Fundera

MTL Document Requirements

- Bank Statements (4 months) - Business Tax Return

Lines of Credit Lenders

- Kabbage - Fundbox - Bluevine Others: Headway Capital

MTL Lenders

- Lending Club - Funding Circle - Fundation Others: OnDeck, Credibility Capital, Camino Financial

Most Common Issues with Submitted Financial Documents

- Missing required documents - Incorrect Debt Schedule - Missing 2018 interim financials

STL Lenders

- Paypal - OnDeck - QuarterSpot Others: The Business Backer, RapidAdvance, National Funding, Camino Financial, American Express

SBA 7a Loan Program (Lender Benefits)

- Securitize and sell the guaranteed portion on the secondary market - Collect the funds from the secondary market so they can churn the capital and lend it again - Call the SBA and get the guaranteed portion back in the event of default

SBA 7a Loan Program (Borrower Benefits)

- The longest term (7a loans offer 10 year terms) - The lowest rate (Prime + 2.75%) - The most capital (average 7a loan is $374,000 according to the SBA) - Broad range of use of proceeds (equipment, working capital, buying out a partner, marketing, inventory, payroll, etc.) ***Note that SBA 504 loans are a better fit for borrower seeking loans Commercial Real Estate and offer 25 year terms. This is not currently an area of focus for Fundera, however we do have two partners who are able to serve this use case (SmartBiz - 2% to Fundera and Northeast Bank - 3% to Fundera)

Fundera Application: 9 Use Cases

1) Working Capital 2) Expansion 3) Purchase Equipment 4) Marketing 5) Buy an Existing Business 6) Refinancing/Consolidating Debt 7) Buying out a Partner 8) Remodeling an Existing Location 9) Other

C-Corporation (C-Corp)

A C-Corp is a legal entity chartered by a state or the federal government, which is separate and distinct from the persons/entities who own it. It is the most complex of legal business structures and is usually chosen by owners to avoid liability of the business debts. - Ownership Title - Shareholders - Taxation - A corporation pays corporate income tax and files corporate tax forms each year (IRS Form 1120). The main disadvantage of the C Corporation is double-taxation. For income tax purposes, C Corporations are considered a separately taxable entity from its owners. However, not all income is double-taxed. For example, C Corporation can make salary payments to shareholders. As long as these payments are reasonable, they are treated as a business expense (usually, as part of SG&A or Selling, General, and Administrative expense line item) and are deductible. - Documents Required for Creation - Articles of Incorporation are filed with the Secretary of State and declare the purposes of the company. Once approved, it becomes a Certificate of Incorporation which gives the entity its legal existence. A Certificate of Good Standing is issued by the Secretary of State to denote the continued existence of a corporation. - Owner Liability - Limited to amount of investment Special Note or Restrictions - A C-Corp can have an unlimited number of shareholders. A corporation has these chief distinguishing features: (1) owner liability; (2) the ability to issue multiple stock classes; (3) easy transfer of ownership through the sale of shares of stock; (4) continuity of existence; and (5) centralized management. Normally, a corporation's management and control is vested in the Board of Directors who are elected by the corporation's shareholders. Directors generally make policy decisions regarding the corporation but do not individually represent the corporation in dealing with third parties. Rather, dealings with third parties and day-to-day operations are conducted by officers and employees of the corporation to whom authority is delegated by the Directors.

General Partnership or Partnership (GP)

A general partnership is a form of business entity in which 2 or more co-owners engage in business for profit. For the most part, the partners own the business assets together. - Ownership Title - General Partner - Taxation - A general partnership is not a tax-paying entity. The profits flow through to the partner's and are taxed at the individual's level. - Documents Required for Creation - The responsibilities, obligations and benefits of the partners usually are described in a contract called a Partnership Agreement or Articles of Partnership. Partnership agreements should clearly address the rights and responsibilities of each partner. These can include but are not limited to (a) the breakdown of each partners' capital contribution, (b) the process by which future capital contributions will be made, (c) how profits and losses will be distributed, (d) partners' management responsibilities, (e) the process by which to exit the partnership, and (g) the process by which to dissolve the partnership. - Owner Liability - General Partners are personally liable for the debts of the partnership (jointly and severally), the actions of other partners and the action of the GP's employees. - Special Note or Restrictions - None

Joint Venture (JV)

A joint venture is typically formed to undertake a particular business transaction or project rather than one intended to continue indefinitely. Often, join ventures are used in real estate maters when two or more entities undertake the development of a specific piece of real property.

