Get faster access to your cash with ACH Financing.

Paper checks, like corded phones have met the same fate as the typewriter. The paper check, the exalted loan repayment method, is fast becoming a business tool with little practical use. In place of the written check, a slice of the innovative lending market has created a novel and viable electronic lending model: ACH Business Loans. The narrative that follows details how ACH business loans are changing the way small business owners PAY their monthly loan repayments.

ACH business loans refer to “how” a borrower repays a business loan, rather than a reference to a specific financial product. ACH business loans resemble the lending model of their distant cousin – the Merchant Cash Advance (MCA). Although, that comparison is like comparing apples to oranges.

An ACH loan is usually recommended for short-term financing scenarios. ACH business loans are generally more expensive, but this novel business model provides quicker access to necessary funds, than offered by a tradition business loan model.

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ACH Financing

ACH Business Loans, The Basics

Those financial institutions modifying the original business-lending model are called Alternative Lenders. Their lending archetype requires payments made on an agreed-upon automatic withdrawal basis -either a monthly, a weekly or a daily payment. Only a few lenders still give you the option of mailing in a paper check each month, so be careful if this is your preferred repayment method.

Most electronic payments pass through the Automated Clearing House network – the nation’s primary financial coordination system created to process Electronic Funds Transfers (EFT) on a national scale. The ACH is tasked with the responsibility of managing 90 percent of the value of all electronic transfers in the United States on any given day. The ACH is like a nationwide system that oversees a registry of debits and credits for its citizens and business entities; completed in a fraction of a second. What a huge responsibility!

The ACH also allows for increased security measures. This in turn, mitigates fraud throughout the many industries that interact with banks. Small business owners have the option to receive creative ACH financial loans, that help meet their very specific financial objectives like:

–Funding is lightning fast when compared to traditional loans
–Lowered Credit Requirements
–The ability to sell a piece of the business’ future generated revenue.
–The ability to finance using outstanding receivables as collateral

The Various Ways to Repay ACH Business Loans

Most Alternative Lenders connect to the Automated Clearing House (ACH) via a checking account’s routing number or through a PayPal account. Each business loan lender creates the methodologies and time frames for their business loans, so, as one would expect, there are many repayment methods to choose from.

Some ACH business loan lenders mandate a monthly payment. While others require a daily or weekly repayment of a fixed amount from a business checking account via the . The options are plentiful so shop and around carefully.

When paying more frequently than the traditional monthly payment,( i.e. daily or weekly), each payment is smaller; although they are due more often. This is perceived as a benefit for business owners who find it more difficult to plan ahead for larger monthly payments. More frequent payments, established upon approval, allow for business owners to plan ahead.

Some alternative lenders prefer the borrower to repay the business loan digitally, but will consider paper checks, if the business’ financials meets their lending guidelines. Remember, though, the lender may now add a small transaction fee for the privilege of paying by check. Then, watch how quickly the fees grow should your check be returned for insufficient funds, or if it arrives in the mail a day late.

–Electronic payments offer a borrower a simple way in which to avoid late fees.
–Borrowers often receive some sort of lending discount as well, like a lowered rate.

If you find that your Internet research quest leaves some unanswered questions, contact us at LenCred to help you make your final choice about ACH Business Loans. We are ready to clarify the fine details of how ACH Business Loans work, and a way in which to apply online (with our help).

Our team of advisors are experts in the area of small business financing. We have the knowledge and experience that is necessary to help business owners find the business funding they are looking for.

General Industry Underwriting Standards

Underwriting guidelines regarding ACH business loans vary from lender to lender, but in general, a business owner looking for capital to finance their business should expect to meet the minimum standards noted below:

–Credit Score – No less than 500, which is a credit standard that is easy to qualify
–Length of Business Operation – at least a ½ year
–Checking Account Monthly Deposit – at least $10,000 per month
–Number of NSF’s Permitted Monthly – no more than three ‘Insufficient Funds’ (NSF) notices in any given month
–Application Fees –none
–Collateral – none
–Company Financials – usually not required

The lender takes on the initial risk (at application) because the applicant is in no way obligated to close a business loan that doesn’t meet their needs. The lender risks dedicating their resources to underwriting each and every application, with no guaranty that the loan will even be approved.

Applying Online for an ACH Business Loan

Around 80% of small businesses fail because of a lack of liquidity. In other words, they couldn’t get their hands on some cash when they needed it most. Recently though, the arduous task of applying for a business loan have been revised to a more simpler online process. The paperwork required for an ACH business loan has been reduced (and now, pain free) when compared to previous business loan application protocols.

LenCred offers an easy to follow online application process as well as quick turnaround times regarding preliminary credit decisions. Entrepreneurs and small business owners can apply for revenue based business loans, SBA loans, and business acquisition loans, amongst other types of business financing. Unsecured business lines of credit are also available for startup and established business owners and often are available with and low introductory interest rate.

LenCred makes it easy. Contact our team of professionals who are available to help any business owner understand the complex variety of loan products that fit their financial situations and needs.

