Business Loans

Typically and in most instances the banks have only one plan. Foreclose, take possession and liquidate by auction. They have few options or alternatives. It is expensive as lawyers, auctioneers, advertising, insurance, storage, etc. must all be paid while liquidating, which of course reduces the net gain to the bank from the process.

They can do little else. Of course coupled with this may be the liquidation of inventories, the sweeping of bank accounts, the collection of remaining accounts receivable and eventually moving onto the liquidation of personal assets such as your home under your personal guaranty. But it is most always liquidation by foreclosure auction.

There is one additional option, which while usually played poorly by the banks, occasionally works out. The borrower in default must be aware of this option: selling the business to another buyer.

Yes, recently the bank asked the borrower in default to continue to run the business, unhindered, while the bank searched for a buyer. The bank sought out assistance from a number of business brokers, and actually reached out to their own bank network of possible buyers searching for a buyer.

In this particular example, the bank found a buyer making a very reasonable offer reducing the losses to both the bank and the borrower.

Is this good or bad for the defaulting borrower? It is hard to say. It is good as it does reduce the shortfall owed. It is bad as it remove the opportunity for a life saving workout, which preserves the assets and provides a workout opportunity for the defaulting borrower. Typically in a foreclosure situation, the bank may be willing to work out a resolution which allows the business to continue in some form. If the bank attracts a sale, the debt is reduced and this option ends.

It is just something to be aware of.

Author: Don Todrin
Article Source: EzineArticles.com
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(Note: the author is not an attorney, and this article should not be construed as legal advice. Readers are strongly encourage to speak with a qualified attorney for all legal matters)

Quite often, we get calls from borrowers in a panic. They got a letter from the banks lawyer, and the bank is seeking a personal judgment against them. People don’t always know exactly what that means, but they know it ain’t good.

While we are not attorneys, we have seen enough personal judgments to have a firm understanding of what a judgment means and what borrowers stand to lose personally, so here’s the deal:

When a personal judgment is granted against you, what’s basically happened is that your bank went to court with all the loan documents that you signed and say “Hey judge, Mr. Smith promised to make payments according to the terms listed on this piece of paper. He has violated the terms of our agreement, and we would like you to give us permission to take his stuff and sell it so we can get our money back.” At that point, the court will give you the chance to respond to the banks allegations. If for example, they got the wrong guy, or you never actually signed the documents, you could go to court and tell them that the banks allegations are false. In most cases, borrowers never respond, and the court will grant a default judgment, meaning no defense was put forth so the judgment was granted.

Now that the bank gets its judgment, they have the legal right to go after your personal property and earning. Typically, the most popular asset that a bank will try to go after is your home. Even though it probably won’t result in a foreclosure, the idea of a judgment lien is to attach it to a property. If the owner ever tries to sell the property, ownership cannot be legally transferred without the judgment lien being satisfied. The whole idea is that the property owner can’t skip out on a debt, then walk away from the sale of a home with cash.

Another way that a lender can enforce a lien is through wage garnishment. If a lender knows that a borrower has a job, they can seek to get payments taken out of the borrower’s paycheck.

While a judgment may not result in losing property, it is likely to show up on your personal credit report. That means any time you apply for credit in the future, potential lenders will see that you borrowed money from another lender and didn’t pay it back. For most lenders, this means an automatic decline.

Overall, it’s always a smart idea to try and settle with your lender so they don’t resort to a judgment. If you are willing to cooperate with a lender, they won’t seek a judgment against you unless a deal can’t be worked out. Working with a firm like Distressed loan Advisors can help you settle the debt and avoid a judgment.

Author: Jason Tees
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Currently we are seeing decline rates at, literally 90%, from banks here in Michigan. Meaning that 90% of all commercial loan request that come in the banks doors are being turned down. 50% – 60% of these potential commercial mortgages probably make sense from a traditional underwriting perspective, but the banks are not willing to take the chance as loses continue to rack up and take their toll. Several nationally and smaller local banks have simply stopped quoting rates and will not accept new loan submissions altogether. One particular bank here told all of their commercial loan officers that the bank will not close a single commercial mortgage in 2008 – like it or not.

Borrowers need for commercial mortgages have obviously not gone away either and probably has increased as business look for ways to consolidate debt, launch new marketing programs, etc in an effort to make it through the current “cycle”. Business owners are definitely starting to feel the pinch and are looking at all option that might have not been considered just a few months ago. All in all borrowers are relearning the age old “golden rule” that has seemed to be gone for many years – that is “he who has the gold, makes the rules.”

