Bank Loans vs. Private Lender Loans

business loan
Image source: StockUnlimited.com

So, what is better; a business loan from your bank or a business loan from a private lender?

The answer is simply the one loan that you can get approved for.

But, every business owner wants a bank loan. In fact, many business owners think that their bank is the only place they can get a business loan. But, that is far from the truth.

Everyone wants a bank loan. Why? It is usually because bank interest rates can be lower.

Why do bank loans offer lower rates?

Banks typically have a lower cost of funds than other lenders. Depositors (their retail customers) keep a lot of money in their checking and savings accounts. Thus, banks have easy access to those funds to lend out. And, if banks don’t pay interest for those deposits or pay very little interest like they do today (most pay under ½ percent) – then those funds are very cheap for the bank to use.

Plus, all banks can access federal funds. And, right now the federal funds rate is (2.5%) – very cheap considering that in the past it has been around 4% or 6% and has been as high as 19%.

Private lenders on the other hand either have to get funds from investors who are looking for decent returns or from other banks and financial institutions who lend these private lenders funds at higher rates then it costs them to acquire that money.

Either of which raises private lender’s cost of funds which in turns gets passed on in their loan rates.

Let’s look at an example:

A bank needs to earn a spread on their loans of say 6% to cover the bank’s direct expenses and overhead costs (their cost of being in business).

If they can acquire funds at 2.5% then they can lend them out at 8.5% and still earn their spread.

A private lender might need to earn a spread of 4% to cover its operating costs. But, its cost for the funds it lends out could be 7% or more to either repay the bank that lent them that money or to repay investors.

If the private lender’s cost of funds are 7% and its needs to earn a spread of 4% – it has to charge 11% at a minimum or go out of business.

Thus, it is easy to see why everyone wants a bank loan as opposed to a private lender loans.

But, banks are also opportunistic.

While banks can lend out funds at lower rates, they hardly do. Here’s why:

Banks see that their main competition (these private lenders) have to charge 11% or more – from our example.  Thus, banks know that all they have to do is be below that figure to win your business. Thus, banks can charge 10% or 10.5% and still beat the competition.

Banks have other ways to make money.  Thus, if you don’t want to pay their high rates, they really don’t care all that much.  They can still earn a ton of revenue from banking fees or from taking those cheap funds and investing them to earn their 6% or more (investments in stocks and bonds or through acquisitions).  Thus, they really don’t need to fund your business loan.

Banks have stiff regulations that pretty much forces them not to lend to new or small, growing businesses.  These regulations are in place to protect their depositor’s money but also tie their hands when making loans (things like time in business, high credit scores, high cash flow requirements and low debt-to-income ratios).

Plus, banks add a lot of other costs to their loans – including fees, reporting requirements, covenants, etc. that are not included in their rates but make the overall cost of their loans higher.

Private lenders, alternatively, don’t have all those restrictions or alternative ways to generate revenue (beside fees which only happen when they close a loan). In fact, they are usually in business only to make loans.

Thus, private lenders tend to be easier to get approved by.

Kind of a double edged sword. Cheap money but hard to get on one hand and easy to get loans but higher rates on the other.

However, going back to the original questions, which is better? The answer still remains the loan that you can actually get; but it only remains true while you can’t get the other.

If you don’t qualify for a bank loan, make it your goal to grow your business to the point that you qualify for bank funding (you might not actually need it when you can qualify for it). But, in the mean time, if all you can get approved for is a private lender loan, then by all means; knowing that it is only temporary as your business grows.

Two things to remember here:

  1. The difference between 11% and 8.5% on a short-term loan (say under three years) is really not that much given the grand scheme of growing your business.
  2. Private loans are much better than not growing your business at all or losing your business altogether.  As long as the use of those funds will return more than that loan costs – your business is really not losing anything.

Example: If you have an opportunity to earn $10,000 above the principal of the loan but can’t get a bank loan – do you just let the opportunity die or do you take the private loan and only realize say $9,000 in profits due to the higher interest rate?

You do what you have to do until you qualify for something better.

So, when seeking a business loan, which is better a bank loan or a private lender loan? It really all depends on what you can get approved for, be able to repay, and profit from.

Need a loan for your small business? Get a business loan faster and easier from OnDeck Capital. Must be in business for one year. Apply now.*

*Business Know-How may receive a commission if you apply for a loan with OnDeck Capital.

5 Industries That Venture Capitalists Are Investing In

industry

By Michael Zhou

The venture capital landscape continues to grow around the world. In recent quarters, startups have closed more pre-seed and seed funding rounds that ever before. Moreover, these venture capital investments are crossing the $100M mark. With so much capital available to startups, entrepreneurs should understand how their industry stacks up against the competition. While startups from all industries are funded around the globe, you might find yourself in a highly demanded sector. To learn more, here are some of the most active industries that venture capitalists are investing in.

Internet and Software Services Industry

Over the last decade, the internet and software services industry has received the most venture capital funding of any other sector. Investments in this sector have led to faster payment processing, questions and answer websites and online job boards. Venture capitalists such as Lee Jacobs of AngelList have found successful returns in this industry and continue to invest in similar startups. However, these VCs are more sophisticated at picking which internet and software startups to invest in. You will need a truly innovative product or service to get the attention of serious investors in the internet and software industry. Undoubtedly, venture capitalists will continue to invest heavily into the internet and software industry.

Industrial Manufacturing Industry

Venture capitalists have invested billions of dollars into the industrial manufacturing industry. They are interested in startups that are disrupting the current production methods and techniques in industrial settings. For example, additive manufacturing is expected to completely change how industrial companies manufacture products from start to finish. The technology is expected to become widely available for industrial manufacturing within the next couple years. In fact, this industry has already seen enterprise companies buying out established startups with proven technology and business models. If your early-stage startup promises to innovate how to manufacture products, machines or equipment, you will find many venture capitalists who are investing in this area.

Developing Biotechnology Industry

Next, the healthcare industry receives plenty of attention and investment from venture capitalist. However, the returns for the healthcare startups is relatively low compared to the sub-industry of biotechnology. In recent years, the biotechnology industry has paid the highest returns to venture capitalists out of the entire healthcare sector. Many investors are competing to profit from the next wave of genetic engineering to improve health for billions around the world. It is one of the most highly anticipated technology trends for the upcoming years. For startups in the biotechnology industry, this is one of the best times to raise capital at a large scale.

