Business Loans

First of all, most hotel owners go to the SBA programs due to the relatively high level of financing available. Both the SBA 504 and SBA 7a allow 85% loan to cost financing, enabling owners to keep as much cash in their business as possible. Conventional financing is currently capped at around 65% loan to value on purchases, as a comparison.

So, which is more appropriate for your situation?

Traditionally, the 7a is reserved for deals under $2,000,000 while the 504 will go up to $7,000,000. However the lines are blurred. Banks will structure 504’s as low as $1,000,000 and there are a few that will take the 7a up to $3,000,000.

Although both programs are guaranteed for the bank by the Small Business Administration, the loan structures are very different. For example the 504 is set up as 2 loans. The first lien position loan is the Bank piece. It’s make up will normally look something like a 5 or 10 year fixed with a 20 to 25 year amortization as is 50% loan to value. The second lien position loan is the CDC piece which is a 20 year fixed, 20 year amortization loan normally representing 35% of the loan to value. The blended interest rate between the 2 is currently in the loan 7%’s, upper 6%’s.

The SBA 7a in contrast is one loan of which 75% of the balance is guaranteed by the SBA in case of borrower default. It is set up as a fully amortizing 25 year term, with a floating rate (most of the time, we work with a few that offer this as a 5 year fixed). One of the biggest complaints of the 7a is the SBA guarantee fee of 2.75% of 75% of the total loan amount. Keep in mind however that this can be negotiable. There are a few banks that will pay for this fee out of their yield spread if they like your loan request. The rate is currently around 1% plus prime or in the low 6%’s.

Again, the 504 is normally associated with larger loan amounts and offers long term fixed rate financing. While the 7a is more thought of for smaller deals with a floating rate(however there are banks that offer this as a 5 year fixed/25 year amortizing loan).

Another important detail on the SBA 7a is this can be an excellent option for borrowers with “hair”. Meaning more underwriting leniency can be found with this program than virtually all other commercial mortgages including the 504. Credit scores can go down into the 500’s. Debt coverage ratios only have to be a 1.1 (compared to a 1.3) and future projections can be used if current level of cash flow cannot support the proposed debt.

So which is better? You decide.

Author: Jeff Rauth
Article Source: EzineArticles.com
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Before we go any further, let’s make sure we’re working from the same definition of hard money business loans.

For the purposes of this discussion, hard money business loans and hard money loans in general, are typically secured by real estate.

Because the lender is not usually concerned with the application of the funds acquired, I’m further defining a hard money business loan as a source of funds invested into a business operation.

The lending criteria for issuing a hard money loan is primarily focused on the equity held in real estate.

Typical characteristics: 1) private lending sources, 2) short interest terms from one to three years, 3) up front fees on closing, 4) short in duration, 5) use of funds not a focus, 6) limited number of debt covenants if any, 7) interest only payments is quite common, failure to pay results in sale assets to retire the debt.

While hard money lenders have their detractors, they serve a very real and valuable purpose in the commercial financing market place.

Pros and Cons

Pro – The application process for a hard money loan tends to be considerably faster than a comparably sized conventional loan application.

Con – Compared to conventional real estate financing through institutional lenders, the cost of hard money loans is almost always higher.

Pro – In many cases hard money can be lower cost than cash flow financing facilities like subordinate debt and factoring.

Con – Up front fees also add to the cost of hard money business loans which can significantly increase the effective interest rate you’re actually paying over a period of time.

Pro – As a bridge loan, these funds are normally outstanding for a short period of time so the shorter the use, the lower the potential cost.

Con – At the end of the interest term, if an extension is required, but not granted, the loan needs to be paid out in full.

Pro – From a cash flow point of view, an interest only payment, even at a high rate, can still be less strain on the cash flow.

Con – Once you sign up for an interest term, its the same as most fixed interest rate terms whereby there is usually a 3 month penalty for early payout.

Pro – Hard money can also be extended against non real estate assets where real estate is still the primary security in the overall security package for the loan.

Con – If you fall behind with your payments, the foreclosure process can be swift and will typically be as fast as the local jurisdiction will allow.

The basic scenario for considering a hard money business loan is when a business has exhausted its conventional financing sources and is still short money to operate, expand, or just take advantage of short term opportunities.

Because repayment is usually required within a one to three year period, hard money business loans can also be categorized as bridge loans.

If you’re thinking about whether or not to secure a hard money business loan, consider the following points:

>>> Can you generate an ROI? If you have good, profitable business in front of you that you can’t bank because a lack of short term capital, then a hard money business loan may be a solid option.

