Lending Library

As a small business owner, your cash flow is your lifeline. But what happens when the cash doesn't flow just when you need it? Imagine if there were a way to unlock the funds tied up in your unpaid invoices, instantly. 

Welcome to the world of spot factoring, also known as single-invoice factoring. This financial tool is all about turning your invoices into immediate cash, enhancing your liquidity and keeping your business running smoothly. Let's delve into how spot factoring can support your business growth.

How spot factoring works.

Getting started with spot factoring involves a few steps which we've broken down for you:

1. Identify the invoice - First things first, you need to identify the invoice you want to sell.
2. Choose a factor - Next, you'll need to find a factoring company. You may want to consider different factors, such as their fee structure, the percentage of the invoice they'll advance, and their reputation.
3. Sell the invoice - Once you've chosen a factor, you sell them the invoice. Typically, they'll advance you a large percentage of the invoice value, often between 70% and 90%, straightaway.
4. Customer pays the factor - Now it's time for your customer to pay the invoice, but instead of paying you, they'll pay the factor.
5. Receive the remaining balance - Once the factor has received the invoice payment from your customer, they'll give you the remaining balance of the invoice, minus their fee.

This process allows you to access the cash tied up in your invoices immediately, helping to maintain a healthy cash flow for your business.

Spot factoring rates and terms.

Spot factoring rates and terms can vary depending on the factor you choose, as well as factors such as your business' creditworthiness and the creditworthiness of your customers. Generally, the advance rate ranges from 70% to 90%, with a fee of around 1% to 5% for every month that the invoice is outstanding.

Qualification criteria for spot factoring.

To qualify for spot factoring, there are a few key criteria you'll need to meet. First, your business must issue invoices to customers on credit terms. The invoices you factor should be due and payable within 90 days. They need to be free of liens and encumbrances, meaning they aren't pledged as collateral in another financial arrangement.

Additionally, the customer you're invoicing must have a good credit history, as the factor will collect the money directly from them. 

Lastly, the invoice must be for work that has been completed or goods that have been delivered. 

Each factoring company may have its own specific requirements, so it's essential to review these before proceeding.

Pros and cons of spot factoring.

Like any financial tool, spot factoring has its pros and cons. Here are a few to consider:

Spot factoring vs. accounts receivable factoring.

Both of these methods are effective ways to improve cash flow. However, they have some key differences that make them more appropriate for different situations.

Spot factoring focuses on one invoice at a time. This type of factoring is ideal for businesses that occasionally need quick cash or want to control which invoices are factored. 

Accounts receivable factoring involves selling a bulk of invoices to a factor. This is a more comprehensive solution that offers consistent cash flow. It's ideal for businesses that have a number of unpaid invoices and need a steady influx of cash. Unlike single-invoice factoring, accounts receivable factoring usually involves a long-term contract with the factoring company.

In both cases, the factoring company will handle the collection of payments, but the choice between spot factoring and accounts receivable factoring ultimately depends on your business' needs and cash flow situation. Make sure to thoroughly evaluate both options to figure out which one is the best fit for your company.

Is spot factoring right for your business?

Spot factoring can provide a much-needed boost for small businesses experiencing cash flow issues. However, it's not necessarily the best option for every business. Consider your specific needs and weigh the pros and cons before making a decision. And as always, it's important to consult with a financial advisor or expert before committing to any financial tool. But if you're looking for a way to turn your receivables into cash and keep your business running smoothly, spot factoring might just be the solution you've been searching for.

Ready to get started? See if you're eligible for accounts receivable financing.

As your business starts to grow, you may encounter clients with orders that you can’t fulfill immediately. Completing these orders could be huge for your business—both financially and for your reputation—but you might not have the resources and funds at that stage. 

This scenario is very common—especially for new businesses—and it’s where purchase order financing comes in. Read on to learn more about the process of seeking out funding to help fulfill orders.

What is purchase order financing? 

A purchase order (PO) is an agreement to pay for goods or services. Companies of all sizes, from multi-billion-dollar manufacturers to small bakeries, use purchase orders to protect themselves and their customers. 

However, there are times when a purchase order is too large or too expensive to fulfill. When this occurs, the organization needs to seek out financing options to pay suppliers, so they can hold up their end of the purchase agreement. A common solution to this problem is purchase order financing. 

Going back to your high school economics class, think about this in terms of a lemonade stand. It’s fine to fulfill one lemonade cup order for a dollar, but what happens when someone orders 1,000 cups of lemonade and promises to pay you upon delivery? You don’t have the money yet for enough lemons and sugar to fulfill the order.

With PO financing, a lender can help to ensure the order gets fulfilled—protecting your customer, your supplier, and everyone else involved in the process.

Purchase order funding is not working capital.

Before diving deeper into PO financing, it’s important to consider what this form of funding isn’t. Purchase order financing is not a working capital loan. You can’t bring a purchase order to a lender and receive cash to fulfill a major order. One of the biggest misconceptions about PO financing is that business owners simply receive the loan like they would with any other source of funding. However, it’s more complicated than that. Let’s review what purchase order funding is so you can understand what it’s not.

How purchase order financing works.

Purchase order financing works when you bring in a lender to mediate between you, your supplier, and your customer. Here are a few steps that explain how this process works:

1. You’ll provide a clear purchase order to your lender to review. 
2. If the lender approves the loan, they’ll reach out to your supplier to discuss the materials and manufacturing. 
3. Your lender will pay your supplier for the work.
4. Your supplier fulfills the order and presents it directly to your customer (not to you, the business owner). Their role in the process is over. 
5. You’ll send an invoice to your customer to pay for the order.
6. The customer pays the financing company, not you. Your lender will take their side of the fees and send you the balance.

Throughout each of these steps, the lender is involved with the purchase process. They need to make sure the order is fulfilled and the customer is happy—or the invoice won’t get paid and they’re not getting their money. 

If you want to return to the lemonade stand example again, it’s like your mom going to the store and making the lemonade for you, but letting you have the profits only after she delivers the order to the customer.    

Understanding the costs of purchase order financing.

When considering PO financing, it's essential to understand the costs associated with this form of funding. Unlike traditional loans, the costs of PO financing aren't defined by interest rates alone. They're typically calculated as a percentage of the purchase order value.

