Friday, September 21, 2018

11 Best Online Business Courses for Small Business Owners

For most entrepreneurs, the early days of starting a business involve a massive learning curve. Whether you’ve graduated with an MBA or you’ve never taken a business class in your life, there will always be a new problem to face, and you’ll always need to recalibrate the processes that allow your business to function and grow. That’s when the best online business courses can come in handy.

Years ago, a struggling entrepreneur’s only options were to consult a mentor, enroll in a local college class, or figure things out as they went along. Fortunately, you now have access to a growing number of free or low-cost online courses for business owners—so no matter what your challenge is, you’ll be armed with the information you need to make the best possible decision for your company.

To keep navigation simple, we’ve come up with a list of the 11 best online business courses. They’ll help you take your business to the next level, no matter which aspect of your business you need to grow (or launch)—all without breaking your business bank account.

The Top 11 Online Courses for Business Owners

We’ve organized the best online business courses into four key pillars—business planning, finances, marketing, and operations—so you can find the perfect course for your business today.

Business Planning

Every successful small business starts with a clear business plan—but business planning isn’t a one-time event that wraps up as soon as you open your doors. Let these online courses for business owners be your guide to smart, strategic planning for every stage of your small business.

1. Startup & Small Business Law: Business Registration & More

If you’re just getting started with your small business journey and are feeling overwhelmed by the legal processes involved, check out Startup & Small Business Law: Business Registration & More.

With just 2.5 hours of video and written material, you’ll quickly get the information you need about choosing and registering your business entity, understanding crucial legal issues concerning internet privacy and intellectual property, hiring a small business lawyer, and more.

Cost: Currently $10.99 

Who it’s for: Any U.S. based, brand-new entrepreneur looking for guidance on how to choose the right corporate structure, register their business efficiently, and navigating other legal issues that may arise when starting a business.

Main takeaways:

  • Determine the right business entity type (LLC vs. S-Corporation vs. C-Corporation) for your unique needs.
  • Understand laws around hiring and firing employees.
  • Best practices for researching and hiring a small business lawyer.

2. How to Start Your Own Business

If you’re brand new to the business world, you won’t find a more comprehensive training ground than How to Start Your Own Business, a specialized course available on Coursera and created by Michigan State University. This course includes trainings on developing an entrepreneurial mindset, business idea generation, creating a business plan and model, building your business structure, and prepping to launch your business.

But the most unique and valuable aspect of this online course is its last module, in which you’ll put all those lessons into action and literally launch your business—legal registration and all—right alongside your fellow learners.   

The full program includes six courses that range from three to seven weeks in length, but you can also choose only to take the course that most interests you.

Cost: $49 per month, which you can cancel anytime

Who it’s for: Any aspiring entrepreneur who wants to learn foundational skills and practices of starting a business—then actually launching their business with the support of a community of learners.

Main takeaways:

  • Learn how to develop business ideas with confidence, and recognize and exploit business opportunities.
  • Create a replicable business model, complete with financial projections.
  • Create your business’s financial documents and hiring plan.
  • Launch your business!

3. Understand SWOT Analysis

Are you aware of the strengths, weaknesses, opportunities, and threats that are impacting how your business performs from day to day? If not, Understand SWOT Analysis is one of the best online business courses you can take.

In just 30 minutes of video training, you can quickly master the proven four-step strategy that thousands of businesses use to create effective strategic plans and assess the performance of their organizations.

Cost: Free

Who it’s for: Entrepreneurs looking for a systematic way to analyze plans and performance within their business.

Main takeaways:

  • Learn to perform a SWOT analysis for your business.
  • Apply the discoveries made in your SWOT analysis to goal setting and strategic planning processes.
  • Follow specific case studies to better understand the applications of SWOT to a variety of business scenarios.

best online business courses


Generating a profit isn’t just about attracting customers and selling more of your product or service—you also need to know how to manage your finances properly.

Though financial management is rarely any entrepreneur’s favorite part of running a business, these courses will help you nail down the basics of financial planning then streamline your processes, so that you can make the most of every dollar your business earns. (Who knows? You might even learn to enjoy it.)

4. Finance and Accounting for Small Business & Entrepreneurs

This 101 course is ideal for new business owners who need a working knowledge of financial and accounting concepts. True to its name, Finance and Accounting for Small Business & Entrepreneurs provides a foundation for new business owners—and even aspiring investors—to learn about accounting for labor and inventory costs, preparing financial statements, and even determining business valuation and raising capital when it’s time to grow your business.     

Cost: Currently $10.99

Who it’s for: New small business owners who need to learn the concepts and skills necessary for managing their business finances.

Main takeaways:

  • Prepare and analyze crucial financial statements, including balance sheets and income statements.
  • Learn about the audit process.
  • Learn how to budget and create cash flow projections.
  • Determine your business valuation and present your business plan to investors.

5. Financing Options for Small Businesses

In under an hour of written and video material, Financing Options for Small Businesses from the U.S. Small Business Administration will introduce you to the various financing options available to your small business.

From business loans to grants, venture capital, angel investors, and even crowdfunding options, learn the pros and cons of each potential source to make the best choice for your business.

Cost: Free

Who it’s for: Any small business owner who anticipates needing outside financing from loans, investors, or another source in the short or long term.

Main takeaways:

  • Determine your business’s short-term and long-term financing needs.
  • Discover the various financing options available to your small business, and the pros and cons of each.
  • Identify the financing options that are most likely to fit within your business plan, and access resources to help you pursue those forms of funding.

6. Fundamentals of Accounting

Accounting software and reports can provide incredible insights into how your business is doing financially—if you know how to use them.

In this Fundamentals of Accounting course, small business owners will learn common principles and terminology used across financial sectors. After completing these few hours of video instruction, you’ll be better equipped to manage your own business finances, ask smarter questions of your bookkeeper or accountant, and become a better manager of your revenue.

Cost: Free

Who it’s for: Entrepreneurs who want to learn skills for managing their own bookkeeping, review accounting documents created by bookkeepers or CPAs, or serve as a professional bookkeeper.

Main takeaways:

  • Master commonly used accounting principles and terminology.
  • Create your first balance sheet and income statement for your business, and understand what these reports reflect.
  • Learn to adjust discrepancies in your business’s daily bookkeeping through journal and ledger tools.


No matter how amazing your product or service may be, your business can’t succeed without a method of attracting customers. Through these best online business courses for small business marketing, you’ll develop the skills to grow your brand’s reach (and profit) through both digital and traditional marketing channels.

