by Peter Pirri
The four essential documents needed to review and understand a possible accounts receivable factoring transaction are (1) an Application (2) Accounts Receivable Aging Report (3) Sample Invoice (4) Articles of Organization. The aforementioned are essential but not required in all cases. However, the more information that is documented in the beginning, the easier it becomes later on to close a transaction.
The Application
A properly completed application, signed by the client, indicates intention. In any business deal or contract there must be a sense of intention. A client’s willingness to factor can be identified in the way an application is filled out. If items or questions are left blank or a signature is not obtained, the factor may not consider the level of intention or interest expressed by the client to be significant.
In addition, the application should always indicate the type of business the client is involved in, information that provides the factor with an idea of the amount of risk involved in the transaction and what documents would be required to fully understand the products and services the client is offering its customers. As a broker, you are also presenting the deal to the factor to procure the best rates possible for the client.
Accounts Receivable Aging Report
A current accounts receivable aging report is a critical document. It provides valuable information and identifies whom the client is selling to, how much is owed, and how quickly the receivables are paid. The accounts receivable aging report should be sorted by date and customer. Other reports such as “open invoice detail” and “trial balances” are not as informative. A factor or funding company wants to see what is available for purchase immediately. The accounts receivable aging report can also identify problems such are collection issues, bad debt, retainage, and deposits that are not apparent on the invoices.
Sample Invoice
A sample invoice provided to the factor for due diligence should be an invoice that the client has previously sent to a customer that they would like considered for a factoring relationship. The invoice will display the trade name, the terms of payment, the account debtor, the party in receipt of the merchandise, and delivery details. When funding sources purchase invoices, they “step into the shoes of the client,” and they want to be sure that their titles to the invoices are unencumbered and their rights to receive payments in a timely fashion can be effectively enforced. It is not helpful to the funding sources if clients submit “blank” invoices to be reviewed.
The Articles of Organization
The Articles of Organization identify the legal entity that owns the invoices and the state in which they are filed. Also, it identifies the owners or managing members. This information is very important when it comes time to file the appropriate UCC Financing Statement. From a legal perspective, it’s important to remember that corporations or limited liability companies own all rights, title, and interests in the accounts receivable and individuals own the corporation or company. If a UCC Financing Statement is not filed with the appropriate state agency, including the correct organizational identification number, the financing statement may be rejected, and the funding source will not have a first security interest in all the accounts receivable for several more days or weeks until it is fully corrected.
Once the client enters into a contract with the factor and invoices are assigned or sold to the funding source for factoring by the client’s authorized representative, additional documents may be required: purchase orders, confirmation of delivery, and any type of contract or agreement between the account debtor and client. One may inquire, “Why are these things important? The invoices are the only documents with a quantifiable value.” The reason for the increased vigilance in the factoring business is the risk of a client generating a fraudulent invoice or an invoice that is not an accurate reflection of the agreement with the account debtor. The funding source must become comfortable with the transaction and be sure that goods and services were properly delivered and that payment will be made in a timely fashion, usually within 90 days of the invoice date.
To restate, invoices must represent goods and services that have been delivered. Invoices that represent partial shipments or agreements for future service are not acceptable for factoring because this dramatically reduces the account debtor’s willingness to pay. Why would anyone pay for something he hasn’t received? As a consumer, you wouldn’t pay for jeans at Target and then pick them up the next day! Funding sources must feel comfortable that the invoice represents a final sale.
Welcome
To all guest visiting this blog for the first time, I welcome you. This blog site will endeavor to post valuable and meaningful articles and information to guide you. It is my hope that you learn something of value from visiting Accessing Alternative Business Capital Blog. I look forward to reading your comments. Do not hesitate to contact me with your questions and thoughts.
"The Fear of Success is just as debilitating as the Fear of Failure. Do not let either one hold you back." ~Karlene Sinclair-Robinson
"The Fear of Success is just as debilitating as the Fear of Failure. Do not let either one hold you back." ~Karlene Sinclair-Robinson
Thursday, March 31, 2011
Documentation 101 for Factoring Transactions
Wednesday, March 30, 2011
Business Loan Fundamentals: What Small Business Owners Need to Know
Small Business owners seeking capital to grow their business or just to survive through the economic downturn are at their wits’ end. Money to these businesses is not flowing as freely as in years gone by. Here is one business fundamental to consider.
Accessing capital for your business can be a daunting task. If you are a start-up business owner, this is even more so. Small business owners who are considering accessing capital are sometimes not sure what to do or where to go. This is understandable.
The news media showcases small businesses’ inability in securing the financing they need to grow their business or just to survive. In some instances, entrepreneurs are getting funded but not at the level or the amount they really wanted. These business owners have to make adjustments to their plans in order to fit what they can qualify for.
One thing to note is being prepared prior to seeking outside capital, otherwise called OPM (Other People’s Money). This is even more important now than ever before. Knowing what the lender’s requirements are is very important. Banking institutions must follow strict Federal guidelines. Private investors or alternative financing sources have their own guidelines and requirements. Being aware of these requirements is important to the smooth processing of your loan or financing request.
