FundWellIf you’re the founder of a startup, you’ll know that while the Internet is awash with congratulatory stories of companies obtaining millions in financing, the reality is much less like a party. Seeking and securing funding for your business is more like an endurance sport.

It’s an especially arduous journey for those seeking funding for what Silicon Valley sometimes, condescendingly, refers to as “lifestyle businesses” (i.e. small business ventures that seek early profitability and not necessarily huge scale). These small businesses are generally funded via debt financing (i.e. loans) rather than by venture capital. But, just as high-growth tech startups need to find the right investor match, small businesses need to make sure they’re knocking on the right door in order to increase their own odds of getting capital. Obtaining a small business loan is a grueling process, which, more often than not, ends up in rejection – in fact, 70% of applications are denied.

To address this sector, FundWell, a tech startup founded by Chinwe Onyeagoro, has devoted itself to helping these organizations raise the debt financing they need to take their business to the next level. The stats speak for themselves – 75% of loan applicants get approved for funding when they go through the FundWell platform.

GoGirl Finance sat down with CEO Chinwe to investigate why this process is so unforgiving and how FundWell found the secret sauce!

Chinwe, why do so many small businesses fail to get loans?

Chinwe:  Most business owners don’t fully understand their eligibility and, when they get rejected, they often won’t know why.

Eligibility for a loan type – the amount, the interest rate, and its other terms – is predicated on the health of your business and the health of your personal finances. The application will take into account everything from current, projected and historical business revenue through to personal credit scores. If these, along with other factors such as profitability, operating history and capital assets don’t demonstrate a healthy business, “fundability” may be low.

How does FundWell increase the probability of a business owner securing a loan?

FundWell does not lend directly – we work with a network of more than 200 lenders to provide business owners with a better understanding of loans, rates and terms to help them make the right decision. This insight can help a business owner determine if now is the right time to take out a loan, or if it makes sense to work on improving the financial health of their business and apply for a loan in a few months.

By analyzing a business owner’s responses to a few simple questions, FundWell calculates fundability today via our FundWell score (see the widget at the bottom of this post to check your own funding eligibility). If the score is high, a business owner can then take the next step and request lender referrals – we match borrowers with up to three lenders for free.

If, on the other hand, the FundWell score indicates low fundability we show business owners how close they are to improving their FundWell score and accessing better funding options.

Is there a revenue level below which funding becomes increasingly challenging?

While it’s not a hard floor, generally speaking if a business has at least $100K in revenues, it should qualify for some kind of funding, even with a lower credit score. Obviously a higher credit score will mean more flexibility and better terms.

Any suggestions for how a business with revenues of less than $100K can get funded?

If you are just getting your business off the ground, don’t worry there are funding options for you as well. Assuming you don’t have a rich uncle who can loan you money and don’t want to liquidate your retirement savings to pursue your startup dreams, you should seek outside capital. There are options for businesses that have not yet generated $1 of sales and more for those on track towards hitting the $100K milestone.

For example, peer-to-peer loans (e.g., Lending Club, Prosper) and microloans, which offer up to $35K and $50K, respectively. These products are accessible to you as long as you have a current source of income (i.e., W2 income from a job, 1099 income from freelancing/contracting work, investment income, alimony, etc.) that you can use to pay the interest and principal. They are typically a better way of financing your startup than credit cards. According to the Federal Reserve, more than 80% of businesses use credit cards to fund business operations.

If you don’t currently have a source of income, we recommend that you delay applying for credit and instead explore alternative financing like rewards-based crowd funding (e.g., Kickstarter, Indiegogo) and/or advanced sales from target customers.

What types of funding products are available through your network and what are some of the key differences?

Our network of national, direct lenders provides 11 different types of debt funding products for amounts ranging from $500 at 0% interest to $2 million dollars at varied interest rates. The products include SBA loans, bank loans, factoring, equipment loans, purchase order financing, merchant cash advance, and peer-to-peer loans, just to name a few. Here’s what each of those means:

  • Bank Loans = loans for general operations and expansion. They can also be used to purchase equipment, real estate, and other business needs. They are available to businesses with consistent revenues, profitability, strong credit profiles, and multiple years of operations. Learn More
  • Equipment Loans = An equipment loan can work like a lease. A financing company buys the equipment, which allows you to benefit from new or used equipment for a much lower up-front cost, and you typically have an option to repurchase that equipment at a later date for $1 or Fair Market Value. Learn More
  • Factoring = Factoring, otherwise known as accounts receivable (i.e. unpaid customer bills) financing is a form of asset-based lending – lenders will extend credit to you based on the value of your outstanding invoices owed to you by your business and institutional customers. Learn More
  • Merchant Cash Advances = Lenders provide you with cash up front in exchange for a portion of your future credit card or cash sales. This is a short-term, high-cost loan. Learn More
  • Peer-to-Peer Loans = An unsecured loan (no collateral required) that you borrow directly from a group of individual and institutional investors online. Various companies operate web platforms to match you, the borrower, with interested investors. Learn More
  • Purchase Order Financing = Another form of asset-based lending – lenders will extend credit based on the value of your purchase orders and contracts from business and institutional customers. Learn More
  • SBA Loans = Government-backed loan programs to help business owners expand, operate, or acquire a business. If you are close but don’t yet qualify for a traditional bank loan, you will likely qualify for an SBA Express, SBA 7(a), and SBA 504 loans. Learn More

What are the most common things business owners can do to improve their fundability?

Running a business isn’t easy and time is a luxury so we’re all about quick tips. Here are three things many businesses could and should focus on:

Improve personal credit scores

  • Prioritize personal bill payments – lenders do not like to see any late payments within the last 12 months.
  • Decrease the outstanding balances on revolving debt (i.e., credit cards) down to 25% of the total available credit limit.

Manage your business cashflow

  • Prioritize high priority bill payments for things the business absolutely needs to operate.
  • Avoid “NSFs” (non-sufficient funds) by ensuring all checks can be honored. Lenders view NSFs as evidence of poor financial management.

Think long-term about commercial space

  • Negotiate tenant improvement (TI) allowances with landlords rather than paying ad hoc for updates to rented space. This may lead to higher rents; however, lenders do not incorporate tenant lease payment obligations in debt ratio calculations, so TI allowances ensure those enhancements and repairs get done without compromising the business owner’s ability to raise debt.

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To check your own funding eligibility, simply click the green button  -“Click to Start” – on the widget below and answer the questions.