Business Finance Misinformation and Confusion

Confusion about commercial loans and working capital financing seems to be increasing despite efforts by the federal government and commercial lenders to suggest that there is ample business loan funding. As a result, the actual availability of business financing for commercial finance programs such as commercial mortgages and business cash advances is unclear to most business owners.

It seems apparent that there have been many reports suggesting that normal commercial finance channels are either frozen or extremely sluggish. In reality there are probably more opportunities for commercial loan needs than suggested by such reports. However, increasing uncertainties in financial and credit markets have produced conflicting and misleading information about the availability of commercial financing. For most business owners, it is probably not clear if business finance funding is realistically available to them or not.

In spite of some admittedly bad news, there continue to be to reliable funding sources for commercial real estate loans, working capital loans and especially for business cash advances. At the same time, the current negative economic conditions will prove to be difficult for most businesses. Commercial borrowers should expect that extra efforts will be required to successfully arrange commercial financing. An especially harsh reality for business financing is that many banks have discontinued all or most of their business lending activities, often with very little advance notice.

One common example of commercial finance misinformation distorting what is actually feasible is that some kinds of commercial financing have been more disrupted than others by recent events. Commercial borrowers might be unnecessarily confused by reports that do not refer to all commercial loan situations but rather primarily apply to a very specialized form of business financing. For example, by most accounts commercial construction loans are in short supply currently. Such specialized business loans are not as easily available as they were just a few months ago, and a more accurate accounting would reflect that the number of commercial lenders currently active in construction financing has shrunk dramatically. At the same time, most commercial real estate loans without new construction have not been as severely impacted as funding requests which do involve construction financing.

Several publications have reported that most new business financing requests are on hold or have simply been rejected due to recent financial market uncertainties, and this is another example of how business finance funding reports might confuse small business owners. While the sources for this information might have been honestly told by one or more lending institutions that they are in fact deferring new commercial loan funding, this does not mean that is the case for the entire country. If the discussion involved automobile sales, it would be comparable to concluding that nobody is selling cars anywhere after learning that several major dealers and two manufacturers announced that they were going out of business due to lack of adequate sales. Just because one or more banks fail or stop making business loans, it does not mean that there are not commercial loans available from other sources.

Commercial borrowers would be wise to maintain a cautious perspective in determining how to refinance or obtain small business loans simply because the banking industry has been involved in financial disruptions of an epic proportion. Many banks are sounding and acting like they have been through the equivalent of a train wreck. In such a natural disaster, it might not be prudent for business owners to seek the advice of banks which effectively caused the train to derail in the first place.

Despite reports about limited availability of business financing, some commercial lending activities such as business cash advance programs are actually as active as they have ever been. In the current commercial funding crisis, small business owners should seek a commercial loans expert for a realistic assessment and candid discussion about working capital loans and business finance programs.

Financing the Purchase of a Small Business

If only I was paid a dime for every buyer that has came to me thinking they can finance a business with no money down. The truth is and this has absolutely nothing to do with the current financial crisis. You cannot finance a business with no money down. Now before the emails start filling my mailbox up with exceptions please let me explain myself.

Financing a small business requires one of these 2 options: A down payment from the buyer and seller financing for the balance, or a 100% purchase by the buyer with no seller financing. Let’s discuss them in more detail.

Down Payment & Seller Financing:

No seller in their right mind will sell a business without some form of down payment. The buyer must have an equity investment into the business for the seller to feel comfortable financing the balance and more importantly turning the business over to a new owner. Without this equity, the buyer has no exposure and could simply walk away at any time.

The typical down payment on a small business with seller financing will completely vary from deal to deal. The motivation of the seller will play a huge roll in this equation. One seller may accept 20%, another can be as high as 80%. Typically sellers would like to see the down payment close to 50%.

Terms of the Seller Financing Note:

Negotiate with the seller financing so that you are 100% comfortable in being able to cover the debt service out off the income from the business. A good place to start would be to look at a seller note amortized over 5 years (60 months) at 6 or 7% interest. (Use a mortgage calculator or auto calculator at Bankrate.com to calculate the payment) On larger transactions, the financing can spread over possibly 10 years with a balloon payment due in 5 years. A balloon payment means you will be required to pay the balance off on the last payment.

So now that we know a down payment will be required, where and how do we get the money? There are several sources from personal savings, family, friends, private investors, and banks.