Space Exploration Industry

Next, the space industry has been the next frontier for exploration and investment. While venture capitalists were originally slower to invest in space exploration, the trend has changed dramatically. The venture capital investment in private space companies is at a very high level. Startups have found innovative ways to commercialize products and services in the space industry. With the introduction of satellite services, space companies are providing applications to dozens of other industries. Moreover, the space industry is on the verge of creating space tourism and space mining. These types of startup products or services are a hot spot where venture capitalists are investing right now.

Security Defense Industry

Even during times of peace, the security defense industry continues to receive high amounts of venture capital investments. The next generation of defense technology will include new applications of emerging technologies like artificial intelligence, virtual reality and authentication systems. While governments and sovereign entities continue to receive new types of digital attacks every day, startups are leading the way with new forms of protection. Venture capitalists are looking for solutions and platforms that can keep citizens, corporations or entire nations secure from attacks. By providing a solution, you can find investors ready to fund your startup.

These are some of the most active industries that venture capitalists are investing in. The internet and software industry have proven returns over the past decade. Recently, the manufacturing sector is expected to experience a major disruption. The biotechnology industry continues to lead the way for the healthcare investments. More so, space exploration has taken off with the commercialization of products and services. Finally, venture capitalists are investing in the latest defense technologies. If your startup operates within these sectors, you could end up with a choice for pre-seed funding options. Otherwise, you might want to consider pivoting your startup to serve these industries that venture capitalists are investing in.

Michael Zhou is a Senior VP of Business Intelligence Development and has assisted the Fortune 1000 company with expertise in the web as a whole, including ground-zero marketing efforts that benefit both consumer and vendor. He is also contributor on Esprittoday.

Tech industry stock photo by REDPIXEL.PL/Shutterstock

Phantom Equity v. True Equity

By Eric J. Gyllenborg

There is an alternative to companies giving away “true” equity and that alternative is phantom equity. When it comes to equity incentive plans for employees, consultants and directors, you can provide the same economic benefits with phantom equity, without all of the cumbersome entanglements and downsides that come along with “true” equity (for example: voting rights, fiduciary duties, right to receive dividends, rights to inspect the company’s records, dilution of the current equity holders and being wed to a particular person even if they are no longer employed by the company).

First, it makes sense to briefly describe what phantom equity is and how it differs from “true” equity. “True” equity, in this article, means actually owning an equity interest in a company. Such an ownership interest will consist of all the attributes you would typically expect to have if you own an equity interest in a company (for example: voting rights, rights to receive periodic dividends of profits and the like, rights to inspect the books and financials of the company). Such an ownership interest is usually evidenced by the issuance of stock in the company that could either be in the form of an actual stock certificate or in the form of an entry in the company’s stock ledger.

With a phantom equity plan, the recipient receives a phantom unit that is equivalent to (but not an actual) equity interest in the company. Such phantom units can be structured to mimic all of the economic benefits of “true” equity (for example: sharing in profits, sharing in the benefits of increases in the value of the company and/or receiving dividends). On the other hand, a phantom unit plan can also be structured so that the phantom units are in essence the equivalent of a simple cash bonus payment. A phantom unit plan can provide for payouts or other economic benefits to be available to the recipient only after certain events have occurred. For example, particular vesting periods that have been achieved, or a particular time of service that has lapsed, a milestone that has been achieved by the employee, a public offering or merger event, and/or certain financial targets have been attained by the company. Such triggering events will dictate when the phantom equity holder receives the economic benefits of the phantom equity units.

The beauty of a phantom equity plan is how flexible it can be since the rights associated with phantom units are contract rights which allow the plan to be structured in many different ways. All the while, the recipient of a phantom unit will not receive any “true” equity thereby avoiding the negative attributes associated with giving “true” equity to an employee, but still providing that employee with all of the same economic benefits of “true” equity. It is truly a great way to provide an incentive to employees, consultants and directors as it aligns their economic interests with the company’s goal of increasing the revenue and overall value of the company.

It is imperative to note that phantom equity plans are regulated as deferred compensation under the Internal Revenue Code section 409A (I.R.C. § 409A)[1] because they do not qualify as “stock rights.” Therefore, it is important to structure the phantom equity plan in a manner that is compliant with I.R.C. § 409A. As such, it is highly recommended that you work with a lawyer and an accountant who are well-versed in phantom equity plans so that the plan is structured in a way that avoids negative tax consequences for the company and the recipient of the phantom equity units.

Eric J. Gyllenborg is a director at Boston-based law firm Rackemann, Sawyer & Brewster, P.C., handling general corporate, commercial lending, securities, finance, employment and medical and technology transfer matters. He can be reached at EGyllenborg@rackemann.com.

[1] Section 409A of the Internal Revenue Code regulates nonqualified deferred compensation paid by a “service recipient” to a “service provider” by generally imposing a 20% excise tax when certain design or operational rules contained in the section are violated.

Equity stock photo by enciktepstudio/Shutterstock

How to Reduce Business Debt

lower your business debt
Image source: StockUnlimited.com

Your business is no different than your home—too much debt can cripple you. Although it might be difficult to run a debt-free business, you should try to manage and reduce it as much as possible.

Use these 13 ideas to reduce your business debt: 

1. Know Your Numbers.

Don’t just be familiar with your numbers—know them. Knowing them means that you know the cost of each of your raw materials, labor, rent or lease costs, and everything else. Do you know what each item costs down to the penny? Do you know the interest rate on each of your debts? If you don’t, you’re probably paying too much for something.

2. Be Smart About Your Ordering.

Sometimes you stock a poor-margin item that gets people into your store, but as a general rule, if it’s not getting you to the margins that others in the industry report, it may not be worth your time. Sales that result in ultra-low margins are costing you money. Identify unprofitable sales and eliminate them or look for a lower price from suppliers.