The SBA commercial mortgage programs might be the answer for many business owners. Because the government guarantees a large portion of the loan it becomes a much safer loan for the bank. For example, on the 504 SBA program the government essentially guarantees 40% of the loan so the bank’s loan to value is at a very conservative 50% (the borrower puts in 10%). On the SBA 7a program, Uncle Sam essentially guarantees 75% of the loan amount, making this a solid option for the lender as well.

However, from the borrower’s perspective these loans are not perfect. One of the biggest criticisms is the lack of refinance options. Businesses have to be in a mortgage that is roughly 2% above market to qualify for a refinance and any cash out portions are heavily controlled. In addition the 504 program only allows purchase transactions so the borrower normally has to “swallow” the 7a terms or might have to get on without the refinance.

The 7a program has been shunned by many for 2 main reasons 1. The guarantee fee, paid to the SBA (out of loan proceeds) is expensive at 2.75% of 75% of the total the loan balance and 2. That the rate floats over prime, adjusting once per quarter. The floating component, which can be a very scary proposition for most business owners, has been the biggest issue.

It pays though to be informed. Not all SBA lenders are the same. For example we work with 2 banks that allow 7a refinances up to 90% loan to value and lock the rate for 5 years and the bank absorbs the 2.75% guarantee fee… Making this one of the strongest programs in the nation.

The SBA program will likely remain the shelter of the commercial mortgage industry as Wall Street goes through the restructuring of the CMBS and CDO markets, which, no doubt will be painful for all involved.

Author: Jeff S Rauth
Article Source: EzineArticles.com
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Commercial loan borrowers are likely to feel that a traditional bank is their best source for commercial financing. However, because most traditional banks focus on a small number of established industries, non-traditional (non-bank) and non-local commercial lenders should be considered for most commercial loan situations. Therefore the recommended commercial loan strategy is to "Think Outside the Bank".

There are several commercial loan situations that commercial borrowers will frequently find that non-traditional commercial lenders are better positioned to provide terms that are more advantageous to the commercial borrower: (1) Business cash advance and credit card loan programs; (2) commercial mortgage loans; and (3) credit card processing programs. In some cases a traditional bank will offer to provide a commercial loan but will attach excessively stringent terms and covenants. In other cases a traditional bank will decline the commercial loan outright, perhaps because they do not even provide commercial financing to the commercial borrower’s particular industry. In either case, the commercial borrower is likely to benefit by "Thinking Outside the Bank".

COMMERCIAL LOAN EXAMPLE ONE – THINK OUTSIDE THE BANK
Business Cash Advance and Credit Card Loan Programs

Most businesses that accept credit cards in their business will qualify for a business cash advance with their credit card receivables. Traditional banks will typically be very poor candidates to consider if a business needs assistance with a credit card loan and business cash advances. Because even thriving businesses frequently need more cash than they can borrow from a bank, it can be of critical importance for a business to "Think Outside the Bank" and locate non-traditional lenders to assist with this business financing need.

COMMERCIAL LOAN EXAMPLE TWO – THINK OUTSIDE THE BANK
Commercial Mortgage Loans

Two of the most common commercial loan difficulties experienced by commercial borrowers can be avoided if they "Think Outside the Bank". The first commercial loan situation is the practice of traditional banks to avoid most special purpose properties (such as funeral homes and churches). The second commercial loan situation is the common practice of most commercial banks to attach balloon and/or recall provisions to their commercial loans (which means that the bank can require early repayment of the commercial loan under various conditions). Both of these undesirable commercial loan situations can usually and easily be avoided by considering a non-traditional and non-bank lender.

COMMERCIAL LOAN EXAMPLE THREE – THINK OUTSIDE THE BANK
Credit Card Processing Programs

The choice of an appropriate credit card processing service can be instrumental in improving the profitability of businesses with a high volume of credit card activity. The analysis of credit card processing providers can be effectively combined with the credit card factoring and credit card loan process described above. In assessing a business cash advance program, it is frequently possible to simultaneously arrange for a substantial improvement in the merchant’s credit card processing program. Because traditional banks are usually not competitive in providing assistance with credit card factoring, it is equally likely that a non-traditional lender will be the primary source of effective and competitive help with credit card processing.

A closing commercial loan thought: I have written an earlier commercial loan article about commercial lenders to avoid. It should be noted that there are in fact both traditional and non-traditional (non-bank) lenders which should be avoided. So when commercial borrowers "Think Outside the Bank", it is still of critical importance that they are prepared to avoid a wide variety of problematic non-traditional commercial lenders in their search for viable commercial financing, especially when it involves business cash advance (credit card loan and credit card factoring) programs, credit card processing services and commercial mortgage loans.

