Advertiser Disclosure

News

How the Next Government Shutdown May Affect Your Small Business

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

government shutdown
Getty Images

When Texas business owners Veronica and Craig Bradley put together an application for a loan from the U.S. Small Business Administration, they detailed the risks big and small that could derail their startup brewery.

The couple filled a page with hypothetical unexpected events that could prevent Vector Brewing from making a profit, going so far as to include their own deaths, according to Veronica Bradley.

“The one thing we didn’t account for was a government shutdown,” she said. “Who thinks that’s going to happen?”

A partial government shutdown started Dec. 22, days before the Bradleys planned to submit an application for a $1 million SBA loan to fund the construction and operation of Vector Brewing in Lake Highlands, Texas. The SBA went dark during the 35-day shutdown, delaying SBA funding for many small business owners like the Bradleys.

The federal government reopened a record 35 days later on Jan. 25 after the House and the Senate passed a stopgap spending bill to restore operations until Feb. 15. If that deadline rolls around without a permanent funding agreement, the government could fall into a second shutdown that would impact small businesses still recovering from the first.

Negotiators in Congress have reached a tentative deal that would evade another shutdown, but it’s not yet set in stone. And although the recent shutdown was the longest in U.S. history, it was far from being the first one. There have been 21 stoppages in government funding since 1976, with three shutdowns occurring in 2018 alone.

The Bradleys aren’t waiting for the other shoe to drop — they have a contingency plan. They learned valuable lessons the first time around and are better prepared for another shutdown. We’ll help you understand the widespread impact of the shutdown and help you make your own plans for any unforeseen circumstances.

Effects of the shutdown

The partial government shutdown directly impacted 21% of business owners, creating delays and interrupting regular operations.

In addition to the suspension of SBA loan approvals, federal data services were inaccessible. The E-Verify system was suspended during the shutdown, which meant business owners could not use the platform to confirm the employment eligibility of new workers. Private-sector entities that experienced business shortages during the shutdown will likely never recoup that lost income; about $3 billion in lost GDP growth will not be recovered either.

Small government contractors were hit hard – 41,000 small business contractors lost $2.3 billion in revenue, according to data from the U.S. Chamber of Commerce. “It is really eye opening, down to the nickel and penny of what some of these small business owners lost,” said Tom Sullivan, vice president of small business policy for the U.S. Chamber of Commerce.

What would a second shutdown mean for small businesses?

Two back-to-back shutdowns could deal a major blow to small business owners who depend on the federal government, not just for data services or the loans it guarantees, but also for important federal permits. The Bradleys are among numerous brewery owners waiting for permits from the Alcohol and Tobacco Tax and Trade Bureau needed to brew and sell beer. The timing of a possible second shutdown would be another huge hit, as it could limit the scope of the IRS as tax season nears.

The threat of a second shutdown is on Bradley’s mind every time she writes a check. Until the SBA loan comes through — she and her husband were finally able to apply in late January — the Bradleys must pay business expenses out of pocket. The brewery isn’t open yet, but the Bradleys’ landlord, attorney, financial advisor, contractors and architects are waiting for payment, Bradley said.

“This has been a very scary balancing game,” she said.

Before the shutdown, her banker told her to expect to receive funding in eight to 12 weeks. Now, the SBA doesn’t know how long it will be until the loan is funded, she said.

The Bradleys’ home state of Texas is second only to California in suffering the effects of the partial government shutdown, according to research from ValuePenguin (ValuePenguin and MagnifyMoney are both owned by LendingTree). Since 2010, the SBA has issued more than $177 billion in 7(a) loans, the most common SBA loan for small business owners, with the most money going to entrepreneurs in California, Texas, New York, Florida and Ohio, per ValuePenguin. SBA loans typically range in size from $500 to $5 million. The SBA does not loan directly to business owners, instead guaranteeing loans issued by partner lenders such as banks, community development organizations and microlending institutions. Backing from the SBA reduces risk for lenders and helps business owners qualify for financing with favorable interest rates and repayment terms.

