Lending Library

The Paycheck Protection Program (PPP) effectively kept the small business economy afloat over the last 15 months, pumping nearly $800 billion into an estimated 12 million businesses across the US. But the PPP loan money ran out just a month after the program’s deadline was extended in March, and those crucially important potentially forgivable loans are no longer available to help small businesses.

Recent months have still not been easy, even with the lifting of restrictions. While many businesses are reopening, the costs of reopening are making for anything but business-as-usual. Supply chains are broken, staffing is tremendously difficult, and this is not the dream reopening business owners had hoped for during the long slog of COVID-19 closures. 

PPP is no longer available, but other forms of loans, microloans, grants, and debt relief are available to your small business. Most of these are administered by the government agency US Small Business Administration, and many are COVID-19 relief programs that offer loan forgiveness or other cost-cutting accommodations that take into account the current economic challenges. Let’s look at some PPP alternatives that could still offer your small business economic aid for any loss of revenue you’ve suffered under COVID-19. 

COVID-19 EIDL

The COVID-19 Economic Injury Disaster Loan (EIDL) “provides economic relief to small businesses and nonprofit organizations that are currently experiencing a temporary loss of revenue” because of the pandemic, according to the SBA. EIDLs had existed before COVID-19, but the program was recently bolstered to provide more economic help for small businesses. Traditionally providing loans of up to $150,000, EIDLs can now potentially triple in size to $500,000, and your first repayment date won’t be for another 18 months. While interest is charged on these loans, it’s a low fixed rate of 3.75% for businesses and 2.75% for nonprofits.

Other relief funds in the EIDL program may be available if you’ve already applied for an EIDL. The Targeted EIDL Advance Grant provides up to $10,000 to businesses with 300 or fewer employees, that can show a 30% loss in revenue for any 2-month period of the pandemic, and are located in a low-income community (you can use this map to determine your community’s status). Similarly, the Supplemental Targeted Advance could provide an additional $5,000 that does not have to be paid back, but it’s only for businesses with 10 or fewer employees.

Other SBA Loans

• SBA Express Loan - The quickest, easiest, and most flexible of these loans, and the SBA responds to SBA Express Loan applications within 36 hours. The funds can be used on working capital, a line of credit, or a commercial real estate loan.
• 7(a) Loans and Microloans - These SBA loans are primarily intended for purchases involving real estate but can also be used for working capital, refinancing debt, or buying furniture and supplies.
• SBA 504 Loan - The SBA 504 Loan is intended to finance large projects that create additional jobs. Funds are meant to finance purchasing or constructing buildings and buying or modernizing facilities. 

Shuttered Venue Operators Grant

This program has worked out pretty well, and most of the fund is still waiting to be awarded. According to the SBA’s mid-July figures, only $5 billion of the total has been awarded, though the SBA has received nearly $12 billion requested in applications. The funds may start to disappear fast.

Restaurant Revitalization Fund

It’s a reminder that as helpful as government relief programs can be, they can still be thwarted by legislative uncertainty. Private lenders may offer less confusion and red tape, and an online lending marketplace can help you find the right small business loan.

Online Small Business Loans

There are a number of factors you may want to consider before taking out a loan. Consider your business’s creditworthiness, whether you’ll be willing to offer collateral, and what your specific plans are for the loan. And do be ready to dig up and present a fair amount of bookkeeping documentation. But you may find other COVID-19 relief for your small business—and maybe without the headaches of previous loan programs.

Along with the growth and diversification of the US economy came the need for more organization and data relating to tracking registered businesses. The Department of Labor, Chamber of Commerce, and Census Bureau were all curious about the trends of businesses within different industries.

With these goals in mind, the government developed codes for company identification. Learn more about SIC codes and NAICS codes below. 

What Is a SIC Code?

SIC stands for Standard Industrial Classification and refers to a 4-digit coding system that categorized businesses based on their activities. These codes differentiate macro industries (like mining versus agriculture) along with smaller differences (like soy farming versus corn farming).   

SIC codes were created by the United States government in 1937 to better analyze economic activity across the country. 

What Is a NAICS Code?