LenCred makes business financing simple.

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How Do I Apply for SBA Loans?

You can apply for SBA loans via an SBA approved lender. There are hundreds of SBA approved lenders. Therefore, finding the appropriate lender can be a daunting task. I strongly suggest that you consult with an SBA financing expert before you attempt to find an SBA lender. An experienced and knowledgeable SBA financing expert will be able to help you determine the type of SBA financing that will work best for you.


How Much SBA Financing Can I Get?

The amount of SBA financing you can obtain depends on the SBA loan program you are applying for. SBA funding amounts range from$5,000 to as much as $5,000,000. The amount you obtain will be determined based on your personal credit history, income, personal and business assets, your business revenue, and your business needs. Again, the right SBA financing expert will be able to determine how much financing you should ask for on your SBA loan application.


Which SBA Loan Program Should I Apply for?

Simply put, you should apply for the SBA loan program that can best meet your business funding needs. In addition, you should also apply for the SBA loan program that you most likely qualify for. If you know you can’t pledge physical collateral (e.g. commercial real estate), it will probably be better to apply for the SBA loan program that doesn’t require that. Furthermore, each SBA loan program requires the funds to be used for certain business expenses. If you need funding for the purchase of commercial real estate (to operate your business), you wouldn’t apply for a microloan (since the funds can’t be used for that purpose). An SBA financing expert will help you determine which SBA loan program will be the most suitable for you.


What Should I Expect During the SBA Loan Closing Process?

As you’ve come to understand it, getting the actual funding from an SBA loan takes some time. It doesn’t compare to the short application and quick access to cash you find with some alternative financing like unsecured lines of credit. Even with the more detailed structure, the SBA Loan closing process has improved. It’s more uniform and similar to that of traditional loans. Each SBA loan may have slight differences in closing requirements. Understanding the SBA Loan closing process gives you a general idea of what to expect. That way you know how soon you can get started growing your business. Closing comes after underwriting and processing, but it isn’t the last step. With the SBA, your loan goes through underwriting and processing, closing, loan sales, and servicing. Basically, before closing, you apply and gather required documents to prove you meet the program criteria. That’s when analysts also review your credit.


How Long Does the SBA Loan Closing Process Take?

Timing varies and depends on how soon you submit required documents and third party response time. The first step includes meeting with an SBA partner to review your business, credit, and financial situation. From there, you’ll begin the application process. That includes providing credit authorization and financial documents. Expect a one to two week wait to receive loan pre-approval and proposal letter. The formal underwriting procedure has around a two week time-frame. Wait times for third party reports determine the wait period for closing the loan. It could take anywhere from one to three weeks.


SBA Loan Underwriting

There’s another important step before getting to the actual SBA loan closing process. The documents must go through underwriting. During the initial steps of gathering information, the borrower may have to pay an underwriting fee. It covers the cost of the underwriters’ work in case the borrower backs out of the loan during the closing process.

All of this contributes to the amount of time between you applying for an SBA loan and when your business get the funds. This process determines if the borrowers is capable of managing the loan. During this process, underwriters arrange information from the borrowers that falls into five categories:

Equity: Evaluation of the debt to equity ratio. The underwriter evaluates if the borrower’s cash investment balances against outstanding debts, including the new loan.

Credit: Review of the borrower/business credit history to find out if they’ve managed debt properly. Have they handled paying other lenders on time.

Ability to repay the loan: Evaluation of sources for business and personal cash flow.

Collateral: According to the value of the collateral, reviewing if it is suitable to fit the Small Business Administration requirements. Determining how much risk the collateral requires of the borrower.

Experience in management: This gives an idea of the likelihood that the borrower can successfully maintain a business.

If evaluation from underwriters satisfies all requirements, the lender will issue a letter offering a firm commitment. If the borrower accepts the offer, they proceed to the loan closing process.


Closing on an SBA Loan

Different closing stages on the loan involve different requirements to get to officially signing. During the documentation prep stage, lenders will get the documents ready to submit to loan guaranty. It’s critical to follow directions and not have errors on the documents. Not submitting documents within the guidelines can lead to rejection. Here’s a summary of the guidelines for documentation:

Save each document in PDF format either as a collaborative or individual files. You must use specific file names according to the instructions. This helps staff to quickly identify each document, which can cut down on your processing time. It also helps with figuring out which documents are missing, so you can prevent being rejected.

Make sure your scan resolutions are high quality and easy to read. A DPI of between 200 and 600 should work. Pay attention to ensure the pages are scanned in the right direction (not upside down) and turn in all the pages in the same setting. The documents should also be accessible without needing a password to view them. Follow these directions to reduce file size:

--Scan documents in black and white.

--Turn off OCR

--Don’t include annotations or sticky notes

Before you can receive loan proceeds, you must sign certain documents. That’s where the loan closing process comes in. It gets all documents in order for you to finalize the loan. During this time, you and the lender must meet these (and possibly other) requirements:

--Promissory note, also called a “promise to pay”- this must have the borrower’s signature. On the note, you’ll find all the loan terms, including the origination date, maturity date, loan amount, loan interest rate, and any collateral requirements.

