Is Asset-Based Lending Right for Your Small Business?

Is Asset-Based Lending Right for Your Small Business?

Securing the right funding for your small business is crucial for growth and stability. Asset-based lending is one option for financing for businesses that have strong assets and need access to working capital. But is asset-based lending the right choice for your small business? Below we go over the pros and cons of this approach to help you make an informed decision.

What Is Asset-Based Lending?

Asset-based lending (ABL) is a type of business loan that is secured by using a company’s assets as collateral. These assets can include a variety of tangible and intangible items that have value, such as inventory, accounts receivable, equipment, or real estate.

Asset-based financing can be easier to qualify for compared to other small-business loan options. However, if the borrower defaults on the loan, the lender can seize and sell the assets to recover their money.

The Process of Asset-Based Lending

In order to better understand your business’s financial health, your lender will first evaluate your business’s financial information, including its assets, financial statements, and credit history. Next, based on a thorough asset evaluation, your lender will offer a loan amount. This amount is typically a percentage of the value of the collateral, known as the “advance rate”. Generally, liquid collateral such as certificates of deposit or securities are more valuable to a lender because they can be easily converted to cash if you default on your loan. Finally, your lender will also establish the terms of the loan, including the interest rate, repayment schedule, and any associated fees.

Pros and Cons of Asset-Based Lending

Pros

  • Access to quick capital. A primary advantage of asset-based lending is that it’s typically a quicker process than traditional loan approval. If your business needs funds urgently, such as covering unexpected expenses, this can be a significant advantage.
  • Flexible terms. Because the loan is secured by business assets, this type of lending could be a better fit for businesses that don’t meet the strict criteria of conventional loans. Asset-based lending offers more flexibility than traditional loans, which can be beneficial for businesses that have a shorter credit history or imperfect credit scores.
  • Lower interest rates. Because the collateral you provide reduces the lender’s risk, you’ll typically receive lower interest rates on asset-based loans compared to unsecured business loan options.
  • Flexible financing. Funds from asset-based loans aren’t typically restricted. They can be used for various purposes, such as financing growth initiatives, covering operational expenses, or managing cash flow gaps.

Cons

  • Risk of losing assets. If your business fails to repay the loan, your lender can seize and sell your business assets to repay the debt. If the assets you used as collateral hold strategic importance for your business operations, losing them could have adverse effects on your business.
  • A thorough and time-consuming process. A lender’s assessment of your assets can be time-consuming and may require professional appraisals, audits, and legal documentation. Furthermore, some of your business assets may not qualify for an asset-based loan. Lenders generally prefer tangible and sufficient assets, so items such as specialized goods, perishable inventory, and equipment with high depreciation rates typically aren’t accepted as collateral.
  • Costs and fees. While asset-based lending often comes with lower interest rates than other financing options, it’s important to consider other associated costs. Lenders can charge origination fees, appraisal fees, and ongoing monitoring fees, all of which can impact the overall cost of the loan.

Asset-based lending can be an effective tool for small businesses seeking access to capital, but the decision to pursue this type of lending should be made after careful consideration of your business’s assets, financial needs, and risk tolerance.

Recent Changes to SBA Loan Programs Make Access to Loans Easier for Small Businesses

Recent Changes to SBA Loan Programs Make Access to Loans Easier for Small Businesses

The Small Business Administration (SBA) recently changed the rules that apply to both the 7(a) and 504 loan programs. The goal is to streamline the loan application process, broaden the amount and variety of lenders, and relax regulations in order to reach more small businesses, particularly those in underserved communities. Below we’ll go over the recent changes to SBA loan programs.

SBA Loan Programs

The SBA is a lender of two small business loans. The most popular loan is the 7(a) loan, which can be used for real estate, equipment, acquisitions, and other working capital. It has a maximum borrowing limit of $5 million. The 504 loan is the other loan program offered by the SBA, and it is generally used for real estate or land loans, with fixed interest rates and maturity up to 25 years. It has a maximum borrowing limit of $5.5 million.

Expanding Approved Lenders

Prior to the Covid-era Paycheck Protection Program (PPP), the SBA had limited the number of approved SBA lenders to a select handful. This limit was lifted considerably with the PPP program, and the new rules do away with a cap on the number of approved lenders altogether. The goal is to increase the number of loans distributed and reduce the timeline of loan applications.

New Criteria

The SBA is simplifying the evaluation process for borrowers by removing some criteria. Previously, multiple factors were considered when assessing potential borrowers, including the character and reputation of the applicant, experience and depth of management, projected cash flow and future prospects, invested equity, and value of collateral. However, the new rules look at only the applicant’s credit report, cash flow, and equity or collateral. Removing “character and reputation” from the list of criteria helps to eliminate any individual bias in the loan process.

