Similarities and Differences Between GAAP vs IFRS

GAAP (generally accepted accounting principles) is a set of standards that publicly traded businesses in the U.S. must follow when reporting financial information. IFRS (International Financial Reporting Standards), on the other hand, is the accounting standard used in the European Union and other countries around the world.

Both GAAP and IFRS are designed to maintain transparency and consistency in the financial world and make it easier for investors, creditors, and business managers to make informed financial decisions. While the two systems share similar goals and features, they use different methodology. Here’s what you need to know about U.S. GAAP vs. IFRS.

Key Points

•  GAAP is a detailed, rules-based accounting standard used in the U.S., while IFRS is a principles-based standard used internationally.

•  Public companies in the U.S. must use GAAP; public companies in the European Union, Canada, and other countries must use IFRS.

•  Differences between GAAP and IFRS include how liabilities are listed on the cash flow statement and when revenue is recognized.

•  IFRS allows for more flexibility and interpretation, but can lead to inconsistencies in financial reporting.

•  Adopting IFRS in the U.S. could aid international comparisons but may be costly for businesses due to the transition from GAAP.

What Is GAAP?

GAAP is a set of rules and principles that companies in the U.S. must follow when preparing their annual financial statements. GAAP dictates how a company can recognize revenue and expenses, what types of expenses have to be capitalized as assets, and how information needs to be presented to shareholders in an audited report.

Governed by the U.S. Securities and Exchange Commission (SEC) and administered by the Financial Accounting Standards Board (FASB), GAAP was established to provide consistency in how financial statements are created and make it easier for investors and creditors to compare companies apples to apples.

All publicly traded businesses in the U.S. must use GAAP in their financial statements. While small businesses that don’t get audited aren’t required to use GAAP, doing so could make it simpler to report your company’s financial information. It might also make it easier to get approved for small business financing.

Recommended: Classified Balance Sheet

What Is IFRS?

The International Financial Reporting Standards, or IFRS, are another set of accounting standards, but these are used at the international level. IFRS is standard in the European Union and many countries in Asia and South America, but not in the U.S.

IFRS are issued by the International Accounting Standards Board (IASB) and are designed to create a commonality in how businesses in different countries report their accounting. This consistency in accounting language enables investors and creditors to understand a company’s financials, compare one IFRS-compliant company to another IFRS-compliant company, which helps in making investment decisions.

Recommended: 6 Step Guide to Getting a Small Business Loan

GAAP vs IFRS Compared

There are some commonalities between IFRS and GAAP, but also many differences. Here’s how they net out.

Similarities

Both GAAP and IFRS govern how companies should report their financial information for a given reporting period, such as one quarter or year. And both systems are designed to simplify financial statements and provide an even playing field for investors to evaluate companies and compare one to another.

GAAP and IFRS also both require companies to issue income statements, balance sheets, cash flow statements, changes in equity, and footnotes. In addition, they both require accrual (vs. cash) accounting, and allow the use of the inventory estimates first-in, first-out (FIFO) and weighted average cost.

Differences

GAAP and IFRS differ in several key areas.

Rules- vs. Principles-Based

GAAP goes into much more detail when it comes to accounting and uses fixed rules for calculations, with little room for interpretation. This is to prevent companies from creating exceptions to the rules in order to make themselves look more profitable.

IFRS, on the other hand, sets out principles that companies should follow using their best judgment. It allows for some wiggle room for companies to interpret the principles.

Inventory

While GAAP allows companies to choose the most convenient method when valuing inventory, IFRS does not permit companies to use the last-in, first-out (LIFO) method of calculating inventory. The reason is that some analysts believe the LIFO method does not show an accurate inventory flow and may portray lower levels of net income than is actually the case.

Recommended: Advantages and Disadvantages of GAAP vs Tax-Basis Accounting

Intangible Assets

The way that intangible assets like goodwill or research are recorded differs between IFRS and GAAP. With IFRS, intangible assets are only capitalized when certain criteria are met, such as having a definite future financial benefit.

Under GAAP, intangible assets are generally expensed as they are incurred based on their current fair market value with no other considerations required.

Fixed Assets

There are differences in depreciation of fixed assets for GAAP vs. IFRS. Under GAAP, fixed assets (such as property and equipment) are valued using the cost model, which means the purchase price of the asset less any accumulated depreciation.

With IFRS, by contrast, fixed assets are initially valued at cost but can later be revalued (up or down) based on current market value.

Revenue

How you address revenue differs between the two systems. IFRS is based on the guiding principle that revenue is recognized when value is delivered. With GAAP, however, the rules are more specific.

While revenue generally is not recognized until the exchange of a good or service has been completed, GAAP requires the accountant to consider the industry-specific rules regarding revenue recognition. Due to looser rules, the IFRS system may allow a business to report income sooner.

Recommended: Business Property Insurance

Liabilities

Another difference between U.S. GAAP vs. IFRS is how liabilities are classified on the cash flow statement. GAAP classifies them as either current or non-current, with those the company can reasonably repay in the next 12 months considered current, and those that will be repaid later as long-term or non-current.

