Search Articles

Most liked posts

Recent Articles

Posts Tagged ‘loans’

Proper Use Of Collateral

March 26th, 2010 :: Gary Honig

Business owners who are operating revenue driven companies often turn to outside sources of capital when looking to grow faster. Either a company can sell shares (and shared ownership) to raise capital or they can borrow against collateral. Collateral usually means some sort of tangible asset such as equipment or receivables.

When using collateral for borrowing, it can be costly to not recognize the ramifications of pledging certain assets. This means, once collateral has been borrowed against in the form of a loan, the loan must be paid off in order for the same collateral to be used again. All lenders can quickly ascertain whether a loan exists and what collateral has been assigned. Asset based lending companies require a first security position on the collateral they are financing. Pre-existing loans or credit activities that have been issued a secured position on collateral make additional funding impossible.

Generally the problem stems from a line of credit, which was used up over an extended period of time. Ideally, a line of credit from a bank should be properly managed and treated like a revolving loan. Money should be taken from the line, but regularly paid back to pay down the line. Having the discipline to borrow and pay back on a line of credit will keep the financial condition of the company sound. This means certain expenditures must wait until profit or other investment is available.

What finally happens with the mis-management of a line of credit is – the line has reached the maximum credit limit. In today’s lending environment, the bank will be unwilling to extend further credit and probably will change the structure of the outstanding amount into a “term loan.” This means the total amount is due on a monthly installment payment plan, leaving the company with their collateral spoken for and no ability to raise additional capital through alternative sources.

So the critical lessons here are, knowing when the company assets are being used as collateral and don’t get caught in a dead end where there is no access to badly needed working capital.

Google+

Tags: collateral, debt financing, loans, small business loans, working capital
Posted in Capital Access, Raising Capital | 3 Comments »

7 Ways To Be More Attractive To Lenders

October 12th, 2009 :: Gary Honig

It’s always said that access to funds is the life blood of any company. Going out and securing outside financing to help grow a business is an important step in the life of an emerging organization. Keep in mind, the process of commercial borrowing is best done in preparation for needing the capital, rather than when the request is made in a dire situation. Here are some necessary tips to keep in mind when preparing to seek a loan.

1. Bookkeeping – install accounting software so you can produce up to the moment financial reports including Balance Statement and Profit Loss Statement. These reports will give the Lender a snapshot of the current financial condition of the company. It also assures that you know enough about accounting to understand the internal cash flows.

2. Customer Credit – show you have a process in place to check the credit of all your customers. Learn how to avoid issuing credit for more than they are qualified. Sales to customers are what business is all about. Knowing the difference between a solid customer and a bad credit is crucial to long term stability.

3. Borrowing Amount – know how much capital the business requires to operate. Whatever the business does, whether provide a service or sell a product, you must be aware of the profit margin on these activities. You should have a solid business plan in place with budgets where you can determine the potential short fall and take precautions through financing.

4. Purpose – your business plan needs to be able to show a purpose for using the capital. This must be very specific. The more details you can provide on where the loaned money will be employed, the better the Lender can determine the viability of your plan. By admitting potential problems and offering contingency suggestions, your business plan will have added dimension.

5. Repayment – in the business plan, give a reasonable timeline for the repayment of the loan. Preparing cash flow performance will show the road map to ultimate success and profitability. Again, incorporating contingency budgets will help to mitigate potential risk.

6. Team – make sure the owners, managers have strong bio’s and thorough knowledge of the industry. The Lender must have confidence that the operators of the business plan can perform based on their experience.

7. Loan package – do your homework, and put all this together with your business plan into a binder so a lender can easily see who, what, where, how this company will deal with a loan. By being pro-active through the entire process you will become a more attractive prospective client to a Lender, and therefore will have some bargaining leverage with regards to the terms of the loan. It’s always a good idea to get involved with a professional to help you through the process. Google+

Tags: banking, loans, Raising Capital, small business loans
Posted in Capital Access, Raising Capital | No Comments »

Getting the Lowdown on ARC Loans – Bailout for Small Business

June 12th, 2009 :: Steven Fisher

About two months ago, I wrote about the Congress pushing the SBA to jump start loans again and President Obama allocated $15 billion of the initial TARP money ($700 billion) and it was dubbed the “Business Stabilization Loan Program”. The bill was passed and now we can report to you that it is ready for action.

It is now called the “America’s Recovery Capital (ARC) Loan Program” and the guidelines were released today. Entrepreneur magazine reported “”We are on target to issue the guidance and begin training, and have been reaching out to lenders regarding some of the specifics of that guidance. Guidance and forms are now available through www.sba.gov,” says Eric Zarnikow, associate administrator for Capital Access, the SBA department overseeing the ARC loan program. He added that borrowers can begin applying for these loans beginning June 15 the SBA, will be able to provide about 10,000 ARC loans to small businesses across the country, through its lenders.”

