For Windham, Conn.-based Powerful Accounting, powerful isn’t just in the name — it is also a
description of the firm’s energy and growth. In less than a year the firm doubled its staff size and is in the midst of revamping its Web site — initiatives that require money.

To fund the efforts, firm owner Dawn Brolin sought a line of credit from a local bank but then decided to dip her toe into alternative lending. “This time I had built a relationship with Fundera through the various conferences that I attend … and I said to myself that I want to pretend that I’m my client,” said Brolin. “It was more about the process than it was the results for me, but I knew I needed to go for a loan anyway.”

Fundera is an online marketplace that works with pre-screened lenders to connect small-business owners with the best funding provider for their business.

Curious to learn more about the process, Brolin logged onto her computer one evening, submitted the requested information through the Fundera site and within an hour received a phone call from a representative who helped walk Brolin through her options. Within three weeks, Brolin was funded with a $150,000 loan to help fuel the firm’s growth; she has since recommended Fundera to several clients.

Like Brolin, accounting professionals are increasingly tapping into new ways to gain access to cash or financing to expand their businesses and, in many cases, are also turning their clients onto such services.

 

TURNING TO THE ‘ALTERNATIVE’

“I think accountants are becoming more and more attuned to this alternative space and these alternative options for both themselves and their clients,” said Jordan MacAvoy, vice president of marketing at Fundbox, which positions itself as a cash flow optimization tool for small businesses.

Launched in 2013, Fundbox looks to help small businesses, such as accountants, overcome cash flow gaps by advancing payments for their outstanding invoices. While the company doesn’t disclose the size of its entire customer base, MacAvoy estimated that accountants make up roughly 10 percent of its customer base — a number that is likely growing.

Fundbox recently announced significant growth propelled by its partnership with FreshBooks, a cloud-based accounting software designed for service-based small-business owners. Since Fundbox launched its “Credit-as-a-Service” technology with FreshBooks in January 2014, small-business owners have used the integration to access funds during the gap between invoices being issued and paid. In the last 15 months, the offering has fueled a 56 percent increase in originations among FreshBooks users. In addition, through the partnership, the Fundbox customer base doubled in the first three months of the calendar year.

To use Fundbox, users must first create a free account online and then select their bookkeeping application. Once registration is approved, which usually takes place the same day, users gain access to a dashboard that lists their outstanding invoices. Instead of waiting 30, 60 or 90 days, users can click on any of their outstanding invoices to get the amount transferred to their bank account, usually the next business day. Each customer gets a credit line that typically runs between $2,500 and $25,000.

Each repayment consists of principal, transaction fees (including third-party fees) and advance fees (which is how Fundbox pays its bills and employees). The repayment is spread across 12 equal weekly payments. So, for example, on a $1,000 invoice a customer could pay roughly $83 in principal and $5 in fees each week. There are no prepayment penalties and if you pay it down early, you’ll only pay the principal and all your remaining fees will be waived, said MacAvoy.

“The reason why we structured the product that way is because we want to be a solution for small businesses to manage the ebb and flow of cash flow. We want to be a tool to help them formalize or optimize that cash flow, and we want to be something that they think about as a solution that they use in an ongoing fashion. So most of our customers are repeat customers who come back in and are using us regularly with this idea that Fundbox is helping them better manage that cash flow coming in and out of their business,” Mac-Avoy said.

 

THE MARKETPLACE MODEL

Fundbox is like a temporary solution to get cash quickly or a credit card alternative, explained Jody Padar, chief executive officer of New Vision CPA Group, a Mount Prospect, Ill.-based firm that offers an all-inclusive business solution via the cloud.

Padar said she began using Fundbox because she won’t recommend lending solutions to clients unless she has used them on several occasions and clearly understands the product and how it differs from other solutions in the market.

As noted earlier, Fundera is not a direct lender, but rather an online marketplace that connects small-business owners with a funding provider for their business.

“The marketplace model, where borrowers can apply to multiple lenders with one application, pushes lenders to compete for a borrower’s business, ensuring they receive the lowest interest rates from these partners. Fundera’s service is entirely free for the borrower,” said co-founder and CEO Jared Hecht.

Fundera’s menu of products includes SBA loans, traditional-term business loans, equipment financing, lines of credit, invoice financing, short-term business loans, merchant cash advances and startup loans.

“We have found that accountants who have strong personal credit scores are often a good fit for SBA loans. SBA loans have very low interest rates and although there is more paperwork involved than with other loans found online, accountants often have all that information in arm’s length and finish their applications very quickly,” Hecht said.

Fundera, however, strives not to push specific loan products but to help small businesses grow sustainably over time, Hecht said. “Through Fundera’s Web site and the blog, the Fundera Ledger, we aim to educate small-business owners on what type of loan products they should be applying to, whether they’re a first-time borrower, or continuously growing to their next stage of growth,” Hecht said.

What are accountants most likely to use the funds for? Growth. “These accountants are ready to take their practice to the next level, so they either want to invest in marketing to reach new clients or hire more people so they can take on new clients,” Hecht said.

Also serving the needs of small business, such as accountants, is Kabbage, which was established in 2009 and provides business lines of credit typically ranging from $2,000 to $100,000.