When applying for any type of financing, you must present the applicable documents the lender requires. If you are buying a house or car, you would have to submit all applicable documents the lender required. This is the same process when accessing capital for your business. Without the lender’s required list of documents being received and reviewed, you will not be able to successfully access the loan or financing option you so badly need.
If you do not have a specific document or documents, you need to submit a written explanation with a legitimate reason for not having the necessary paperwork. There are some documents you must have, no matter what the circumstances. Without the mandatory required documentation, the lender is at risk of losing their money if they were to take a chance on you. If the lender is a lending institute governed by the Federal Deposit Insurance Corporation (FDIC), they will not be able to work around any mandatory documents not being submitted.
When all is said and done, it’s not about how great you think your idea or business is. It is about the lender and their risk tolerance. What it boils down to is the business being viable for the lender to make the decision to lend you their money. They must feel you have the capabilities to repay the loan.
So, if you want their money, it is simple, provide the required information and documents to expedite your financing request. Show them that you are responsible and that you take them seriously. And most of all, do not waste their time if you know you do not have the information they need.
Here is a checklist of items that might be applicable to your loan request:
* Loan/Lender Application
* Business License/Certifications
* Business Overview
* Business Plan
* Resumes
* Personal Financial Statement
* Personal Credit Report
* Personal Income Tax Returns
* Business Credit Report
* Business Income Tax Returns
* Business Lease
* Business Insurance
* Financial Statements including Cash Flow Statement, Balance Sheet, Profit and Loss
* Bank Statements
* Merchant Statements
* Current Accounts Receivable Aging Report
* Current Accounts Payable Aging Report
* Payroll Tax Form 941
* Property Ownership Documentation
* Partnership Agreements
* Identification
* Any loans such as commercial property mortgage documentation
* All applicable authorizations including release of information, landlord, references
Remember, the above list of documents does not apply to all financing options, so be aware of what is specifically required by the lender you selected. The lender has the right to ask for any documents they believe will assist them in making a decision one way or other. Be sure you understand what the lender is looking for. If you do not know, have them explain exactly what it is they need. It makes for a smooth process. Let’s not waste your time or the lender’s time; be prepared.
Accessing capital for your business can be a daunting task. If you are a start-up business owner, this is even more so. Small business owners who are considering accessing capital are sometimes not sure what to do or where to go. This is understandable.
The news media showcases small businesses’ inability in securing the financing they need to grow their business or just to survive. In some instances, entrepreneurs are getting funded but not at the level or the amount they really wanted. These business owners have to make adjustments to their plans in order to fit what they can qualify for.
One thing to note is being prepared prior to seeking outside capital, otherwise called OPM (Other People’s Money). This is even more important now than ever before. Knowing what the lender’s requirements are is very important. Banking institutions must follow strict Federal guidelines. Private investors or alternative financing sources have their own guidelines and requirements. Being aware of these requirements is important to the smooth processing of your loan or financing request.
When applying for any type of financing, you must present the applicable documents the lender requires. If you are buying a house or car, you would have to submit all applicable documents the lender required. This is the same process when accessing capital for your business. Without the lender’s required list of documents being received and reviewed, you will not be able to successfully access the loan or financing option you so badly need.
If you do not have a specific document or documents, you need to submit a written explanation with a legitimate reason for not having the necessary paperwork. There are some documents you must have, no matter what the circumstances. Without the mandatory required documentation, the lender is at risk of losing their money if they were to take a chance on you. If the lender is a lending institute governed by the Federal Deposit Insurance Corporation (FDIC), they will not be able to work around any mandatory documents not being submitted.
When all is said and done, it’s not about how great you think your idea or business is. It is about the lender and their risk tolerance. What it boils down to is the business being viable for the lender to make the decision to lend you their money. They must feel you have the capabilities to repay the loan.
So, if you want their money, it is simple, provide the required information and documents to expedite your financing request. Show them that you are responsible and that you take them seriously. And most of all, do not waste their time if you know you do not have the information they need.
Here is a checklist of items that might be applicable to your loan request:
* Loan/Lender Application
* Business License/Certifications
* Business Overview
* Business Plan
* Resumes
* Personal Financial Statement
* Personal Credit Report
* Personal Income Tax Returns
* Business Credit Report
* Business Income Tax Returns
* Business Lease
* Business Insurance
* Financial Statements including Cash Flow Statement, Balance Sheet, Profit and Loss
* Bank Statements
* Merchant Statements
* Current Accounts Receivable Aging Report
* Current Accounts Payable Aging Report
* Payroll Tax Form 941
* Property Ownership Documentation
* Partnership Agreements
* Identification
* Any loans such as commercial property mortgage documentation
* All applicable authorizations including release of information, landlord, references
Remember, the above list of documents does not apply to all financing options, so be aware of what is specifically required by the lender you selected. The lender has the right to ask for any documents they believe will assist them in making a decision one way or other. Be sure you understand what the lender is looking for. If you do not know, have them explain exactly what it is they need. It makes for a smooth process. Let’s not waste your time or the lender’s time; be prepared.