So what are the criteria for getting an ARC loan?

According to the SBA and Entrepreneur.com, “ARC loans will be up to $35,000 and available to established, viable, for-profit small businesses suffering “immediate financial hardship” in order to provide some temporary financial relief so they can keep their doors open and put their cash flow back on track. It is intended for businesses that need short-term help to make their principal and interest payments on existing qualifying debt (including conventional loans, credit card obligations, notes owed to suppliers and utilities).”

Another important element is that you must prove your ability to need it and the ability to repay it:

According to the SBA “businesses must provide three years of financial statements, cash flow projections based on reasonable growth over two years and demonstrated ability to meet current and future debt obligations, including future repayment of the ARC loan. Also, the borrower must certify that they are currently no more than 60 days past due on any loan paid with an ARC loan and they must have an acceptable business credit score as determined by SBA”

How do ARC loans work?
According to Entrepreneur.com “The loans are 100 percent guaranteed by the SBA and made by existing SBA 7(a) lenders. They have no SBA or lender fees associated with them (unless the lender must secure collateral as part of the loan). The disbursement period (up to six months) is followed by a 12- month deferral period with no repayment of principal. After the deferral period, the borrower pays back only the ARC loan principal over a five-year period. ARC loans are available through SBA-approved lenders as long as funding is available or through Sept. 30, 2010, whichever comes first, and cannot be used to make payments on another SBA-guaranteed loan, with the exceptions of loans made with an SBA guaranty after Feb. 17, 2009.”

One small downside – only 10,000 loans for 30 million businesses

Despite there being over 30 million small businesses in the U.S. and only 10,000 loans available, demand is expected to exceed supply. The SBA is limiting participation to 50 loans per week per lender and will accept a total of 1,000 loans per institution over the course of the program. It is understandable because it is not a handout and paperwork must be processed and track properly but only time shall tell if this is enough to get small businesses spending again at a large enough scale to break the cycle.

How could your small business benefit?

With the many billions of dollars being poured in to companies that the government says are “too big to fail”, this program recognizes that small businesses which are, according the Small Business Success Index, the core engine of innovation and job growth in the United States over the last 20 years, that they are just as important and for many small businesses, $35,000 could mean the difference in making it through some very tough times or closing their doors forever. When these small businesses can pay their bills usually to other small businesses, the “ship of capitalism” should start to right itself breaking a vicious cycle that occurs once an economic downturn starts to hit main street.

For more information about the program, visit www.sba.gov

Google+

Tags: ARC Loans, loans, SBA
Posted in Capital Access, Raising Capital, small business | 7 Comments »

Primer on Small Business Loan Types for Growing Your Business

May 15th, 2009 :: Steven Fisher

We all know that the credit markets are tough these days. The Small Business Success Index (SBSI) revealed that small business owners rate their efforts to raise capital at a “D+” grade. The last six months have been brutual for large and small businesses because of the credit freeze that occurred when the economic crisis reached its height in late 2008.

Reading Business Week today I came across the article “Snipping Credit Lines for Small Businesses” banks are according to bank executives “suspending lines of credit is certainly an efficient way to reduce the risk on a bank’s balance sheet”. Many companies are still getting credit and if you are out there you should understand exactly all types of loans that are available to your small business. Common loans that banks will offer to startup and small businesses are:

Working capital lines of credit — Used for day-to-day operations. Credit line offers are usually short-term, about 90 days, but can go up to several years with regular annual reviews. Interest rates are variable.
Credit cards — A revolving credit card can be a good cash management tool.
Equipment leasing — Banks usually require a history of operations before lending money for leasing, or leasing through a subsidiary company of the bank.
Letters of credit — The bank acts as an intermediary, promising to pay the seller if all conditions are met. Important for reducing risk for a business practicing international trade.

Small business loans can be used for most business purposes:

The purchase of real estate to house the business
Construction, renovation or leasehold improvements
To purchase furniture, fixtures, machinery, or equipment
For the flooring of inventory and for working capital.

Credit Sunrise has some excellent definitions of these small business loan types. So good in fact we captioned the section for you:

Operating Line

Operating loans are also called working capital loans, line of credit or overdraft protection. They are loans that fluctuates with the day-to-day cash flow needs of a business. The maximum amount you may borrow for an operating line is primarily based on accounts receivable. Cash businesses such as restaurants and retail stores generally do not qualify for an operating line. Inventory is not generally financed (but exceptions are made frequently)

Term Loan

A term loan is a loan that has monthly principal and interest payments. The outstanding principal amount decreases each month. Generally, term loans are established to assist in financing long term assets such as computers or equipment. The amortization period should closely match the useful life of the asset purchased (a term loan for computers should have an amortization period of not more than 3 years). Most term loans have an amortization period of 5 years or less (but there are exceptions).

