borrowers who are considered risky. Online lenders regularly consider a wide variety of borrower credentials outside of just the traditional credit report and score. Business owners who were turned down by their bank can frequently find the funding they need online.
As with any financial transaction, it s critical that business owners do their due diligence about an online lender before signing the dotted line.
4. Loan officers only care about your credit score.
This myth, carried over from the outdated traditional bank model for loan approvals, can leave business owners with less-than-stellar credit feeling hopeless about their funding prospects. Luckily for these entrepreneurs, growth in the alternative lending sector has led to a larger spectrum of factors being considered in the loan approval process.
Many lenders will now give equal weight to your company s revenue history, cash flow statement and other financial documents in determining your loan eligibility. This information often paints a very different picture of a business and its owner s financial standing than what a credit score alone can convey.
Even so, before applying for a business loan, it is still important that you take steps to make your credit report and score the best possible reflection of your financial history. Always make debt payments on time, and manage your credit usage responsibly. Also frequently check your credit reports for accuracy. If you find errors, contact the reporting agencies to correct the mistakes.
5. Approval is determined by a heartless algorithm.
Once upon a time, entrepreneurs seeking small business funding could walk into their local community bank, build face-to-face relationships with managers and loan officers, and be confident they understood the whole picture behind their loan application, including both cold hard numbers as well as the more intangible elements of their qualifications as borrowers.
These days, technology has all but replaced those in-person banking relationships, creating the impression that loan approval decisions are controlled by nothing more than a few concrete variables and an algorithm saying yes or no.
But while you may have lost the ability to look your loan officer in the eye and strike a deal with a handshake, the modern funding process isn t actually as impersonal as this reputation suggests. In reality, lenders consider a wide variety of both objective, number-based factors as well as more subjective considerations, like your business and marketing plan.
If you re concerned about certain elements of your loan application, like your credit score, take the time to flesh out your business plan, fully explaining how the funds you are borrowing will be used and how this investment will lead to a successful business.
Ultimately, your lender s main consideration is whether or not you will make your loan payments on time, every time. Your loan application should, both through financial documents and through your written statements, paint the best possible picture of your future ability to repay the loan.
If you do your research, stay organized, and can clearly and concisely convey this information to lenders through your loan application, your chances of being quickly matched with the a loan to meet your business needs is tremendously greater.
#candle making business
5 Mistakes to Avoid When Starting a Candle Making Business
When you decide to start your own work-at-home business, a candle making business is one option of many. Beginning a candle making business can be fun and exciting and a way to utilize some creativity. However, there are many things to think about before beginning that can help ensure your success. Avoid mistakes that can cost your business to go under before it even starts.
Mistake 1 – Starting with No Experience
As with any home business, you should have at least some experience before you begin. If you have made candles or soaps as a hobby or for personal gift giving you have a head start on growing a business. Starting any type of business with no experience will take more time and presents more risk. Even taking a class at a local community center or reading a candle making book will give you some background to start with.
Mistake 2 – No Research and Business Plan
A solid business plan is a must and that goes hand-in-hand with lots of research. Making candles as a hobby or for fun is a base start; taking that to a business level requires some planning. You will need to research where to get bulk supplies, including molds, candle base (whether that is beeswax, paraffin, gel or soy), wicks, dyes and scented oils.
On the practical side, you will need to prepare for your business by choosing a business name and registering your business with your local city or county. In most places you will also need a business license even if you are operating a business from your home.
Mistake 3 – Having No Work Space
When you decide to start a business from home you have to be sure you have the appropriate space available to accommodate your business. With a candle making business you need space to melt your candle material, whatever it is that you choose. You need space to store your candle making essentials; molds, melting pot, wicks and oils, etc.
You also need to be able to store what you produce as well as office space to do bookkeeping and sales work. An organized work space will help you be more efficient and productive.