"Intangible" Uses (Loan Use Case)

Aside from the tangible options for using term loans, there are also other uses that make sense for use. These loans can help a business develop a new website or help them to add a new customer interface platform on their current website. Oftentimes, these loans are also used to pay off another debt with a higher interest rate. Once a business has decided that a term loan is the best option for financing a planned expansion or improvement, it is important to research a variety of lenders to find the best loan option. Since term loans are flexible in terms of length, amount and interest rate, it is important to compare various lenders to ensure the best terms for your business.

Small Business Startup Loan

A small business startup loan is any kind of financing aimed specifically towards startups with little to no business history. There are a variety of small business startup loans and financing methods available to new business owners—from SBA microloans, business credit cards, friends and family, to crowdfunding. Each have their pros and cons depending on your specific financing needs and the strength of your personal credit score.

Term Loans

A traditional business term loan is a lump sum of capital that you pay back with regular repayments at a fixed interest rate. The "term" in "term loan" comes from its set repayment term length, which will typically be one to five years long. Most business owners use the proceeds of term loans to finance a specific, one-off investment for their small business. - Loan Amount: $25K to $500K - Interest Rate: 7-30% - Loan Term: 1 to 5 years - Speed: As fast as 2 days

Trusts

A trust is a legal entity created by one person or entity to hold title to assets either for that same person or entity or for someone else. The trust, rather than the individual, is taxed for all income earned by the assets of the trust, unless the income is paid out to he beneficiaries of the trust, who will then pay taxes on the income. A trust is usually set up for estate planning purposes or in the case of land trusts, to hide ownership. Business trusts are typically used in connection with asset securitization.

Bank Statements

All businesses should operate through a business bank account which will reflect sales (deposits) and expenses (withdrawals). Short term lenders will annualize deposits to determine a top line sales revenue number. The lenders will base the loan amount off of the annualized sales. They typically will offer 8% - 15%. Other things the lenders will look at are: - Number of overdrafts/non-sufficient funds - Number of negative days - Debt payments Types: - Deposits - They will look to see that the number and total amount per month meet their revenue minimums. - Average Daily Balance - This is a reflection of how well a company is managing their cash flow. - Overdrafts (ODs) / Non-sufficient Funds (NSFs) / Negative Days - These show when an account dips into the negative. Each lender has a different threshold for the max amount of these. - Debt Payments - These are harder to spot but any daily/weekly/monthly recurring payments to a financial institution.

Limited Liability Company (LLC)

An LLC is a hybrid between a Partnership and a Corporation - combining the "pass through" treatment of taxes of a partnership with the limited liability accorded to corporate shareholders. Also could be a Single-Member LLC which will require the same documentation as a Sole Proprietorship (see Sole Proprietorship). - Ownership Title - Member - Taxation - Similar to Partnerships, the tax obligation is passed-through to its member. - Documents Required for Creation - LLCs must file Articles of Organization and Operating Agreements with the Secretary of State. Operating agreements are similar to partnership agreements, in that they list the responsibilities, obligations and benefits of the members - Owner Liability - Ordinarily, only the LLC is responsible for the company's debts, thus shielding the members from individual liability. Special Note or Restrictions - An LLC must have at least 2 members but there is no maximum number of members it can have (unless it is a single member LLC). In addition, banks and insurance companies typically cannot be a LLC. Like limited partnerships and corporations, a LLC is recognized as a separate legal entity from its members. However, the LLC is dissolved upon the death or bankruptcy of a member (whereas a corporation can live on continuously). LLCs are not required to hold regular shareholder meetings or record minutes (which are requirements of a corporation). A member will more closely resemble a shareholder if the LLC utilizes a manager or managers, because the member will not participate in the management of the LLC. If the LLC does not utilize managers, the member will more closely resemble a partner, because she/he will impact the decision-making of the company.

