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What are the types of small business funding?

There are several different types of small business funding, from short-term and long-term options to others designed for recurring funding needs.

Here are 5 ways to fund your small business:

1. Business line of credit

A business line of credit is one of the most flexible types of business funding. 

That’s because, as opposed to a single lump sum, it gives you access to a pool of cash which you can tap into again and again provided you pay down your balance each time. 

Pros and cons:

• Pro: A business line of credit gives you a recurring pool of funds you can tap into whenever you need it.
• Con: Business lines of credit, due to their recurring nature, tend to have lower limits. 

Learn more about business lines of credit.

2. Term loans

A term loan is a single lump sum of money borrowed either on a short-term or long-term repayment term,

Short-term loans are often used as a quick method of obtaining a small amount needed for emergencies such as sudden expenses, payroll, or a rush order late in a busy season. 

Pros and cons:

• Pro: Good for a quick sum of cash needed for emergency expenses. 
• Con: They often have higher interest rates compared to other funding options. 

Learn more about term loans.

3. Merchant cash advance

With a merchant cash advance, you sell a portion of your future credit card sales to obtain a lump sum, which you then pay back through your daily credit card sales. 

These are particularly great if you do primarily credit card transactions on a daily basis as the amount you can borrow is based on that amount. 

Pros and cons:

• Pro: They’re a great way to obtain funding if you accept regular credit card sales but you don’t have the credit to be approved for a traditional lending option like a business loan. 
• Con: Rates tend to be higher than most funding options. 

Learn more about merchant cash advances.

4. SBA loan

Offered by lenders working in conjunction with the SBA or Small Business Administration, an SBA loan isn’t a single product but several different small business funding options. 

SBA loans are unique, however, in that a portion of the loan is guaranteed to the lender. That’s great for the lender, but how does that help you? 

Because a portion of each SBA loan is guaranteed, lenders are often able to offer SBA loans with reduced interest rates, passing a portion of that savings off to you. They’re also more likely to work with businesses that have bad credit, making approval easier. 

Pros and cons:

• Pro: Typically better rates and easier approval than traditional bank loans.
• Con: Paperwork tends to be more complicated as it must pass through a second party (the SBA), so approval can take considerably longer than other funding options. 

Learn more about SBA loans.

5. Invoice factoring

Similar to how a merchant cash advance works, with invoice factoring, you sell part or all of your accounts receivable in exchange for a sum of cash based on the total amount (often 95%).

This type of funding is useful for those who are wary of offering collateral, as the invoices themselves are used as collateral for the advance. 

Pros and cons:

• Pro: An alternative form of funding for business owners who don’t have great credit or accept regular credit card sales, and have a sizeable accounts receivable. 
• Con: The company which provides the advance takes over the collection of the invoices, which may not be preferable in terms of customer relations. 

Learn more about invoice factoring.

Complete our online application and see how much you can be approved for: Apply Now

Where can I get business funding?

Similar to the different ways you can fund your business, there are different places where you can get that funding. 

Here are the 6 main places to get funding for your small business: 

1. Banks

The traditional funding source, banks still make up a large portion of the small business funding market, even if many alternative avenues have begun to offer competitive or in some cases more favorable terms.

Banks have security on their side, with loans often insured by the FTC, but for newer businesses especially they’re notoriously hard to be approved for and approval is a lengthy process. 

2. Credit unions

Similar to banks, credit unions differ in two major ways: 

• You can get better rates at local credit unions
• You often must join or be a part of that credit union to obtain funding from it

If joining your local credit union isn’t a problem, it could be a good option as rates tend to be lower than traditional bank loans. 

3. The Small Business Administration (SBA)

The SBA, as mentioned earlier, offers several funding options through lenders. So, in most cases, you’re not really obtaining funding directly from the SBA but through an SBA-approved lender. 

However, the approval process can be quite difficult compared to other alternative funding methods, more comparable to a bank loan but without quite the same wait time. 

4. Crowdfunding

A popular way to fund most small business ventures over the past decade, crowdfunding feels new in terms of traditional lending methods, but we have a much longer history of crowdfunding and peer-to-peer funding than any type of formal business funding. 

Crowdfunding gives you the ability to acquire the money you need to launch a new business, product, or grow. However, historically it works only for one of a dozen or so industries including artistic pursuits, hand-made goods, games, books, and unique inventions among others. 

It can also take considerable work implementing a marketing campaign and there’s no guarantee that you’ll reach your funding goal. 

5. Grants

Grants are a lesser-known but useful option for funding your business. 

You need to qualify for a grant, and they’re not available to every type of business, be it an industry, size, or based on some other specification such as being a veteran or woman-owned business. 

However, if you do qualify, they’re a way of potentially obtaining funding for your business often entirely for free. 

6. Alternative lending

Alternative lending has exploded over the past decade as one of the most prominent forms of online business funding, often being the first or second place that small business owners look outside traditional bank loans (which many business owners don’t apply for, which credit score requirements often at 720 score or higher).

The two primary benefits of alternative lending options are:

• They don’t typically require good credit (even bad credit is acceptable for many options), and
• They don’t require any collateral

However, to offset the potential loss from approving businesses without perfect credit, rates tend to be higher for most alternative funding options.

Fund your small business with Excel Capital

You have more options than ever before to fund your small business ventures.

At Excel Capital, we offer several options for business owners who have bad credit or are lacking other elements that would typically deny them approval for a traditional loan.

Whether it’s:

• A business line of credit that offers you a flexible cushion during a slow season or the extra funds you need to stock product before a busy one
• A single lump sum to handle an emergency expense, or
• A merchant cash advance you can pay off on convenient terms that adjust as your sales rise and dip

We have an option that’s a perfect match for your financing needs. 

If approved, you can get exactly what you need to grow your business, make that key investment, or keep things moving along smoothly without skipping a beat. 

Learn how much you can be approved for:

Complete our online application and see how much you can be approved for: Apply Now

Frequently Asked Questions

Are you at a loss about how to market your small business online?

Have you looked through countless pages, read about a hundred different marketing strategies, and you feel no closer to know what you should actually do with your time and marketing budget?

You’re not alone.

The Internet is filled with marketing suggestions. “101 marketing ideas” this and “1,000 marketing ideas” that. 

They sound impressive, but the truth is, most of it is just noise.

(A lot of it outdated or just plan incorrect noise, by the way.)

No, you probably shouldn’t look at some obscure guerilla marketing tactic as a go-to marketing activity. And no, getting business cards isn’t marketing. 

Top 6 Ways to Market Your Small Business Online

It’s not surprising that the main challenge for most companies is simply getting enough eyeballs on their brand, according to a recent HubSpot survey:

Digital, or online, marketing is still pretty new, so most companies have yet to figure things out. 

And yet, you only have so much budget to allocate to marketing, so you need to figure out what works and it needs to be cost-effective (see challenge #3). 

That’s why we’ve organized this list of the top 6 ways to market your business online. 

These are the pillars of online marketing and where you should consider placing your time and money; everything else is just noise or novel marketing tactics that have a low chance of working or are only effective for a small number of industries.

Here are the top 6 ways to market your small business online. 

1. Create high-value SEO blog posts

According to Net Marketshare, Google is responsible for 94% of the entire Internet’s organic traffic. Think about that for a second. 

For most businesses, SEO is the foundation of their online traffic.

It’s no surprise, then, that 61% of marketers say that improving their SEO and growing their search traffic is their top priority.

Whether it’s through:

• High-value blog posts
• Useful and brief how-to or informational YouTube videos, or
• Sharable resources such as infographics

For most businesses the single most important investment is SEO.

2. Start a podcast 

Why is starting a podcast on an article about marketing? 

Because what most businesses still don’t realize is iTunes, and other podcast directories, are their own kind of search engine. 

Why does that matter?

Because according to Music Oomph, 32% of the U.S. population listens to podcasts monthly. 

And that number is growing– fast. 

Podcasts are popular, really popular, and they’re a great way for most businesses to connect with their ideal customer.

