Are you a smart businessman? Do you have what it takes to take bold decisions when your company faces the music? Are you aware of the regulations and policies of the top lenders? Do you know how to get a short-term business loan?
If your response is affirmative to the above questions, you know how to sail your company’s ship out of the troubled waters like a champion captain.
Now, before you go ahead and set a meeting with your lender, you must first know your primary purpose.
Basically, such a loan is usually obtained by small businesses when they are in an urgent need of cash. It could either be due to the need for a bigger space to store your products or fit your growing workforce. They also come across situations where they need extra cash to purchase resources for a big order from a special client.
Such challenges can test an entrepreneur’s ability to handle the pressures of the business world.
Although a short-term business loan can save the day, business owners must repay the loan within 18 months or one and a half years.
Now that you have understood what a short-term business loan is, let’s look into how to qualify for one.
Maintain a Good Credit Score
It all starts with your credit score or the record of your bill payments.
A lender needs to know the status of your finances and how responsible you are in dealing with your debts. If you are able to maintain a clean and reputable credit history, your credit score would allow you to look for different sorts of financing options.
Always keep in mind that lenders check your personal credit score in addition to your business one. It is important because personal debts and mortgages often create problems in the repayment of loans.
This way, your lender will have a 360-degree view of your finances like your credits, debits, and years of business before offering you a loan.
Meet the Minimum Requirements
It is essential to know that getting a loan is a two-way deal. You must be equally indulgent and cautious about the whole process as much as your lender is.
If the lender asks for your financial information and reviews your accounts, then it is necessary for you to do your own research as well. Even before approaching a lender, it is wise to carry out research to make things easier and more transparent for you.
You should look into their mission statements and understand the requirements that should be met to get a loan approved. Having all proofs and documents ready will impress your prospective lender. It will make it easier to meet their standards and increase your chances of getting approved.
Get Your Testimonies Ready
Getting a loan is a hectic process. Sometimes, it can take months of rigorous hard work to complete it and a delay in the process can deliver a severe blow to your business.
As a smart entrepreneur, you should be prepared. Before even applying for a short-term loan, make sure that you have read its details and requirements.
Your next task is to collect the necessary documents, like personal and business balance sheets, leases, and bank statements. It will not only improve your loan application’s chances for approval, but will also save your precious time.
The quicker you arrange the required paperwork, the earlier you are going to have an access to that pile of cash for your business.
Make Your Business Strong
The status and prospects of your business are of great interest to the lenders. No lender would want to engage its money in a business that is not doing well. Things may become even gloomy if your company has no future business plan or if it has a flimsy business structure.
You need to have a robust and proactive approach in your business. You must have a detailed picture of where your business started from, where it is now, and where will it stand in the future.
Make sure that your business plan is free from any discrepancies or shady areas. It must be strong and articulate for the lender. Don’t forget to include your company’s origin, background, mission, and vision statement.
It should mention your product or service description. It would be a great idea to also make an industrial analysis, relevant market research, and a SWOT (Strengths, Weaknesses, Opportunities, and Threats) for your business. These things will make your lender well-informed and impressed with your efforts.
Securing a short-term business loan is quite convenient if you know your business and you’re willing to go the distance to inspire its growth. A suitable lender will see through your hard work and reward it with a prompt loan — and with leniency and a lower interest rate.
You have to believe in your business and pitch the idea to your lender with real dedication and conviction. Do not laze around or delay the process. Be active.
In fact, you need to be proactive in both receiving and returning the loan. If you have the qualities mentioned earlier in your business, you will have a short-term business loan approved in no or little time.
If you haven’t heard much about litigation finance, that may change soon. The practice dates back decades, though it’s been picking up momentum since 2006, when Credit Suisse Securities founded a litigation risk strategies unit that it later spun off.
What is litigation finance? In a nutshell, the idea is to fund plaintiffs and law firms in cases where it looks like there will be a winning ruling. When everything goes the right way, the capital that helps fund the lawsuits is returned — and then some — in return for the risk taken. Litigation finance firms — and there’s a growing number of them — basically want to estimate as accurately as possible the risk involved so they can bet on the right horses.
Interestingly, one of the newest entrants onto the scene wasn’t founded by career attorneys or spun out of a hedge fund or private equity group. Instead it’s a young, 11-person company called Legalist that’s run by a 23-year-old Harvard dropout named Eva Shang, who cofounded the company with her college classmate Christian Haigh (who graduated).