Mistake 4 – Having No Niche
Deciding on candle making as a business venture will mean deciding on a niche. If you enjoy making a certain type of candle and are efficient in making them, that should be your focus. For instance, if you have been making soy candles, stick with making soy candles until you are ready for your business to expand or until there is a solid financial reason to make other types of candles. The possibilities are varied and wide and include votives, floating, special occasion, and mixed colored, as well as various scented.
Mistake 5 – Having No Market
It’s important to decide where and how you will sell your candle once you make your business official. Having a website is the best way to market your products but there are other ways as well.
No matter how you sell your candles, you will need to make sure the price is right so that you can gain and keep a customer base and so that you can eventually make a profit for yourself. Avoiding mistakes and having fun will take you far in the candle making business.
Top 5 Small Business Loan Requirements – How to get a Small Business Loan
#sba loan requirements
Top 5 Small Business Loan Requirements
The time has come to expand your business with new employees, a larger location or a new product line. It’s an exciting time, but stressful because you’re not sure you have the cash reserves to manage the expansion.
For many small businesses, this situation calls for a small business loan a cash infusion that pays for itself, plus the interest, with the new opportunities and extra income it allows you to create.
Many of our Kabbage customers are new to small business lending. Though they’re familiar with personal loans, they only know the basics of small business loans and lines of credit. For those who “resemble that remark” and for more experienced folks who would like a review of how to get a small business loan here is your expert-researched, Kabbage-curated list of the top five small business loan requirements to get the best possible small business loan.
#1: Strong Credit
The bad news about small business lending is it can be hard to qualify for the best rates and deals. The good news is this decade has more options for good small business loans than any other time in history. You can choose between platform lending. traditional loans (like from a bank) and a variety of hybrid options available from local vendors or via the internet.
This flexibility doesn’t mean your company shouldn’t look as good as possible on paper. Your FICO credit score will figure heavily in any lending decision, so (if time permits) spend time grooming that number in the months prior to applying. Research what other metrics the lenders you want use, and groom them as much as possible, too.
If you have a major ding in your credit, like a repossession or string of late payments, be prepared to discuss them and why things will go better in the future.
#2: Solid Business Plan
Part of understanding how to get a small business loan is ensuring you have a solid business loan. You should have one of these anyway, since a strong business plan is a prerequisite for stellar business success. Traditional lenders will expect to see an updated, professionally prepared business plan as part of the lending process. Lacking one tells them you’re not ready for the “big leagues” and are a bad credit list.
Though platform lenders like Kabbage won’t insist on seeing your formal business plan, similar documents about your social presence, industry statistics and unique market advantages all of which are part of a comprehensive business plan will go into decisions about what to lend you and how much it will cost.
Either way, get a business plan together.
#3: Compelling Personal Resume
Traditional lenders want proof that the people responsible for running a business are qualified to do so, and part of that proof will be seeing the resumes for you and other principles like owners and executive officers. This resume should be as solid, well-edited and up-to-date as any resume you’ve ever sent out.
Consider: the purpose of a resume is to get you the job you want. The purpose of this resume is to get you the job of running the company you want, instead of the company you have.
Platform lenders don’t look at your traditional resume, but they will look at your business’ curriculum vitae in terms of performance metrics and social sharing. Take time to groom those items as substantially as you would a regular resume.
#4: Bulletproofed P L Statements
Like your business plan, you should have these anyway. You should be using your profit and loss statements as part of a robust monthly “vital signs” check for your business. If you’re not doing them, dig into your accounting software for half an hour. You’ll find a tool that compiles P Ls from your records. If you’re not using software to keep track of your financials get started on doing that.
Lenders of all stripes are looking for three things in your P L: reliability, professionalism and ethicality.
- Reliability – They want evidence that you will be able to make your promised payments, based on enough cash flow to cover the loan. If you don’t, the lender will assume that lending you money is too high a risk.
- Professionalism – Lenders presented with incomplete, inaccurate or hastily prepared P L statements will assume that your business is similarly disorganized.
- Ethicality – If you “fudge” your numbers to look better and get caught, you are done with that lender. The decision makers will assume that you cut ethical corners in other places.