Copyright 2005-2007 AEX Commercial Financing Group, LLC. All Rights Reserved.

Author: Stephen Bush
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photo credit: soylentgreen23

To be successful in business you need not start off by investing in something big or large scale to climb the ladder quicker. All you need is a level headed business objective and the necessary know how to achieve it. Establishing your ground in some small business can also reap you good rewards if you play your cards well. Besides, your desire to start your own business can be realized through a loan and getting small business finance is relatively easy with an interest rate that suits your capacity. Although business finance is considered to be somewhat of a difficult task to achieve without much running around and going through a huge amount of paperwork, it is not really the truth. In fact, there are financial consultants that can arrange business loans for you in one day with minimal paperwork and there’s no catch either.

So how is it all possible? To know that, you have to first understand the kind of loans that is available in the market today. read more »

The banks have virtually shut down, especially commercial lending. They may as well hang an out of business sign on their door, but should probably ad the following; we are out of business because we do not believe in our economy at all. Why else would they refuse to lend?

A very good business man I know, who has already had a small SBA loan and has paid flawlessly over many years. He has an excellent credit score, in the 700’s, his business is and has been profitable and is growing monthly both gross revenue and profitability, he has adequate collateral and he wants to borrow a significant amount to purchase another profitable business heavy with assets to merge into his own. It is a natural deal, perfect in every way. No real risk.

I sent him back to his bank and suggested he seek another SBA guaranteed loan, and with a 90% guaranty, how could he be refused.

He actually was not refused; his bank simply said we are not doing any lending so thanks but no thanks. He went to another two banks and heard the same story. Not even interested in an application, unmotivated by a 90% guaranty, high collateral value and the other benefits this borrower brings to the deal.

It amazes me, how could they just go out of the lending business even with 90% guarantee from the SBA?

So this deal will not happen, yet, we continue to search for a bank still in the lending business.

What to do he asked me? I thought very briefly and gave him the only answer available.

It must be done with seller financing and a wrap around note. In other words, the seller must keep his financing in place; my buyer will step into the sellers LLC and pay the note as well as an additional note to the seller for his profit. The seller is unhappy as he wanted a big hit and to be out of the debt obligation, but it is what it is and if this buyer cannot finance, then no buyer can. Thus, the seller must realize if he wants to sell he must be the bank.

This is the way we must do it in today’s market.

So yes, money is not available from the lenders, but it may be available from the seller. Seller financing is the only remaining avenue. Explore this approach, educate the seller and close a good deal. It is the only way in today’s shut down credit market.

Author: Don Todrin
Article Source: EzineArticles.com
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Everyone gets so upset over bank law suits and judgments entered against him or her. I understand it is not a pleasant experience but it means you really owe the bank some money. Sure, it may hurt your credit score a bit, but chances are you are in need of a credit rehabilitation program anyway and the debt relief can be worked out later.

The second point is, the bank does not want the property; just the judgment. A workout can be negotiated after a judgment is entered. That’s not a problem, we do it all the time.

So why do the banks spend the money to get empty judgments that seemingly mean little to anyone?

1. Sometimes they result in surprise settlements of significant value. People panic and fold into the bank’s demands thinking the judgment means something very powerful. It’s amazing how that happens.

2. It is a natural reaction for the bank to protect its interests, get first in line and be ready to pounce should the opportunity ever make itself apparent. It makes sense from a bank’s point of view but does not hinder the workout potential.

3. If there is to be a foreclosure, the law suit is fundamental and required, thus, the bank is simply preparing the paperwork as they may have to eventually liquidate the collateral by auction. Even though you may be talking settlement, the bank is getting ready if you fail. The bank does not want to waste any further time than it must based on the regulatory requirements of notice and response. Onward, it churns.

4. Of course, finally, if the loan is an SBA guaranteed loan, then the bank must exhaust its legal remedies to liquidate the collateral, or risk losing the guaranty from the SBA. Thus, they sue and go for the judgment full steam ahead.

Is it so bad for the borrower? Not really. It will be worked out just the same. Its only value to the bank is positioning and for intimidation as well; that being the bank’s strategy. This is what banks do. It is their only avenue of protection and action. Hence, they do it.

The important point is it does not interfere with the opportunity to engage in a workout. In fact, now that we have the opportunity to deal with the bank counsel, it works out better as the bank’s attorney sometimes recognizes a lost cause and often recommends a settlement that the bank has rejected.

Understand what is happening. Have a counter plan, a workout strategy, in motion and all will work out. If you fail to do this, your assets will eventually be liquidated.