NAICS codes are very similar to SIC codes. In fact, NAICS (North American Industry Classification System) replaced the SIC system for the most part in 1997. The NAICS code was developed as part of the North American Free Trade Agreement with the United States, Canada, and Mexico. 

NAICS codes are 6-digit codes that identify your business type. You will use your NAICS code for a variety of purposes to identify your industry.

How Do I Find My Company’s SIC Code?

The US Department of Labor has a SIC code lookup tool you can use. You can either search by SIC code or enter a few keywords to find the SIC code you need. This database uses the 1987 version of SIC guidelines.  

How Do I Find My Company’s NAICS Code?

The NAICS Association has a code lookup tool and a company lookup tool. You can identify your newly formed company with this search system or look up codes for your existing business. The website starts with high-level categories and lets you drill down to specific industries and business types. 

Know Your SIC and NAICS Code

If you work for a modern business, you might not have a SIC code. You might just use the NAICS system. This is a self-identification system, so you can label your business as you choose. It is important to know your NAICS code to set up certain financial accounts and to report your business to the government. 

A letter of credit is a statement by a bank or financial institution on behalf of a customer. This is typically used in B2B transactions when one company wants to assure another that it will pay the full amount agreed to in the transaction. When your business receives a letter of credit, it comes with the promise that the bank will pay the balance owed in full, even if the customer cannot. 

A letter of credit can be used to move a sale forward. The letter recipient can rest assured knowing that they’ll receive payment, and the buyer can receive the goods they need to grow their business. 

Learn more about the process of issuing and receiving a letter of credit during a sale. 

Defining a letter of credit.

A letter of credit is defined as “a statement issued by a bank to the buyer of a good stating that the seller will receive payment on time and in the correct amount.” You might also see the term “irrevocable letter of credit” to describe this financial concept. 

Letters of credit are often used for major business transactions. When you’re purchasing thousands of dollars in goods, it helps to have the backing of a bank to prove that your vendor will get paid. If you don’t have the funds on hand to make the purchase, this letter can ensure that your vendor gets paid on time—given the net terms established in the contract. 

Because small businesses typically don’t have a lot of working capital around to cover materials or inventory, they usually purchase on credit—and a letter of credit from a bank can provide peace of mind to vendors that they’ll be paid in full.

These letters are more common with international trade. When companies work with customers in different countries, they’ll receive letters of credit from banks—often international firms that specialize in trade—proving that the companies they work with are good for the money.  

Who issues a letter of credit?

The most common source for a letter of credit is a national or international bank. These companies are used to working with large businesses and enterprises that engage in large-scale trade. 

The letter of credit will often cover more than just the payment amount to the seller. It will also include important details that are relevant to the exchange of goods. For example, it will include when the business will receive payment (before the delivery of goods, after, or half-and-half) and when the seller will deliver the goods to the buyer. These terms were likely already discussed by the two companies involved, but the bank will work to confirm the details. 

Like any other loan, there is a process to issuing letters of credit. The bank will conduct background checks on the buying company, check the credit of the business, and possibly ask for deposits as a way to hold the company accountable. These steps all reduce the risk levels of issuing a letter of credit and increase the chances of repayment. 

While it can take time to issue a letter of credit, it still allows buyers to get the goods they need faster so they can continue operating their businesses.   

What is the cost of an irrevocable letter of credit?

Banks agree to issue irrevocable letters of credit because they profit directly from funding the transaction. This is no different from a bank issuing a loan or mortgage: they’re happy to provide the money because they benefit from the interest you pay on the loan. 

The standard cost of a letter of credit is around 0.75% of the total purchase cost. For letters that are in the 6 figures (typically around $250,000), these fees can add up and benefit the bank. In some cases, the letter of credit commission could fall close to 1.5%. 

The buyer typically picks up the costs associated with the letter of credit. However, the seller may receive some charges as well. These include charges related to wire transfer costs, courier fees, and bank fees. By the time the transfer is complete, the seller can expect to pay between 5 to 10 fees—most ranging from $25–$150. 

On top of the fees, the buyer will typically need to put down a deposit on the letter of credit. This is usually around 1%. A deposit proves that the buyer is serious about repaying the rest of the money to the bank.   

Know your funding options.