Personal Tax Return (PTR)

An overview of the business owner's income and write-offs/deductions. This shows any pass through income from the business or additional income earned by the business owner outside of the business. Lenders will look at this to see if business owner has income to help guarantee the loan.

Equipment Financing

Equipment financing helps you finance up to 100% of the new or used equipment you need for your business. Applying for an equipment loan is typically a fast and easy way to finance the purchase of most types of equipment—computers, machinery, vehicles, or whatever else you need. - Loan Amount: Up to 100% of equipment value - Interest Rates: 8-30% - Loan Term: Expected life of equipment - Speed: As fast as 2 days

FICO

FICO® Scores are the credit scores most lenders use to determine your credit risk. You have FICO® Scores from each of the three credit bureaus—Experian, Equifax and TransUnion. Each score is based on information the credit bureau keeps on file about you. A FICO score is a type of credit score created by the Fair Isaac Corporation. Lenders use borrowers' FICO scores along with other details on borrowers' credit reports to assess credit risk and determine whether to extend credit. FICO scores take into account various factors in five areas to determine credit worthiness: payment history, current level of indebtedness, types of credit used, length of credit history and new credit accounts.

SBSS Score

Like personal credit scores, FICO SBSS rank-orders small businesses by their likelihood of making payments on time. The FICO score ranges from 0 to 300. The higher the score, the better. The minimum score to pass the SBA's pre-screen process is currently 140.

Expansion (Loan Use Case)

Most businesses will need to invest in themselves in order to grow - this can either be done with cash the business has been saving or with a loan. There are numerous ways businesses can grow but typically expansion capital is needed for: hiring new employees, increasing marketing, developing a new product, expanding to a new or bigger location.

Net Income

Net income - NI is equal to net earnings (profit) calculated as sales less cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes and other expenses. This number appears on a company's income statement and is an important measure of how profitable the company is. Net income also refers to an individual's income after taking taxes and deductions into account.

Personal Loan for Business

Personal loans for business purposes can be especially useful for newer businesses without established business histories. If you're a business owner in this situation, personal loans for business often have lower interest rates than many other business loans you'd typically qualify for. - Loan Amount: $35K maximum - Interest Rate: 5.99 - 36% APR - Loan Term: 3 to 5 years - Speed: As fast as 1 day

PLP

Preferred Lender Program or PLP is one of the procedures undertaken by Small Business Administration (SBA) to provide financial assistance to the small business community. SBA nominates the PLP lenders who have demonstrated a proficiency in processing and servicing SBA-guaranteed loans.

PQ

Prequalification

Revenue

Revenue is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Revenue is also known as sales on the income statement.

Short-Term Loans

Short-term loans are lump sum loans that are designed to be paid back in less than 18 months. They can be a flexible financial tool that are best used for financing short-term needs—including managing cash flow, dealing with unexpected needs for extra cash, or taking advantage of unforeseen business opportunities. - Loan Amount: $2.5K to $250K - Interest Rate: Starting at 10% - Loan Term: 3 to 18 months - Speed: As fast as 1 day

Limited Liability Partnership (LLP)

Some states allow attorneys and accountants to operate their practices as a limited liability partnership. This formation is a General Partnership that elects to be treated as an LLP by registering with the Secretary of State. Many attorneys and accountants find the LLP to be very attractive alternative since it shields the partners from vicarious liability, can operate more informally and flexibility than a corporation, and is accorded full partnership tax treatment. In some states, with certain exceptions, the LLP is only available to attorneys and accountants.

Investing in PP&E (Loan Use Case)

Term loans are ideal for investing in long-term tangible pieces of property, which are sometimes referred to as PP&E: Property, Plant and Equipment. This can include purchasing a new building, a new truck for deliveries, computer and server equipment, machinery, etc. In general, term loans are meant for purchasing assets that will not be sold or converted to cash within the year.

Hiring New Employees (Loan Use Case)

Term loans are often used to hire new employees, giving the company time to train the new employee. In turn, having the term loan capital available gives the employee the time they need to begin to bring in more clients and increase revenue, covering the cost of the loan and ultimately exceeding it.

NAICS

The North American Industry Classification System (NAICS) is the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy.