For example, take a method Gary V. often suggests: if you’re B2B, make an industry-relevant podcast marketed specifically at your customers that offers tips, news, and interviews experts in the space. Chances are, no one in your space is doing it and, over time, you’ll become the go-to expert in your industry.

But you can create that same kind of effect for most industries, even if you’re not B2B. 

If you sell a supplement or some kind of health food, start a podcast geared toward your ideal customer that interviews health experts. 

Your audience will be your target customer, whom you can then direct to your product or service in ad spots throughout your podcast, podcast description, various links, and through the general increase in brand awareness. 

3. Run a giveaway

Everyone loves a good giveaway. After all, with a minute of their time and for free– often just their email– they have a chance of getting something cool!

Since bursting onto the online marketing scene, giveaways have remained a powerful marketing strategy that virtually any brand can take advantage of one way or another. 

Like this example from Pajamas for Peace:

And the best part is, sites like Rafflecopter and RafflePress make it super easy to create giveaways online in a matter of minutes.

Just make sure your giveaway includes items that are relevant to your brand’s service or product (or even includes your product(s) like the example above). 

Too often companies run giveaways with iPads or something else impressive that has nothing to do with their brand, only to get a bazillion emails of people that really weren’t interested in their product and just wanted a free iPad. 

As a result, those new leads are low quality and the giveaway was a bust. Run a giveaway with something highly relevant to your brand and you’ll attract leads that are likely to be interested in what you have to offer. 

4. Scale online ads

Online advertising on platforms like Facebook, YouTube, and in Google searches is wildly popular among businesses, and for good reason.

Digital advertising is known for being extremely profitable when done right and a reliable way to attract a consistent flow of quality leads. 

The only problem with digital advertising, especially when considering that most of the items on this list require a very low investment, is that it’ll cost you. 

However, the good news is that even if you don’t have a massive ad budget, virtually all ad platforms offer starter coupons (often as high as $100) you can use to start generating leads right away with little or not investment of your own capital. 

That way, you can get a feel for how digital ads work, find out what converts for you, and start running a small campaign as you continue to test conversion rates and build up from there. 

5. Snag media attention with a unique product or 

This is probably the most unique point on this list, and not a surefire method, but it’s common enough and powerful, warranting it as a marketing effort every business should at least consider.

Getting your business featured by the media is a big deal, as a single good media plug can mean hundreds, or even thousands, of new customers for your company.

There are different ways to do this, from simply sending out a press release when you launch your product to sending out requests for segments on local news programs to using a service like HARO (Help A Reporter Out) to try and get yourself quoted in print and digital platforms.

Typically, this method works best when your product or service has some uniqueness to it. Is your product or service fresh or does it offer an interesting twist on something classic? Does your business operate in some new and interesting way, or do something odd? 

Anything out of the ordinary is cause for getting featured and typically the best route if you’re considering using this method.

6. Build an email list 

Email is still the undisputed king of digital advertising.

And it makes sense why. Social is powerful for businesses, but conversion rates are often low and it’s a better audience and lead nurturing platform than it is at attracting new leads and customers. 

For most of us, our social feed is crowded and we treat messages more as public announcements than anything.

However, email is a private, intimate message from one person to another. 

Email is a quasi-sacred space where you receive personal messages from colleagues, peers, family, and friends. If you can get into someone’s inbox, you’re in good company, and they’re much more likely to listen to what you’re selling. 

Sure, you need to get them on your email list first before you can market your products or services to them, which is why we included it at the end of this list. 

However, doing that is easier than ever with tools like Mailchimp and ConvertKit offering free plans to start with everything from opt-in form and landing page templates to advanced tag functionality to help qualify your leads with ease. 

Get out there and market!

Marketing your business online is easier than ever, though it can be really hard figuring out what exactly the best ways are for doing that.

There’s a ton of advice online about this and that tactic, but many strategies quickly become outdated or aren’t useful for all industries.

However, the points we covered today work for every industry across the board, almost all are low-investment, and evergreen. In other words, they’re not going away anytime soon. 

So, get out there and start marketing your business!

Frequently Asked Questions

How do you create a marketing strategy for a small business? 

There’s no one-size-fits-all method for crafting an effective marketing strategy. But here are some tips:

• Think about your goals: What do you want to accomplish? Your strategy should be designed around that. 
• Think about when you want to accomplish those goals: Some strategies are more long-term (see: SEO, email). If you have a Kickstarter coming up soon, you might rather focus on getting some traction on social and through the media. 
• Think about what works for your industry: Social isn’t great at attracting leads for every industry, so don’t feel obligated to include it there if it’s better reserved for lead nurturing. 

What is the best way to market a business?

It all depends on what you’re marketing. 

Typically, you want your marketing efforts to be evergreen. That means it’s not a one-time or fad method that you won’t be able to replicate.

It’s also best to think about how you’re building an audience, by offering a place where your current customers and fans can meet for all things related to your brand, such as your social accounts, regular emails, blog, or podcast. 

Any of these channels offer a recurring form of marketing that is much easier to maintain and can generate a recurring flow of leads with low investment compared to traditional advertising. 

What is Patriot software?

There is –a lot– of small business accounting software out there. 

Don’t take our word for it. 

Actually, scratch that. Take a look at these:

• Ultipro Payroll: Everything You Need to Know
• Quicken vs. QuickBooks: A “Quick” Comparison

Clearly, we’ve written a thing or two about accounting software in the past and there are some great ones. 

So, how do Patriot Software solutions stack up? 

Chances are you’ve heard about Patriot somewhere and you’re wondering if the software is comparable to other accounting tools like Quickbooks, Quicken, and Ultipro 

Patriot accounting software is a payroll and human resource management software that helps with various small business accounting tasks.

There’s a lot that it can do, including virtually all the basic accounting tasks you’d hope for in a small business accounting tool, but like all software, it has its cons as well.

So, for this official Patriot Software review, let’s start by digging into Patriot’s features first to see what it has to offer– and whether it’s right for your business. 

Patriot Software: Features

All the Patriot Software solutions taken together include virtually all the basic and somewhat more advanced features you’d want in a small business accounting tool.

Features include:

• Payroll reports
• Check printing
• Direct deposits
• State and federal tax management

The software also offers personal portals for employees wishing to see the status of upcoming deposits and print W2s among other things.

There isn’t currently any mobile app available, but the website is responsive on mobile and easy enough to use. 

Patriot, who offers several small business software solutions, also set up integration between their tools such as their Patriot TIME software which tracks employee time and Patriot HR for more comprehensive personnel tracking. 

However, keep in mind that each of those will add to the price, though Patriot still remains even then comparable to the other more “all-in-one” HR software solutions. 

And any decent accounting software is about much more than just their basic features, but that’s especially true for Patriot. 

So, let’s talk about the pros and cons of the software as a whole.

Patriot Software review: Pros and cons 

Patriot has several unique pros without many cons.

Here they are: 

Pro: Amazing support

One of the prime features of Patriot Software isn’t the software at all, but the support. 

Patriot is known for having stellar, industry-leading support. 

Not only does support respond promptly, Patriot, like several other competitors, but also makes experts available to you for support in setting up pretty much anything. 

This can be especially helpful if you’ve never done something like payroll before which often requires an accountant’s special knowledge to do right. 

Even if you’ve never used accounting software in your life, Patriot makes it easy to get everything set up by making experts available to you at every step of the way. 

Pro: They also offer help with setup

Beyond getting help from an expert, if you’re the kind of person who likes to do things themselves, Patriot has something for you as well.

They have an extensive, dedicated setup wizard. But the wizard isn’t tucked away, hidden in the menu or some obscure settings page. 

Rather, the wizard pops right out when you sign up and walks you through everything step-by-step. 

Pro: Has virtually every feature you could ever want

If you include their extensive list of add-ons through their other offerings, Patriot offers a wide range of small business accounting tools and features, pretty much everything you could ever want.

Payroll? Accounting? Direct deposits? Time tracking? All check, check, and check. 

With that said you’ll have to pay…

Con: Price can get high with add-ons

Patriot Software’s pricing is comparable to any accounting software. 

