Lending Library

As a small business owner, knowing how to raise capital for your business is crucial to its longevity. Whether you need money for operating expenses or are looking to expand, there are many reasons you might need access to additional capital. 

If you're a small business owner, here are some capital options you may want to consider. 

Bank Loans

Bank loans and alternative business loans are both common ways for companies to raise capital. In fact, many businesses utilize business loans even if they have plenty of cash. Either they want to keep a certain level of liquidity for potential opportunities or they want to be prepared for a possible financial emergency. 

There are a variety of business loans companies can use:

SBA Loans

SBA loans are loans disbursed by financial institutions, but are insured by the U.S. government. Because of this, they come with some of the lowest rates in the industry. There are a few different types of SBA loans—such as microloans, 7(a) loans, and 504 loans—and each has a unique purpose. If you’re looking for working capital, a 7(a) loan may be the one you need. 

Term Loans

Term loans may be what you think of when you think of a business loan. Term loans are deposited in one lump sum and monthly payments are made until the loan matures. The money can be used for a variety of purposes, but how much you can borrow will depend on your creditworthiness. 

Equipment Loans

Equipment loans are unique in that they are used specifically to purchase machinery.  

Business Cash Advances

Business cash advances provide lump sums of money that are repaid in daily or weekly installments as either a percentage of credit card sales or as a fixed amount withdrawn from the business’s bank account. 

Accounts Receivable Financing

With accounts receivable financing, unpaid invoices are sold to a third party who pays up to 80% of the invoice’s value. That company then works on collecting payment from the customer(s). Once the payment is received, any remaining amount is distributed back to the company minus any fees. Invoice financing is a smart way to obtain working capital that is necessary for future projects or orders. 

Business Lines of Credit

A business line of credit is very similar to a credit card in that it is a revolving account. As the principal is paid down, those funds once again become available. It differs from a business credit card in that the borrowing amounts are typically much higher and the interest rates are usually much lower. However, unlike credit cards, business lines of credit have draw periods where funds are available, but many lending institutions will offer the chance to renew the line of credit if there were no issues with repayment. 

Because there are so many options on the market, there are business loans to suit just about any small business regardless of their credit score, income, or asset situation. 

Equity Financing

Equity financing is when a company sells ownership shares in exchange for capital. While a percentage of future profits go to the new owners, the benefit is that the company does not have to take on debt. Sometimes business owners offer partnerships, too, as part of their equity offer. When they do, they may not necessarily be seeking only capital—they may also be seeking that person’s expertise and knowledge. 

Companies looking to sell company equity will want to work through venture capitalists or angel investors, but another option is to sell completely to a private equity firm. Private equity vs venture capital boils down to how much of your company you’re willing to sell.  

Depending on the size of your company, you may even consider going public and having an initial public offering; however, to have a successful IPO, your company will need to meet certain financial requirements and show strong growth potential.

Crowdfunding

There are a few different types of crowdfunding, and, yes, the premise behind each is similar to the categories mentioned above. However, crowdfunding should be thought of as its own thing, because of the potential to reach a much bigger market. 

As a business owner, you can do the following types of crowdfunding:

• Donation-based crowdfunding
• Rewards-based crowdfunding
• Equity-based crowdfunding
• Debt-based crowdfunding

Donation-based crowdfunding is often utilized by individuals and nonprofits, but small business owners can take advantage of it, too. The benefit to doing a donation-based campaign is that any money raised is not taxed by the IRS. Of course, it can be difficult to convince donors to contribute to your campaign if your business is not philanthropic by nature.

Unlike donation-based crowdfunding, rewards-based crowdfunding is taxable by the IRS because there is an exchange of goods or services for money. However, if done correctly, it can be a great way to raise money and market your business—especially if your business is partially or 100% online.      

Equity based crowdfunding is when you sell company equity through crowd-based platforms. While you are giving up a percentage of future profits, the benefit of equity based crowdfunding is that you can reach a wider market of investors than you could through traditional equity financing. Plus, you’ll still be the sole decision maker and likely won’t have to communicate one-on-one with any investors.