#5: Knowledge of the Loan Needed
This is actually the first of the small business requirements that you should address, but we wanted to mention it last so it would be the freshest in your mind. Lending isn’t what it used to be – a situation where you went to a couple of banks, all of which offered the same basic products, and hoped they would agree to give you a loan.
Modern small business lending includes a wide array of traditional, platform and peer-to-peer options with wildly varying qualification requirements and rates of interest. Before you start working in earnest on the other four requirements for your loan, decide what kind of loan you need. That way you won’t waste time and effort preparing the wrong documents.
Do you have a tale of success or woe to share with the Kabbage community about when you aced a loan application or were embarrassingly unprepared? Share your story in the comments below.
#business accounting software
5 Top Picks for Small Business Cloud-Based Accounting
Small business owners don’t need to purchase expensive business accounting software programs or spend hours lost in complicated reports. Any accounting software will provide the basic applications for accounting tasks, but packages designed for small office owners and manager tend to simplify the process and provide essentials that include a general ledger, the capability to create detailed invoices or view business inventory and purchase history.
Cloud accounting services—software stored and accessed online—is an attractive option for small business owners. When using cloud accounting software, IT tasks such as version upgrades and data backup are managed by the application vendor.
In looking at small business accounting options, CIO.com specifically looked for applications designed to meet both the budget and the needs of a typical small office or small business. We chose five cloud accounting service options available cost $20 or less per month and are easy to use—even for small business owners with little or no experience with accounting tasks.
FreshBooks: Guided Help Boxes Make Small Business Accounting Easy
FreshBooks is a simple cloud accounting application designed to help small business owners to get organized and get paid. Since it’s a hosted accounting service, you can access your business data everywhere—on a mobile device or desktop computer—and your data is secure and backed up for you.
FreshBooks features options for online payments, expense tracking, time-tracking and accounting reports and taxes. Highlights include customizing invoices, sending late payment reminders, automatic and recurring-expense tracking, managing different rates for multiple projects and profit/loss reports.
Small business owners will appreciate FreshBooks’ guided step-by-step wizard and help boxes that appear each time you perform a new task, such as create a new invoice or add a new client to your records. As you familiarize yourself with FreshBooks, you can turn these helpful tips off.
FreshBooks is free for 30 days, with the basic business plan starting at $19.95 per month. There’s also an add-on store where you’ll find third-party applications to add new features and functionality to FreshBooks. Some apps are free—such as the Constant Contact Export and the FreshBooks Connector for Sage Peachtree (now known as Sage 50 )—while others are available on a monthly subscription basis.
QuickBooks Online Simple Start: A Good Value for Small Businesses
Today, QuickBooks is synonymous with small business accounting. While a number of standalone and hosted versions are available, QuickBooks Online Simple Start is a good value for small office accounting needs.
The online version is $12.95 per month and includes a 30-day free trial. This software makes it easy to create invoices, track sales and expenses, download banking transactions and access business data on any mobile device. Other handy features in Online Simple Start include check printing and exporting data to Microsoft Excel.
If you need a little more functionality than QuickBooks Online provides, there are a few add-ons. These include the “Payroll Bundle” to pay your employees and a merchant service app to accept debit, credit cards and checks in QuickBooks Online.
Kashoo: Professional Invoices, Simple Dashboards
Kashoo is another cloud accounting service worth a look. It’s a simple accounting app for small businesses offering anytime access from an iPad or Web browser.
Features for the small business include connecting to online bank accounts and credit cards, professional invoices, simple dashboards and options to categorize income and expenses specifically for tax reporting. In addition, you can easily share your business data with your accountant online. Finally, Kashoo boasts secure, double-entry accounting for bank reconciliation and financial statements.
Kashoo is priced at $16 per month. A free version is available; however, users are limited to 20 transactions each month.
Outright: Online Accounting for Ecommerce Businesses
Outright is an easy-to-use cloud accounting system that lets small business ecommerce owners organize and keep track of sales and finances in one place. At a glance, you can see where money is going, view profit/loss statements and see who your customers are.