SBA

The U.S. Small Business Administration (SBA) is a United States government agency that provides support to entrepreneurs and small businesses. The mission of the Small Business Administration is "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters". The agency's activities are summarized as the "3 Cs" of capital, contracts and counseling.

SBA Loans

The U.S. Small Business Administration helps small business owners get funding through SBA loans. With their multiple SBA funding programs, this government agency provides SBA loan guarantees of up to 85% of the loan amount provided through an SBA-approved lender. The three main SBA loan programs let you borrow money for nearly any business purpose—including working capital, purchasing inventory or equipment, refinancing other debts, or buying real estate—through these SBA-guaranteed loans.

Debt Schedule

This document shows the current state of debt on the business. It reflects how much debt is currently outstanding and what the payment structure looks like, including repayment frequency and amount.

Merchant Cash Advance

With a merchant cash advance, a financing company advances you capital in exchange for a percentage of your daily credit card sales, plus a fee. Merchant cash advances can be quick, easy ways to get a business cash advance with no need for collateral—even if you don't have a great credit score. - Loan Amount: $2.5K to $250K - Factor Fee: 1.14 to 1.18 - Repayment: Paid daily via your merchant account - Speed: As little as 2 days

Working Capital (Loan Use Case)

Working capital is money available for a business to meet its operating needs. Some businesses generate enough cash to cover all costs, others will need to finance a portion of the costs. Typically working capital use cases are recurring issues the company encounters such as making payroll, buying more inventory, paying suppliers/vendors, marketing campaigns, and paying bills that come up from the day to day operations of business.

Subchapter S-Corporation (S-Corp)

A Sub S corporation is a type of corporation which elects to have special tax treatment. A Sub S Corp's special tax status eliminates the possibility of the double taxation that occurs with a standard corporation. It can also elect to use the Cash Basis method od accounting (instead of Accrual based). - Ownership Title - Shareholders - Taxation - Shareholders include in their personal tax returns their pro-rata share of capital gains, ordinary income, etc. Whereas, the S Corp is NOT responsible for federal income taxes but can be responsible for state and local taxes. Thus, a Sub S Corp's special tax status eliminates the possibility of the double taxation of federal taxes that occurs with a standard C-Corporation. - Documents Required for Creation - The same documents are required for an S Corp as those required for a C Corp, with the addition of the S Corp's election to be treated as an S Corp. - Owner Liability - Sub S Corps have the same limited liability protection of standard corporations. - Special Note or Restrictions - To qualify for Sub S-Corporation status, the corporation must: 1) Be a U.S. corporation 2) Have only one class of stock (such as common stock); but can have two types of common stock (voting and non-voting) 3) Have a maximum of 100 shareholders 4) Have Shareholders that are individuals, estates or certain qualified trusts 5) Have Shareholders that are NOT partnerships, corporations or non-resident aliens

Business Tax Return (BTR)

A breakdown of the sales and expenses of a business over the course of a year. The lenders will use this to determine on an annual basis how much a company can support in debt payments. The lenders will use this number to determine the loan size. The form a business files with the IRS depends on the entity type: - Sole Proprietor or Single-member LLC - Schedule C - Form 1040 (This is filed as a part of business owner's personal tax return) - LLC or S-Corp - 1120S (Most common entity types for small businesses) - General Partnership - Form 1065 w/ schedule K-1 - C-Corp - 1120 w/ Schedule G, Form 1125E (When requesting docs, if someone is on an extension for 2017 tax returns, the personal form is called Form 4868 and business form is called Form 7004.)

Business Lines of Credit

A business line of credit is a form of small business funding that provides a pool of funds to draw from when you need capital for business expenses. Draw on your small business line of credit to easily access capital to handle cash flow gaps, get more working capital, buy inventory, or address almost any other emergency or opportunity. You'll only repay what you withdraw, and you'll do so with an agreed-upon interest rate and repayment term. - Loan Amount: $10K to over $1M - Interest Rate: 7-25% - Loan Term: 6 months to 5 years - Speed: As fast as 1 day

Refinancing/Debt Consolidation (Loan Use Case)

A debt refinance is paying off the balance of a current loan with a new loan. A debt consolidation is paying off numerous loans with one loan so there is just one payment. The goal of both a refinance and consolidation is to receive better terms - rate, payment, or total repayment. The information to gather to determine if a new offer is better than the current loan are: amount outstanding, amount originally borrowed, rate, term outstanding, and payment.

