Month: March 2020

What is contract financing?

As anyone in a business such as construction knows, getting a big contract can be a big step forward for your business.

Then you realize you need to pay for it. 

If you’ve ever found yourself in that or a similar situation, where you’ve got a big job to pay for but you won’t get paid until you reach the first milestone, or worse once the entire job is completed, then contract financing was designed for you.

Contract financing uses open contracts you have as collateral to approve you for funding. Those contracts also then determine the amount of funding you’re approved for. 

It’s similar to invoice factoring in that the advance is based on your customer’s creditworthiness, not yours. 

That’s because your lender is going to have to collect the amount from your customer, so they want to make sure they can be counted on to pay the contract. 

How contract financing works

We’ve covered the 30,000-foot view, but how exactly does contract financing work?

First, if you snag that big job and the customer wants confirmation that you can fund it (to ensure there are no delays), but you don’t have the cash, you can go straight to a lender and receive a letter of intent to fund which you can show them. 

Once you’ve signed up and been approved for contract financing with a lender, you receive a lump sum based on the size of the contract, often somewhere around 90% of the invoice itself, with the remaining 10% (minus fees) being released once the invoice is paid. 

Often, with such large jobs being split into milestones, these payouts happen for each milestone invoice.

For example, let’s say you sign a contract for a $200,000 construction deal with 4 milestones, each $50,000. 

Each $50,000 invoice would be sent to the financing company. First, they’d pay out 90% of that invoice, $45,000, immediately. Then, assuming the invoice is Net 30, once the finance company receives the invoice amount 30 days later, they send you the remaining 10% minus fees. 

This would then go on for each of the other 3 invoices until the job is complete. 

Now, let’s talk a bit about how fees work with contract financing.

Contract financing fees and rates

Factor fees, the fee typically associated with contract financing, typically range between 1.5 – 2.5%.

Using our example, if each invoice is $50,000 and your factor fee is 2%, you’d pay $1,000 in fees. So, for the total $200,000 job you’d pay $4,000 in factor fees.

Also, keep in mind that an additional fee might be charged in the event that your client doesn’t pay on time.

What businesses use contract financing?

If contract financing sounds like a useful funding method, but you’re not sure if it’s a fit for your business, use these points to help you decide.

Contract financing is a good fit for your business if:

• You have poor credit and likely wouldn’t be approved for a traditional bank loan
• Your customer does have good credit
• You have a signed open contract with a clear schedule of milestones mapped out
• Your business has a good financial track record and history showing you can get the job done in the allotted time. 

What kind of businesses does this make contract financing a good fit for? In particular, real estate development and other construction businesses are a good fit. Also, security, hardware/servers, and other various installation-oriented businesses are a good fit as well. 

How is contract financing different than invoice factoring?

If you’ve heard about invoice financing (also known as invoice factoring) before you might be wondering what the difference is between the two.

They have their similarities. However, where they differ primarily is this: 

• Invoice factoring: Uses open invoices / your accounts receivable.
• Contract financing: Uses open contracts for work that has not yet been completed. 

In general, a financing company that offers contract funding is far harder to find than invoice factoring. 

That’s because if the business does not fulfill its contract, the lender is not going to get paid, making this a risky investment for the financing company.

What do lenders look for when qualifying you for contract financing?

If contract financing sounds like it might be a good fit for you, you might be thinking about what the qualification requirements are.

Typically, lenders look at these elements to determine whether to approve your business for financing a contract: 

• Your customer’s credit: They’re the ones paying the invoice, so they need to know that your customer is reliable. 
• Your company: Do you have the resources necessary to complete the project and within the estimated block of time? The financing company will have their experts review your business’s profile to make sure. 
• How long you’ve been in business
• Financial documents: The financing company might consider your customer’s credit a primary qualifying factor, but that doesn’t mean they won’t also look at your financial health.

Keep in mind that these are all basic factors. Your financing company may consider other factors in their qualification methods. 

The best thing you can do to prepare is to review your own financial documents and make sure you’ve cleaned things up as much as possible.

Double-check the contract and make sure you estimated the time to completion correctly and that you have everything you need to complete the job.

Where do you get contract financing?

As contract financing isn’t technically a loan, it isn’t offered by banks. 

Instead, alternative lenders may offer contract financing (though not all do, for the reason we talked about earlier).

Before you apply for contract financing, make sure that it’s the right fit for you. 

Many alternative lending options now exist for businesses of all sizes and needs, from short-term lump sums of cash to business lines of credit you can tap into any time you need capital to pay for a contract. 

As you begin to scale your business, the sheer number of things that need to get done can seem overwhelming.

And while you don’t have to do everything yourself, even with a great team behind you, it can still become too much for you to handle.

That’s where smart automation comes in.

