Businesses across the country were devastated by the Covid-19 pandemic and were in desperate need of working capital to stay afloat. The U.S. government offered a multitude of financial services to help businesses during these challenging times, one of which was an EIDL, or a Covid-19 Economic Injury Disaster Loan.
EIDL loans, funded by the U.S. Small Business Administration (“SBA”) were intended to help small businesses recover from the hardships of the pandemic. They were intended to be used by small businesses to cover operating expenses and were made appealing to them with accessible and borrower-friendly terms. The EIDL program offered two funding options: loans or advances.
EIDL loans were low-interest, long-term, fixed-rate loans. The interest rate was 3.75% per annum for businesses, and 2.75% per annum for nonprofits, both with a 30-year term, with payments deferred for the first two years.
The maximum EIDL loan amount was $2 million, and collateral was required for loans over $25,000, as was a personal guaranty (“PG”) for loans over $200,000. In addition to favorable terms, another benefit of EIDL loans was the relatively attainable requirements. For loans of under $500,000, the credit score requirement was 570. For over $500,000, it was 625.
Different than traditional small business loans, EIDL advances did not need to be repaid. In this respect, they were like grants. Because of these extremely favorable terms, EIDL advances were far more difficult to qualify for. They were reserved for businesses hit hardest by the pandemic and were for significantly less money than loans. To be eligible for an advance of up to $10,000, applicants had to be in a low-income community, have less than 300 employees and have experienced at least a 30% reduction in revenue during the pandemic. Additional advances of up to $5,000 were available to businesses with 50% revenue reductions with fewer than 10 employees.
Given the unprecedented degree of difficulty that all U.S. businesses were facing in the early stages of the pandemic, many of them were eager to jump on the opportunity for an EIDL loan or advance. Through April 28, 2022, nearly four million EIDL loans were approved for over a whopping $378 billion! The EIDL advance program was robust as well, with about 600,000 advances funded for over $6 billion, and approximately 450,000 supplemental target advances for over an additional $2 billion.
Unfortunately, the SBA is no longer offering new EIDL loans as of January 1, 2022. The SBA also stopped evaluating increased requests and closed the online portal in May 2022. However, if you already received an EIDL loan and want records of documents, you may contact the SBA directly. So how else can a small business, still recovering from the pandemic and now faced with the problem of high inflation, get funding? The SBA still offers a suite of traditional loan options. These loan options have competitive terms but also drawbacks, such as a slow approval process. Traditional bank loans are also a consideration for many small businesses but can be inaccessible due to the strict credit requirements.
In contrast, alternative financing offers financing services with less strict requirements. It can also be funded in as little as 24 hours!
One financing service that can be a great fit for businesses is invoice factoring. With invoice factoring, a company like CapFlow Funding will buy the right to collect your outstanding invoice. They will pay you the value of the invoice upfront at a slight discount. With invoice factoring, you can get working capital without having to wait months before an invoice would typically be paid. Invoice factoring is also less expensive than other types of alternative funding like a merchant cash advance. It will not leave you in debt. The knowledgeable team at CapFlow Funding will work with your company to form an efficient and effective funding plan.
Oftentimes, a company that relies on collecting payments from their customers can benefit from access to liquid funds immediately after the invoice is issued. After all, they need the cash flow to cover payroll, operating expenses, and to get started on fulfilling the next round of orders. Fortunately, the invoice factoring process exists as a financial product to help your business run smoothly, despite outstanding invoices and their specific payment terms. With invoice factoring, an alternative financing company, such as CapFlow Funding, will purchase your company’s outstanding invoices and fund you the value of those invoices at a small discount.
In comparison to a traditional bank loan, alternative funding sources like invoice factoring are far more attainable, and generally come with a cheaper cost of capital.
The factoring company will collect invoices from your customers directly. A factoring company will also consider your customer’s financials, not your credit rating as a deciding factor. Furthermore, compared to other alternative financing sources such as a merchant cash advance, invoice factoring is a significantly cheaper option, and effectively provides working capital all the same. With invoice factoring, as opposed to a merchant cash advance, there is less risk for your business, as you do not need to rely on having consistent revenue to make debt payments on a daily or weekly debit. Instead, you are simply getting paid for your invoices sooner!