7. Content Marketing Certification From Hubspot

This free course from Hubspot Academy is a valuable starting point for anyone new to the world of content marketing. In just four hours, you’ll be ready to generate incredible content ideas, tell powerful stories that attract customers to your brand, and create and distribute your content in an informed and systematic way.

Cost: Free

Who it’s for: Anyone who’s heard of “content marketing,” but needs clear education and instructions to apply the strategies to their business.

Main takeaways:

  • Understand how content marketing works and why it’s such a powerful marketing tool for your business.
  • Plan a long-term content strategy that aligns with your brand’s goals.
  • Master strategies to promote and repurpose your content to extend your reach.
  • Learn to analyze and measure your content marketing efforts so you always know exactly what’s working for your business.

8. Social Media Superhero

There are a ton of online courses for business owners about social media, but we love this low-cost course from Melyssa Griffin. Using 60 minutes of video material, a bonus 30-minute Q&A recording, and a written workbook, Griffin offers simple, approachable strategies to help you make social media work wonders for your small business.

Cost: $37

Who it’s for: Online entrepreneurs struggling to grow their presence without spending all their time on social media channels.

Main takeaways:

  • Create attractive social media profiles for your brand.
  • Discover specific strategies for use on Facebook, Instagram, and Pinterest.
  • Learn streamlined processes to save time with your social media efforts.

best online business courses


To run a successful business, you’ll need strategies to establish your team, create internal processes, and execute production in an effective and repeatable manner. That’s why taking online courses for business owners that focus on operations in particular can be crucial to growing your business.

9. Making Successful Decisions Through the Strategy, Law & Ethics Model

As your business grows, you’ll be charged with making increasingly complex decisions. If you’re a little intimidated by the prospect of such responsibility, Making Successful Decisions through the Strategy, Law & Ethics Model, designed by a University of Michigan Business Law professor, might quell those anxieties.

This course introduces students to this three-pillar model of successful decision-making, and how you can implement this strategy to improve your business operations. Among many other concepts, you’ll understand employment law, learn how to develop products while navigating liability risks, comply with government regulations, and ethically create business value to ensure that you make the decisions that’ll keep business runs smoothly (and aboveboard).     

Cost: $79 to earn a certificate upon completion, or free for no certificate

Who it’s for: Business owners helming growing companies, who want to learn how to ethically manage a team and negotiate with stakeholders.

Main takeaways:

  • Protect and leverage your intellectual property.
  • Understand how to negotiate contracts.
  • Learn best practices for mediating and resolving business disputes.
  • Learn how to navigate ethical dilemmas that may arise when running your business.

10. Introduction to Human Resources by Small Business Administration

Whether your small business is a team of two or 200, at some point you’ll likely be responsible for managing, leading, and supporting a team of employees. In this Introduction to Human Resources course from the U.S. Small Business Administration, you’ll learn critical strategies for hiring employees, managing personnel, complying with federal and state employment regulations, and addressing the challenging-yet-inevitable aspects of heading a growing company.

Cost: Free

Who it’s for: Any entrepreneur who plans to grow their business beyond a one-person operation.

Main takeaways:

  • Understand the essentials of an effective hiring process, including defining roles for each team member, recruiting top talent, and interviewing candidates to make the best selection.
  • Prepare your business to comply with relevant employment laws and maintain a safe work environment.
  • Develop policies and procedures for onboarding team members, providing feedback, and dealing with termination or separation of a team member as needs arise.

11. Project Management Principles & Practices

No matter how creative your business idea might be, your success as an entrepreneur will ultimately depend on your team’s ability to deliver your product or service on time, on budget, and within your available resources. In Project Management Principles and Practices, a free project management course from UC Irvine, you’ll learn the keys to planning, budgeting, scheduling, and managing projects across every area of your business.

Cost: $49 per month, which you can cancel anytime

Who it’s for: Business owners who lack the processes to implement their ideas.

Main takeaways:

  • Learn to set projects up for success through effective planning, including identifying project roles and defining success for each endeavor.
  • Master scheduling and budgeting techniques to complete projects at cost and within the predetermined time frame.
  • Develop tools to identify and manage changes in project scope and objectives so you’re prepared to manage priorities without allowing your projects to spin out of control.

best online business courses

Becoming a Better Business Owner Through Online Business Courses 

What new skills are you learning—or need to learn ASAP—as a small business owner? Whether you’re facing an urgent challenge, or you simply want to bolster yourself with better business knowledge, know that there’s a whole digital university out there for you to take advantage of—and you don’t need to pay a brick-and-mortar-sized tuition for access.

The post 11 Best Online Business Courses for Small Business Owners appeared first on Fundera Ledger.

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Best Accounting Software for Small Manufacturing Businesses

Your manufacturing business might be small for now, but you have big dreams. Maybe your vision is to supply boutique stores in your region with your unique product. Or maybe you have a goal of one day distributing your product worldwide, either through ecommerce or large chain retail stores.

Regardless of the goals you have for your business, you will need good accounting procedures in place to reach those goals. And the first step to establishing good accounting procedures is choosing the best accounting software for your small manufacturing business.

Accounting for manufacturing businesses is a little different than accounting for other industries. And small manufacturers need to make sure their accounting software can accommodate these unique differences with a minimal amount of effort.

best accounting software for small manufacturing business

Manufacturing Accounting Needs

Accounting for manufacturing businesses deals heavily with inventory valuation and cost of goods sold. While these accounting concepts are also used in retail accounting, there are a couple of differences manufacturers need to be aware of:

Manufacturing accounting requires three inventory accounts.

Typically, manufacturers have three separate inventory accounts. The balances in these accounts are constantly changing throughout the accounting period, so you must make sure you have a good tracking system in place in order to keep your accounting uncomplicated.

  • Raw materials are the basic components or ingredients you use to manufacture your product. If you make wooden toys, your raw materials might include wood, paint, and nails or screws. If you make bath products, your raw materials might include shea butter, essential oils, and beeswax. In other words, anything that goes into the production of your final product is considered a raw material.
  • Work-in-process (WIP) is the inventory that is no longer in its raw form, but is not yet a completed product at the end of the accounting cycle. If your product does not have a long production cycle—meaning you can easily complete a product in a day or two—you probably won’t have WIP inventory. The WIP inventory calculation includes not just the cost of the raw materials used so far in the production of the product but also labor and overhead costs.
  • Finished goods are the products you have completed and are ready to sell to your customers or distributors. Like WIP inventory, the finished goods inventory calculation includes raw materials, labor, and overhead costs.

Manufacturing accounting requires labor and overhead costing.

In retail and most service businesses, labor and overhead costs are considered operating expenses. In manufacturing, though, these costs are separated into direct costs and burden costs.