However, due mainly to the fact that they separate their Patriot software for accounting and Patriot software payroll solution into different products, once you add on everything extra you need– let’s say, payroll and time tracking with Patriot TIME– the price is no longer cheap. At least, compared to other solutions.

Con: Not for businesses with 100+ employees

One of the only major cons of Patriot is that it’s designed specifically for small businesses with <100 employees. 

If you have more than 100 employees, you’ll need to use something like Quickbooks, which is built for scale. 

However, for most small businesses, this is a complete non-issue. 

How much does Patriot Software cost?

Now to what is arguably the most important question of all: how much does Patriot Software payroll and accounting solutions cost?

The good news is, if you’re in need of one specific feature Patriot will be about the same price (possibly even cheaper) as other accounting solutions. 

The bad news is, as we mentioned earlier, features add up quickly.

Here’s a detailed breakdown:

• Patriot Accounting Basic: $15
• Patriot Accounting Premium: $22.50
• Patriot Basic Payroll: $10 
• Patriot Full-Service Payroll: $30

*+$4/Employee for all versions of Patriot Accounting/Payroll.

Add-ons exist for both time tracking and contractor/vendor management, the former being $5 / month and the latter $10.

Patriot accounting software alternatives

Patriot accounting software offers everything most small businesses need in accounting software. However, there are several other alternatives that offer unique features and/or competitive pricing.

They are: 

Quickbooks

QuickBooks is the single more feature-rich accounting software. If you need a rare set of features of just like a ton of the extra features it offers, it could be for you.

It’s ideal for businesses who are growing quickly and want something that fits them now while still be perfectly suited to grow with you. 

Check out QuickBooks.

Quicken

If an accounting software that’s simultaneously a great personal finance tool in one sounds good to you, Quicken may be the best option for you. 

However, it’s not as feature-rich as Patriot or Quickbooks and generally falls a bit behind them in terms of purely accounting features. 

Check out Quicken.

Ultipro

Our final option, Ultipro is another feature-rich accounting software, though this offers even more complex features that even Quickbooks can’t rich.

Having said that, Ultipro balances it out with a much higher price tag than your average accounting software. It’s also know for being somewhat difficult to use. 

So, if you’re a larger company that needs some high-level feature, it may be the right choice for you.

Check out Ultipro. 

What is the best payroll software?

There is no strictly “best” accounting software.

However, there may be one that’s a better fit for you than the others.

For one, most accounting software is of comparable price. Ultipro is one of the few examples of costlier accounting software. However, it’s because of their rich list of features. If you’re a larger company and you’re in need of some of the features they offer that most accounting software doesn’t, they’re likely a good fit for you.

If you don’t need any snazzy features and you’re a business of one (or a few), something like Freshbooks or Patriot might be the better option for you. 

And if you have a small or medium-sized team and simpler accounting software like Freshbooks no longer cuts it, Quickbooks may be the perfect fit. 

Patriot Software review summary: Is it good?

It’s true that the accounting software space is filled with great solutions (and others that are not so great).

Even so, Patriot stands as one of the premier accounting solutions for small businesses of less than 100 employees. 

If you’re in need of your first small business accounting software, or you’re not happy with your and are considering a switch, Patriot is a great option to check out that can serve pretty much all basic small business accounting needs. 

It can get a bit costly when you start throwing in add-ons, so be sure to shop around and compare price vs. features. But as a basic accounting or payroll software, it’s comparable to many of the best. 

And don’t forget to check out our other guides on small business accounting:

• Ultipro Payroll: Everything You Need to Know
• Quicken vs. QuickBooks: A “Quick” Comparison
• Top 5 Small Business Tax Software
• How to Create a Balance Sheet

Need new business cards? Check out this MOO business card review to learn whether this popular business card service is the right one for you. 

If you’re due for a new order of business cards, or are just starting a new business and are looking to get your very first, fresh set of cards to start representing you and your business, MOO business cards are one of the most well-known business card services available today. 

The business world might live largely online now, but your business card still serves as a useful tool you can use to represent yourself to those you meet and communicate with. 

MOO is known as one of the most stylish and modern business card services available, so if you’re in need of new business cards, read the MOO business card review below to get an idea if MOO printing, designs, and other options are a fit for what you’re looking for.

MOO business cards: Pros and cons

Here’s a 10,000-foot view of the pros and cons of MOO’s business card service:

Pros:

• Moo business card templates are some of the most stylish business card templates available online
• Alternate card designs free of charge
• Beautiful shipping construction
• Easy-to-use ordering interface
• Transparent pricing without annoying upsells

Cons

• Higher price compared to other business card services
• Few design options
• MOO printing isn’t the most reliable: Errors are reported by some customers

MOO’s business card service is one of the easiest to use as it boasts a simple and straightforward interface that lets you customize options and complete your order within just a few short pages. 

However, MOO printing can sometimes be unreliable. Customers sometimes report small printing errors such as uneven margins and their design options are limited. They’re also just a bit pricier compared to other business card services, though MOO printing quality is some of the best in the industry. 

If MOO’s business card service sounds like a fit for you, read on to learn what it’s like to order your business cards with MOO as well as details on pricing, ordering, and quality. 

Designing your card

When you start off designing your business cards, you’ll run through a few basic options with an easy one-click interface.

First, you’ll pick your size:

Then, choose your finish (customers report the Matte finish being super high quality. If you’re not sure what to pick, go with that):

Next, you’ll choose your quantity, which offers a convenient pricing overview both on a per-card and package basis (this might change based on what options you select later on down the process, but it’s a helpful ballpark): 

Once you pick your quantity, the summary section will populate automatically for you to review:

Provided everything looks good, select continue to move on to designing your card (don’t worry, anything you select on this screen can be changed later if you need).

Next, you’ll be sent to a page to pick your preferred design style. 

Keep in mind, you can choose to upload a design of your own if you prefer, but for this tutorial, we’ll be going with a MOO business card template from their own library as most will go that route (it’s far easier to execute, and MOO has some great, simple designs).

Choose your design, like this one, then select next:

Once you’ve selected your design, it’s time to input your information into your card. 

The interface is pretty straightforward: just click on a relevant section to edit it and edit any other option such as font or other type options in the dark grey menu above it: 

Once this is complete, you’re ready to move on to your final review and checkout. 

So, let’s get into MOO’s pricing and shipping options to see what our final total ends up being. 

Pricing

MOO’s pricing is higher than the average business card service, but they have one big pro when compared to a lot of other services like VistaPrint: they’re transparent and don’t bombard you with upsells.

It’s a part of the business card business model, so expect them with MOO as well, but you won’t feel like you’re being attacked as can often be the case with other business card service checkout processes. 

This is what the next page looks like, which offers a quick summary of our order so far:

We’ve selected to get 200 business cards as that’s a pretty standard order. However, you can order as few as 50 or 100 if you don’t quite need that many to drop the price down. 

Keep in mind that while MOO’s 50 business card order is $19.99, which would reduce this order total considerably, it’s still more than comparable services like GotPrint ($8.30 for 100 cards) and VistaPrint ($16.99 for 100 cards). 

Once you review your cart and hit checkout, you’ll select your shipping option:

Shipping prices are pretty standard, with Economy, Express, and Express AM options being available. 

How long does it take to get MOO business cards?

In this case, we were able to get Economy shipping, which added just $9.75 to our order and brought our total to $79.74 (same total as seen in the previous image, as that already had the basic shipping method calculated in). 

We received the order within the week, so the MOO printing and shipping process is relatively fast. 

Now, let’s finish by talking a bit about quality.

Quality

So, the order’s come in and it’s time to take a look! How’s the quality?

MOO business card orders come in some of the prettiest packaging that exists. You can tell MOO puts a great amount of care into thinking about the experience of opening your order. 

Our order looked great and matched what we had ordered online (as is often the case reported by customers).

However, many times customers have reported that their order was missing an element they originally included in their design or some design element was incorrect, such as an uneven outer margin.

Some customers report MOO offering a free reprint of their order to get it right, however, which is a big relief and largely fixes the hassle.

Is matte or glossy better for business cards?