Tuesday, March 29, 2011
The Small Business Grant Misnomer
By Karlene Sinclair-Robinson
Understanding the difference between a “Recourse” and “Non-Recourse” loan is vital to every entrepreneur. Whether you are seeking financing or not, it is important to know what these terms mean and how they apply to you, the business owner. It is widely acknowledged that if you don’t understand them, it can be very costly. This information just might come in handy in the future.
Merriam-Webster’s Dictionary defines these two words as:
“Recourse Loans” – The right to exact payment from a party secondarily liable, where the first party has failed to pay.
“Non-Recourse Loans” - being or based on an agreement in which the lender has no right of recourse to the borrower’s assets beyond stated limits.
Based on the above definitions, it is understood that “Recourse” gives the lender more guarantee that they will be repaid. They can go after any party or guarantor who signed the agreement or contract. “Non-Recourse” gets you, the borrower, off the hook for repaying the loan, in case you reach the point of being unable to pay and can clearly show evidence of this.
In most traditional financing options (bank loans), Recourse is always in place. In the non-traditional or alternative financing options (private lenders), the funder determines the use of “Recourse” vs “Non-Recourse”. This is so as the private lender sets their own guidelines based on their experience and what they feel is important to them.
Recourse and Non-Recourse loans vary based on the type of financing needed and where you get the funding. They also work with the assets you have pledged in obtaining the loan. Assets such as real estate, machinery or equipment make great collateral. When the lender determines that the collateral is good enough for them, they will use a maximum loan-to-value (LTV) ratio to be able to lend you a set amount. This is all based on the value of the asset or assets you bring to the table.
You will often find in the real estate market that Non-Recourse is more widely used in the private lending sector than in the traditional forms of financing such as a bank loan. This does not mean it applies to all real estate financing transaction. This boils down to the agreement you signed. Due to the changes in the real estate financing and other private lending areas, lenders are changing the use of “Recourse” vs. “Non-Recourse” and the way they process the borrower.
These changes affect the types of documents now needed to process a loan request. More lenders are using “Recourse”, as they have been left with too many unpaid loans. With this, borrowers now have to present documents such as identification and legal status, Social Security number, on the personal side, and much more, even if you are using your company as the borrower.
What this all boils down to is this, if you receive a “Recourse” loan, the lender has every right to use all applicable methods to gain repayment. Actions the lender can take includes suing you, which then leads to judgments, and liens being levied against you. This can be on both personal and business assets. This will also affect your personal credit regardless of the loan being for your business. For the “Non-recourse” loan, you do not have the same problem as the collateral used will stand on its own. If you cannot pay it back, the lender simply takes control of the collateral pledged. They will not have the option to take you to court for the unpaid balance.
Remember, this is now the “Recourse” world of financing vs. the “Non-Recourse”.
Understanding the difference between a “Recourse” and “Non-Recourse” loan is vital to every entrepreneur. Whether you are seeking financing or not, it is important to know what these terms mean and how they apply to you, the business owner. It is widely acknowledged that if you don’t understand them, it can be very costly. This information just might come in handy in the future.
Merriam-Webster’s Dictionary defines these two words as:
“Recourse Loans” – The right to exact payment from a party secondarily liable, where the first party has failed to pay.
“Non-Recourse Loans” - being or based on an agreement in which the lender has no right of recourse to the borrower’s assets beyond stated limits.
Based on the above definitions, it is understood that “Recourse” gives the lender more guarantee that they will be repaid. They can go after any party or guarantor who signed the agreement or contract. “Non-Recourse” gets you, the borrower, off the hook for repaying the loan, in case you reach the point of being unable to pay and can clearly show evidence of this.
In most traditional financing options (bank loans), Recourse is always in place. In the non-traditional or alternative financing options (private lenders), the funder determines the use of “Recourse” vs “Non-Recourse”. This is so as the private lender sets their own guidelines based on their experience and what they feel is important to them.
Recourse and Non-Recourse loans vary based on the type of financing needed and where you get the funding. They also work with the assets you have pledged in obtaining the loan. Assets such as real estate, machinery or equipment make great collateral. When the lender determines that the collateral is good enough for them, they will use a maximum loan-to-value (LTV) ratio to be able to lend you a set amount. This is all based on the value of the asset or assets you bring to the table.
You will often find in the real estate market that Non-Recourse is more widely used in the private lending sector than in the traditional forms of financing such as a bank loan. This does not mean it applies to all real estate financing transaction. This boils down to the agreement you signed. Due to the changes in the real estate financing and other private lending areas, lenders are changing the use of “Recourse” vs. “Non-Recourse” and the way they process the borrower.