With IFRS, all liabilities (both short- and long-term) are grouped together.

GAAP IFRS
Rules-based Principles-based
Inventory cost methods allow LIFO, FIFO, and weighted average cost Inventory cost methods only allow FIFO and weighted average cost
Intangible assets are recorded at current fair market value Intangible assets are only recognized if they have future financial benefit
Fixed assets are valued using the cost model Fixed assets are valued using the revaluation model
Revenue is not recognized until the exchange of a good/service has been completed (per industry guidelines) Revenue can sometimes be reported sooner

Pros and Cons of IFRS

The U.S. hasn’t yet decided to adopt IFRS over GAAP, though with so many other countries around the globe using it, that may happen in the future. However, there are both pros and cons to switching to IFRS.

On the plus side, adopting IFRS would make it easier for U.S. companies to do business with companies overseas. It would also make it easier for investors to compare U.S. and foreign companies.

Another advantage of IFRS is that it is less detailed than GAAP, which makes it easier to implement. It also offers more flexibility, which allows companies to adapt the system to fit their specific situations. Some experts also believe that a focus on principles, rather than rules, captures the essence of a transaction more accurately.

However, there are also downsides to IFRS. Because IFRS is more subject to interpretation, it often requires lengthy disclosures on financial statements. The system’s flexibility can also lead to the manipulation of standards to make an organization seem more financially secure than it is in reality.

Another disadvantage to IFRS’s flexibility is that statements aren’t always comparable (which is the point of having a global standard). Finally, if the U.S. were to adopt IFRS, it would be costly for small businesses to implement the change.

Pros of IFRS Cons of IFRS
Makes it easy to do business with other countries Often requires adding lengthy disclosures to financial statements
Would be easier for inventors to compare U.S. and foreign companies Can be manipulated to make a company look like it’s doing better than it is
Less detailed, more flexible, and easier to implement Statements from one company to the next aren’t always comparable
Focus on principles captures the essence of a transaction more accurately Adopting IFRS would be costly for small businesses

The Takeaway

IFRS is a standards-based approach that is used internationally, while GAAP is a rules-based system used primarily in the U.S.

There are several differences between GAAP vs IFRS. The biggest is that GAAP lays out highly specific accounting rules and procedures, whereas IFRS sets out principles that companies should follow and interpret to the best of their judgment.

Publicly traded companies in the U.S. must follow GAAP, but for small business accounting, you don’t have to follow any specific regulations. However, following GAAP in your financial statements can be useful in certain situations, such as when you’re looking to get approved for financing. Many lenders and creditors often prefer GAAP-compliant documents or require annual financial statements that follow these principles when they issue loans.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.


Large or small, grow your business with financing that’s a fit for you. Search business financing quotes today.

FAQ

Does the U.S. use IFRS?

No. Public companies in the U.S. must use GAAP (generally accepted accounting principles), though many businesses opt to report their finances under IFRS (International Financial Reporting Standards) as well.

Is GAAP used in the U.K.?

No. Public companies in the UK must use IFRS (International Financial Reporting Standards) as issued by the International Accounting Standards Board (IASB) with some limited modifications. However, some companies in the U.K. may also use GAAP (generally accepted accounting principles) to cater to a US-based audience.

Is GAAP or IFRS more conservative?

GAAP (generally accepted accounting principles) is considered more conservative because it is highly detailed and rules-based. IFRS (International Financial Reporting Standards), on the other hand, is principles-based and leaves more room for interpretation.


Photo credit: iStock/piranka

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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Invoice Financing vs. Invoice Factoring

If you have a small business that invoices customers (and then waits 30 days or longer for payment), you know that cash flow can be a big concern. Two financing options that may help you get paid faster are invoice financing and invoice factoring.

While both funding options allow you to use your company invoices to secure a cash advance, they work in very different ways. Here’s what you need to know about invoice financing vs. invoice factoring.

Key Points

•   Invoice financing is where businesses retain ownership of their invoices and use them as collateral for a loan.

•   Invoice factoring is where businesses sell their invoices to a factoring company, which takes ownership and collects payments directly from customers.

•   Both options involve fees, but invoice financing charges interest on the loan, whereas invoice factoring typically involves a fee based on a percentage of the invoice value.

•   Invoice financing keeps the risk of customer non-payment with the business. With invoice factoring, the factoring company may assume this risk, particularly in non-recourse agreements.

•   Invoice financing suits businesses wanting to maintain customer control, while invoice factoring works better for those prioritizing immediate cash flow without managing collections directly​.

What Is Invoice Financing?

Invoice financing helps bridge short-term cash flow issues that might occur because of unpaid invoices from clients.

You can use those invoices as collateral in order to receive a lump sum of financing before they’re paid. Usually, you’ll receive between 80% and 90% of the invoice total face value upfront. Then, once the invoice is paid, you’ll receive the remaining balance, minus the company’s fees. The fees are often a percentage of the invoice amount, typically between 1% and 5%. The rate can be charged as a one-time fee, or on a weekly or monthly basis, depending on the lender and terms determined.