Debt-based crowdfunding is essentially P2P (peer to peer) lending. It can be a good alternative to traditional bank loans if you’ve had trouble getting a business loan in the past. The downside is that you will likely have less favorable loan terms and higher interest rates and fees. 

Grants

Grants are available to small business owners, but they are extremely competitive. Unlike loans, grants do not have to be repaid, nor does any equity have to be relinquished. 

Consider looking for grants offered by your local community or state first, as well as any corporate grants that may be specific to your area. Keep track of which grants renew and when. Just because you were denied once doesn’t mean you will be denied indefinitely. 

Friends and Family

If possible, consider seeking the financial support of friends and family. Many successful small businesses have gotten the jumpstart they needed from personal relationships. To successfully do this, disclose why you need the money, how you intend to use it, and when they can expect to be paid back. To put them more at ease, you may even want to have legal paperwork prepared. 

Final Thoughts

Many small businesses don’t simply rely on one method to raise capital. To fulfill your current and future capital needs, consider a combination of the options discussed above. 
Compare business loan options today at Lendio. 

Buying into an existing business as a partner can be an incredible opportunity for both the new partner and the existing business. In addition to capital, the new partner may bring knowledge and expertise currently lacking in the company. In many situations, both sides see a good return when the pairing is right.  

How do you become a business partner?

To become a business partner, you must purchase company equity. The aim is not to buy a business outright, only a portion or percentage of it. To do this, you'll either need to use cash, take out a business loan, or do a combination of the two. 

Once you’re a partner, any future profits will be shared with you as a new part-owner. How much you receive will depend on your ownership percentage.

Why do businesses look for new partners?

Businesses open to new partners sometimes prefer selling equity rather than taking on additional debt, because the money they receive from the new partner doesn’t have to be paid back. However, the partner will receive a return on their investment via a percentage of any profits.

Sometimes companies are not able to qualify for the loan they need, or maybe the current owners are looking for someone who has a particular skill set that might help their business grow. Another option is that one of the partners is looking for an exit. Before you buy out a partner. make sure you fully understand why he or she wants to be bought out.

What is a partnership agreement?

A partnership agreement is needed when a new partner buys equity in the business. It outlines how profits and losses will be shared, what responsibilities and duties each owner assumes, and the overall terms between all parties. It’s similar to a buy-sell agreement, but a buy-sell agreement only establishes when one owner can buy out another.  

When becoming a partner, it’s important to fully understand both the partnership agreement and the buy-sell agreement. 

Can you use a loan to become a business partner?

Yes, you can use a loan to purchase company equity and become a business partner. You'll likely need to secure the loan with a personal asset, such as real estate, stocks and bonds, or company assets from a business you already own. Depending on the loan amount and the value of your assets, you may have to collateralize multiple assets to secure the loan.

What types of loans can be used to purchase company equity?

There are many ways to purchase company equity. Common options include:

• Traditional bank loan - If you have a strong credit score, a traditional bank loan can be used to purchase a partnership. Unlike the SBA loan, you don’t have to currently be a small business owner. 
• Seller financing - Seller financing is when the seller offers the capital needed to buy them out of their business. Instead of loaning money in the traditional manner, the seller is paid through monthly payments. Loan terms vary, and are whatever both parties agree to. 

Final thoughts

When purchasing equity to become a business partner, it’s important to understand why the company is looking for a new partner and what their current financials are. Complete understanding of the partnership agreement is also necessary. If everything looks good, a business acquisition loan may bring in a great return on your investment.
Learn more about business acquisition loans today at Lendio.

Researching how to get a government loan to start a business? Or have you heard that government business loans have some of the best rates? Government business loans do come with competitive rates, and some of them can even be used to cover startup costs. In fact, a government business startup loan may be the capital solution you’ve been looking for. 

Learn the different types of government business startup loans, their pros and cons, and things you’ll want to consider when searching for the best loan product for your business.