Here's a simple breakdown of how it works:

1. Financing fee - This is usually the primary cost. It's a percentage of the total value of the purchase order and typically ranges from 1.8% to 6% per month. The exact percentage depends on factors such as the complexity of the transaction, the perceived risk, and the lender's criteria.
2. Due diligence fee - This fee covers the lender's cost to vet the deal. It includes verifying the legitimacy of the PO, the creditworthiness of your customer, and the capability of your suppliers. It typically ranges from $400 to $600.
3. Other potential fees - Depending on your lender, there might be additional costs such as origination fees, administration fees, or wire fees. It's crucial to ask your lender about all possible fees upfront to avoid unexpected surprises.

Remember, the total cost of PO financing isn't simply the sum of these individual charges. The true cost should also consider the opportunity cost of potentially losing a large order if you can't fulfill it without financing.

How do I qualify for PO financing?

If you are considering PO financing, there are a few things you need to know. Having the right information beforehand can make the loan process easier and bring you closer to approval. 

• Verifiable purchase orders - Oftentimes, business owners mistakenly request funding when a PO is about to come through or when they’re responding to a proposal. A lender won’t fund your order unless the customer has already submitted the order. 
• Time in business - Criteria here will vary by lender. Some have no minimum while others will look for a minimum of one year in business.
• Profit margin - Many purchase order financing companies require at least a 20% to 30% profit margin on any project they agree to fund. This ensures that the lender can get paid and the company still makes money in the process. 
• Down payment - This will vary by lender. Some have no down payment requirements, while others will require a down payment that varies based on the terms of the agreement.
• Collateral - Some purchase order financing companies will take a blanket lien on the company’s assets.
• Type of product - Most funders will only provide PO financing for tangible products—not services. They may also have restrictions based on whether you're ordering completed products versus raw goods.
• Customer - Your customer must either be a commercial business or a government entity.

If you plan to work with a PO business to get funding, make sure you read their requirements carefully. A good lender will explain clearly what they need before you start the application process. 

Pros and cons of purchase order financing.

Like any financial decision, PO financing comes with its own set of advantages and disadvantages. Understanding both sides can help you make a more informed decision about whether it's the right choice for your business.

Pros

1. No need for perfect credit or business history - Unlike traditional loans, PO financing isn't necessarily based on your company's credit history. Instead, lenders focus on the creditworthiness of your customers and the validity of the purchase order.
2. Helps manage cash flow - PO financing can bridge the gap between receiving an order and getting paid, helping you maintain a healthy cash flow.
3. Fulfill larger orders - With PO financing, you're able to accept and fulfill larger orders that might otherwise be out of reach due to financial constraints.
4. Quick turnaround - You'll generally have access to funds within two to 10 days.

Cons

1. Cost - PO financing can be more expensive than traditional financing options. Lenders take on a considerable amount of risk and charge accordingly.
2. Loss of control - Since the lender is directly involved in the process, you may feel like you're surrendering some control over your operations.
3. Limited to physical goods - PO financing is typically only applicable to businesses dealing with physical goods. Service-based companies may not qualify.

Remember, it's crucial to consider your specific business needs, circumstances, and financial health before opting for PO financing. Consulting with a financial adviser could provide valuable insights tailored to your situation.

How to choose the right purchase order financing company.

Choosing the right purchase order financing company is crucial for the success of your business. There's no one-size-fits-all solution—what suits one business may not necessarily meet your unique needs. Here are a few tips to guide you:

1. Experience and reputation - Consider the company's experience in the industry and its reputation among other businesses. A lender with a long track record of success is generally more reliable and adept at handling different types of financial issues. Be sure to check out their reviews or ask for references.
2. Understand the terms - It's crucial to understand the terms and conditions of the financing agreement. This includes interest rates, fees, repayment terms, and any potential hidden charges. If something seems unclear, don't hesitate to ask for clarification.
3. Customer service - Opt for a lender that is responsive and has a good customer service record. You want someone who is readily available to answer your questions, offer advice, and resolve any issues that may arise during the process.
4. Flexibility - Look for a company that offers flexibility. Every business has unique needs and challenges. A lender that can adjust its terms or provide a customized financial solution can be invaluable.
5. Industry knowledge - A PO financing company with knowledge of your industry can better understand your business needs and challenges. This can lead to a smoother working relationship and more effective financial solutions.

Remember, it's not about finding the cheapest financing company, but rather finding the one that understands your business and offers the most value. So, take your time, do your research, and make an informed decision.

Alternatives to purchase order financing.

While PO financing can be an effective solution for certain businesses, it might not be the best fit for everyone. Luckily, there are various other financing options available that you might want to consider.

Invoice factoring

Invoice factoring is a similar concept to PO financing, but it focuses on invoices instead of purchase orders. If you're dealing with customers who take a long time to pay, this can be a great option. You essentially sell your outstanding invoices to a factoring company, which gives you an immediate cash advance. When your customers pay their invoices, the money goes straight to the factoring company.

Business lines of credit

A business line of credit provides flexibility that a regular business loan doesn't. It's a revolving fund that you can tap into whenever you need it. You only pay interest on the funds you use, and once you pay back the funds, your line of credit refills to its original amount.

Starting a general contractor business can be a rewarding venture, providing the opportunity to showcase your skills while helping others achieve their construction and renovation dreams. Whether you're a seasoned professional in the construction arena or a committed entrepreneur interested in the industry, this guide is for you. 

We'll walk you through the necessary steps, ensuring you understand the ins and outs of launching your own general contractor business. Let's embark on this exciting journey together.

1. Develop your business plan.

Just like any worthy endeavor, your general contractor business needs a plan. In its simplest form, this document will outline what your business is going to do and how you’re going to do it.

So what goes in your plan? The best way to think of it is as a collection of answers. In the process of answering important questions about your future business, you’ll develop the framework that will guide your business into the future.

Possible questions to prime the pump include:

• What will your main objectives be?
• What are your key strategies?
• What will your mission statement be?
• How will you market your business?
• How will you stand out from the competition?
• What are your projections for your business?

To thoroughly answer these questions, you’ll need to conduct an industry analysis and additional research. These actions are time-intensive but will provide essential data and spur ideas.

2. Decide on the structure of your business.

When you’re ready for your business to really take shape, it’s time to figure out the name and structure. First, research potential names that would resonate with customers and help you stand out from the competition. Then peruse construction industry directories to make sure the name isn’t already in use. You’ll also want to make sure the domain name is available. Finally, go to the U.S. Patent and Trademark Office’s website to make sure your preferred name is yours for the taking.

At this point, you need to choose a legal structure for your business. There’s no silver bullet here, as each structure has pros and cons. Due to the importance of this element of your business setup, this is an excellent topic to discuss with your mentor.