Knowing that invoice factoring is a great option for your company, let us take a look at how the process works, and how CapFlow Funding can form a strong partnership with your business through factoring.
Build a strong partnership with an alternative lender like CapFlow.
Invoice factoring with CapFlow Funding offers valuable flexibility for your company. All outstanding invoices are eligible for factoring. Provided that they are greater than $500.00, have payment terms that are less than 90 days, and are no older than 30 days upon receipt. Upon signing a contract with CapFlow Funding Group, submit the relevant invoices and supporting documentation. You will receive a large percentage of the total invoice amount submitted. This gives your business an immediate influx of funds without having to wait for your customers to send payment. You then have complete discretion over how to best use those funds to help your company grow.
The advance payment is typically around 80% of the invoice’s value. The remaining 20% will be returned once the invoice is paid off, minus fees. With CapFlow Funding, fees can be approximately 3%. This is significantly less than the factor rates for a merchant cash advance, which can range between 1.2 and 1.5.
Both sides benefit when your business thrives and grows. The account executives at CapFlow Funding will work with you to form the best partnership possible. With their wealth of experience and knowledge, they can offer guidance on various matters regarding your business. They can also customize your contract. For example, setting up an escrow account if it’s a good fit for your company. Invoice factoring is a great service to get your business working capital. Account executives at CapFlow Funding Group will prove to be great partners in making your company more capital efficient.
Due to COVID-19, many businesses faced an economic disruption and were forced to temporarily close. This put their employees’ paychecks in jeopardy. To provide support for these businesses and to ensure no disruption to employees’ paychecks, the U.S. Small Business Administration (SBA) began issuing Paycheck Protection Program (PPP) loans. The PPP loan aimed for small businesses to keep workers on payroll or rehire workers that were laid off due to COVID-19. Other PPP qualified expenses include electricity, gas, water, transportation, rent and more that are related to COVID-19 relief efforts. The PPP program ended on May 31, 2021. However, it is important to stay educated on what a PPP loan is. This can be beneficial in the event where another opportunity arises or for you to be aware of your other options.
The Paycheck Protection Program loan has been available for all businesses with 500 or fewer employees (with some exceptions to more employees). This included , but did not limit to nonprofits, self-employed individuals, independent contractors, sole proprietorships, food services and veteran organizations. Other eligibility terms provided by the SBA states that your business was operational before or starting on February 15, 2020, and that your business is currently open and operating again.
Understand the different benefits a PPP loan can provide.
Trying to get back on your feet during a global pandemic is extremely difficult. Taking out a loan can be discouraging and a scary decision to make. Fortunately, the PPP loan has benefits that many other loans do not. This makes it easier for you to get back on your feet. For example, the PPP interest rate is only 1% per year and you can apply for loan forgiveness within ten months from the end of your covered period. As long as you follow the specific guidelines on spending your PPP loan, you can achieve 100% loan forgiveness. PPP loans do not require any collateral and can give your business the support and capital it needs to continue growing strong.
Overall, a PPP loan can be a great option to keep your business moving. Staying on top of your finances is essential for a long-lasting successful business. If you find yourself disqualified from any of these terms or if you miss the deadlines, do not worry. You can explore support from alternative funding companies like CapFlow Funding Group, and still attain working capital. CapFlow Funding Group provides businesses an immediate influx of working capital. We offer companies the opportunity to bypass the wait of getting invoices paid. If you are experiencing a slow time due to COVID-19 or want to continue growing your business, this can be an advantageous for you. CapFlow has provided $1 billion in working capital to businesses and you can be part of that!
A small business loan is a loan that is partially guaranteed by the government and offered by banks and other lenders in partnership with the Small Business Adminstration (“SBA”). They are offered to small businesses to help with any working capital needs and can be used to help cover any expansion or startup costs. Traditionally, when small businesses were looking for financing, the first place they would turn to was to their bank. As more options have come about, bank loans now have a reputation for being difficult to qualify for and being slow to fund in comparison to other alternative financing options.