How Do Government Loans Work?

A government loan works the same as any other type of loan. First, the borrower must meet the eligibility requirements in order to qualify for the loan. Some loans have more requirements than others—meaning the borrower might have to work and conduct business in a certain location or have been in business for a certain minimum amount of time. Once the application is submitted, an underwriter reviews the application to determine if the borrower qualifies.

Interest and Fees

All government loans charge interest and have fees. Interest rates are usually capped at a certain percentage. SBA loans, for example, have maximum interest rates lenders can charge borrowers, which is why they are some of the most sought-after business loans on the market. 

Collateral Requirements

Depending on the loan product, collateral may be required to secure the loan. If there are not enough assets within the business itself, lenders may require that the borrower sign a personal guarantee and pledge any of their personal assets. 

Most lenders will not accept assets that have already been collateralized for another loan (such as a house for a mortgage). Lenders that will accept those types of assets likely already have a working relationship with the borrower and will still charge higher interest. Typically, lenders do not like to be the second lender in line for collateral, because it means they will be less likely to recoup any losses if the borrower defaults on payments. When a borrower defaults on one loan, they are more likely to default on another. 

Repayment

Like other loans, government loans have set repayment periods and require monthly payments to keep the account current. The length of the repayment period varies with the loan product and can range from a few months to 25 years. The longer the repayment period, however, the more the borrower will pay in interest over time. 

Loan Funds

One last thing to consider is that many government loans have specific purposes the money must be used for. Some are intended for large asset purchases and construction costs, while others are to be used solely for working capital, which covers any expense that helps or enables a business to generate revenue).

What Are The Different Types Of Government Business Loans?

There are many types of government business loans. Some of the more popular ones include:

SBA Loans

The Small Business Administration (SBA) is a government agency created to help provide resources to support small business growth and development. There are a variety of SBA loans on the market that may help your business. Borrowers often prefer SBA loans because of the favorable interest rates and repayment periods. 

USDA Business Loans

The United States Department of Agriculture has a few different types of loan programs aimed at helping businesses in rural areas. For example, there is the Business and Industry (B&I) Loan and the Rural Energy for America (REAP) loan. B&I can be used for working capital, construction, and business acquisitions, while REAP is intended to help companies invest in renewable energy. 

Community Development Financial Institution (CFDI) Loans

CDFI loans are intended for both individuals and small businesses operating in economically distressed areas. They are generally given by nonprofits to borrowers who are unable to get loans through traditional lenders.  

Export-Import Bank Loans

Shortened to EXIM, export-import loans can be used for working capital, but can also be used to cover both exporting and importing costs for both raw materials and finished products. 

State and Local Government Loans

Local banks, credit unions, and government websites may offer loans for small businesses. Not all locations offer them, so borrowers will need to conduct some research to see if there are any opportunities in their area. 

Note: Business grants may also be an option. Just keep in mind that you will be competing with other business owners for the same money, and there will be stricter eligibility requirements you’ll have to meet to qualify. 

How Many Different Types Of SBA Loans Are There? 

The Small Business Administration offers a few different types of SBA loans business owners may want to consider. Each comes with its own terms, eligibility requirements, and loan amounts. 

• 7(a) loan - The most popular loan option for small businesses because the borrowed money can be used for a variety of purposes, such as working capital, refinancing, and purchasing necessary equipment 
• Microloan - For small capital needs up to $50,000 to help businesses get established or expand
• 504 loan - For businesses making large asset purchases, with loan amounts and repayment periods greater than those of other loan products 
• EIDL - Low-interest loans for businesses affected by COVID-19 and natural disasters 
• SBA Express - Offers loans up to $350,000 for approved borrowers, with an easier and faster application process compared to other SBA loans
• International trade loan - Intended for businesses that are expanding into foreign markets 

What Are The Pros And Cons Of SBA Loans?

Overall, despite their cons, SBA loans are the loan of choice for many business owners. In general, all loan products have drawbacks. The trick is finding a loan with the strongest benefit. 