As chief financial officer Kevin Phillips noted, many accounting firms are small business that have episodic needs for working capital. They’ve done the work and, while waiting to get paid, they’ve laid out payroll and other costs. “We are a bridge between when you do the work and get paid for it,” he said.

Based on Kabbage’s loan estimator, a six-month loan for $10,000, for example, would total about $11,200, which includes $1,200 in fees.

In the past two years, Kabbage has grown from primarily serving e-commerce merchants to all businesses across more than 100 different  categories. Today, 70 percent of all new Kabbage customers operate bricks-and-mortar or services businesses, compared with less than 5 percent two years ago.

Looking to help businesses achieve financial stability and growth is the nonprofit LiftFund, which has provided more than $180 million in business loans to more than 15,000 business owners.

Loans typically range between $500 and $250,000 and, according to president and CEO Janie Barrera, startups account for roughly 40 percent of its customer base.

Serving as an intermediary for banks, Barrera acknowledged that many of its clients migrate to banks after they’ve taken out two or three loans and have built up a sufficient credit score.

 

BANKING ON BANKS

For those accountants looking to take the more traditional route to gain access to cash or financing, several banks offer solutions that may prove to be the ideal fit.

“We do see a large number of accounting firms come through my group,” said Jeff Ramey, vice president of specialty underwriting at PNC Bank.

PNC Bank’s business banking group covers businesses, such as accounting firms, with sales of up to $10 million and credit needs of up to $3 million. Within PNC Bank’s business banking side, there’s a specialized underwriting group that Ramey is charged with managing. “What do we normally see? Accounting firms are typically going to be looking for working capital lines of credit and those typically are for their short-term capital needs,” he said.

PNC’s offerings include term loans, often used for equipment purchases, computer systems and office furniture; commercial mortgages; and PNC’s proprietary Business Options credit card, which is often used for such expenses as travel.

“One of [accountants’] major concerns is cash flow because, in my group, they are smaller firms and at different times of the year they are doing a lot of work and have a lot of payroll … and they are building up their receivables, which usually could take 60 to 90 days for their clients to pay them. So, cash flow is one of their major concerns,” said Ramey. “And also to have availability on credit lines to bonus out funds at the end of the year to minimize taxes on the company.”

“What type of financing is requested by accounting firms? It is primarily lines of credit. Though they are the experts with so many of their clients, their clients have many other needs. We absolutely want to provide products to the accounting firms, so we provide lines of credit, treasury management, all the deposit products that we offer, merchant services. Some of the accounting firms offer payroll to their clients, some of them do not, and we have a great payroll product,” said Joe DiNicola, line of business executive at Bank of America. “So, we want to provide them with products that compliment either the products or services they offer to their clients or
something that we could offer to their clients in an effort to bring value to their clients through them.”

As previously reported in Accounting Today, Bank of America also offers a CPA financing program. Launched in 2012, the Bank of America Practice Solutions program for CPAs provides financing for practice sales and purchases, office improvements and expansion, business debt consolidation, equipment financing, lines of credit and commercial real estate.

Meanwhile, Wells Fargo offers a range of products and resources, some of which are ideally suited for professional services firms like accountants, said Michael Golden, regional business banking manager in the San Francisco Bay Area.

If you’re looking to be an educational resource for small businesses, including accountants, Wells Fargo offers such tools as its CEO (Commercial Electronic Office) Portal and the Wells Fargo Works for Small Business initiative.

The CEO Portal provides online access to dozens of financial services, including cash management, credit, foreign exchange, trade services, health benefit services, and trust and investment services.

Wells Fargo Works for Small Business is an initiative that Wells Fargo launched last year, which includes a free, online resource for business owners. In April, Wells Fargo added the Business Plan Center to the offering, providing online tools to help business owners create and update their own business plans.

 

PROACTIVELY SERVE CLIENTS

Whether a firm turns to an alternative solution or a bank for their funding needs, it is important not to overlook the opportunities that exist for their clients. Those accountants who can help their business clients navigate and find the lending solution that best meets their needs stand to win.

“Clients no longer just want number crunchers. They want someone to be a financial advisor, thinking in a proactive way, not just reactive. Accountants have to change their mentality, and Fundera assists with this by making it easy to add a new service to their business — loan preparation,” Hecht said.

In fact, firms can white-label Fundera to bolster their menu of client services. By becoming a Fundera Advisor, firms gain access to a Fundera Portal, which allows them to create applications on their clients’ behalf.

“This gives accountants the tools they need to start consulting clients through the financing process and offer loan preparation services. We even provide the marketing materials for them to use,” Hecht added.

Padar of New Vision CPA Group said that, in order to best serve her clients, she needs to understand the differences between the companies and the best way to do that is to use them within her own firm. “I don’t think that CPAs get it and understand that if these new solutions are coming up and they don’t understand [them], they are losing marketshare,” Padar said.  

Echoing that sentiment, Barrera of LiftFund noted, “I think accountants have a big responsibility in the success of small businesses.”

 

WHERE THE MONEY IS

Bank of America

Fundation

Fundbox

Fundera

Kabbage

LiftFund

PNC Bank

Wells Fargo

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