Interim or Year to Date (YTD) Financials

These financials show how a business has been trending since the beginning of their fiscal year.

Limited Partnership (LP)

A limited partnership is an entity in which one or more persons with unlimited personal liability, called General Partners, manage the partnership; while one or more other persons (called Limited Partners) contribute only capital. This latter group has no right to participate in the day-to-day management and operation of the business. The purpose of this form of business is to encourage investors to invest without risking more than the capital they have contributed. Typical limited partnerships are in real estate, oil and gas, and equipment leasing, but they are also used to finance movies and complete research & development, as well as other projects. - Ownership Title - Limited Partner or General Partner - Taxation - If the LP meets certain state requirements, it is not a tax-paying entity. The profits flow through to the partners and are taxed at the individuals level. If the LP does not meet the requirements it will be taxed as a corporation. The intention of most LPs is to avoid double-taxation. - Documents Required for Creation - The same documents created for a General Partnership are used to create a limited partnership. - Owner Liability - While General Partners take the same liability as they would in a General Partnership, Limited Partners have no liability beyond their contributed capital. - Special Note or Restrictions - A limited partnership agreement can be overridden if a limited partner takes day-to-day control. In this situation, the limited partner can be held to the same standard of liability as a general partner.

STL Document Requirements

Bank Statements (4 Months)

Depreciation

Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value. Businesses depreciate long-term assets for both tax and accounting purposes. For tax purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses; however, businesses must depreciate these assets according to IRS rules about how and when the company can take the deduction.

Interest

Interest is the charge for the privilege of borrowing money, typically expressed as annual percentage rate (APR). Interest can also refer to the amount of ownership a stockholder has in a company, usually expressed as a percentage.

Invoice Financing

Invoice financing—often called accounts receivable financing—allows business owners to finance outstanding invoices. Invoice financing companies advance you cash collateralized by your unpaid invoices, giving you an excellent way to put money back into your business. With invoice financing, you can get a fast advance of about 85% of the value of your invoices, with most of the other 15% paid to you later. - Loan Amount: Up to 100% of invoice value - Factor Fee: 8-30% - Repayment: Until the customer pays the invoice - Speed: As little as 1 day

Sole Proprietorship

This is the simplest form of business. A sole proprietorship is not a separate legal entity from its owner. Rather, a sole proprietor directly owns the business and is directly responsible for its debts. Ordinarily, this is done under a business name (Doing Business As - DBA) rather than under the owner's name. - Ownership Title - Owner or Sole Proprietor - Taxation - A Sole Proprietorship is not a tax-paying entity. The profits flow through to the Owner and are taxed at the individual's level. - Documents Required for Creation - None - Owner Liability - In a sole proprietorship, the owner is personally liable for the company's debt, thus placing his or her personal assets and wealth at risk. If an owner is married, that owner puts the community or marital property at risk as well. In addition, the owner is at risk for personal liability incurred through the acts of the company's employees or agents. - Special Note or Restrictions - A sole proprietorship is usually a small organization, such as a retail store, service firm or professional business. In addition, a sole proprietorship may open an interest-bearing checking account unlike corporations.

Non-Profit Organization

This type of organization exists for the betterment of a community, and, from which, its shareholders or trustees do not benefit financially. It is also called a not-for-profit or 501(c)3. A 501(c)3 enjoys specials IRS status, exempting it from paying federal income, state or local income tax as well as state sales tax.

Purchasing Equipment (Loan Use Case)

This use case is common among businesses who are looking to make larger equipment purchases or bulk purchases of small equipment (i.e. office computers). Typically suppliers of these pieces of equipment will offer financing or leasing options but if those are not available we can look at either our equipment financing lenders or term loan lenders. We commonly do not just look at equipment financing lenders because other lenders might be able to provide better terms. Some borrowers will confuse purchasing equipment with purchasing inventory. If the 'equipment' will be resold at a higher price this should be considered an inventory purchase and equipment financing companies will not be viable options.