The small biz challenge du jour
“One of the biggest challenges faced by small business owners is finding the capital they need to fuel growth and fund working capital,” said Ty Kiisel, a contributing author at OnDeck, a tech company aiming to solve small business’s biggest challenge: access to capital.
Kiisel notes that finding a loan can be a time-consuming process, citing former administrator of the SBA ,Karen Mills, who argues that the average small business owner spends about 25 hours filling out the paperwork associated with completing a loan application.
“Asking yourself a few key questions before you sit down with a lender will make a lot of difference in how seriously they take your loan application,” said Kiisel, adding, “how long it takes to get an approval–and help you avoid wasting a lot of your precious time.”
In his own words below, Kiisel offers the six questions you should ask yourself prior to beginning any loan process:
1. Can I really afford a loan?
Dumb question, right? Not really. One of the first questions every lender wants answered is, “Can this borrower repay the loan?” That’s one of the reasons they want to see some experience in business and your bank statements. If you can’t honestly answer, “Yes, I can afford a loan payment,” it’s not likely your loan application will end with a “Yes” from the lender.
2. How much do I really need?
“As much as I can get,” is never a good answer. Small business owners always need capital, but borrowing capital can be expensive–in some cases very expensive. Paying a premium for more capital than you really need just doesn’t make sense. What’s more, in some cases it’s possible you might need more than what you’re asking for. You’re wasting time with the “As much as I can get” answer. It tells the lender you haven’t really thought enough about what you’re going to do with the capital and can even be a red flag that causes a loan officer to disregard your request completely.
3. Why do I need the money?
This question fits hand in glove with Question #2. Borrowing capital to take advantage of opportunities to purchase such things as equipment or inventory at a discount is a great reason to access credit (provided you can positively answer Question #1). Even if you need to augment a short-term cash flow need or have some other need for financing, you should be able to articulate exactly why you need the money and how much you are looking for. This tells the lender you understand how to use borrowed capital and you’re not a waste of his or her time.
4. Do I have all my ducks in a row?
Although every loan and every lender is a little different and requires different documentation, if you have some of the most requested documents in order before you visit a lender (and this applies to both traditional and online lenders), you’ll avoid wasting everyone’s time. Start with your past two years of business and personal tax returns, the last three months of bank statements, and a list of other loans or lines of credit you may have. Standard financial documents like a current P & L statement should also be at your fingertips. It’s not enough to have the documents either, it’s important to really understand what all this information means. I once spoke with a lender who said, “If I know more about a business by looking at the financial data than they do, I’m not going to offer them a loan.”
5. What’s my current credit score?
Did you know you have both a personal and a business credit score? If you’ve only been in business for a few years, your personal credit score will be part of the equation, but it doesn’t tell the whole story. Your business has a credit score too. Dunn & Bradstreet, Experian, and Equifax are the three major business credit reporting bureaus and they all have different scores for displaying a business’ credit worthiness. A bad credit score doesn’t necessarily mean you won’t get a loan, but it could mean you’ll need to pay a little more for the capital. It might also make a difference in where you should be looking for a loan.
6. What are my real chances with this lender or loan type?
It’s really important to understand the nature of the financing you’re looking for. For example, if your credit score is weak and you don’t have five or six years under your belt, a traditional loan at the bank, or maybe even the SBA, will be a waste of time. Nevertheless, even if you have less-than-perfect credit, but have a healthy business with a steady cash flow, there are a lot of online options that will work for you if your first year is behind you. Investigate and study your options before you start applying to save time.
Knowing what to avoid is the first step to escape wasting time. More importantly, it may even help you save time–time better spent making your business successful. It’s often said that time is money, ask yourself how much is your time is worth.
How should freelancers be saving for retirement (is it even possible)?
(FINANCE) Adulting is hard, but retirement looms no matter your age – here are some ways to start squirreling money away so it’s less stressful later.
Freelancing is a tenuous approach to employment, made all the more so by a profound lack of amenities usually offered by more stable arrangements – chief among which is a retirement fund. It can feel impossible, especially when your business suffers amidst a pandemic, so some of what follows can be ignored until the ship isn’t sinking, but don’t wait a minute longer than that – deal?
So there are several schools of thought regarding the best way to start saving and where you should put your money, but the bottom line is that, if you’re a freelancer, you should be allocating your own retirement funds. Here are some ways to do just that.
Before you can even get into the weeds of how to invest in retirement, you should have a parachute in case things go sideways. My Bank Tracker suggests starting with an emergency fund of $1,000, adding to it as you can until you have anywhere from 3 to 12 months of expenses covered.
This serves two purposes: ensuring that you’ll have the luxury of time if you need to perform an abrupt job hunt, and establishing how much you can safely put away each month without jeopardizing your business or standard of living (within reason).
Having a relatively large sum of money on hand for emergencies is always good, and if you never have to use it for the purpose for which you set it aside, it can supplement your retirement whenever you decide it’s time to cash in.
My Bank Tracker also suggests storing your emergency fund using a “high-yield” bank account, such as an online savings account, rather than sticking with traditional, low-interest savings options.
You also need to plan for taxes, which in addition to whatever your tax bracket percentage is, includes allocating 15 percent of your income to pay Social Security and Medicare. This means that you’re probably putting aside a pretty hefty sum (at least 30%) each month.
Once you’ve established your emergency fund and planned for taxes, you should have a general idea of what your wiggle room looks like vis-a-vis saving for retirement.
The actual saving part of retirement entails investment in a retirement account such as an IRA, Roth IRA, a 401(k), or a pension plan (referred to as a “defined benefit plan”).