MOO is known for its beautiful matte finish, with many customers reporting the finish being the highest quality in the industry.

On the other hand, MOO’s glossy coat is high quality, but highly reflective (even when not placed against a light source), which you may or may not like. 

For that reason, we’d suggest choosing MOO’s matte finish if you’re unsure of which to pick. 

Did this MOO business card review help?

Have a better idea of whether MOO business cards are a good fit for you now? 

Business cards might seem like a small detail, but those small details can make a big impression when you’re meeting a key business contact for the first time, so you should take some time to find not only a sharp design that communicates what you’re offering but a business card service you believe you can count on to deliver quality.

And check out some more of our helpful reviews to help get your business off the group:

• The Top 10 Absolute Best Ecommerce Platforms in 2020
• ClickFunnels Review: Is ClickFunnels right for your business?
• Top & Best Small Business Checking Accounts

Oren Fletcher, a 25 year-old car detailing business owner from Ontario, Canada was an up and coming entrepreneur. His car detailing shop, Fletcher’s Detailing, was the go-to spot in Cornwall, Ontario and showed no signs of slowing down. To keep up with the influx of customers, he decided to apply for merchant cash advance Canada to help with expanding the company.

Oren, as many young entrepreneurs do, started his company at his family home. He turned his mother’s two-car garage into a home-based business, but in recent months due to hundred of cars needing detailing, he needed to expand, hire a receptionist, train new employees, and purchase inventory. Although business was on the up and up, as fast as money was coming in, it was quickly going out to take care of overhead costs causing Oren to just break even at the end of each month. He needed working capital to put him ahead.

After seeing a news segment on TV about the growing popularity of the alternative lending industry in Canada, Oren decided to contact Excel Capital Management. After quickly learning about the alternative financing solutions offered at Excel, he sent over 4 months of recent bank and credit card processing statements to one of their funding specialists just to see what he qualified for. Within hours, Excel was able to offer a $150,000 Merchant Cash Advance. Oren quickly took the offer and was funded the very next day. Within weeks he was able to hire a contractor to start work on a new location, hire a receptionist, and train new employees on different car detailing techniques!

*All Case Studies are based on real businesses Excel Capital Management has funded. The names of our clients and their businesses have been changed to protect their privacy.*

Wondering how to do a 1031 exchange with real estate? Read on to find out more about what a 1031 exchange is, specific rules to keep in mind, and the different types of exchanges. 

In this guide, you’ll learn:

Table of Contents

• How to do a 1031 exchange
• 4 Types of 1031 exchanges
• What qualifies as a 1031 exchange
• And what qualifies as like-kind property

What Is a 1031 Exchange? 

A 1031 exchange, sometimes referred to as a “Like-kind” exchange, is a method of exchanging properties where you defer capital gains taxes on the sale of an investment property, so long as you purchase another like-kind property using the profit from the sale. 

The Benefits of a 1031 Exchange

Why might you want to use a 1031 exchange to sell your investment property? 

A 1031 exchange, originating from IRS Code Section 1031, gives you the ability to shift investment properties without incurring tax penalties, which has several additional benefits baked into that. 

Let’s say market prices are picking up, as they have been for some time now, and you’re worried about another potential bubble. 

Using the 1031 exchange system, you could shift your investment from your current properties to other more stable high-priced real estate to weather the increased risk until the market cools down. 

In that case, you’re not just avoiding tax penalties, the 1031 exchange system allowed you to potentially save big time by shifting your investment to more secure real estate, the same way that a stock investor might move some of their money from live stocks over to the S&P or back again.

How to Do a 1031 Exchange

First, how do you do a 1031 exchange? 

There are a few rules you need to follow to be able to take advantage of the 1031 exchange rule:

• The properties must only be real estate and not personal or intangible property
• Of a similar value, with the new property needing to have the same or larger value and loan amount than the original. 
• And must be like-kind 

We’ll explain more what like-kind is later, but for now, let’s talk about the different types of 1031 real estate exchanges. 

4 Types of 1031 Exchanges

There are several different kinds of 1031 or “like-kind” exchanges, the most common being:

• Construction (or improvement) exchange
• Simultaneous exchange
• Delayed exchange, and
• Reverse exchange

Below is a quick summary of each of these common types of like-kind exchanges: 

1. Construction or improvement exchange

A construction or improvement exchange gives you the ability to make improvements on the new replacement property using the equity from the sale/exchange.

Keep in mind that there are a few rules you need to follow to qualify for a construction exchange:

1. The entire equity from the exchange/sale must be spent on improvements OR as down payment by the 180th day of the sales process.
2. You, as the taxpayer, must receive “substantially the same property” which you identified by the 45th day of the process. 
3. The replacement property must be of equal or greater value when it is finally deeded back to the taxpayer, and these improvements must be completed before the title can be transferred back from the intermediary to the taxpayer. 

2. Simultaneous exchange

A simultaneous exchange means that both the original property sold and the replacement property close on the exact same day. 

This is a bit of a delicate one, as the exchange must happen to such exactness that even a delay in wiring funds can disqualify the transaction and immediately apply the tax dues.

There are several different ways a simultaneous exchange can be done, only one of these is required for the exchange to qualify as a simultaneous exchange:

1. Deed swap: You and the other party perform an exchange of deeds.
2. Third part exchange: A third party facilitates the simultaneous exchange.
3. Qualified intermediary: Another version sees an intermediary who oversees the exchange. 

3. Delayed exchange

In this type of exchange, the relinquishing of the original property you owned and the acquisition of the new property is “delayed”, hence the name.

In this type of exchange, you’re responsible for securing a buyer and executing the sale in its entirety. Once that’s done, hire a qualified intermediary to begin to initiate the sale and hold the proceeds from the sale in a trust until you acquire a new like-kind property. 

This is, by far, the most common type of 1031 exchange performed by investors. That’s likely because the window of time you get by using this kind of exchange gives investors a lot of flexibility that you don’t get from other types of exchanges. 

4. Reverse exchange

A reverse exchange, sometimes called a forward exchange, is essentially the opposite of the previous delayed exchange: you buy the replacement property first then sell the relinquished property after. 

To use this type of exchange, the purchase of the new property must be done with all cash. So, decide which of your properties is the one you’re going to relinquish (within 45 days) while that new property is “parked” until the exchange is complete.

Additionally, you have a 180-day period to sell the relinquished property, otherwise, the exchange is canceled and you’re responsible for the tax dues.

What Qualifies for a 1031 Exchange? 1031 Exchange Rules Explained

So, now that you know more about how a 1031 exchange works, how do you know what qualifies for a 1031 exchange so that you can take advantage of it?

Below are the 7 guidelines you have to follow to qualify for a 1031 exchange of any kind: 

1. Must be like-kind property
2. Has to be investment or business property
3. Must be greater or equal value
4. Can’t receive “Boot”
5. Must be same taxpayer (referring to the person who sells the relinquished property and the person who purchases the new property)
6. You have a 45-day window to identify the replacement property (except in the case of simultaneous exchanges)
7. And a 180 day purchase window 

Let’s break down each of these guidelines in a bit more detail: 

1. What qualifies as like-kind property

Arguably the most important guideline as it’s the one that requires the most explaining is the like-kind property rule. 

To qualify as a 1031 exchange, the property being purchased must be “like-kind” the relinquished property you’re selling. 

What that means is both properties must be “of the same nature or character, even if they differ in grade or quality,” according to the official IRS website. 

That means both properties must be used for the same purpose, which means virtually any two properties will qualify as like-kind as long as they’re commercial/business (no personal property).

This stretches pretty far, as even an office building and rental property qualify as like-kind property.

The replacement property can even be multiple properties, believe it or not. So, if the relinquished property is a rental building and the replacements are two commercial buildings, that also qualifies. 

2. Investment or business property: Can you use a 1031 exchange to purchase a primary residence?

We touched on this above, but a 1031 exchange only applies to investment or business property. 

According to the IRS, “Under the Tax Cuts and Jobs Act, Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property.”

In other words, you can’t use any 1031 exchange method for personal property. 