Government business loans can help businesses cover startup costs and save money in interest. The key thing to consider is that the application and review process can take longer than a standard business loan, and the eligibility requirements may be more difficult to meet. However, if you are not in a financial emergency, the extra time may be well worth your while because of the money you’ll save. 

Learn more about SBA loans today with Lendio. 

In today's fast-paced business world, companies are always looking for ways to access capital quickly and efficiently. One option that has become increasingly popular is invoice financing. This lending method allows companies to use their outstanding invoices as collateral to secure a loan, providing them with the funds they need to cover operating expenses, payroll, and other costs associated with running a business. In this article, we'll take a closer look at how invoice financing works, its requirements, costs, pros and cons, and how it differs from invoice factoring.

What is invoice financing?

Invoice financing, also called accounts receivable financing, is a lending method in which a company uses its outstanding invoices as collateral to secure a loan. Normally, lenders require some sort of company asset to act as collateral. However, with invoice financing, unpaid invoices are the asset. This process is usually faster than other small business loans, both in terms of application and receipt of funds.

One thing businesses should keep in mind about invoice financing is that the full invoice amount is not given. While it depends on the lender, companies are typically only able to borrow up to 80% of their accounts receivables. 

Invoice financing requirements

To qualify for invoice financing, businesses need to meet a set of specific criteria. First and foremost, your business must have outstanding invoices from reputable clients, as these will act as your collateral. Generally, lenders prefer invoices due to be paid within 90 days.

Second, it's crucial that your business has a solid track record of successful transactions with its clients. High levels of disputes or returns can raise red flags for lenders. In other words, a history of strong customer relationships can make your business more attractive to lenders.

Third, many lenders also require a minimum monthly revenue of $10,000 to qualify, ensuring a steady cash flow and loan repayment capability.

Finally, industry preference is also another factor that lenders consider. Some sectors are more favorable to lenders due to the predictability of their cash flow and lower risk levels. However, this varies by lender and it's always best to check with your potential lender about their preferred industries.

Remember, each lender may have their own set of requirements, so be sure to do your research and understand the terms before you apply.

How invoice financing works.

Here's what to expect with invoice financing. Once approved, you'll receive a cash advance based on a percentage of the outstanding invoice (usually around 80%). You can use those funds for whatever operating expenses you need, such as payroll or inventory. When your customer pays the outstanding invoice, you pay the lender back along with the agreed-upon fee.

Invoice financing example

Let's explore a concrete example to better understand the process of invoice financing:

Imagine you own a small tech company, "Bright Future Tech," and you've recently completed a large project for one of your clients. The client is happy with the work, but they operate on a net 60 payment term. That means you won't see the payment for two months, but you have bills that need to be paid now.

Bright Future Tech has an outstanding invoice of $100,000 from the client. You approach a lender for invoice financing. The lender agrees to provide you with 80% of the outstanding invoice amount, which is $80,000. This cash advance helps you to manage your immediate operational costs.

After two months, when your client pays the invoice in full, you then repay the lender the $80,000 you received upfront, plus any fees associated with the loan. In the end, invoice financing has enabled your business to maintain a healthy cash flow, despite the lengthy payment terms of your clients.

Costs associated with invoice financing.

You do have to pay the invoice financing company for getting the advance. Instead of a factoring fee (as you'd pay with invoice factoring), you'll pay an ongoing percentage of the invoice amount until your customer pays.

For instance, your financing terms might have you pay 3% of the outstanding invoice every month. On a $10,000 invoice, that would be $300 per month. These costs can quickly add up if your customer is extremely late in paying.

Invoice financing pros and cons

Companies in need of working capital—or who need help financing a purchase order—may find their borrowing needs met with invoice financing. However, there are other loan products on the market that may be a better fit. When choosing an invoice financing lender, make sure to compare its rates and fees with its competitors to ensure you get the best one. 

Ready to get paid sooner? Apply for accounts receivable financing today with Lendio. 

