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Small Businesses – Where Can You Find Financing?
America is a country that has become an economic superpower simply because of its entrepreneurial spirit. The backbone of our economic might is not huge companies like Walmart, Google and the like. No, our strength is found in the millions of smaller businesses found in every town.
Unfortunately, small businesses don’t have much lobbying power. Given this, we are often pushed aside in favor of help being provided to huge companies. Notwithstanding this, there are financing options available to small businesses. Let’s take a look at the possible areas where funding can be found.
VC or venture capitalists and angel investors – Among these two, angel investors are more likely to invest in a small business as they are willing to take on more risk. They will invest in such a way that they have a vested interest for about 5 years or so. Though an angel investor can be a great boon, it can be hard to find one these days. Venture capitalists are a lot choosier about where they invest. They usually invest very large amounts in high growth businesses and wish to pull out in a shorter time frame, say 3-5 years. The other drawback to venture capitalists is that they will often interfere with the operations of the business by trying to make changes to business strategies.
Commercial banks – These are still the best bet for many small businesses. They will usually have a long application process that will go through a detailed review. It is almost inevitable for a small business owner to go through a few rejections before finding a bank that will lend him the money. Banks are approached for loans when the loan amount in typically less than $100,000. Both business credit history and personal credit history will be taken into consideration by banks that will review the loan application process.
Small Business Administration or the SBA – When a business owner gets turned down by several banks, he or she may approach the SBA, a government funded entity, that will provide a guaranty that will help them get a loan. Many banks work in tandem with the SBA and your chances of getting a loan approved will greatly increase when you have a SBA guaranty in your hands. One would have to go through a review process with an application to get the SBA guaranty as well. The SBA will usually guaranty 75% to 80% of the loan amount that is sought by the business owner.
Less attractive options for a business owner that might be a last resort are home equity loans, credit cards and equipment leasing options. These are less attractive simply because the cost of financing is a lot more than the traditional sources mentioned earlier and one is personally on the line for the debt.
I’m not going to lie to you. Financing a small business is not the easiest thing in the world. That being said, there are people on your side. Despite it being a government funded agency, the SBA can be a real help when it comes to financing issues. Hey, a government agency that actually helps you!
SBA Loans and Small Business Financing Alternatives for 2011
Managing a business is never easy, but it’s made more difficult when confronted with an uneven cash flow stream. Managing cash flow is a going concern for all businesses, regardless of size. Financing customer receivables is not only a cost in itself, but a tremendous drain on a company’s resources when they must meet their day to day operating expenses. So, what’s the solution? Well, business loans and credit lines are becoming less and less of an option as banks and lending institutions tighten credit limits and lending practices in response to the global recession. However, there is a solution and it comes in the form of receivables factoring. What is receivables factoring and how can it help businesses manage cash flow?
Receivables factoring simply involves a company selling its outstanding customer invoices, or receivables, to a finance company in return for the right to draw upon the receivables outstanding amount. In a sense, it’s a short term business loan without the added headache of high interest rates. In return, the finance company will proceed to collect on the invoice from the customer. Once the full amount is collected, the finance company will reimburse the company the difference and deduct a small fee for the transaction.
Payouts for receivables factoring depends upon the credit worthiness of the customer, their market or industry and the general likelihood that the finance company will be able to collect. Typically, initial payouts are anywhere from 75% to 85% of the receivables value. Aside from the fact that there are little to no interest rates charged, the overall benefit for business owners is ease of use. Factoring has been adopted by a number of industries in response to customers who have typically benefited from extended payment terms. Companies that use factoring have excellent bottom lines, are well managed and market leaders, but suffer from issues with customer payments. A perfect example would be the housing construction industry where construction requires a significant financial outlay with little opportunity to recoup that investment until the property itself is sold.
Companies that have significant assets tied up in their receivables can turn those receivables into immediate cash. Finance companies are flexible in options and provide their customers with the benefits of using recourse & non-recourse factoring. Recourse factoring allows the company selling the receivables to secure a higher initial payout provided they guarantee the finance company is paid on the invoice. Non-recourse has a lower initial payout but allows the company to avoid any guarantees relating to invoice payout. Overall, factoring & accounts receivable financing is becoming a more viable option for business owners looking to avoid the high costs of business credit lines and loans. It is not an indication of a company’s overall health, but merely a solution to short term cash flow issues.
Small Business Finance
Raising capital is a basic need for all businesses. It is not always easy. Small business financial planning is crucial. Lack of funding is often the reason many businesses never get off the ground and the reason most business fail. It is not easy to find a small business start up loan. There are several sources for a small business loan and you should consider all options.