3. Increase your Margins.

Speaking of margins, each industry has its own benchmark for what is considered strong margins. Do you know yours? Check with your industry trade group, but once you know it, make adjustments. You can raise your prices, lower your costs, or both. The goal should be to raise margins without raising your overhead expenses. What are others charging for the same item? Can you purchase more at a significantly lower cost without losing the savings to debt service?

RELATED: The Break-Even Point and The Break-Even Margin

4. Watch Your Inventory.

Like your refrigerator at home, some items tend to linger. Don’t put off ordering more of your popular inventory but look for the product that isn’t selling and liquidate it.

Inventory is probably where most of your money is tied up. You’re probably paying interest on that stale inventory that everybody forgot about. Don’t let it sit in your store unnoticed. Even if you move it at cost or for a small loss, liquidating is better than keeping the money tied up. Sell it online—eBay or Craigslist, for example.

5. Check Your Interest Rates.

Business owners are still enjoying an economic climate of low-interest rates. If you have older debt, it’s time to renegotiate the terms.

6. Talk About the Terms.

If you’re having trouble making payments, talk to the supplier about extending the terms. You aren’t going to save any money but lower payments may give you the financial room you need until the product sells.

7. Sell and Lease Back.

Do you have relatively new fleet vehicles or other larger items? Sometimes it makes sense to sell the items and lease them back. Payments might be lower. To gauge the payoff that comes from this strategy, you will likely need help from a professional crunching the numbers.

8. Ask Your Employees.

You were an employee at some point. You know that the people on the front lines will see things that the managers may not. Your employees know where money is being wasted. Ask them. They may be skittish about telling you for fear of retaliation. Explain to them why you’re asking and maybe offer a bonus to anybody who helps the company save money.

9. Be Tougher on Your Customers.

Don’t become that business owner that every customer hates but do insist that customers meet their payment terms. You probably won’t go to battle if payment is a few days late but when a couple of weeks go by, it’s time to start calling the customer to ask for payment. If late paying customers are a big problem, you may want to add a late fee clause to agreements you have customers sign before you begin work for them. Check with your local professional advisors to find out if there are any laws that regulate what late fees you can charge. Good business relationships happen when both parties feel respected and valued.

RELATED: Small Business Collection Strategies That Work

10. Reduce Staff.

Nobody likes to reduce staff, but if your business fails, the reduction in staff will be much larger. Sometimes you have to make tough decisions that negatively impact the few to protect the many. Are there employees you could do without? Could you consolidate positions by paying one person more rather than paying benefits for two employees?

11. Speak to a Credit Counselor.

Most credit counselors are consumer-based but some work with small businesses. If you’re having trouble negotiating better terms, a credit counselor might be able to help.

12. Hire a Debt Management Company.

Debt Management companies come into your business and sniff out where you’re losing money unnecessarily. They may be expensive but worth it in the long-run.

13. Bring on an Investor.

If things are really bad, an investor can offer an injection of cash often in exchange for a piece of your company. In general, avoiding this option is best since it involves signing away a portion of your future profits but if times are really tough, it’s worth considering. However, finding investors is difficult. Don’t wait too long to start looking.

Bottom Line

Change what you can control. You have far more control over your expenses than your profits. You can’t make customers come through your doors but you can reduce costs. Concentrate on cost reduction and put that money back into servicing your debt.

© 2015 Attard Communications, Inc. All Rights Reserved. May not be reproduced, reprinted or redistributed without written permission from Attard Communications, Inc.

6 Ways to Start a Business with Bad Credit

by Joseph Lizio

Last Updated: Apr 20, 2019
It’s not easy to find money to start a business if your personal credit is bad, but it can be done. Here are some alternative ways you may be able to get the money you need to get your business off the ground.

startup capital
Image source: Photospin.com

Times are tough – especially for those budding entrepreneurs looking to get their business off the ground. While the state of the economy should never be a deterrent in starting a small business (regardless if the economy is up or down – people and businesses still need to consume goods and services); down economies do have some effect on the business owners ability to find and obtain capital for their ventures.

But, all is not lost if your personal credit is a bit lacking.

Most business owners usually have some types of capital to put into their business – be it from personal savings, retirement accounts or loans from friends and family. But, they usually do not have all the funds necessary to launch their business and tend to struggle with allocating the money they do have to the numerous start-up expenses they will encounter.

Plus, bad credit (or even no credit) will make it very difficult for business owners to obtain unsecured working capital for items like marketing, payroll, or even office supplies.

I have always believed that whatever liquid capital (cash on hand) a business owners has walking into a new venture should be used for the overall development and growth of the business – it’s essentially like putting in your own venture capital. However, this method of allocation usually leaves little if not ‘no’ additional money for other items businesses need for their operations to include tools and machinery to provide their goods or services, inventory, rent, or even office equipment including computers, copiers or even vehicles – items used in the day to day life of all businesses.

But, there are other ways that business owners can get these items even if the entrepreneur has bad credit.

For unsecured working capital, business owners can use the numerous social lending sites that have proliferated the Internet over the last decade or so. Social Lending is essentially where member borrow and lend to each other. Gaining access to capital for these sources tends to be easier to obtain as you get to tell your story directly to funders. Further, rates of these types of loans are usually lower than traditional bank lending. While considered personal loans, the funds received here can be used for any purpose including starting and running your business.

There are also Micro-Credit organizations whose whole purpose is to help new and growing businesses obtain capital after they have been turned down by traditional lenders like banks. These organizations are typically non-profit groups, backed by the SBA, and understand the trials that business owners face when trying to get their business venture off the ground. Plus, they offer a plethora of guidance to help ensure your long-term success.

Many new small businesses need all types of equipment for their business – from standard office equipment like computers and copy machines to tools and machinery that allow them to make or provide their products and services. There are equipment lenders that only provide these types of loans. They work with new start-ups and are extremely flexible in developing programs that can meet these businesses specific needs and while these loans and leases are secured by collateral (the equipment) there is less emphasis put on personal credit histories.

Further, a start-up business is considered a business in operation under one year. During this time, many businesses generate financial assets – but still find themselves lacking working capital as they grow. However, these assets can be used to secure financing, either to speed up the flow of payments, to complete current jobs or orders, or to get the funding needed for payroll or additional marketing.