As interestingly, the pair, who say they honed the idea as part of a Y Combinator batch in 2016, just secured $100 million to put to work. That’s roughly ten times the $10.2 million they raised for a first fund that tested out their ability to find and finance civil lawsuits that pay.
We talked with Shang late last week to learn more about new fund, which was raised from non-profit endowments, family offices, and institutional investors (including an insurance company) and that’s styled like a private-equity fund with a traditional management fee and carry structure.
TC: First, how do you find these plaintiffs that you’re backing? Do you reach out to them?
ES: We don’t reach out to them. Attorneys bring us cases. They’re the repeat players in litigation funding industry; they’re seeing a lot of cases.
TC: And who are they telling you about? Who fits your criteria?
ES: The plaintiffs who we work with are involved in smaller cases, meaning they require less than a million dollars in funding. It’s a lot of money to pay a lawyer, but in the world of litigation, it’s akin to seed-stage investing. Once [we’ve found candidates], then the algorithms [do the] diligence.
TC: What kind of information or patterns are they seeking out?
ES: We scrape state and federal court records and look for indicators, like whether a court is favorable to plaintiffs, if particular case types tend to win, who the judge is. We also check for points at which the case could be dismissed. We’re focused exclusively on commercial cases, so often breach-of-contract [disputes] where it’s a David and Goliath situation and the smaller company is typically underfunded. When there’s litigation, we help pay for attorneys’ fees and if it’s successful, we recover and if not, we don’t.
TC: How many cases have you backed so far, and how many have you won?
ES: We’ve funded 38 cases, half of them have been resolved, and of those, we’ve had above an 80 percent success rate.
TC: And that has translated into what kind of return for your investors?
ES: We can’t talk about fund returns, but we scaled up our funds 10x [based on that performance].
TC: That’s a lot of cases to churn through. When do you step into the process in the lifespan of a lawsuit?
ES: The cases we’re [involved with] are more advanced and are showing success indicators, so we have a shorter time frame. We also fund smaller cases than most other litigation funders. Because of our approach, where we’re using tech to speed due diligence, we can do that.
TC: You can’t discuss returns but can you tell me what your investors expect to see back? We aren’t talking venture-like returns, presumably.
ES: Not venture-type returns but high-yield returns.
TC: There is movement in a small but growing number of states that want more transparency into third-party litigation funding agreements. It aims mostly to protect consumers, but it sounds like some outfits that fund commercial litigation aren’t so thrilled about it, either. What are you thoughts?
ES: We actually don’t mind disclosure regulation so much. As long as litigation funding is becoming more widely accepted, that’s a good thing and the rules shouldn’t impact us so much. I also think in the long run that it’s inevitable and won’t be a huge problem.
TC: Do you syndicate deals? Do you go it alone?
ES: It’s not like in VC. When we invest in a case, we’re [aren’t teaming up with other sources of funding].
TC: Who owns equity in Legalist? You went through Y Combinator. You raised a little venture funding. But you also now have this fund.
ES: Y Combinator owns 7 percent of the company [because Legalist went through its accelerator program, intending to become a legal analytics company]. [Other stakeholders] include VY Capital and Refactor Capital .
TC: How will they eventually liquidate their stakes? Does a company like Legalist go public?
ES: There are two publicly traded litigation private finance companies. We’re a tech company; there are exit opportunities.
TC: How long will it take you to invest this $100 million?
ES: Our time horizon is five years and we expect to fund between 100 and 200 cases.
TC: What have you learned in those cases where your investment has gone to zero?
ES: That there’s idiosyncratic risk in the court system that can’t be anticipated. If a jury likes you, they’ll find a way to drape the law over you so you win, and if they don’t, you won’t. We see that. There’s also luck involved, as well as having a meritorious case. That’s why we want to diversify across a larger number of cases.
TC: You dropped out of Harvard because you were accepted into Y Combinator. Around the same time, you also received a Thiel Fellowship, wherein recipients are provided with a $100,000 grant to work on something for a couple of years. What do your parents think of all this?
ES: They really don’t understand it, but they can see that I like what I’m doing. My mom does keep asking me when I’m going back to school. She’s like, “I thought the Thiel fellowship was over after two years!”