Letters of credit aren’t limited to international trade deals worth hundreds of thousands. You may be able to use this option as a way to buy materials and close deals with local vendors. If you need cash to complete business purchases, talk to your local bank—they can walk you through the letter of credit process. 

Alternatively, you can look for short term loans and other funding choices to increase the capital of your business. Explore the online loan center at Lendio to find financial institutions that want to help you. Use our services to grow your business. 

In 1962, Dun and Bradstreet—a credit company—established the Data Universal Numbering System (DUNS). This unique numbering system links more than 280 million businesses worldwide. 

A DUNS number is a 9-digit identifier that can be assigned to all business types within all industries. Corporations, sole proprietors, nonprofits, and government offices can all use DUNS numbers. 

Learn more about a DUNS number—and how it can help your business. 

Why do I need a DUNS number?

There are many uses for a DUNS number that prove its value. Because there is no cost to requesting a DUNS number, you may want to acquire one now so you have it when the need arises. A few examples of when you will need a DUNS number include:

• If your business wants to pursue government contracts and federal work. 
• If your business is applying for grants through the federal government (especially the US Office of Management and Budget, or OMB).
• If you plan to expand your business globally—and especially if you plan to work with national governments. Some United Nations offices require DUNS numbers when submitting contracts. 

Many American business owners use an Employer Identification Number (EIN) from the IRS as an identifier. While an EIN is useful, it is limited to the United States. A DUNS number can be shared globally, providing greater value as your organization expands. Furthermore, an EIN only identifies the business owner, while a DUNS number identifies the business as a whole.  

How do I get a DUNS number?

You can request a DUNS number from the Dun and Bradstreet Corporation. There is currently no cost to request a number, and the company prides itself on its ability to deliver numbers to companies quickly. You can receive your number in about 30 business days, but the company offers some options to expedite the process. 

If you work for an organization that might already have a moniker, you can use the DUNS number lookup to see if your business is already registered. You can also look up other companies to see if they have registered as well. 

Can I use my DUNS number instead of my Social Security number?

A DUNS number is not a replacement for an EIN or Social Security number (SSN) for lending and application purposes. When you apply for a business credit card or loan, you will need to provide your EIN and possibly your SSN because a business cannot apply for credit, but a business owner—or authorized treasurer—can. 

DUNS numbers serve as supplemental identifiers. To prove your identity, you will need to share additional information. 

Learn when to use your DUNS number.

If you are still unsure whether you need a DUNS number, talk with a business consultant who specializes in your field. They can provide advice as to whether you could benefit from acquiring a DUNS number. 

Because acquiring a DUNS number is free, you may benefit from requesting now—in case you ever need it in the future.

The entrepreneurial traditions of America often idolize individuals who built companies that would ultimately bear their names. We all know about Henry Ford, John D. Rockefeller, and Cornelius Vanderbilt—but can anyone name a single executive who served alongside these leaders? Probably not because there sadly isn’t much room for additional names in the pantheon of success. Triumphs are attributed to the person whose name is on the front of the building, regardless of who is truly responsible for them.

If there’s a benefit to these myths, it’s that young people can easily identify role models. By learning about legendary strategies and innovations, these aspiring business owners can begin to gain their own momentum long before they file for a business license.

But many issues arise from misguided hero worship. It disenfranchises thousands of talented contributors while also lionizing flawed individuals who might not be deserving of such lavish praise. And, most troubling, it continues the centuries-long process of driving a wedge between the elite of business and their employees.

“The gap in wealth in the United States between the ultrawealthy and everyone else has reached its widest point in decades,” reports research by Peter Walsh, Michael Peck, and Ibon Zugasti, a trio of financial experts. “One way to narrow the divide is through the use of worker buyouts, in which ownership of a company transfers from a single person or a small number of people to the workers of the company. Currently, about 10% of Americans hold equity stakes in their workplaces. By providing more workers and employees with opportunities to buy shares, companies can help workers and communities raise their standard of living and simultaneously feel more invested—literally—in the success of the enterprise.”

There’s a symbiotic relationship that occurs in employee-owned companies. First, the employees are empowered through ownership. They are given more opportunities to thrive financially, which benefits their families and communities. In this way, the wealth gap loses some of its sting, as the positive impacts of employee ownership ripple out through future generations.