As those banks waited for SBA approvals, the money slowed, which has business owners like Bradley wondering if another government shutdown could impact business owners who rely on any type of bank financing, not just SBA loans solely. If SBA loans are off the table, she said competition could increase for other small business loans or lines of credit. A lack of access to capital has long been a complaint of small business owners.

“Everyone who wanted to go the SBA route is going to have to clamor for other sources of income,” or else wait, potentially stifling growth, she said. “This affects everyone.”

Alternative lenders are an option

Bernardo Martinez is U.S. managing director of Funding Circle, one of many online lenders serving as an alternative to brick-and-mortar banks that have long dominated small business lending. Although he is not expecting banks to retract from business lending, a pause would create an opportunity for alternative lenders like Funding Circle to serve more business owners.

When traditional financing is out of reach for any reason, alternative business lenders can provide funding solutions for small business owners. Funding Circle had strong loan originations in January, Martinez said, but the company isn’t crediting the shutdown.

“In January, we saw a good volume month,” he said. “But I do not believe we can pinpoint specifically to the shutdown.”

Like Funding Circle, many online business lenders could provide faster time to funding than traditional banks with less stringent eligibility requirements. These lenders consider factors such as customer reviews and current cash flow when approving borrowers, but rates are typically higher than other types of business loans.

Although Martinez said Funding Circle isn’t planning to target business owners affected by a government shutdown, online small business lender QuickBridge has a video on its homepage discussing the benefits of alternative lenders during unforeseen circumstances, including the government shutdown.

At Funding Circle, “that will create an opportunity, but right now we’re not thinking about it or seeing it in the market,” Martinez said.

How to prepare for the next shutdown – or any business interruption

As the possibility of another shutdown looms, Bradley is weighing her financing options for the brewery. Before deciding to pursue an SBA loan, Bradley and her husband considered bringing on investors or using online crowdfunding platforms to raise money. If their SBA loan is delayed a second time, they might return to their original strategy.

“If it stays shut down for a week, I see it staying shut down for another month,” she said. “If the government shuts down for another 30 days we can’t wait.”

Bradley is putting together materials to present to investors and considering asking her bank for a small business loan to tide them over until more financing comes through, she said. It’s important for small business owners to have a back-up plan if things go wrong, she said, even if it’s not ideal.

How to handle the unexpected

Keep communication open.
Like any relationship, you need open communication with the people you do business with, Bradley said. If you’re facing financial trouble or other issues within your business, you should inform your vendors, advisors and anyone else who interacts with your company.

Vendor relationships became imperative during the shutdown for business owners who needed to catch a break, said Sullivan at the U.S. Chamber of Commerce.

Bradley was able to work out a deal with her landlord and contractors after explaining the delay in SBA funding. Being upfront helps you maintain credibility and trustworthiness as a business owner, she said.

Track your spending.
Keep track of every penny you spend, Bradley said, especially when you’re in distress. You should keep your personal and business finances separate so you can clearly see how much you’re putting into the business. When it’s time to apply for financing, you’ll likely need to explain your business spending to be approved for a loan, she said.

Understand your financial needs.
If you need to apply for business financing to get you through a rough period, you should know the specific expenses that you need to cover, Martinez said. That way, you would be able to borrow the exact amount you need, rather than estimating too high or too low. You would have a better chance of finding the right lender if you know exactly what you need, he said.

Read the fine print.
Keep your financial documents in order so you could apply for financing at a moment’s notice. Be sure to understand each lender’s terms and conditions before applying, Martinez said, especially if you’re looking for financing from an alternative lending institution. Each lender has its own pricing structure, and you may want to talk to the lender directly to understand what’s required of borrowers, Martinez said.

Stash money in an emergency fund.
You should generally have three to six months’ worth of expenses saved in case of emergency — that would give you a financial cushion to fall back on during any kind of business interruption, such as a government shutdown. It could also be a good idea have a line of credit or credit card available as well if you don’t have enough in your emergency account.

“Whether it’s a wildfire, a flood or a government shutdown, there’s an opportunity there for small business owners to rethink their cash flow and think very seriously about creating reserve funds,” Sullivan said.