So what are your options when it comes to business structures? Here’s a breakdown of the five most popular:

1. Sole proprietorships - This route is the easiest. A sole proprietorship is designed for just one owner, meaning every aspect is streamlined. As the single owner, you assume complete responsibility for the business. The profits flow straight to you, but so will any losses. Sole proprietorships do not provide liability protection, meaning your personal assets could be at risk. 
2. Corporations - If there will be multiple owners of your business and liability protection is a priority, you should consider a corporation. With this structure, your business is considered its own legal entity. In the unfortunate case of severe debts and losses, your assets would be shielded. Just know that it’s a fairly complex process to set up corporations, and the costs are higher than with a sole proprietorship.
3. General partnerships - This structure is ideal if there will be more than one owner and everyone wants an equal stake in the company. Each partner will have a voice when it comes to decisions in a general partnership, but the downside is they all share liability for the finances as well.
4. Limited partnerships - If there is a hierarchy among your potential partners, you should consider a limited partnership. The unique structure allows some individuals to be dubbed full partners, while others can assume more of an investor relationship with the business. Full partners will shoulder the liability, while the secondary partners are protected.
5. S corporations - This hybrid structure combines the liability protection of corporations with some of the financial convenience of sole proprietorships. But that’s not to say that S corporations are easy to create and run. You’ll have to meet certain requirements, such as conducting meetings for shareholders, recording the minutes, and soliciting shareholder votes on decisions.
6. Limited liability companies (LLCs) - This common structure is chosen by small business owners due to its user-friendly benefits. For example, an LLC provides liability protection and has lenient tax rules, while also allowing for as many shareholders as you wish.

3. Register for an EIN and create a bank account.

You could have the best business plan in America, but you still probably wouldn’t be able to do business without an Employee Identification Number (EIN). Go to the application page on IRS.gov and you’ll be pleasantly surprised by how easy it is to register your business.

Next, you’ll need to take care of a bank account. The most convenient route is to open a business account at the bank where you already handle your personal finances. Because the bank has your personal data and has established a track record with you, the application process will be much faster.

4. Obtain necessary licenses and permits.

As a general contractor, you're required to have specific licenses and permits to legally operate your business. The requirements vary depending on your state, so it's crucial to research what's needed in your particular location. Typically, a general contractor license, business license, and building permits are a must-have.

To get your general contractor license, you'll likely need to pass an examination that tests your knowledge of the construction industry and business practices. This license permits you to legally perform and oversee construction projects. Check out the National Association of State Contractors Licensing Agencies for more detailed information on each state's requirements.

A business license—obtained through your local city or county government—authorizes you to operate a business within their jurisdiction. You may also need to apply for specific permits depending on the nature of the projects you undertake, like electrical, plumbing, or demolition permits.

Remember, it’s not enough to just have these licenses and permits—you must also ensure they are always up to date. Operating without the necessary licenses or permits (or with expired ones) can lead to hefty fines and potentially damage your business reputation. Keeping on top of these administrative tasks can help ensure the long-term success of your general contractor business.

5. Secure the right insurance.

Just as important as obtaining the necessary licenses and permits for your general contractor business is securing the appropriate insurance. When operating a general contractor business, several types of insurance are considered industry standards. These include:

1. General liability insurance - This type of insurance provides coverage for any accidents or injuries that occur on the worksite. It typically covers medical expenses, legal fees, and any damages awarded in a lawsuit.
2. Workers compensation insurance: - If your business has employees, most states require you to carry workers' compensation insurance. This coverage provides wage replacement and medical benefits to employees who are injured on the job.
3. Commercial auto insurance - If your business owns vehicles, commercial auto insurance is a must. This insurance protects your company from the financial fallout of an auto accident, including coverages for property damage, medical expenses, and liabilities.
4. Builders' risk insurance - This type of insurance covers a construction project from various risks such as fire, theft, or natural disasters while the project is underway.
5. Professional liability insurance - Also known as errors and omissions (E&O) insurance, this covers you if a client claims that errors or negligence in your work caused them financial harm.

Remember, the specific insurance requirements may vary depending on the location and nature of your projects. It's crucial to work with an insurance expert or broker to identify the right coverage for your business needs. Operating without the right insurance can expose your business to unnecessary risks and potential financial hardship.

6. Understand the importance of contractor bonds.

In addition to securing the right insurance coverage, another crucial aspect to consider when starting a general contractor business is obtaining contractor bonds. Contractor bonds, often required by law, provide a financial guarantee that you will fulfill your contractual obligations to your clients.

There are different types of contractor bonds, but the most common ones are:

• Bid bonds - These assure the client that you will honor the terms outlined in your bid if it is accepted.
• Performance bonds - These provide a guarantee that you will complete the project as per the terms of the contract. In case of default, the client is compensated up to the full amount of the bond.
• Payment bonds - These ensure that all subcontractors, laborers, and material suppliers involved in the project will be paid.

Obtaining a contractor bond involves applying through a surety company or a bond broker. They will evaluate your financial health, industry experience, and creditworthiness before issuing a bond. Keep in mind that you may be required to pay a premium, usually a percentage of the bond's total amount.

Remember, having contractor bonds not only fulfills legal requirements but also enhances your credibility with clients by demonstrating your commitment to completing projects as promised. It's always a good business practice to stay bonded to protect your business, your clients, and your reputation in the industry.

7. Finance your business.

One of the most important elements of your business plan is deciding how much money you will need and when you’ll need to acquire it. There are diverse expenses related to getting a construction business up and running, including materials, equipment, vehicles, trailers, tools, insurance, licenses, office furniture, computers, and software.

You’ll also need to consider less obvious expenses, such as advertising, maintenance, payroll, and professional fees. Many entrepreneurs struggle with their budgeting because they don’t account for all of these ancillary aspects.

When you know exactly how much money you need, you’ll be in a prime position to seek any necessary financing. Here are five common types of financing for general contractors:

1. Term loan - A term loan is a lump sum of capital you pay back over a fixed period. The payments are made monthly, and the interest rate can be either fixed or variable.
2. Invoice factoring - As a general contractor, you may find that some clients don't pay their invoices promptly, which can create cash flow problems. Invoice factoring is a financial solution where a third-party company, called a factor, buys your unpaid invoices for a fee. You get the cash immediately, allowing you to finance ongoing operations, while the factor collects the invoice payment when due. This option can be highly beneficial if your construction business operates on a B2B model.
3. Equipment financing - This type of financing involves borrowing money to purchase equipment and other assets. The asset serves as collateral for the loan, often leading to lower interest rates.
4. Business credit card - Most entrepreneurs get business credit cards so they can begin separating their business purchases from their personal expenses. They function just like any other credit card.
5. Line of credit - This financing product is similar to a credit card because it gives you ongoing access to a set amount of money. The benefit here is that you can spend cash only when you need it and keep it as a safety net when you don’t, rather than always needing to pay interest on a lump sum.