Bank financing the down payment or 100% of the Purchase:

If you decide to use a bank for your financing method on the down payment there are a couple key facts to understand. Today banks are requiring buyers to put down a minimum of 15 – 20% down payment. This is money you must come up with to get the loan. In addition, you will need to have experience in the industry or least management experience and a good credit score to even qualify for the loan. Yes, that’s right. You will need to have a good credit score. Next, they will take a very close look at 3 years financial history on the business. If the business does not have strong financial tax records then you need to be considering a personal loan from the bank because a business loan is out of the question.

Personal Loan:

If you have good credit you may be able to qualify for a personal loan from the bank to use as the down payment or purchase. You may have a home you can refinance, a CD to borrow against, or another asset that can help secure the loan.

The Common Misconception from Bankers:

It is very common for bankers that do not specialize in SBA loans to unfortunately mislead buyers into believing they can easily give them a loan. It is not the bankers fault in this; they are just trying to bring in new business to the bank. The truth is very few bankers know anything about buying or financing a business. In my opinion, they just bring the new application in, process the loan and it’s the team of underwriters behind the scene that are the decision makers and who have the restrictions set in place. The best way to find a qualified SBA loan broker is to contact your local Business Broker and ask for their opinion. Business Brokers are an excellent resource for financing.

3 Bank Qualifications Needed for a Small Business Loan:

1. Experience
2. Cash Down Payment 15%-20%
3. 3 years profitable financial history on the business

Negotiate and Make the Deal Work:

Now that you understand the financing structure required to buy a business, contact a local business broker and search for a business for sale that fits your requirements. Once you find that perfect business, have the broker negotiate the financing terms for you with the owner. Remember the Broker has every incentive to get the deal done and they will go to great lengths to make the pricing and terms work.

Financing a Small Business – What Alternatives Are There to Finance Your Business?

A lot of reasons exist why you should not only get into business, but also endure in business. You may want to take any of these decisions because of the love of a particular business, because of a need to do so, because you are bound to continue from where someone stopped or because you simply have a feeling to do so. In almost every country of the world, people are looking at the business sector as one of the bests. There are always statistics of these found in all countries. For example, the United States Department of Labor produces statistics which indicate that for almost the first three quarters of last year, unemployment was very high and a lot of people resorted to doing business.

There is no need to trouble yourself on the way your business is going to look like. All that is necessary for you to do is to develop a plan and seek for any of the so many options of securing finance for the business. The following lines are meant to encourage those coming into business and even those already in business to seek for means of financing their businesses:

Loans

This type of finance for a business is common all over the world and it can easily be gotten. In some cases, there is often a belief the loans can easily be gotten by everyone who applies for it. This may be true or false. It all depends on your business plan, the lending policy of the bank and the type and value of security you have. What makes this source of finance much considered is that interest rates on the loans are also reasonable. It should be warned that you should not get into taken of loans without seeking for proper recommendations from experts. Remember that it is always good to know the ins and outs of every type of loan ahead of getting into it.

Angel Financing

This is also another common source of finance that is common among new businesses and even those that are already in existence. What obtains here is that there are so many people who have the willingness and ability to pump finance into any business which have potentials to grow. Angel financing can be a family type. This will involve members of the same family pulling their resources together and investing it to develop a business plan. This is good but not preferable because of the close ties that the members may attach to each other, which may not be best for the health of a business. Angel financing can also be an affiliation angel. This will involve an association of friends willing to see a business plan from conception to completion. Another strand of angel financing is idea angel. These are financiers who are involved at the conception and actual progress of the business. Whatever the form of angel financing that you may opt for, you must get into the set of connections that these angels operate before you can benefit from financing.

Equity Financing

This involves raising money for the business by using what the business owns and can give out to the public. There are individuals willing to pay for equity in the business and even take part in the running of the business. Although this type of financing is common, it may not be available to every type of business. This is the more reason why every business owner must always carry out enough research in order to get the appropriate financing for his or her business.

Automobile Financing – Finding the Best Rates

Automobile financing can be complicated when you do not know where to look. There are so many options and you want something that is affordable. You can spend a great deal of time looking for affordable financing, simply because you are not looking in the right places. That is why you need to go to the best places to find your automobile financing.

First, never get your financing from the dealership. Dealership use inflated rates and put confusing words in their agreements so you think you are going to get a better deal than you actually are. You will almost never get the kind of financing you want at a dealership unless they are offering 0% financing. Remember, though, that you will have to repay the loan in three years in order for that to work.

You really want to look outside the dealership for financing. You will be able to get better terms, which will make the vehicle much more affordable.

Your bank or credit union is a good place to start for vehicle financing. Often, you will be able to get great rates through your own financial institution. On top of that, they can automatically deduct your payments so you will never be late on a payment.

When you choose your bank, it is easy to get a prime rate. That means you will save a great deal on interest.