While there’s no specific loan product called a “payroll loan” for small businesses, there are several business financing options available that can be used to cover payroll expenses. This allows you to keep your operations running smoothly, even if you're experiencing short-term cash flow issues.

Benefits of Payroll Financing

Covering payroll is one of the top four reasons business owners get a loan with Lendio. 

Getting funding for payroll takes the worry out of supporting your employees each month when your cash flow is inconsistent. It's usually short-term financing that helps you bridge the gap on your payroll expenses, whether you're a seasonal business or simply have a long accounts receivable timeline. 

There are a few different types of payroll financing. Some are better suited for certain types of businesses than others. So it's smart to explore each option and find the one that makes the most sense for your unique company.

There are several perks to getting a business loan through Lendio to cover payroll costs, including:

• Multiple options for different stages of business - Choose a financing structure with repayment terms that work for you. There are many options out there, whether you're a new business or already established. 
• Easy application process - Lendio’s 15-minute application process is quick and easy to complete.
• Quick funding times - Depending on the lender, you could get approved and funded in just a few business days (sometimes even less). No matter how unexpected your financing needs may be, you can solve the problem in very little time. 

4 Types of Financing For Covering Payroll

Here are common options to explore for payroll financing. 

Term Loans

A term loan provides you with a lump sum that you can use as working capital to support your company's payroll and even other expenses, if you choose. The interest rate and monthly payments are both fixed, making it easy to budget for.

Compared to other financing options, a term loan's interest rate can be much lower. Plus, the online application is typically fast, and you'll enjoy a quick funding time once approved.

How to Qualify

In order to apply for a term loan, your business must be at least six months-old. There's also typically a minimum personal credit score requirement that starts at 600, and your company's monthly revenue needs to be a minimum of $8,000.

Lenders will also want to see a strong financial track record that demonstrates your ability to repay the loan. If you're a well-established business with solid financials and credit, then you could have a good chance of getting approved for a term loan to cover payroll gaps.

Line of Credit

A business line of credit (LOC) is a great option for payroll financing because you draw funds from your LOC only as you need them. If your cash flow issues aren't consistent, a LOC acts as a convenient safety net.

And once you repay your balance, your available credit replenishes. You can borrow funds again the next time you need to cover payroll or other operating expenses. Plus, you only accrue interest on the drawn funds, instead of one large lump sum.  

How to Qualify

To qualify for a line of credit, the minimum time in business requirement starts at six months. Annual revenue must be at least $30,000, and the minimum credit score to apply is just 600.

You can opt to apply for two types of lines of credit: secured or unsecured. With a secured LOC, you offer some type of collateral. Because of this extra layer of security for the lender, you may qualify for lower rates and a larger credit line. An unsecured LOC, on the other hand, doesn't require you to risk any assets, but you'll likely pay more for the credit line and qualify for a smaller amount.

Cash Advance

A cash advance lets you borrow against your business' future revenue. It's an option that relies more on your business finances than your personal credit score. Plus, a cash advance comes with a quick funding time. 

The repayment process is unique, however, and can vary. In some cases, your lender automatically withdraws a fixed daily percentage from your bank account. In others the lender will withdraw a fixed dollar amount daily or weekly. In the case of a merchant cash advance, the lender requires a fixed daily percentage of your credit card receipts. The repayment process continues until the full borrowed amount—plus a factor rate charged by the lender—is paid in full. 

How to Qualify

In order to apply for a cash advance, you'll need between four and six months of bank statements or receivables. The application itself typically takes just 15 minutes. Although the cost may be higher than those of other payroll financing options, you likely don't need to provide any collateral. Eligibility is primarily based on your sales, along with a minimum credit score starting at 500 and time in business requirement starting at three months. 

Invoice Financing

Another option for covering payroll costs is invoice financing (also called accounts receivable financing). It's similar to a cash advance except that, instead of basing your funding on future sales, it's based on your business' unpaid invoices.