If the federal government shuts down again, even if the closure lasts a few days, the repercussions for small business owners could be monumental. You should prepare as best you can to minimize the impact on your operation.

“Those 35 days it was shut down put us at least three months behind,” Bradley said. “It’s crazy.”

This article contains links to ValuePenguin, which, similar to MagnifyMoney is a subsidiary of LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at melissa@magnifymoney.com

TAGS:

Advertiser Disclosure

Reviews, Small Business

Kabbage Small Business Loan Review

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Kabbage business loans
iStock

Kabbage is an Atlanta-based online lender serving small businesses. Since launching in 2008, Kabbage has loaned more than $5.6 billion to more than 150,000 businesses.

For qualifying borrowers, Kabbage offers financing to cover business expenses from marketing costs to equipment purchases.

Loans come as a revolving line of credit, which means you can pull funds from your credit line at any point. You can borrow as much as you need as long as you don’t exceed the maximum amount, and you only pay back what you borrow.

It’s free to apply for Kabbage financing, and there’s no cost until you start using your funds. But before filling out the online application, find out if Kabbage is the right lender for your small business.

Kabbage financing details

Kabbage provides a line of credit from $2,000 to $250,000 for eligible businesses. You can access your line of credit whenever you need it and take out as much as you want. Repayment terms range from 6 to 12 months.

Each time you draw from your line of credit, Kabbage treats that amount as an individual term loan. Rather than charging interest, a fee is added to your loan amount. You must pay back the loan amount plus the fee in either 6 or 12 months.

Fee rates range from 1.5% to 10% of your principal. Kabbage requires you to pay back part of your total loan amount each month, plus the monthly fee. For a six-month loan, you’d owe one-sixth of your total amount each month. For a 12-month loan, you would pay one-twelfth of your full loan amount each month.

For the first two months of a six-month loan term, your full fee rate would apply. But for the remaining months, your rate drops down to 1.25%.

Here’s an example of the fee you’d pay for a $10,000 six-month loan with a 4% fee rate:

Based on this example, a $10,000 loan would ultimately cost $11,300, as the monthly fees add up to $1,300.

Here’s what you would pay for the same loan amount and fee rate on a 12-month repayment schedule:

On this schedule, the monthly fees add up to $3,150, so you would ultimately pay back $13,150.

Kabbage’s reasoning for the fee schedule is that it gives you simple, proportional monthly payments. Every month, you would pay back an equal portion of your loan principal plus a monthly fee. Kabbage doesn’t charge prepayment penalties, so you could pay off your loan early to save on monthly fees.

Six-month terms require a minimum loan of $500, while 12-months terms require a minimum loan amount of $10,000. Utah-based Celtic Bank funds Kabbage’s financing.

Kabbage

LEARN MORE Secured

on Kabbage’s secure website

What businesses are eligible?

Kabbage provides small business loans to business owners with a bit of experience under their belt. To be eligible, you should be in business for at least a year.

You also need to have a minimum of $50,000 in annual revenue or $4,200 in monthly revenue in the last three months. Kabbage analyzes your business performance as a whole when reviewing your application, so there is no minimum credit score requirement.

Because of the minimal requirements, nearly any business could qualify for financing from Kabbage. But Kabbage does not work with nonprofits.

A line of credit can be used to cover a variety of business costs, including payroll, inventory, cash-flow needs or new equipment or staff members. Kabbage tries to make approval decisions quickly, which would be helpful if you need money fast.

This would also be a good option for business owners with minimal funding needs since a loan amount can be as low as $500. If you need a bit of cash to get you through a financial pinch, Kabbage may provide an ideal solution.

The pros and cons

Pros

  • Revolving line of credit allows for flexibility in how you use the funds
  • Credit score not a determining factor in whether you’re approved
  • Fast time to funding

Cons

  • Repayment process and fee structure may be confusing for new borrowers
  • Short repayment terms could be difficult for some
  • Product offering limited to lines of credit

Application process and requirements

Kabbage’s application process is simple and can be completed from a phone or a computer. You would need to submit your revenue data as well as basic personal and business information. Kabbage could review your application immediately and let you know how much funding you qualify for based on your business performance.

