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Banking is services offered or business conducted by a bank or similar financial institution.

  • U.S. Bank Holidays: The Calendar and Backstories of Those Beloved Days Off

    U.S. Bank Holidays: The Calendar and Backstories of Those Beloved Days Off

    Bank HolidaysHalf of the 12 U.S. Bank Holidays fall in the three months between November and January, arguably at a time when Americans need access to their money the most. So why is the United States set up this way, and where did all these dates wind up on the calendar? Below, we’ll give you a quick overview of the logic and a list of U.S. bank holidays observed by the Federal Reserve System.

    Bank Holiday vs. Federal Holiday vs. National Holiday: What’s the Difference?

    We probably have England to thank for the concept of bank holidays. The Bank of England initially closed for around 40 days per year, allowing time for royal events as well as Christian festivals and saint’s days. Known as “bank holidays” for this reason, the number was cut down to 18 days in 1830 and then further reduced to four in 1834. The term was made a bit more official with the addition of the Bank Holidays Bill passed in 1871, which released banks from any penalties due to closure delays.

    The United States didn’t have anything similar until Congress designated four federal holidays in 1870. This change only awarded federal employees in the District of Columbia time off work. Federal employees in other parts of the country were not given the same privilege. Moreover, the federal holidays did not apply to the private sector.

    “Federal holiday” versus “national holiday” is more a matter of semantics in the United States. Some countries, like France and New Zealand, have a centralized government, so the highest level of holiday would be a national holiday. Literally, all workers within the country who work on a public holiday must be paid time-and-a-half for working that day if it’s a day they’d normally work.

    Other countries like the U.S., Canada, and Australia are comprised of a federation of states, provinces, or similar groupings. The U.S. federal government establishes its own holidays for itself, but it does not dictate what happens at the lower levels or in the private sector. We often refer to our federal holidays as “national holidays,” but the U.S. technically does not have any national holidays. There is, unfortunately, no national or federal rule that requires days off or time-and-a-half for the masses.

    Most banks close on federal holidays, so the term “bank holiday” is often used interchangeably. Because banks rely heavily on the Federal Reserve Bank, it doesn’t make much sense for them to remain open when the Federal Reserve Bank is closed. They’re not required to close. They simply do. However, more are choosing to stay open these days, particularly when they operate online.

    List of U.S. Banking Holidays and Their Colorful Backstories

    While there are many holidays in the United States, few actually qualify as federal holidays. Despite their popularity, observances like Pearl Harbor Remembrance Day, Halloween, Fat Tuesday, and even New Year’s Eve don’t make the cut. There are 13 to familiarize yourself with, and we’ll cover them below.

    January: New Year’s Day

    Fixed Holiday: January 1

    New Year’s Day is one of the original four federal holidays and is always observed on January 1. The holiday can be traced back to Caesar when he instituted the Julian calendar, thus marking January 1 as the first day of the year, according to History.com. It was named in honor of the Roman god of beginnings, Janus. The date was shifted around some in Europe by Christian leaders in medieval times but was eventually returned to January 1 by Pope Gregory XII in 1582.

    Despite the U.S. following suit with England’s approach to holidays, New Year’s Day was not one of the initial four observed in England, Wales, or Ireland, though Scotland chose to observe it.

    January: Martin Luther King Jr. Day

    Floating Monday Holiday: Third Monday in January

    Perhaps best known for his “I Have a Dream” speech, civil rights activist Martin Luther King Jr. was born on January 15, 1929. Many people called for his birthday to be named a federal holiday following his assassination in 1968, though the House vote was four shy of making the two-thirds majority required. However, it passed when it came up for a vote in 1983 and was signed into law by President Ronald Reagan. Rather than using King’s birthday, however, the holiday typically falls close to it and is observed on the third Monday in January.