You can apply to borrow up to 80% of your outstanding receivables, which can include inventory and purchase orders, in addition to invoices. Once your invoices are paid, you repay the balance to the lender, plus a factor fee of around 3%. 

How to Qualify

Eligibility requirements center around your receivables rather than your credit score or other factors. Plus, you can qualify with a shorter time in business requirement of no minimum to one year.

Stop worrying about meeting your payroll each month by finding the right financing solution for your business. Learn more about small business loans through Lendio.

The information provided is accurate at the time of the initial publishing of the page (INSERT DATE). 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.

Financing real estate development can be costly and expensive. From clearing the land and grading it, to installing roads and necessary infrastructure, there are a variety of expenses involved that can be cost-prohibitive for both individuals and real estate developers. This is where a land development loan, or a real estate development loan, comes in. It provides the funds needed to get any piece of land ready for development. 

Dive into land development loans below and learn everything you need to know about them for your next project. 

What Kind Of Down Payment Is Required With A Land Development Loan? 

While lenders are willing to fund a land development project, they typically require a larger down payment, since the land does not have that much value. The value could increase once it’s developed, but buyers could default on payments before any significant value has been established. Because of this, lenders often require a down payment between 25% and 30%.

Can The Land Itself Act As Collateral For A Land Development Loan? 

The land can act as collateral to secure the land development loan, but there are two things to keep in mind that may prevent this from happening:

• The development loan is more than the purchase price of the land.
• The land is still serving as collateral for a land purchase loan. 

If the development loan is more than the current value of the land, then additional collateral may be needed. 

For the second scenario, the land will most likely not be able to be used as collateral because it’s already tied up with another loan. Sometimes lenders are willing to take the risk of securing a loan with an asset that has already been collateralized, but it’s not a guarantee. The reason is that, as the second lender, they would not have the first right to the asset if the borrower defaults on their loans. That's why many lenders are not willing to accept an asset that has already been used as collateral.  

Lenders that do accept collateralized assets typically already have an existing relationship with the borrower and have confidence in their ability to repay the loan. However, even with a positive history, they are still likely to charge a higher interest rate than they would otherwise.

What Are The Interest Rates For Land Development Loans?

The interest rate on property development loans will vary from borrower to borrower, depending on the loan amount, credit score, down payment amount, and collateral used to secure the loan. Overall, land development loan rates are higher than small business term loan rates because of the greater risk. 

Also, keep in mind that interest rates aren’t the only cost associated with a land development loan. Other costs include:

• Appraisal fees
• Loan origination fees
• Survey fees

Speak with a loan officer to get a better understanding of land development rates and commercial mortgage rates. 

How Long Is The Repayment Period For A Land Development Loan?

Repayment periods for land development loans are usually between 3 and 10 years, but exact lengths vary between lenders and borrowers.

Pros and Cons of Land Development Loans

How Much Does it Typically Cost to Develop Land?

There are many factors that impact the cost of developing land. Assuming the land has already been purchased, variables that influence how much it will cost to develop land include:

• Geographic location
• Size of property
• Location of property, which may require:
• Rock removal
• Tree removal
• Grading
• Permits needed, which may include:
• Zoning
• Building
• Environmental
• Infrastructure needed, which may include:
• Power lines
• Sewer lines
• Water lines
• Roads
• Sidewalks
• Internet

Depending on what needs to be done and where, land development can range from tens of thousands to millions of dollars. 

Are There Other Types of Construction Loans? 

There are several types of construction loans, some of which include mini perm loans, A&D loans, and interim construction loans. Here's what you need to know about these options.

• Mini perm loans - Typically has a three- to five-year loan term and is used to finance the construction or renovation of a commercial property, often requiring a balloon payment at the end of the term (although this can often be avoided through refinancing)
• A&D loans - Standing for acquisition and development, can be used for both the purchase of land and its development 
• Interim construction loans - Covers the costs of construction, with borrowed money coming in installments, and lenders typically only requiring interest-only payments during the actual construction process  

A land development loan helps cover the expenses related to getting undeveloped land ready for construction. Land clearing, grading, and installing infrastructure can all be very expensive, and a land development loan helps pay for those costs. However, there are other types of commercial real estate construction loans that may also work, too. Other options include mini perm loans, interim construction loans, and A&D loans. 