As with business changes like embracing remote-work arrangements or offering mental health benefits, there are definitely some up-front costs associated with forming an employee-owned company—but rest assured that they can be more than repaid over time. For example, employee-owned companies often outperform their competitors. And they really show their mettle during times of duress, such as the lockdown of 2020. When employees have skin in the game, it stands to reason that they’re more motivated to dig in and find solutions.

So rather than a 1-sided deal, employee ownership becomes another entry in the Michael Scott Win-Win-Win Hall of Fame. In reality, any business owner who views employee ownership as an outright threat probably hasn’t done any research.

What Is an Employee-Owned Company?

While nearly all business owners compensate their employees with money, an employee-owned company also provides them with stock. But it’s not just any stock—it’s stock in the company where they work. This means that an Employee Stock Ownership Plan (ESOP) makes employees shareholders, giving them a powerful incentive to perform.

According to the National Center for Employee Ownership, the number of employee-owned companies is on the rise. Check out these key statistics:

• There are 6,501 ESOPs in the US
• Their assets exceed $1.4 trillion
• ESOPs have 14 million participants
• 22% of ESOPs are in the manufacturing industry
• 19% of ESOPs are in the science and tech industry
• Texas has the most ESOPs, followed by California and Florida
• Wyoming has the fewest ESOPs

The nuts and bolts of running your ESOP can be customized to your business. For example, you might want to determine the compensation of stock by how long each employee has been with your company. Another option would be to base the stock compensation on your employees’ hourly pay or salary.

Likewise, you can choose whether to have a gradual vesting period (such as a 20% increase every year for 5 years) or a 3-year waiting period before a total vestment. Employees can then hold onto their stocks until they choose to sell. Both of these approaches have unique benefits, so it’s important to talk to your business mentor and other experts to gain insights on how to proceed.

The Broader Benefits of Employee-Owned Companies

Because of the devastation of the COVID-19 pandemic, the United States could definitely use the collaborative boosts provided by ESOPs. It’s a chance for employers to share the rewards of success in a new way, which makes it possible for everyone to prosper.

“Within the next decade, we expect worker- and employee-owned companies to grow in popularity thanks to 3 mutually reinforcing trends,” explain Walsh, Peck, and Zugasti. “First, renewed interest in ensuring the economic viability of local communities suggests that baby boomer owners about to retire are increasingly likely to want to sell to workers. Second, evidence is mounting that worker- and employee-owned enterprises outperform their competitors, especially during economic downturns; a recent Rutgers study found that converting to worker and employee ownership boosts profits by as much as 14%. Third, as a result of strong performances by worker- and employee-owned companies, it is becoming easier for workers to overcome arguably the biggest hurdle to worker buyouts: financing.”

As ESOPs become more commonplace, you can anticipate a corresponding rise in interest from employees at companies that aren’t following that model. If your business is considering it as an option, this is a great time to conduct more research and see if it’s a wise move.

Perhaps you have compelling reasons not to transition to an ESOP—that’s completely understandable. Just be prepared to communicate those reasons to your employees, helping them to see your perspective and including them in your conversations regarding the topic.

They’re strategic partners and invaluable assets with unbeatable wisdom and experience beyond their years. And they love helping small businesses grow and succeed. 

Many entrepreneurs lack the capital they need to grow their businesses. They know what it takes, but they don’t have the funds to bring their vision to life. And that’s where these people come in—as investors. 

For small business owners, your business is like your baby—you were with it from the beginning. You nursed it from infancy, took care of it, and watched it grow into what it is today. 

You built it into a healthy and thriving business. It’s so strong that it’s given you your livelihood and allowed you to provide for your family. But now you need a little help. Because you know what it can be, and you’ve taken it as far as you can on your own. 

Taking on an investor can be scary, but sometimes it’s necessary. In this article, we’ll talk about how you can find the right investor for your small business. But first, we’ll go into the benefits of working with them. 

How Investors Help Small Businesses

The value of an investor goes far beyond the money they provide. When you work with one who has experience in your industry, they can offer their acquired knowledge and expertise—and teach you things that might have taken you years to learn on your own. Some even seek out new entrepreneurs so they can pass on their knowledge and assist in the beginning stages of growth.  