    January: Inauguration Day

    Fixed Holiday: January 20 (or 21) Every Four Years

    Inauguration Day is only observed once every four years following a presidential election. For the most part, it’s observed on January 20, though there is a caveat in the law that bumps the day to January 21 if the 20th falls on a Sunday. President Dwight D. Eisenhower signed it into law in 1957 to allow federal employees the opportunity to observe the event.

    February: Washington’s Birthday/ President’s Day

    Floating Monday Holiday: Third Monday in February

    To honor the first president of the United States, Congress added George Washington’s birthday to the list of federal holidays in 1879. Initially, it fell directly on Washington’s birthday, February 22. However, the Uniform Monday Holiday Act of 1968 bumped the date to the third Monday in February.

    To be clear, the federal holiday’s name was never changed to President’s Day to allow a joint celebration for Abraham Lincoln, whose birthday was February 12. It is and has always been Washington’s Birthday, despite what some might think.

    May: Decoration Day/ Memorial Day

    Floating Monday Holiday: Last Monday in May

    When the Civil War concluded, Union Civil War veterans formed a fraternal organization called the Grand Army of the Republic that was dedicated to promoting patriotic education and involved in advocacy efforts, such as voting rights for black soldiers. Not surprisingly, many of these men also took government jobs and continued to honor the fallen in annual ceremonies, typically held on May 30.

    It was argued that they be “allowed this day as a holiday with pay, so that they might not suffer loss of wages by reason of joining in paying their respects to the memory of those who died in the service of their country,” according to the Congressional Research Institute.

    Originally named Decoration Day, the name was changed to Memorial Day, and the day was shifted to the last Monday in May when the Uniform Monday Holiday Act of 1968 was passed.

    June: Juneteenth National Independence Day

    Fixed Holiday: June 19

    Juneteenth is one of the newest federal holidays, having only been signed into legislation in June 2021 by President Joe Biden. However, records of Juneteenth celebrations can be traced back to 1865. It’s observed in honor of the Emancipation Proclamation, which marked the end of slavery in the United States after the Civil War.

    Sometimes Juneteenth is confused with Emancipation Day, which is celebrated in April. They’re actually distinct observances, with Emancipation Day relating to Lincoln freeing 3,000 slaves in Washington D.C. eight years before the Emancipation Proclamation. Emancipation Day is not a federal holiday, though.

    July: Independence Day

    Fixed Holiday: July 4

    Independence Day is one of the original four federal holidays and is always observed on July 4. It’s observed in honor of the passage of the Declaration of Independence by the Continental Congress on July 4, 1776.

    September: Labor Day

    Floating Monday Holiday: First Monday in September

    When Labor Day became a federal holiday in 1894, 23 states had already recognized it as a legal holiday. It was initially created as a day of rest and to boost workers’ morale, but it has since been expanded to include an opportunity to reflect on workers’ rights.

    October: Columbus Day

    Floating Monday Holiday: Second Monday in October

    When Columbus Day became a federal holiday in 1968, 45 states were already observing it in honor of Christopher Columbus arriving in the Americas on October 12, 1492.

    The committee determining its status in the U.S. believed that “an annual reaffirmation by the American people of their faith in the future, a declaration of willingness to face with confidence the imponderables of unknown tomorrows,” according to the Congressional Research Institute, and so it was passed.

    October: Indigenous Peoples’ Day

    Fixed Holiday: 11 October

    On October 8, 2021, President Joe Biden added this day to the list of U.S bank holidays when he proclaimed that 11 October of each year will be used to honor America’s first inhabitants and the Tribal Nations that are still flourishing today.

    “For generations, Federal policies systematically sought to assimilate and displace Native people and eradicate Native cultures,” Biden wrote in his proclamation for Indigenous Peoples’ Day. “… We recognize Indigenous peoples’ resilience and strength as well as the immeasurable positive impact that they have made on every aspect of American society.”

    In 1977, the United Nations sponsored an international conference on discrimination that led to the establishment of an Indigenous Peoples Day. The state of South Dakota first recognized the day in 1989, and Berkeley and Santa Cruz in California followed suit. President Biden, however, was the first president to mark Indigenous Peoples’ Day with a presidential proclamation.

    November: Armistice Day/ Veterans Day

    Fixed Holiday (Unless on a Weekend): November 11

    Most states were already celebrating Armistice Day on November 11 when it was declared a federal holiday in 1938. It was intended to be a “national peace holiday” and allegedly had the support of World War I veterans. By the time World War II and the Korean War ended, the political climate was a bit different. The name was changed to Veterans Day in 1954, and the meaning expanded to pay homage to veterans.

    Veterans Day was shifted to a floating Monday holiday for a few years in the 1960s and 1970s. However, because veteran organizations did not approve and most states didn’t follow suit, it was shifted back to a fixed date of November 11 each year. The exception to this is when the 11th falls on a Saturday, in which case it’s observed on the preceding Friday (10th), or when it falls on Sundays, it’s observed the following Monday (12th).

    November: Thanksgiving Day

    Floating Thursday Holiday: Fourth Thursday in November

    While the idea of a harvest festival exists throughout the world, and American observances of it can be traced to a feast shared by English Pilgrims and members of the Wampanoag tribe, it hasn’t always been a national celebration.

    The first federal observance of Thanksgiving dates back to 1789, when President Washington issued a proclamation for “a day of public thanksgiving and prayer,” but it wasn’t made an annual celebration until Lincoln.

    President Franklin D. Roosevelt then initially standardized the date by fixing it as the third Thursday in November, hoping to spur the economy with additional holiday shopping time. However, the idea was scrapped in 1941, and the day moved forward a week to the fourth Thursday in November.

    December: Christmas Day

    Fixed Holiday: December 25

    America’s appreciation for Christmas hasn’t always been so strong. Colonial Puritans actually banned its celebration, viewing it as a Pagan holiday, according to History.com. It was also thought of as more of a British custom, do it fell out of favor after the American Revolution too.

    Even still, it made the cut when the first federal holidays were selected and became one of the initial four in 1870. These days, it’s always observed on December 25 and celebrated by most Americans. It has one of the highest church attendance rates, second only to Easter.

    U.S. Bank Holidays Impacting Your Business Cash Flow?

    Not having cash going into a holiday can be a serious issue for small businesses, especially when you need to make payroll earlier than normal or have other expenses. If your business is going to struggle due to bank closures, consider factoring invoices in advance. With competitive rates and fast funding, Charter Capital can help your business shore up its working capital too. Get started with a complimentary rate quote.

  • What Are Liens and How Do They Work?

    What Are Liens and How Do They Work?

    What Are Liens and How Do They Work?

    Most of us will have to deal with liens at some point in time or another. If you’re a homeowner with a mortgage, you almost certainly have one now. However, unlike liens associated with homes, some liens can be quite damaging and impact your business’s ability to grow and succeed.

    On this page, we’ll dig into how liens work, various types of liens, how they impact you, and what you can do about them if they’re impacting your business.

    What is a Lien?

    Liens give a company or person legal claims to another person or company’s property. They’re often used when a lender wants to ensure they receive payment from a debtor. It gives the creditor recourse if the debtor doesn’t make good on his agreement to pay.

    If you’ve heard the terms “secured debt” and “unsecured debt,” the difference is the lien. Secured debt has a lien and is secured by an asset.

    How Does a Lien Work?

    Because a lien grants someone else interest in your property, you generally cannot transfer property with a lien to another party without the lien holder’s permission. Liens can also impact your credit score and access to credit.

    Beyond this, how it works depends on the type of lien. There are three broad categories: consensual, statutory, and judgment.

    Consensual Lien

    When you voluntarily agree to a lien, it’s called a “consensual lien.” These are quite common with personal property, such as mortgages and auto loans.

    In the case of a home, the property serves as collateral and the lienholder, or mortgage company, has the legal right to liquidate the property if the property owner does not make payments.

    Consensual liens are visible on credit reports, but they don’t have a negative impact unless you fail to make your payments.

    Statutory Lien

    Sometimes a lien is implied by or created by operation of law and does not require your consent. This is a statutory lien.

    For example, if you pay a warehouse to store your goods and don’t pay for the storage, the warehouse owner can liquidate your goods or take other actions depending on what your state allows.

    Statutory liens reflect negatively on your credit report because they signify an unmet financial obligation and can stay on your report for seven years.

    Judgment Lien

    Sometimes a court steps in and grants a financial interest in business or personal property, giving lien holder status to a third party. This is referred to as a judgment lien.

    This might be the case if someone filed a slip-and-fall lawsuit against your business, the plaintiff won, and your insurance doesn’t cover the full damages awarded. It’s common with car accidents too.

    Judgment liens are often considered the most severe and also reflect negatively on your credit. They’ll stay on your credit report for seven years.

    Liens and Bankruptcy

    Liens against you or your business can impact bankruptcy proceedings because they involve repayment of debt and secured loans.

    Many liens can be discharged in bankruptcy, meaning you do not have to pay creditors back. However, government liens, such as tax liens, are usually exempt from this. You’ll be required to pay the debt back even if you file bankruptcy. If you’re unsure whether this or any information outlined on this page applies to you or you have additional questions, be sure to contact an attorney or financial advisor who specializes in liens.

    Different Types of Liens

    Within each of the three broad lien categories, there is a multitude of lien types. A few of the most common that impact business owners are outlined below.

    Bank Lien

    Bank liens are a type of consensual lien. They’re put in place when you take out a loan to purchase an asset, such as a vehicle or major equipment. In these cases, ownership and control of the property remain in your hands as long as you make the agreed-upon payments, and the lien is removed when your loan is paid in full.

    Real Estate Lien

    Real estate liens give a third party the legal right to seize and sell real estate property when a contract is not filled. Most real estate liens are consensual, as is the case with a mortgage. However, some are placed when a creditor is not paid and may be judgment liens instead.

    Mechanic’s Lien

    Mechanic’s liens are a form of statutory lien. They’re placed when a mechanic or contractor is not paid for work performed and grant the individual financial interest in the business, vehicle, or home in which the work took place.

    Tax Lien

    Tax liens are another form of statutory lien. They’re often placed by the Internal Revenue Service (IRS) for non-payment of federal taxes but can be placed by any tax authority. Tax liens can impact homes, vehicles, banks accounts, businesses, and business assets. That means if your business owes taxes and a lien has been placed, the IRS has an interest in your receivables too. Therefore, many businesses turn to factoring to finance an IRS lien.

    Can a Lien Be Removed?

    Liens can be removed in two ways.

    1. Contest the Lien in Court and Prove That it’s Invalid

    If the lienholder cannot prove that their lien is valid, the court will remove it.

    2. Have the Lien Voluntarily Removed

    Sometimes lienholders will voluntarily lift a lien or remove restrictions if the lien is impacting your ability to pay them back. You may also be able to negotiate a pay-off amount to clear a lien immediately. However, more often than not, a lien is removed when the related debt is paid off.

    Ways to Avoid Liens

    Not all liens are “bad” and harm your credit or business, but it’s best to avoid having them placed whenever possible. Thankfully, there are many ways to avoid liens.

    Don’t Take on Debt

    Pay in cash whenever possible. If you’re experiencing a cash flow shortage or need a quick injection of working capital, look for debt-free ways to get funding such as invoice factoring.

    Budget Wisely

    Avoid common cash flow mistakes such as focusing on profit over inflows and plan for your slower seasons to ensure you can keep up with payments.

    Manage General Contractor Relationships Carefully

    Sometimes payments don’t trickle through from general contractors to subcontractors and result in a mechanic’s lien. Vet the payment histories of your general contractors carefully, pay on time and in full. Consider requiring payment bonds from general contractors and/or issuing joint checks that require signatures from all receiving parties. You may also have general contractors collect conditional lien waivers with pay applications. If your state allows it, you can file a notice of completion too.

