Who’ll Survive Fintech’s Battle Royale- Lendio, Fundera or Biz2Credit?

Lendio vs. Fundera and Biz2Credit

It’s been a while since we posted our scores for these fintechs (see our Lendio reviews, Fundera reviews and Biz2Credit reviews). For 2019, we checked in on them to see how they’re doing and look at their similarities and differences.

Lendio Spotlight

·       Headquarters: South Jordan, Utah

·       In Business Since: 2011

·       Funding time: As soon as 24 hours after approval.

·       Primary Financing Methods: Term Loans, Lines of Credit, SBA Loans

Lendio is an online marketplace where potential business borrowers come to shop for loans. Lendio acts as a middleman, not a direct lender, connecting borrowers and lenders on their platform. According to reports, they’ve helped small businesses receive over $1.4 billion in small business funding.

Lendio provides a wide array of business financing options, including:

·       Accounts receivable factoring

·       Business line of credit

·       Small Business Credit Cards

·       Working Capital Business Loans

·       Merchant Cash Advances

·       Equipment Financing

·       SBA loans

·       Startup Loans

·       Commercial Mortgages

·       Business Acquisition Loans

·       Business Auto Loans (through Bank of America)

As you can see, that’s quite a lineup of loan products. To achieve such a broad scope, Lendio has established partnerships with a wide variety of lenders providing everything from peer-to-peer loans and commercial mortgages to asset based lending and receivables factoring.

For factoring, Lendio features two of the largest fintech players in the invoice finance space, Bluevine and Fundbox. Both provide accounts receivable financing for B2B customers that are invoice rich but cash poor.

And if you have mediocre credit, that’s OK. With factoring, it’s not the credit quality of the borrower that matters. Rather, it’s the creditworthiness of the invoiced customers, known as account debtors. As such, some consider them bad credit business loans

Keep in mind, Bluevine offers actual small business factoring whereas Fundbox extends lines of credit determined as a percentage of the invoices’ face value, age and credit quality. Factoring receivables involves the actual purchase of the invoice from the customer (factoring companies like Amerifactors or Riviera Finance are prime examples). There are also niche trucking factoring companies like OTR Capital and Fleetone that focus on the transportation clientele.

Lendio also features a number of small business cards from major names like Bank of America, Capital One, Amazon lending and American Express. Some of the same names we’ve covered in our business credit cards section such as the Bank America Business Advantage and Delta SkyMiles card. American Express also offers their merchant financing program if your business accepts their credit cards.

Lendio funding partners include:

·       Bluevine Capital

·       Ondeck Capital

·       Fundbox

·       Kabbage loans

·       Strategic Funding

·       Funding Circle

·       PayPal (Swift Capital)

·       Lending Club

·       Internex Capital

·       Fundation

·       Breakout Capital

·       Credibility Capital

·       Seek Capital

·       Provider Web Capital

·       Headway Capital

·       Xendoo

·       Profit Stars

·       Action Capital

·       Local banks (for franchisees)

In addition to their online platform, their marketplace moved into the local space via franchising. Lendio began franchising in 2016 and now has over two dozen franchisees. Lendio ranks #288 on Entrepreneur’s ‘best franchises’ list.1

Current Lendio franchise locations include:

·       North Carolina (Charlotte, 2019)

·       Pennsylvania (Erie)

·       Texas (Plano and Frisco)

·       Washington (Spokane)

·       New England (Vermont, New Hampshire, Maine)

A Lendio franchise may be a great option for veterans, who receive a 10% discount on the franchise fee (roughly a $2100-$3500 value)2. We applaud this program and is why we include it in our loans for veterans section.

Fundera Spotlight

·       Headquarters: New York, NY

·       In Business Since:3 2013

·       Amount funded: Over $1 billion

·       Known for: Small business loans, lines of credit.

Fundera is another online lending marketplace. At fundera.com, business borrowers fill out a quick application and discover what type of loan they qualify for and approximate interest rates. The process takes just a few minutes utilizing the site’s digital technology.

What Type of Business Funding does Fundera Arrange?

Fundera’s Lending Options Include:

·       Business Loans

·       Term Loans

·       SBA loans

·       Startup loans

·       Lines of Credit

·       Small business credit cards

·       Factoring financing

·       Equipment Financing

·       Personal loans

Since their founding, Fundera has handled over $1 billion in small business lending. Their bread and butter are small business loans. Luckily for those with less than perfect credit, Fundera actively brokers invoice financing and invoice factoring companies (yes, they are different).

Fundera Partners Include:

·       Kabbage

·       Bluevine

·       Fundbox

·       Funding Circle

·       PayPal

·       Ondeck

·       Headway Capital

·       QuarterSpot

·       Live Oak Bank

·       Credibility Capital

·       Celtic Bank

·       Chase

·       Lendistry

·       Capital One

·       Fundation

Since both Lendio and Fundera match borrowers with several of the same lenders (Kabbage, Ondeck and Paypal, Funding Circle, Bluevine and Fundbox) it makes sense to check out our rankings first. They can be found on our invoice factoring company reviews page or individually at:

·       Kabbage reviews

·       Ondeck reviews

·       Bluevine reviews

·       Fundbox reviews

·       Swift Capital reviews

·       Funding Circle reviews

Lendio versus Fundera

While they share many similarities, there are some differences. Despite both being online marketplaces, Lendio has a more local footprint, receiving overflow that doesn’t match local bank standards.  

As you can see, Fundera has significantly fewer funding partners than Lendio. This isn’t necessarily good or bad. One could argue that less lenders means price competition for the borrower. Conversely, the scale from concentrated capital sources may contain better customer pricing.

Further, Fundera matches borrowers with personal loans for business which Lendio doesn’t, while business auto loans are more utilized by Lendio’s customers.

If you’re somewhat skeptical of online small business loans and need a more local connection you might consider Lendio because of their franchises. Lendio is also headquartered in lending-friendly Utah, so there may be less red tape involved with the funding processes.

Lendio seems to have more clout when it comes to procuring business auto loans so if you’re in the market for a work vehicle, Lendio may be a great option.