You can link existing accounts such as banks, credit cards, Paypal, eBay, your own Web store or FreshBooks to Outright, and you can import your existing transaction history. From then on, Outright downloads your new data each day. Another useful feature: Outright organizes all of your data into IRS-approved tax categories, potentially lowering the workload and headache level at tax time.
Small business owners on the go will appreciate the Outright iPhone app; with the mobile app, you can stay on top of your business and enter travel expenses and mileage from the road.
Outright offers a free account, but small businesses are more likely to use the Plus version ($9.95 per month), which offers more features than the free version.
Xero: Share Your Business Numbers Online
With Xero online accounting, you can share access to the latest numbers and check cash flow in real-time. Once loaded, Xero offers a dashboard to quickly view your bank balances, invoices, bills and expense claims. There’s also an interactive graph to show money going in and out; you can also monitor specific data accounts from the dashboard.
One standout feature in Xero is the capability to collaborate online so small business employees can work as a team on financials. You can share your data and collaborate with your accountant and bookkeeper to get the advice you need. Xero lets you invite an unlimited number of people for free; you control what each person can see.
The invoicing system lets you customize invoices and connect with your customers through online invoicing. There are also options to create repeating invoices and schedule bill payments, and all payments, returns and credits are tracked automatically.
Pricing for Xero starts at $19 per month. Mobile apps for Apple, Android and Blackberry are available. Third-party add-ons can expand Xero functionality by incorporating CRM, inventory management, invoicing, job systems and other specialized business tasks.
#secured business loans
Here’s a fundamental truth of any organization: you need cash to help grow your business. Whether you’re a start-up, a sole proprietorship, or a limited liability corporation, getting a small business loan will be one of your top priorities if you’re looking to expand your company’s potential. But before you receive funds from a bank, a lender will scrutinize both you and your business to see if you’re a viable borrower.
A bank will look at your company’s history, business credit, revenues, balance sheet, and your equity contributions. If you pass a credit check and you operate a healthy business, most banks will also require an additional, and tangible, guarantee that their loan will be repaid: collateral.
Collateral assets come in many forms. Defined by the Small Business Administration, collateral is “an additional form of security which can be used to assure a lender that you have a second source of loan repayment.” Most commonly, collateral is real property (i.e. an owner-occupied home), but it can also be represented by your business’s inventory, cash savings or deposits, and equipment. In order to structure a loan that benefits both you and your business, you’ll need to make the right decision about what you offer up as collateral to the bank. It’s also important to be realistic when considering the risks of defaulting on a loan, which could have harsh consequences for not only your business, but for your personal life, too.
Editor’s Note: Looking for loan solutions for your business? If you would like information to help you choose the one that’s right for you, use the questionnaire below to have our partner, BuyerZone, provide you with information for free:
Below are a few tips on how you can use your assets as collateral, and how you can mitigate the risks associated of defaulting on a loan.
1. Keep Detailed Records of your Asset’s Worth
Banks are notoriously conservative about valuing a borrower’s assets for collateral. After all, if the borrower does default, the lender must expend resources to take the asset, find a buyer, and sell it.
Jeff Allen, the director of operations for Trendant, a small business consulting firm based in Salt Lake City, says that one of the most common mistakes business owners make about collateral is they think it’s worth a lot more than it actually is. “They’re considering what they paid for it, and the banks only consider the fair market value of today,” he says.
If you’re not sure of what your assets might be worth, it could be worthwhile to find an independent appraiser to give you an idea of how the bank will value your property.
Besides for simply knowing your asset’s worth, it’s critical to keep detailed records of your assets on your balance sheet. When a bank is reviewing your business documents, they’ll want to see that you’re paying careful attention to all of the relevant factors. This is usually simpler than you think. “In keeping records, businesses tend to overcomplicate,” says Allen. “They think there’s some magical solution that the big boys use. The bottom line is that an Excel spreadsheet with a couple of line items is all you need.”