Workouts are a tough road to take but a necessary tool for any business man to consider when required. What option do you have? Debt can kill you faster than anything else.

Author: Don Todrin
Article Source: EzineArticles.com
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Have all your ducks in a row.

You have a product, have written your business plain and sales pitch and even found a great location, now you need financing to get your new business off the ground. It takes money to make money; this is an old adage that is even truer today as it was in days past. Here you are, all set to go but, you don’t have available cash, your relatives are as broke as you and friends run at the mere hint of borrowing money.

Your only alternative for backing is a Financial Institute. The only problem is you have never had any association, with a Financial Institute and don’t know what to do. Your hands are tied, and it is clear your local banker is your only choice for funding.

Getting past the loan application.

Passing the scrutiny of a financial institution can be intimidating to say the least. There are some simple steps to follow that will greatly improve your chances for obtaining the funding you need.

Desire is yours, not the bankers

Most entrepreneurs know their product and have a great desire but the fact is, most will have experiences and loan turndowns simply because of poor communications and education. The banker’s lack of information about your business intent and needs and your not supplying correct information result in his/her not having a clear picture of your intent. You must learn the bank’s procedures, policies and constraints before discussing financing with the lender.

Consider the bankers position

First, consider the banker. Bankers are trained to always require two sources of repayment: the primary source such as, cash flow for short-term loans, and earnings for long-term loans. This should be backed up with some sort of collateral, such as accounts receivable, inventory, or a mortgage on fixed assets. Then if the business venture goes south from the original plan, the banker has at least one position to fallback on.

Can you guarantee the loan?

The banker may also require a personal guarantee from you as the business owner. A personal guarantee is also required of a major stakeholder or partner depending on the business description. A sole proprietor guarantees by virtue of his/her signature of a note. Another scenario where a guarantee may be requested is in the case of a non-involved spouse, who is the joint owner of the other personal asset of the businessperson. i.c. a jointly owned home being used as collateral.

Is this blatant overkill on the part of the lender? Why should they require three sources of repayment? Your banker does not necessarily expect to gain a great deal of financial security from your personal signature but, he/she wants your total commitment and support to making the business successful and thus securing his/her loan.

Remember, the banker is an employee of the bank. If to many bad loans are made, he/she will lose his/her job. Your banker doesn’t want to take a chance on a loan if you are hesitant to back it up with personal assets. If you are not unwilling to commit, the confidence of the banker is reduced significantly.

The five Cs and more

Your banker evaluates your loan request using the “five Cs of Credit”.

1. Character – by far the most important If you are not someone to be trusted, then the bankwill not want to deal with you, no matter how good your deal looks. Character also includes your past credit history and that of any principals involved.

2. Capacity – What is your financial strength, track record, and ability to service debt based on your projection.

3. Capital – how much of our own money do you have invested?

4. Collateral – What is available to support the primary source of repayment?

5. Conditions – what is the economy doing, and how will it affect your business? Conditions also include governmental and industry regulations, pending legal action affecting your venture, and the company’s marketing plan.

Finally, here are some do’s and don’ts that when applied, will help to strengthen your banking relationship.

Do:

a) Make an appointment and allocate enough time.

b) Be completely honest. Tell the good and bad.

c) Be prepared. Anticipate the worst and best scenario.

d) Ask questions if you don’t understand something.

e) Have a definite plan based on industry averages, your familiarly with the business you are starting, if any past operation history, reasonable assumptions, etc. but be flexible.

f) Keep your banker informed.

g) Negotiate rates after you’ve presented the loan request, keeping in mind the most important thing is that you get a loan, and at least initially, not the rate you pay.

Do Not:

a) Be impatient.

b) Make promises you can’t keep.

c) Ask “how much” you can borrow.

d) Negotiate interest rates over the telephone.

e) Spend the money before you ask for it.

f) Change banks soley for a better interest rate, unless your bank is not competitive.

g) Surprise your banker.

Money makes the business go.

Without funding your business may die before it gets started. The funding process is essential to the health of your new business. Unless you have money, or a rich uncle you will have to acquire money from a lending institution, grant, or stake holder. Do not rely on credit cards for funding. Because of high interest, Credit cards are not a good source for funding.

Start up businesses take up to three years before they show a profit. Taking this into consideration, make sure you are funded to survive the start-up time frame.

Be prepared.

Before you go to your banker be sure you have a sound business plan, statement of purpose, marketing plan and one, five and ten year projections. Be confident in your calculations and projections. Be sure you let your banker know you are responsible for supplying future progress reports to him/her. If you have an accountant, take him/her along for your loan interview. Your banker may better relate to someone who is on his/her same level of expertise.