  • Direct costs are the costs that can be tied directly to the production of your product. Direct costs include the wages you pay the workers who are directly involved with creating your product, as well as the costs associated with running any machinery used in production.
  • Burden costs cannot be directly tied to the production of your product. These costs are also referred to as indirect costs. Some examples of burden or indirect costs are administrative wages and building costs (rent, utilities, etc).

If your manufacturing business is still very small and you are doing most of the production yourself, you probably don’t need to be overly concerned with these accounting differences just yet. Check with your accountant to make the final determination on how to best conduct your accounting at this point in your business.

That said, you want to make sure you choose accounting software for your small manufacturing business that can accommodate these accounting differences as your business grows.

best accounting software for small manufacturing business

The Importance of a Cloud-Based Accounting Software

Many small manufacturing business owners think they can only get the functionality they need in their accounting software by using a desktop-based product.

This is no longer the case.

In fact, unless it’s absolutely impossible to get the functionality you need without using a desktop-based accounting product, you should always “shoot for the clouds,” either directly or by choosing software that can be hosted and accessed remotely. Using a cloud-based accounting solution will allow you to:

  • Collaborate in real time with your accountant. If you use cloud-based accounting software, you and your accountant can both access and discuss your financials at the same time, regardless of where you are each located. This will allow your accountant to provide you with the information you need to make sound business decisions much faster. It will also allow you to take a break from your business without worrying about being in the dark about what is happening with your accounting.
  • Update your software automatically. No small business owner has the time to take their system offline and install an update. If you use cloud-based software, updates happen automatically, without your intervention. On the rare occasion when an update does have to take the system offline, most software companies do so during non-peak hours, so their users never experience a delay.
  • Your data is automatically secured. Data breaches are a growing concern for small businesses, and many avoid using cloud-based software due to security concerns. But the major cloud-based accounting software providers invest much more in systems security than even the largest manufacturing business could afford to invest on their own. Cloud-based software providers also have multiple redundancies in place to minimize the risk of data loss. While this doesn’t mean there will never be a data breach or loss of information, the risk of this is substantially reduced if you use cloud-based accounting software.

The Best Accounting Software for Small Manufacturing Businesses

All of our picks for the best accounting software for small manufacturers are either cloud-based accounting solutions or are easily hosted in the cloud. These software companies are also all well-known, which means they are well-supported by accountants and bookkeepers.

Our Top Pick: QuickBooks Online

You might have been told QuickBooks Online is not a good fit for inventory-based businesses like your small manufacturing company.

On its own, this is true. QuickBooks Online has a very limited inventory feature, though Intuit is continuously updating and upgrading it.

However, there are a number of very powerful third-party integrations specifically designed for small manufacturing businesses that integrate beautifully with QuickBooks Online. Fishbowl Manufacturing provides a full ERP system for your manufacturing business that integrates with QuickBooks Online using a plugin built right into the software. Fishbowl integrates with a number of other accounting platforms, as well, so if you switch accountants you will also be able to switch accounting platforms with ease (if necessary). Although it is server-based, there is a hosting option you can use to access Fishbowl via a URL.

MISys Manufacturing is another great option for your “back-of-house” manufacturing accounting needs. MISys is modular, meaning you can start small and build as your business grows and you need more functionality. This will help you keep your costs down while you are building your business. Unlike Fishbowl, MISys integrates only with QuickBooks and Sage products, so keep this in mind if you plan to work closely with an accountant or bookkeeper.

QuickBooks Online is supported by thousands of accountants and bookkeepers around the world, making it easy to find a provider who specializes in accounting for small manufacturers. This, combined with the ease of integration with software specifically designed for manufacturing businesses, makes it our top pick.

Runner Up: QuickBooks Desktop Enterprise for Manufacturing & Wholesale With Advanced Inventory

Although this is a desktop-based solution, QuickBooks Enterprise for Manufacturing & Wholesale can easily be hosted in the cloud. We recommend hosting this software with a reputable company like RightNetworks to provide you with access from anywhere, routine backups, and regular updates.

This version of QuickBooks has many of the features manufacturers need right inside the software, like assemblies management and available-to-promise functionality to help manage demand. Like with QuickBooks Online, finding support is easy, but you’ll want to choose an accountant or bookkeeper who has experience using the manufacturing and inventory features.

Even though QuickBooks Enterprise for Manufacturing & Wholesale is sold as an all-in-one solution, the manufacturing features aren’t as advanced as those you will find in Fishbowl or MISys. Take some time to consider not only your current needs but also what features you might need for your business in the future. If you will ever need advanced manufacturing features, your better bet will be to go with QuickBooks Online and a third-party application from the start.

Honorable Mention: NetSuite Manufacturing

NetSuite Manufacturing is a completely cloud-based, all-in-one solution built specifically for manufacturers. Used by large, global manufacturing companies, NetSuite has everything any manufacturing business of any size needs to run operate effectively and profitably.

With this level of robustness comes some challenges, though. NetSuite could be a little too robust for small and emerging manufacturing businesses, creating complexities where simplicity would benefit the business owner more. NetSuite is also not as widely supported as QuickBooks products, meaning you could have difficulty finding an accountant or bookkeeper to support it.

Still, if you are planning to grow your manufacturing business into a large enterprise, NetSuite is worth considering. Even if you choose to use different accounting software for your small manufacturing business now, keep NetSuite in the back of your mind as a solution to consider as your business grows.

Choosing the Best Accounting Software for Your Small Manufacturing Business

Choosing accounting software for your small manufacturing business is easy once you understand the unique differences you need to consider for your accounting. As always, one of your first steps when establishing your accounting system should be consulting with an accountant or bookkeeper with experience in manufacturing accounting.

Whether you go with one of our top picks or a different solution, choose accounting software that has good support and will grow with your business. This will help you build the manufacturing business of your dreams.

The post Best Accounting Software for Small Manufacturing Businesses appeared first on Fundera Ledger.

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Thursday, September 20, 2018

What Happens When You File for Business Bankruptcy?

When it comes to the future of your business, filing for business bankruptcy might seem like the worst thing that could happen. You might feel like your business is failing, and you might be worried about how filing for bankruptcy will affect your credit score or your access to financing in the future.

Bankruptcy is designed to help struggling businesses eliminate or repay their debt. There are some serious consequences of filing for bankruptcy, and you should never make the decision to file lightly. That said, having to file for business bankruptcy is not necessarily a death sentence—in fact, it could mean the difference between your business sinking or surviving. Indeed, some business owners even file for bankruptcy strategically, as a way to streamline their debt and get a fresh start. 