For example: 

• If you want to sell a personal residence for a property for a restaurant you’re launching, you can’t use a 1031 exchange
• Or, if you want to sell a rental property you own to purchase a personal residence, you can’t use a 1031 exchange

3. Must be greater or equal value

To qualify for 100% tax deference, the net market value of the property you’re purchasing must be of equal or greater value than the one you’re relinquishing for sale.

Keep in mind that this applies to both the value of the property as a whole and the mortgage. So, if you’re selling a property worth $1.2 million and the mortgage was $750,000, the value of the new replacement property must be at least $1.2 million and the mortgage $750,000 or higher. 

One important point to note here is that fees apply toward that valuation, such as inspection fees and broker fees, so make sure to include them in your calculation. 

4. Can’t receive “Boot”

“Boot” refers to the difference between the relinquished property you’re selling and the replacement property you’re buying. 

To be clear, a sale can still qualify as a 1031 exchange if the property is of lesser value (i.e. you’re receiving Boot). However, you’ll have to pay capital gains tax on that difference.

For example: If you sell a property for $500,000, but purchase a replacement property in exchange for $450,000, you would need to pay capital gains tax immediately on the $50,000.

5. Same taxpayer

To qualify for a 1031 exchange, the original property and the new one you’re purchasing must both be under the same name.

That means if you’re the one selling the property, your name must have been on the relinquished property as well as on the purchase of the new property, they can’t be two different people. 

6. 45-Day identification window

From the moment you close on the sale of your original property, you have a 45-day window to select 3 potential like-kind exchange candidate properties.

You don’t need to come to a decision yet. However within this relatively short window, you must have narrowed down to your top 3 candidates. 

This can be tricky because you ultimately must choose one of these three properties and can’t change your mind without incurring capital gains. 

How many properties can I identify with a 1031 exchange? (The 200% Rule exception)

There is, however, an exception to this. 

If you’re having trouble identifying your top 3 candidates, the “200% Rule” states that you can choose 4 or more candidates. However, that’s only so long as the total value of those properties does not exceed 200% of the property you sold.

7. 180-Day purchase window

Lastly, as part of the 1031 exchange process, you have a 180-day window to complete the entire exchange process.

You must complete the exchange in full from, identifying the exchange property and finalizing the purchase, by the end of the 180-day window. This window begins once the original property is sold or the due date of the income tax on the year it was sold, whichever comes first.

1031 Exchange: A useful tool for real estate investors

The 1031 exchange rule is a useful tool that real estate investors can use to gain additional flexibility when buying and selling property.

Whether you’re wanting to:

• Shift your investment to a developing area
• Your current investments aren’t working out
• Or any other reason

A 1031 exchange could be exactly what you need to improve your investment forecast, in addition to the tax deferment. 

There are several rules you must follow to take advantage of a 1031 exchange. However, most are relatively simple and easy to qualify for. 

So, if you plan to utilize the 1031 exchange rule, make sure to choose your new property wisely and plan the process well in advance. For instance, make sure the sale occurs before or at the same time as the income tax is due for that year. Otherwise, you’re narrowing your already tight 180-day window down further.

Keep in mind: this is a complex rule that has many intricacies. So, take the time to really study it in detail to make sure you’re taking all the right steps. 

And if you’re looking for funding for your next big deal, Excel Capital has helped thousands of business owners obtain the capital they need.

See what you can be approved for by clicking below:

Get the capital your business needs– fast. Apply for a small business loan with Excel Capital: Apply Now

Are you a business owner wondering how to stay ahead of constant changes in the SEO arena when you have enough to deal with running your business? SEMrush helped us improve our marketing with a collection of useful tracking and reporting tools. Learn more below. 

As someone without prior digital marketing experience, when I was just starting out marketing my business, SEO seemed like a very long uphill climb. Like Everest high. 

Add to that the fact that we’re in an extremely competitive space– business loans– which has an average competition score of .93. We had a lot of hurdles to cross to gain visibility.

Many of our competitors have been cranking out content for years, and a lot aren’t half bad at it. So, I knew looking at what they were doing would be the best place to start.

My only problem was… we had no idea how to do that or where to start. 

In came SEMrush to help.

SEMrush’s Domain Overview Search helped us get clarity about our competition

After doing a little digging around, I decided to give SEMrush a try after seeing it recommended so many times on various guides.

The first report I started using– and still the main one we use– was and is the Domain Overview Search report. 

We’re primarily a small business lender, so I started by pulling data comparing our biggest competitors in the small business lending space to find out what topics and keywords they were ranking for: 

Running the Organic Search Positions report on each of our biggest competitors helped identify other terms both big and small. 

That not only helped show us what terms we should be targeting but told us more about their own keyword strategy as a whole– what’s working for them and where they’re falling: 

We created pages for our major keywords early, but with little to no domain authority, we weren’t seeing much results.

However, what really worked well for us was targeting some of the less competitive keywords in our niche, terms we were able to identify and rank for with the Domain Overview Search report:

SEMrush’s Organic Research Tool told us what was working (and what wasn’t) 

Once we had a good collection of content up and we were working on our on-page and off-page SEO, we used the Organic Research Tool to regularly monitor our rankings: 

The report not only showed us how our rankings were improving day-by-day but both our visibility and changes in our traffic for each individual term. 

Another really useful tool we’ve used this report for is to pay attention to what SERP features we have. 

With snippets becoming such an important part of SEO, we’re constantly trying to snag new snippets for various terms– and this report helps tell us when we were successful. 

We also used the Position Changes report on a daily basis to see how rankings were fluctuating. The report is especially useful for finding out when a page is newly ranked:

Between these reports, we had pretty much all the information we needed to know what was working and what wasn’t and make changes accordingly.

And don’t forget to set up the Position Tracking Tool, which is useful for setting up automatic updates on your focus keywords to go out to you on a daily basis. 

It’s especially nice if you’re too busy to remember to check your reports daily, which is bound to happen especially for other business owners: 

And their Site Audit and Sensor Helped us stay on top of issues

Chances are if you’ve never done a site audit, your website has a ton of on-page and/or performance issues that are affecting your visibility and ranking. 

In addition to creating great content and monitoring how that content was doing, we used the Site Audit tool to help us take care of issues plaguing the site, which we were quickly able to minimize and keep down:

We then use the Sensor tool to keep on top of any potential Google updates in relation to our industry so we can know the moment an algorithm update might have gone live that could affect our rankings: 

Backlink Audit tool helped us avoid a major ranking hit

Another tool we’ve used to similar benefit is the Backlink Audit tool. It’s helped us identify toxic domains that are linking to us that could set off a red flag to Google.

When we notice a problematic link, we can easily handle it right then and there in the Audit tab within a matter of seconds: 

Earlier in the year, we had a big hit to the site caused by some bad links that affected our rankings that were acquired via a negative SEO attack on our site by what appeared to be one of our competitors.

At first, we weren’t sure what was causing it and were worried we’d just been hit by an algorithm update or something. 

However, with this tool, we were able to identify several bad links that had just been directed at us and disavow the links that were causing the issue, fixing it right then and there. 

One Year Later: Major results with SEMrush

Just over a year from the moment we started our big push, the site’s rankings have taken off thanks in part to the SEMrush tools we utilized and traffic is climbing at an accelerated pace.

This is what our charts look like from December of 2018 to December of 2019, one year later: 

And the number of keywords we rank for has exploded (and our number of top three and #4-10 place rankings): 

SEMrush’s slew of comprehensive reports and tools not only helped us create a plan of attack by running effective research on our competitors that informed our keyword strategy, but it also gave us the tools to monitor that growth on every level and remove– and avoid– issues that could potentially affect our ability to rank.

The end result has been big gains for us in a short window of time with a concrete impact on our bottom line (and continued growth even now). 

If you’re a business owner who doesn’t know much– if anything– about SEO, I can’t recommend the SEMrush tools more for crafting your keyword strategy, helping you rank, and making sure you stay there.

How to value a business: How much is your business worth?