If you are not pleased with the rate offered by your bank, you can then go on the internet and browse financing options. Your best bet is to use a site that offers comparisons. You can then search for the lowest interest rate.

When you do this, make sure you read all the fine print in the agreement. Also, go with a reputable financing company. If you have not heard of them, they might not be the company you want to go with.

At the same time, there are several quality lenders you can find online. When you use one of them, you are likely to get a great rate. Therefore, you want to use the internet to shop for a rate.

There are quite a few financing options available, so you do not want to go with one that is not a good deal. Take the time to look around so you can get good financing. It might take some time to find the financing you want, but it is well worth the time and effort once you find that perfect loan.

Just keep in mind you want to be careful when it comes to financing. Always read the fine print and do not get locked into an agreement that is not fair. Analyze the agreement and be sure you completely understand it before committing to financing.

With that in mind, you can start to shop for financing. You are certain to find some great rates if you keep your eyes open. Simply look around at all available options and pick the one that is best for you. You will then save money and have a loan you are happy with.

Startup Financing For Small Businesses

Startup financing for small business is necessary and hard to acquire. Financing the startup of a business is a particular challenge during tough economic times, as small business startups need money when money for starting up is hard to find. During these challenging economic times, it is difficult to obtain startup financing from traditional business financing sources; particularly for small businesses, which are considered a high risk for business failure.

However, fueled by a growing unemployment issue (caused by shrinking businesses and lay-offs), individuals are following their dreams and opening a small business. If their business idea is perceived to be very strong and if they have a unique product or service with a good strategic plan, they might be able to get traditional business start up loans. If there is a perception of risk, those entrepreneurs need to find an alternative method of raising startup funds.

Traditional business financing includes commercial lending organizations, banks and government financial programs. These organizations provide loan products, operating lines of credit, equipment leasing and asset financing, and more. But, due to current global financial market conditions, it can be challenging to qualify for this startup financing (lending criteria has tightened as most traditional lending institutions want a high level of security and low risk) and it can also be challenging to get cash-strapped lending institutions to disperse business start up loans, asset financing, or operating funds promised.

One alternative to traditional financing is to see if you can interest an Angel investor in providing an investment in your business. Angel investors typically charge higher interest rates and are in for a short term period; they want an exit strategy within a specified period of time (therefore they will want their money back, with interest, quickly). Angel investors are often interested in the high tech or biotech industries; or other high reward (and also high risk) industries. To attract Angel investors, your business needs to have strong and fast growth potential, a talented management team, a compelling business plan, and well priced equity. Angel investors usually look for up to 50 percent equity in the business; this is really dependent on the business proposal and the investment amount. You typically give up some control when you develop a relationship with an angel investor.

Another alternative is to find a strategic partner or to build a strategic alliance that allows your business to reduce its cash and/or startup financing needs. This also means a loss of control over the business; and partnerships can end up like marriages, in divorce. Yet another alternative startup financing is bootstrapping. Bootstrapping is financing a business startup or business growth through non-traditional methods. Bootstrapping is about raising funds (for example, to start a new business), without startup capital. If you plan to startup a business that has a significant investment in capital equipment, consider asset financing. Asset financing will provide a loan for equipment that you buy to operate your business.

For new business owners, that might mean working several jobs to raise cash. Or revising your plan to start your business with less money, or fewer products or services. Consider leasing furniture, computers, sharing office space and administration staff. Make sure you carefully consider your cash flow needs and do a cash flow projection for at least a two-year period. Cash flow management is a way of reducing startup financing needs; effectively manage your cash flow by managing receivables, payables, inventory, and short term debt (in other words, increase incoming cash and reduce outgoing cash).

Some other non-traditional business financing methods might include:

use of credit cards;
second mortgages on the entrepreneur’s home;
equity loans, secured by personal assets; loans from key suppliers;
partial pre-payments or progress payments from large customers;
and/or loans from family, friends and associates.

For small business owners, obtaining the financing to startup your business or to keep it operating is usually a challenging experience. Before you borrow the money you need for startup, ensure that your business can support that level of debt and can repay on the lender’s debt schedule. You need to have a strong business plan and be able to present a strong business case to your lenders.

Financial lenders will assess your knowledge, your capability, and your business proposal. You will likely have to put up personal guarantees for the money you need; this means you have to have assets to back up your guarantees. Unfortunately, not all prospective business owners have the credit rating to qualify with their lending institutions. Business financing and business start up loans are serious endeavors. You will owe a lot of money and if your business doesn’t succeed, your money and your lenders’ or investors’ money will be gone.