>>> Do you have an exit strategy? Remember that a hard money business loan is effectively a bridge loan that you’re going to have to pay back in the near future.

If you can’t create a cash flow scenario where full repayment is possible at the end of the loan term, then a hard money business loan may not be a viable option.

>>> What are your alternatives? If your alternative financing options are equity based where you are giving up a portion of the future profits of the business, a hard money business loan can allow you to retain control of the business and keep the related profits.

>>> What’s the impact on personal liability? If your alternative business financing options are high cost and still require a personal guarantee, then a hard money business loan may actually be a better option.

>>> Can you generate enough capital? If a hard money business loan cannot completely address your financing need, then it may not be a good fit.

Sometimes business owners will use hard money to buy time until they can acquire additional capital to meet their entire financing need.

The problem with this strategy is that hard money is not very patient, and if it takes longer to acquire the additional funds than your cash flow allows, the hard money lender will not likely postpone or restructure your debt serving costs.

Instead, if you fall behind in your payments, they will likely realize on their security, which may put you out of business.

Author: Brent Finlay
Article Source: EzineArticles.com
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It is very common in business to provide commercial and government clients with up to 60 days to pay their invoices. At the same time, many of the cash flow problems that afflict companies can be traced to the fact that they offer 60 day payment terms to their clients. And, it understandable. The business must cover all expenses – rent, suppliers, and salaries – while waiting to be paid. And since few companies have substantial bank reserves, it only takes a few unexpected large orders to tilt the cash flow balance to the other side and start having problems.

Most business managers have two standard approaches to this problem. The first approach is to try and negotiate quicker payments from clients. Unfortunately, this seldom works and clients almost always have the upper hand. The second approach is to go to the bank for business financing. Your success in obtaining bank financing will depend in your company’s balance sheet and track record. Generally speaking, to qualify for a business loan you will need a rock solid balance sheet and a track record showing consecutive years of profit. However, business loans may not be the best solution for this type of problem since many times business expenses are variable and tied to sales.

The best solution to the problem is to get paid for your invoices quickly. Now, what if your customers agreed to pay 80% of the invoice on the spot, and then pay the remaining 20% after 60 days? Would most, if not all, of your cash flow problems disappear? Most likely. This can be achieved, and without changing your customers’ payment habits. The solution is to factor your receivables.

Receivables factoring provides you with an advance on your invoices. This helps you put your company on a more stable financial footing, enabling you to pay salaries, rent and supplier expenses. Generally, the factoring company advances about 80% immediately, on your invoices for delivered products or services. The remaining 20%, less a small fee, is advanced once the invoice is actually paid by the client.

Invoice factoring, as accounts receivable factoring is also called, has a number of benefits over conventional financing. First, is easy to obtain and can be set up quickly. Second, and more importantly, your factoring financing line is tied to your sales. This makes it an ideal solution to address your changing needs as the line grows in parallel to your business. Your financing grows, as your sales and your company grows.

Author: Marco Terry
Article Source: EzineArticles.com
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We live in a credit environment that is tough. Most businesses, even those that were deemed very credit worthy not too long ago, are having a tough time getting any kind of business financing. Most banks and institutions have been hit by the financial turmoil and either lack the capital – or lack the will – to make business loans until the capital markets settle down. That is part of the problem however, since many businesses in the USA and Canada depend on business credit to function. Without it, they run into problems. This has lead to a vicious cycle, where the lack of small business loans is furthering the problem.

What can you do if your business needs financing but you can’t get a business loan? You have no other options than to look for alternatives. One of these alternatives is invoice financing, commonly known as factoring. Invoice financing can help your if your company sells to commercial or government clients (rather than retail clients) that pay their invoices in 30 to 60 days. As a matter of fact – most businesses would not have cash flow issues or need a loan if their clients paid immediately.

Of course, asking clients for an immediate payment will never work because they expect and demand, net 30 payment terms. Using invoice financing enables you to get an advance on that invoice, and provides the necessary capital to run your business. Invoice factoring enables small businesses who may not have substantial assets – aside from good customers – to get financing even in tough financing environments.

Invoice financing is simple to use. You first need to establish an account with a financing company. Once you have an account, you can start sending invoices for financing. The financing company with give you the first advance on your invoice – usually about 80%. You get the second advance, which is 20% less the financing fee, once your customer pays the actual invoice.

Credit decisions are based on your customer’s ability to pay an invoice. This enables you to leverage their credit. But more importantly, invoice financing is dynamic, and your financing line grows as your business grows.

Author: Marco Terry
Article Source: EzineArticles.com
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If you are considering a minority small business loan, you may want to explore other creative business start up funding options as well. Have you looked into the possibility of forgoing traditional bank loans and government backed financing?