Regardless of which route you take for your financing needs, it’s advisable that you get an accountant to help manage your money from here on out. Not only will an accountant keep your finances accurate and secure, but they can also help you spot potential problems and find remedies before it’s too late.

8. Hire subcontractors.

Hiring subcontractors is a crucial part of running a successful general contractor business. As a general contractor, you'll often rely on subcontractors to complete specific parts of a project that require specialized skills. Here's how to go about it:

1. Identify your needs - First, determine which tasks or projects require subcontracting. This could be anything from electrical work and plumbing to roofing and flooring. Understand the scope of the project and the skills needed to complete it successfully.
2. Search for subcontractors - Once you've identified your needs, start looking for suitable subcontractors. You can leverage online construction networks, trade associations, or local business directories. Word-of-mouth referrals from other contractors, suppliers, or previous clients can also be helpful.
3. Evaluate potential subcontractors - After identifying potential subcontractors, assess their skills, experience, reliability, and reputation. Check their references, previous work, and online reviews. Also, ensure they hold the necessary licenses, insurances, and bonds.
4. Negotiate terms - Once you've chosen a subcontractor, negotiate the terms of the contract, including the scope of work, deadlines, payment terms, and responsibilities of each party. Be sure to put everything in writing to avoid future disputes.
5. Manage and communicate - Maintain regular communication with your subcontractors once the work begins. Clear, regular communication helps to ensure everyone is on the same page regarding project expectations and deadlines.

Remember, hiring the right subcontractors can greatly affect the quality of your work and your reputation as a general contractor. Take your time to select subcontractors who are experienced, reliable, and professional. After all, the success of your general contractor business depends heavily on the team you build.

9. Seek out a trusted mentor.

Every entrepreneur can benefit from the guidance of a mentor, but it’s especially helpful for those in the construction industry. Whether this guru is actively working or has retired, it’ll be essential to draw from the experiences and problem-solving abilities of someone who has already built a business from the ground up.

If you have a difficult time finding a potential mentor, don’t be afraid to venture outside of your immediate sphere of contacts. Start by checking out the free resources available from your local SCORE chapter or SBA Small Business Development Center.

It won’t matter if your mentor is a close friend or a stranger. The important thing is that you’ll have a support system and sounding board in place. The construction industry can be a rocky road, so stay close to those who know how to best navigate it.

You can also make powerful relationships by joining an industry association. Two great choices are Associated General Contractors and Associated Builders and Contractors. Use these networking opportunities to get answers to your questions big and small.

10. Deploy effective marketing strategies.

In today's competitive business environment, marketing your general contractor business effectively is more important than ever. A well-structured marketing strategy can help increase your visibility, attract new clients, and ultimately grow your business. Here's how you can go about it:

1. Establish a strong online presence - In the digital age, an online presence is vital. Start by creating a professional website showcasing your services, past projects, client testimonials, and contact information. Maintain an active presence on relevant social media platforms where you can engage with potential clients and share updates about your work.
2. SEO and local listings - Optimize your website for search engines (SEO) to make it easier for potential clients to find you. List your business on local directories and Google My Business, ensuring your contact information is accurate and consistent across all platforms.
3. Network - Attend industry events, join local business networks, and build relationships with other professionals in your field. Networking can often lead to referrals and new business opportunities.

Remember, marketing is an ongoing process, not a one-time event. Keep testing different strategies, track your results, and continuously adjust your marketing plan based on what’s working for your general contractor business. The key to effective marketing is consistent, authentic engagement with your audience.

11. Learn how to bid on construction jobs.

Estimating and bidding on construction jobs are essential skills for running a successful general contracting business. These processes allow you to competitively price your services, win contracts, and ensure your projects are profitable. Here's a brief walkthrough:

1. Understand the project scope - Before you can create an accurate estimate, you need to fully comprehend the project's requirements. This involves understanding the client's needs, reviewing blueprints, and identifying needed materials, labor, and equipment.
2. Calculate costs - Next, calculate your direct costs, such as labor, materials, and equipment rentals. Don't forget to also factor in indirect costs like overhead, permits, and insurance.
3. Add your profit margin - Once you've calculated the total costs, add in your desired profit margin. This will be the basis for your bid.
4. Prepare a bid - Your bid should be detailed, professional, and accurate. Be sure to include a breakdown of costs and a timeline for the project.
5. Submit your bid - Once you're happy with your bid, submit it to the client. Be prepared to negotiate and answer any questions the client may have about your bid.

Bidding on projects can be complex, but with practice and the right approach, you can create effective bids that win you more business. For a deeper dive into this process, check out this Beginner's Guide to Bidding on Construction Jobs. It provides a comprehensive look at the bidding process, from understanding the project to submitting your bid.

12. Stay the course, but stay limber.

There’s no doubt that your business plan will be crucial in the coming months and years. But it should remain a working document—never treat it like it’s written in concrete. The future holds many exciting opportunities for your business, as well as unexpected difficulties. Your ability to adapt and refine will be essential to your success.

By working hard and leveraging your network, you can help your general contractor business thrive. Entrepreneurship takes courage, so even on the toughest of days, hold your head high. You’re not just building a business. You’re building a legacy.

Despite labor and supply chain issues, the U.S. construction market is booming. In fact, analysts predict North American construction output to grow 32% by 2030. 

Construction business owners can capitalize on these opportunities while navigating challenges by having a smart financing plan in place. Using a line of credit for construction businesses, contractors, and builders creates a financial safety net at all times.

What is a construction line of credit?

A business line of credit helps construction-related industries maintain ongoing access to capital. It’s similar to a credit card in that you have access to a credit line and only pay interest on the amount of money you borrow. Once you repay your balance, you can continually borrow from the line of credit for the rest of its term.

Having a line of credit comes with a lot of benefits for construction-related businesses. It helps companies manage cash flow during periods of large expenses, including insurance premiums, licenses and permits, raw materials, and payroll.