Invoice financing is also known as accounts receivable financing because the borrowed funds are secured by future revenue. It’s considered a type of cash flow loan.

One of the benefits of invoice financing is that you maintain direct relationships with your customers, rather than having the financing company manage the collections process on your behalf, which is typical with invoice factoring.

Example of Invoice Financing

Here’s an example of how invoice financing works.

Say a company decides to finance $10,000 in invoices. It received 80% upfront, thus adding $8,000 back into the business’s cash flow.

The invoice financing company charges 3% for every month the invoice is outstanding. After two months, the customer pays the bill. The company is charged 3% monthly, which amounts to $300 per month.

So, instead of receiving the remaining $2,000, the company receives $1,400. The total cost of the invoice financing was $600 in this hypothetical situation.

Pros and Cons of Invoice Financing

There are both benefits and drawbacks to using invoice financing.

Pros

•   Keeps you in control: With this type of financing, your company is still in charge of the collection process. That means you get to maintain your relationship with your customers and they don’t have any insights into your business’s finances.

•   Smoother cash flow: For companies that largely deal with other businesses, invoice financing can help alleviate cash flow issues due to unpaid invoices.

•   Relatively easy to get: Since your invoices serve as collateral for the cash advance, invoice financing can be easier to qualify for than other small business loans. Lenders are usually more concerned about your customer’s payment history than your (or your company’s) credit history. This means you may be able to qualify even if you have a limited or bad credit.

Cons

•   Can be costly: While a fee of 1% to 5% may sound low, you need to keep in mind that this rate is often charged on the total invoice value per month and, in some cases, per week. Invoice financing companies may also charge fees, such as maintenance fees, invoice processing or advance fees, and early termination fees.

•   Uncertain costs: Although you retain control of collecting payments, you’re not in control of the total cost of invoice financing. Your business could end up paying a lot if a customer takes months to pay.

•   Liability for unpaid invoices: Your business may be responsible for repaying the borrowed funds in full if customers don’t pay their invoices.

Recommended: What Are the Fees Associated with Business Loans?

What Is Invoice Factoring?

Invoice factoring is similar to invoice financing, but with a few key differences.

With invoice factoring, you don’t use your invoices as collateral for a loan but, rather, sell your outstanding invoices to a factoring company at a discount. The company pays you a percentage of the invoice amount upfront and then takes on the responsibility of collecting the full amount from your customers. Once they receive full payment, they send you the remaining percentage, minus their fees.

Recommended: How to Find an Accountant

Example of Invoice Factoring

There are a number of ways an invoice factoring agreement could be structured. Here’s an example of a company that uses invoice factoring at a rate that amounts to 1% for every 10 days it takes the customer to pay a $10,000 invoice.

The business receives 80% ($8,000) upfront, and the factoring company takes over the collection process.

The customer takes eight weeks to pay the invoice, resulting in an 8% fee — or $800. The remaining $2,000 balance is reduced to $1,200 to cover the fees. So the company receives a total of $9,200 for the customer’s $10,000 invoice.

Pros and Cons of Invoice Factoring

Invoice factoring can help ease cash flow issues, but there are also drawbacks to consider.

Pros

•   Doesn’t require collateral: Invoice factoring is considered unsecured financing. You usually sell the invoices to the factoring company, but you don’t need to worry about using other company assets to secure the loan.

•   Smoother cash flow: This type of financing can improve your company’s cash flow.

•   Available with bad credit: You could get approved even with bad credit.

Cons

•   Could jeopardize customer relationships: You can’t control how the factoring company deals with your customers when it’s collecting invoices. Also, your customers will know you’re having issues with cash flow.

•   Can be expensive: Compared to other types of small business loans, invoice factoring often costs more and is accompanied by additional fees.

•   Liability for unpaid invoices: Depending on how the factoring is structured, you may be responsible for the borrowed funds if your customers don’t pay their invoices.

Recommended: GAAP vs. IFRS

Invoice Financing vs. Factoring: What’s Right for You?

Which type of financing will work best for your small business will depend on the details of the agreement and your relationship with your customers.

If you’re a new business and don’t have the time or staff to follow up on customer invoices, you might prefer invoice factoring. If, on the other hand, you have personal relationships with your customers, want to remain in control of the payment collection process, and feel confident you can collect on your outstanding invoices quickly, then invoice financing might be the better way to go.

With either arrangement, you’ll want to pay close attention to costs and read the fine print about rates and fees, as well as your liability if your customers don’t pay their invoices.

Recommended: Purchase Order Financing: What Exactly Is It?

The Takeaway

If you invoice customers, both invoice financing and invoice factoring can help you manage cash flow issues or cover short-term expenses while you’re waiting to get paid. With both types of financing, you use your unpaid invoices to access capital for your business.

With invoice financing, your invoices serve as collateral for a cash advance. With invoice factoring, you sell your invoices at a discount to a factoring company that then collects payment for you.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.