Happy Trails

Author: Donald Yates
Article Source: EzineArticles.com
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Most of us have at some point in our lives considered being masters of our own destiny as far as our earning capacity is concerned. Owning your own business can be a very rewarding experience, however the majority of us never actually take the plunge mainly because of lack of finance. In most businesses, finance of sorts is required, simply because you have to produce your products or services first before someone is prepared to pay you for them.

In producing those products or services you have to spend money which may not be readily available in your business and that is why you have banks, investors, moneylenders etc. Even as you expand, further finance may be necessary to support any activity that may increase before you make the sales and get paid. Your business can go bust if it does not have the appropriate finance arrangements in place to deal with expenses that need to be paid before your customers pay you, even if your business is profitable. You need to try to match the appropriate source of finance for what you are trying to achieve.

In general – long term finance for long-term investment and short-term finance for short-term working capital requirements. It is really important that you apply for the correct finance type for your business. Get The Right Business Loan Approved For Your BusinessBanks are the major source of finance for small business owners throughout the world. When applying for finance from your bank it helps if you follow these procedures:

Always produce a complete business plan. If your business plan is compiled for you by your accountant or a third party, make sure that you can explain the business plan without the person who prepared it is present. Remember, the bank want to lend you the money, NOT the person who prepared your business plan and cash flow projections.

Always prepare a clear, succinct 2-page summary of the business plan. This allows your potential lender a quick insight into your business and quickly give you an indication whether he/she is interested in going further with you.

In your business plan always ask for a 25% longer repayment period than you need and between 30-40% more money than you need. It gives you room for tweaking your business should your business not go according to plan and believe me, this happens to many businesses no matter how superb their initial plans are.

Send your business plan to banks with an invitation for them to visit your premises. Make sure that you prepare your staff before the bank manager comes to your premises.

Think of the questions that are likely to concern him and have your answers prepared. Always negotiate the interest rate and terms after the offer has been made, not before. Try, by all means, to avoid personal guarantees but if you have to give them ensure they are limited to the amount of the loan. Do not agree to too much security only agree to the banks maximum exposure to loss.

Author: James Chiweshe
Article Source: EzineArticles.com
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Business owners have a lot to think about when trying to run a successful enterprise. Of utmost importance to a business owner is the proper management of their finances. It is always important to have money coming in at a greater rate than it is going out. However, it is oftentimes the case – especially with new businesses – that a business owner must make purchases above and beyond the income coming in. And while this might be a frightening thing for business owners to experience, sometimes a prudent investment is required to jump start a business’s income-generating capacity. As such, for those who start a business, it is important to think about business credit.

Businesses have several types of credit available to them. Perhaps the most common type of business credit is a company credit card. Yet another type of credit is a business line of credit. Both of these types of credit are important for businesses to have, but many new businesses neglect to obtain business lines of credit, despite rushing out to get a corporate credit card. Business owners need to take a closer look at business lines of credit if they want to have the purchasing power necessary to keep up with their competitors.

Business lines of credit are available from almost all major banks. Put simply, a business line of credit allows businesses to have open access to a predetermined amount of the bank’s money. Of course the money must be paid back with interest, but it nevertheless provides businesses with the comfort and assurance that they have access to funds in the event of unexpected expenses. Many business owners are reluctant to open business lines of credit because they do not feel like they would qualify. However, qualifying for a business line of credit is actually simpler than many people believe.

The first thing that business owners need to know about business lines of credit is that, generally speaking, no collateral is required to open one. Instead, the business owner just needs to demonstrate to the lending institution that there are sufficient funds coming in and out of the business bank account to justify opening up a credit line. So even without collateral, a business owner with funds coming in each month is likely to be able to open a line of credit.

The amount of credit which a lending institution will provide a business depends upon a few key factors. Those key factors include, the individual personal credit score, revolving debt ratios, lack of personal deragatories like a bankruptcy or large collection item settled. Other factors include, the business risk category, annual gross revenue, how long you have been in business and profitability. One key part is to determine which personal credit bureau the bank will use to pull your personal credit, is it Transunion, Experian or Equifax. As you know your personal credit score may vary some 30-50 points per bureau and that is why it is important to find out before you start the process which bureau the bank will use to accept or deny the business line of credit.

Business people should inquire with several banks to determine which one offers the best interest rate. Finding a good interest rate could potentially save the business owner a significant amount of money in the long run. Upon finding the best deal, the owner needs only to request a line of credit and await the bank’s determination.

Author: Scott Letourneau
Article Source: EzineArticles.com
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