    Boost Your Working Capital with Invoice Factoring

    If your business needs a quick cash injection to keep up with payments, you’re trying to pay off debt related to a lien, or you simply don’t want to take on debt, invoice factoring can help. Factoring offers immediate payment on your B2B invoices, so you’re no longer tied into 30, 60, or 90-day waits. To get started, request a complimentary rate quote.

  • Are Big Banks Giving Small Businesses Service or the Cold Shoulder?

    Are Big Banks Giving Small Businesses Service or the Cold Shoulder?

    Big Bank Building

    Everyone naturally wants to feel their patronage is valued and welcomed when they do business with a firm. Grocery shoppers want to be appreciated when they check out; drivers want to be gratefully acknowledged when they have their car serviced at the shop, and so on. Businesses feel the same way when they conduct business with each other.

    Small businesses have been feeling underappreciated as of late. Not by their customers. Not by the government’s Small Business Administration. Not even by the news media. No, they’re feeling that they are not getting the welcome and the services they feel that they are due from the firms and institutions they rely upon to grow and expand. They feel they’re being ignored by banks, especially by big banks.

    It’s been shown time and again that small business is the real engine that drives the American economy. Small businesses combined generate more revenue and employ more people than big business. Yet when an individual small business owner goes into a big bank to ask for a loan or for financial assistance, it seems many walk away with frustration and anger rather than with money or help.

    Are big banks giving small businesses service or the cold shoulder?

    First, here are some numbers. Small businesses are investing to meet growing demand for their products and services in a strong economy. Borrowing by these companies has reached recent highs. Big banks report they have loaned record amounts to small businesses, continuing a trend since the end of the last recession. Forbes has even run a helpful article identifying the top 10 big banks loaning the most to small businesses. So everything is fine and dandy, right? Yet horror stories still abound about how big banks seemingly give small businesses the back of their hands on a regular basis.

    Both scenarios can’t be true. It can’t be a boom time for big bank small business loans, yet, in the same instance, be a time when small businesses bewail about bad treatment at the hands of big banks. But that seems to be the case.

    Small Businesses Don’t Receive What They Need from Big Banks for Many Reasons

    Rather than provide anecdotal stories that reflect individual experiences, let’s look at some firm reasons why a small business owner may not get what he or she wants at a big bank. In other words, why might you be turned down for a loan even though, according to published reports, big banks are loaning more than ever to small businesses?

    Credit Score/Credit History – Credit score and past credit history are the first things banks look at. If your score is too low or your history reflects a slowness to pay, this will put any potential loan in jeopardy from the start.

    Little or No Collateral – No matter if a bank is big or small, it’s not extending a loan for its health. It expects something in return, preferably more money coming back in than it lent out. If it can’t be repaid, then it expects some type of collateral it can take instead to settle the loan. If you can’t offer collateral to secure a loan or what you have to offer isn’t worth much, your chances for a loan are greatly diminished.

    Risk – Nothing lasts forever. But a small business may not even last a year. That means a big bank loan to a small business involves increased risk, and risk is something banks are quite averse to. They prefer a sure bet. If they do not view your small business as a sure bet but rather a risky proposition, your chances at a loan start to quickly dwindle.

    Interest Rates – You can’t get something for nothing. A bank may charge a higher interest rate to recoup a riskier loan. Of course, that higher interest rate may, in turn, make it harder for the borrower to repay, causing either the small business or the bank to walk away.

    Not Enough Return – Related to the above. A bank is a business like any other. They have owners and stockholders who expect to turn a profit. A small business loan, even at a high interest rate, may not provide enough return (profit) to cover its costs to the bank. In that case, the bank may figure, “Why bother?”

    You – It’s not personal. But you may not have made a good enough presentation, provided enough information or just not been convincing or confident enough to overcome the bank’s reluctance to engage in what it views as a risky activity.