However, if you know you’re looking for personal loans for business, Fundera can match you with a lender (be sure and check our review pages first, Discover personal loans reviews, upstart reviews, prosper loan reviews, etc.).

Finally, if you are a relatively new small business, the educational resources on Fundera (guides, calculators, etc.) are fantastic so maybe start your journey there. They offer non-funding information on everything from small business insurance and marketing to credit card processing and software systems.

Biz2Credit Spotlight

·       Headquarters: New York City, New York

·       In Business Since: 2007

·       Amount Funded: Over $2 billion

·       Known for: Small business loans, loans for minorities and professional services

The last of the challengers in our online lending marketplace battle is Biz2Credit of New York. One of the earliest fintechs, Biz2Credit began operations back in 2007. Today, the New York City fintech has arranged loans for over 100,000 small businesses, totaling over $2 billion.

Biz 2 Credit Arranges the Following Types of Loans:

·       Small Business Loans

·       Equipment Financing

·       Business Credit Cards

·       Merchant Cash Advances

·       Lines of Credit

·       SBA loans

·       Business Acquisition Loans

·       Commercial Real Estate Financing

Biz2Credit does offer various loan options including the usual products-unsecured loans, lines of credit, MCAs, business credit cards, etc. Further, they do a thorough job of demonstrating how funding for a wide range of businesses-from gas stations and motels to doctor loans and CPAs, can improve their operations.

Biz2Credit also doesn’t provide personal loans, per say. A bit of semantics, but they do offer financing to professionals (CPAs, dentists, attorneys, etc.) looking to start their own shop. These startup loans are similar to personal loans in that personal credit checks are performed and collateral (or a substantial personal investment) may be required. Some of the loans Biz2Credit mentions are CDC

Further, they do not offer any invoice finance options, which is unfortunate. Many small and seasonal businesses need the bridge financing that AR financing can provide.

Biz2Credit also doesn’t disclose their lending partners on their, in contrast to Lendio and Fundera. They only mention their large network of large and community banks, alternative funders, institutional investors, credit unions, CDFIs, etc.

And by looking through a variety of articles and publications, you can see that Biz2Credit has arrangements with HSBC, Popular Bank and India’s Tata Capital (in addition to significant VC investors)4. Nevertheless, with a total volume of over $2 billion in funding, Biz2Credit must have strong partnership relationships, well beyond HSBC and Banco Popular.

Not listing their lending partners isn’t necessarily a bad thing, but we’d prefer to see who they vet and trust with. This could help prospective borrowers make a decision of which marketplace to utilize. Of course, before signing any lending agreements, there will be appropriate disclosure of the lenders.

Fundera, Biz2Credit and Lendio: Under the Microscope

Main Similarities

·       All are online marketplace lenders (essentially brokers) matching borrowers with lenders.

·       Each uses financial technology to improve the process.

·       Venture capital backed.

·       None are direct lenders.

·       All rely heavily on SEO to attract prospects.

 Main Differences

·       Only Lendio has a real local market presence through franchising.

·       Biz2Credit does not provide factoring financing.

·       Only Fundera extends personal loans.

·       Origination fees paid to Biz2Credit for arranged loans.

The Judge’s Decision

As per our reviews, we formerly had Lendio edging out Fundera and Biz2Credit by a nose (92 to 91 and 91 respectively). After further review, we are upgrading Fundera to 92, matching Lendio. They recently signed a long-term lease agreement for their Manhattan office, demonstrating their future ambitions.5

Despite being the oldest of the three, and financing the most lending volume, Biz2Credit will remain slightly behind the other marketplaces for now. While we really like the technology Biz2Credit brings to the table (like their BizAnalyzer tool and proprietary small business index) the fact that they don’t have factoring solutions, don’t display their lending partners and charge an upfront origination fee keep them at a 91 (still an extremely high score).

All three are fast-growing, highly reputable fintechs where businesses can obtain capital and discover a wealth of information. Businesses really can’t go wrong with any of them.

Similar Companies to Lendio, Fundera and Biz2Credit:

·       National Business Capital

·       Loan Me

·       Lending Tree

·       Funding Circle

·       National Funding

·       Rocket Loans

 

1,2https://www.entrepreneur.com/franchises/lendiofranchising/335091

3https://www.crunchbase.com/organization/fundera#section-overview

4https://www.financialexpress.com/industry/tata-capital-ties-up-with-biz2credit-to-finance-smes/235518/

5https://www.prnewswire.com/news-releases/american-realty-capital-new-york-city-reits-123-william-street-property-will-be-98-leased-with-the-commencement-of-two-new-long-term-leases-with-classroom-inc-and-fundera1-300707107.html

 

 

 

Fundbox Pay versus Bluevine Capital

Fundbox Pay vs Bluevine Capital Inc.

Here is a comparison of alternative funders, Fundbox and Bluevine. Both offer invoice finance, just in slightly different ways. Fundbox uses the outstanding invoices as collateral for a line of credit, known as invoice financing. They have also expanded with a vendor financing product, Fundbox Pay.

Bluevine puts a 21st century spin on old-fashioned invoice factoring, with faster approval and funding times than most traditional banks. After reading this comparison, be sure and check out our Fundbox reviews or Bluevine reviews pages to see how we scored each company using our proprietary metrics.

Here’s a quick summary for the Fundbox vs Bluevine discussion:

Fundbox

·       Founded: 2013

·       Funding Provided: Invoice financing, line of credit, Fundbox Pay

·       Minimum Revenues Required: ~ $50,000 annually

·       Minimum FICO score: None to apply

·       Fees: Start at 4.66% per week

·       Useful For: Many B2B companies.

·       Funding Received: As fast as next business day

Fundbox is an online lender based in California. The fintech provides invoice financing and lines of credit for small businesses. Providing funding in amounts as low as $1,000, Fundbox is ideal for smaller businesses. This is great news for startups since regular banks or credit unions aren’t overly-excited about financing such operations.

With accounts receivable financing, a revolving line of credit is created, collateralized by outstanding customer invoices. It’s a shrewd way to supplement cash flow during seasonal slowdowns and provide a buffer for net working capital.