These changes affect the types of documents now needed to process a loan request. More lenders are using “Recourse”, as they have been left with too many unpaid loans. With this, borrowers now have to present documents such as identification and legal status, Social Security number, on the personal side, and much more, even if you are using your company as the borrower.
What this all boils down to is this, if you receive a “Recourse” loan, the lender has every right to use all applicable methods to gain repayment. Actions the lender can take includes suing you, which then leads to judgments, and liens being levied against you. This can be on both personal and business assets. This will also affect your personal credit regardless of the loan being for your business. For the “Non-recourse” loan, you do not have the same problem as the collateral used will stand on its own. If you cannot pay it back, the lender simply takes control of the collateral pledged. They will not have the option to take you to court for the unpaid balance.
Remember, this is now the “Recourse” world of financing vs. the “Non-Recourse”.
Monday, March 28, 2011
5 Things Every Startup Business Owner Must Know
Since most start-ups are small, minority, women or veteran owned businesses, they tend not to know as much from an alternative financial perspective as larger entities. This is not to say that they do not know anything, but in most cases that we have seen, these business owners most times do not know these alternative financial sources exist or are afraid to use these options.
And so, listed below are just some of the things start-up companies need to be aware of when seeking alternative financing.
1. Business Foundation
As a new business owner, did you make the decision to operate as a Sole Proprietor, or did you choose to incorporate your entity? If you did incorporate, great! More financial opportunities are available to you. As an incorporated entity, financial institutions and alternative funding sources are more apted to possibly providing financial assistance. As a LLC, INC, LP, CORP, and so on, you show the funder that you understand the full ramifications of being an incorporated entity as oppose to being a Sole Proprietorship. As a Sole Proprietor, you are a greater risk to an alternative funding source.
Depending on your business module, this will help to identify whether you are a fit or not for these funders. Presently, there are fewer alternative funders financing Sole Proprietors each day, due to the high risk factors of tax evasion, fraudulent transactions, and so on. Not to say that Sole Proprietors cannot get this type of financing, it just means that there is a limit to the number of funding sources available to assist you in your time of need.
2. Locating Alternative Financing
Start-up business owners most times know only their banks as their primary source to get a loan or line of credit. Their alternative source(s) most times tend to be family or friends. Who knows, this could be something that can make or break a family or friendship when hard times hit a start-up company. Who do you turn to when you have run out of options? Alternative funding sources are available throughout the United States, and all have their own specialized area of expertise. There are funding sources for almost all areas of business, and as alternative financial experts, they make the deals happen.
They have the knowledge and the money to help take your business to the next level. How do you find them, you might ask? Ask questions within your business community, banking sector, and so on. You can also seek out financial consultants but better yet, the kind of cash flow consultant who have direct access to these types of funding sources who can put you with the right source from the get go. Understanding how your business operates, where you are presently, who your clients are, what your plans are, and so on, makes it easier to determine how a cash flow consultant will be able to assist you.
3. Understanding how Alternative Financing can help your business
Yes! It is great to know where to find the money to help your business but do you really understand how it can help you? Did you know that if you opted for an alternative financing option, it could possibly have saved your start-up entity from being a part of that 80% who go out of business within the first (1st) year? Did you know that understanding alternative financing could mean the difference between being able to bid on a contract and possibly winning it? Did you know that understanding these options could mean the difference between keeping and losing your employees (a business most-valuable asset)? Did you know that utilizing these options could help to make you a more bankable entity in the eyes of the banks within a short period of time?
Understanding what this can do for your business is a must. Develop a plan of action as to what type of financial services you might need, when you might need it and learn all you can about those solutions. If you are in the real estate, construction, medical, transportation, security and so on, learn what the funding sources are looking for in a company like yours, in order for them to be able to better help you.
4. Risk Assessment from a Funder’s Perspective
Assessing risk from a funder’s perspective is simple. If the funder lends you money (say Hard Money), advance you funds in the form of Factoring, Purchase Order financing and others, who stands to loose the most? The funders, of course, but remember they know how to analyze their risk level, and so they will not go into a zone that is 100% risk to them. Someone has to be responsibly for the payment of that debt, however it is structured.
Since more cases of fraud are occurring daily, funding sources are also getting more sophisticated in being able to determine if a prospect is legit or not. Going back to (1) Business Structure, funders will look at your structure and the type of business you are involved in to determine if you are at a higher risk level than others. On the other hand, if you are seeking 100% financing in the commercial arena, you are barking up the wrong tree. Most commercial funders will not do 100% financing. It is just not happening especially now, whether on a small or large scale. Depending on the funder, and how your business/project is laid out, you might just get what you are asking for, if you know what you are doing!
5. Decision Making
This is the single most important element to actually obtaining financing. After learning all you can about a particular alternative financial product, you have to weigh the pros and cons of how it will affect your business.