Here’s what Kabbage needs:

  • Business checking account
  • Your name
  • Business name
  • Home and business address
  • Business tax ID
  • Social Security number

If your line of credit is smaller than $150,000, Kabbage may be able to automatically verify your business data and bank account and approve you in minutes. But applications for lines of credit exceeding $150,000 need to be manually reviewed and could take longer to be approved, meaning it could be several days before you receive your funding.

Upon approval, Kabbage would reveal your fee rate and loan terms. But you don’t have to start repaying until you borrow funds from your line of credit.

You can access your funds through the Kabbage mobile app or online dashboard page. To withdraw funds, you would input the amount you need and review the repayment schedule. Kabbage would then deposit the funds in your bank account in one to three business days. If Kabbage has a link to your PayPal business account, you could receive your funds in minutes.

The account where you choose to deposit your funds is also the account from which Kabbage will withdraw your payments. Kabbage automatically withdraws payments each month, unless you manually make a payment from your Kabbage dashboard.

You could also get a Kabbage Card, which allows you to access your line of credit like you would with a regular credit card. However, rather than having minimum payments as you would with a traditional credit card, using the Kabbage Card would create a structured repayment period.

Kabbage would need to mail the card to you to be activated before you can begin using it. The Kabbage Card is accepted anywhere Visa is accepted.

The fine print

Funding may not always be fast. Although Kabbage advertises fast time to funding, there are instances when it could take several days to receive funding. If there are errors during the sign-up process, funding may be delayed. Additionally, Kabbage may need to send you micro-deposits as a security precaution to confirm your bank account.

Be prepared for changes. The financing is subject to review and change. This could include reductions or increases in your line of credit or pricing, or the elimination of your credit line altogether.

Check your loan agreement. Each time you draw from your credit line, a separate loan is issued for the individual amounts. Each amount will have a separate loan agreement spelling out the repayment schedule for that particular withdrawal. Be sure to check the agreement each time you take out funds.

The bottom line

All types of small businesses can apply for Kabbage financing. And because Kabbage doesn’t have strict credit requirements, business owners with less-than-perfect financial history could be approved for funding. Kabbage’s application and approval process are also fast. If your business has immediate cash needs, this may be the right solution for you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at melissa@magnifymoney.com

TAGS: ,

Advertiser Disclosure

Small Business

Fundbox Short-Term Financing Review

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. Based on your creditworthiness you may be matched with up to five different lenders.

Fundbox review
iStock

FundBox is a San Francisco-based online lender that’s been providing short-term financing to small business owners since 2013. They offers two products — invoice factoring and lines of credit — and deposits funds in borrowers’ accounts in as little as a business day. Thanks to investors such as Amazon CEO Jeff Bezos, Khosla Ventures, General Catalyst Partners and Spark Capital, Fundbox has raised more than $100 million in capital. Fundbox also has partnerships with software providers, such as QuickBooks, FreshBooks and Xero.

When approving borrowers, Fundbox performs a “business health assessment” to determine how much a business owner can borrow and in what form. Your eligibility for invoice financing or a line of credit would depend on Fundbox’s assessment of your business transactions.

If you’ve been trying to escape the rigid credit score requirements of traditional business lenders, Fundbox may be a viable lending option for you. We’ll explore the details of Fundbox financing to help you make an informed decision.

Fundbox financing details

Fundbox offers two business financing options that are alternatives to traditional term loans:

  • Invoice financing: Fundbox offers up to $100,000 in invoice financing, or factoring, to qualifying business owners. In general, invoice factoring allows you to access money from unpaid invoices. You would sell your unpaid invoices to a factoring company in exchange for funds. The company would then collect payments directly from your customers and give you a percentage of those payments after taking a cut.Unlike other factoring companies, Fundbox allows you to continue interacting with your customers. Fundbox also deposits the full value of your invoice in your bank account right away.
  • Line of credit: Fundbox offers revolving lines of credit up to $100,000 for eligible businesses. A revolving line of credit gives you access to capital up to a certain amount. You can draw from that amount at any point and only pay back the money you borrow. As you repay your balance, the full credit amount becomes available again.