These capital resources include factoring a business’s receivables (why wait 30, 60 or 90 days to get paid by your customers- when you have bills that need to be paid now) or purchase order financing where your business can receive cash to complete jobs that are already in the works or funds to bid on jobs that would have otherwise eluded your business due to lack of working capital. And lastly, business cash advances for businesses that accept credit card payments from their customers allowing them to leverage future sales for growth capital today. The real bonus about there types of financing options is that they are not focused on the business owner’s personal credit history but more on the strength of the asset.

Moreover, given our government’s propensity to help people get back to work (most new jobs are created by small businesses) there has been an influx of new government and private grants to help people in need – including business owners.

Lastly, should a business owner still face difficulties due to credit issues – then the only step remaining is to eliminate those issues. While bankruptcy and credit counseling will continue to harm your credit after you complete these programs, there are other ways like debt consolidation that can reduce your unsecured debt (including credit card debt) into one, low, affordable payment. Allowing the business owner to free up current cash flow as well as improve their credit scores.

While most lenders tend to weed out potential borrowers through credit profiling – leaving many new business owners in limbo – the resources listed above are design to fill the lending gap that is crippling our nation and geared to help all business owners – regardless of past credit mistakes.

How to Start a Business with No Money

start a business with no money
Image source: Photospin.com

Starting a business with no money isn’t the ideal way to start out, but depending on what type of business you start, it can be done.  

The secret to getting started with no funding is to get creative and be determined. Contrary to the cliche, it doesn’t always “take money to make money.”  There are many entrepreneurs who started their businesses with little or no cash. Here are 14 ways strategies that work.

How to Start a Business with No Money

1. Start a Service Business

If you don’t have any startup capital, service-based businesses are perfect. Product based businesses require you to purchase and then resell. Service-based businesses like consulting, coaching, virtual assistant, web design, or home cleaning services only need the knowledge and equipment you probably already have.

2. Save Up the Money for Your Startup

Saving money isn’t easy to do, but neither is starting a business. If you’re serious about starting a business, look for ways to cut back on your spending. For instance, could you save money by cooking at home instead of eating out, or by bringing lunch to work instead of buying it? Could you enjoy local beaches and attractions instead of going on an expensive summer vacation? Can you watch movies at home instead of going out?  Learning to pay attention to and minimize spending will not only help you save cash to start the business, it will also help you keep business costs down once you get the  business going, too.

3. Work from Home 

Renting office or retail space is expensive. It’s something you may want or need to do to grow the business, but when you’re just starting out, look for ways to work from home. If you work from home, the business won’t need money for rent, utilities and office furniture.

4. Use What You Have

Depending on what business you’re starting, you may already possess the basic equipment, software and tools you need to get started. Hold off buying new or upgraded equipment and software until you start bringing in business and getting paid.

5. Use Free and Low-Cost Marketing Techniques

There are dozens of free and low-cost ways to market your business. Learn them and implement them before you start spending money on paid advertising. Using free promotional strategies at first will help you see if there is a market for your goods or services, and it will help you start to understand what attracts customers so you don’t make expensive mistakes once you are ready to buy ads.

6. Get Creative with How You Raise Funds

Consider the story of how Outbox Systems started. The founders had a dream of connecting two software applications together but didn’t have the money to build it. Instead, they worked out a deal with another company where they would build a similar product for a discounted rate yet retain the rights to sell the product to others. That’s creative financing. How can you get creative with how you raise money?

RELATED: Where to Get Money to Start a Business

7. Do All the Work Yourself At First

Rely on your own sweat equity to start a business with no money. Expect long days and the need to learn how to do things you haven’t done before such as marketing or selling or accounting. Doing all these tasks yourself at first save you money and will also help you understand what type of skills each activity requires when the business is making enough profit t hire employees. 

8. Investigate Non-Bank Funding Sources

Yes, there’s friends and family but today we have crowdfunding, local and national incubators, accelerators, and microfinancing. If you don’t know what these are, do some Googling and learn about them. Look for communities of investors in your area and tell others about your business. There’s plenty of funding that doesn’t involve banks and credit cards.

9. Start Simple

Your dream might include a pretty big business offering a wide variety of products and services but for now, keep it simple. Sell a single product or service. Build your customer base and later branch out into other products and services.

One of the most expensive parts of running a business is acquiring customers. If you gain their trust with one product or service now, selling something else later is much easier.

Free Business Startup Checklist

Starting a business can be overwhelming! Use this free Business Startup Checklist to make sure you don’t miss any important steps. This downloadable Word document lists the steps you need to take to get your business up and running, and includes space for you to note your own comments and deadlines. You can get the checklist free when you subscribe to the free Business Know-How Newsletter.

Request your free Business Startup Checklist

10. Start as a Hobby

At some point you’ll have to quit your day job but that day isn’t today. Hobby businesses often come from the person’s love of something. Maybe you have a corporate job during the day but you love to bake when you come home. Start with people you know and allow your network to grow from there. Your marketing costs are zero and you still have money coming in from your day job.

11. Work for Somebody Else

Although they may not admit it, most business owners became entrepreneurs thinking they knew more than what they did. In fact, many businesses fail because the person was ill-equipped to build a successful business.

Before you start your own business, work or intern with somebody in the business already. The experience you gain will allow you to start your business knowing what you truly need to spend money on and what you don’t. You’ll also gain insider knowledge of the industry and possibly a healthy customer list from the beginning.

12. Use Free Services

The Internet is full of high quality services you can use for free. Mailchimp is a powerful e-mail marketing platform that’s free for the first 2,000 e-mail addresses. Wufoo allows you to make online forms, and although Facebook and other social media platforms won’t put your ad in front of large amounts of people unless you pay, you can still gain some traction by telling people what you’re doing.

There’s also freelance platforms like Fiverr, Elance, and Upwork that have quality freelancers willing to help with logo and web design, and other service for cheap. You could get a logo made for $5!

13. Barter

Don’t have any money? Offer to barter your services in exchange for somebody else’s. There aren’t many small business owners that aren’t looking for ways to get quality services for little or no cost. What you have, they want, and they’re willing to trade for it.