With one simple search, see if you qualify and explore quotes for your business.

FAQ

What is the difference between invoice financing and factoring?

Invoice financing allows businesses to borrow against unpaid invoices while retaining ownership and control over customer interactions. Invoice factoring involves selling invoices to a factoring company, which assumes responsibility for collections. The key difference lies in customer relationship management and ownership of the invoices.

What are the pros and cons of invoice financing and invoice factoring?

Invoice Financing Pros and Cons: Pros include retaining control over customer relationships and flexible cash flow solutions. Cons involve paying interest and retaining the risk of customer non-payment.

Invoice Factoring Pros and Cons: Pros include immediate cash and reduced collection responsibilities. Cons include losing customer control and potential negative perceptions from customers.

Which option is better for maintaining customer relationships?

Invoice financing is better for maintaining customer relationships because the business continues managing collections directly. In invoice factoring, the factoring company takes over collections, which might impact customer perceptions of the business.


Photo credit: iStock/RichVintage

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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10 Ideas for Growing an E-commerce Business

These days, starting an e-commerce business is relatively simple. Growing that business into a successful online store with solid revenues, however, can be challenging. To effectively scale an e-commerce company, you generally need to take a proactive, multi-pronged approach. You need to not only find customers and bring them to your site but also encourage them to make a purchase and come back for more visits.

There are some simple, effective actions you can take to grow your company, especially if it’s still in the early stages.

Key Points

•  Build an email list by using opt-in forms and offering incentives like discounts to encourage sign-ups.

•  Encourage repeat business through loyalty programs and personalized emails with product recommendations.

•  Ensure the website is mobile-friendly to cater to the increasing number of mobile users.

•  Run limited-time promotions to encourage customers to complete purchases.

•  Offer excellent customer service across multiple channels to retain customers and encourage repeat business.

Recommended: A Guide to E-commerce Business Loans

10 Tips for Growing an E-commerce Business

Below are 10 proven e-commerce business growth strategies to try.

1. Build Your Email List

Email marketing can be an effective tool for an e-commerce business. To build your email list, consider including an opt-in email capture form on your site, as well as during checkout. You might incentivize sign-ups by offering a bonus, such as a discount code or free shipping, in return.

The key to successful email marketing is to deliver quality content. If it looks like spam to you, it’s going to look like spam to everyone else. You’ll want to make sure that every email is unique and that your customers feel like they are getting an opportunity every time they open up one of your emails. Try to personalize the content and offer a mix of articles, videos, tips, and special offers.

2. Encourage Repeat Business

While bringing new customers to your site is essential to your company’s success, it’s equally important to retain the customers you already have. Consider offering incentives not just to new customers but also to returning ones. You might also want to start a loyalty program to get your customers excited about visiting your site regularly.

Another way to encourage repeat business is to send personalized emails to prior customers that include recommendations of products that go well with the ones they’ve already purchased.

3. Make Your Site Mobile Friendly

The web is increasingly being accessed by mobile devices rather than computers and laptops. Designing your website to be mobile friendly ensures that your pages perform well on all devices. If you used Squarespace or WordPress to make your website, chances are your ecommerce site is already mobile friendly. However, it can be a good idea to check. You can go to Google’s Mobile-Friendly page to test how easily a visitor can use your page on a mobile device.

4. Run Limited-Time Promotions

How many times have you filled up a shopping cart on an ecommerce site and then abandoned it completely? When you did commit to a sale, was it because of a promotion that was ending that day? Limited-time promotions can be a great way to encourage shoppers to hit the “place your order” button.

The best promotion idea will depend on the type of merchandise you sell, but common ones include: free shipping, free give with purchase, a discount (like 20% off), and buy one get one free (BOGO).

5. Offer Excellent Customer Service

Customers who have a poor customer service experience will likely take their business to a competitor. Those who have a positive shopping experience, on the other hand, will probably want to shop with you again. It’s not hard to give good service and the financial rewards can be well worth the added time and effort. Consider offering customer service on multiple channels — by phone, live chat on your website, SMS, email, and via social media.

6. Master E-commerce SEO

What searches do you want your site to show up on? How do you want new customers to find you? Understanding and taking advantage of search engine optimization (SEO) can help your site beat out the competition on Google search results.

If you’re new to the world of SEO, sites like Semrush offer guides that can help you get more organic traffic to your site. If you’d rather outsource the job, you may be able to find an affordable SEO pro on a freelance website like Fiverr or Upwork.

7. Encourage Customers to Leave Reviews

Positive reviews are known to increase conversions. Consider asking customers to review your business or service right after checkout, perhaps with a clickable star-rating window.

To encourage product reviews, follow up with customers via email and ask them to submit a review of their purchase. You might even offer an incentive, such as a discount for a future purchase, in return for leaving an honest review. You might also search sites like TrustPilot for reviews of your products and include them in your review listing.

8. Market Campaigns Toward Lost Customers

Consider using social media to market ads to customers that have visited your site but didn’t make a purchase. Or, if you were able to get their email when they visited your ecommerce company, you can email them to remind them they still have items in their cart.

Recommended: 10 Best Cities to Start a Small Business

9. Offer International Shipping

If you limit your reach to just U.S. customers, you’re limiting your company’s sales potential. Consider offering free shipping to anywhere in the world — you may be surprised where your sales start coming from. If it’s not feasible for you to offer free global shipping, consider giving shoppers information about any extra costs involved in international shipping upfront, so they know what to expect when they check out.

10. Partner With Influencers

You may be able to significantly expand your ecommerce business’s reach by partnering with influencers who have thousands of followers (and possibly more). You might want to reach out to influencers who focus on your industry and help them create content that can lead to sales. You’ll need to offer them payment (such as a fee or commission) for their work and effort, but if they have a large audience, it may be well worth their price.

Recommended: 10 Business Growth Strategies

Which Strategies Are Right for Your E-commerce Business?

You may want to start with the skills and tools you already have, and build from there. Consider which growth strategies you and your team can implement on your own. Once you’ve reached your limits, you may want to bring in outside contractors who have the expertise you lack. The return on your investment may more than cover any initial costs.

Are There Any Downsides to Growing Your E-commerce Business?

While e-commerce growth is good, rapid growth isn’t always good. If you grow too quickly, you may not be able to maintain quality control or even fulfill large purchase orders. This can lead to disappointed customers, negative reviews, and, potentially, the downward spiral of your business. Rapid growth could also push your employees to exhaustion, reduce their morale, and cause people to quit.

The key to healthy e-commerce growth is to make sure you don’t damage what you already have as you expand. Steady, predictable growth can often be healthier than an overnight explosion.

Funding E-commerce Business Growth

There are a number of different ways to get financing for e-commerce business growth, from finding investors to exploring loans. Here are some you may want to consider.

Recommended: What Is Equity Financing?

Business Loans

There are many types of small business loans. Banks typically offer the lowest rates and best terms but tend to have strict qualification criteria. If your ecommerce business is less than two years old, you may have better luck getting a loan through an online lender. Also known as alternative lenders, these companies tend to have more flexible qualification criteria and are faster to fund than banks. However, they typically charge higher rates.

Out of Pocket

Funding e-commerce business growth out of pocket may not be the fastest route to expansion. However, it can be beneficial because it means you won’t have extensive loans and monthly payments that bog you down, especially if you run into bumps along the way. Once income becomes consistent and predictable, though, you may want to venture away from bootstrapping.

Cash Advances

If your e-commerce business has high credit card sales volume and you need funding quickly, you might look into a merchant cash advance. With this type of financing, you receive funds as a lump sum upfront from an MCA provider and repay the advance from future sales. Typically, the lender will automatically deduct a portion of your credit card sales, usually each business day. MCAs are generally easy to qualify for but costs typically run significantly higher than traditional small business loans.

Small Business Grants

There are a variety of government, nonprofit, and private entities that offer small business grants. You may be able to qualify for a grant if your business meets certain requirements (such as being a woman-, minority-, or veteran-owned business). Unlike loans, grants do not need to be paid back. However, competition for this type of funding tends to be intense.

Recommended: 30 Small Business Grants and Databases for Women

Equipment Financing

There are also loans specifically for buying equipment, such as computers you might use in your e-commerce business. With equipment financing, the equipment itself acts as collateral for the loan, which keeps the interest rate low and your other assets (either business or personal) safe. You would typically get a quote for the equipment you’d like to buy, and a lender would then front you all or a large portion of the cost.

Business Credit Cards

If you need a way to cover dips in cash flow, you might consider a business credit card. If you can qualify for a business card with a 0% introductory annual percentage rate (APR), you can spend for a predetermined period without interest. If you pay off your balance before the end of the introductory period (which may be a year-plus), you don’t have to pay any interest at all. A business credit card can also help you build business credit, which can allow you to access loans with low rates and attractive terms in the future.

Recommended: Can You Get a Business Credit Card Before You Open Your Business?

The Takeaway

There’s no one way to grow an e-commerce company, but proven strategies include email marketing, making sure your site is SEO- and mobile-friendly, running time-sensitive promotions, and giving excellent customer service. Once you’re in a rhythm and are seeing the results of your labor, you may want to leverage a small business loan to help your business reach the next level in its growth journey.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.


With one simple search, see if you qualify and explore quotes for your business.

FAQ

What are some tips for growing an e-commerce business?

To grow your e-commerce business:

•  Build an email list

•  Use SEO

•  Encourage repeat business

•  Provide excellent customer service

•  Sell to international markets

•  Partner with influencers

•  Make sure your site is mobile-friendly

•  Offer time-sensitive promotions

How can you receive funding for an e-commerce business?

E-commerce funding options include:

•  Bank small business loans

•  Online small business loans

•  Business lines of credit

•  Business credit cards

•  Merchant cash advances

•  Small business grants

How do you scale a small e-commerce business?