To access the small business financing, customers need to connect through either their business checking account or small business accounting software. Luckily, Fundbox’s lending platform is compatible with major software brands including Quickbooks, Xero, Jobber, kashoo and Zoho.

Once approved for Fundbox’s Direct Draw, you can access next-day funding from the outstanding invoices. According to the Fundbox website, their weekly fees start at 4.66% and may change over time.

Fundbox Pay

One feature we love is Fundbox Pay. If you regularly invoice customers (and wait for repayment) ask them to apply for Fundbox trade credit. Fundbox provides credit directly to them, allowing your business to get paid faster and capitalize on opportunities.

It’s OK if your business has mediocre credit. After all, it is the creditworthiness of your customers that matters the most, not your business, since Fundbox will be supplying the trade credit (net terms) to them. Recall that trade credit is on our list of bad credit business loans and is a widespread method of accessing credit.

Further, if you offer ecommerce checkout, you can add Fundbox Pay as a payment option to your shopping cart at checkout. Fundbox is becoming a powerful pos system (point of sale) for small and medium B2B companies.

On the other side, your business receives near-immediate funding from invoices that may have previously taken around 60 days to monetize.

Bluevine Capital Inc.

·       Founded: 2013

·       Funding Provided: Lines of Credit, invoice factoring.

·       Minimum FICO: 530 (if factoring)

·       Annual Revenue Minimums: $100,000

·       Lending Decision: As quick as 24 hours

·       Origination Fee: $0

Bluevine has reportedly facilitated over $1.5 billion in small business lending financing since inception. They offer a variety of financing products including revolving lines of credit and term loans (Bluevine’s flex line of credit and term loans are offered through Celtic Bank of Utah). They maintain offices in California, New Jersey and Louisiana.

Arguably the more recognizable of the pair, Bluevine advertises nationally on the financial news network CNBC. One commercial featured a testimonial revealing a common small business problem-making payroll. Cash flow crunches are common in small businesses, especially those that rely on credit sales. They even displayed a special website for new users, trybluevine.com.

The ad promotes flexible small business credit lines of up to $250,000 through an application completed online and a funding decision relayed “in minutes”. Remember, credit scores are a significant factor in the decision-making algorithm of online small business loans. But if your business is structured as an llc or corporation, there will not be a hard credit pull at any point in the process.

Bluevine Capital

Unlike Fundbox, Bluevine Capital Inc. also offers accounts receivable factoring, the discounted sale of outstanding invoices to a third-party. In such a transaction, the funding comes via an asset sale, not a loan. As such, it’s an option for small business owners in the B2B space who are not interested in taking on debt.

A common complaint is the requirement by some factoring companies that customers factor all invoices during the relationship. Bluevine is a little more flexible, allowing clients to pick and choose which invoices to factor. Be sure to check our factoring company reviews to find out which other companies offer spot factoring.

Once the invoice program begins, the factoring fee is auto-deducted on a weekly basis. After 90 days, if the invoice has not been paid, you may be required to buy it back and reimburse Bluevine’s advance. This is not unusual among invoice factoring companies

Finally, many factoring companies communicate with the delinquent, account debtor for repayment, as a debt collection agency might. Both Bluevine and Fundbox do not, allowing you to maintain the relationship with your customer.

Fundbox vs Bluevine: Financial Backing

Being Silicon Valley darlings, it’s no surprise both companies have succeeded in attracting plenty of private capital including Khosla Ventures, Spark Capital, 83 North and Microsoft’s M12. But while both are venture capital backed, there are noticeable differences.

Bluevine CEO Eyal Lifshitz actually was a venture capitalist himself with Greylock and worked at management consulting firm McKinsey, Mr. Lifshitz has developed a solid understanding of what is needed to help businesses succeed from a strategic, and certainly financial, perspective. For example, at Greylock was an early investor iZettle, which specializes in credit card processing for small businesses.

However, Fundbox boasts a few heavyweights including former Citigroup CEO Vikram Pandit and Amazon founder Jeff Bezos. Mr. Bezos being on among the investors is interesting given that Amazon lending is really taking off. Of course, access to small business financing through Amazon is by invitation only, so that’s a noticeable difference with Fundbox.

Finally, both companies joined the Innovative Lending Platform Association, ILPA, in 2018.1 Members join the organization for many reasons including improving trust and broadening access to small business funding.

The Verdict

The financial technology of both companies make the funding process fast and easy. Fundbox offers their Fundbox Pay service which is best in class.  But while both companies provide excellent small business funding, we give the edge to Bluevine since they are a true factoring company. As site readers know, we laud the benefits of factoring receivables mostly that it incurs no additional debt. Nothing is as dangerous to a fledgling business as being overloaded with debt, especially late in an economic cycle.

Critics of factoring point to high factoring fees, then annualize the numbers to display a lofty APR. But annualizing the rate may be comparing apples to oranges. With Bluevine, business owners can pick and choose which invoices to factor. Bluevine charges weekly “interest” during the time until invoices are repaid, generally a half to one percentage point per week, but they advertise as low as 0.25% (depending on Libor). After 90 days outstanding, the small business may be required to buy back the invoices. This is not unusual among factors and it allows for lower overall rates for customers.

Companies with Similar Services to Fundbox Pay and Bluevine Capital:

·       National Funding

·       Loan Me

·       Strategic Funding

·       National Business Capital reviews

·       Kabbage reviews

·       Swift Capital Reviews

·       Can Capital

·       Biz2Credit reviews

·       OTR Capital

·       Riviera Finance

·       Fleetone

 

 

1https://www.pymnts.com/news/b2b-payments/2018/ilpa-bluevine-fundbox-alternative-lending-smb-finance/

 

Invoice Finance

Invoice Finance Gets Freelancers Paid Faster

 

More and more professionals are discovering the joy of freelancing. For many, the ability to work remotely is the best part of the digital revolution. But while the independence is great, the happiness is often tempered by waiting for late payments from customers. An understanding of invoice finance can enable faster payments for freelancers, so they can focus on projects, not bill collecting.