Questions to ask yourself: what will this do for my business in the next few months, years? How will this help? What other alternatives do I have? What are the requirements? Will they be as stringent as the banks? What do I have to do to get started? How will I be treated and what does the process entails? How long will it take to get the funding? What will it cost? Do I get to talk with the funding source directly? And so on….
After figuring out what your business actually needs, you then need to make a decision. This decision will help shape your business one way or the other. Take a sheet of paper, divide it into two columns. On one side, list five (5) positive things that come to mind in seeking funding, then do the same on the other side, but this time list the five (5) negative things instead. Then measure for yourself what both columns bring to the table. Does column one (1) outweigh column two (2) or not? This will help you figure out what you need to do. A word of caution though, business owners who procrastinate in making a decision about the usage of alternative financing, result in unfavorable situations for themselves, and sometimes are not able to obtain funding due to mitigating factors beyond a funders’ capabilities.
It is my hope that as a new business owner, you will make informed decisions to enhance the building and sustainability of your business.
And so, listed below are just some of the things start-up companies need to be aware of when seeking alternative financing.
1. Business Foundation
As a new business owner, did you make the decision to operate as a Sole Proprietor, or did you choose to incorporate your entity? If you did incorporate, great! More financial opportunities are available to you. As an incorporated entity, financial institutions and alternative funding sources are more apted to possibly providing financial assistance. As a LLC, INC, LP, CORP, and so on, you show the funder that you understand the full ramifications of being an incorporated entity as oppose to being a Sole Proprietorship. As a Sole Proprietor, you are a greater risk to an alternative funding source.
Depending on your business module, this will help to identify whether you are a fit or not for these funders. Presently, there are fewer alternative funders financing Sole Proprietors each day, due to the high risk factors of tax evasion, fraudulent transactions, and so on. Not to say that Sole Proprietors cannot get this type of financing, it just means that there is a limit to the number of funding sources available to assist you in your time of need.
2. Locating Alternative Financing
Start-up business owners most times know only their banks as their primary source to get a loan or line of credit. Their alternative source(s) most times tend to be family or friends. Who knows, this could be something that can make or break a family or friendship when hard times hit a start-up company. Who do you turn to when you have run out of options? Alternative funding sources are available throughout the United States, and all have their own specialized area of expertise. There are funding sources for almost all areas of business, and as alternative financial experts, they make the deals happen.
They have the knowledge and the money to help take your business to the next level. How do you find them, you might ask? Ask questions within your business community, banking sector, and so on. You can also seek out financial consultants but better yet, the kind of cash flow consultant who have direct access to these types of funding sources who can put you with the right source from the get go. Understanding how your business operates, where you are presently, who your clients are, what your plans are, and so on, makes it easier to determine how a cash flow consultant will be able to assist you.
3. Understanding how Alternative Financing can help your business
Yes! It is great to know where to find the money to help your business but do you really understand how it can help you? Did you know that if you opted for an alternative financing option, it could possibly have saved your start-up entity from being a part of that 80% who go out of business within the first (1st) year? Did you know that understanding alternative financing could mean the difference between being able to bid on a contract and possibly winning it? Did you know that understanding these options could mean the difference between keeping and losing your employees (a business most-valuable asset)? Did you know that utilizing these options could help to make you a more bankable entity in the eyes of the banks within a short period of time?
Understanding what this can do for your business is a must. Develop a plan of action as to what type of financial services you might need, when you might need it and learn all you can about those solutions. If you are in the real estate, construction, medical, transportation, security and so on, learn what the funding sources are looking for in a company like yours, in order for them to be able to better help you.
4. Risk Assessment from a Funder’s Perspective
Assessing risk from a funder’s perspective is simple. If the funder lends you money (say Hard Money), advance you funds in the form of Factoring, Purchase Order financing and others, who stands to loose the most? The funders, of course, but remember they know how to analyze their risk level, and so they will not go into a zone that is 100% risk to them. Someone has to be responsibly for the payment of that debt, however it is structured.
Since more cases of fraud are occurring daily, funding sources are also getting more sophisticated in being able to determine if a prospect is legit or not. Going back to (1) Business Structure, funders will look at your structure and the type of business you are involved in to determine if you are at a higher risk level than others. On the other hand, if you are seeking 100% financing in the commercial arena, you are barking up the wrong tree. Most commercial funders will not do 100% financing. It is just not happening especially now, whether on a small or large scale. Depending on the funder, and how your business/project is laid out, you might just get what you are asking for, if you know what you are doing!
5. Decision Making
This is the single most important element to actually obtaining financing. After learning all you can about a particular alternative financial product, you have to weigh the pros and cons of how it will affect your business.
Questions to ask yourself: what will this do for my business in the next few months, years? How will this help? What other alternatives do I have? What are the requirements? Will they be as stringent as the banks? What do I have to do to get started? How will I be treated and what does the process entails? How long will it take to get the funding? What will it cost? Do I get to talk with the funding source directly? And so on….