Some effective ways to scale a small e-commerce business include optimizing your site for SEO, creating a marketing campaign that includes social media and email marketing, and developing an online ads strategy.


Photo credit: iStock/JLco – Julia Amaral

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Finding a CPA for Your Small Business

Small business accountants can do more than help you file your business taxes. They can also set up an accounting system, help you prepare financial statements, audit your books, and create financial goals for your business. If you think your business could benefit from the help of a certified public account (CPA), read on.

Here’s a closer look at what they do, how they can help your business both in the short- and long-term, and how to find the right finance pro for your company’s needs and budget.

Key Points

•  Certified public accountants assist small businesses with tax preparation and financial planning.

•  It may be worth hiring a CPA if you need help filing your business taxes, your business is growing, or you need help preparing financial documents.

•  To find the right CPA, consider tapping your professional network and local organizations for referrals.

•  Accountants and CPAs perform similar functions, but only a CPA can represent you in front of the IRS.

•  Interview and vet CPA candidates by checking their industry experience and credentials.

Does Your Business Need an Accountant?

To determine if your company needs an account, it helps to understand what CPAs do and how they may be able to help your small business.

What Accountants Do

A certified public accountant can help with many aspects of small business accounting, including:

•  Preparing personal and business tax returns and filing them on your behalf

•  Preparing the documents needed to submit an application for a small business loan or grant

•  Helping your business manage its day-to-day finances and cash flow

•  Notifying you of clients and customers who have a habit of paying late

•  Warning you about increasing costs that may affect your business, as well as helping you find affordable alternatives

•  Analyzing daily, weekly, monthly and seasonal cash flow patterns in your business

•  Illustrating key financial ratios for your small business

•  Recommending areas to consider expanding or shrinking your business

•  Helping you establish a weekly and monthly budget for your business

•  Taking care of your company’s payroll

•  Helping you prepare financial statements for potential investors or lenders

If you need something more specific, contact a CPA and ask if they can do it. You may find they can help you with your unique issue, whether it’s choosing accrual vs. cash accounting or how to expand your business into another state.

Recommended: How to Grow an Ecommerce Business

When You Might Need a CPA

Here are some common business scenarios in which you may need a CPA to help you out.

•  You need to change your business classification. As a business owner, there are a number of different ways you can structure your business. A CPA can help you choose the best set-up so you’re not overpaying come tax time. Even if you decide you don’t want to make a change, an accountant may be able to help you make the most of your current structure.

•  Your business is growing. When a company grows, its finances typically become more complex. As more money comes in and goes out, and you begin to work with more vendors and hire more employees, cash flow can be difficult to keep track of. A CPA can help you with this by staying on top of payments, payroll, and everyday expenses. Small business owners often try to save money by not delegating tasks that a CPA can do, but the truth is that CPAs very often save businesses money, leaving the business owner more time to do what they do best — coming up with great ideas that can grow the business.

•  You don’t understand taxes, deductions, and tax credits. You may be a wiz at developing products and acquiring new customers, but if taxes are like another language to you, then you likely need a CPA. It’s not that it’s beyond your ability to learn, but the more time you spend working on it, the more time you’re taking away from your business. Moreover, each year many business owners make mistakes, such as overpaying on their taxes.

•  You need help preparing financial documents. Whether you are selling your business or looking to get small business financing, a professionally prepared financial report by a CPA can make the process go more smoothly. When going through the application process for a loan, a CPA can directly answer any lender’s questions about your financials.

•  You’re being audited by the IRS. Small business audits are not uncommon for businesses with complicated tax returns. Low annual revenue and a large amount of expenses can also be triggers for an IRS audit. A CPA can help the audit process by providing documents and backup information an auditor requests, allowing you to focus your attention on running your business.

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4 Steps to Finding a CPA for Your Small Business

Wondering how to find a good accountant for your small business? These four steps can help you hone in the best pro for your needs.

1.   Ask fellow professionals in your circle. A good place to begin your search for an accountant is by asking your peers, such colleagues and other business owners in the community, for recommendations. People in your network are likely to have a good handle on what you need and may be able to offer feedback on CPAs they’ve worked with.

2.   Tap social media channels. You might also join local business communities on Facebook or LinkedIn (if you haven’t already), then post that you’re looking for a good small business accountant. It’s not necessary for your CPA to be local, but it could be beneficial if they are, especially if they have connections with local banks.

3.   Check their credentials. Both accountants and CPAs perform similar functions, but a CPA has met state licensing requirements in order to earn the CPA designation. A CPA is also able to represent you in front of the IRS (not all tax preparers can do so). You can check an accountant’s credentials on the IRS’s Directory of Federal Tax Return Preparers.

4.   Conduct an interview. It can be a good idea to schedule a meeting with a CPA to discuss why you are seeking their services (making sure you ask the questions below). Not all accountants specialize in the same things, so it’s very possible they may direct you to another CPA who is better suited for your needs, or you may feel a need to continue your search.