Whether it’s to acquire funding via a small business loan or investors or sell the business, properly valuing your business is an important step that needs to be done right. 

The more accurately you can appraise the value of your business, the more funding you’ll be able to generate and the greater chance you’ll have of securing a buyer. 

A business valuation is the process of determining how much your business is worth. 

There are several specific methods that are typically used to calculate a business’s true worth, but these are the 3 main overarching valuation methods which all specific methods fit under: 

3 Methods to Value a Business:

1. Income-based: Calculates valued based primarily on income metrics such as revenue and profit. This includes the Discounted Cash Flow method which takes into consideration projected future cash flow value at present compared to risk as well as Capitalization of Earnings, which is a combination of revenue, profit, and cash flow projections.
2. Asset-based: Calculates value based on a business’s assets.
3. Market-based: Calculates value based on the sale of similar businesses within your same industry. 

It’s also important for entrepreneurs in the market to buy or invest in to be aware of how business valuations work, so they know how to properly value a business which they’re considering purchasing or making an investment in. 

No matter where you fall in the process, you should invest the necessary time to better understand how business valuations work. 

That’s why the purpose of this guide is to break down how business valuations work, methods for doing so, and tips to help make the process smoother for all parties involved. 

Table of contents

• Preparing to value your business
• 3 Primary methods for calculating the value of your business
• How to value your business example
• Tips to make the most of your business valuation

First, let’s talk about some important tips for preparing for your valuation:

Preparing to value your business

Before we dive into the major business valuation methods, there are some important steps you should take to prepare for your business valuation.

Appraising the value of your business is a big step no matter what point in the business growth timeline you’re at, so investing a bit of time to prepare beforehand can help make sure things go off without a hitch. 

Here are 4 things you should do before valuing your business:

1. Learn about business valuations

Since you’re reading this, you’re probably already at this step. 

However, it’s important to mention that because business valuations can be complex and are directly tied to the success and/or ultimate monetary value of your business, you should take some time to learn about business valuations. 

Learn about the different valuation methods, what type of business should use which method, why, and all the various details you should take into consideration when valuing the business. 

For example, two of the most important terms you should look into are Seller’s Discretionary Earnings (SDE) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).

SDE and EBITDA are both arguably the two most common types of business valuation methods (which fit into one of the major valuation method buckets we’ll talk about later), though they’re similar in nature. 

Both are essentially methods for calculating a business’s pure net profits, SDE generally being used for small businesses under $500,000 in value and EBITDA for businesses above that.

2. Research your industry

Business valuation methods take more into account than a business’s performance and well-being, they look at the industry as a whole as well. 

For that reason, take some time to research the industry the business is in– if you don’t already do that regularly– to understand its current state and direction.

Financial information for most public companies is easily enough found online and a great way to get an idea of the state of the industry. However, you can also search out potential business sales listings on sites like AngelList for any that might exist within the industry as another great resource. 

3. Get your finances in order

This one might sound like an obvious step in retrospect, but it’s often overlooked until it’s too late. 

If you’re the business owner, chances are, there are things you can do to measurably improve your company’s financial situation within a matter of a few months to a year. 

Take time to review critical reports such as your profit & loss and balance sheet to get an idea of where you can make improvements. 

Also, make sure you have certain financial documents in order which will be necessary for the valuation process:

• Profit & loss statement
• Tax filings
• Licenses and other proprietary documents
• Other basic business finance reports

We’ll go more into considering a professional appraiser later, but it’s important to mention at this point that a professional business appraiser will run a full financial audit of your company, so while they will cost you they’ll take care of this step entirely (and with accuracy you can count on). 

4. Review your assets

Similar to the previous point, you’ll also want to review your assets. 

This is important for all financial calculations, but most notably for asset-based valuation methods. 

Start by making a list of all your business assets (which essentially includes anything that adds value to your business), including both:

1. Tangible, and
2. Intangible assets

Within these two groups exist all kinds of different business assets, including:

Tangible assets:

• Physical assets such as property/real estate, your production machines, and delivery vehicles
• Inventory
• Cash
• Investments

Intangible assets:

• Intellectual property such as patents and trademarks
• Subscriber list
• Brand reputation

Similarly, don’t forget to take stock of all your liabilities, which can include:

• Business loans
• Accounts payable, and
• Expenses

3 Methods for valuing your business

Now that you’ve taken steps to prepare for your business valuation, whether you’ll be doing it yourself or hiring a professional, it’s time to break down the 3 overarching business valuation methods. 

Each method below calculates the value of your business differently. Some methods are used more often than others, however, each is useful to know as they all have a place depending on the industry and other factors. 

As a final note, if you’re doing the valuation yourself, work to make it as unbiased and accurate as possible. Inflating your numbers will only hurt you in the long run, from giving you an incorrect picture of your business health to turning away potential buyers. 

Also, resist the urge to mesh methods together. Each method’s calculation can be run separately, but attempting to mesh them together is bound to result in skewed results. 

These are the 3 approaches to business valuation: 

1. Income-driven method

The income method for business valuation uses metrics such as profit and revenue (typically, future projections of those metrics), as the basis for valuation.

There are 2 primary methods used within the income approach bucket:

Capitalization of earnings method

This method takes into account factors such as a business’s cash flow to calculate its future profitability. This method is best for established businesses with stable profit. 

Discounted cash flow method

This method, which calculates the value of a business based on its future cash flow projection, is ideal for new businesses with high growth potential.

2. Asset-driven method

Asset-driven methods use, as it sounds, a business’s assets to calculate its value. These are especially good for real estate and investment-based businesses. 

Again, there are several different methods within this approach as well, including the Adjusted Net Asset method, which adds up a business’s assets and subtracts its liabilities to find its value.

To use an asset-driven method, you need to have an idea of what monetary value you can place on your assets. If you’re not sure, instead of running a guesstimate, do some research to make sure those estimates are as accurate as possible. 

3. Market-driven method

The final business valuation method is the market-based approach.

This approach primarily takes into account the purchases of comparable businesses in your industry as a marker of its value. 

This can be a useful method if you’re looking for a quick ballpark estimate as if you know of another similar business in your industry that recently sold, chances are your business will sell for a similar value.

This method is especially useful if your industry is experiencing rapid growth (such as tech) as there are likely examples you can reference in your industry. 

Make sure to gather data on all comparable businesses and don’t just settle on the data from one. The more data you can provide to a potential seller, the more solid you’ll make your case for pricing your business at what you decide it to be. 

How to properly value your business: Example

While there are many different ways to calculate the value of a business, for the sake of the example, we’re going to use the most common method, the SDE method used often for businesses of <$500,000 in value, for our example. 

Adrianna owns a local family restaurant originally started by her parents when she was a child called Luiz’s Hot Spot. She’s interested in getting a valuation for the business so she can put the restaurant up for sale.

First, Adrianna starts by gathering the basic financial numbers we touched on above for the business:

• Annual SDE: $95,000
• Annual revenue: $475,000
• Assets:
  • Real estate: $175,000
  • Equipment and furnishings: $35,000
  • Inventory: $100,000
• Liabilities: $50,000

Next, Adrianna will use these numbers to calculate the average value for her business.

Calculating SDE

Using bizbuysell.com’s latest statistics, the restaurant industry as a whole has an average multiplier of 1.98. 

To roughly calculate the value of her business, then, Adrianna takes her $95,000 calculated SDE, found with this equation: 

Net earnings (before taxes) + Personal earnings + Non-essential expenses for the year (one-time, non-repeating expenses– doesn’t include COGS) – Liabilities = Your SDE

Then runs her SDE through this equation: Business’s SDE x Multiplier, using the multiplier of 1.98 to get her estimated business value:

$95,000 (SDE) x 1.98 (Multiplier) = $188,100 (Business value, rough estimate)

Keep in mind that this calculation, in particular liabilities and intangible assets, includes things we didn’t cover here such as future prospects, local economy projections, and other elements.

What other factors affect the value of Adrianna’s business?

In addition to the abovementioned factors, there are other factors that can affect the true value of Adrianna’s restaurant that aren’t included in this rough SDE estimate. 