SBA Loan (USA)

This is a loan where the Government partially guarantees repayment to the Bank. SBA loans are used when the business is slightly outside a Bank’s standard lending criteria. A business must qualify for financing through a bank (using regular banking guidelines) and gain further approval from the SBA prior receiving any money.

SBA’s 7(a): Used to assist most types of small business loans up to $1 million including: equipment, real estate, working capital or purchasing existing businesses. In most cases the SBA will guarantee no greater than 75% of loan value and a maximum amortization of 6 years. SBA loans are targeted at existing and growing businesses; it is difficult to finance a start up business through this product.

SBA’s MicroLoan: Targeted at very small and start up companies to purchase computers, equipment and materials required to launch a business. You may borrow up to $25,000 for up to 6 years. Interest rates do not exceed prime plus 4%.

SBA’s 504: Used to purchase real estate for businesses that are likely to increase the level of employment at the company. The guarantee value may be as high as 90% of the appraised value of the property.

SBA’s Fastrak Loan: Some large, national Banks are able to approve loans up to $100,000 without consulting the SBA. The SBA may guarantee up to 50% of the loan value.

SBL Loans (Canada) renamed CSBFL

These loans are similar to SBA loans in the United States where the Government provides a guarantee. Maximum loan value is $250,000 where the chartered Bank’s approve the loan without consulting a Government agency. These loans are targeted to both existing and start up businesses.

While the program is more flexible on paper we notice the following guidelines.

Uses of funds: To purchase computers, equipment or renovations (cannot finance working capital)

Repayment: Maximum 5 years (3 years for computers)

Personal guarantee signed by the owners: 25% of the loan value

Percentage of assets financed: Up to 90% of the asset value depending on the type of asset being purchased and strength of the business. It is rare for a restaurant to receive financing greater than 50% of the asset value.

Costs: 2% upfront fee to the Government, legal fees, and interest rates cannot exceed prime plus 3%.

Lease

The requirements for a lease are similar to a term loan as the risks to a financial institution as identical. There can be tax benefits applied to leasing. Leased goods are generally owned by the financial institution or a 3rd party. The amortization period should closely match the useful life of the asset purchased (a lease for computers should have an amortization period of not more than 3 years). The value placed on an asset varies depending on resale value and the type of asset leased.

Corporate Visa Expense Cards

Corporate Visa Expense cards are held under the name of the business for use by employees. A company should ensure that all authorized cardholders have a clean credit history. Typically, established companies have unsecured Visa cards where the assets of the company and personal net worth of the owners are pledged as security. Start up companies and companies with minimal assets should expect to secure the Visa cards through hard security such as cash.

Merchant Account

Merchant Visa risk applies to unsigned Visa drafts such as taking orders through the Internet or telephone. Risks occur to financial institutions due to fraud. Shop around, many Banks do not require security for Merchant Visa and many E-Commerce Internet sites have online applications for an account.

Mortgage

This is a term loan secured by a building on a piece of land. The maximum amortization period varies greatly between Banks – from 10 to 30 years. Your business must still meet standard lending criteria such as debt serviceability. In general, a business mortgage is more complicated and more expensive than your personal mortgage; many Banks will require you to pay for a full property appraisal, environmental audit, and legal fees in additional to regular Bank fees.

If you want to read more from them check out http://www.creditsunrise.com/types_ln.htm

As the economic situation improves, so will access to credit which will have a chain reaction on business of all sizes but especially small businesses. They will be able to hire more people, expand operations and start growing again. If you are on the market now for or will be in

DISCLAIMER: THIS ARTICLE DOES NOT GIVE FINANCIAL GUIDANCE. PLEASE CONSULT A FINANCIAL EXPERT BEFORE PURSUING ANY OF THESE FINANCIAL INSTRUMENTS. THE INFORMATION CONTAINED IN THIS ARTICLE MAY OR MAY NOT BE APPLICABLE TO YOU.

Google+

Tags: Capital Access, loans, Raising Capital, SBA
Posted in Raising Capital, Small Business Success Index | 29 Comments »

Interview with small business owner of BoatLoanWorld.com Ray Ruiz

April 16th, 2009 :: Mayra Ruiz

momdad2 Florida-based small business owner Ray Ruiz is the creator of boatloanworld.com, a bilingual web site dedicated to boat loans for yachts, catamarans, charters and houseboats. Ruiz created his boat loan web site from scratch, completely on his own and with no previous web development or design knowledge. While his boat loans business as an independent sales contractor for Intercoastal Financial Group, LLC had dried up significantly due to the recession, Ruiz has recently seen small signs of a mini comeback.