The new rules also allow borrowers to use 7(a) loan proceeds to fund partial changes in the ownership of the business. In the past, a 7(a) loan could only be used to fund a full change in ownership. This move grants borrowers more flexibility to restructure the business.

Finally, the SBA is implementing new technology to figure borrower eligibility. This should help curtail the burden on SBA lenders and simplify the process in order to boost lending.

New Determining Authority

When a small business 7(a) and 504 loan application or modification request is denied, either the Director of the Office of Financial Assistance or the Director’s designee(s) are authorized to make the final decision on reconsideration. Previously, only the Director of the Office of Financial Assistance had this authority. This change is to help enact fair and timely loan reconsiderations.

No More “Credit Elsewhere” Test

Finally, the “credit elsewhere analysis” that was a required component of the SBA loan process is reduced to a “check the box” with no need for corresponding paperwork. This was a step in the process that proved all other possible sources of funding had been exhausted, justifying the need to obtain SBA financing.

 

 

Here are the Key Trends Affecting Retail Businesses in 2023

Here are the Key Trends Affecting Retail Businesses in 2023

The retail industry has experienced considerable changes in the past few years, and 2023 is on track for continued transformation. Retail companies can expect to see several key trends impacting businesses this year, including the growth of e-commerce, the focus on personalized experiences, and a shift to adopting sustainable practices. Below we discuss the key trends that are affecting retail businesses.

An Increase in E-Commerce

Online shopping escalated dramatically during the Covid-19 pandemic, and it doesn’t appear to be slowing down anytime soon. Online shopping provides consumers with convenience, access to wider ranges of products, and competitive prices. If they haven’t already, retailers need to embrace the new e-commerce era and optimize their online shopping experiences to level with customer expectations. Even strictly brick-and-mortar stores should think about offering best-selling products in an online storefront.

Additionally, a continuing e-commerce trend can be seen in the integration of social media commerce and marketing strategies. Social commerce lets customers buy products directly through social media platforms, sometimes with the assistance of influencers or brand ambassadors, and it’s an ideal way for retailers to interact with clients and drive sales.

Personalized Experiences

Retailers will need to create a special in-person shopping experience in order to compete with online shopping, increase customer loyalty, and drive sales. This can include online pre-order and curbside pickup as well as personal shoppers who guide customers through the store to offer personalized product recommendations. For example, if a customer is keen on a particular fragrance, the salesperson can point them toward different products with the same fragrance, making sure the customer is aware of any sales, promotions, or customer loyalty rewards programs. A personalized shopping experience elevates the shopping trip for the customer in a way that is difficult for e-commerce stores to do.

Automated Technology

Automation in pricing and inventory management systems is on the rise, which helps retailers lessen staff labor. As the industry continues to experience labor shortages, more retailers will be investing in these technologies. And more companies that specialize in automation solutions are popping up. Implementation of pricing automation can balance profitability and revenue growth, while inventory management systems can pinpoint an accurate amount of inventory to have in stock.

Sustainability

Consumers are becoming increasingly conscious of the environmental impact of the products they purchase and bring into their homes. Retailers and brands can reflect this by offering products that use recyclable or biodegradable packaging materials. They can also take steps to reduce their carbon footprint by embracing more sustainable transportation operations and working with suppliers that have environmentally-friendly practices. Finally, retailers are seeking ways to use more sustainable packaging materials, such as biodegradable packaging and plant-based plastics, and reduce packaging overall.

You Can Use IRA Funds for These Life Moments and Avoid the Early Withdrawal Penalty

You Can Use IRA Funds for These Life Moments and Avoid the Early Withdrawal Penalty

While the purpose of a retirement account is to fund your lifestyle in your golden years, certain situations in life might necessitate dipping into those funds early. Typically, withdrawing from an IRA before age 59 ½ will trigger a 10% early withdrawal penalty. However, there are some key milestones where that penalty is waived. Here’s when you can avoid the IRA early withdrawal penalty.

Medical Expenses

IRA funds can be used to cover unreimbursed medical expenses that exceed 7.5% of your adjusted gross incomes. For example, if your AGI is $80,000 in 2023, you can use a withdrawal to cover unreimbursed medical expenses this year over $6,000. You don’t need to itemize your taxes to take advantage of this exception to the early withdrawal penalty.

Health Insurance

If you are unemployed and have received unemployment compensation via a federal or state program for at least 12 consecutive weeks, you may be able to take IRA distributions without penalty in order to cover health insurance premiums for you, your spouse, and any dependents. The withdrawal must be made in the same year that you received unemployment, or the next year. You must also take the withdrawal within 60 days of being re-employed.

Costs for Higher Education

Penalty-free IRA distributions may be used to pay for some higher education costs for you, your spouse, your children, and grandchildren. Eligible costs include tuition, fees, books, supplies, equipment required for a student’s enrollment, and expenses for certain special-needs services. For students who attend school at least half-time, room and board may also qualify. Keep in mind that IRA withdrawals are considered taxable income and could lower the student’s qualification for financial aid.