After figuring out what your business actually needs, you then need to make a decision. This decision will help shape your business one way or the other. Take a sheet of paper, divide it into two columns. On one side, list five (5) positive things that come to mind in seeking funding, then do the same on the other side, but this time list the five (5) negative things instead. Then measure for yourself what both columns bring to the table. Does column one (1) outweigh column two (2) or not? This will help you figure out what you need to do. A word of caution though, business owners who procrastinate in making a decision about the usage of alternative financing, result in unfavorable situations for themselves, and sometimes are not able to obtain funding due to mitigating factors beyond a funders’ capabilities.
It is my hope that as a new business owner, you will make informed decisions to enhance the building and sustainability of your business.
6 Questions You Should Ask A Lender Before Applying For A Loan
by Karlene Sinclair-Robinson
Many small business owners today are finding that qualifying for bank financing is not easy. Even if you are using non-traditional lenders, these are important things to know before approaching them. Having great credit scores and tangible assets does not necessarily mean you can get the loan amount you need.
Traditional lenders must follow strict guidelines in their lending procedures that small business owners might not be aware of. As for non-traditional lenders, they have also tightened up their lending guidelines. It is important to know what questions these lenders might and can ask. The questions below will assist you, the business owner in knowing what the lenders are looking for before you complete their application.
Here are six questions to consider:
1. What is the minimum credit score they require?
Be sure to check your credit report and get your credit score prior to asking this question. This will let the small business owner know immediately if they can qualify for the lender’s loan based on their credit score and report. When you review your credit report, you can tell if there are any discrepancies you might want to tackle before going to the lender. It is useless to know what the lender requires when you do not know what is on your credit report.
2. What is the minimum or maximum amount the lender will finance?
It is important to know the maximum or minimum loan amount the lender will finance. If you are seeking a large loan and that lender does not lend at that level, you would have wasted your time filling out their application. So be very mindful of the amount they will or will not finance.
3. Do they accept applicants with bankruptcy on their credit?
You must find this out if you have ever filed for bankruptcy or thinking of doing so. It is important to know this before approaching a lender for financing. In most instances, you cannot get funded. Some will only accept you after a seven (7) to ten (10) year period have passed depending on the type of bankruptcy chapter you filed. Some non-traditional lenders will not finance you if you have had a bankruptcy less than three (3) years old. Be sure to ask this question before going forward.
4. Do they require a business plan?
In most instances, they will require a Business Plan and an Executive Summary before they will even look at your application. The list of documents they will require should tell you immediately what they are looking for, so be sure to ask for this before you do anything else. Find out what are the mandatory requirements on their list of documents. So, if you do not have all of the mandatory items, you will know that you cannot go further.
5. What is the minimum number of years in business the lender require?
For startup enterprises, which are less than two (2) years old, banking institutions cannot finance you. If you receive a loan from a bank it means that you personally received that loan and it was not based on your business. The banks need to have past historical data on your company for at least two (2) years or more, and as a startup, you cannot provide that information. You can receive a loan through some micro or other non-traditional lenders who have a minimum of one (1) year in business. This is not the case for all lenders, so know your source before you waste your time and theirs. It is very important to know the answer to this question.
6. Does the lender finance your industry type?
This is a vital question every business owner must ask. If the lender does not finance your industry type, you do not want to waste your time and theirs by completing their application. Some banking and non-traditional funders finance specific industries. For example, if your small business is in the medical or construction field, you would not want to be applying to a lender who finances agricultural clients only. So, it is imperative to know what the lender’s specialty is.
There are many more questions you can ask, just remember, all lenders, whether traditional (banking and other institutional lenders) or non-traditional (alternative funders, private lenders, angel investors, etc.), all have their own niche markets. In order to make the funding process easier for all, know your lenders before approaching them for a loan.
Many small business owners today are finding that qualifying for bank financing is not easy. Even if you are using non-traditional lenders, these are important things to know before approaching them. Having great credit scores and tangible assets does not necessarily mean you can get the loan amount you need.
Traditional lenders must follow strict guidelines in their lending procedures that small business owners might not be aware of. As for non-traditional lenders, they have also tightened up their lending guidelines. It is important to know what questions these lenders might and can ask. The questions below will assist you, the business owner in knowing what the lenders are looking for before you complete their application.
Here are six questions to consider:
1. What is the minimum credit score they require?
Be sure to check your credit report and get your credit score prior to asking this question. This will let the small business owner know immediately if they can qualify for the lender’s loan based on their credit score and report. When you review your credit report, you can tell if there are any discrepancies you might want to tackle before going to the lender. It is useless to know what the lender requires when you do not know what is on your credit report.
2. What is the minimum or maximum amount the lender will finance?
It is important to know the maximum or minimum loan amount the lender will finance. If you are seeking a large loan and that lender does not lend at that level, you would have wasted your time filling out their application. So be very mindful of the amount they will or will not finance.