The process of filing for bankruptcy and the results vary depending on the type of bankruptcy. Business owners can file for Chapter 7, Chapter 11, or Chapter 13 bankruptcy, depending on their financial situation and on the type of company that they have. As a business owner, you need to carefully consider which chapter you file under, the consequences and opportunities of filing, and the cost and time involved in filing. Let’s review these issues, so you can understand what happens when your business files for bankruptcy.

Business bankruptcy presents drawbacks and opportunities

The 3 Types of Business Bankruptcy and What Happens in Each Case

Small business owners have three basic options if they need to file for business bankruptcy: Chapter 7, Chapter 11, or Chapter 13. In each case, the process and result are a little different. Here’s an overview of the three types of business bankruptcy and what happens in each case.

Chapter 7 Bankruptcy (Liquidation)

Chapter 7 bankruptcy is the most common type of bankruptcy, making up about 80% of filings. Chapter 7 bankruptcy is available to consumers and all types of businesses. This is an option if you do not have a means to keep your business running, and are unable to pay off your company’s current debts. The result of a Chapter 7 business bankruptcy filing is liquidation of the business’s assets and closure of the business.

Linda Worton Jackson, a partner at commercial law firm Pardon, Jackson, Gainsburg, PL explains, “Once a business files for Chapter 7, the company shuts down, the officers, directors, and employees are dismissed, and a court appointed trustee takes over to liquidate the company for the benefit of creditors. The company does not continue operating under Chapter 7, except in very rare circumstances where the trustee allows it to do so temporarily.”

Consumer who file for Chapter 7 bankruptcy need to show that their income is low enough to qualify. Filers who are seeking to discharge business debts do not need to meet income requirements. If you have multiple creditors who you haven’t paid back, the trustee will divide up your assets among those creditors. Certain assets that fall under bankruptcy exemption laws are safe from creditors. For instance, most states and the federal bankruptcy laws provide some protection for a filer’s home.

Corporations, limited liability companies, partnerships, and sole proprietorships are all eligible to file Chapter 7, but it’s mostly a tool used by sole proprietors. Once the creditors get paid, and the trustee receives their fee, sole proprietors receive a discharge. A discharge means that you’re no longer responsible for paying back business debt, even if you signed a personal guarantee. Corporations, LLCs, and partnerships can’t receive formal discharges, so if you’ve signed a personal guarantee on a loan, creditors can still come after your personal assets to satisfy a debt.

Chapter 11 Bankruptcy (Reorganization)

Chapter 11 bankruptcy allows a business to continue operating while reorganizing debts. Businesses pursue this option when they’re not completely under water and have the potential to continue operating as a viable company with some help from the bankruptcy court.

Jackson says, “In a Chapter 11 bankruptcy, the management remains in control, and has the ability to make decisions for the company, with the court’s approval. When a company reorganizes, it means it will emerge from bankruptcy as an operating company as opposed to liquidation. The business will use the bankruptcy process to eliminate debt, sell off non-performing assets, restructure long-term debts, and possibly bring in new equity or financing.”

In order to be eligible for a Chapter 11 filing, your company must be generating regular revenues. If you go this route, you’ll have to submit a reorganization plan to the court showing how and when you expect to repay all your debts. Your creditors and the court must review and approve the plan before it goes into effect.

Chapter 11 bankruptcy essentially allows you to negotiate with your creditors. For instance, instead of having to pay back your loan within five years, the court might allow you to make payments over the next 20 years. The goal of a Chapter 11 bankruptcy is to make sure you can continue operating, by balancing expenses and income and helping you regain profitability over an extended period of time.

Chapter 13 Bankruptcy (Reorganization)

Chapter 13 bankruptcy is an option that’s primarily for consumers, but sole proprietors can use it as well. As Jackson explains, “Chapter 13 bankruptcy is very similar to Chapter 11, but is only applicable to small businesses with a few creditors… It is a simplified and less costly reorganization for small businesses.”

There are debt limits that determine eligibility for Chapter 13 bankruptcy. You can’t have more than $394,725 of unsecured loans or $1,184,200 of secured loans to qualify. These numbers change periodically to reflect inflation and cost of living changes.

Under Chapter 13, a sole proprietor can file for personal bankruptcy and petition the court to reorganize their debts. The key thing to remember is that as a sole proprietor, you have to file for bankruptcy under your own name, not the business’s name. Both personal and business debts come under the trustee’s purview. The trustee will treat your personal and business property in the same way—both are available to pay back all debt, business or personal.

With this type of bankruptcy, the business can continue operating. As with Chapter 11, you must submit a reorganization plan to the court for approval, showing how and when you plan to repay your debt. Depending on your income, personal and business expenses, and types of debt you have, you’ll either have to repay some or all of your outstanding debt (some might be discharged). Usually, under Chapter 13, you get 3 to 5 years to pay back the debt, so this is really only an option for businesses that have a small amount of debt. Businesses with a larger debt loan should consider Chapter 11 bankruptcy.

The business bankruptcy process requires a lot of forms

The Bankruptcy Process

Thinking through the pros and cons of bankruptcy and deciding if it is the right option for you is something that you must give careful thought and consideration to. Once you decide you want to proceed with bankruptcy, initiating the process is pretty simple. Sole proprietors can file on their own, but businesses need an attorney to file. And even if you’re a sole proprietor, we recommend hiring an attorney to get you through what can be a long, complicated process.

“The commencement of a bankruptcy is actually simple,” Jackson says, “with a form that must be filed, along with payment of a filing fee. But, after the case is opened, the company must file very extensive disclosures with the court. After that, management must become accustomed to making its secrets public and seeking approval of every move.” Bankruptcy is regulated by the U.S. Bankruptcy Court, of which there are 94 jurisdictions. You start you case by filing an official bankruptcy petition in the jurisdiction where your principal place of business is located.

After you file the initial petition, there’s a lot more paperwork that follows. Each type of bankruptcy has its own forms, and the forms vary for sole proprietors and registered business entities. For reorganization bankruptcies—Chapter 11 and 13—you must formally disclose your payment plan with the bankruptcy court, explaining how you plan to pay back your creditors and over what period of time. Your forms will also include information on your company’s business affairs, liabilities, and assets.

Creditors must approve your reorganization statement. This is because creditors need to be able to make an educated decision regarding your proposed plan. A confirmation hearing will take place next, where your plan for reorganization will be up for discussion. The bankruptcy court will either confirm or reject the plan. If confirmed, you can continue running the business in order to pay back your creditors. Most courts require updated financials from your business on a periodic basis, to make sure you’re complying with the reorganization plan.