Today’s alternative workforce includes contract, freelance and gig professionals. But it isn’t as alternative as it used to be. A study by Deloitte revealed that just 42% of respondents worked for organizations made up primarily of salaried workers.1

That trend isn’t likely to end anytime soon. As part of a cash management strategy, many publicly traded companies routinely delay payments to freelancers. In these instances, such contingent workers and contractors may wait up to 60 days or longer to get paid for services rendered. Here’s how freelancers can even the playing field.

Invoice Finance Equals Faster Payments

It’s no secret that freelancers are on the low end of the totem pole when it comes to payment prioritization. Invoice finance can speed up payments, allowing for more projects.

The term invoice finance broadly refers to the use of outstanding invoices as collateral to obtain funding from a third-party. This outside funding is offered by an invoice factoring company, known simply as the ‘factor’. The practice is known by different terms, such as invoice financing and accounts receivable factoring. Here’s an example of how it works.

Let’s say you operate a food manufacturing company that supplies fresh seafood for area restaurants. Your largest customer is a seafood restaurant that uses your shellfish as their most popular offering. The problem is the restaurant owes you a significant amount in back payments for the fish. And when they do pay, it’s often in 60 days.

As long as the restaurant isn’t in a dire credit condition, you can sell the outstanding invoices to a factoring company who will advance you a portion of the balance up front. They will also take care of the collection duties themselves.

In a true factoring transaction, the restaurant will now remit payments directly to the factor, since they now have the right to collect on the invoices. When the customer (also known as the account debtor) eventually pays the balance, they will reimburse you the remaining balance, minus their factoring fee or charge,

When your company finances the invoices you are receiving a loan, collateralized by the invoices (which are assets, accounts receivables). Therefore, you retain ‘ownership’ of the receivables. The factoring company simply establishes a line of credit for your business. In the industry it’s referred to as a revolving credit line or simply a “revolver”. As the account debtors pay their bills, the line is continuously replenished and available to be drawn upon further.

While there are distinctions between invoice factoring and invoice financing, there is some overlap. Factoring invoices also has a financing component to it. It involves the interest that is charged while awaiting the account debtor’s prepayment of the bill. The interest charge is typically assessed on a weekly basis, although it doesn’t have to be.

Who Provides Invoice Finance?

It may be difficult for more traditional factors, like Riviera Finance or Amerifactors, to finance freelancers. Typically, specialty finance companies likes these provide small business funding only to B2B operations.

But, an increasing number of finance technology companies, such as Fundbox and Bluevine, that will work with freelancers. Such fintechs utilize the customer’s existing accounting software, generally Quickbooks, Xero or Freshbooks. In fact, many quick business loans come by way of accounting or payment infrastructure, like Paypal. The bottom line is that freelancers get paid significantly faster.

Don’t forget, there is a fee that is charged when the final payment is remitted by the customer and the factoring company unlocks the reserve balance to your business. While it can vary, the factoring fee is often ~2%.

Obviously, the lower the fee, the better for your business. But keep in mind that some factors might advertise this and hit you with charges and fees in other areas. Check our reviews page for more information.

If you operate in an especially high-demand, specialized area, try raising your prices slightly to offset finance charges and fees. Before you think that customers won’t stand for a price increase, realize that most routinely underprice for their services.

 Other Ways to Speed Freelance Payments

1-Use an online invoice system

We’re all human. That’s what I told myself every time I forgot to invoice a customer. When I first started freelancing financial research reports, I’d routinely forget to invoice for a few days after completing a project. This led to missing the payment cycle of my client, a Fortune 500 company, and I’d have to wait an extra two weeks to be paid. After this happened a few times, I finally started using an online system. It worked great and I recommend finding one that also sends out auto-reminders.

2- Offer Discount Terms

When you send the invoice, instead of the typical net 30 terms, consider sweetening the deal for your client. Freelancers might consider something like 2%/15, Net 30. This ‘code’ means if the clients can pay the bill within 15 days, they receive a two percent discount off the total. If not, the full, face value of the invoice is due in 30 days (like normal). This worked for me about a third of the time, mostly for smaller customers where every dollar impacts their bottom lines.

3- Send a Milestone Schedule

A milestone schedule breaks down a large project into measurable parts, with pro rate ‘sales orders’ billable at such installments.2 It works well for larger clients who already have reservations about working with freelancers. Utilizing contractors in general gives many compliance and Human Resources departments fits. Having as much documentation as possible tends to curb their inhibitions. Conversely, it’s a great idea for individual freelancers who can’t wait to be paid for long projects.

A final piece of advice for freelancers. The competition can be fierce for projects, especially when international freelancers severely undercut bidding prices (since projects are typically paid in US dollars, these freelancers still make out great when compared to cheaper local currencies). Even if you do win the project, the cut taken by the freelance platforms can be unfair, making the job much less lucrative. Going independent and securing your own projects can be a much more profitable avenue in the long run.

 

1https://www2.deloitte.com/insights/us/en/focus/human-capital-trends/2018/contingent-workforce-management.html

2https://www.ibm.com/support/knowledgecenter/en/SSKVFR_7.6.1/com.ibm.spr.doc/contractsmro/c_milestone_bill.html

 

 

 

Quick Business Loans

Quick Business Loans: What Could Go Wrong?!

(Read Time: 3 Minutes)

 

It’s not easy running a small business. But one area that’s improved dramatically over the last few years is access to financing. The alternative lending has space stepped in to fill the void left by traditional banks after the Financial Crisis. This is a great development as financial technology has enabled small businesses to get the net working capital they need to survive and prosper.  Suddenly, quick business loans are available all over the place.

But the proliferation of online lending platforms and marketplaces, are both innovative and potentially worrisome. Lack of uniform regulation, murky fees and misleading conditions can cast a shadow on entire industry. Small business owners should take pause and decide whether the funding options are the best for their companies, in both the long and short terms.

Quick Business Loans

One reason online small business loans have become so popular is their ability to provide incredibly fast funding. Normally, small businesses would have to wait weeks or months for a bank to officially deny them! That was before the era of quick business loans.

Today’s online lending platforms can offer next-day, same day, even real-time funding to small businesses. These working capital business loans can alleviate cash flow problems and greatly improve their liquidity and financial positions.

