Lending vs. Funding - Times are Changing
Alternative Access To Funds
36 years ago I could walk into the First National Bank of MyHomeTown and sign the back of a loan agreement in 10 minutes and walk out with $10,000 in my checking account - and I didn't earn much more than that at the time. 20 years ago I could call my local SBA lender, tell them I needed $25,000 or less for my business, and in about 2 weeks I would have that money sitting in my account (less their fees of course). 10 years ago, I could make a call to my lender, get $10-20,000 dropped into my business account over the phone - and go by when I had time to sign for it. I can still do some of this - but not with my banker anymore - he can't do a damn thing for me without hours of red tape, hours of paperwork and research and all sorts of government and industry regulation. So I don't do business with my bank anymore - except to hold my money - they are still insured!
The idea of alternative sourcing for funding isn't new. I almost would bet that there was a shady character around a couple thousand years ago willing to loan customer's of the oldest profession the money they needed! It may have been in eggs or chickens or wheat, or pieces of silver, I have no idea. The point is lending is nothing new - regulations on lenders is - and it is killing American business. The idea is to find ways to work that can help get you around it.
This idea is really not new either - it is just simplified by having the internet as a means to an end. In most crowd funding programs, the fundee asks his family, friends, acquaintances, business associates and even people he doesn't know to give money to an effort so it can move forward. The internet allows a conduit to get the word out so individuals don't have to rely on their own voice - they now have access to the world's ear!
Some crowd funding type ventures are specific in nature to a field of endeavor such as a new book, start-up venture, even a charitable program. Most of these have been grouped so people can search through them and decide if they want to give $10 or $20 million because they like what they see. It gets around all current banking laws - legally - and the folks that own the website skim their percentage right out of the donation. I'm not slighting that - it takes something to keep these sites managed and some do a better job than others. Just see what that is and pay attention so your donation goes where you wanted it to.
Alternatives to Help Business Funding
Do you have a Credit Card? Does your business accept credit cards? So if the answer to both of these questions is yes - then you have both funded your own needs with alternative financing, and you have funded your business with alternative financing methods. You may not have though about it in those terms - but that is what you have done.
Now even credit cards are being regulated more and more by the government. Much of this is based on the rates charged, usury levels, and who can get what kind of credit - before and after bankruptcy.
Beyond regulation, credit cards are a very expensive means of financing a business venture. Even those with relatively low interest rates and annual fees may have higher per use fees or other collection fees that bring it back to being an expensive proposition.
The question is what are you using this funding source for? Do you use credit card processing so you can get paid by your customers faster and without collections? Do you fear bad checks - so you go with credit cards? Do you meet or exceed the requirements of the credit card company bureaus so you store the data received as prescribed?
Or are you using credit cards to borrow money so you can make payroll and buy inventory? You believe those commercials about getting rewards and points by sticking with that one purple or black or blue card all the time? How is that working out for you?
New Products on the Horizon
There are some hot new options available now or coming soon on the horizon. If you have been to your doctor's office, veterinarian or hospital you have probably seen some alternative payment programs in place and available to patients who cannot meet the demand of a new, and due to the ACA, extremely high deductible you didn't used to have. Now there are companies operating in the space that developed known by you as your deductible. They fund patients that need $1,000 to $3,500 with a single check and offer terms from six to 12 months or even longer in some cases, to pay it back. Interest rates can be competitive with credit cards - usually less - and sometimes they boast "no interest" at all! Wow, somewhere someone has so much money they are lending it for free...right? As a business owner you look at that and say "how to I get this kind of service for my business selling computer repair or replacement windows or transmissions or air conditioners?" You can.
But before we go there - let's explore a couple items to be sure you set it up the way that benefits you the most in your market. Does it sound better for you to tell a patient, customer, client - I can offer financing to you for zero percent for 6 months or 3% for 12 months instead of saying 9% for 6 months or 15% for 12 months? How about 14.9% until you miss one payment by a day and it jumps to 29.98%! Yes, one of the very common products even has that on their website.
Before you answer that, can you afford to increase all of your fees by 9% in a competitive marketplace? Will you be willing to discount your fee then, when asked, by 9% for cash? Will you advertise that? The hospital you just went to or the doctors office you just visited that said zero percent interest for 6 months did. There is no free lunch...I didn't make that line up, but it is true!
How much will your save with this new funding company? Well it depends - another statement I didn't make up but it fits. Some of these companies will charge you or your customer the interest rates I mentioned unless they miss one payment and then they double it even if it was just missed one time on by one day - the rest of the contract it is at 29.98% - unless they miss another one! In addition, there are some companies that will charge a fee built into your proceeds in the sale/action that you did for your customer...that is let's go back to the doctor, he removed a nasty hairy wart from the end of your nose and charged you $2,000. You had no money so you used the common product there on the counter at the office to cover this amount because you haven't met your deductible as yet. The doctor only gets 88% of the $2,000 because this company snags 12% of the proceeds for their own, in addition to 14.97% interest which the doctor had to build into the fee of $2,000. Without these people, he could have charged you about $1500 cash - but in order to pay these fees he has to charge you $2,000 and tells you it is "interest free!"
Of course the same principle applies to that washing machine or mattress you just purchased for zero percent interest too! There is no free lunch.
But are there better alternatives. Of course there are - and as this develops there will be even more companies entering the market and even more improvements - it is a highly competitive market.
One such company is Funding U. They can work with just about any kind of business from medical to mechanical to beauty schools! A client/patient/customer can go to a the site and get a look at how it works, or actually get a "no credit check" line of funding for that next colonoscopy before you go into the doctors office and do all the paperwork from home! They require a drivers license/government provided ID, a bank statement and a paycheck stub - and a void check. In less than 5 minutes you will know just how much funding you can have, the options on paying it back, and set up when you want to get started. The office will get similar information knowing the patient has this funding and can proceed with the procedure - and with this company, they don't dig into the physicians proceeds so he doesn't have to raise his prices to cover that cost - and the patient can know what the interest rate is based on how long they choose to pay back the funding - 6, 9 or 12 months.
Who wins? Everyone - because now, without a credit check, no ding on your credit and with interest rates less than credit cards, the patient is funded. The costs to the doctor do not include the 2, 3, 4 or 5% charge by the credit card company either! If a doctor has 30 patients a week charging $300 his credit card charges can be over $1,200 a month or more! Funding U charges him $15 a month plus $0.25/charge, period...maybe $65. A significant savings over conventional funding - and it works for all kinds of business.
I hear there are new, more robust and even better values in this space coming soon - for all kinds of lending. It would be great for them to be getting more recognition on the news as this is all great for the economy - and as the rest of the world has changed, it is about time the crummudgins in banking have finally felt something new in their world!