Secured vs. unsecured lines of credit.

Secured and unsecured lines of credit constitute two primary categories of construction lines of credit.

A secured line of credit involves collateral, such as equipment or real estate, which the lender can claim if the borrower defaults on the loan. This type of credit is typically larger, with lower interest rates due to the reduced risk for the lender.

An unsecured line of credit doesn't require collateral. However, they usually come with higher interest rates and require a strong credit history for approval, due to the higher risk posed to the lender. These options cater to different needs, and the choice between a secured or unsecured line of credit should be based on the borrower's financial situation and risk tolerance.

Line of credit options for startups.

While it's generally harder for young companies to qualify for financing, some lenders will offer a line of credit to businesses with a minimum time in business of at least six months if you meet the other eligibility criteria. Learn more about specific lines of credit available to startups here.

Benefits of a construction line of credit.

Some of the benefits of a business line of credit include:

• Flexibility - Businesses don't have to draw on the entire credit line if they don't need it, unlike a traditional loan where the full amount is typically disbursed at once.
• Easy access to funds - Borrowers can access funds quickly and easily when needed, without having to reapply for a loan every time.
• Better cash flow management - A line of credit can help businesses stay afloat during lean times or when facing unexpected expenses.
• Lower interest rates - Compared to other types of financing options, lines of credit often have lower interest rates, which can save businesses money in the long run.
• Increased purchasing power - With a line of credit, businesses have more purchasing power and can take advantage of discounts.

Line of credit for contractors.

Contractors are especially susceptible to cash flow issues, especially while waiting on customers to pay invoices on time and purchasing materials to start a new job. And when managing larger projects with employees or subcontractors, there’s even more capital required to cover payroll costs.

To stay liquid, a line of credit for contractors helps even out inconsistent income. A line of credit can also help you grow your business by funding the upfront costs of new projects as demand for your services grows.

How can you use a construction line of credit?

A construction company can use a line of credit for a number of different purposes, such as:

• Purchasing equipment - When old equipment breaks down or new projects demand more specific machinery, a line of credit can be used to purchase or lease needed equipment. This can help avoid project delays and lost productivity.
• Buying materials - Construction projects require a lot of raw materials upfront. A line of credit allows for these materials to be purchased and costs managed until clients make their payments.
• Managing payroll - During periods of heavy work, construction companies may need to employ more workers. A line of credit can be used to cover these additional payroll costs.
• Expansion - When a company is looking to expand its operations—either by taking on more projects or increasing its physical footprint—a construction line of credit can provide the necessary funds.
• Emergency expenses - In construction, unexpected costs are a given. Whether it's damage that needs repairing, cost overruns, or abrupt changes in project scope, a line of credit can cover these unexpected expenses.
• Marketing and advertising - To attract new clients and bid on larger projects, construction companies often need to invest in marketing and advertising. A line of credit can be used to finance these efforts.

Requirements for a construction line of credit.

Lenders consider three primary factors when evaluating a construction industry line of credit. Here’s what they’ll look for:

• Time in business - Currently, most lenders want borrowing companies to have been in business for at least six months.
• Revenue - Lenders vary but most will be looking for construction businesses that can show gross revenue of at least $50,000 per year.
• Credit score - Currently, lenders in the Lendio network require a personal credit score of at least 600.

Business loans vs. line of credit

In the construction industry, understanding the distinct differences between traditional business loans and a line of credit can help determine which financing option is best suited for your individual business needs.

How to apply for a line of credit for your construction business.

Applying for a line of credit is similar to applying for any other type of financing. You'll need to provide standard business and personal information, along with some additional details specific to your construction industry, such as:

• Copies of contracts or purchase orders from current projects.
• A list of equipment you own or lease.
• Estimated budgets for upcoming projects.
• Financial statements and tax returns for your business.

Conclusion

A line of credit is an essential tool for construction businesses looking to manage cash flow, take advantage of opportunities, and navigate challenges in the ever-growing industry. By understanding the different types of lines of credit available, how to qualify for one, and how to use it effectively, construction companies can ensure they have set themselves up for strong growth.

*The information in this blog is for informational purposes. It should not be used as legal, business, tax, or financial advice. The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (November 13, 2023). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.

If you’re looking for lower real estate costs and longer loan terms, an SBA 504 loan may be a good option. However, these loans are a bit different from other SBA loans. 

For one thing, the loan is a combination of two loans — a traditional lender covers a portion of the loan, and a Certified Development Company (CDC) covers the rest. Before applying, it’s a good idea to learn how 504 loans work and the pros and cons of taking one out. 

What is an SBA 504 loan?

The SBA’s 504 loan program provides long-term financing for real estate, equipment, and other fixed assets. These loans are partially funded by Certified Development Centers (CDC), certified through the SBA.

The maximum loan amount is $5 million, though there are exceptions for specific energy projects. In this case, a borrower can receive $5.5 million per project for up to three projects not exceeding $16.5 million.

What are 504 loans used for? 

SBA 504 loans are designed to promote business growth and job creation through the purchase of real estate or other long-term assets. They can be used to purchase the following long-term assets:

• Existing real estate or land
• New facilities
• Long-term equipment and machinery
• Updates to new or existing real estate
• The improvement of land, streets, utilities, and parking lots

However, a 504 loan cannot be used for speculative real estate investments, working capital, or inventory. 

How SBA 504 loans work.

To complete an SBA 504 loan, there will be three parties involved:

• A Certified Development Company (CDC) - SBA-certified companies that are authorized to issue 504 loans
• A third-party lender - A bank or credit union
• The borrower - The small business owner

The small business owner applies with a Certified Development Company. The CDC coordinates a two-part mortgage between the borrower, the SBA, and a third-party lender. Fifty percent of the loan will function as a conventional commercial mortgage through a lender such as a bank or credit union. A second mortgage backed by the SBA will cover up to 40% of the loan. The remaining 10% is contributed by the owner as a down payment.

Newer businesses, defined as a business that has been in operation for two years or less, must contribute a 15% down payment. If the loan will be used to purchase or build a limited or special-purpose property, you will also need a higher down payment. The SBA defines special purpose properties as those with a unique design that restricts its use for other purposes such as a bowling alley.

How to apply for an SBA 504 loan?

Applying for a 504 loan is a bit different since the loans are only available through CDCs. You’ll start by finding a CDC location in your area—more than 200 centers are located across the U.S.