14. Hustle!

Finally, go into your business endeavor with a hustling mindset. Be ready to do anything legal and ethical to get your business off the ground. Don’t like cold calling? Do it anyway? Not a graphic designer? You can find templates online for just about anything. Don’t want to do any free work? It might be worth it to get your name out there. If you don’t have the money to pay for services, you have to do them or find somebody who can and will do it for free.

Just as you would do just about anything for your family, you have to have the same mindset about your business.

It’s possible to get a business off the ground with next to no money. You just have to get creative.

© 2019 Attard Communications, Inc. All Rights Reserved. May not be reproduced, reprinted or redistributed without written permission from Attard Communications, Inc.

5 Steps to Making a Million Dollars or More a Year

The secrets to achieving this seemingly elusive goal are far more systematic than you might think.

11 min read

Opinions expressed by Entrepreneur contributors are their own.

Want to become a millionaire? Better yet, how about making a million dollars per year? Maybe more? If that’s something you’re reaching for, join the club. It’s a goal sought after by countless souls on the planet. In fact, one study conducted by TD Ameritrade discovered that 53% of millennials expect to become millionaires in their lifetimes. The question is, how realistic is that dream? 

Clearly, without a plan, there’s not much hope for anyone looking to make a small fortune or hit any big goal for that matter. But seven percent of millennials surveyed in that study think they’ll hit that illustrious 7-figure mark by the time they turn 30. Can they actually do it? Whether most people think it’s realistic or not, the truth is that the internet has unveiled new methods and means for reaching that target and doing it incredibly quickly. 

So what separates those who can make lots of money online (or offline) from those who fail to do so? At the end of the day, it’s merely one word. Belief. The mind is a very powerful tool. And if you can’t start with the foundation of true and utter belief in yourself and your abilities, nothing is possible. But to the man or woman who is steeped in true belief in what they can accomplish and achieve, nothing is quite out of reach. 

How to make a million dollars per year

At the very heart of it, to really make money (and I mean lots and lots of money), you need to solve a problem. Problems lead consumers into pain. Your job as an entrepreneur is to address that pain by providing a solution. Now, that doesn’t mean you need to come up with the next big idea like Uber founders Travis Kalanick and Garret Camp, or AirBnB founders Brian Chesky, Joe Gebbia and Nathan Blecharczyk. It simply means that you need to find a problem that you can solve, and offer that solution to customers. 

You’re not going to make a million dollars or more per year working for someone else. Not unless you’re a high-ranking executive at a Fortune 500 company or get in on the ground floor at the next Stripe, Facebook or Google. No. In order to hit that illustrious 7-figure mark, you need to present the right offer at the right time to the right audience. That’s it. 

Sounds simple enough, doesn’t it? Of course, it’s easier said than done. But, when I really started thinking about this topic, I realized that there’s so much disinformation and misinformation out there. The biggest problem? People who work tirelessly to convince others that they’ve “made it” just so they can sell them some digital course on the latest drop-shipping method or webinar creation strategy. 

Related: 20 Signs You’re Destined to Become a Millionaire

So in order to really answer this question, I went straight to the source. We’re talking centimillionaires and billionaires. People who’ve achieved $100 million dollars in revenue and up. If you want to learn how to make a million dollars or more per year, why not ask those who’ve not only reached that level but also exponentiated those results? 

Step 1: Identify the pain

First things first. What is the pain in the marketplace? What are consumers struggling with or grappling with? If you’re unsure, all you have to do is jump into well-traversed Reddit threads or popular Facebook Groups. What are people talking about? Are there some resounding complaints that seem to come up repeatedly? If you stick around for long enough, you’ll find the pain in the marketplace. That much is for certain. As long as you can identify the pain, then you’ll find the problem. 

One thing that’s for certain is this: The bigger the pain, the bigger the problem. And, the bigger the potential to not only make a million dollars per year or more but also to get filthy rich for that matter. Entrepreneurs who are bold enough to go out there and tackle big problems are often the ones who reap the big payouts. They’re disruptors, dissatisfied with the status quo. And they exist in every industry under the sun. They’re filled with a willingness to tackle massive problems that have faced us for years, if not decades in most cases. 

Jeremy Delk, an entrepreneur at the helm of a $100 million business called Tailor Made Compounding, tells me that you should go where the pain exists in the marketplace. While money is important and is a necessary course in business, if you can properly identify the pain, that’s always the major starting point. If you can’t find the pain, how can you present a solution that will help to take that pain away?

Jesse Itzler, the founder of Marquis Jets, another entrepreneur with well over a $200 million net worth (and husband of Sarah Blakley, the billionaire founder of Spanx), tells me you should never fear failure or shy away when you’re tackling those big problems. You have to get comfortable with being uncomfortable. You’re not always going to have all the answers. But you have to be willing and persistent enough to find them. 

Step 2: Create an irresistible offer

Understanding the pain and the problem is the first step. But you also need to take action on that pain. If you sincerely want to make a million dollars per year or more, you also have to create a compelling offer. Remember, it’s all about the right offer to the right audience at the right time. If you’ve found the audience and identified their problem, you now need to create an irresistible offer that will properly target that audience. So what makes an offer irresistible? 

There are many factors involved. But think about it yourself. What really turns your head when it comes to products or services? What truly makes you want to buy something from a person or a company that you might not know very well? There are numerous factors. But what are the most important? Dan Kennedy says that there are four important parts of an irresistible offer: 1. The offer has to be clear. 2. It has to have good value. 3. It should involve a discount or a premium. 4. There should be a logical reason behind the offer.

Related: 9 Everyday Habits of the Average Millionaire

But what else is involved? How do you really pull the lever and get people to buy something? Well, let me start by breaking it down like this. Ever seen a long line somewhere and wondered what everyone was standing in line for? Maybe the line was long or it wrapped around the block. Or, maybe, just maybe, you’re at a theme park and see this one ride that has the longest line and wonder what all these people are standing in that line for. 

What’s the first thing that goes through your mind? It must be something good. Why? Two words. Social proof. Beyond the other factors, people often reference the behavior of others when making decisions. As much as we want to think we are unique in our decision-making process, we’re often not. We follow the herd. And glorify the crowd. In turn, we’re not leaders. We’re merely followers. And that’s why social proof is so important. Yes, offer construction matters. But social proof is so incredibly important. 