Learn more about commercial property loans today with Lendio. 

When most entrepreneurs need funding to start or grow their business, they quickly learn one key fact: They need a business plan.

Just as you need a resume to apply for a job or a completed application to gain admittance to a university, business plans are required to apply for business financing.

And like resumes and college applications, business plans are viewed as a necessary evil by most entrepreneurs.

Yet, this shouldn’t be the case. Because unlike completing your resume or college application, the process of completing your business plan has been proven to improve your success—not only in gaining funding, but when executing on your business.

Why Business Plans are Important for Securing Funding

Business plans are a critical part of most business loan requirements. Funding sources like lenders and investors often review written company materials before investing. In the public markets, they review annual reports and other financial filings to determine the health and prospects of a company and whether or not they should invest.

The same process holds true when assessing private companies like yours. You need to present a business plan that paints the right picture of your business: one that gets investors and lenders excited to work with you. Here are some reasons to invest the time in creating an in-depth business plan. 

It Acts Like an Annual Report

Look at your business plan like a public company’s annual report. In an annual report, you’ll quickly notice that it’s much more of a marketing document than a research report. Annual reports include quality pictures and graphics, they highlight the company’s top accomplishments, and they paint a pretty picture of future prospects

You should also include market research on competitors. Instead of a massive data-dump, however,  paint a picture of your company's path to success in the future. 

It Sets Clear Milestones

The process of writing a business plan is a good exercise for internal stakeholders as well. It helps you formalize your company's goals and identify the steps you need in order to get there. Funding sources want to see that the business has a strategic plan for every anticipated stage of growth.

It Minimizes Risk

With milestones and a strategic vision in place, you'll have the focus of where to prioritize financial and human resources. You can identify potential issues based on those strategies and create backup plans before issues arise.

What to Include in a Business Plan for Funding

There are four primary components of a business plan: executive summary, the market analysis, financial details, and the funding request. Here's what to include in each section to maximize your chances of success.

Executive Summary

Start your business plan with an executive summary that provides a quick overview of the most important points from the rest of the business plan. It’s also a chance to introduce the company as a whole such as its mission statement, products and services and management team.

Market Analysis

Detail the target market need or pain: All great companies solve a real customer need or pain. Create a solution and understand both the size of your market and the future trajectory. Is it growing or shrinking? 

Detail both your direct and indirect competition. If there is a real customer need or pain, other companies must be trying to solve it already. In your plan, you must detail how they are solving the need currently. For example, when eBay first launched, it realized that the need for selling personal products was being met by yard or garage sales (indirect competition). This proved that there was a market need or pain.

While researching competitors for your business plan, explain what both their strengths and weaknesses are and pinpoint your strategy for differentiating your own company. 

Financial Information

Provide detailed information on how the company is currently performing and create a credible financial model. Creating a financial model that shows your company's sales skyrocketing could do more harm than good. Investors and lenders understand that all businesses have ups and downs and that all growth takes time.

In developing your financial model, think through the timing of your growth projections. How long will it take to hire and train the right employees? How long will it take to repeatedly get your marketing message in front of customers until they buy? These processes generally take longer than you initially think. And during this time, you are often incurring expenses and generating less revenue than projected, which could result in a cash flow crunch.

Be careful to consider slower growth scenarios so you don’t run out of cash.

Funding Request

There are a few key sections to include in your requests for funding.

First, clearly state how much total funding you need, as well as the timeframe over which the funds will be used. Instead of grabbing a random number, give a detailed explanation of why and how the funds will be used. 

Also, outline any specific terms and conditions you need. Are you looking for an installment loan, line of credit, or another type of funding structure? All of these details should be answered as part of the funding request.

Finally, provide information on any loans you already have and what your expected repayment plan for the existing loan and the new loan would look like.

