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Fairmount Financial
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The Basics for Online Lending

If you’re in the market for a small-business loan, then you have heard of online lenders, alternative lenders or marketplace lenders. These phrases all describe the new class of non-bank lenders that have emerged in recent years, providing financing to small businesses that banks overlook.

Two percent of small businesses have used online lenders in the past year – up from 1% last year – according to a July 2015 report by the National Small Business Association. The online small-business loan dollars outstanding is doubling every year, while outstanding small-business bank loans are in decline, according to a 2014 Harvard Business School working paper.

Unlike banks, online lenders use algorithms to underwrite small-business loans based on traditional factors – such as credit score, revenue and cash flow – and non-traditional metrics, including past payments to vendors, accounting data and social media data. Online lenders fund loans fast – often within days – but they also charge higher interest rates than banks. 

From 2008 to 2015, big banks curtailed lending to small businesses by 20 percent, but boosted loans to larger companies 4 percent, according to research by Harvard Business School Senior Fellow Karen Mills. That trend has opened the door for a small but rapidly growing cadre of online lenders, which saw loan balances for small businesses jump 175 percent in the fourth quarter of 2015 compared with the year-earlier period, according to FDIC data.

“The growth of online lenders is good for small businesses, since it creates more points of access for getting the capital they need to grow,” Mills said, adding that borrowers still need to be diligent about obtaining clear information on loan type and interest rate.
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What is online lending?
Unlike banks, online lenders use algorithms to underwrite small-business loans based on traditional factors – such as credit score, revenue and cash flow – and non-traditional metrics, including past payments to vendors, accounting data and social media data. Online lenders fund loans fast – often within days – but they can sometimes charge higher interest rates than banks. The average annual percentage rate for online loans can be anywhere from 10% to nearly 30%.
Online lenders typically get the money they lend from several sources. Ironically the large national banks are a major source of capital. Though they have stopped lending directly to the small business owner, national banks are key to providing capital to online lenders, which is then distributed to the small business owner. Some lenders raise money through institutional investors and then fund the loans themselves. Other online lenders set up peer-to-peer lending marketplaces, where individual investors can fund small businesses directly.
What types of online financing exist?
Online lenders offer small businesses four main products: term loans, lines of credit and accounts receivable financing.
Term loans: Online term loans are lump sums of money small-businesses can borrow and repay in one to five years. They’re ideal for businesses that need money for expansion, equipment, inventory or maintaining working capital. 
Lines of credit: A line of credit is a cash account that a business can tap when necessary. They’re ideal for businesses that need short-term financing to bridge cash-flow gaps or maintain working capital. 
Accounts receivable financing: Accounts receivable financing is a method of getting paid early for future invoices, ideal for businesses that have a large volume of payables. 
Merchant Cash Advance: Based largely on credit card receivables. A small business owner can usually get upward of 150% of their monthly credit card sales funded upfront. These deals are more costly than term loans.
When should you consider an online lender?
Loans from online lenders are not right for everyone. For example, if you need startup capital, you likely won’t qualify for an online loan. Instead consider a microloan, crowdfunding, borrowing from friends and family, or business credit cards instead. However, here are two scenarios when an online lender could be right for your business:
If your business is growing fast, often times rapid growth requires spending to keep up.
If your business is seasonal, online lending can provide working capital to maintain payroll, taxes, and other expenses in slow seasons.
If you don’t qualify for a bank loan, financing from an online lender could be a good alternative. But if you do qualify and don’t need funds immediately, a bank loan is the less-expensive option.
If you need cash fast, financing from an online lender could be the way to go. The applications typically take minutes to complete, and you’ll typically see the funds in your bank account within days. However, of course you’ll pay for speed with a higher cost of capital.
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We were just having a debate over minimum wage here at Fairmount Financial. Cities and states around the country are considering raising their minimum wage levels, and one of the biggest sticking points in this debate has been the impact of a higher minimum wage on small businesses. Opponents of a higher wage argue that raising the minimum wage would harm small businesses. But do the majority of small businesses actually support a higher minimum wage? Well Small Business Majority just polled a random sample of small business owners around the country and found broad support for raising the minimum wage to $12 per hour. 
In Seattle at Ivar’s Restaurant, the menu prices are up 21 percent but you don't have to leave a tip after the restaurant decided to institute the city's $15-an-hour minimum wage two years ahead of schedule.
It is staff, not diners, who feel the real difference, with wages as much as 60 percent higher than before. One waitress is saving for accounting classes and finding it easier to take weekend vacations, while another server is using the added pay to cover increased rent.
Seattle's law, adopted last year after a strong push from labor and grassroots activists, bumped the city's minimum wage to $11 beginning April 1, above Washington state's highest-in-the-nation $9.47. Scheduled increases that depend on business size and benefits will bring the minimum to $15 within four years for large businesses and seven years for smaller ones.
Fairmount Financial wants to know where you stand on this issue.
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Fairmount Financial has always loved working with people who have immigrated to this country to pursue the american dream.
Although it's already a well-known fact that America's independent small business sector generates more expansion than the rest of the world nations combined, little has been indicated about the intensifying role played by the nation's immigration surge, and the Hispanic population sector's contribution, in particular.
The share of new Latino business owners climbed to 22.1% in 2014, from 10.4% in 2013, and just 10% in 1996. Latinos comprised 17.1% of the U.S. population in 2013, according to the most recent statistics, up from 10.6% in 1996. A major reason cited in this increase in startups by Latinos, many of whom are recent, or second generation Americans, is their ability to start what's colloquially known as "mom and pop shops," prominent in the retail service sector.
According to employment analysts, thousands of these small businesses have added to America's post-recession employment totals. This has been a major factor in the disproportionate employment growth, as opposed to salaried positions in established corporations, which have represented limited employment opportunities. This is due to the imposition of cost-saving "breakthrough" technology and the increasing regulatory restraint of federal government agencies.
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When growing your business and planning for the future, Fairmount Financial want you to keep in mind these pitfalls.