Think about it yourself. When you see so many testimonials for some weight loss product or some system to make money online, aren’t you drawn to it? When there are genuine and compelling reviews, and so much social proof is built up behind something, that’s where the real magic happens. That’s when the other barriers of resistance fall. So how do you get social proof for something? In the very beginning, give it away in exchange for solid reviews. If what you’ve created truly solves a pain and really addresses the problem, then the rest, as they say, will likely be history. 

Step 3 – Create a detailed plan and execute daily

Planning is critical. If you’re serious about making real headway, you need to get into the plan. Take your goal and work backward. What’s it going to take to hit the target? How are you going to get there? You can usually create milestones along the way. If you’ve actually set a goal, and you’ve quantified your target, then all you need to do to make a million dollars per year or more is work backward. What are the monthly targets? What about the weekly targets? Daily? Identify them and create some action steps to get yourself there. 

But you also never know what will happen. Maybe you’ll reach your target. And maybe you won’t. But maybe, just maybe, you’ll shoot far past the target you set. Like Russell Brunson, an entrepreneur running a $100 million dollar software company called ClickFunnels, often says, you’re only one funnel away. In other words, you’re one pain-solving offer away from making an exceedingly large amount of money. Of course, this also means that whatever plan you have includes truly delivering some real value. If you’re not delivering value, then you’re never going to hit your income targets. It’s incredibly hard to do so. It’s like trying to push against a concrete wall. 

Step 4 – Create a deeper mission and vision

While goals are important and they shouldn’t be changed, you have to be mission and vision-driven. You can’t merely rely on the superficial. Attach your goal to a deeper meaning with a stronger “why” for achieving it. For example, not only do you want to reap a financial reward, but also an emotional or spiritual one. What is your mission and your vision? If you haven’t defined it, set it down on paper. It’s far more important than anything else you could possibly do.

Richard Branson often says that while money is important, if you’re truly looking to get incredibly wealthy, you have to exact real change. What does that mean? It’s certainly not thing-related or associated with some number of trailing zeros at the end of a bank account. For high-level entrepreneurs, it’s always tied to your deeper why. You will always do more for something that has more meaning to you than you will for a superficial goal. 

Related: 12 Ways Millionaires Manage Their Time to Achieve Maximum Efficiency

Step 5: Track, analyze and re-adjust your approach

There’s no boiler-plate approach to making a million dollars or more in a year or a month or in any other time frame. What you have to do is make sure you track at the finite level. The more detailed you can track and analyze your progress, the more likely you’ll be to get closer to your target faster. It’s similar to an airplane that takes off at a pre-determined time with a pre-determined destination. It has a goal. And in order to get to that goal, it needs a plan. 

However, sometimes, the plane’s plan doesn’t work out. There’s air-traffic congestion or turbulence or a storm in its path. To determine where it’s at and how far it’s come, it has to track and analyze often. Plane’s know moment by moment where they are. And, they also know that they might need to change their approach to reach their target. You should do the same. Don’t change the goal, but if you have to, change the plan. That’s the way you get there. Not by giving up. 

Last Minute Tax Preparation Tips for Your Small Business

business

By Paul Kassabian

Filing tax returns is no easy feat for an individual, let alone a small business owner, and it’s more difficult than ever with the Tax Cuts & Jobs Act in full effect for the 2018 tax season. While this new tax reform promises to reduce the tax burden for small business owners and entrepreneurs, significant changes have left many small business owners apprehensive about how this will impact their returns.

With many small business owners struggling to understand how the new changes affect their business, it’s no surprise many are preparing their tax returns at the last minute. From figuring out if they qualify for the qualified business income deduction to determining which other tax breaks they are eligible for, business owners have questions. The good news is that there is still time to get answers. Here are some tips to help you prepare your tax return before the approaching deadline.

Hire a Professional to Help Prepare Your Taxes

While there are many e-filing software companies available to assist you, hiring a professional to prepare your taxes can help you avoid making a mistake on your tax forms. Find a professional that’s well-versed in the space and can serve as a useful resource for any questions you may have about the new tax laws. Speaking to a certified public accountant (CPA) or tax attorney also helps you stay up-to-date on any tax law changes, identify credits and deductions, ensure an accurate return, and most importantly, make sure you are paying the right amount of taxes every year.

Determine the Correct Tax Forms Needed for Your Business Structure

If you choose not to hire a professional to file your taxes, the first step is determining the correct tax forms you need for your return, based on the legal structure of your small business. There is no one-size-fits-all tax form as each business structure – from sole proprietors to LLCs to corporations – requires different sets of forms to report income.

For example, sole proprietorships only need to fill out Schedule C of their personal returns (Form 1040) as opposed to corporations who must fill out a separate tax return, the Form 1120. Identifying the correct tax form can help save you time, prevent errors, and reap the full benefits of any deductions your small business may qualify for.

Research Which Deductions Your Business Is Eligible For

With significant changes stemming from the new tax reform, it’s imperative to research the types of deductions and expenses your small business qualifies for. This can range from rent on your business property to the employee benefits you provide, like healthcare. The most significant new tax break for 2018 is the qualified business income deduction that allows qualified businesses to deduct up to 20 percent of their qualified business income. Taxable income must not exceed $315,000 for joint returns in order to be eligible for this tax break. Researching your eligibility for the new tax breaks is a surefire way to get the most out of your tax return.

Compile the Right Documents

Once you have determined the appropriate forms to file and understand the various types of deductions, make sure that you have all the necessary documents at the ready. It’s important to keep track of all tax-related paperwork you have collected throughout the year, so when the time comes to prepare your taxes, you are organized and ready to go.

Keep in mind that while the new tax laws can greatly benefit your business, not all the new rules apply across the board. The implications will depend on your industry, your revenue, and the types of deductions your business is eligible for. Doing your due diligence ahead of filing your tax returns, by taking time to research and prepare all of the right documents, will help alleviate some of the stress of tax season, regardless of if you hire a professional or do it yourself.

Paul Kassabian is the Senior Product Counsel for LegalZoom.

