By Gerri Detweiler
While government relief programs like the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) grants and loans were a lifeline for some small businesses, many are still struggling to navigate a difficult economic environment. Some businesses discovered PPP didn’t provide as much relief as they hoped, perhaps because payroll wasn’t a significant concern. Others balked at the terms and conditions for EIDL loans — including collateral resulting in a UCC-1 filing for loans above $25,000.
Whether or not you took advantage of these programs, you may still be looking for financing to improve cash flow, or even to take advantage of strategic opportunities. Here are five options to consider:
1. Equipment leasing
Equipment leasing volume has been lower than last year but increasing month-to-month according to the Equipment Leasing and Financing Association. That may make this a good time to consider leasing equipment, as both financing companies and equipment manufacturers may be eager to fund qualified deals.
Generally, it’s easier to qualify for loans with collateral as the lender (or in this case the “lessor”) knows it can repossess the collateral should the borrower default. No lender wants to do that, of course, but it does reduce their risk. Nevertheless, credit quality is important, so you’ll want to make sure to review your business and personal credit before you apply for an equipment lease, as lenders may check either (or both).
Why they may be a good choice: Often offer more credit flexibility. Conserve cash by leasing instead of buying.
2. Vendor and supplier terms
Like you, your vendors or suppliers want to end the year without significant losses in sales. That means they may be willing to offer more flexible payment terms. After all, if too many of their customers like you don’t make it, their business won’t make it either. If you’ve had a good relationship with your vendors, you may be able to get extended payment terms; say net-45 or net-60 terms instead of net-30. A business credit check is often standard for vendor credit.
Why this may be a good choice: Vendors don’t typically check personal credit. They may not charge interest either, though you may forfeit a discount available for prompt cash payments.
3. SBA loans
There are a variety of SBA loan programs available. With the exception of Disaster Loans (including EIDL) loans are made by SBA approved financial institutions — not by the SBA itself. That means you may need to shop to find the lender that’s a fit for your financing needs.
Apart from PPP and EIDL, which have received record applications this year, the most popular programs are 7(a) and 7(a) Express. If you have good personal credit and solid financials, an SBA loan can offer attractive terms, including competitive interest rates.
In addition, payment deferrals currently available due to the COVID-19 crisis. In fact, the SBA may make your payments for your business for six months!
Why they may be a good choice: Attractive terms and competitive interest rates for businesses that have trouble getting similar financing elsewhere.
Whether your landscape business is large or small, you may only need a smaller amount of funding to tide you through the current crisis. If that’s the case, a microloan may be an ideal option. These loans are on the smaller side: less than $50,000 is common. And they are often made by nonprofit Community Development Financial Institutions (CDFIs) tasked with helping underserved businesses. There is an SBA Microloan program as well as many individual loan programs. For example, Kiva.org offers 0% loans of up to $15,000 for U.S. businesses impacted by COVID-19.
Tip: Your local Small Business Development Center or SCORE office may be able to refer you to microloan programs in your community. Find these local resources at SBA.gov.
Why this may be a good choice: Credit flexible loans, often available to businesses that have difficulty getting traditional financing.
5. Invoice factoring
If you have commercial or even government clients, you may be waiting for outstanding invoices to be paid. Invoice factoring can provide funds more quickly. Here, the client’s credit is often more important than that of your business since it’s their money that will be collected. Make sure you understand the cost, which may not be presented as an interest rate or Annual Percentage Rate.
Why this may be a good choice: Speed up cash flow with this form of short-term financing.
Gerri Detweiler has been guiding individuals through the confusing world of credit for more than 20 years. Her articles have been widely syndicated, and she is the author or coauthor of five books, including her most recent, Finance Your Own Business: Get on the Financing Fast Track. She is education director for Nav, which matches small business owners to their best financing options and gives them free access to their personal and business credit scores.