Seasoned investors can guide you to keep you from making mistakes. You can also use them to vet ideas as you consider new business avenues worth pursuing. 

Another thing about investors is that they can offer you invaluable connections. Some may be able to introduce you to the right people—and get you into the inner circles of people who were out of reach before. 

How to Find Investors for Your Small Business

The funding to start, manage, and grow your business does not need to come from you alone. You can acquire it from a variety of sources—investors included. Below, we’ve got some helpful advice on how to find an investor for your business. 

Start With Your Family and Friends

Nobody knows you better than your family and friends. When they see potential in you and believe in your idea, they may be the first ones to invest. Especially if you already have a proven track record or you’re known for doing something exceptionally well. 

Here’s an example: let’s say you’re the best baker in town. You’ve competed against your peers, won numerous awards, and you’re always the first one people think of whenever they have a taste for a delicious sweet treat. 

When you get the idea to open a pie shop, you may not have to look beyond your inner circle—full of people who know you, love your products, and know firsthand how amazing they are. 

An investment from family and friends is often one of the easiest to get. You don’t have to jump through hoops or cut through red tape like with other options. You could also raise money from multiple friends and family members. Every little bit you raise will get you one step closer to your goal. 

Seek an Introduction From One of Your Connections

If you don’t have any friends or family with the ability to invest, take a step back and consider their connections. Could they possibly secure you a powerful introduction?

An introduction to a potential investor will go much further than if you were to contact the person on your own—either through cold emailing or some other means. And you never know who your friends are connected with. Maybe you have a cousin who works for a large investment company or a friend who can connect you with a startup assistance group. 

Or better yet, maybe you know another successful entrepreneur who can vouch for you. This will go a long way for an investor who relies heavily on the word of other business owners—especially those they respect and have worked with. 

Reach Out to Schools and Other Businesses in Your Industry

Consider how many people you know in your line of work. No doubt you’ve probably met others at industry events or bumped into business owners in your hometown. You might even belong to online groups full of people in your industry. 

Try connecting with some of them to see if you can get a referral or a recommendation. You could also reach out to schools and learning institutions in your field. The professors and heads of the many different departments may be valuable resources for getting you in touch with willing investors. 

Try Crowdfunding Platforms 

Crowdfunding platforms provide a means to help individuals and businesses by allowing them to raise the funds they need online. Here are all the different types of crowdfunding platforms, along with examples of each one. 

Reward-Based Platforms

Reward-based crowdfunding asks people to contribute a certain amount of money in exchange for some reward. Usually the reward relates to the business in some way—people get to try the product in exchange for investing. Kickstarter and Indiegogo are examples of this. 

Here’s how it works: Let’s say you’ve got a doughnut shop and you want to raise $500. Each person who invests $15 gets a dozen donuts. Those who pledge $25 get 2 dozen donuts, and people who put up $50 get 3 dozen donuts plus mocha iced lattes. 

Donation-Based Platforms

With donation crowdfunding, the money contributed is not expected back. People give willingly, usually with the desire to help fund a particular project. The purpose can be for anything from raising funds to help a struggling family or providing emergency assistance to an entire community. 

GoFundMe is a great example of donation-based crowdfunding. 

Peer-to-Peer Lending 

Peer-to-peer lenders match businesses needing money with investors. Applicants start the process by filling out an online form, and lenders give the potential investors a credit score for the business. Then the decision is made on whether to lend the money. 

This option appeals to investors because it allows them to receive their money back on a monthly basis—with interest included. Borrowers typically pay less than they would if acquiring a bank loan, and the investor earns a higher return than through a typical bank investment product. 

The risk to the investor is serious in the government doesn’t protect it. Examples of peer-to-peer lending include Lending Club and Prosper. 

Equity-Based Platforms

With equity crowdfunding, investors take partial ownership of the company. The original investment is not paid back, but it’s returned to the investor in the form of shares in the company. They also receive a share of the profits. 

Investment amounts typically start in the thousands of dollars. This makes equity-based crowdfunding a much riskier option for the investor because a return isn’t guaranteed. 