There is no denying that business financing needed to be shaken up and expedited. But is real time access to capital really important? Businesses think so and many are rushing into quick business loans. Names including Rapid Advance, Biz2Credit, Ondeck Capital, Kabbage, Bluevine and Swift Capital are examples of such funding companies and are even working on real-time funding for customers. 

Today’s entrepreneurial environment couldn’t be better. Case in point, the NFIB’s Small Business Optimism Index recently reported an all-time high level, going back to the index’s inception.1 That level of confidence explains the demand for a real-time credit product. But instant financing is a temptation that ambitious companies should gauge very carefully.

For some small business owners, speaking with a dedicated advisor regarding the totality of business needs might be more valuable than a faster loan product. Further, it’s never a bad idea to have an attorney review any financing documentation which will accompany funding. This is also true if your business decides to start factoring receivables (not technically a loan).

Easy Business Loans are the Norm

In addition to speed, easy business loans have become much easier to obtain in recent years. In the wake of the financial crisis, the alternative lending industry has flourished. Today, small business financing is about as easy as it’s gonna get. Many extend bad credit business loans to companies that couldn’t qualify for bank financing.

Some act as direct lenders (Fora Financial, National Funding, Northwest Savings Bank, etc.) while others (like Fundera, Funding Circle and Lendio) act as more of a marketplace. Many are hybrids and actually do both- funding some types of businesses and selling out the leads for other services.

Many funding products come with minimal documentation, no credit or collateral requirements. So what’s the problem? As you know, our site is dedicated to keeping small business in business. Here’s why it’s potentially worrisome.

We remember the NINJA loans (No Income, No Job at All) of the mid-2000s when documentation was also very relaxed. Overzealous homebuyers would eventually walk away from the properties or short sell their houses. Ultimately, the risk was with the banks that held the mortgages on their own books. Today, some overly ambitious startups may be similarly becoming over-exposed, especially if they’ve signed personal guarantees.

A Personal Guarantee

Using personal loans for business is one way owners are side-stepping stricter [business]  lending standards. Some online lenders require a personal guarantee from the business owner (typically if they have greater than a 20% stake in the company) or even other shareholders (generally with over 10% equity ownership and also a senior officer).

This is fine on the surface and we applaud business owners who are confident and willing to “bet on themselves”. However, owners need to understand the responsibilities that come with a personal guarantee.

Sometimes the guarantee can have the ‘joint and severable’ clause which could require any single, signing owner (even if there’s numerous signees) to be liable for the entire debt.2 Business owners can lose personal assets (such as cars, boats or a home to foreclosure) in the event of a business default where they signed a personal guarantee. Lenders will often require a personal guarantee for applying businesses structured as LLCs and corporations (read the Nolo article referenced for more clarification).3

Small business owners should really ponder whether they need to seek external financing. And always make sure you assess funding needs responsibly and prudently. Just because it’s an environment of easy and quick business loans doesn’t mean you have to borrow money.

There are sometimes opportunities to avoid, or even remove, the personal guarantee requirement. Before you apply for a loan, try and keep your business’ cash flow positive for an extended period of time. This may allow you to avoid the guarantee when obtaining financing. Of course, that’s not always easy to do, especially for seasonal businesses. If the cash flow shortfall is from late-paying customers, invoice factoring might be a good option.

Ideally, you would have negotiated with your loan officer before accepting any borrowed money. Find out if the bank will allow you to remove (or reduce) the personal guarantee once your business hits pre-determined financial landmarks.

More risk averse owners might consider small business funding that comes without the personal guarantee requirement. While some lenders we profile on this site require personal guarantees, some do not. So, take a look through our review pages, where we rate several high-quality lenders (i.e. Bluevine reviews, Kabbage reviews, Ondeck reviews, Loan Me reviews, Discover personal loans reviews, etc.).

 

 

1https://www.nfib.com/content/press-release/economy/small-business-optimism-shatters-record-previously-set-35-years-ago/

2,3https://www.nolo.com/legal-encyclopedia/business-debts-personal-liability-29905.html

 

 

 

 

 

Apex Capital Has Been Busy

A Quick Update on Apex Capital

Apex Capital, also known as Apex Factoring, is a freight factoring company headquartered in Ft. Worth, Texas. A quick update is in order since the company has been quite busy since our last factoring company review was written.

Apex Capital Provides Freight Factoring Nationwide

Apex Capital provides freight factoring solutions for the transportation industry around the country, offering both recourse and non recourse factoring. Apex typically works with trucking companies, often independent, owner-operated rigs. As such, they compete with other trucking factoring companies including Fleet One Factoring, TAB Bank, OTR Capital and Riviera Finance for business.

Since 1995, Apex Capital has been factoring receivables for small and medium size fleet owners. One such client is Midnight Express, a husband and wife trucking team from Schenectady, New York (not far from Albany). Midnight Express runs a licensed and bonded freight hauling and trucking company. While it only has one single truck, the duo wants to maximize growth potential and keep their net working capital positive.

But doing so often requires additional financing. Getting a traditional bank loan would be trying for a company with a business that’s operated for just a few years (since November 2015 for Midnight Express).1 That is where an accounts receivable factoring company like Apex can provide tremendous benefit.

With invoice factoring, a business sells its outstanding invoices to a third-party, called a factoring company. The factor then typically takes care of the collections, so your business can focus on day-to-day operations.

Discounts and Benefits for Apex Capital Customers

If you decide to start factoring invoices with Apex, they offer many discounts and savings through a variety of partnerships. Their Apex Fuel Card Program is a fuel management system that is accepted at internet truck stops in the United States and Canada including Flying J, Speedway, Roady’s, Petro and TA (the largest full-service travel center company in the United States). This fleet card is designed to keep your trucking company’s operating expenses in check. There is also a discounted Federal Express and tire savings program.

Start Your Own Trucking Company through Apex Capital

If you have that independent streak and want to be in business for yourself, you should consider partnering with Apex Factoring. Specifically, if you’ve wondered how to start a trucking business, then Apex Capital can help with their guide to starting a trucking company. They partnership is invaluable and Apex files most of the paperwork and forms for you.