The application process for a small business loan from a bank can be a bit stressful and discouraging. The SBA minimum requires for a business loan to be defined as a “small business.” According to the SBA, a small business has fewer than 1,500 employees. Additionally, they must make no more than $38.5 million in annual revenue. You must also operate for profit, invest your own finances into the business before seeking assistance, have good credit, and do business in the United States. If you check all these boxes and any other requirements specific to the loan you are applying for, the process from approval to funding usually takes from thirty days to multiple months.
The small business loan application process tends to be extensive.
A 7a loan is the most common business loan the SBA offers. This loan will be used for working capital, purchasing real estate, refinancing existing business debt, and more. The maximum loan amount is $5 million, and most term loans are repaid with monthly payments. However, these loans require a whole checklist of items to submit in your application. Some of these items include a borrower information form, financial statements, a detailed list of any affiliates, a business license, loan application history, a business overview and more. Unfortunately, even after the lengthy application process, it is quite difficult to qualify and can typically take 60-90 days to be approved.
A 504 loan is a loan offered by the SBA and provides long-term, fixed rate financing for small businesses. Along with the minimum requirements mentioned above, your business must have a tangible net worth of less than $15 million and have less than a $5 million average net income after taxes. This loan is specifically given to promote jobs and growth. Therefore, it can be used to build new infrastructures or make improvements on existing ones.
A microloan provides up to $50,000 for small businesses and can be used for working capital, inventory, fixtures, and more. The maximum repayment term is six years and interest rates vary from 8-13%. Other than the SBA minimum requirements, eligibility varies by lender and all set terms are also decided by these lenders.
Determine which, if any, SBA loan is right for your business or explore other options.
If you are a small business in need of financing, but do not want to go through the lengthy, complicated process or are not eligible for a small business loan, you still have multiple options. You may apply for alternative finance which includes invoice factoring, merchant cash advance, purchase order financing, revenue-based financing, and more. These alternative options require minimal paperwork for an application. If approved, businesses can often get working capital within twenty-four hours. At CapFlow Funding, we work with you to ensure you receive the financing that is best for your company. Without having to wait months to get it.
Purchase order financing (“PO Funding”) can offer your business a solution to any shortage of working capital related to a specific customer order. This shortage can prevent your business from fulfilling orders and halt your production cycle. Purchase order financing is provided by an alternative financing company by facilitating the transition between a business’s suppliers and its customers. The process is simple. Upon receiving a purchase order (the “PO”) from a customer, the PO is sent to a supplier for a quote. The quote and PO are then sent to the financing company for approval and payment.
Once approved, capital is sent over by the company and the financing partner to the supplier to fulfil the order. Finally, once the order has been executed, the business provides the customer with an invoice which will be paid directly to the financing company. Afterwards, the company will send you the customer’s balance minus a small service fee, thus completing the transaction.
Building a strong relationship with your supplier is important. A good relationship with your supplier can boost operational efficiency and streamline the supply chain to maximize cash flow.
Getting your suppliers paid faster and on time can make or break your working relationship. If you qualify for 100% PO financing, the PO funding company will pay your supplier directly for the amount of the PO. However, if you qualify for a lower advance rate on your PO, you simply pay the supplier the difference between the PO amount and the amount funded by the PO finance company. Regardless of the advance rate, this will speed up the process of payment and the delivery of goods needed to satisfy the orders. The financing company achieves this by either paying cash upfront or using a letter of credit stating that once the order has been completed and shipped, payment will be made.
Pay your suppliers faster to fulfill more orders with purchase order financing.
Meeting customer demand may be challenging. Especially if you are in the beginning stages of your business, or have too many orders in your queue. Turning down even one order could impact your company’s growth and important business relationships. By financing your purchase orders, you can fulfill these demands. Then actualize more orders, quickly receive working capital, and improve your overall cash flow.
Unlike traditional business loans, obtaining funding from a financing company is a quick and straightforward process. Since purchase order financing is not a loan, your personal credit score is not a major consideration for approval. However, lenders do require a valid purchase order from a creditworthy customer. Additionally, they require an invoice from the supplier to be sent over for approval.
If you are approved, the lender will then discuss the amount and any rates, fees, or terms applicable to your funding with you. As an alternative financing company, CapFlow Funding Group can help you navigate what funding solution is best for your business. If you have any more questions regarding purchase order financing or other options, you may contact us here.
