Unsecured business loans & small business loans

One of the hottest new trends in the world of financing today is the use of a “Future Sales Purchase” or FSP. An FSP is an alternative to a small business loan in which an investment firm purchases a portion of a business’s future sales. While similar to accounts receivable factoring, an FSP focuses on your business’s historical trend of credit card transactions to predict an expectation of future transactions and utilizes your merchant processing account as a form of collateral.

Traditional lenders, like banks and leasing companies, determine credit worthiness by evaluating numerous factors. This evaluation process allows the lender to estimate how worthy your business is of receiving a line of credit or services based on a payment schedule. Credit worthiness, as defined by the financial industry, is the overall picture of financial health that is used by lenders to determine the ability to repay debt.

The most common factors traditional lenders use to determine your credit worthiness are:

Length of Credit History - The length of their credit history is another determining factor in a good score. Lenders want to know that a business is able to maintain prompt payments and good standing for a reasonable period of time. Most credit scoring models consider the length of their credit history, but low points in this area can be outweighed by good payment history and low debt balances.
Types of Accounts - Some creditors consider the type of accounts a business has as a determining factor in their credit worthiness. While it’s a good idea to have established credit accounts, some companies consider loans from finance companies or too many accounts to be negative factors.
Debt - Their debt is a factor as well. Keeping their account balances between 25% and 50% of their available credit signals a responsible borrower. For example, if a business has a credit card with a $2000 limit, keep their debt below $1000. For this reason, consolidating their credit card debt can actually lower their credit score, as it raises their debt to available credit ratio. The best solution is to simply pay off their existing cards as quickly as possible.
Individual Entries – Individual entries on their credit report and the information a business provides on their loan application. Some creditors consider their occupation, length of employment, and whether or not a business owns property.

TransUnion, Experian, and Equifax are the three national credit reporting agencies that compile this data and establish your business’s credit score. Your credit score is a number generated by a mathematical formula that estimates how likely your business is to pay their bills. Your score is a key factor affecting your ability to obtain loans and good interest rates. Other data affecting your score could include:

banking and lease payment information
trade payment histories
public record data – Bankruptcies, Liens, Judgments, etc..
optional personal credit data on the business principal

Most large businesses are rated by Dun & Bradstreet (D&B). These businesses are rated according to several factors, and will vary depending upon whether a business provides information and a current financial statement to D&B:

The highest D&B ratings reflect the company size based on net worth or equity as computed by D&B which companies have provided D&B with current financial information.
The next tier of D&B ratings reflect company size based on the total number of employees, both for companies that provide current financial statements and for those that do not, a creditworthiness assessment based on both payments and financial stability which also includes an analysis of public filings, trade payments, business age and other important factors.
The Financial Stress model predicts the likelihood of a firm ceasing business without paying all creditors in full, or reorganizing or obtaining relief from creditors under Federal or State law over the next twelve months.
The US Commercial Credit Score predicts the likelihood of a firm paying in a delinquent manner (90 + days past terms) during the next 12 months, based on the information in D&B's file.

An investment group offering an FSP, while they do consider these factors, focuses instead on a business’s ability to continue to generate sales. Guaranteed Funding Strategies, Inc. has a 94.7% approval rate provided that your company has been in business at least a year and any bankruptcy is at least a year old. If your business currently accepts credit cards, then we can normally get you approved for up to twice your monthly credit card sales.

An FSP investment firm uses the data provide to them to determine the risk and the respective present value of that businesses future sales. This is calculated in much the same way that state-run lotteries determine the present value of a stream of payments to a winner. This gives the Lottery winner the option of choosing to receive their cash over a period of time resulting in a much larger overall payment or instead electing to receive one Lump Sum advance payment giving them much more today but a less cash overall.

	Loan	FSP
Amount	$ 5,000.00	$ 5,000.00
Term in months	60	7*
Interest Rate	12.50%	xxx
Total of payments	$ 6,749.38	$ 6,750.00
Cost of funds	$1,749.38	$1,750.00

* Since your payment with an FSP is based on your sales the term is not fixed but rather estimated.

It is estimated that 87% of all small to medium sized businesses don’t qualify for traditional financing and sources indicate that at any given time one in five businesses are actively pursuing financing options. Many times an FSP is the best and in some cases only option. An FSP allows many merchants the opportunity to sell their future Credit Card sales for a discounted value and reinvest that cash back into their business. This investment is most often used to increase inventory, purchase or repair equipment, or to advertise their products or services. In some cases hiring additional employees, buying out partners, or opening additional facilities is the best use of the funds. Many businesses utilize the flexibility and speed at which funds can be received to get them out of a tight spot using an FSP as a type of emergency fund.