    You Have Options Even if You’ve Been Denied a Traditional Small Business Loan

    So what can you do when you walk into a big bank looking for a loan and encounter each of these points? It’s on your shoulders to address each of them and to show the bank you have a sound and workable business plan, that your plan will result in a strong and growing business that will be able to satisfy its customers, pay its employees and vendors, and repay the bank in a reasonable period of time at a minimal cost to the bank.

    Of course, unless you’ve come up with a product or service that sells itself – like a cure for baldness or a way to turn straw into gold – that’s often easier said than done. No one ever said running a small business was a cakewalk… not even a baker.

    Be Mindful About the Dangers and Risks of Alternative Small Business Funding

    There are alternative methods of small business funding if you do not wish to engage with a big bank or have already done so and have been turned down. However, some of these alternative sources often have hidden or high costs associated with them that may make using such a source more expensive or more trouble than it’s worth. For instance, online small business loans/ cash advances can provide fast money, but often at a high price.

    Explore Other Credit Alternatives to Big Bank Loans

    One alternative gaining traction is working with community development financial institutions (CDFIs) or community banks, which often have more flexible underwriting standards and a better understanding of local market conditions. These institutions may be more willing to approve loans to small businesses based on their operational strength rather than rigid credit thresholds. However, they still typically require a credit score of at least 600, and often greater than 650. Plus, CDFIs exist to help underserved populations and promote economic development. If your business has access to opportunity and financial services, it is unlikely to qualify for a CDFI loan. Furthermore, the process can be slow. So while CDFIs can help certain marginalized businesses, they still come with many of the same barriers big banks have,

    Another approach is asset-based financing, where a business leverages existing receivables or inventory instead of taking on new debt. This is where invoice factoring comes into play, offering fast access to capital without the lengthy approval process required by many lenders. As credit standards tighten and approval rates shift, small business owners must adapt by exploring funding partners who align with their needs.

     Streamline Your Funding with Invoice Factoring

    If a bank doesn’t seem to want your business or to help, and credit-based options are not ideal, you may want to take a closer look at invoice factoring. What is invoice factoring and what makes it a great option for small businesses?

    Basically, invoice factoring is a time-tested and proven way for a small business to get immediate funding on its outstanding customer invoices. For example, you may have a slow-pay customer who takes 60 to 90 days or more to settle an invoice for products or services rendered. This delay can cause a small struggling business many hardships as it awaits payment. By employing an invoice factoring company, the small business can receive immediate funding for all its outstanding invoices. Rather than waiting to collect payment from its customers, the small business can put that money to work straight away, either to grow, pay current workers, hire more workers, or settle invoices of its own. In turn, the customer sends invoice payments to the factoring company in the normal course of business.

    Charter Capital USA has been providing fast, efficient invoice factoring services for more than 20 years. Our company understands the funding challenge small business owners face. We have the experience and know how to help small businesses overcome those financial challenges and improve cash flow. We are a partner you can trust. To learn more, talk to a factoring specialist.

  • Solutions for Small Business Bankers 2022

    Solutions for Small Business Bankers 2022

    Small Business Bankers

    Charter Capital is a non-bank provider of working capital funds and accounts receivable factoring services to small businesses. Commercial bankers regularly refer to Charter Capital their small businesses customers constrained in their ability to qualify for conventional financing. By employing its factoring services, Charter Capital quickly becomes a predictable source of working capital for many such referrals.

    The lending and funding problems that have beset retail banking are spreading into small-business banking as well. Overextended on credit lines that often were based on home equity, small businesses are increasingly hard-pressed to service debt in an atmosphere of slowing sales. Working capital, often held in bank deposits, is coming under strain as well.

    Shifting into protective mode, banks are ratcheting up the emphasis on credit quality and core funding in their small-business portfolios. And this has created a particular problem for small-business banking officers, who are being redirected from a former bull market for loans to what increasingly is a bear market for deposits.