Keep in mind that bankruptcy forms are public record, so creditors, other businesses, and curious friends or family members can look up your financial information in court.

How Long Does the Bankruptcy Process Take?

The entire bankruptcy process can take a long time and cost you a significant amount of money. A Chapter 7 bankruptcy usually winds up with a discharge within four to six months. A Chapter 13 bankruptcy takes a similar amount of time, though the actual period for paying back the debt is three to five years.

A Chapter 11 bankruptcy takes the longest amount of time. Creditors are allowed to question the debtor in court, and both creditors and the court need to review and approve the reorganization plan. All told, this can take upward of a year. If you’re using an attorney, the legal fees can really add up during the entire process.

business bankruptcy can damage your credit

Post-Bankruptcy: Will Your Credit or Access to Future Financing Be Affected?

What most people worry about after a bankruptcy is how it will affect their credit. When business owners file for bankruptcy, not only can their personal credit rating be affected. Their business credit score can also take a hit. Plus, your ability to access credit for your business in the future can be affected.

Bankruptcy’s Impact on Credit

The impact to your credit from a bankruptcy depends on the type of business you have. If you are a sole proprietor, there’s no legal separation between you and your business. You are personally responsible for personal and business debts. When you file for bankruptcy, the court can discharge your debts. That means you no longer have to pay them back, but you’ll pay the price with a huge hit to your credit. Bankruptcies show up on your credit report for seven to 10 years and can damage your score by more than 130 points.

If you have a registered business entity, such as an LLC or corporation, then there’s a legal wall between you and the business. You’re not personally responsible for your company’s debts. In this case, neither the unpaid business debts nor the business bankruptcy should show up on your personal credit report. But, they will show up on your company’s commercial credit report. Lenders, the SBA, and suppliers check your business credit report to determine whether to do business with you.

The exception here—and this is a big exception—is if you’ve signed a personal guarantee. A personal guarantee makes you personally responsible for business debts, no matter how your business is structured. For example, even if you have a corporation, signing a personal guarantee makes you personally responsible for the corporation’s debts. In this case, the company’s creditors can come after your personal assets to satisfy the business debt, even if your business has filed for bankruptcy. And the unpaid debt will show up on your personal credit report.

Bankruptcy’s Impact on Your Access to Financing

Having a bankruptcy on your record can seriously limit your access to financing in the future. All lenders are concerned with one thing—getting paid back, with interest and on time. A bankruptcy in your record can make lenders wary of working with you, even if you’re seeking funding for a brand new company (after the former company was dissolved).

“Most lenders require you to wait for three to seven years after a completed bankruptcy until they’ll consider you for a business loan,” says Matthew Nicolosi, a senior sales manager at Fundera.

In the meantime, however, you are not completely without options. For instance, you can still apply for a business credit card, and some alternative lenders like Kabbage will work with you just one year after a bankruptcy discharge. Self-secured loans such as equipment loans are also a possibility, even with a recent bankruptcy.

Fundera’s Nicolosi advises small business owners to stay focused on improving their credit to open up access to financing in the future:

“After a bankruptcy, the best thing a borrower can do is stay hyper-focused on their credit profile. Obtain a business credit card or two to build up business and personal credit, minimize credit utilization to keep your scores maximized on that front, and ensure you’re keeping your business financials up to par with what the lenders are looking for so when the time does pass, you can pounce on those opportunities.”

A bankruptcy is an obstacle on your road to business funding, but it doesn’t have to completely shut you off from accessing the money you need to get your business back on track or launch a new business.

business bankruptcy can help your business continue or wind down

Drawbacks and Benefits of Filing for Bankruptcy

Filing for business bankruptcy is a last resort step for any company. You should consider filing for bankruptcy only if you are having serious trouble paying your debts, are tied up in litigation with creditors, or feel like your business is hanging on by a thread. The bankruptcy process can bring some structure to your finances and help you get through to the other side. However, if your business is really underwater, the bankruptcy process might mean that your business has to be dissolved.

Of course, it’s never a good idea to make a hasty decision to file for business bankruptcy—it will stay on your credit history for seven to 10 years and affect your access to financing. Be sure to explore all your options and talk with a lawyer before deciding what to do with your business in the near future.

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Bootstrapping Your Business: Should You Self-Finance Your Company?

When you’re beginning your business, it makes sense that you’d pay for expenses directly out of your pocket. But if you want to accelerate your growth—or need business financing for other reasons—you’ll have to make a decision about where you’re going to seek out additional capital. Some entrepreneurs decide to apply for a small business loan, while others look for venture capital in the form of angel investors for small business.

Others choose to turn to their own reserves. These individuals aren’t always millionaires, founders who have had previous success selling companies, or those with just generally deep pockets. Sure, you’ll have to have a certain level of financial stability in order to self-finance your company. But if you can pull it off, there are reasons you might want to consider it.

We’ll explore reasons why small business owners might want to dip into their own pockets instead of turning to others for funding. Plus, if that’s the route you go, we’ll provide tips to make sure you keep your business solvent.

Defining Self-Financing: Using Your Own Money to Fund Your Business

When we’re talking about self-financing, we don’t just mean paying off your own business credit card bills as you’re buying supplies for your Etsy shop. Because, although that’s technically self-financing, this discussion is on a bigger scale. What many call “bootstrapping” your business.

What Does “Bootstrapping” Your Business Mean?

You know the phrase “pulling yourself up by your bootstraps”? You see where we’re going with this. To “bootstrap” a company means starting and running a business with all of your own cash, and not relying on any external sources for help.

When you self-finance—or bootstrap—your business, you generally do it on a fairly limited budget since you’re putting your own money in. When many small business owners or startup founders talk about getting their start, they often talk about bootstrapping their business. And the vast majority weren’t independently wealthy, and didn’t have several multimillion-dollar exits under their belts from past endeavors.

The bottom line is that lots of entrepreneurs can self-finance their companies. And just because you do doesn’t meant that you can’t raise venture capital or outside funding later. In fact, many investors like to see that you’ve grown your business on a shoestring. And, when you apply for SBA loans, the Small Business Administration even requires proof that you’ve put equity into your business—both in the form of your sweat and your capital.


Bootstrapping Your Company: Pros and Cons

The vast majority of small businesses self-finance, at least at some point: More than two-thirds of small businesses rely on their own money. There are lots of reasons why you’d choose to go after alternative sources of capital—and, also, why you wouldn’t.