Once you’ve found a CDC, you need to get prequalified to see what your business is eligible for. Getting prequalified won’t hurt your credit score, and the process is much less rigorous than the full application process.

Once you’re ready to submit a formal loan application, you can use the 504 Authorization File Library to see what documentation you need. It typically takes the SBA about a week to approve or deny your application, but it could take several months to close on the loan and receive the funds. 

Eligibility requirements for a 504 loan.

You must meet the following requirements to qualify for a 504 loan:

• Operate as a for-profit company 
• Do business in the United States or U.S. territories
• Have a net worth below $15 million
• Have an average net income below $5 million after taxes for the two years prior to your application
• Have hazard insurance on the property being financed

In addition, borrowers have to meet general eligibility standards set by the SBA.

Pros and cons to consider

When evaluating whether a 504 loan is the right choice for you, consider the following pros and cons.

Pros

• Low interest rates - Interest rates on the CDC portion of the loan are limited by the SBA, so they tend to be lower than what most lenders offer. And the interest rate is fixed, so it won’t change throughout the life of the loan. 
• Lengthy repayment terms - SBA 504 loans also come with generous repayment terms. If you purchase equipment, you’ll have a 10-year repayment term. But real estate comes with 10-, 20-, and 25-year repayment terms.
• Low down payment requirements - When you take out a 504 loan, you’re required to pay a 10% down payment which is lower than what most commercial lenders require.  

Cons

• Comes with a personal guarantee - The SBA requires a personal guarantee on all of its loans, including 504 loans. A personal guarantee means the lender has a right to pursue the owner for loan repayment if the business defaults on the loan. 
• Rigorous application process - The SBA is known for its extensive documentation requirements—it could take a couple of months to close on the loan and receive the funds.

Can a SBA 504 loan be used for a change of ownership?

A 504 loan may be used to finance the purchase of eligible, long-term, fixed assets as part of a business acquisition. The purchase of any ineligible assets must be financed through other means such as an SBA 7(a) loan.

SBA 504 loan alternatives

If you’re unsure whether a 504 loan is the best option for your business, there are other options you can consider. Here are a few SBA 504 loan alternatives:

• SBA 7(a) loans - An SBA 7(a) loan is another loan that’s backed by the SBA. These loans are typically used for working capital, equipment, and refinancing business debt. Loans are available for up to $5 million with repayment terms up to 25 years.  
• SBA Express loans - SBA Express loans are available for up to $500,000, and the rates may be slightly higher than other types of SBA loans. But the turnaround time is less than 36 hours, so it’s a good option for anyone looking for faster funding.

The bottom line.

If you want to purchase commercial property or other fixed assets for your business, you should consider an SBA 504 loan. These loans come with a 10% down payment, low rates, and longer repayment terms. 

But if you want to put some of the funds toward working capital needs or refinancing debt, you can look into a 7(a) loan instead. If you’re ready to get prequalified for an SBA loan, you can use Lendio to quickly compare loan offers from multiple lenders.

Have you heard of selling accounts receivable? Sometimes known as factoring, this type of financing is increasingly popular due to its speed and efficiency. If you’ve faced rejection from lenders in the past, you should devote a long look at accounts receivable financing.

What does it mean to sell accounts receivable?

Selling accounts receivable (aka factoring) is a financial strategy where a business sells its outstanding invoices or accounts receivable to a third-party company, referred to as a 'factor'. The factor pays the business a significant portion of the amount due up front, then proceeds to collect the full amount from the indebted customer. This method of cash flow management enables businesses to obtain immediate funds and mitigate risks associated with delayed payments or bad debts, thus improving their financial stability.

The distinct structure of accounts receivable financing makes it stand out from most other types of small business financing. In some ways, it has more in common with the sale of an asset than it does with a traditional loan. But the result is the same, as you’re provided with the cash needed to run your business.

Let's consider a real-life scenario as an example. Imagine you own a business, ABC Manufacturing, and you have an outstanding invoice of $50,000 from XYZ Retailer, which is due 90 days from now. However, you need the funds immediately for operational expenses.

Here, you can approach a factoring company and sell your invoice. The factoring company may offer to pay 80% of the invoice value (i.e., $40,000) upfront. After collecting the full amount from XYZ Retailer at the end of the 90 days, the factoring company will then pay you the remaining balance of $10,000, minus their fees.

So, while you receive less than the full invoice amount, you get access to immediate cash that allows smoother running of your operations.

Six benefits of selling accounts receivable.

Let's delve into the advantages of this financial approach by discussing the seven core benefits of selling accounts receivable. These advantages can help businesses navigate tight cash flow situations and maintain steady business operations.

1. It removes the burden from your shoulders.

Nobody likes to track down those who owe them money. With accounts receivable, a factoring company does all the dirty work for you. They’re experts at collecting money and can do it faster than you ever would!

2. Your credit score won’t be scrutinized.

When a factoring company is deciding whether or not to approve your request, they’ll focus on the financial health of the customers who owe you money (since that’s the key to them getting paid). The credit score of your own business might not even enter the picture. This means that you probably won’t have your credit pulled, which can help keep your score healthy.

3. You can actually build your credit score.

When you have a healthy cash flow, you’re better able to meet your financial obligations. This means more prompt payments to your suppliers, partners, and landlords. The ultimate result is a boost to your credit, which opens the door to more attainable and affordable financing in the future.

4. There’s no need to risk collateral.

The lower risk associated with accounts receivable financing also means that you won’t need to put up your personal belongings as collateral. This can be a huge deal, as other types of small business financing often require you to provide collateral—which increases your personal liability.

5. Money comes fast.

There are times when your business requires expedited funding, meaning the weeks-long approval processes of SBA loans simply won’t cut it. With accounts receivable financing, you can access your money in as little as 24 hours to boost your cash flow.

6. There’s no need to worry about repayment.

Speaking of financial obligations, accounts receivable financing is nice because it doesn’t add to your list of monthly payments. The factoring company is compensated through their work tracking down your unpaid invoices, so you don’t need to worry about paying them a dime.

How to find the right factoring company.

You’ll find a range of quality among factoring companies. Some factors to consider when evaluating a factoring company include:

• Receivables percentage - This is essentially the percentage of the invoice amount that the factoring company will pay you upfront. A higher percentage could mean more cash in hand, but note that this might also come with higher fees.
• Fees - Factoring companies might charge additional fees for their services. These can include processing fees, account setup fees, credit check fees, etc. Be sure to ask for a clear and detailed fee structure.
• Customer service - The quality of customer service is crucial in this business. You'll want to work with a factoring company with a reputation for being responsive, transparent, and easy to work with. Read reviews and consider asking for references from current clients.
• Add-on services - Some factoring companies offer additional services such as credit insurance, online account access, and collection services. These can be beneficial but might also come with extra costs. Evaluate if these add-on services provide value to your specific business needs.