Tax stock photo by Derek Hatfield/Shutterstock

3 Steps for Financing Your Small Business

financing

By Mark Scardigli

“It takes money to make money,” is an old saying used when referencing investments and ways to grow a business. Advancing a company requires substantial investments – in equipment, people, infrastructure and operations – and thoughtful, calculated decisions are absolutely necessary when that type of growth requires outside financing.

To secure financing for a small business, there are a few critical steps to ensure this important business decision is approached in the most successful way possible.

Step 1: Do your research on small business financing specific to your industry

Every industry is vastly different when it comes to business needs and customer demands. Luckily there are many types of financing available, but it’s important to do the leg work to determine which type is right for a specific situation.

Since every business operates differently and comes with a distinct set of financing needs, research is the most important weapon in securing the right types of loans required to upgrade and expand business operations. Begin by first researching the associations within your industry. These professional organizations are there to support businesses, sharing industry trends, addressing relevant issues and supplying valuable information. Many of these organizations support and can recommend market specific service providers, which can typically be found on their website.

Once associations have been identified, it’s important to stay up-to-date with the relevant industry publications. Trade publications provide vertical-specific information that can support financing needs, questions or concerns. Some sources can be biased, or even factually inaccurate, so it’s important to take any research a step further – ask for referrals and obtain references.

Bolster any research efforts by attending trade shows that cater to your industry. Participating in these events provides ample opportunity to connect with like-minded individuals and organizations that have similar experiences, questions and concerns as yourself, presenting an opportunity for direct knowledge sharing. There’s no better way to help de-risk a critical business decision than by learning pros and cons from a fellow small business owner.

Step 2: Think through the reasoning behind your need for capital

Before choosing the right loan product for your small business, consider the reason you’re seeking the loan in the first place: Are you growing your business? Are you using it for a project? Are you investing? Once an objective is determined, you’ll have an easier time choosing the right loan for your particular business needs.

Whether you’re a restaurant owner wanting to build an outdoor dining area or a shop owner looking to buy new inventory, the next consideration in this process is your cash flow. Most Small Business Lenders prioritize cash flow over the strength of the balance sheet, since by their general nature, small businesses will have very limited balance sheets. Specifically, you want to review, what your cash flow is and how will this loan affect it? Properly anticipating the decrease, maintenance or increase of your cash flow and in what time frame that change is set to occur is imperative, as lenders use cash flow to determine whether a business is able to meet monthly loan payments.

Also consider the financial impact of a loan from a tax perspective, as several tax implications come into play when borrowing money. A tax advisor can share the ramifications for various loans and, ultimately, guide your decision.

Lastly, look at the time horizon – are you seeking a loan for a short-term project, long-term investment or recurring expense? Loan options are different depending on this time horizon. For example, if this is a short-term loan for a reoccurring project, it would be diligent to ask how renewing your loan works and what costs are involved in doing so.

Step 3: Find flexible financing solutions that enable your business to quickly and easily get the capital needed for continued growth and success

Small business owners typically aim to borrow a small amount of money, as the practice is convenient and offers a quick turnaround. There are three general options small business owners typically consider:

  • Banks: When money is needed, borrowers typically look to their banks first. As bank robber Willie Sutton (1901 – 1980) said when asked why he robbed the bank – “I rob banks because that’s where the money is.” All kidding aside, the choice seems intuitive since most individuals have well-established relationships with their banks. Your bank may even offer a low rate if you are considering taking the plunge. But the truth is, banks aren’t always as flexible with options as they appear to be. More than that, they often have more restrictions, more collateral requirements and slower processes.
  • Finance Brokers: Finance brokers offer a broader and customizable solution for many borrowers. Although this route is typically a better option than working with a bank, oftentimes there are limitations with working with a finance broker.
  • Finance Companies: The third and best financing option for small business growth and success is working with a finance company that is a direct lender. This option is typically quick and convenient. Additionally, this option provides the borrower the opportunity to build an ongoing relationship with the lender, facilitating future transactions. Moreover, a finance company, with keen knowledge of your industry, can be a great business partner who can really help support your growth.

Securing adequate finances for your small business may be a daunting prospect at first, especially if you don’t know where to begin. By consulting the steps above, you align yourself with the business and industry resources that pave the way to your company’s financial success and continued growth.

Mark Scardigli, Chief Sales Officer at Marlin Capital Solutions is a sales and strategic planning executive with over 25 years of experience in organizational leadership, business development, financial services, channel management, product development, and marketing. Mark has expertise in commercial finance, digital marketing, sales enablement and data analytics, internal and external communications, pricing, profit and loss management and underwriting.

Financing stock photo by Billion Photos/Shutterstock

Credit Card Fraud: How to Protect Your Business from Losses

credit card fraudThe possibility of your business losing money due to fraudulent credit card sales is probably something that rarely, if ever, crosses your mind. But if you accept credit cards, it’s a threat you shouldn’t ignore. Credit card fraud occurs when someone uses a credit card or credit card details to obtain products or services without paying for them. Unfortunately, it’s a growing problem, particularly for businesses that sell online. Credit card losses rose to more than $24.71 billion worldwide in 2016, with 47 percent of that fraud occurring in the United States.

Although some fraudulent transactions happen at bricks and mortar businesses, a Javelin Strategy & Research Study found that fraud was 81% more likely in online card-not-present sales.

No matter where it takes place, however credit card fraud can quickly turn an otherwise prosperous year into a huge nightmare for a small business. When a credit card holder spots a transaction they don’t recognize on their credit card bill, if they didn’t receive an order, or there was a problem with the goods or services they ordered, they can dispute the charge with the credit card company. That dispute turns into a chargeback to the merchant.

What’s a chargeback?

A chargeback is a transaction reversal. The credit card processor withdraws the disputed transaction amount from the merchant’s bank account. The merchant may be given a chance to dispute the chargeback, and may win. But if they lose, and they’ve already shipped or delivered what was purchased, they lose not only the sale, but also their cost of goods for the item they shipped, their shipping costs and any other costs associated with the transaction. To top it all off, merchant account providers also charge merchants a chargeback fee for each disputed transaction.

