Think you'll need fast cash during the fourth quarter?
Start planning today for a low-interest SBA loan.
Last week we compared three of the most common working capital loan programs for online businesses. I did my best to be impartial and mention the positive aspects of these loans (quick turnaround! good credit not required!) but today I'm going to tell you what I really think.
That's right–it's time for some CPA real talk.
[Tweet “Thinking about a working capital loan? It's time for some CPA real talk.”]What's Wrong with Working Capital Loans?
The whole reason for working capital loans is the availability of quick cash. If you don't have great credit, or your books aren't ready to meet requirements for a more formal line of credit, or you need those funds yesterday, working capital loans like Kabbage, Amazon Lending or PayPal Loans can fast-track your funding.
The thing is, these companies know you're going to them when you're in a pinch. They exist to make a profit off your desperation for funding. (Sorry, Amazon sellers–Amazon doesn't necessarily care as much about you and your business as it does about the money your business brings them.)
[Tweet “Working capital loans are good for quick cash…but are they good for your finances?”]In many ways, these companies are like the credit card companies. The reason they make it so easy to get the funding you need is because they are looking forward to charging you those high interest rates/fees. They don't necessarily want you to default on your loan, but they do want to have easy access to your money (remember those automatic payments?) and, at least in Amazon's case, have some control over where you spend the funds.
The Loan that Gives Back to You
The alternative to working capital loans is a traditional short-term loan. In particular, if you seek out a short-term loan through the Small Business Association (SBA), you can enjoy a much longer payoff window, more flexibility for how you spend the funds, and–most importantly–a reasonable interest rate.
Contrary to popular belief, you don't have to have perfect credit to obtain a SBA loan. Because the SBA is a federal agency, it acts as a guarantor for 75 to 90 percent of the loan, which makes it a lot easier for a bank to say “yes” to your application. And because SBA loans come through actual banks, paying them off on time actually enhances your credit, making it even easier to get a loan next time you need one.
The only real downside to SBA loans is that applying for them takes significantly more time and effort. It's normal for it to take between 60 and 90 days from application to approval.
That means the key to getting a short-term loan through the SBA is planning. Planning to get your books in shape to handle the paperwork, planning to prepare your application well ahead of your busiest time of year, and big-picture financial planning so that your credit is in good shape to meet the lender's requirements.
[Tweet “The key to getting a short-term loan with a good interest rate is PLANNING.”]Next Steps – Applying for a SBA Loan
Ask yourself now whether it's likely that you'll need some extra cash to buy up inventory for your fourth quarter. (It's not cheating to consult your sales records from the past year or two.)
If you're planning a big promotion for the holiday season, or have reason to suspect that one of your items is going to be a big seller, you still have time to apply for a SBA loan. Here are a couple of ways to expedite the process:
- Get your documentation together. Click here for a complete list of the information needed for applying for a SBA loan.
- Seek out a lender who is registered with the SBA’s Preferred Lender Program (PLP). Not only can does PLP status allow the bank to approve the loan without waiting for the SBA’s approval, but a PLP lender will also know how to determine your eligibility and properly structure the loan.
- Applying for a loan with SBAExpress processing means that you get an answer in 36 hours.
The Bottom Line
Why wait until the last minute and force yourself to take the more expensive (not to mention financially risky) route to getting the cash you need? With a little advance planning and the support of a good financial advisor, you can create a fourth quarter strategy that brings you not only profit for the year's end, but also peace of mind starting right now.
…which, as every small business owner knows, is like Christmas coming early.
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