Types of accounts receivable financing.

As for which exact financing product is best, there are a few kinds of accounts receivable lending to consider. Let’s look at the key differences.

• Accounts receivable - This is one of the most common versions, also known as factoring. After selling your purchase orders and accounts receivables, you receive upfront cash and also a cut of the payments collected.
• Inventory financing - You can acquire a revolving line of credit for your business with this asset-based form of lending. Your inventory serves as collateral.
• Single invoice factoring - When short-term money is needed, you can advance the payment of a single invoice to increase your cash flow.

Which type of accounts receivable lending is right for you? That totally depends on your unique circumstances and strategies. Make sure to consider all the options and take the time to do your due diligence—then you’ll be in a position to make an informed decision that allows you to proceed with confidence.

Have you always dreamed of owning your own business, but don't want to start from scratch? One option is to buy an existing business. However, coming up with the funds to make such a purchase can be a major hurdle for many aspiring entrepreneurs. This is where a Small Business Administration (SBA) loan comes in handy.

In this blog post, we will discuss how to use an SBA loan to buy an existing business. Learn what an SBA loan is, why it's a great option for buying a business, and how to qualify and apply for one. Let's dive in.

What is an SBA loan?

First things first, let's define what an SBA loan is. The SBA offers various loan programs to help small businesses, including those looking to purchase existing businesses. These loans are partially guaranteed by the government, making it less risky for lenders to provide financing.

There are different types of SBA loans that can be used for buying a business, such as the 7(a) loan and the 504 loan. These loans have different eligibility requirements, interest rates, and terms, so it's important to research and understand which one is right for your specific situation.

SBA 7(a) loan

The SBA 7(a) loan is arguably the most popular SBA loan option, primarily due to its versatility. You can use it for a broad range of business purposes, including buying an existing business. The SBA guarantees up to 85% of loans under $150,000, and 75% of loans greater than $150,000. The maximum loan amount is $5 million, although the average loan size is typically much smaller. Interest rates on 7(a) loans are typically close to prime rates and are influenced by a variety of factors, including the length of the loan and whether the rate is fixed or variable.

SBA 504 loan

The SBA 504 loan is designed specifically for business expansion and major fixed-asset purchases, such as real estate or equipment. Unlike the 7(a) loan, the 504 loan involves a Certified Development Company (CDC)—a nonprofit corporation promoting economic development. Under the 504 loan program, a business owner will put down a minimum of 10%, a conventional lender (like a bank) will finance up to 50%, and the CDC will finance the remaining 40%. The maximum loan amount from the CDC is $5 million (or $5.5 million for manufacturing projects or those related to energy efficiency), making it an excellent choice if you're looking at purchasing a business with significant assets.

While the SBA 504 loan is an excellent resource for business expansion and asset acquisitions, it should be noted that it's not typically used for buying businesses in the traditional sense. The 504 loan program is primarily designed to aid in the purchase of tangible assets like real estate, buildings, and equipment, rather than for buying the entirety of an existing business. 

Hence, if your objective is to acquire an entire business, the SBA 7(a) loan is likely a more suitable option. However, every business acquisition is unique, so it's crucial to consult with a finance professional or a loan officer to determine the best financing solution for your specific situation.

Reasons to use an SBA loan to buy a business.

Now that we know what SBA loans are, let's explore why they're a great option for buying an existing business. Here are some of the top reasons to consider using an SBA loan:

• Lower down payment - Compared to traditional loans, SBA loans typically require a lower down payment, which can be as low as 10%. This makes it more accessible for buyers who may not have a large amount of cash on hand.
• Longer repayment terms - SBA loans also come with longer repayment terms, ranging from seven to 25 years, depending on the loan type and amount. This can help make your monthly payments more manageable.
• Lower interest rates - SBA loans often have lower interest rates compared to conventional loans. This can mean significant savings over the life of the loan.
• No collateral required - For loans less than $50,000, 7(a) loans do not require collateral, which can be a major advantage for buyers who may not have valuable assets to put up as security.
• Support and resources - The SBA provides support and resources to help small businesses succeed. By using an SBA loan, you can tap into this network of experts and resources to help your business thrive.

How to qualify for an SBA business acquisition loan.

Now that you know the benefits of using an SBA loan to buy a business, you may be wondering what it takes to qualify for one. While each individual lender may have their own specific requirements, here are some general factors that can impact your eligibility:

• Good personal and business credit score - Your credit score is an important factor that lenders consider when evaluating your loan application. A good credit score shows that you are responsible with managing your finances and are likely to make timely loan payments.
• Experience in the industry - Lenders want to see that you have experience and knowledge in the industry of the business you are looking to purchase. This can help assure them that you have a good understanding of how to run the business successfully.
• Strong business plan - A strong business plan is essential for any loan application, as it outlines your strategy and projections for the future of the business. The SBA also offers resources to help you create a solid business plan.
• Adequate cash flow - Lenders want to see that the business has enough cash flow to support loan payments. They will analyze the financials of the business and your personal finances to determine this.
• Down payment - As mentioned earlier, SBA loans require a down payment. Depending on the loan type and amount, this can range from 10% to 20%. Having enough money saved for this is crucial in qualifying for an SBA business acquisition loan.

How to apply for an SBA business acquisition loan.

If you meet the eligibility requirements and have found a business you want to purchase, the next step is to apply for an SBA loan. Here's a general overview of the steps involved:

1. Research lenders - Start by researching different lenders who offer SBA loans for business acquisitions. Consider their interest rates, terms, and reputation. A variety of lenders offer SBA loans, including traditional banks, credit unions, online lenders, and specialized SBA lenders.
2. Gather required documents - Most lenders will require similar documents, such as personal and business tax returns, financial statements, and a business plan. Make sure you have all the necessary paperwork ready before applying.
3. Fill out the loan application - Once you have selected a lender, fill out their loan application form. Be honest and accurate with your information.
4. Wait for approval - The approval process can take anywhere from several weeks to a few months. The lender will review your application and may ask for additional information or clarification.
5. Close the deal - Once you've been approved and have signed all the necessary documents, the funds will be disbursed, and you can officially become the new owner of the business!