Apex Capital Offers Plenty of Free Resources

We would suggest anyone in the trucking industry to take a look at the company’s website and social media pages where they provide a variety of information on factoring rates, industry news and even human interest stories on truckers.

This is where we learned about the inspirational story of Charles Ray Bell, a truck driver from Delhi, Kentucky. He reportedly was living a very unhealthy lifestyle, probably stemming from a difficult childhood in and around foster homes.

But Bell wasn’t going to be defeated-he figured out a way to use the dreaded detention downtime into a positive. He started exercising, running to be exact. He even finished the 100-mile Florida Keys ultra-marathon which stretches all the way from Key Largo to Key West.2 Wow!

One thing we love to see is that the company is involved in their community- and gives back. Their participation in Cancer Care Service walks, the Texas Pythian Home and Junior Achievement is a testament to this.

If things continue to go so well we may have to place an addendum to our review for Apex Factoring.

 

1https://www.quicktransportsolutions.com/truckingcompany/newyork/midnight-express-llc-usdot-2828321.php

2http://www.nkytribune.com/2015/05/paul-long-running-100-miles-in-the-florida-sun-heat-is-how-some-nky-residents-spent-a-day-or-more/

 

Update on Fleet Card Pioneer, WEX Inc.

Fleet Card Pioneer, WEX Incorporated

WEX Incorporated is a South Portland, Maine based provider of corporate payment solutions and fleet card services to commercial customers primarily in the transportation, health care and travel industries. Wex operates offices around the world in countries ranging from Brazil and New Zealand to Norway and the United Kingdom. In total, WEX Incorporated employs over 3000 associates worldwide.

WEX Borrowing Facilities

WEX is set to report earnings that will be released next week. Given the recent upwards move in global interest rates, now is an opportune time to check in on WEX, who relies on variable or floating rate borrowing for a significant amount of financing.

Much of this is tied to LIBOR or the London Interbank Offer Rate, which has been moving higher along with U.S. Treasury rates. Case in point, the 3-month LIBOR has risen to 1.81%, up from roughly 50 basis points just a few years prior. Concurrently, U.S. 10-year Treasury note rates have doubled in the past few years and now stand at 2.80%. While still historically low, it is a trend that market watchers are keeping an eye on.

But WEX appears to be actively monitoring the rate moves. On December 27, the company reported an interest rate swaps transaction ($500 million in 5-year swaps) at an average rate of 2.21% that WEX expects will reduce the impact of rising interest rates on existing variable debt.1

Further, the company was also able to renegotiate $500 million of its borrowing facility through Banc of America, N.A. Mitsubishi (MUFG Union Bank), SunTrust and Citizens.2 The result was a half a percentage point reduction in borrowing rates (in conjunction with another tranche B loan which is to be set at 2.25% for LIBOR borrowings).3

Its moves like these that we like to see in the face of rising interest rates. It demonstrates a proactive approach by management to minimize the effects of higher rates on their financing capacities. After all, it is these financial resources which allow the company to manage its corporate payment platforms, as well as price factoring rates for invoice factoring, invoice financing and other small business funding facilities. These services fall under WEX’s Fleet One Factoring division, which provides net working capital to many independent trucking companies nationwide. As such, WEX technically competes with trucking factoring companies such as Apex Factoring and OTR Capital.

WEX Inc.’s Fleet Card Roots

WEX began offering its fleet card payments to trucking customers way back in 1983. Today, customers representing over 11 million vehicles receive a number of benefits including payment solutions and security.

For example, the WEX Fleet SmartHub and WEX Connect Apps are perfect for customers on the road. These allow drivers to locate the cheapest fuel on their routes, providing additional savings for fleet card members. Right on WEX’s website, they have a section where small business owners can compare fleet card offerings against the WEX fleet card. We will keep readers, often business owners who depend on small business factoring services, updated on WEX’s financial condition following earnings announcements. Until then, refer to our Fleet one factoring company reviews for more information.

 

1,2,3https://finance.yahoo.com/news/wex-inc-completes-term-loan-212400764.html

 

3 Ways to Improve Net Working Capital

 Boost Your Net Working Capital

(Read Time 1-2 minutes)

IMPORTANT! If your business plans on borrowing money in the near future, start monitoring your cash flow. Positive cash flow is the key to repaying debt and is what banks scrutinize when making lending decisions. Banks monitor this is by calculating one of their favorite liquidity metrics, net working capital.

What is Net Working Capital?

Calculating net working capital is pretty simple. It’s the difference between current assets and current liabilities on the balance sheet. It indicates how well a business can meet it’s short-term obligations.

Generally, items listed as ‘current’ assets can be converted into cash within a year. Such items such as cash or marketable securities, inventory, raw materials and accounts receivable such as outstanding invoices.

But many businesses calculate it incorrectly. Don’t forget to include  raw materials under current assets. For small businesses, this can be anything from sand and cement to silver and palladium.

Current liabilities are expected to be paid within one year. These include short term debt, payroll taxes payable and accrued liabilities. Monitoring net working capital is crucial since running out of cash contributes to 29% of failed startups.2

Keep in mind, net working capital is more important to creditors-equity investors are more interested in profitability ratios. Improving net working capital will go a long way in stabilizing your business finances.

Improving Net Working Capital

A lender may be more favorable with terms even if net working capital is slim- as long as trends are improving. So, business owners should focus on the change in net working capital. There are a number of ways to improve net working capital. Here are three of our favorites:

  1. Factoring Invoices

A simple way to improve cash flow is through invoice factoring. Instead of waiting 30 or 60 days for customer payment, businesses can sell invoices to a factoring company as soon as they’re billed. The transaction provides immediate funds that can be used for payroll, inventory or debt repayment.

Factoring invoices kills two birds with one stone: It immediately improves cash flow and net working capital. Down the road, it can improve your chances of obtaining a small business line of credit with better terms. But at that point, you may be working with a factoring company who has extended you a revolving facility of its own.

Of course, if your customer doesn’t pay, the factor may come after you for the invoice amount. One way around this is non recourse factoring, which transfers the default risk to the factor. While more expensive, it makes sense if you have outsized receivables that could harm your business if defaulted upon.