--Security documents- If you put up collateral to get the loan, government entities require certain documents for the lender to perfect the lien. Documents must be signed and filed with the appropriate government organizations.

--The lender will insure different aspects of the loan such as collateral, property titles, livelihood of borrowers and their ability to work. This protects their investment in the event that something happens to destroy or reduce the value of the property.

--A complete package with all documents from the start of the loan process: the lender’s underwriting, signed authorization for a credit and background check, government permits, etc. Third party documents could include appraisers for equipment, real estate property, or other business assets. It could also have statements from engineers for environmental assessments.


SBA Loan Closing Process for the 504 Loan

The process goes a little different with SBA 504 loans. The promissory note will not include a loan interest rate. With 504 loans, the interest and loan funding are connected to bond sales. The funds from the bond sale are what provide the loan proceeds. The price of the bonds determine the interest rate for the loan.

Those extra parts of the process prolong time between closing and loan disbursement SBA 504 loans. The steps are as follows:

Step 1: The borrower signs all legal documents as with other SBA loan closings.

Step 2: The SBA’s local district office receives all the documents and submits them to their attorneys. They review the documents to make sure lending partners and borrowers followed all SBA guidelines.

Step 3: If all documents meet the requirements, the local district office sends them to the bank. The bank reviews the documents to add them to their upcoming bond offering.

Step 4: Bonds for the 504 bonds go through underwriting, pricing, and the sale process.

Step 5: After completing the bond sales, banks wire the funds to each lending partner that approved the 504 loans.

One benefit of having to wait a little longer for funding is a lower interest rate. Lower investment risk combined with SBA loan guarantee means low interest for the borrowers. Read on to lean more about how the SBA helps “small small” businesses and how LenCred can help you apply.

Are the "Real" Small Business Owners Truly Benefiting from SBA Loans?

According to the U.S. Small Business Administration, small (Main Street) businesses such as our local convenience stores, dentist offices, accountants, bookstores, etc. (with 1 to 19 employees) make up 98% of the businesses in our society. The SBA defines small business as businesses with fewer than 500 employees. According to the U.S. Census Bureau, out of these small businesses, 75% have no additional paid employees besides the owner and average revenues of about $44,000 annually. That number is significant because it means that most of the so-called “small businesses” are actually individual people that most likely operate as a sole proprietor.

These smaller business (or what Ken Evoy of calls “small small businesses”) are continuously overlooked in regards to capital access. The SBA would like to make us all think that they are genuinely helping the “small small businesses” when in reality they are not. They are helping “larger small businesses” that only make up 25% of the total number of businesses considered small (with less than 500 employees). These “small small businesses” typically need microloans up to $50k or smaller “big” loans up to $250k.

In 2008 Terry Sutherland (from the SBA Press Office), stated that the average SBA loan was about $180,000 and 24% were under $100,000. In the current economy, the average SBA loan is about $485,000 and less than 9% are under $100,000. When you think about the number of “small small business” owners there are in comparison to larger businesses, you will understand why only 9% of them receiving funding through the SBA is completely unacceptable. Based on my professional opinion, it is pertinent that the SBA focuses more on actual small businesses because they make up so many of the businesses in our society.

Investing in “Small Small Business” Has Proven to be Beneficial

According to a study conducted by the microloan lender Accion Texas, “U.S. Microfinance: Small Loans, Big Results,” lending small amounts of money ($5,000 to $50,000) to “small small business” owners has contributed to the sustainability and growth of their businesses -- specifically, job creation, sales, and revenue increases. The study found that 54% of participants who received a microloan from Accion Texas were able to hire nearly 6 new employees, 32% said their business revenue increase and 97% were still in business at least 2 years after receiving a microloan. This should serve as solid proof that an increase in lending small loans to “small small business” owners would be very beneficial to the growth of their businesses and the overall economy.

The SBA Can Help “Small Small Businesses”

It’s obvious that the SBA needs to revise its definition of a small business and re-position itself to focus on lending to businesses with the owner as the sole employee. Lending small amounts of money to lots of “small small businesses” will slowly (yet surely) increase jobs and business sustainability. The SBA's Administrator, Maria Contreras-Sweet, should be motivated and encouraged to lend to those that most banks and lenders often overlook. Small, small businesses are also critical part of our economy that should be given fair access to capital.

Can LenCred Help Me Apply for SBA Loans?

Although the LenCred team specializes in helping startups and established business owners obtain unsecured business line of credit, the team also has the knowledge and experience to guide you to the right SBA loan program and approved SBA lender. If you don’t qualify for an unsecured business line of credit, an SBA loan may be your next best option. The LenCred team will analyze your business needs (and your personal credit history) to determine what type of business financing will work best for you. Contact us today for more information on how you may be able to get an SBA loan to start or grow your small business.