Buying an existing business can be a smart move for aspiring entrepreneurs who want to skip the initial stages of starting a business from scratch. With an SBA loan, the dream of owning your own business may be more attainable than you think. Remember to do your research, work on improving your eligibility factors, and carefully compare lenders before applying for a loan.

*The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (Nov 10, 2023). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.

Being unable to make payments on a business loan is not a new phenomenon. Scores of hard-working business owners have found themselves in situations where they couldn’t fulfill their financial obligations. In some cases, they were late on payments. Other times, the payments were missed altogether. Some lenders are more tolerant of delinquency than others, but at a certain point, late and missed payments result in a default. 

Read to better understand how a default on a business loan typically plays out and how it could affect you.

Default vs delinquency: Understanding the difference.

Often, the terms ‘default’ and ‘delinquency’ are used interchangeably, but they represent two distinctly different stages of loan repayment trouble. Delinquency refers to missing a single scheduled payment. It’s a bit like stumbling, but you still have a chance to regain your balance. You usually have a grace period to make up the missed payment before the lender takes further action.

On the other hand, default is when multiple payments have been missed, typically over a period of 90 to 180 days. This is equivalent to falling flat on your face. At this stage, the lender assumes that the borrower is unable or unwilling to meet the loan obligations and may take legal action to recover the owed money.

So what happens if you default? That depends, as the consequences of business loan default vary depending on how you guaranteed the financing. Let’s look at three possibilities:

1. Unsecured loans 

This type of loan doesn’t require any type of collateral from the borrower in order to secure the funds (hence the name). Lenders are understandably reluctant to offer these loans as they involve higher risk. To compensate for this lack of collateral, unsecured loans usually have lower dollar amounts, higher interest rates, and shorter repayment terms.

Additionally, lenders usually require you to make a personal guarantee to receive an unsecured loan. While this isn’t technically collateral, there’s a similar impact if you default on an unsecured loan. The lender will come after your personal assets to recoup the money involved with the financing.

2. Secured loans 

While unsecured loans often need a personal guarantee, lenders take it to a more specific level with secured loans—you’ll be asked to provide collateral that meets or exceeds the value of the loan. Popular examples of collateral include homes, boats, vehicles, real estate, inventory, machinery, and accounts receivables.

In the case of a default, some lenders may be willing to work with you to find a solution. But if you’re ultimately unable to meet your payment obligations, the promised collateral will become the property of the lender. The lender will need to put time and effort into selling the asset before they actually get paid, which is why collateral must often be worth more than the actual value of the loan.

3. Secured SBA loans 

If you default on a SBA loan, your first interactions will be with the lender who funded the loan. They’ll begin the collection process outlined in the loan agreement, which usually includes the lender taking possession of any collateral attached to the loan.

At this point, the lender submits a claim to the SBA. Because the agency will have guaranteed a portion of your loan, they’ll pay the lender that amount.

The remaining debt is then transferred to the SBA. The agency will request payment from you to cover their expenses. If you’re financially able, you can resolve the situation immediately. You can also make an offer in compromise, where you explain any extenuating circumstances and request that the SBA let you settle the debt with a smaller payment than is officially required.

Assuming the SBA accepts your payment or offer, the case will be closed. When a resolution can’t be found, however, the agency submits your account to collections officials at the Treasury Department. This phase is where things can get serious, as the Treasury Department has the authority to garnish wages and take other actions to get the money they are owed.

Additional impacts of a business loan default.

The simple act of missing loan payments hurts your business credit score, so a default makes an even more substantial impact. Lenders will likely regard you as a higher risk in the future, leading to higher interest rates and shorter repayment terms on future financing.

Your personal credit score might also be affected, depending on how you set up your business. Some structures offer liability protection to owners. For example, a limited liability company (LLC) provides shelter from defaults. Sole proprietorships, on the other hand, leave the owner completely responsible for such failures.

While no small business owner ever applies for financing with the intent of defaulting, it’s wise to consider that possibility as you set up your business. Your strategy at the onset can potentially save a lot of headaches and financial losses down the road.

Avoiding default on a business loan: strategies to consider.

Avoiding a default on a business loan requires proactive planning, regular financial monitoring, and prudent business management. Here are some strategies you may want to consider:

1. Improve your cash flow - Financial health of a business largely depends upon its cash flow. Implement strategies to improve cash flow like prompt invoicing, offering discounts for quick payments, and managing inventory efficiently.
2. Regularly monitor your finances - Keep a close eye on your cash flow and financial forecasts. Regular monitoring will help you identify potential issues before they become serious problems.
3. Maintain good relations with your lender - Maintain open lines of communication with your lender. If you foresee any financial hiccups, inform your lender in advance. They may work with you to adjust the payment terms.
4. Consider loan refinancing - If your current loan repayments are becoming difficult to manage, loan refinancing might be an option. It could help you secure lower monthly payments, but be aware that this could mean you'll be paying more in total over a longer period of time.
5. Seek financial advice - If you're struggling to manage your business finances, seek advice from a financial advisor. They can assist you in reviewing your financial situation and suggest ways to manage your debts effectively.

Remember, business financial management requires consistent attention and action. By adopting these strategies, you can significantly reduce the risk of defaulting on your loan.

What to do after your loan goes into default.

If your business loan has already gone into default, don't panic. There are still steps you can take to mitigate the situation:

1. Communicate with your lender - Reach out to your lender immediately. Transparency about your financial situation can lead to a cooperative and understanding approach from the lender. They may provide options for loan restructuring or deferment.
2. Consult a financial advisor - This is a critical step. A financial advisor can guide you on how to navigate this predicament. They may suggest ways to consolidate your debt or advise on possible legal implications.
3. Evaluate your financial situation - Take a hard look at your finances with the goal of freeing up resources to repay your debt. Identify areas where you can cut costs and increase revenue. 
4. Consider selling assets - If you have assets that you don't need and can easily liquidate, consider selling them to pay off your debt.
5. Negotiate with the lender - If your financial situation is dire and there's no way you can pay back the loan in the near future, consider negotiating with the lender. They may agree to reduce the debt or modify the terms to fit your current ability to repay.
6. Explore legal options - If negotiations fail or aren't an option, you might want to explore legal options like bankruptcy. However, this should be your last resort, as it would severely impact your credit score and reputation. Always consult with a legal advisor before choosing this path.

Remember, defaulting on a loan is serious, but not the end of the world. There are always options available to get your business back on track.