As you’re evaluating your options for business financing sources, look at both sides of the self-financing coin:

Benefits of Self-Financing as an Entrepreneur

  • Retain ownership and equity. Putting your own money into your small business instead of taking on investors means you continue to own every slice of your pie. (Your profits, too.) And for many business owners whose livelihoods are wrapped up in their companies, that’s important. You might not be ready to not only give away a substantial portion of your company, but to also continue to dilute your ownership as investors push you to raise subsequent financing rounds.
  • Stay in control. Similarly, when you offer equity in exchange for investment, you can give up full control of your company. This might happen under pressure from investors to change the direction of your company, or quite literally, as you cede board seats or voting rights.
  • Financial focus. This might seem a little pie-in-the-sky, but it’s a lot easier to spend money when it’s not your own. Understanding that every business decision you make has a direct line back to your personal bottom line often means tighter spending and more financial discipline.
  • No one to report back to. If you’re bootstrapping, you don’t have to pay interest payments to a lender or show balance sheet to investors. It’s nice not worrying about falling behind on loan payments or losing the confidence of your backers during a down month.

Drawbacks of Using Your Own Money for Financing

  • Lack of advisors and connections. If you choose to raise money through a friends and family loan or investment or seek out angel investors, you’ll be engaging their networks, too. And outside perspective is always invaluable in business—sometimes, working with your head down means missing opportunities or problems. You might be surprised, but small business loans even come with networks; for instance, the Small Business Administration has fantastic advisory resources for businesses within their SBA loan program. And even building a relationship with a lender can be a helpful connection down the line for better rates.
  • Smaller budget, slower growth. A lot of things in business cost a lot of money. Newer, more efficient equipment. Higher-quality raw materials. Skilled labor. And, even if you have the money to pay for these things, you might run into a situation where you want to take advantage of a big new client or expand into a new market, but you don’t have the money to fund the inventory. Growth is expensive, and you might not be able to afford it with bootstrapping alone.
  • Risking your own savings. Even though you absolutely, positively, definitely have separate business and personal finances already (right?), the inherent concept of self-funding your business is personally risky. You are using your own money, after all—and if things don’t go right, it’s a risk for you.


Understanding Personal Risk in Self-Financing

Before we go ahead, let’s go back to that point about your separate finances that we mentioned in the last section. Opening up a business bank account, or establishing a business entity, is often easy to overlook in nascent days of starting up. Especially if you didn’t consciously start your business with a capital S, so to speak—maybe it was a freelance project that got bigger or a hobby that began to net you some cash that you took full time.

Every business owner, self-financed or not, needs to have a separate business and personal bank account. Keeping your personal dealings and company dealings separate is essential come tax time. But it also could have legal implications later down the line if you get in trouble with your company. If there’s no distinct line where personal ends and business begins, you could put all of your personal assets in jeopardy.

Who Should Consider Self-Financing Their Small Business

Just like taking on a small business loan or venture funding isn’t for everyone, self-financing isn’t for everyone, either. But there are better situations than others for choosing to finance with your own money.

Consider bootstrapping your business if…

  • You already have some kind of debt. Whether you have a mortgage in your name, or maybe a student loan, you might want to consider using your own runway for as long as possible so as not to accrue additional debt (or give away equity, either).
  • You don’t need quick market penetration to make your product or service successful. If you’re not working on a fast-developing technology that you need to get to market fast, consider growing at your own pace with your own money. This is particularly relevant for consumer goods that don’t need to gain traction with speed to scale.
  • You can develop your idea without upfront capital. Some businesses require a lot of money to prototype or market test. If that’s not your business and you can prove that you have a viable product without a capital infusion, that’ll work to your advantage later on.
  • You know you can work lean. Don’t hire just to hire! If you can get things done on a shoestring, do it. You don’t have to get everything done at once—sometimes, just building a minimum viable product (MVP) is all you need to get to the next level.
  • You’re an industry expert. If you have deep expertise in your field and can leverage your background to make connections, then lean on your network before giving up a piece of your pie to use others’.
  • You can afford to spend without depleting your bank accounts. Although we’ve said you don’t have to be independently wealthy to bootstrap, you do need to have some kind of cushion besides the money you’re putting into your business. Because, if things don’t work out, you can’t end up without a roof over your head.
  • You’re risk tolerant. A lot of small businesses fail. We’re not trying to be grim but rather giving you a gut check. If the very idea made you jump, then self-financing may not be for you. Using your own money to fund your business is risky, and you have to be willing to accept that you might lose money, and a lot of it. (But you might succeed, too—just saying!)

Personal Capital Sources to Explore

It’s not always possible to stay in the black if you’re self-financing your business.

If you, like most Americans, don’t have a business bank account overflowing with dollars to bootstrap your company, you might need to look into a few other resources for larger sources of capital. Your best options include:


Effective Strategies to Succeed at Bootstrapping

If you choose to self-finance your company, you’ll want to commit to some specific capital management strategies to keep your spending lean and your accounting efficient. That way, your money will go further which will, hopefully, allow you more runway for growth.

1. Keep an eye on your costs.

This one almost goes without saying…  almost.

Managing your costs isn’t a one-time process; it’s a constant evaluation of your P&L. There are dynamic pieces, like keeping an eye on industry trends so you can anticipate if the price of your raw materials might go up, which will affect your cost of goods sold (COGS). But there are other things that you can do, too, to streamline your spending—for instance, not getting office space until you need it.

Audit your fixed and variable costs on a regular basis. If you find that you’re spending more than you should be, consider even getting a prepaid business debit card that you pre-load with your budget for the month so you literally can’t spend beyond it.

2. Manage cash flow.

Cash flow is the single most telling indicator of your company’s financial health. How much money do you have on hand, where is it going, and what are you spending it on?

Draw up and analyze your cash flow statement, which you can complete within your business accounting software. But also create monthly cash flow forecasts and even a cash budget, too, so you have all of the pieces you need. Three documents together are better than one, since they all affect each other and will also help you manage those short-term costs and margins.

3. Make sure your eyes aren’t bigger than your stomach.

In other words, be reasonable. Although you always want to strive to achieve big things, it’s helpful to just understand that bootstrapping your business necessarily means that you’re going to grow slower than a contemporary with a $3 million cash infusion behind them. When you see opportunities arise, be extremely critical with how you evaluate them, and don’t be afraid to ask for an objective perspective if you have a trusted outsider to turn to.

Remember, though, that bigger isn’t always better—as long as you’re making deliberate moves, and the right ones, you’ll find right-sized success, too.

Additional Factors for Self-Financing Business Owners to Remember

There’s no way around the fact that there’s certainly a more substantial amount of risk in entirely self-financing your business venture. If something doesn’t turn out as planned, you don’t want to be in a position where you deplete your entire nest egg, or drain what you’ve worked hard to save for in retirement. On the other hand, there’s nothing quite like experiencing success and owning every cent of your profits.