If you are a starting a business for the first time, or have been in business for less than two years, you may want to consider the option of bootstrapping. Bootstrapping your new venture can provide you with the start up business financing you need – without big bank loans.

Can Bootstrapping Really Help Me Raise the Money I Need?

The answer is yes. Bootstrapping can help you to reduce or eliminate start up costs and operating expenses. In some cases, utilizing this financing strategy may make the need for a minority small business loan unnecessary. The key is knowing what resources are available to you.

I recently showed a client how to save over $230 a month on business telephone service alone. She owns a hair salon and her telephone lines are the lifeline of her business. Not only do her regular customers phone to make repeat appointments, but her credit card machine operates through her telephone service provider. Reducing this expense has now enabled her to divert an extra $2,700 a year to her advertising budget.

What Businesses Work Best With this Financing Strategy?

Any service business or home based business presents the ideal match for a bootstrapped business. These types of businesses tend to have lower initial start up costs and usually cost less to operate. You can even start these kinds of businesses with little or no money of your own. Some examples are consultants, graphic designers, janitorial services, photographers, a personal chef service or a virtual assistant.

Having said that, any type of business can benefit from reduced start up costs and overheads. A clothing store, for example, will benefit greatly from reduced credit card transaction fees.

Where Do I Find Free Sources of Start Up Business Financing?

Finding free sources of start up financing requires creativity and research. Begin by making a list of your estimated start up expenses and operating costs. Go over this list carefully; brainstorming areas where you feel you may be able to save money.

Do some online research for sources of free funding. When doing so, keep in mind that government grants are not a very likely option. This source of free business funding is usually only made available for research, biotechnology and education.

The success of your new business relies heavily upon your ability to successfully manage cash flow. With that in mind, you owe it to yourself to save as much money as you can at the start up phase. Deciding whether a minority small business loan program is right for you requires research and planning. You can make your dreams of owning your own business without bank loans a reality – even if you have little or no money. I’m living proof!

Author: Kimberly Kelly
Article Source: EzineArticles.com
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Getting business financing is one of the bigger challenges for business owners – especially during these times. Although it’s well known that getting a business loan has never been easy, nowadays getting business financing appears to be close to impossible.

Although getting a small business loan may be very difficult, there are other forms of business financing that remain relatively easy to obtain. However, not all solutions are suited for every type of business. For example, most companies that sell to commercial clients have to give customers 30 to 60 days to pay the invoices. However, they need to pay suppliers and employees regularly. This creates a situation where a company may have a substantial amount of money due to it – but very little actual cash at hand.

This creates a very real problem for business owners. On one hand they have a growing business that had a lot of potential, but on the other hand they have their resources tied in unpaid invoices, leaving little working capital to execute their plans.

Ideally, you should be able to go to your clients and ask that they pay their invoices quickly. But that will never work. Large corporate clients tend to demand payment terms as a condition of working with them. It’s a take it or leave it scenario. But what if they did pay quickly? That can be achieved by using invoice factoring.

Invoice factoring is a business financing tool that can eliminate the challenges of waiting for payment. It provides you an advance on your soon to be paid invoices, providing the working capital you need to pay employees and suppliers. It also enables you to take on larger orders, since you no longer need to wait to get paid.

Factoring your invoices is fairly simple. Once the work is completed, you sell the invoice to a factoring company. The factoring company buys the invoice in two installments. The first installment pays for 80% of the value of the invoice. The second installment, paid once the invoice is paid for by your client, pays for the remaining 20%, less the finance fee.

One major advantage of invoice factoring is that it’s easy to obtain. The most important requirement is that you do business with solid commercial clients that pay their invoices on time. Also, you company must be free of commercial liens, judgments and encumbrances.

Given that invoice factoring lines are based on your client base, they usually grow with you sales. This can be a great advantage over a conventional business loan, as your financing will adapt dynamically with your business based on current conditions.

Author: Marco Terry
Article Source: EzineArticles.com
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Selling your products or services in export markets can be a very profitable and a true engine for growth for your company. Manufacturers, service providers and traders can all benefit from adding foreign markets to their portfolio of customers. However, selling into export markets can also deplete your cash flow. Large companies that have a cushion of funds in the bank, usually have no problems. However, smaller and emerging firms can run into cash flow issues very quickly.

The biggest issue for exporting firms is waiting 30, 60 or even 90 days to get paid for their goods or services. Slow paying customers can really affect your company’s cash flow. This can challenges your ability to pay suppliers, employees or even rent. read more »