IF YOU LIKE THE INTERVIEW YOU ARE ABOUT TO READ, YOU WILL LOVE THIS:

At the end of this month, Grow Smart Business – a new Network Solutions blog, resource hub, and home to the Small Business Success Index – hosts its first webinar hosted by Network Solutions CEO, Roy Dunbar

Learn from the risks taken, lessons learned, and success attained from a great webinar panel. Join entrepreneurs and business leaders for this free, live webcast. And get a chance to learn from their experience in securing capital and deciding their approach to marketing.

When: Thursday, April 30 from 2-3pm ET,

To register: Visit http://growsmartbusiness.eventbrite.com.

Here is his story…

Q. Please tell us a bit about your boat loans business. When did you begin and how do you do what you do?
A. I started my boat loan business in June 1997 while working for Trader Publishing and visiting my client Intercoastal. The owner invited me to accept a sales position with them in a completely new field which, at that time, was completely unknown to me.

Q. How did you acquire the knowledge required for selling boat loans?
A. I took extensive training courses required for marine financing and learned all I could about Titling, Cost Guard Boat Documentation, Liens, Loan Reserves, Rates, Loan Fraud Prevention and of course sales. During the in-depth sales training, I was taught how to sell the various different programs available from different banks that Intercoastal represented and how to qualify lead providers as well as the actual clients.

Q. What were some of the challenges you faced after you completed all your required training?
A. As an independent contractor, I had to launch my own business and generate my own income which is challenging enough. Thankfully, Intercoastal did provide me with truly robust training in preparation for successfully generating boat and RV loan sales so I felt confident I had a solid knowledge base from which to launch my business. When Intercoastal felt I had learned all there was to know in the boat and RV loans arena, they basically told me “Hey, there’s the door! Now go and find us some clients!” That was a bit nerve wracking at first. Obviously, my initial clientele was zero. What motivated me was knowing that other boat loans sales professionals in the area were generating a sizeable, comfortable commission income. I was determined to reach those income levels as well.

Q. How were those first months after all your training?
A. Because of my bilingual capability in English and Spanish, I decided my best bet was to start working the territories of Miami and Ft. Lauderdale. I worked those territories very, very hard the first year. Little by little and over a period of about 18 months, folks finally started to respond. Soon clients were calling and deals were happening. It was tough at first because no one had ever heard of me but after people started to see me regularly, trust and credibility began to develop. Before I knew it, my phone was ringing off the hook. Folks knew if they worked with me, they would have someone who would tell them the truth and who would never try to swindle or impose unnecessary or unexpected fees. Additionally, I gave all referrals that came my way the red carpet treatment. Word spread and my client base grew.

Q. How did you create your bilingual web site? What was your process and approach? Who is your target?
A. When I created my website a couple of years ago, I had less than zero knowledge about how to construct anything online. I literally spent months reading scores of different websites about HTML programming and web design. I knew I would never end up building anything fancy simply because my design knowledge is limited, but I felt fairly confident I could at least build an extremely simple web site that could serve as a reference or helpful resource to those seeking boat and RV loans. In the end, I know what I have isn’t the best looking website in the world but it works well for me. Folks seeking boat loans do somehow find me on the web through that site and it has been a very helpful lead generating tool for me. I have been planning to upgrade it for a while now but clients and my various other side businesses don’t leave me much extra time to play with. One day soon I hope to be able to get my hands back on the site to improve it. We’ll see how long it will take me the second time around!

Q. You mentioned you offer, as a side service, English-to-Spanish translations. How did that get started and how is that going?
A. A local employer in my area got whiff via a referral that I could offer translation services. They had previously been using another translation service but that operation took much too long to turn projects around; often weeks in fact. I guess the organization’s management folks wanted to see if I, perhaps, could turn the translation work around more efficiently than the other service. They were pleasantly surprised when I was pumping things out left and right in no time! Since then, they punt a lot of translation work my way. I have been considering possibly expanding this service further but for now, this line of work keeps me quite busy and I really enjoy helping out and generating a small yet steady stream of revenue every month.

Q. What advice would you give to other small business owners today? What nuggets of wisdom can you share with others who are trying to maintain their business in these tough times?
A. I would recommend that anyone in business for themselves must absolutely take care of their existing clientele and treat them with kid gloves. Give them the royal treatment and they will respond and reward you. Retaining one customer is far more cost effective (and rewarding) than seeking out one new customer. My clients have, over time, sent me countless of referrals…so many, in fact, I hardly have to leave my home office to visit my territories in search of new business. Of course, I do go out to visit clients once in a while to maintain some face to face contact which is always a pleasure because many of my clients have actually become good friends. Bottom line: Caress the hands that feed you and you’ll have them eating from the palm of your own hands!

Google+

Tags: bilingual, boatloanworld, intercoastal, loans, Ray Ruiz, small business
Posted in Entrepreneurs, Interviews, small business | 23 Comments »