Before you decide which direction to go, make sure you deeply understand your finances. You’re best working with an accountant to really understand the kind of money to have in the bank and in reserves. And also remember that you can explore small business loans to see all of your options, too. The best decision is the most informed one.

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Wednesday, September 19, 2018

U.S. Bank Business Checking Accounts, Reviewed for Your Small Business

Choosing the right bank for your business is more than just deciding where to make deposits. A centralized checking account is essential for making company purchases, payments, and deposits, so you’ll want to find the best business checking account to manage your finances. Particularly if this is the first bank account connected to your business, it’s really important to find a bank that meets your current needs and will support your growth later on.

U.S. Bank is a popular option for small business owners, especially in the Midwest and West, because their financial product offerings tend to have low fees and straightforward terms. U.S. Bank can be a solution for business owners in need of a checking account with low costs. You can use the U.S. Bank locator to find out if one of the 3,000 branches in 26 states is near you.  

Why a Business Checking Account?

A business checking account is essential for managing your business’s finances, and as important for daily operations and payments. You’ll need a business checking account to make deposits, pay employees, and pay for company expenses. A checking account is also a requisite for opening a credit account or applying for a loan. In order to apply for a U.S. Bank small business loan, you will need to have a U.S. Bank checking account to get started.

Selecting the Best Checking Account for Your Business

Depending on how you plan to use your business checking account, you might prioritize specific features, for example a low monthly fee or online banking functionality. The packages should be easy to compare if you take time to assess your business finances to determine how much flexibility you need when it comes to spending and making cash deposits.

It’s also a good idea to factor in:

Monthly Transactions

If you’re making a lot of transactions each month for your business, then finding a checking account with a high transaction limit, or no limit, will make sure you don’t end up paying fees for using your card.

Note: A U.S. Bank “transaction” isn’t just when you swipe your card—your U.S. Bank business checking account monthly transactions include all deposits, checks, credit, and debit uses. Keep this in mind when considering how many free monthly transactions a package has.

Account Balance and Deposit

Most checking accounts require a minimum balance or upfront deposit. U.S. Bank actually offers a free checking solution for business, and you should be able to find a package that fits with how much capital you have each month.


U.S. Bank Business Checking Packages

Once you’ve decided that a checking account is the best route for taking care of your business spending, it’s time to figure out which business checking account meets your everyday needs. There are a few key features you’re probably looking for that come standard with the following U.S. Bank Business Checking accounts.

Convenience and accessibility features:

  • Online and mobile banking and bill pay
  • Remote check deposit
  • Check fraud prevention

If you have a current business line of credit with U.S. Bank, or open one later, there is no annual fee for the first year of Business Reserve Line Overdraft Protection. All packages come with an offer of 50% off the first check order up to $50 or $100, depending on the account.

U.S. Bank Silver Business Package

The most basic business checking account U.S. Bank offers can be a low-cost, simple solution for new or smaller businesses that don’t need to make frequent deposits. The U.S. Bank Silver Business Package has no monthly fee, maintenance fees, or balance minimum—this is as close to free business checking as you can get. The catch is the transaction limits and deposit maximum—you’ll have to be smart about deposits and spending—but the restrictions are worth it if low cost is your top priority.

Monthly fees and limits:

  • No monthly maintenance fee
  • 150 transactions per month
  • $0.50 fee per excess transaction
  • 25 free cash deposit units* per month

Best for:

  • Business owners making less than 150 transactions each month
  • Business accounts with a low average checking balance
  • Business owners making infrequent deposits each month

U.S. Bank Gold Business Package

A free checking account might be ideal, but you might need the flexibility of more transactions and cash deposits. The U.S. Bank Gold Business Package offers a low-cost solution for businesses with significant cash flow and frequent transactions. Unlike the Silver Package, there is a monthly fee, which can be waived if you meet a minimum collected checking balance.

Monthly fees and limits:

  • Monthly maintenance fee is $20
  • 300 transactions per month
  • $0.45 fee per excess transaction
  • 100 free cash deposit units* per month

Best for:

  • Business owners with a high transaction volume (up to 300) each month
  • Business accounts with a high checking balance—the monthly fee is waived for collected business checking balance of $10,000
  • Business owners making moderate deposits each month

U.S. Bank Platinum Business Package

This high-balance checking account package offers the highest limits for transactions and deposits, and the lowest excess-transaction cost. If your business is growing rapidly, has high monthly cash flow, and a high average balance, the U.S. Bank Platinum Business Package might be the right fit for your spending needs. Like the Gold Package, the monthly fee can be waived if you meet a minimum average balance.

Monthly fees and limits:

  • Monthly maintenance fee is $25
  • 500 transactions per month
  • $0.40 fee per excess transaction
  • 200 cash deposit units* per month

Best for:

  • Business owners making a large volume of transactions (up to 500) each month
  • Business accounts with a high checking balance—the monthly fee is waived for collected business checking balance of $25,000
  • Business owners making frequent deposits each month 

*Deposit units are calculated by dividing the dollar amount of each cash deposit transaction by 100 and rounding the resulting value to the nearest whole number.

Premium Business Checking

The Premium Business Checking account is for large businesses with high deposit balances and frequent transaction. The rates and fees are based on individual analysis, and you get an “earnings credit allowance based on average collected balances, which can help reduce or offset fees.” Monthly fees, transaction and deposit limits, and fee waiver are determined individually for Premium accounts, so contact a bank representative to learn more about the details of this package.


How U.S. Bank’s Business Checking Accounts Differ

Anyone could point out the difference in monthly limits and fees between these packages, but it’s not obvious what those costs and restrictions mean for the day-to-day operation of your business. Likewise, the potential benefits aren’t always easy to calculate. These key factors can help you figure out which package makes the most sense for your business finances.

Fees and Interest

Most business checking accounts have monthly maintenance fees, but free checking options are available. That said, the U.S. Bank Silver is free, and the other U.S. Bank checking account offerings have low, flat-rate monthly fees. It’s a good idea to figure out ahead of time how much an account would cost to maintain before signing up, so you can plan ahead for those payments.

Likewise, the penalty fees for excess transactions or deposits are worth noting before signing up for a plan with low limits. The U.S. Bank Gold and Premium accounts can collect interest depending on the account, so if you have a high checking balance, you should check what your rate would be.

Account Balance

U.S. Bank’s free checking solution, the Silver Package, has no account balance minimum. The Gold, Platinum, and Premium all have monthly maintenance fees, which can be avoided or waived if you have an average checking balance above $10,000 for Gold and $25,000 for Platinum.