By automating your business in certain ways, you can take either repetitive or once difficult tasks or responsibilities and simplify everything so that it’s far easier to manage, often reducing the amount of work they take to complete on a consistent basis. Not to mention helping you combat competition. 

Is automation all about technology?

Keep in mind that automation doesn’t only have to do with tech-related improvements you can make.

In the list, below, we will mention some amazing additions or adjustments you can make related to modern tech that can be used as a tool for helping automate parts of your business.

However, there’s also a lot you can do that simply has to do with how you manage your team and work on a day-to-day basis.

Here are 5 ways to automate your business and get more done in less time and with less hassle. 

5 Ways to automate your business that will save you time and money

1. Streamline task management 

One of the easiest things you can do right off the bat is to streamline your task management and other similar systems such as communication.

Software like Slack can help centralize communication, reducing regurgitation so that everyone can get key messages from the same place (preferably, a second or third time after hearing about it in the meeting). 

And software like Asana can help organize your task management, doing things like: 

• Creating a visual board to track the progress of tasks
• Managing a calendar to chart the schedule of content, product updates, and anything else, and
• Giving employees a centralized place to manage their current tasks via their inbox. 

Plus, in a surprise twist (well, maybe not so much considering modern software), Slack and Asana integrate with one another, allowing the two to works seamlessly. 

In addition to this, you can organize appointments with something like Doodle, almost fully automating the process of scheduling out meetings throughout your week. 

And if you set up Google Calendar integration, those appointments get dropped straight into your calendar where you can view everything in one place. 

The amount of time and hassle you can cut down on just by using these few tools is immense, especially if you find yourself in several meetings a day or have a newly budding team that’s still communicating primarily through email or strictly verbally. 

2. Set clear policies and systems for your internal team– then outsource for expertise

When it comes to automation, systems are your friend. 

You don’t want to bog your team down with protocol, but by setting up clear policies and systems for your internal team to operate under, you take out a lot of the guesswork from their day-to-day work. 

Why is this so big? It not only saves you time by reducing the number of occasions where an employee has to get your attention to ask you how to handle a situation, it keeps them from losing their own flow throughout the day by you not being a bottleneck. 

The make these procedures ideal for your team, remain open to their input throughout the journey of establishing and testing these different systems out. Hear what they have to say and make adjustments to help them and you work better as a whole. 

Next, once you’ve done that, save time and maximize your results by outsourcing for expertise to freelancers and agencies on sites like Upwork. 

Your team is ideal for everyday work. However, when you need to run a big marketing campaign or something similar, it can be better to hire an outside expert as they’re likely better in their specific field than anyone on the team (of which employees tend to be more generalists) and are motivated to do a good job compared to a regular employee. 

3. Use AI and machine learning systems

Still somewhat vague and confusing terms, AI and machine learning, as they pertain to business, are quickly becoming invaluable for a number of reasons. 

In fact, you may already be utilizing some form of machine learning or AI without even realizing it. 

One major example is Google Cloud or Microsoft Azure, both being machine learning and automation platforms which are being updated regularly with new tools that give you the ability to do things like: 

• Turn data into the optimal ad spend campaign
• Or to optimize pricing based on customer behavior

With AI and machine learning, you can take data your business already has and use it to maximize what you’re already doing, maximizing results and making everything more efficient. 

4. Document everything

You know how they always say we shouldn’t forget our history, lest we repeat the same mistakes? The same can be said for your business.

By documenting everything, including what you did for a particular project or campaign, how much you spent and how, timeframes, results, and anything else important, you have something you can look back on to inform future decisions.

What does this have to do with automation? 

Decision-making is a critical part of any business, and it only becomes more important the larger the business becomes. 

Documenting everything in this way means you spend less time in decision-making later when the time comes to pull the trigger on a new project because you can use your historical data to inform the new decisions related to that project, essentially semi-automating your decision making. 

5. Create a lead generation system

The various collective tools of digital marketing, from ESPs like Mailchimp and ConvertKit to Facebook Ads,  have given businesses the ability to create a lead generation system like nothing that has ever been seen before. 

Where before businesses had to run advertising campaigns in newspapers, or billboards, and T.V. commercials that hopefully led to new leads, now it’s very different.

Now, you can create a campaign that is almost fully automated, from the sharing of new content to the running of ads, collecting emails, and email marketing.

Huge sections of modern marketing can be semi-automated, freeing you up for more specific marketing efforts as well as to optimize those campaigns over time (something that machine learning can help automate as well).

Look for ways to automate your business– the right way

Automation can never be 100%. After all, we’re not quite ready for robots to take over. 

However, many of the processes within your business can be automated, saving you huge chunks of time and money, including:

• Decision making
• Marketing campaign optimization
• Marketing campaign execution
• Communication
• Task management
• And even just daily internal goings-on

So, use these tips to help bring the power of automation to your business and watch how it helps you free up more time and energy for other things that deserve your attention, allowing your business to grow that much faster.