One typical concern business owners have is in evaluating the cost of the funds they are receiving. FSPs, by design, do not have an interest rate since there is no set time period in which the funds must be delivered. While only slightly more costly than traditional financing options the estimated term is much shorter, generally seven to ten months, giving the perception that the cost of the funds is greater. While a traditional loan is spread out over 36 – 60 months, the actual economic impact on the business is almost identical.

The greatest value your business receives is in your ability to invest the funds multiple times creating far more profit than the cost of the funds. The true cost of the FSP pales in comparison to the missed opportunity of creating the additional profits that would be generated with the proper use of the funds.

Since an FSP isn’t a loan it doesn’t tie up your businesses ability to secure traditional financing. Many businesses use an FSP to fill the gap between funds received through a small business loan and their total financing need. While 70% of our clients wouldn’t qualify for a small business loan, 30% of our clients simply enjoy the speed and convenience an FSP provides.

You've undoubtedly heard that in order to get a business loan you must have many things in place. While this is true many business owners looking for a small business loan don't realize that business credit analysis typically takes a phased approach. In other words, lenders evaluate some very basic questions before they move on to a detailed business credit evaluation. As such, you should attempt to think like a banker and start with those initial filtering questions before you worry too much about everything else you need to prepare in order to get a small business loan.

Before a bank will provide you with a small business loan or business line of credit, the loan officer must feel satisfied with the answers to the following questions.

What is your character? - Will you want to repay the loan? Most creditors will only consider providing you with a business loan if you have a reputation for integrity, responsibility, and have good references in the local community.
How competent are you? - How capable are you in managing the business? Will you be able to repay the loan? The lender will assess whether you know what you are doing in running your business. The number of years you have been in business will be considered. Some lenders even go as far as to "mystery shop" your business to see how well it is run.
What will the money be used for? - What is the specific purpose of the loan? Is it a short or long term need? Is this loan a solution to a problem or simply a Band-Aid? Many loan provisions explicitly exclude certain uses for the funds. For example, you may not be allowed to use the business loan to pay off existing debts, buy property or use the money for personal expenses. The lender wants to know that the proceeds from the small business loan will be used to do something that will enhance your ability to pay them back.
How do you approach capital usage? - Do you have a clear financial plan and forecast showing why you need the loan and how you will pay it back? If you don't have this in place, you're wasting your time applying for small business loans or other types of small business financing.
How much do you need? - Is the loan request large enough to cover any unexpected change in your situation, but not so large that its repayment will be a heavy burden?
What's the outlook for your business? - What is the general economic outlook for your business and industry? Are there any economic events that could occur that would greatly reduce your ability to pay back debts?
Are you personally invested in the business? - Do you have a reasonable amount at stake in the business? Or are you willing to let it go down the tubes and walk away from your obligations?
What happens if you can't pay the loan? - What collateral is available to secure the loan amount? Most loan applicants must be willing to secure their small business loan with their assets. Typically, the amount of security required will depend on the type of business enterprise and the circumstances.

With an FSP the evaluation process is quite simple. Once you complete a one page application of basic business information all you have to do is provide the last four months of your merchant processing statements and in some cases a bank statement to verify your deposits and in 24 – 48 hours you will be notified as to your approval status. The payment process is even easier. The investment firm receives an agreed upon percentage of your daily credit card sales until all of the sales that they have purchased have been delivered. This method is far more flexible than a traditional loan in that the amount delivered to the investment firm actually mirrors your sales; therefore if your sales decrease for any reason then so does the amount delivered to the investment firm. This “mirroring” prevents you having the added stress associated with traditional debt during business recessions. The following is a side by side comparison of a Small Business Loan and a Future Sales purchase.



*Small Business Loan*:		*Future Sales Purchase*
Minimum 3 Years in Business		4+ Months in Business
Business Asset Collateral		Secured by Future Sales
Personal Guarantee		No Personal Guarantee
3 Years Tax Returns		No Tax Returns
3 Years Financial Statements		No Financial Statements
High Credit Score		Not Dependant on Credit Score
Application Fee		No Application Fee
Closing Cost		No Closing Cost
Long Application		1 Page Application
Long Approval Process		24 Hour Approval
Fixed Repayment		Repayment Based on Sales

In summary, if your business is seeking a quick and simple solution to your working capital needs without the hassles associated with a small business loan then be sure to seek out an investment firm specializing in Future Sales Purchases.

Jeff Atkins is President of Guaranteed Funding Strategies, Inc. GFS is a leading Alternative Financing Provider specializing in increasing their client’s financial bottom line through understanding and utilizing Future Sales Purchases.

For more information contact:
Guaranteed Funding Strategies, Inc.
151 North Delaware Street, Suite 1840
Indianapolis, IN 46204
Voice/Fax: 800 516 2954
Email: jatkins@fundgfs.com
www.GuaranteedFundingStrategies.com