There are a whole collection of additional elements that must be factored in to get an accurate value for the business, including: 

• How eligible is she for financing? 
• How loyal are her customers?
• When will key employees retire?
• Supplier relationships may change

Several factors influence the final number, including the fact that Luiz’s is a family-owned restaurant and a change in ownership will be specifically impactful to such a long-held local establishment. In addition, the trend away from individually owned restaurants, local business growth, and community response. 

Keep in mind that the above example is only a rough estimation and shouldn’t be used in exactness to run your own valuation. 

Rather, use it to get an idea of what a real business valuation might look like to help you prepare for your valuation. 

4 Tips to make the most of your business valuation

Preparing for and executing a business valuation is a big event. 

You not only want to make sure that you’re properly prepared, but that you do everything you can to make the most of the valuation throughout the process– and give yourself the greatest odds of success at acquiring funds or an eventual purchase. 

Here are some additional tips to help you make the most of your business evaluation.

1. Be realistic (and take emotion out of the equation)

One of the most common mistakes of business owners during the valuation process is to overprice their own business due to bias. 

As the owner, you know how much effort you’ve invested in growing your business. This enormous effort can skew your perception of the value of your business, making you overvalue your business. 

This is all the more reason why one of the accepted evaluation methods is so important, because it takes that emotional aspect out of the equation. 

2. Consider giving your marketing and public appearance a facelift

One of the simplest things you can do to improve your chance of selling the business, and at a desirable price, is to give your marketing and overall public appearance a facelift before putting it up for sale. 

The way the public views your business inevitably plays a big part in the process of acquiring a buyer as they will see your business first the way everyone else does.

Taking a bit of time to update your marketing campaigns, branding, advertising, even simple things that might be a bit out of date such as your business cards, signage outside your business, and your facility itself will go a long way toward securing a buyer. 

3. Get key employees on board

It’s common for key employees to stay in place after selling. After all, it’s easier for the buyer to keep an already well-oiled team in place rather than hire and train their own. 

For that reason, it’s important to make sure you can secure those key employees now and get them on board with the eventual sale and transition.

When you decide to reveal this information is up to you, perhaps you decide not to reveal anything until a prospective buyer is in place, but it’s something you’ll want to do sooner than later to reduce surprises. That way, you can communicate who from the team the buyer can count on staying when the transition occurs. 

Secure not only letters of intent from those key employees but also any vital vendors as well. The more you can guarantee your potential buyer that these key elements will remain in place, the more you’ll reassure them of the return on purchasing your business. 

4. Consider hiring a professional appraiser

At this point, it might be obvious that appraising your business yourself is risky at the very least.

Between the natural bias that business owners experience and tendency to overvalue when it’s their own business and the complexity of business evaluation methods, appraising the value of your business may be in better hands with a professional. 

A professional appraiser can be costly, up to several thousand dollars for a full appraisal, but they’ll run a full audit on your financials to make sure that your valuation is accurate. 

In addition to this, having a record of a professional valuation will give credibility to your valuation that is indisputable during negotiations.

A personal valuation is definitely faster and saves you money, but not only may that valuation be incorrect, a buyer is more likely to negotiate the price down without evidence of a professional appraisal.

It’s your business– get the most from it

Valuing your business is a big step in any entrepreneur’s career, whether it’s your first or fifth and your business is worth $200,000 or $2 million (or more). 

You not only want to make sure you’re properly valuing your business but that you make that valuation and sales process as smooth as possible and put yourself in a position to maximize your return from that sale or to acquire the maximum amount of funding for the business. 

Use the above tips to prepare for your valuation, consider which method might be best for you, apply the additional tips for making the most of the process, and consider hiring a professional appraiser. 

It’s your business. You worked hard to grow it into what it is today, so don’t skimp on the details. Get the most you possibly can from your time and hard work.

What is mezzanine debt financing? 

Mezzanine debt, also called mezzanine financing, is a type of financing that got its name due to the fact that it’s a debt-equity hybrid. 

Mezzanine financing gives the lender the ability to convert to an equity interest in the company in the case of a default, which makes it a frequent option during acquisitions and buyouts. 

While as a type of debt it has the highest risk, high mezzanine loan interest rates also offer the highest potential returns for lenders, though with flexible repayment terms for borrowers.

Is a mezzanine loan debt or equity?

Mezzanine loans are a hybrid of both debt and equity, which can make them a bit a difficult at first to understand. 

The best way to understand them is that they’re a form of debt financing that has equity options built in, which allows it to take on the form of an equity investment if those options are exercised.

Mezzanine debt isn’t commonly used, as roughly only about 10% of debt is mezzanine debt, and therefore it’s often considered lower priority than senior debts. However, its unique qualities make it a useful option in the right situation. 

How does Mezzanine debt work? 

Mezzanine debt creates a new level of flexibility for borrowers and lenders that otherwise wouldn’t be possible. 

Mezzanine lending is often sought-after as an aid to companies with specific acquisition goals. Mezzanine lenders also tend to be long-time investors in the company, making them a trusted partner to make those projects a reality. 

Mezzanine loans often have a few unique qualities, including:

• As opposed to traditional bank loans, mezzanine loans typically have a higher return than senior debt and are often unsecured
• Mezzanine debt is subordinate to senior debt but higher priority than pure equity
• There is no principle amortization
• A portion of the return on a mezzanine loan is fixed, differing from pure equity

Explaining mezzanine financing can be a bit confusing even with a thorough explanation, so let’s look at an example. 

Mezzanine financing: Example

Bill is looking to purchase a company worth $10 million, so he goes to a lender he’s hoping will finance the purchase. 

Bill isn’t approved for the full amount, but he gets $5 million toward the purchase. To bridge the gap and get the remainder of the financing he needs to make the purchase, he looks to get mezzanine financing.

He acquires mezzanine financing for $4 million, making his direct investment just $1. That breaks down to:

• $5 million basic loan
• $4 million mezzanine loan
• $1 personal investment

On the repayment side, the mezzanine lender then charges a 16% interest rate as opposed to just 6% with the bank loan. However, as opposed to paying interest charges monthly or annually, Bill has the option to add those charges to the cost of his loan, giving him added flexibility. 

Pros and Cons of mezzanine debt financing

With a more thorough explanation of what mezzanine debt is, let’s talk about why you might want to consider using mezzanine debt as well as the drawbacks of doing so. 

Mezzanine financing has the unique ability to offer lenders a way of obtaining equity in a business, something no other type of debt financing can do. It can have a considerable impact on a lender’s rate-of-return in some cases.

However, it’s not without its cons for both lenders and borrowers. Here’s a breakdown of both the pros and cons of mezzanine debt for lenders as well as borrowers:

Pros and Cons for borrowers

The greatest pros exist in what mezzanine financing can do for borrowers. However, mezzanine loans offer their own cons as well. 

Pro: Leverage

A mezzanine loan offers borrowers financing they otherwise wouldn’t have been able to acquire, giving them more purchasing power and the ability to earn a higher return on equity optimal cases. 

Pro: Looks better on your balance sheet

Because mezzanine financing often appears as equity on a company’s balance sheet, it makes your debt level appear lower than it is, making it easier for you to qualify for financing. 

Pro: Tax-deductible interest

Interest payments on a mezzanine loan are typically tax-deductible, which can account for a large amount of savings over the course of a year. 

Pro: Flexible repayment options

Repayment options with mezzanine debt are often highly flexible, with the ability to add interest charges to your loan’s balance or even pay those charges with cash. 

Con: Using a mezzanine loan for purchasing leverage is risky

While mezzanine loans have unique benefits for borrowers, they also come with their own set of cons. The primary con of mezzanine loans doesn’t inherently exist in the loan itself but in the way they’re typically used.

Using a mezzanine loan for purchasing leverage comes with a high level of risk. There’s no guarantee the company is going to be a success, or even break even on your investment, so that loan may become a significant debt. 

Con: Equity interest

If you as the borrower default on a mezzanine loan, you could be required to provide equity interests to lenders.