The right business plan will get investors and lenders excited to write you a check that allows you to dramatically grow your company. And the right plan will keep you and your team motivated and on track to achieve your long-term objectives. So, don’t treat your plan as a necessary evil. Rather, treat it as an investment that can give you a significant ROI.

When financing major equipment for your small business, many lenders may require you to purchase a specific type of insurance that protects the value of your purchase. It's called equipment breakdown coverage and helps you pay for repairs caused by covered events. Here's what you need about this type of insurance and why it's so important. 

What is equipment breakdown coverage?

Many businesses rely on equipment to keep operations running smoothly. Whether you run a restaurant with tons of kitchen appliances or a construction business with heavy equipment and machinery, it's important to keep everything up and running so you can keep your customers happy and your balance sheet healthy.

Equipment breakdown insurance covers repair costs when certain events occur. If your equipment is financed, your lender may require you to have a policy in place. Even if your equipment is paid in full, this coverage can still be useful. Note that this coverage is separate from your commercial property insurance, which covers only damage due to external factors such as fire or theft.

When a covered event occurs, you can file a claim to get paid to fix the equipment. There's usually a limit to how much each piece is covered for, and you may also have to pay a deductible before your coverage kicks in.

What does equipment breakdown coverage cover?

Here are common events that are covered in most equipment breakdown insurance policies. 

Covered incident repairs.

Your list of covered incidents will likely vary depending on the type of equipment insured. Damage caused by power surges, burnouts, or other mechanical breakdowns are typically covered. And you could also be covered for any related inventory damage because of the breakdown. For instance, if your restaurant's refrigerator stops working, you could be reimbursed for any food spoilage in addition to the actual repairs.

Temporary or rush repairs.

Working equipment is vital to the success of your business. That's why your policy should also include coverage for rush repairs and temporary fixes. You need to keep operations running, even if it costs more to get a contractor out there the same day. You'll minimize the financial impact of your equipment breakdown on your broader business. Check policy details to understand any restrictions surrounding rush repairs. 

Lost business income.

There are many requirements your claim must meet in order to be eligible for lost business income coverage. But it's an important component that's usually included in this type of insurance policy. 

The idea is to get reimbursed for any revenue you couldn't collect because of an equipment breakdown. There must be a direct and well-documented correlation between the loss of income and damage to your equipment. There may also be a minimum interruption period you must get through before your policy goes into effect.

Property damage liability.

Liability coverage is a must for any business and your equipment coverage insurance should have a property damage clause. This provides reimbursement for anyone else's property that is damaged related to the equipment breakdown. 

Mandatory inspections

Another benefit of equipment breakdown insurance is that your policy may cover mandatory inspections. The goal is to identify issues before they arise, ultimately saving you (and your insurance company) money.

What equipment breakdown insurance does NOT cover.

Not all issues are covered by an equipment breakdown insurance policy. Here's what won't be covered, so you can plan accordingly.

• Damage from everyday wear and tear - Breakdown due to age or lack of maintenance is not included in most policies. 
• Software or data - Software-related malfunctions, even if purchased with equipment financing or equipment leasing, are not included in your coverage. You'll need separate business insurance to cover cyber attacks and any other issues related to software.
• Repairs beyond coverage limit - Your policy will come with a limit to how much you can claim with each covered event. It's typically based on the value of the equipment (or a percentage of that value).
• Deductible or coinsurance - Your insurance policy may come with a deductible, co-insurance, or both. A deductible is the amount you're responsible for with each claim before your coverage kicks in. Some policies may also include coinsurance, which is a percentage of the repair costs that you're responsible for.

How to use equipment breakdown insurance with equipment financing.

Most lenders require that you get an equipment breakdown policy whenever you finance your equipment. It's a smart financial safety net that keeps your important assets covered so you can avoid setbacks to your business when issues arise. As you explore adding more equipment to your business, remember this added cost of insurance as well. Preparation is always the key to success.

Learn more about how equipment financing can help grow your business with Lendio.