Each of these account types has benefits and drawbacks depending on your situation.
- A Roth IRA will allow you to contribute a certain amount each year, and you can usually set up an account quickly from a variety of online locations. The money that goes into a Roth IRA is post-tax, meaning you don’t have to pay tax on the retirement funds you pull out. Your income, however, can disqualify you from investing – if you earn above a certain threshold ($140,000 in 2021), you won’t be able to use a Roth IRA.
- Other IRA options exist as well, each with a cap on how much you can contribute per year and varying tax requirements. For example, a traditional IRA account requires you to pay taxes when you withdraw the money, and there’s an upper limit on how much you can contribute.
- A SEP IRA is similar, but the upper limit on investment is substantially higher – and you need to be self-employed (or an employer) to have one.
Nerd Wallet also points out that a 401(k) is a reasonable option for self-employed people who don’t employ anyone else, especially if you plan on saving “a lot in some years — say, when business is flush — and less in others.” 401(k) accounts allow you to put up to a certain amount ($58,000 in 2021) in each year pre-tax, and you pay taxes on withdrawals whenever you start pulling out money.
More eccentric retirement options exist as well. Taxable Brokerage Accounts let you invest in stocks and securities through a brokerage, and you’re able to use the money whenever you please – but you’ll have to pay taxes on your gains each year, which can become expensive in the long run.
And defined benefit plans are expensive and entail high fees, but they allow you to set up a pension with high investment opportunities as opposed to some of the lower-investment options.
Whichever option (or options – you can always invest in multiple accounts) you choose, make sure you’re saving for retirement in some capacity. And remember that these accounts represent exponential growth, meaning that the sooner you start saving, the better off you’ll be when you begin your retirement journey.
Stripe makes it easier to collect money from customers
(FINANCE) Stripe didn’t reinvent the wheel, but they are outshining competitors by adding features that help small businesses.
Payment processing is an attribute of any sales process that can make or break the customer’s experience – and, with it, your revenue stream.
While coding in a payment portal can be time-intensive and costly, payment processor company, Stripe has a simple alternative: Payment Links.
Stripe Payment Links are exactly what they sound like. Rather than linking a customer to a product and then having them check out via the usual cart process, you can send them a Payment Link for that specific product; the customer then enters their payment information in the ensuing window, and the product is theirs.
It’s a very straight-forward process that is made easier by Stripe’s no-code presentation, a choice that ProductHunt posits is an effort to go with the no-code flow we’ve seen in the last year.
And, the easier the checkout process is, the more likely a customer is to complete a transaction. It’s one of the reasons why Amazon’s “Buy Now” feature is so rewarding (and dangerous, especially at night).
By offering a customer a direct link to a product with a space to enter their card info in a hassle-free manner, Stripe has created an incredibly convenient way for them to pay – and, without the usual process of checking out involved, customers have less time to second-guess that payment.
Call it what you want (manipulative, pushy, morally grey), but if a customer doesn’t get the chance to rethink their purchase before the payment form has been filled out, chances are decent that they’ll follow through.
Certainly, there are drawbacks to this system. The link applies to individual products or services, which means that, while you can create an individual link for each item on your site, your payroll processing will categorize each of those links differently. That can be a mess to sort out at the end of the day.
But it’s a great way to ensure that customers who want something specific can get it quickly and without much ado about anything.
Putting a Payment Link in your bio after advertising a product on Instagram, sharing your link on Twitter, or even DMing links to interested customers is sure to be a productive, if shameless, endeavor.
Here is a quick rundown from Stripe:
Have fractional shares of stocks *really* democratized the market?
(FINANCE) Fractional shares of stocks and equity have become widely available, and it’s said that the market is being democratized. Is that true?
Not everyone has the kind of startup cash needed to invest in premium stocks, which is why fractional investing (the practice of buying percentages of stocks rather than an entire share) is making waves. With the ability to purchase equity at a lower cost and with lower stakes, though, comes the question of whether or not the stock market is really becoming democratized.
Any time premium services become routinely accessible to middle- and lower-class members of society, celebration is somewhat hampered by the realization that those services might simply exist to exploit the people to whom they’ve been made available.
Similarly, one can’t help but wonder if such services are just gimmicks by the time they land – played out and generally wasteful.
But fractional investing options comprises anything from stocks like Apple to real estate these days, which makes the notion of investing a lot less scary than the traditional route – and a new player on the block, Bits of Stock, makes it even more interesting.
Bits of Stock is an app that does pretty much what it sounds like: earns you “bits” of stock as you go about your life. After linking the app to your bank account, Bits of Stock will count your spending toward stock-based rewards, allowing you to redeem fractions of various stocks over time.
Users on Just Use App have reported a generally positive experience with Bits of Stock, elaborating on a wealth of supported retailers and variable rewards, though one user explains that one can expect “0.5%” as a baseline for the percentage of stock earned.
It’s worth noting that over the years, other mainstream investment options have added fractional investing. Robinhood is perhaps the most famous, and Schwab launched something called “Slices” to the same effect.
Obviously, more people can gain equity when the price tag is lower, and that’s a good thing…
But, as interest in investment rises and the number of people investing in the stock market in some capacity surges, it will soon become clear whether or not this is a viable future for people’s money.
After all, with minor investment comes minor growth, and tying up the funds of people who usually wouldn’t invest – even if it’s in a stable environment – could have deleterious effects on their personal finances over time.
So have stocks been democratized by fractional investing options? Yes. But at what cost?
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