2. Know What You Can Use as Collateral
Essentially, there are two different types of collateral: assets that you own, and assets that you still have a loan against. If you still have a loan on the asset, (e.g. a mortgage for a house) the bank will be able to recoup the loan by refinancing your loan from the institution you have the loan against, and claim the title.
A viable asset to use as collateral will have a title of ownership, and banks will only lend if they can get a title back, says Allen. Homes and cars are the most common forms of collateral, but you can also use watercraft, motorcycles, as well as pieces of equipment that have a title of ownership.
Below are some relevant issues associated with each type of collateral that you should consider before approaching a bank for a loan.
Real Property: Since the housing bubble burst, using real property as collateral financing took a huge hit. Denise Beeson, a commercial loan officer based in San Francisco, says that this has been a significant roadblock for small businesses seeking small business loans. “It’s devastating small business right now,” she says. “In the past they’ve used the equity in their home, and they don’t have any of that equity anymore.” Additionally, banks will not consider vacant land, or “dirt” as its referred to in banking, as viable collateral.
Business Inventory and Accounts Receivable: Asset-based lending can be a great way to get a fast influx of cash to your business. For example, if your firm gets a big purchase order, you may not have the resources to meet the needs of the client without bringing on additional staff, equipment, or raw materials. In some cases, a bank will allow a company to use that purchase order as collateral. “It’s a little trickier to get,” explains Jeff Allen. “It might be more difficult because it’s harder to authenticate. but a bank will usually lend against that.”
Cash Savings or Deposits: “Cash is always king,” says Allen. Using personal savings will almost definitely be allowed as collateral since it’s a low-risk loan for a bank. This also applies to CDs and other financial accounts. The advantage in using these accounts as collateral is that you’re guaranteed a low interest rate because it’s a secured loan. The disadvantage, clearly, is that if you default, the bank will take possession of your savings.
3. Understanding the Risks
Taking a loan using personal assets as collateral presents the risks of losing the assets in the event that you default on the loan. Therefore, it’s important to discuss the risks of using certain assets as collateral with a financial advisor, as well as people that could be affected by the loss of that asset.
“Some business owners are highly risk averse, and I wouldn’t recommend putting some stuff up for collateral,” says Jeff Allen. “Because if you can’t pay it, they’re taking your car or home.”
Be realistic about your company’s needs, and how the company will be using the funds. A financial advisor will help you assess the risks involved, as well as the odds of the loan being successful. “It comes down to being honest with yourself knowing your situation, and knowing what the funds will be used for,” says Allen. “If you really need the money, you might to find alternatives, because you might lose what you’ve leveraged.”
Often, a limited liability company is formed to shield the business owner from these risks, but a default will inevitably still affect the owner, especially if he or she is the only shareholder.
4. Negotiate When-;And If-;You Can
If you’re a qualified borrower with a demonstrable history of good business credit, you should be able to secure a loan with commitments you are comfortable with. Remember, a business can always reject a lender’s offer and seek a loan from a different lending institution.
Since banks tend to be exceptionally conservative when it comes to valuing your assets, it could be worthwhile to request an appraisal review, which is a report that comments on the accuracy of an appraisal. Similarly, a bank that does not require any collateral requirement will often charge extremely high interest rates. Be wary of predatory lending practices that could end up being expensive and harmful to your business.
Dig Deeper: How to Build and Maintain Good Business Credit
5. Consider Peer-to-Peer Lending
If an asset-based loan isn’t ideal for your business, Denise Beeson recommends alternative methods of securing cash. Peer-to-peer lending is becoming an effective way for small businesses to drum up cash in the short run. “Because it is extremely difficult to get a loan based on existing collateral, a lot of borrowers are going to peer-to-peer sites to see if they can get some money from that mechanism,” she says
While loans typically amount to less than $25,000, there’s often less red tape involved in obtaining a peer loan. Prosper.com. for example, allows borrowers to choose a loan amount, a purpose and then post a loan listing. Then, investors choose which loans they prefer to invest in based upon a series of criteria. Borrowers make fixed monthly payments to their investors, who receive the funds directly in their Prosper account.