What is a high-risk business loan?

High risk business loans are small business loans offered to business owners with bad or inadequate (not enough) credit or considered to be operating in a high risk industry. 

Approval for traditional loans is based mostly on credit– often in the 720+ range– which in the past meant that if you didn’t have good credit, you were out of luck. 

With high-risk business loans, though, you can be approved for a loan on bad credit, often at a higher interest rate. Hence, the term ‘high-risk’ refers to the risk the lender takes on when approving a high-risk loan, not the borrower. 

What do lenders consider high risk?

So, what exactly is high risk?

We’ve touched on credit so far, but exactly what credit score is considered high risk? And what other factors make you high risk?

Factor 1: Credit score below 600

If your credit score is around 600 or lower, you’re considered high risk. Keep in mind that this includes several other credit factors as well, including:

• Too little credit history
• Marks on your credit report, including judgments, liens, and bankruptcy

Factor 2: In business less than 2 years

Virtually all banks require you to have been in business for at least 2 years to approve you for any kind of business loan. 

In fact, most require you to have been in business for 5 years. 

This is the simplest and most straightforward factor and it comes down to one thing: the lender wants to see that you’re an established business that will be here tomorrow, so to speak. 

Factor 3: You’re in a high-risk industry

Certain industries are considered more high risk compared to others. This could be because of regular volatility, seasonality, they way they’re paid, or because they’re taboo.

High-risk industries include:

• Auto sales
• Construction
• Trucking
• Cannabis
• Strip clubs
• Gun shops
• Home-based business

Keep in mind that this is a short list, there are many more industries that your lender may consider high-risk. 

If you have one or more of these factors, the best thing you can do is to review your business reports, such as profit and loss, as well as your credit report and try to clean things up as much as possible. 

Factor 4: You’re not showing profit

A final but equally important factor is showing profit or loss. If your business doesn’t show profit, or is operating at a net loss, lenders will be very wary of working with you.

The basic idea is this: if you’re not showing profit, how will you have the extra cash to pay off your loan? Lenders want to see a consistent history of net profit to ensure they’ll be able to recoup their investment. 

How can lenders approve high-risk businesses? 

A common question asked by business owners looking for and applying for a high-risk loan is: how can I be approved in the first place if my business is considered to the lender?

Lenders are in the business of lending money, but if they don’t get that money back, they’re out of business. So, why would they approve you if you’re considered high-risk? What’s the catch?

In the past, banks approved businesses based almost entirely on credit. If you didn’t have amazing credit, you were out of luck.

In some cases, loans have been offered at lower amounts and with higher interest rates in exchange for lower credit requirements. This is where the term “high-risk loan” originated. 

Yet, the restrictions placed on these loans have often been unfavorable for business owners in need of substantial capital to grow their business.

However, now there are many alternative lenders who will approve you for a loan that is comparable to a traditional bank loan in terms of approval amounts. 

And it comes down to the fact that they take more than credit into consideration when factoring their approval.

What other factors are those? Your business’s overall financial health, including:

• Cash flow
• Revenue
• Debt-service-coverage ratio
• Profit and loss
• And more data related to your business health

By taking all of these factors into consideration, alternative lenders are able to qualify you more effectively than simply taking your credit score and report into consideration. 

What about collateral? How do alternative lenders secure loans?

Most alternative high risk business loans don’t require the typical “hard” collateral you’re used to, such as property, vehicles, or cash. 

Instead, they secure the loan with your business revenue, in some cases purchasing a portion of your future business sales as a form of soft collateral.

This is beneficial because if, in the unfortunate case, you’re forced to close down your business, you won’t be on the hook to pay that amount back. 

So, there’s no risk of losing your personal property or cash savings if your business goes under. 

High-risk and alternative business loans options

If a traditional bank loan is out of your grasp, there are a few options you have in terms of obtaining financing.

Over the past decade, many alternative options have arisen to fill the hole left by banks with increasingly more rigged qualification requirements (even though the average credit score has gone down). 

Here are a few of your options:

Peer-to-peer lending

Lending through peers is about as old as money, but modern peer-to-peer lending takes that to another level. 

With P2P lending, you can apply for funding on a platform such as Prosper or Upstart and get a sum of capital which is comprised of a collection of smaller investors who believe your business is worth investing in.

Credit union

Credit unions have long been good alternatives to traditional bank loans because they tend to offer competitive rates and member discounts.

The only negative is you’ll need a local credit union and you’ll likely have to become a member of that credit union to apply for a loan.

Alternative lending

Alternative lending comprises many different options such as business lines of credit and unsecured business loans.