Evaluating an Accountant

While interviewing a potential CPA, you’ll want to ask a wide array of questions and get to know the person you may work with. If you have a good rapport with one another, your interview should become less of a test and more of a discussion of the ways your business can grow and expand.

Questions you may want to ask include:

•  What is the cost? Do they charge by the hour, or do they have a flat fee?

•  Do they have a team? Some CPAs work by themselves, while others have partners or staff. If they have a team, you’ll want to know their qualifications.

•  What’s their availability and typical turnaround time? How quickly can they get back to you if questions come up? How much of their time will you get?

•  How long have they worked as a CPA? Are you their first client or have they worked with hundreds of clients like you?

•  Can they provide references? Even if you became acquainted with your CPA from a friend, it’s never a bad idea to get more references if you can.

•  Will they represent you during an IRS audit? Having a professional explain your finances to the IRS can be a huge weight off your shoulders should you ever be audited.

•  What type of services can they offer? It’s possible they can help you with something you haven’t thought of. Get a full rundown of everything they do — you may end up hiring them for additional services that can help you run your company.

The Takeaway

Finding an accountant for your small business can be a huge weight off your shoulders and allow you to focus more on the business side of things. Just make sure to do your research and due diligence to ensure you find a CPA that fits your company’s needs and future goals.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.


Large or small, grow your business with financing that’s a fit for you. Search business financing quotes today.

FAQ

Is a CPA worth it for a small business?

Yes, a CPA (certified public accountant) can be invaluable for small businesses. They provide expertise in tax planning, financial reporting, and compliance. This can help ensure your business meets regulatory standards and avoids costly errors. CPAs can also offer strategic advice on managing expenses, optimizing cash flow, and scaling operations. While hiring a CPA is an investment, their insights can help you make informed financial decisions that could allow you to save money in the long run.

How to find the right CPA for your business?

To find the right CPA (certified public accountant), you might start by asking for recommendations from colleagues, other small businesses in your community, and any connections you have with local professional organizations (like the Chamber of Commerce or Rotary Club). You might even be able to get a referral to a good CPA from your bank or realtor. Once you have a list of candidates, it’s a good idea to interview each CPA to assess their expertise, communication style, and fees. You’ll want to be sure they understand your business goals and will be a good fit with your company.

What type of accountant is best for a small business?

For small businesses, a CPA (certified public accountant) or small business accountant with experience in your industry is ideal. They should offer services tailored to your needs, such as bookkeeping, tax preparation, and financial strategy. A CPA can be a good choice if you need guidance on complex tax laws, regulatory compliance, or business growth planning. If your needs are basic, on the other hand, a general accountant or bookkeeper might be sufficient. Ultimately, the best choice will depend on your business size, complexity, and long-term financial goals.


Photo credit: iStock/VioletaStoimenova

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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SBA 504 Loans: Who Qualifies & How to Apply

SBA 504 loans are a popular financing option for small businesses looking to purchase real estate, acquire major equipment, or invest in long-term growth. These loans, backed by the Small Business Administration, provide affordable, fixed-rate funding and are designed to support economic development and job creation.

To qualify, businesses must meet specific size, purpose, and operational criteria, and the application process involves collaboration with Certified Development Companies (CDCs).

Keep reading to learn more on SBA 504 loans, including the qualifications, benefits, and steps to apply for an SBA 504 loan.

Key Points

•   SBA 504 loans are designed for small businesses to finance the purchase or improvement of fixed assets, such as real estate, machinery, or facilities, promoting long-term economic development.

•   The loan is a partnership between a Certified Development Company (CDC), a bank or private lender, and the borrower. Typically, the CDC provides 40%, the lender 50%, and the borrower contributes 10% of the total project cost.

•   Businesses must meet SBA size standards, demonstrate the ability to repay the loan, and use the funds for eligible projects, such as property acquisition or modernization.

•   Borrowers can access up to $5.5 million for eligible projects, with repayment terms of 10, 20, or 25 years, and interest rates are fixed.

•   Alternatives to SBA 504 loans include SBA 7(a) loans, online business loans, SBA Express loans, and equipment financing.

What Is an SBA 504 Loan?

An SBA 504 loan is designed to provide businesses with financing for major fixed assets. The goal is to help fuel both business growth and job growth using long-term financing up to $5.5 million. This program differs from the popular SBA 7(a) loan option, which lets borrowers use funds for working capital as well.

Although SBA 504 loans are structured through the U.S. Small Business Administration (SBA), potential borrowers must apply for funding through Certified Development Companies (CDCs).

These are approved lending partners that focus on local economic development. Approved borrowers receive 90% of their financing needs and must provide the remaining 10%. There are three maturity term options for SBA loans: 10 years, 20 years, or 25 years.

Recommended: Guide to SBA Loans

504 Loan Interest Rates

The borrower’s interest rate starts with a base rate, using either the current five- or 10-year U.S. Treasury notes market rate. Then an increment above that amount is used to calculate the interest rate for the loan.

Rates are fixed for the life of the loan. They’re typically low compared to other types of business financing.

