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Obtaining a small-business loan from a traditional lender like a bank is notoriously difficult. The increased risk of lending to a small-business paired with a long and manual underwriting process contribute to this. However, this hole in the small-business financing market has led to the emergence of alternative lenders like BlueVine.
Lenders like BlueVine leverage online platforms and data science to streamline their underwriting processes. With an improved process, smaller loans are no longer as costly to underwrite and debt financing suddenly becomes more accessible to small businesses. We had the chance to speak with Stuart Blake, BlueVine's vice president of sales and customer success, to speak more about BlueVine and the small-business financing market.
This interview has been condensed and edited for clarity. If you're a small-business owner interested in sharing your funding story, tweet us at @ValuePenguin.
Stu, can you talk about your background?
I grew up in New Jersey. I came from a family of small business owners which, in many ways, influenced my decision to build a career in small business finance. I know what business owners go through and I’m very familiar with their struggles with financing. And I also know the important role they play in any community and the broader economy. So helping them find solutions to their financing challenges is a fulfilling career for me.
What does BlueVine offer?
BlueVine offers working capital financing to small and medium-sized businesses with two main products: invoice factoring and a line of credit. BlueVine’s invoice factoring allows small businesses to get advances on unpaid invoices. So instead of waiting 30, 60, 90 days or more, they get the money they’ve already earned faster. With BlueVine, they can get advances on invoices of up to $5 million. BlueVine also offers a revolving line of credit up to $250,000 that gives them funds as needed. Small business owners can either get a 6-month credit line with weekly payments or a 12-month credit line with monthly payments. With our line of credit, a small business owner only pays fees and interest on the amounts they withdrew.
What're some of the most creative ways you've seen borrowers use small-business financing?
We’ve helped thousands of small businesses meet a wide range of day-to-day funding needs, from covering payroll, buying supplies or repairing a piece of equipment that broke down unexpectedly. But it’s not just emergencies or day-to-day expenses. Our financing has also helped small businesses take on a new customer or a new work order that they would not have been able to work on without quick access to capital. I’d say the BlueVine clients who’ve been able to find the most creative ways to use our products are those who use both invoice factoring and line of credit financing. Having both gives them so much flexibility. The could choose to submit an unpaid invoice for funding to quickly get access to cash. With a line of credit, they could also choose to draw from their line if they have no invoices to factor. Either way, they can conveniently access the funds they need.
Why should a business owner consider a line of credit or invoice factoring compared to a traditional term loan?
It depends on what you need. A line of credit or invoice factoring offers you more flexibility. The line is there when you need it, and you take out only the funds you need and pay fees and interest only on those amounts. A line of credit or a factoring line is perfect for plugging cash flow gaps or for short-term business needs, such as covering payroll or replenishing inventory. These are also good for responding to emergencies such as when a piece of equipment breaks down or there’s an unexpected spike in demand.
With a term loan, you receive a lump sum amount upfront. In most cases, the rates are lower and you pay it back based on a fixed payback schedule. Therefore, a term loan is often perfect for big, long term capital expenses, such as a new piece of equipment or for opening a new location. But it may not make sense for a short-term expense which may require a more flexible type of financing. Let’s say you took out $20,000 now, but then two weeks later, you realize you need an additional $10,000 for your business. With a term loan, it's very tough to quickly get access to additional funds because you're fixed in that term—usually until you're 50 percent paid back—before you can go back and refinance that term loan.
With our line of credit and invoice factoring products, you use only the funds you need. With our line of credit product, you pay fees and interests only on the amount you borrowed. With invoice factoring, you get to decide which invoices you want to submit for funding.
What criteria do you use in processing applications and what are the common mistakes applicants should avoid?
For both our line of credit and invoice factoring products, we look at the business owner’s personal credit score, time in business and annual revenue, amongst other things. Business owners can check out our specific criteria for line of credit and invoice factoring on the BlueVine website. One important point to remember is you don't want to look desperate or distressed when looking for financing. No one wants to make a bet on someone who absolutely needs financing for survival because that could raise questions on whether or not they'll be able to pay it back. Having a solid personal credit score, usually north of 680, helps. But other factors are important, including your revenue and time in business. In fact, with factoring, personal credit is not that critical: We'll go down to 530, and might be willing to make exceptions. Our main focus with factoring is the creditworthiness of business owner’s clients.
The applicant definitely wants to make sure that their personal credit is in good standing as well as their business. This means that they have their financial health in a decent place. We don't expect it to be perfect. We expect there to be some capital in the bank; that the business isn't experiencing a lot of negative days or insufficient funds; and that they do have a regular income that's being generated by the business that's being deposited into the business account. Usually, we're going to want to see a business be in business and operating for at least six months, preferably at least a year.
Is there anything a business owner should look out for, once the line of credit or invoice factoring is actually active?
For both products, it's important that a business owner keeps us up-to-date in regards to their financials. It's constantly updated if they connect their business bank account. But if they choose to go the paper route, by emailing over bank statements, that's fine. Every 30 days, set yourself an email reminder to make sure that those are up-to-date. In addition to that, we are constantly monitoring the accounts. So we do ask that the business owner be proactive in letting us know if there's anything going on with the business, anything that we should watch out for. Maybe they might hit a bit of a rough patch; it's best to let us know ahead of time as opposed to us finding out on our own. We just want to make sure that we can keep that account in good standing.
One mistake business owners should definitely avoid is this: seeking additional financing without letting us know. When we approve a business owner for a line of credit or a factoring line, our decision is based on the financial health of a small business. We want to make sure that, in offering financing to business owners, they are always in a solid and strong position to meet their debt obligations. We can’t do that if a borrower takes on additional debt without informing us.
What sometimes happens is that we'll find out that the business owner has taken on additional debt for the business, and now they're servicing debt at a level that might be unstable for the business to maintain. So in those instances, we'll reach out to the business owner and try to find a way to work with them and see if there's a way that we can put them back in a good spot.
Do you have any general financing advice for our readers, and would your advice be different for a startup versus a more established business?
My advice to readers is simply, know that taking out financing for a business, even though it's gotten a lot easier, is still an important step that needs to be truly considered and analyzed by the business owner to make sure that it's something that makes sense for them and the business. Take some time to shop around and figure out what's the best product out there for their needs. Be open-minded to the fact that there might be situations in which they do not qualify for the best product or the product that they think makes the most sense, and that there might be another product out there that can work. My advice to established businesses and startup businesses is simple: It's always best to leverage someone else's money as opposed to your own when it comes to running a business. It removes much of the personal financial risk and allows you to increase reach and impact of your business. Borrowing money is not a bad thing; it can be a very good thing for business owners. Unnecessary debt is definitely not a good thing, so definitely stay clear of borrowing money for the sake of borrowing money. But when it comes to investing in the business, it's always best to go ahead and borrow someone else's money to do so.