Personal Savings: Most often start-up funds come from ones own savings.
Friends/Relatives: Many people approach friends and relatives with their business ideas in hopes of gaining investors. Some choose this option over the bank because often the loan is repaid without interest of at a very low interest rate.
Banks: The most common source for capital is a bank. You must prove to the lender that your business is viable and well thought-out. If you are unprepared the lender will consider you a high risk and deny your small business start-up loan. You should know exactly how much you need. Explain why you need it and how you will repay it. You’ll want to convince the lender that you are a good credit risk.
Venture Capital: You will gain the funding you need from a venture capital firm in exchange for equity or part ownership. Your business plan must demonstrate your ability to make the business work. You can learn about the venture capital industry and find regional organizations at the National Venture Capital Association.
You must accurately estimate your business costs for up to the first year. First, identify all expenses required for start-up. Some are one time fees and others will be ongoing fees like utilities and inventory. Next, determine which are essential versus optional. You should only include those that are necessary for start-up. Those essential expenses can then be divided into two categories. You’ll encounter these terms over and over again, they are Fixed Costs and Variable Costs. Fixed costs include insurance, utilities, rent and administrative expenses. Variable costs are things like inventory and shipping expenses. Know your fixed and variable costs well.
Use a worksheet to list all your costs and help you estimate your total need for start-up. That’s good small business financial planning. Find more tips at http://www.smart-moms-online.com/
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Small Business Finance – Advice for When the Money Is Rolling In
Today, more small business CEO’s who have been hit with financial challenges are applying personal finance basics to the business arena. Here are five money management habits to apply in business and personal finance.
Don’t Overextend Finances
In business this can show up in the form of excess inventory, high labor costs, and assets that are not being utilized for good returns. Small business owners may find hidden costs by reviewing bank statements regularly and monitoring investment portfolios for those that are doing poorly.
Know the Breaking Point
The breaking point is where you begin to veer off course. For some this means a constantly overdrawn bank balance or others experience creditor harassment. Instead of paying down debt, you might avoiding making payments until more money arrives. Other signs to watch are a high debt-to-income ratio, consistent business losses, and warnings from your money manager that its time to increase income or forego the lifestyle you desire.
Identify Your Money Personality
In order to manage money well, it’s best to have an idea of what works best for you. This starts with being aware of your unique attitudes, thoughts, and behaviors toward money. For example, some people have the discipline to manage finances responsibly while others tend to fall off the deep end of the spectrum requiring constant monitoring and accountability to keep them in check. Then there are people who are responsible but fall off from time to time. Your behavior may be someplace in between.
Get Competent People to Help Manage Finances
There are many ways to get help with money. To start, seek the assistance of an accountant or money manager, who will prepare forecasts of cash flows. Financial advisors are another source because they provide investment advice to keep liquid cash working to build wealth. Additionally, if you are comfortable with keeping watch over your money on your own, consider financial tools that simplify the process. Some resources to help manage and reach your financial goals are ING Financial Services and Microsoft Money.
Analyze Your Investments
Pay attention to where and how well money is performing. Ask questions to help you understand the financial side of business. What type of investments do you have? What returns are they bringing you? How much have you gained/loss so far? At what point will you get out?
When you really think about it, although the language in business and personal finance is different, the basics are pretty much the same. Which of these strategies will you put in action?
Small Business Finance – The Next Big Banking Problem?
For the past year, most banks and lenders have been subject to both disastrous operating results and negative publicity. Actual commercial lending activity reported by banks conflicts with the usual attempt by politicians and bankers to portray banks as normal and healthy. Most bank financial results have been disappointing after working hard to solve massive residential loan problems. It is reasonable to ask if commercial banking has more potential disasters about to emerge based on what has been seen and reported so far.
Based on a number of business financing statistics, commercial lending to small businesses is already on life support. In many cases, without government bailouts many commercial banks would have already failed. As bad as that perspective might sound, this report will provide an even more negative outlook for the future of small business finance programs. Unfortunately for banks and lenders, it does appear that business loans will be the next big problem.
During the past year or so, several banking problems have received significant publicity. The largely avoidable difficulties were primarily tied to increasing home foreclosures which in turn caused various investments tied to home loans to decrease in value. Such investments lost value so rapidly that they became known as toxic assets. When banks stopped making many loans (including small business financing), the federal government provided bailout funding to many banks to enable them to keep operating. While most observers would argue that the bailouts were made with the implicit understanding that bank lending would resume in some normal fashion, the banks seem to be hoarding these taxpayer-provided funds for a rainy day. By almost any objective standard, commercial lending activities have all but abandoned small business finance needs.