Home Purchase

If you are funding a first home purchase with funds from an IRA, the withdrawal may be penalty-free. This doesn’t mean that you need to be a first-time home buyer. The IRS broadly defines a first-time buyer as someone who hasn’t owned a home in the last two years. If you fall into this category, you can withdrawal up to $10,000 ($20,000 for couples) without penalty. If the purchase or building of the home falls through, you have 120 days from the date of distribution to put the money back in your IRA in order to avoid the penalty.

Birth or Adoption of a Child

Parents are eligible to take a penalty-free IRA distribution of up to $5,000 following the birth or adoption of their child. The withdrawal must be made within one year of a child’s birth or legal adoption date.

Disability

Disabled retirement savers under age 59 ½ who are “totally and permanently disabled” aren’t obligated to pay the IRA tax penalty. In order to qualify, per the IRS, one must be unable to do “any substantial gainful activity” for a continued or indefinite duration due to a physical or mental condition, and a physician must certify the severity of the condition.

Military Service

Members of the military reserves in the Army, Navy, Marine Corps, Air Force, Coast Guard, or Public Health Service may be exempt from the tax penalty if they were ordered or called to active duty after Sept. 11, 2001, and in duty for at least 180 days. The distribution must be taken during the active-duty period in order to avoid the 10% early withdrawal penalty.

An Inherited IRA

If you inherit a traditional IRA, you can take penalty-free withdrawals, even before age 59 ½. However, you will need to pay income tax on each distribution. If the original owner of the IRA account passed away after Jan. 1, 2020, you will be obligated to withdraw all assets from the inherited IRA within 10 years of the IRA owner’s death. The exception to this is if you are the surviving spouse or minor child of the original account owner, or if you are disabled, chronically ill, or up to 10 years younger than the original account owner.

For more information on individual tax planning, click here.

These Easy-to-Implement Customer Service Tips Will Help Your Veterinary Practice Gain Repeat Clients

These Easy-to-Implement Customer Service Tips Will Help Your Veterinary Practice Gain Repeat Clients

Veterinary practices that provide award-winning services don’t hesitate on the small stuff – the over-and-beyond touches that make them stand out and keep clients coming back. The customer service tips below might not be groundbreaking, but when implemented on a regular basis, you’ll create positive experiences and gain repeat clients, who will likely spread the word to their friends and communities.

First Impressions and Communication

A common grievance reported to veterinary state medical boards is lack of communication. To avoid this fate, make a good impression when a client visits for the first time by:

  • Introducing them to the team that will be caring for their pet
  • Signing them up for any means you’ve established for clients to communicate with you, such as an online portal
  • Offering them a welcome packet that includes details about your clinic, services offered, emergency contact information, where to find additional information about pet care, and a welcome letter

Create a Loyalty Rewards Program

Clients who follow your suggestions, properly care for their pets, and continue to bring their business to you are deserving of some perks, and a loyalty reward program is just the ticket. Whether they can be used for product or service discounts (or both) is up to you, but a loyalty program can be an effective vehicle in retaining clients.

Follow Up in a Meaningful Way

If you want a client to feel especially cared for, be sure to follow up on their pet after they’ve come in for an illness or procedure. At the minimum, follow up with a standard phone call one to three days after the visit, depending on the procedure. This also keeps you informed of the pet’s progress and client compliance of aftercare. If you want to add an extra personal touch, send the client a “get well soon” chew toy or catnip mouse for their pet.

Take Notes

Just as we appreciate when doctors remember something specific to us, clients appreciate when their vet remembers something specific to their pet, so take note of anything that stands out during routine check-ups. Do they like to be scratched behind the ears or on the belly? Is there a certain treat or toy they love? Jotting notes in a patients’ records about their likes and dislikes can help you create a personalized experience for your clients.

Create a Social Media Presence

Social media is a powerful tool that can help personalize your practice and communicate with your community. Share information like helpful tips for pet owners and any changes to hours or services. You can also post pictures of pets (provided the client has signed a photo release form), and encourage pet owners to post their own pictures and tag your practice.

Make a Memorial Donation

Establish a way to demonstrate your sympathy when a pet dies. While most practices send sympathy cards, you can go above and beyond by making a small donation to an animal charity fund in the pet’s name. You could also have a tree or flower planted in the pet’s name.

Implement a Referral Program

Referral programs can include simply sending a thank-you card to a client who sent a referral your way, or it can be as involved as sending a small gift of thanks for the business sent your way. You could provide new clients with a $10 discount and post a $10 credit to the referring client’s account. If you want to take it up a notch, you could give a different gift each time for repeat referrals to keep the program updated and worthwhile to the client.