OurCrowd is an example of an equity crowdfunding platform. 

Be Strategic When Networking

Start by thinking of ways to connect with the investors you want to attract. Consider where they hang out—both in person and online. What groups do they belong to? What extracurricular activities do they enjoy? Then think of how you can become a part of those groups.  

Networking with the right people opens doors that might have been closed before. Your alumni network might also be a good starting point for finding investors. You can then look into trade organizations or your local chamber of commerce. Another resource is your local Small Business Development Center (SBDC). 

Please note, networking is valuable, but only when you do it right. Start networking by attempting to be of service. Allow people to trust and get to know you. Don’t go in with a blatant sales pitch that will turn people off. 

Apply for a Small Business Administration Loan

The Small Business Administration (SBA) is a government organization focused solely on helping small businesses. The agency itself does not lend out money, but they have a lender match tool on their website. This helps businesses find lenders who are approved by their organization. 

The SBA will also guarantee loans and offer lower interest rates, and they’re helpful in other ways too. Their website is full of helpful tools for entrepreneurs. It’s full of resources to assist everyone—from those in the business planning stages to entrepreneurs needing help to grow their businesses. 

Should You Get Investors for Your Business?

There is no right or wrong way to get an investor for your business. Some methods may take more effort than others. You might even consider options we didn’t list—like working with angel investors. 

Don’t let a lack of capital keep you from your goals. Consider first how much you need and then decide on a course of action. You may go with one method listed above or combine a few different strategies. It’s about what it takes to fulfill your business goals. 

No one knows your business better than you do—and your journey is like no one else’s. So go through every option you can to find the best solution for you.

As you develop your business accounting processes, you may notice different types of profits in your reports. Each of these metrics serves a different purpose in providing insight into the financial health of your business. 

Economic profit and accounting profit are 2 important business measurements for you to understand. Learn the difference between economic and accounting profit below. 

How Is Accounting Profit Calculated?

For example, you will start with your total revenue and then subtract wages, raw materials, marketing costs, and other overhead. These are the explicit costs of running a business.

Typically, you can find the accounting profit (net income) on the company’s income statement or profit and loss (P&L) documents. 

What Is Meant by Economic Profit?

Economic Profit = Total Revenue – Total Explicit Costs – Total Implicit Costs

A common example of implicit costs that you won’t see on the income statement is when a small business owner works overtime or works for a period without drawing a set salary. If you’re an owner doing this, you are not directly costing your business any money, but you are incurring implicit costs because the opportunity cost of your labor is equal to what you could be earning at a regular, salaried position.

Implicit costs are often hard to evaluate and measure, but they are extremely real aspects of running a business. Choosing to use your warehouse to store inventory vs. converting it to a storefront is a decision that has an opportunity cost. Deciding whether to hire employees or outsource work creates implicit costs, too. There are many examples of decisions small business owners have to make that carry implicit costs.

This year, businesses are likely considering economic profit amid the COVID-19 pandemic. What if the store had remained closed longer or opened up faster? What if the company invested in curbside delivery? 

Economic profit relies on implicit costs, using the company’s resources in different ways to maximize potential growth. 

Can Economic Profit Ever Exceed Accounting Profit?

The economic profit comes from subtracting the opportunity cost from the accounting profit. For example, a restaurant earns $60,000 running a food truck over a year but had the potential opportunity cost of $50,000 from launching a catering arm instead. The economic profit is $10,000 to the company because it profited from the food truck opportunity.  

Economic profit can be a negative number. If the economic profit is positive, then it is in the best interest of the business to keep making money in the field. If the economic profit is negative, then the business should exit the market and look for other income sources. 

For example, a freelance web designer earned $75,000 in a year. However, if most people in their field earn $100,000 annually working for an agency, there is a negative economic profit and the freelancer should consider seeking full-time employment. 

There is also no such thing as a negative opportunity cost. There are always profits for potential opportunities. The opportunity costs track the options that businesses did not choose (or couldn’t choose), not penalties that held them back. 

Use Both Types of Profit Calculations

You can also use this theoretical process to forecast potential revenue if you change your business plan or make a future investment. Economic profit and accounting profit are both helpful metrics to use when evaluating your financial health and how to best take your business forward.