Those chargebacks can add up to substantial sums in some instances. A California business owner had to borrow from friends and family to make good on $14,000 worth of fraudulent charges made on stolen cards one year. The following year, the owner implemented procedures to screen out possible fraudulent orders and refused to ship $25,000 in orders that seemed suspicious.

Friendly” fraud vs stolen and fake cards

Stolen and fake credit cards aren’t the only cause of chargebacks. Sometimes the card holder who purchased the item is the perpetrator of the fraud.  Monica Eaton-Cardone, cofounder and COO of Chargebacks 911, says that in many cases, “customers to request a chargeback out of buyer’s remorse, a practice which is called friendly fraud.” She adds that, “another common trigger is family fraud, which occurs when a friend or relative of the cardholder authorizes a purchase without the cardholder’s knowledge.” Merchant errors can also be the cause of chargebacks.

How to Handle Chargebacks

Handling chargebacks can be quite time consuming.  Eaton-Cardone says the first thing the merchant needs to do is to “determine the true source of the chargeback.” Is it fraud? Did the item get lost in shipping or delivered to the wrong address? Did the merchandise arrive damaged? 

“The merchant needs to get all the information available about the transaction from the bank, then assemble a compelling case for representment. That will include evidence demonstrating the transaction was legitimate, plus supporting documentation to give it context.” Those supporting details might include shipping company records and signature confirmations. All the documentation needs to be sent back to the processor, who will decide the outcome.

If your sales volume is sufficient, an alternative to handling your own chargebacks is to use a service such as Chargebacks911® to handle disputes for you.

How to spot fraudulent orders and avoid chargebacks

There’s no surefire way to prevent chargebacks. But there are things you can do to minimize them. If you are dealing with customers in person, you may be able to spot fake credit cards by looking over the card carefully. Among the parts of the card to check  at are the appearance of the card, the numbers on the card, the magnetic strip, and the hologram. A customer that seems evasive or fidgety could be reason for concern, as well.

For online sales, you don’t have those visual clues, but there are still steps you can take to reduce the occurrence of fraud.

  1. Use address verification (AVS) and card code verification (CCV) for all card-not present sales (i.e., online and mail order sales).
  2. Make sure the business name that shows on the purchaser’s credit card is recognizable to the purchaser. If your official company name of your company is Smith & Company, but you run an online store called PrettyJewelry.com, be sure your credit card processor shows the name PrettyJewelry on the customer’s statement, not Smith& Company. The customer probably won’t recognize Smith & company and may chargeback a legitimate purchase.
  3. Include a reminder on your Thank You page telling the purchaser save their receipt and use it to reconcile their credit card statement. 
  4. Email the customer a copy of the receipt that includes what was purchased, the expected shipping time, and the name of your company.
  5. Notify the customer if there is going to be a shipping delay. If the order will take longer than usual to ship, give the customer the option of waiting or cancelling their order and refunding their money.
  6. Be on the look out for suspicious sales. These include:
      • Unusually large orders placed through the Internet without any contact from the customer.
      • Rush orders for large quantities or high-priced goods. Crooks may ask to have an order shipped overnight so they know exactly what day the order will arrive and they can be waiting to pick it up.
      • Inquiries from buyers promising to place a large order, but who want you to send them a list of what you sell.
      • Missing information, or information the customer refuses to give such as a day-time phone number or the CCV verification number.
      • Orders that are shipped to a different address than the billing address.
      • Orders from foreign countries
      • Orders on US cards shipped to foreign countries
      • Billing addresses that don’t match the information on file with the credit card company.

By themselves, no one of these things is a sure sign that a credit card is stolen, but when several factors are present (say, your average ticket amount is $75 and you see an rush order for $5,000 being shipped to a different address than the address of the credit card holder) it’s prudent to be suspicious and investigate the sale before you ship the merchandise.

RELATED: Counterfeit Money: How to Spot Fake Bills

Even if there’s only one factor that doesn’t pass your “sniff” test, it’s useful to err on the cautious side. As an example, not long ago, someone using a credit card with US address purchased a product from us and wanted it shipped to someone by a different name in another country. The particular product was one that wouldn’t be a lot of use to anyone in the country it was being shipped to, so we called the credit card holder to verify the shipping address. The credit card holder hadn’t made the purchase. Neither had anyone else authorized to use the card. The card and the cardholder’s contact information had been stolen.

What should I do if an order does sound suspicious?

Under any of the above circumstances you should be particularly cautious and do everything possible to ascertain the person ordering the merchandise is actually the cardholder, or an authorized representative of the cardholder.

These tips, though not infallible, may help you decide if an order is legitimate:

  • Get the complete name, address, ZIP code and phone number for the cardholder.  
  • Require customers to enter the 3-digit card code number from the back of their credit card.
  • Verify that the billing address of the card holder is correct. Then, verify the information you are given by calling the merchant bank or using whatever other address verification system is in place through the ISO that processes your charges. If the address you were given doesn’t match the address of the cardholder, don’t ship.
  • Implement a fraud detection service that blocks suspicious transactions based on where they originate, or other factors. (Online credit card processing gateways such as Authorizenet have these available for a fee.)
  • Use an address verification service (AVS) to block sales when the billing address entered online doesn’t exactly match the billing information on record for the cardholder. 
  • If a sale looks suspicious, find an excuse to call the customer back, using the phone number he or she gave you, and ask to speak to the cardholder. If you can’t reach the cardholder, don’t ship the merchandise. People who use stolen credit cards don’t give out their real phone numbers.  
  • Look up the address and phone number of any local orders in the phone book. 
  • Send a reminder letter to people when you ship an item telling them the item has been shipped and when they can expect it to appear on their bill. This type of letter can reduce complaints and chargebacks from people who simply forget what they ordered or from whom.

NOTE: Don’t automatically discredit an order that looks suspicious. I once had someone place an order and ask that it be shipped to Mickey Mouse. The address verification feature on Authorize.net didn’t find any problems with the address. My order form includes a place for an e-mail address, and the person had included their e-mail address, so I sent them a note to ask about the order. The individual, who had used his real credit card data and real address for shipping had used the name Mickey Mouse, because he was afraid to use his real name on the Internet.

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