  1. Sale-Leasebacks

Today’s businesses are choosing to be ‘asset light’. The days of purchasing capital intensive items real estate, machinery and equipment are dwindling. Many prefer to lease, not buy. This trend can also improve working capital and cash flow.

If your business owns significant hard assets (buildings or vehicles), consider selling them and leasing right back from the new owner.  The transaction can also lock in cheap ‘cap rates’ (from historically low interest rates) and protects against asset depreciation. Additionally, a new operating lease can lower your business’ debt-to-equity ratio, potentially lowering future costs of capital.

In short, sale-leasebacks unlock the cash tied up in illiquid, longer-term assets.

  1. Refinance Outstanding Loans

Finally, see if you can refinance existing loans to longer maturities. This would increase net working capital by reducing the ‘current portion of long term debt’, a current liability.4 If selling a fixed asset isn’t an option, considering refinancing the note against it.

If your business has a loan  (even an SBA loan) you may be able to refinance it if the terms are deemed ‘unreasonable’.5 Examples of such terms may include seller-financed deals, revolving lines (an asset based lending transaction) or the lender is simply unwilling to renew.6

Keep in mind, many factors offer revolving lines of credit in addition to factoring services. Check out our invoice factoring company reviews page for more insight.

 

1https://www.bizfilings.com/toolkit/research-topics/finance/what-banks-look-for-when-reviewing-a-loan-application

2http://www.burtcollect.com/blog/problems-reasons-businesses/

3http://www.ccim.com/cire-magazine/articles/real-estate-sale-leasebacks/

4https://www.accountingcoach.com/blog/improving-working-capital

5,6https://www.sba.gov/offices/district/mo/st-louis/resources/refinancing-debt-sba

 

factoring accounts receivable

Factoring Accounts Receivable for Growth

Factoring Accounts Receivable: NOT Too Expensive

factoring accounts receivableOne of the perceived disadvantages of factoring accounts receivable is the cost. But a closer look at factoring expenses may shed a different light. While factoring fees might be higher than the interest rates on a traditional bank loan or line of credit, the two financing options are really quite different. Accounts receivable factoring involves the sale of outstanding invoices, at a discount, to a third-party factoring company for immediate funding.

With a bank loan, once the money is lent, the bank isn’t involved anymore (unless payments are being missed). With invoice factoring, the factoring company essentially becomes a partner with the business. The factor often takes over the collection duties and credit services for the business which has a number of benefits. And you’re essentially receiving these additional collection and credit services for free. Also, the credit quality of your customers could improve since this is the factor’s area of expertise, presumably not yours.

And with non recourse factoring, the credit risk of the business’ customer (also known as the account debtor) is transferred to the factoring company, which can reduce some of the expenses incurred for collection and allows you to focus on running your business. This is important if you had an outsized invoice that represents a major portion of annual revenues that would be very detrimental if not received.

Factoring Accounts Receivable Tip: Ignore APR

A common mistake we see when assessing the cost of factoring is simply taking the factoring fee and annualizing it. Doing so would produce an APR that rivals less desirable small business funding options such as a business cash advance. This is not the best way to assess the true factoring costs.

Unlike a traditional loan or a business line of credit where money is simply lent, factoring costs reflect not just the actual funding but a variety of other services. There are the initial set up costs, filing documents with multiple agencies, collection services, the due diligence required on assessing each invoice (credit analysis on the account debtor), checking for outstanding liens, confirming with the customer that the work was actually fully completed (works in progress are generally not allowed by most invoice factoring companies). And of course, the fact that you are actually selling assets, often hundreds of thousands of dollars worth, on an annual basis.

Factoring Accounts Receivables Boosts Profitability

Your business can actually become more profitable by factoring receivables. Your gross margin increases by 1- boosting sales and 2-lower labor costs due to reduced man power involved in collections so bottom line may be improved by this type of asset based lending. So, factoring can improve sales and profitability on the income statement whereas traditional loan will put debt onto your balance sheet, lower your credit rating and hinder future financing prospects.

Comparing Fees Between Factoring Companies

It is often difficult to compare the costs of factoring between multiple invoice factoring companies. Even though they may advertise a cut and dry rate, there are a host of ancillary fees that must be accounted for. Further, the quotes a prospective business may receive could be like comparing apples to oranges if they aren’t based on the same standard 30-day rate.

For example, if you are getting multiple quotes from factors, which we highly recommend, you could get quotes based on 15, 30 or 45 days. This is similar to when shopping for a mortgage, you may get those companies that quote you in points, and all other variations except what you actually want, a plain vanilla 30 year fixed quote. Ask your factoring company to provide you with a standard 30-day rate. After all, invoice financing shouldn’t be a guessing game with hidden costs.

Also, the advance rates are often the most attractive metric for many businesses since that immediate funding what’s often so coveted. Sometimes, a factoring company will offer a large advance to attract a new customer interested in factoring accounts receivable. But can you be sure that your cost of funding is competitive outside of the advance? Here is an example of a hypothetical group of quotes from factoring companies:

Advance Amount Factoring Fee Cost per Dollar
Factoring Company #1 70% 2.25% .03214
Factoring Company #2 80% 2.5% .03125
Factoring Company #3 85% 2.75% .03235
Factoring Company #4 90% 3% .03333
Factoring Company #5 95% 3.5% .03684

 

As you can see by the green highlight, the lowest cost of funding, on a per dollar basis, is factoring company #2. The most expensive cost of funding is with factoring company #5.  You can calculate this yourself by dividing the factoring fee by the advance rate to get the cost per dollar.

Of course, if it’s more important to your business to get the largest advance possible, then consider company #5 with the largest advance. Advance rates are predominantly determined by the creditworthiness of the account debtors while the factoring rates are more influenced by the factor’s cost of funding. During the financial crisis, factoring rates jumped, even as general interest rates dropped, a sign of credit demand dropping.1

 

 

 

1http://www.bizjournals.com/atlanta/stories/2009/06/29/focus8.html?b=1246248000%255e1850951%3fs=print

 

 

 

accounts receivable factoring

Accounts Receivable Factoring Tip: Raise Your Prices

Accounts Receivable Factoring Tip: Raise Prices

accounts receivable factoringMany business owners are considering accounts receivable factoring to improve their business’ finances. This type of funding can bring vital cash to a business that’s waiting for payment from credit sales-cash that can be used to run the business more efficiently in a variety of ways.