Alternative lenders such as Excel Capital offer these options to business owners who aren’t in a position to be approved for a traditional bank loan due to bad credit or no collateral and need an alternative to get the capital they need to grow their business.

What is Google My Business?

Google My Business is Google’s official tool that allows you to add your business to local Google search and Google maps listings.

Chances are, you’ve run across one such listing searching for something you’ve needed before.

Like this:

Through Google My Business, you can update your business hours, add your menu, photos and video of your location and products, and post status updates that offer useful information to those looking up your business on Google.

Below, we’re going to show you everything you need to know about setting up your Google My Business listing.

Table of Contents

1. What does Google My Business cost?
2. Create a Google My Business account
3. Verify your business
4. Update your GMB listing
5. Frequently asked questions

What does Google My Business cost?

First, let’s get an important and extremely common question out of the way: 

“GMB sounds great, but how much does it cost?” 

Good news: Google My Business is 100% free for business owners to create and update their business information to show in both Google search listings and maps. 

With that out of the way, let’s talk about how to create a GMB account. 

Create a Google My Business account

Creating a GMB account is pretty easy and straightforward. 

First, log into the Google account you’d like your business connected to. Then, head to the GMB home page at Google.com/business and click the “Manage now button:

Next, either enter your business name in the search box to pull up your listing if it already exists or click ‘Add you business to Google’:

(Google may have automatically created your listing if your business has been around for a while, in which case you’d use the search bar.)

If you clicked “Add your business to Google”, you’ll be prompted to enter your business name:

Then, choose which category your business best fits into. It’s important that this is accurate because it will affect what kinds of listings your business shows up in:

If you’d like to add a location/address your customers can visit, click “Yes”. If you’re a private business that doesn’t allow walk-ins, click “No”:

Next, enter your business address if you chose to enter a location:

Then, if your business offers some kind of service outside of its actual physical location (such as food deliveries), notate it:

Lastly, for your business information, enter your phone number and website URL:

Finally, click “Finish” to complete your listing:

Verify your business

The final step is to verify your business in some way. 

There are several ways to do this, but the most common is by having a postcard sent to your business that has a unique code which you’ll then enter into your GMB account:

Other verification options that are available in select locations and for select businesses include:

• By phone
• By email
• Instant verification
• And bulk verification (for businesses with 10+ locations)

To learn more, check out Google’s official information page on verifying your business with Google My Business here. 

If you don’t want or can’t verify your business right now, clicking the tiny dropdown arrow at the bottom right within “More options” will expand a “Skip” button you can press to skip verification for now. 

How to verify by mail

If you’re using the most common method for verifying your Google My Business listing, use these steps:

1. Enter your contact name
2. Click the “Mail” button on the “Choose a way to verify” screen
3. Check the mail for your postcard (Should arrive within 14 days, according to Google documentation)

Once you receive your postcard, follow these steps to enter the verification code:

1. Log back into GMB
2. Click “Verify location” from the GMB menu
3. In the field, enter the 5-digit code you received
4. Click “Submit”

If for whatever reason you believe you did not receive your postcard, you can request another by clicking here. 

Update your GMB listing

Now that your listing is complete, it’s time to make it look amazing. 

Once you’re logged into your Google My Business dashboard, click “Info” on the main menu:

From this screen, you can click the edit button to update all the information that shows up on your listing:

Once you’re done, your listing should look something like this:

Here are a few common areas you should update first:

• Basic business information: Such as online ordering platform, reservations options, and phone number
• Photos: Listings with photos get more clicks and requests, so make sure to upload as many photos you have of both the location, the food, and the menu. This includes your cover, which is the most important photo of your business as it shows here in your search listing:

Keep in mind that anyone can click “Suggest an edit” on your listing, so you’ll need to check back periodically to make sure your information is correct.

Google photo guidelines

Google has very specific suggestions in terms of what photos you should include of your business in your profile.

Here’s a quick summary:

• Exterior: Pictures of the outside of your business during different times. 
• Interior: Pictures of the interior of your business from different angles and at different times. 
• Product / Food and drink: Show off all your products! If you’re a restaurant, make sure you photograph your most popular menu items. 
• Employees: You should include shots of your employees at work, a shot of your staff/management, and any other image that displays your unique work culture. 
• Common areas / Rooms: Pictures of where your customers will visit within your business.

*Note: for every one of the above categories with the exception of products (1 image / product), Google recommends you include 3 images. 

Get your small business seen with Google My Business

Google My Business is easy to set up and offers huge potential returns, with your business instantly showing up in local searches by customers who are looking for exactly what you’re offering.

There’s some optimization to be done, and you need to check your listing regularly to make sure your information is correct. 

However, to say it’s worth it would be an understatement. If you have a local business, you need to have (and optimize) a Google My Business listing. 

Frequently asked questions