The same repayment terms and requirements apply to Fundbox’s invoice factoring and line of credit. When you borrow funds, you must make weekly repayments that include a set fee.

Fees are 4.50% - 6.50% of the amount you borrowed and may vary over time. You could pay off your balance early to save on fees. Fundbox doesn’t charge a registration or subscription. You only pay for what you borrow.

Your payment schedule could span 12 or 24 weeks, depending on the terms you choose when you draw funds. Each Wednesday, Fundbox would use an Automated Clearing House, or ACH, transfer to automatically debit your repayment from your bank account. It would consist of a percentage of your principal and your fee.

If you want to make additional payments or pay off the remaining balance, you can schedule payments from your dashboard.

What businesses are eligible for Fundbox financing?

Fundbox works with businesses in the U.S. bringing in revenue — ideally $50,000 annually. The average Fundbox borrower earns more than $250,000 a year and has been in business for more than a year.

Fundbox would want to review at least two months of activity in an accounting software program or three months of transactions in a business bank account. This requirement would likely rule out any startup businesses from being eligible.

Fundbox does not require a minimum credit score, which may be appealing to business owners with less-than-perfect credit. But the company does monitor your business performance and could adjust your credit limit or fees if anything changes within your company.

Businesses that consistently perform well or have a stable list of clients would be best suited for financing from Fundbox. Even if the business owner has poor personal credit, strong business performance could be enough for approval.

The pros and cons of Fundbox

Pros

  • No personal credit requirement
  • Flexible borrowing
  • Fast application process and quick time to funding

Cons

  • Must provide access to your business accounts
  • Fees are subject to change
  • Weekly repayments may be difficult to manage
FundBox

LEARN MORE Secured

on FundBox’s secure website

Fundbox application process

To approve you for financing, Fundbox needs to assess the health of your business based on your transaction data. You can choose to give Fundbox access to your business bank account or your accounting software.

Whichever one you choose determines the type of financing you could receive. If you connect your bank account, they will review the transactions in the account to approve you for a line of credit. If you connect your accounting software, they will analyze your activity to approve you for invoice financing.

Your choice should give the best insight into your business and show the company in the best light. For both products, you could receive funds as soon as the next business day if approved.

If you want to share your accounting software, you must be using one of Fundbox’s supported programs:

  • eBillity
  • FreshBooks
  • Harvest
  • InvoiceASAP
  • Jobber
  • Kashoo
  • QuickBooks Desktop and Online
  • Xero
  • Zoho

If you want to connect your business bank account, Fundbox supports more than 12,000 financial institutions across the U.S., including most national, regional and local banks and credit unions.

Fundbox also takes applications from businesses in some U.S. territories, including Guam, American Samoa, North Mariana Islands, Puerto Rico and the U.S. Virgin Islands.

The fine print

Fundbox can deactivate your account. Fundbox doesn’t make you borrow funds as soon as you’re approved — you can wait until a later date. But if you are inactive for an extended period, they may deactivate your account. If that happens, you’ll have to reapply for financing.

Check the privacy policy. Because you have to give Fundbox access to your bank account or accounting software information, you should be familiar with the company’s privacy policy. In certain circumstances, Fundbox may need to share your information with third-party services. You can check the policy here.

The bottom line

Fundbox offers financing to business owners who are looking for an alternative to term loans. The speed at which you could obtain funds is common among most online lenders, but Fundbox provides a bit more flexibility than others. You don’t have to borrow money right away. Rather, you can wait to draw from your invoices or line of credit until your business is in need. Then, you only have to pay back what you borrow plus a fee. Fundbox’s automatic weekly repayments allow you to quickly pay off your debt.

Fundbox assesses the overall health of a business rather than personal credit when reviewing applications. If you’re running a stable, successful business, they may be able to help you get funding regardless of your credit history.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at melissa@magnifymoney.com

TAGS: