financial strategies

Best use of PPP and other financing strategies for Latina business owners

Latina business owners are usually in industries that traditional funding sources are reluctant to invest in such as restaurants, beauty and the like. But sooner or later, they will need financing.  Economic times may seem challenging, but they are filled with opportunities.  In fact, this is the best time to invest in your business.  Many businesses have suffered financially.  However, the good news is that there is still capital available.  Take advantage of all the capital resources available right nowand develop your financing strategies.

What is a good financing strategy?
Financing should be part of your overall business.  You spend time on marketing, sales, operations, hiring and administration.  How much time do you spend on developing financing strategies?  A strategy consists of looking at short-term and long-term goals for your business.  All successful businesses had a plan to access capital.  For instance, Facebook raised debt and equity capital until it went public.  They had a financing strategy in place.  What are your options?

Government financing
First, take advantage of the Payment Protection Program (PPP) and Economic Injury Disaster Loans, or EDIL program loans.  Make sure you apply to both PPP and EDIL program.  Many business owners got discouraged when they heard that PPP had run out of funds.  Also, in May the SBA stopped taking EIDL applications.

Now, this has changed.  There is still PPP funding and the SBA is taking new applications for eligible businesses.  These grants and loans are probably the best for your business. Even if you had to pay back these loans, the interest rates on these loans range from 1% to 3.75%.  Also, do not get discourage if you are denied.

You can reapply as many times as you want as long as you can provide new financial documentation to support your case.  With the EIDL you have until December of 2020 to apply and reapply unless if they shut down again. You may need an agent or a business financial advisor to help you out.  Also, there are many initiatives for Latina Business Owners via the SBA and other resources.

Short-term financing options
Second, look into short-term financing options.  Prior to Covid-19 there were many online lenders who were providing business lines of credit and term loans up to 24-months.  Today, that is not the case.  Sad but true, the best online lenders such as On Deck Capital, Kabbage, and others have put lending to a halt.  Many banks are not lending to due the uncertainty in the economy, pending fed rates and also busy processing PPP loans.  As a result, short-term financing may be your only option.  These are loans are based on daily, weekly, and bi-weekly payments.  The repayment terms may range from 3 months to 12 months maximum.  How to integrate this type of capital into your financing strategy?

  1. Short-term returns
    If you are purchasing inventory and you can turn it around in 30 days, you can use short-term funding. If you gain a short-project, this capital may come in handy.2. Short-term planning
    There is saying “There is no tomorrow and there was not yesterday; if you truly want to accomplish your goals you must engulf yourself in today.” Cash flow is the blood line of any business. Integrate short-term financing into a short-term sales strategy. For instance, if you plan to increase online sales that can generate short-term cash that will help you repay back a short-term loan.3. Do not overleverage
    You may get approved for $50,000 but only use what you need.  Instead use $25,000.  This will avoid many problems in the future. Even if you do not need it use a minimal amount to establish a credit relationship4. Establish a credit relationship
    Any lender who is lending right now is assuming a huge risk. The effects of the pandemic on the economy and its recovery remain uncertain. However, if you establish an existing relationship with a short-term lender the future can only get better.  Usually, you can renew these loans when you pay off 50% of the balance or mid-way through the repayment term.  Let us assume you took out an 8-month loan. In month number 4 you can renew the loan.  This means you may be eligible to obtain more money, refinance it and obtain a better repayment term and interest rate.

Equipment financing
Equipment financing is also available in these turbulent times.  Since these loans have the equipment as collateral, they offer great terms.  Repayment terms can range from 2 to 5 years.  Furthermore, they offer monthly payments which help you manage cash flow better.

Sample of financing strategies

Quality Online Cargo Distributors was approved for $30,000 under the Payment Protection Program (PPP). They used the money to cover payroll for the next two months and rehire back existing employees.  Instead, of having the business pay for some of their personal expenses and taking the tax ride offs, they will have those expenses covered by the owner’s salary.  This way they avoid having to repay back PPP funds. In order for the PPP loan to be forgiven, at least 75% of the funds must be used for payroll costs, and 25% or less may be used for other authorized purposes. Payroll costs include: Salary, wages, commissions, or tips.  This business knows that this money will only last for two months.

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This business has other financial needs to address in the future.  As a result, they will need more capital.  With this in mind, they applied for the Economic Injury Disaster Loan (EIDL).  They were approved for $100,000 at a 3.750% interest rate with a 30 year repayment period.  Since this loan has a long-term payment repayment period, rather than using the money all at once they have developed a long-term plan.  Within that plan they considered their slow season and also new business development strategies to capture new clients due to the loss of clients resulting from the pandemic.  They know that this may take 1 year to achieve.  At the same time, they will set aside some of this money for business reserves for emergencies.

Lastly, this business applied for short-term funding and got approved for $100,000.  Instead of taking the $100,000 because the interest rate is higher; they only took $50,000.  They will use this money over a 3-month period, and they have projected to make a short-term return on the use of funds.  Also, they understand that this source of capital can serve their short-term needs on an ongoing basis.  On the other hand, the government incentives program will not be around in the years to come unless in there is another disaster.  Having a source of capital ready, when needed is important for your business.

financial strategies

Lendinero, a bilingual company that works with all types of small businesses. (Logo Courtesy Lendinero)

This business has created a strategy on how to use numerous capital resources.  More important, rather than using the money all at once they have diversified the usage according to the business short-term and long-term needs.  The biggest mistakes businesses make when obtaining funding is not having a clear plan of action and using the funds all at once.  Then, several months later you find yourself in the same position.  The most important aspect of using debt for your business is knowing how to use it and how to achieve return on investment.

This is a brief example.  This plan for this business also entailed a budget, projected profit to loss and other financial projections taking into account loan payments, accounts payables, accounts receivables, reserves, risk management and hypothetical outcomes. This requires time, but it’s worth the investment.  A business with no direction is bound for failure.

(This is a paid contribution from Lendinero, the number 1 company dedicated to find financial solutions for small businesses) 

Gil Zapata

About Gil Zapata

Gil Zapata is the CEO and founder of Lendinero. An online lending platform dedicated to helping Latino Owned Businesses access PPP, EIDL, SBA loans, equipment financing and alternative business capital.
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