But the business must get approved by a factoring company first. This isn’t always easy. A common reason for small business funding rejection is low gross profit margins.

Invoice Factoring Companies like Profitable Businesses

Contrary to conventional factoring wisdom, invoice factoring companies want to do business with fast-growing, profitable businesses-not extend a lifeline for troubled businesses. The business that wants to start factoring accounts receivable doesn’t necessarily need to be bottom-line profitable yet, but if gross margins are healthy (above twenty percent), it signals the potential for a long invoice financing relationship because the business should survive.

A business with a strong gross profit margin will not only be more profitable, but they will weather a financial setback or mistake much better. Consider a business with gross margins of 20%. Just a $1 increase in fixed costs forces the business to increase sales by $5 to break even.

Some accounts receivable factoring companies won’t approve a business without at least 15% gross margins but the higher the better for gross margins.

As a refresher, gross profit margin is calculated as:

Sales – Cost of Goods Sold = Gross Profit

Gross Profit/Sales= Gross Profit Margin

Accounts Receivable Factoring Tip: Raise Your Prices

Raising prices is the easiest and most obvious way to improve your gross profit margins, assuming you keep your cost of goods the same. Your business should become more profitable and improve your access to small business funding. For late-paying customers, all you’re doing is building the necessary factoring costs into the price.

Consider adding 2% to the cost of your product. Don’t worry too much that you’ll scare off your customer. Here’s why. The longer payment terms are likely more important to them than the actual price.

If you’re still worried this will scare off a customer, consider an early incentive. For a customer that typically pays you in 90 days offer them new payment terms. Inform them of the 2% increase, but offer a discount for earlier payment, 1% for each 30 days earlier the pay. This way, they have the power to decide whether they want the price increase or not.

Your customer realizes they are already receiving an interest free loan from you. They may be enjoying supplier discounts on their end. Further, they have increased their net working capital to more effectively run their business, at the detriment to yours.

Remember, the cash flow is likely more important to your customers than a small increase, which helps defer your fees when invoice factoring. This is essentially true the larger and more established your customers are. Not that they need it. The costs of borrowing in corporate debt, especially after the interest deduction, makes their cost of capital almost free.

Further, an increasing number of companies have made delaying their accounts payable a competitive business strategy. Some like Amazon went as far as to operate with a negative cash conversion cycle of 24 days back in 2014.1 This is essentially free funding.

Accounts Receivable Factoring

Improving your gross profit margin with a price increase will go a long way towards getting approved by invoice factoring companies. Lack of profitability is one of the most common reasons businesses get rejected for accounts receivable factoring. Once your gross margins improve, see how your profitability continues increasing once you start factoring receivables.

The digital age has the potential to really bring down factoring fees for small businesses. Online factoring companies such as Bluevine and Fundbox are revolutionizing the way businesses access capital. Check our Fundbox reviews and Bluevine reviews for more information on their costs, minimums and reputation. There are also online marketplaces where businesses and consumers (in the case of freelancers) can shop the best financing terms. This allows them some additional protection against large, late-paying customers.

 

 

 

1https://www.bloomberg.com/view/articles/2015-09-30/big-companies-don-t-pay-their-bills-on-time

 

factoring receivables

Factoring Receivables? 3 Tips for Approval

Factoring Receivables? 3 Things to Check

factoring receivablesSo you’ve decided you want to start factoring receivables. That’s great. Invoice factoring provides a number of pros for your business. Factoring can support fast growth, provide a cash flow infusion during a rough patch and free up resources (time and money) for your business. It can even improve your bottom line.

But when you have selected a factoring company you’d like to work with take some time and consider these three issues that are sure to come up during the application process.

Be prepared for these three questions from invoice factoring companies:

  1. Are your Receivables Free and Clear?
  2. Do you Owe Back Taxes?
  3. What are your Profit Margins?

Factoring Receivables: Are They Free and Clear?

When factoring receivables, you will undoubtedly be asked about your receivables-specifically if they are free and clear. Factoring companies want to make sure they are able to collect from the account debtors invoices. Factors will make sure the business isn’t already using another factoring company and no one else has any legal claim on these same assets that the factor is using as collateral. A UCC 1 (Uniform Code) will be filed that will determine if there are any liens on these receivables.

Inform the Factoring Company if you Owe Back Taxes

The next thing a factoring company will ask is if you owe the IRS (Internal Revenue Service) any back taxes. Factors need to know this because the IRS’s claim on any business asset is senior to any other claims. In other words, factoring companies don’t want to get into a battle with the IRS over a claim on someone’s assets. The factor will lose and they know it.

While owing back taxes is a setback for a prospective business customer, it doesn’t have to be a deal breaker. If the business client can show the factor that there is a payment schedule in place with the IRS there may still be able to start factoring receivables. But be up front with the prospective factoring company about any back taxes owed.

What are your Profit Margins?

Many businesses that inquire about factoring receivables don’t maintain strict financial records. That’s fine, but a factoring company will ask about the profit margins? Why? Think about it from the factors perspective, they want to be factoring receivables for a business that has the ability to grow. If the company is relatively new and already has low profit margins, it’s not a great indicator of a viable business. A factoring company wants to see profit margins of at least 10%, hopefully 15%. Accounts receivable factoring is a viable small business funding option your business and keep your operations on the right growth trajectory.

Hopefully, these tips were helpful in getting approved by a factoring company. The key is to find the best factoring company for your business. That could be based on location, industry or simple your comfort level with them and their cost structure. We provide reviews on several factoring companies and aim to help small businesses decide whether invoice financing is right for their business.

Often times, businesses turn to factoring when the banks turn them down due to a lack of operating history, financial statements or profitability. Don’t worry, this is a common issue with fast growing companies. Factoring frees up resources that your company can use to further growth, not act like a debt collector. Plus, the immediate funding allows businesses to capitalize on supplier discounts or strategic opportunities.