    Small Business Bankers Problem Solved –

    Charter Capital provides incentives to small businesses to maintain their deposit relationship with the referring bank. The banker helps the small business establish an alternative source of funding and preserves the deposit business it would otherwise most certainly lose to the competition.

  • Online Small Business Loans/Cash Advances – Fast Money, But Often with a High Price

    Online Small Business Loans/Cash Advances – Fast Money, But Often with a High Price

    Online small business loan cash advance

    Navigating Your Small Business Financing Options & Cash Advances

    When it comes to finding the right loan for your small business, the landscape can be bewildering, especially when considering options like an SBA loan or business credit cards. With the advent of online lenders offering small business loans and financing options, entrepreneurs now have a wealth of opportunities at their fingertips. Whether you’re seeking a merchant cash advance, a business line of credit, or the best small business loans available, understanding your options is critical. The key is to find a financing option that not only meets your immediate business needs but also supports your long-term growth, such as a business credit card for smaller expenses or a substantial SBA loan for larger projects. Small business financing can take various forms, from business term loans to business cash advances, each with its advantages. For those looking to apply for a small business loan online, the application process has become more accessible than ever, offering a streamlined path to funding options like SBA loans and business credit. However, it’s essential to weigh the pros and cons of each type of small business financing, including interest rates, repayment terms, and eligibility requirements. By doing so, you can find a business loan that aligns with your cash flow and helps you grow your business. Remember, the best business loan is one that fits your specific needs, enabling you to capitalize on opportunities without overextending your financial resources.

    Online Small Business Loans/Cash Advances

    As a small business owner, it’s not news to you that companies need capital to get started, to buy essential equipment and inventory, to grow and if everything goes according to plan, prosper. And it shouldn’t be a surprise to you that sources of capital can sometimes be hard to come by for small businesses.

    But what you may not know is that an increasingly popular new source of small business funding – quick online business loans – might not be the boon cash-starved entrepreneurs had hoped would be their salvation.

    The Internet has certainly been a boon for small business owners, especially smaller ones. It has often enabled the startups to effectively compete with the giants of commerce in terms of creating a market presence. It has also helped small businesses establish cost-effective ways to do business with their customers and eliminate the expense of a big sales force, brick-and-mortar stores or offices. Over the past several years, a new phenomenon has been sweeping the Web that promises small businesses greater access to much-needed capital through online loans and cash advances.

    Small business entrepreneurs once had a limited choice on raising capital to start a company, to keep one going or to help it grow. They could tap into their own savings, ask friends or family for money, fill out an application with the Small Business Administration (SBA), or walk into a neighborhood bank and seek a loan.

    Related Article: It’s Small Companies, Not Big Business, That Create Jobs 

    Some of these methods are easier than others. The easiest, of course, is tapping into personal savings. However, how many people have sufficient savings to keep loaning their businesses money? Asking friends or family for funds can be problematic. A federal loan means you have to deal with a slow government bureaucracy. Going to the bank entails proving your business plan and your creditworthiness (credit score), and banks are becoming more risk-averse, meaning they’re loaning less and less to small businesses. If your credit check shows your business as bad credit risk, it will be near impossible to get a line of credit through a bank.

    Enter the online loan industry. Now you can fill out a form on a website and if approved, quickly get much-needed cash for your business. Sounds great, doesn’t it? Perhaps it may even sound too good to be true? And we’ve all heard the old adage that famously says, “If it sounds too good to be true, it probably is.”

    Is that the case when it comes to online small business loans? Is a cash advance a bad thing? That depends on factors such as your business credit and time in business. How fast do you need the money, what price are you willing to pay for it, and are you willing to place yourself at risk?

    Taking out an online business loan is often much easier than applying for a loan from the SBA or a traditional lender. There are fewer forms, fewer questions, and less documentation. The sites are typically written in easy-to-understand language and can be quickly navigated by anyone. So that may be a competitive plus when compared to the SBA or most banks, but at what cost?

    There are potential pitfalls small business owners need to keep in mind should they decide to pursue a business loan online.