3. Do they accept applicants with bankruptcy on their credit?
You must find this out if you have ever filed for bankruptcy or thinking of doing so. It is important to know this before approaching a lender for financing. In most instances, you cannot get funded. Some will only accept you after a seven (7) to ten (10) year period have passed depending on the type of bankruptcy chapter you filed. Some non-traditional lenders will not finance you if you have had a bankruptcy less than three (3) years old. Be sure to ask this question before going forward.
4. Do they require a business plan?
In most instances, they will require a Business Plan and an Executive Summary before they will even look at your application. The list of documents they will require should tell you immediately what they are looking for, so be sure to ask for this before you do anything else. Find out what are the mandatory requirements on their list of documents. So, if you do not have all of the mandatory items, you will know that you cannot go further.
5. What is the minimum number of years in business the lender require?
For startup enterprises, which are less than two (2) years old, banking institutions cannot finance you. If you receive a loan from a bank it means that you personally received that loan and it was not based on your business. The banks need to have past historical data on your company for at least two (2) years or more, and as a startup, you cannot provide that information. You can receive a loan through some micro or other non-traditional lenders who have a minimum of one (1) year in business. This is not the case for all lenders, so know your source before you waste your time and theirs. It is very important to know the answer to this question.
6. Does the lender finance your industry type?
This is a vital question every business owner must ask. If the lender does not finance your industry type, you do not want to waste your time and theirs by completing their application. Some banking and non-traditional funders finance specific industries. For example, if your small business is in the medical or construction field, you would not want to be applying to a lender who finances agricultural clients only. So, it is imperative to know what the lender’s specialty is.
There are many more questions you can ask, just remember, all lenders, whether traditional (banking and other institutional lenders) or non-traditional (alternative funders, private lenders, angel investors, etc.), all have their own niche markets. In order to make the funding process easier for all, know your lenders before approaching them for a loan.
How Small Businesses Can Boost Profits
Focus on technology, cost-cutting, and cross-selling, says author and consultant Patricia Sigmon
By Karen E. Klein
Too many small business owners are focused on making payroll, not profits, says Patricia Sigmon, founder and president of David Advisory Group, a Manhattan consulting company, and author of Six Steps to Creating Profit (Wiley 2010). Sigmon, who also founded and still owns a $2 million, 10-employee computer consulting business, LPS Consulting in Fanwood, N.J., spoke to Smart Answers columnist Karen E. Klein recently about boosting profits in small businesses. Edited excerpts of their conversation follow.
Why do many small businesses lag in profitability?
The No. 1 reason is small business owners don’t have the answers in hand. They have no idea that they didn’t make a profit, or that they had a loss. They are chasing payroll money every month, they’re getting deeper into debt, and then they have one bad month—and they’re dead.
Too many small business owners don’t know the difference between “busy” and “profitable.” Small businesses that wait until the end of the year to look at financial reports can lose a lot of money being “busy”—especially in a recession.
Are CEOs not looking at monthly or quarterly financial data?
Some might be, but even then they’re not capturing real-time data. A lot of small business owners still have payroll clerks entering last week’s numbers into spreadsheets. They use a patchwork of software programs that don’t talk to each other and don’t calculate actual costs.
Aside from upgrading their technology so they’re better informed, what else do you recommend for increasing profitability?
Everyone in your organization must be pitching in to improve the bottom line: networking, marketing, selling, cutting costs. If you have employees who show up to take a paycheck and don’t contribute, their jobs should be on the line. Small businesses cannot afford that mentality anymore. Every department should be looking for ways to save money on what they are doing and help the company earn more.
Read More…
By Karen E. Klein
Too many small business owners are focused on making payroll, not profits, says Patricia Sigmon, founder and president of David Advisory Group, a Manhattan consulting company, and author of Six Steps to Creating Profit (Wiley 2010). Sigmon, who also founded and still owns a $2 million, 10-employee computer consulting business, LPS Consulting in Fanwood, N.J., spoke to Smart Answers columnist Karen E. Klein recently about boosting profits in small businesses. Edited excerpts of their conversation follow.
Why do many small businesses lag in profitability?
The No. 1 reason is small business owners don’t have the answers in hand. They have no idea that they didn’t make a profit, or that they had a loss. They are chasing payroll money every month, they’re getting deeper into debt, and then they have one bad month—and they’re dead.
Too many small business owners don’t know the difference between “busy” and “profitable.” Small businesses that wait until the end of the year to look at financial reports can lose a lot of money being “busy”—especially in a recession.
Are CEOs not looking at monthly or quarterly financial data?
Some might be, but even then they’re not capturing real-time data. A lot of small business owners still have payroll clerks entering last week’s numbers into spreadsheets. They use a patchwork of software programs that don’t talk to each other and don’t calculate actual costs.
Aside from upgrading their technology so they’re better informed, what else do you recommend for increasing profitability?
Everyone in your organization must be pitching in to improve the bottom line: networking, marketing, selling, cutting costs. If you have employees who show up to take a paycheck and don’t contribute, their jobs should be on the line. Small businesses cannot afford that mentality anymore. Every department should be looking for ways to save money on what they are doing and help the company earn more.