Prioritize Your Business Checking Needs

The differences in U.S. Bank business accounts might seem subtle, so to get the most benefit out of your checking package, you need to consider how you’ll be using the account. Because these checking packages are all fairly low cost, it’s worth making sure that you’re allocating for all the transactions and cash deposits that you’ll need to make—while being realistic about monthly payments.

If you’re looking for a free checking solution for your business, the U.S. Bank Silver account is a great starting place, and you can graduate to higher transaction limits or interest-accruing accounts when you’re ready. The U.S. Bank Gold and Platinum Packages both allow for more spending flexibility and cash flow, and the potential for waived monthly fees make them both attractive for business owners with higher balances. For larger businesses, the U.S. Bank Premium offering is an option for business owners seeking a tailored enterprise solution for their checking account.

The major distinctions between these business checking plans are free transaction and deposit limits, so the best plan for your business depends entirely on your monthly account activity and transactions. The bottom line is understanding what you need out of a checking account for operations to run smoothly each month, and deciding from there which plan fits your current finances.

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OCC’s Green Light on Short-Term Loans Could Give Businesses More Options

The Office of the Comptroller of the Currency (OCC) recently issued guidance encouraging banks to offer small, short-term loans to customers. This marks a reversal from the position that the OCC had taken back in 2013, discouraging banks from offering these types of loans.

The new guidance is expected to lead to a rise in business for banks like Wells Fargo and for credit unions that offer deposit advance products (DAPs). A DAP is a short-term loan product for consumers that is similar to a merchant cash advance for businesses. The consumer takes out a small loan that’s due back in four to five weeks. The bank automatically deducts micropayments from direct deposits or other deposits in the customer’s account.

For many years, the OCC actively discouraged banks from offering DAPs. But as the consumer marketplace for loans has changed, the OCC now wants banks to offer more affordable, mainstream alternatives to payday loans. The hope is that banks will offer short-term financing to consumers who need money quickly to pay a bill or pay their rent.

Although the new guidelines specifically address consumer lending, the green light to banks to grant small-dollar, short-term loans might open up new opportunities for businesses in the near future. Right now, businesses that want fast access to capital need to go through online alternative lenders, but that could change if banks offer affordable short-term loan products.


The OCC Took a Stance Against Short-Lending Starting in 2013

Prior to 2013, many small banks and credit unions offered deposit advance products to consumers as a mainstream alternative to payday loans from private lenders. As mentioned above, the DAP is a short-term loan that you pay back in small increments with a percentage of your direct deposits or other deposits in your bank account. DAPs are usually capped at around $500 and come with a small fee that’s calculated as a percentage of the loan.

But in 2013, the OCC limited the issuance of DAPs. The OCC supervises national banks and federal savings associations. Many banks that you’re probably already familiar with, such as Bank of America and Chase, are national banks under the OCC’s purview. Both large banks and smaller community banks and credit unions offer DAPs.

In a bulletin about DAPs, the OCC said, “These loans typically have high fees, are repaid in a lump sum in advance of the customer’s other bills, and often do not utilize fundamental and prudent banking practices to determine the customer’s ability to repay the loan and meet other necessary financial obligations.”

To help consumers, the OCC established a set of rules that banks had to follow when providing DAPs.

The rules included comprehensive underwriting to assess the customer’s ability to repay, required gaps between successive DAPS, and placed restrictions on issuing DAPs to new customers. These rules made it time consuming and cost prohibitive for banks to offer DAPs, and most stopped doing so.


Now, the OCC Is Green Lighting Short-Term Loans

The OCC didn’t revisit this topic again until late 2017, when they issued a notice in the Federal Register effectively rescinding the previous set of rules. The agency found that many consumers, without alternatives, had ended up borrowing from private payday lenders and falling into debt.

The OCC wanted to free up banks to provide an alternative to payday loans. In the Federal Register notice, Keith A. Noreika, acting comptroller of the OCC, said:

“The OCC is concerned that banks are able to serve consumers’ needs for short-term, small-dollar credit. As a practical matter, consumers who would prefer to rely on banks and thrifts for these products may be forced to rely on less regulated lenders and be exposed to the risk of consumer harm and expense.”

Just this summer, under new Comptroller Joseph Otting, the OCC put short-term lending in the spotlight yet again. The agency reiterated its position that banks should be able to provide DAPs and other short-term loan products, free of government restrictions:

“Millions of U.S. consumers borrow nearly $90 billion every year in short-term, small-dollar loans typically ranging from $300 to $5,000 to make ends meet. Consumers should have more choices that are safe and affordable, and banks should be part of that solution…. By participating in this important space, banks increase the supply and choices available to consumers, which can reduce borrowing costs and have other beneficial market effects.”

Critics of the OCC’s decision say that DAPs are simply costly payday loans in disguise, even though the lender is a bank. Proponents believe the OCC’s rule change is beneficial for consumers in need of a quick cash infusion.


The OCC’s Rule Change Could Result in More Financing Options for Small Businesses

The OCC’s rule change specifically affects consumer loan products, but the green light for DAPs could eventually lead banks to offer more financing options for businesses, too. Banks have historically been the go-to place for small business loans, but after the 2009 recession, banks tightened up their underwriting standards. Although things are better now than they were in the years immediately following the recession, banks still approve only one-quarter of business loan applications.

That means most entrepreneurs have to rely on non-bank online lenders and short-term lenders to get capital for starting a business or growing an existing business. These lenders offer more flexibility for entrepreneurs and have looser underwriting standards, but are also much more expensive.

If banks get more customers and see more profit from the OCC’s green light on DAPs, they might offer similar products to small business owners. In many ways, banks are still behind the times in terms of the range of loan options available to businesses, the turnaround time for funding, and repayment flexibility. The only area that banks have an advantage over alternative lenders is in offering better interest rates.

With the government’s new openness to short-term loans, banks could become more resourceful. Amazon, Square, and PayPal are some big name players that have already cashed in on short-term business lending. Each of these companies offers merchant cash advances, with loan payments automatically debited from the business owner’s bank account.

Banks are already taking notice. For example, Chase recently renewed a partnership with online alternative lender OnDeck to make short-term loans to small business owners. And Goldman Sachs teamed up with community nonprofits to make short-term microloans to small businesses. These short-term loans are more expensive than long-term traditional bank loans, but the rates are much more affordable than what payday lenders charge. When converted to an APR, payday lenders have been known to charge 700% interest rates.

With the OCC giving the green light to banks on making short-term loans, we might see more activity from banks in short-term lending, both on the consumer and business side. And increased competition within the industry could mean lower rates across the board.

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