1. Lack of sales. This may seem a little silly and obvious, but I believe sales cures all-- providing you have a quantifiable business model. You must grow your sales channel every day. There are tools available to every business to help grow sales: sales reps, sales funnels, and email lists are a great way to convert web traffic into customers. 2. Lack of planning. So many people get worn down with the daily minutia of running a business that they often fail to play offense. You can't score any points if you're only focused on playing defense. You must be proactively looking for business and be prepared to recognize opportunities that come available. They don't always knock on your door, but they are out there for you to find every day. 3. Lack of goals. Most of us know we want to acquire more customers or make more money. What we don't know is what that success looks like on paper. Write down what you know then reverse-engineer it until you know exactly what you want and what steps you need to take to reach each goal. Start with small goals that lead up as milestones to the big goals. If you want to double your income, it won't usually happen overnight. But if you plan to increase each month by a certain percentage of sales, you'll eventually hit that double-income goal anyway.
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Square has really become a one stop shop for small business owners. https://squareup.com/ Most people know or have seen their well designed square plugin credit card readers and their new interacting stand that transforms an iPad into a point of sale. These allow any small business to get into the game and start selling their goods right away. Now Square will be providing payroll abilities to their customers as well. 

Square Payroll, which has been tested with 600 merchants of varying size, will initially be available to California-based businesses only, though the company’s intent is to make it available across the country, said Myrick. The focus, she added, will be on the small business owner who hires hourly employees, a demographic that accounts for most of the nation’s 6 million businesses. Three out of every five workers in the U.S. today are paid hourly, while 90% of businesses have less than 20 employees, according to Square.
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Do you have a great small business idea? Want to open a new restaurant, clothing store, or salon? Maybe you have an invention or small gadget that you think could change how people live. Well whats stopping you from getting that idea or business off the ground?

Researchers say that the number one reason why people never attempt new or difficult tasks is the fear of failure. Though American culture supports entrepreneurs, risk takers, and mavericks of industry, there is still a looming feeling in many of us that dares not to try for the fear of not succeeding. 

Many argue whether our government supports small business owners enough. When compared to the attention corporations and big business get, the small business owner seems to be slightly forgotten sometimes. This despite that there are 29 million small businesses and an additional 23 million self employed workers in the U.S.  Is it the job of our government to support small business growth or remove the obstacles to creating new business?

An interesting development in China seems to suggest that the same fear of failure exists in their country too. A new initiative by the Chinese government suggests that cultural sensitivity to failure may be preventing some Chinese businessmen from launching their own companies. On June 17, China announced 100 measures to support Chinese entrepreneurs, particularly in the tech and service industries. Tucked into the fine print is an offer to counsel businessmen in overcoming their fear of failure -- and coping with failure when it does occur, in the cutthroat, breakneck pace of China's booming small business sector. This initiative is vitally important because energizing China's entrepreneurial spirit and fostering small businesses are essential components of China's economic restructuring plan: to stimulate a slowing economy by promoting the private sector as the primary engine of growth.

The newest incentives include government subsidies, access to small business loans, more university classes teaching entrepreneurship skills, and mandates for all levels of government to purchase innovation products and services from start-up companies when possible. Affordable pricing for land use, power and Internet services are also being rolled out. Another leap forward in registrations is likely to ensue.
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