What Can an SBA 504 Loan Be Used For?

The SBA outlines specific categories that 504 loan funds can be used for, as well as items that can’t be paid for using these funds.

Eligible assets you can purchase with these funds must be aimed to create job growth. This could include purchasing or constructing buildings, land, new facilities, machinery, or equipment.

The funds may also be used to improve or modernize land, streets, parking lots, landscaping, and utilities.

Prohibited expenses include working capital, inventory, debt consolidation, and rental real estate. In order to finance some of these categories, you might instead consider financing from the SBA or conventional small business loans.

SBA 504 Eligibility Requirements

SBA 504 loans are available to for-profit companies that have a tangible net worth of under $15 million. Additionally, the average net income must have been under $5 million (post-federal taxes) for the previous two tax years.

Applicants must also not have other resources available to them. Lenders review both the business’s assets and the owner’s personal assets, which may reduce the approved loan amount if they’re too high. The company’s cash flow and projected cash flow are also evaluated to ensure that it can afford to repay the loan. A personal guarantee is also required.

What Is a CDC Lender?

A Certified Development Company (CDC) is a non-profit organization focused on economic development in its local community. CDCs must be certified by the SBA and are regulated by the SBA as well.

CDCs review and approve applicants for the 504 loan program. Once a loan is approved, the CDC funds 40% of the loan amount through SBA funds, then sells 50% of the loan amount to a bank or other financial institution. The business must provide the remaining 10% of the funds.

CDCs are the only organizations certified to offer 504 loans. In order to apply for this type of financing, companies must find a local CDC through the SBA.

Pros and Cons of an SBA 504 Loan

504 Loan Cons

504 Loan Pros

Restricted use of funds Competitive interest rates
Job growth requirements Large loan maximum

Pros of 504 Loans

504 loans come with several distinct benefits:

•   Low, fixed interest rates

•   Large maximum loan amounts compared with other funding that’s typically available

•   Low 10% down payment

In short, this can be an extremely affordable form of financing for small businesses ready to make major purchases or improvements.

Cons of 504 Loans

Of course, there are downsides to consider as well:

•   Restricted use of funds

•   The project you’re financing must lead to business and job growth in the community

•   A personal guarantee is also required in addition to a 10% down payment. This is your binding promise that if the business can’t pay back the loan, you will personally be responsible.

Depending on your project, it may be worth comparing the SBA 504 vs. 7(a) loan programs to find the best small business loan option for you and your funding needs.

Recommended: How to Get a Small Business Grant

How to Apply for an SBA 504 Loan

Applicants submit their applications directly through a local CDC.

In addition to providing company and personal financials, you’ll also need to submit a “Statement of Personal History” to confirm the good character of all company principals. It looks at their past history of repaying debt as well as any legal history.

You must also show a business plan that outlines the projected costs you expect to incur. The CDC you work with will give you a specific list of required documentation.

Be aware that the loan approval process can be long. Many CDC lenders estimate it takes an average of one to three months before approved applicants will receive funding.

Recommended: Guide to Typical Small Business Loan Requirements

Alternatives to an SBA 504 Loan

There are many other options to consider instead of an SBA 504 loan depending on what exactly your needs are.

•   SBA 7(a) Loan: Funds can be used more broadly with an SBA 7(a) loan, including for working capital and inventory.

•   Online Business Loan: You can apply for an online business loan. Rates are typically higher, but the application process is usually faster.

•   SBA Express Loan: For smaller loan amounts that can offer a fast turnaround time, you could also consider an SBA Express loan. These provide up to $500,000.

•   Equipment Financing: Private lenders offer equipment financing to purchase assets. These loans are typically secured by the equipment itself. However, some lenders may also require a personal guarantee.

Recommended: Small Business Bankruptcy

The Takeaway

There are many different types of small business loans. The best financing option for your small business depends on your company’s finances, funding needs, and business structure. Whether you choose an SBA 504 loan or another type of financing, be sure to compare multiple options.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.


With one simple search, see if you qualify and explore quotes for your business.

FAQ

Am I eligible for an SBA 504 loan?

There are several requirements you must meet in order to be eligible to apply for an SBA 504 loan. Your business’s tangible net worth should be less than $15 million and average net income must be under $5 million.

How can I use the SBA 504 loan?

SBA 504 loan proceeds must be used to purchase or improve assets that lead to business and job growth. This includes things like buildings, land, equipment, streets, utilities, parking lots, or landscaping.

What is a CDC lender?

A Certified Development Company (CDC) is an SBA-certified non-profit organization that administers 504 loans. CDCs focus on improving economic development in communities. You can find CDCs in your area by searching the SBA database of approved organizations.

What are the pros and cons of an SBA 504 loan?

SBA 504 loans come with low, fixed interest rates. Plus, at $5.5 million, the maximum loan amount is quite high. On the downside, funds can only be used for approved purchases and a 10% down payment is required, as is a personal guarantee for the funds.


Photo credit: iStock/svetikd

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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