Small business financing appears to already look like the next big problem based on commercial finance statistics recently released by many banks. The general decline in commercial real estate values during the past several years is a major factor in this conclusion. Because many large commercial real estate owners could not make their commercial mortgage loan payments or refinance business debt, this has resulted in some significant bankruptcies. The resulting bank losses are clearly having an impact now on commercial lending to small business owners even though these difficulties were primarily happening with large real estate owners and did not usually involve small businesses.
Bank losses on large commercial real estate loans have caused many banks to reduce or stop their small business financing activities, and this has clear similarities to the earlier situation of residential mortgage loan toxic assets causing banks to stop normal lending because of capital shortages. The bank losses from large commercial property investors are producing a ripple effect that has caused small business financing to effectively disappear until further notice. While small business owners did not cause this problem, they are suffering the immediate consequences when banks are unable or unwilling to provide normal levels of commercial financing to them. This bad situation is made even worse when we learn that many banks are hoarding cash and approving fewer commercial loans to allow them to quickly pay bailout funds back to the federal government. The primary logic for this approach is that it will allow banks to resume excessive bonuses and compensation to their executives.
Unfortunately one problem will lead to another, as is common with complex circumstances. The failure to obtain normal business financing will most likely lead to an increasing number of commercial loan defaults by small businesses. Prudent business owners should begin to take action now in a timely manner to avoid such negative consequences. The most serious small business finance problems can be anticipated and avoided with appropriate action.
Even if they do nothing else, business owners should have a straightforward conversation with a small business finance expert to assess how exposed their business might be to the brewing commercial banking problems. If recent events are any indication, the banks themselves will not be very forthcoming about problems with their commercial lending practices. For many small businesses, the most objective business financing expert is not likely to be their current banker. To increase the chances that they receive sufficient small business loans in the face of ongoing lending problems, a healthy amount of skepticism and caution will be helpful for business owners.
Small Business Financing – Equipment Leasing Basics
As a business owner you are probably well aware of how tough it is to get a bank to lend money these days. Unless you really don’t need to borrow any, then they are willing to extend all the credit you don’t really need. Here is a possible solution for you to save your existing credit lines and working capital until you absolutely have to use them.
Have you ever thought about leasing your next equipment acquisition?
Equipment leasing can be an excellent tool for a small business to stretch their monthly budget. Leasing offers you 100% financing, even soft costs, such as: installation, training, and even an extended warranty. It improves your cash flow. 8 out of 10 businesses already utilize this type of financing already. And the biggest asset to leasing is that it will preserve your existing lines of credit.
You will be able to conserve your cash. With leasing there is no need for large cash outlays, as is required when purchasing. There will be no depleting of your working capital. Plus there are many tax benefits to leasing equipment you use in your business everyday.
Almost anything that your business needs in its day to day operations can be obtained through leasing. You will have the option of deferring payments for different lengths of time. You can defer in the beginning for up to 90 days, or maybe your business is seasonal and when your equipment does not provide any income during a certain time of year, then you can exclude payments for that period of time until your equipment begins to create income again.
This is also perfect for machines that take some time to start to provide income, such as: medical lasers. The laser treatments you provide using this piece of equipment can take some time after billing insurance to get paid. This delay in payment can be offset by using a 90 day deferred payment option. After you have had the laser for the 3 months income will finally start to come in, and this in turn will pay for itself with very little out of pocket expenditure.
To begin the process of leasing you can find a reputable leasing company to handle the process and build a solid relationship with. Because once you see how easy and economical equipment leasing can be, you will be hooked. The ability to write off most of the cost of your leases will save you greatly on your annual income tax bill.
You can also inquire about leasing as an option with the vendor of the equipment you are looking to purchase. Most vendors already have a leasing company or two that they can recommend if they do not provide the service themselves.
This is the most important thing to remember about how to decide whether or not leasing is right for the equipment acquisition you currently have in mind.
The value of your equipment and technology comes from using it, not owning it. When acquiring assets the best rule to remember is to own assets that appreciate and to lease assets that depreciate. Also remember that you can buy your leased asset at the end of the lease for as little as $1.00. Couple that with your tax benefits and your very low initial out of pocket outlays and the total benefits will help pay for itself many times over.