    For one, fees and interest rates generally tend to be much higher for online loans than for traditional loans from a bank. There are often more fees attached to the online loan than loans from other sources.

    “Caveat emptor”—let the buyer beware. The internet is swamped with alternative lenders using gimmicks to gain attention, making it challenging to find a reputable business lender. One such gimmick is to express the interest rate in terms of simple interest as opposed to APR (annual percentage rate) – a more realistic measure of the cost of funds. Expressing the interest rate as “simple” rather than as APR can be confusing, even misleading because the actual interest rate can be much more expensive than it appears.

    Repayment terms are another important item to consider. Many online loans have set repayment provisions, and these provisions could wind up making the loan more of a hindrance down the road than a help. If you are expecting a traditional monthly payment plan, for example, you may be surprised to learn the online lender you’ve taken a loan from actually requires payment every week, or in the worst cases, even daily. Can your cash flow handle these strict requirements?

    Finally, there is the security issue. News reports come out almost daily about online scams of all kinds. Just because someone has put up a website advertising online business loans does not automatically mean it’s a legitimate firm. There’s the possibility it’s a fly-by-night outfit looking to steal your information and good name for their own nefarious uses or a lead gather who will then sell it to online lenders.

    If you are going to use an online lender to obtain a small business loan, here are a few ideas on how to protect your company and find a safe lender. First, make sure the lender has a real physical address, which is crucial whether you’re looking to get a small business loan or open a business bank account. If the site does not provide one, run away. If the site does give an address, use tools like Google Street View to confirm it is an actual location and not an empty field.

    Next, search for third-party verification from such sources as the Better Business Bureau and other rating services. One additional tip is to find out who owns the website, how long they’ve been around, and if they are actually an online lender. You can do this using WHOIS.

    It’s always best to do strict due diligence on the lender and read all the fine print before taking out any loan, be it online or through a traditional source. Not doing so could put your small business at risk. Yes, small business loans are increasingly harder to come by through traditional lending sources and businesses need capital, sometimes quite quick capital. But by investing a little time, you can save yourself and your businesses from tripping over avoidable pitfalls.

    Why Factoring is a Smart Financing Choice for Small Businesses

    When it comes to small business financing, factoring emerges as a superior option for many businesses due to its unique advantages over traditional and online loans. Unlike conventional loans, which often require extensive credit checks and collateral and can take time to be approved, factoring provides immediate access to funds by allowing businesses to sell their outstanding invoices at a discount to a third party, known as a factor. This method is especially beneficial for businesses with strong sales but slow-paying customers, as it improves cash flow without the need for taking on new debt.

    Factoring stands out for several reasons:

    Immediate Liquidity: Factoring converts accounts receivable into immediate working capital, enabling businesses to cover operational costs, take advantage of growth opportunities, and manage cash flow gaps without waiting for customer payments.

    Credit Extension Not Required: Unlike business loans, which depend heavily on the business and owner’s creditworthiness, factoring focuses on the creditworthiness of the business’s customers. This makes it an accessible option for new or rapidly growing businesses that may not qualify for traditional financing.

    Reduces Administrative Burden: The factor often assumes responsibility for managing the receivables, including collections from customers, which can reduce administrative overhead and allow business owners to focus more on core business activities and growth strategies.

    Flexibility: Factoring agreements can be more flexible than traditional loan contracts, with businesses able to choose which invoices to factor and when. This provides businesses with more control over their finances and avoids the long-term commitments often associated with loans.

    No Additional Debt: Since factoring is not a loan, it does not add to a company’s debt load. This is crucial for maintaining a healthy balance sheet and can be especially advantageous for businesses looking to keep their debt-to-equity ratios low.

    By embracing factoring, small businesses can navigate the challenges of growth and cash flow management with greater ease and flexibility. This financing option supports sustainable business operations by offering a practical solution to the common problem of delayed invoice payments, ensuring that businesses can continue to invest in their growth and stability without the burdens often associated with more traditional financing routes.