Pros and Cons for lenders

The pros and cons of mezzanine loans for lenders are more direct and typical as they relate to lending, but they’re significant nonetheless. 

Pro: Equity benefits

There are just a few pros of mezzanine lending, but they’re significant. 

First, lenders can potentially gain equity, giving them the ability to take advantage of the growth of a business and the resulting equity. 

Pro: Interest income

Another pro is that mezzanine loans typically have very high interest rates, which gives mezzanine financing a high potential return. 

Con: Subordinate debt

Because mezzanine debt is considered subordinate to pure debt, a mezzanine debt from a lender may not be secured by any hard collateral. 

If a business defaults, by the time all senior debt is paid, there may be no more collateral or cash-equivalent to pay repay the loan. 

A unique type of financing

Mezzanine financing is entirely unique among the wide-ranging collection of business financing solutions. 

It serves an important role that other financing vehicles can’t fill, making it a useful tool for both lenders and borrowers. 

Are you a lender considering using Decision Logic? 

A potential borrower whose prospective lender is requesting a bank verification through Decision Logic’s automated system and you’re wary of what it is, how it works, and whether it’s secure? 

We know bank verifications sound odd at first sight–  but this technology is the only way to verify bank statements instantly and securely.

In short, the Decision logic is the most secure bank verification technology created to date.

Read on to find out more about Decision Logic, why it originated, who developed it, and how it works. 

After reading, we hope you have a clearer understanding of the importance of the Decision Logic software in creating a safer lending environment within the U.S.’ post-subprime crisis economy.

Why do lenders use Decision Logic?

Decision Logic was developed by CEO Carl Fredericks– former Vice President of an IBM partner and account manager for several governments, industrial, and financial institutions– and CTO and President David Evans– who has over 25 years as a Chief Technology Officer and experience as a Scientific Adviser to the UK Government among other roles. 

The Decision Logic software was developed to be an advanced bank verification system that would enable lenders to instantly verify financial information in the battle against fraudulent bank statements which has been a growing concern and becoming more prevalent in the business lending space.

It was designed in the wake of the 2008 financial crisis caused in part by a loosening in upholding qualification standards for the approval of home mortgages where many applicants were submitting altered statements to get approvals for mortgages they were not qualified for.

Without adequate technology to verify if the banking information placed down during the qualification process was valid or not, many received mortgages beyond their financial capability. 

As a result, families were left paying for a mortgage they couldn’t afford and ultimately lost their homes in the housing bubble that resulted from it. As the evolution of the financial technology markets spread to the business side of things. Decision logic has become the standard for bank verifications. 

For lenders, Decision Logic gives them a way of quickly and easily verifying qualifying bank information that helps them make a smart decision about who they lend to, a practice that helps not only the lender but the borrower as it keeps them from taking on a loan they can’t afford. 

And so, Decision Logic doesn’t just help prevent fraud but improve industry standards throughout the fintech industry.

Is Decision Logic a scam?

It’s natural– and healthy– to be wary of any service that asks for your banking information. Especially in the days of mass data breaches and other technology-related scams.

After all, in the information age, information itself is valuable and can be misused.

However, it’s an occasional misconception by some aspiring borrowers that Decision Logic itself is a scam designed to steal your banking information.

In fact, that couldn’t be further from the truth. 

Decision Logic today works with over 21,000 financial institutions and is a trusted entity that helps make the lending process easier for both borrowers and lenders. 

According to Decision Logic’s documentation:

“We have partnered with the leading credit and financial data providers around the world to offer a unique Data Provider Aggregation Environment. DecisionLogic has harnessed the latest technologies of these data providers and brought to the market a solution that is innovative, easy to use, efficient, and secure.” 

For many lenders, Decision Logic is a trusted partner that helps them, and the borrower, proceed through the approval process faster and with less hassle. 

How Decision Logic works

So, how does the Decision Logic service work? 

If you’re in the process of applying for a business line of credit or loan, you might be wondering what exactly the service will do in accessing and retrieving your information. 

If you’re a lender, you might be wondering exactly how you can use Decision Logic to streamline the information retrieval process. 

Here’s a breakdown of each step: 

Step 1: Send a link

Before closing a business loan or advance application, the lender sends a custom Decision Logic link via either text SMS message or email which the applicant/business owner accesses. 

Step 2: Customer opts-in

Next, the applicant inputs their banking information. Keep in mind that this link can only be used once, so as soon as the link is used it can’t be accessed again. 

Step 3: Opt-in successful

Once the information has been inputted, the opt-in is successful and the verification process is complete. 

The customer will then receive a success notification and is redirected to the lender’s website automatically. 

Keep in mind, as a further security measure, if the applicant does not input their information within a certain period of time, that link is voided and will no longer work. 

In addition to that, only underwriters will have access to the data– and strictly date-to-date business statements– not Decision Logic or the lender. 

Step 4: View bank statement

Now, the lender has access to the applicant’s bank statements which they can review for authentication purposes. This also allows the lender to connect via API and helps expedite the funding process.

The statement the lender receives is a read-only version of the applicant’s business bank statements, solely for the purpose of helping determine approval. 

And that’s all there is to it! The entire process is started and completed in as little as a matter of minutes. 

Does Decision Logic store access to your banking information? 

This is a common question from potential borrowers as they move through the application process.

This simple answer is:

Decision logic does not keep your login credentials on file. 

Its technology allows a lender to retrieve the last 12 months of banking activity and as well as for them to cross-reference the data received when applying for the loan to avoid deals being funded with doctored statements. 

It also allows the financial institution to view your current months’ activity to prevent prospective borrows from double funding– i.e. taking two loans from different lenders at the same time and effectively over-leveraging themselves and becoming at risk for default as a result. 

Decision Logic review: A quick look

If you’re a lender, should you use Decision Logic? What are the benefits? And are there any other services like Decision Logic?

As there’s nothing on the market like Decision Logic, given that they’re the originators of the technology which is still in its infancy,

It’s hard to run a comprehensive review, as with Decision Logic being the originators of the technology, there aren’t many yet offering a similar service.

However, you do have a few options:

1. DecisionLogic 90

DecisionLogic 90 is Decision Logic’s basic product offering.

Its features include:

• Training
• Integration
• 24/7 Tech Support
• DL match
• 90 Days of Transactions

“Built for brokers and lenders” as it states on Decision Logic’s service page, their flagship product offers 90 days of transaction history, the defining feature of this version of the Decision Logic service.

However, for those lenders who want to be able to pull more data…

2. DecisionLogic 365

That’s where DecisionLogic 365 comes in.

DecisionLogic 365 is Decision Logic’s premium version, offering all the same features of DecisionLogic 90 including training, integration, and 24/7 tech support, but with one big upgrade: you get 365 days of transaction history.

This version of Decision Logic has a bigger price tag, though with 4x the data, it’s to be expected.

3. Finicity’s Financial Data Services

Finicity is another option to consider if you need a solution that will provide you with as much financial data as possible while streamlining the qualification process for your clients.

As opposed to a single product offering, Finicity is a data aggregator that has the ability to do many things in terms of acquiring financial data securely.

However, most notably, with Finicity’s Account History Aggregation, you get 180 days of transaction history, with the ability to get up to 24 months of transaction history as a one time pull, twice as much as DecisionLogic 365.

Similar to Decision Logic’s 90 and 365 services, this includes insights such as:

• Income deposits
• Expense categorization
• Transaction descriptions
• Account and loan balances

In addition to this, just as Decision Logic’s services, Finicity’s financial data services also include the ability to verify identity and account information, making it a comparable match to Decision Logic’s pioneering service.

Give the best to your clients and customers

As a lender, you want to make the application and qualification process as easy and painless for your prospective customers as possible.

After all, who likes filling out a ton of paperwork, running to the nearby printer, scanning, then emailing copies? 

Decision Logic is a cutting-edge, secure technology that takes the hassle of locating and sending off your business bank statements away and replaces it with a simple and easy solution that takes just minutes to complete. 

If you want to streamline your application process and erase the hassle of gathering and sending bank statements for your customers, an automated financial statement service such as Decision Logic can help do exactly that.