Read More…
Sunday, March 27, 2011
Access to Alternative Financing for Small Businesses
The business owner seeking capital is finding it a challenge to access capital through traditional markets, specifically the banks. Accessing capital for expansion or survival is crucial. Where are these individuals to go if their banks are not lending? This is where non-traditional capital sources are vital. If the business owner is not aware of these sources, this could mean the loss of business, employment layoffs, and much more. But there is hope! You just have to know where, when, why, who, and how!
Where To Go
Non-traditional lenders are sometimes referred to as Alternative Funders. Many of these funders can be classified as private lenders, asset-based lenders, factoring funders, purchase order funders, to name a few. They are private sources who have the capital and/or the backing of private investors who have the capability to assist many small business owners access the capital they so need.
Niche Funding Areas
Alternative funders specialize in niche areas. Examples of these include, but are not limited to the following:
1. Accounts Receivables – these include medical, construction, government, commercial;
2. Asset-Based – which includes real estate, equipment, inventory, machinery, receivables;
3. Contract-based – to include purchase orders, government contracts, and consumer contracts.
There are many more niche areas and niche funders. You just have to locate a source in that market.
Niche Industries
In addition to niche areas, there are also niche industries with specialized financing options. These include but, once again, are not limited to the following: technology, medical, construction, staffing, security, manufacturing, printing, wholesaling, auto, trucking, and many more. If your industry is not highlighted, do not despair, there are sources out there for you too.
Accessing an Alternative Source
When you decide to seek outside financing, there are many questions to ask. You might ask yourself, “How do I access such a source?” First, you must understand your industry, how you relate to your clients, who are paying your invoices, and much more. An alternative funding source reviews a potential client for funding in a different manner from the way a banker would.
This source will take into consideration your current operations, contractual obligations, contracting opportunities, and all the potential risk of funding a small business owner’s request. They can make a more informed decision than the banker could. The funder has the capability to make these decisions based on the future expected growth of a company, while the banker looks at the past history.
Alternative funders like to develop long-term relationships with their clients. Once you have developed a great relationship with such a source, you can use their expertise to help guide your company in the right direction. It is the greatest accomplishment for them to take a client from near disaster, bankruptcy, negative cash flow; you name it, and turn them around.
Where to Find Alternative Funders
Alternative funders are everywhere. You just don’t hear about them. Bankers sometimes don’t know they exist. Bankers who do know of these sources will sometimes refer clients to these types of funders. If you are in need of funding, ask your banker, your CPA, or even your attorney to assist you in locating one of these sources.
You can also check with your local business consultants, chambers of commerce, or community business centers in your area for assistance. If they cannot help you, then contact a source such as myself who does specialize in this area of funding.
Decision Time
When is the right time to seek alternative funding? You have to decide when and if this is the right avenue for you and your business. Timing is everything.
This boils down to two things:
1. Are you willing to take the next step to grow your business?
2. Are you serious?
It is decision time! Taking the next step to help you and your business get to the next level is important but you must be open to these non-traditional means of funding your business. Remember, you do not have to allow the current economic climate to be drawback to you. Get the capital your business needs today!
Where To Go
Non-traditional lenders are sometimes referred to as Alternative Funders. Many of these funders can be classified as private lenders, asset-based lenders, factoring funders, purchase order funders, to name a few. They are private sources who have the capital and/or the backing of private investors who have the capability to assist many small business owners access the capital they so need.
Niche Funding Areas
Alternative funders specialize in niche areas. Examples of these include, but are not limited to the following:
1. Accounts Receivables – these include medical, construction, government, commercial;
2. Asset-Based – which includes real estate, equipment, inventory, machinery, receivables;
3. Contract-based – to include purchase orders, government contracts, and consumer contracts.
There are many more niche areas and niche funders. You just have to locate a source in that market.
Niche Industries
In addition to niche areas, there are also niche industries with specialized financing options. These include but, once again, are not limited to the following: technology, medical, construction, staffing, security, manufacturing, printing, wholesaling, auto, trucking, and many more. If your industry is not highlighted, do not despair, there are sources out there for you too.
Accessing an Alternative Source
When you decide to seek outside financing, there are many questions to ask. You might ask yourself, “How do I access such a source?” First, you must understand your industry, how you relate to your clients, who are paying your invoices, and much more. An alternative funding source reviews a potential client for funding in a different manner from the way a banker would.
This source will take into consideration your current operations, contractual obligations, contracting opportunities, and all the potential risk of funding a small business owner’s request. They can make a more informed decision than the banker could. The funder has the capability to make these decisions based on the future expected growth of a company, while the banker looks at the past history.
Alternative funders like to develop long-term relationships with their clients. Once you have developed a great relationship with such a source, you can use their expertise to help guide your company in the right direction. It is the greatest accomplishment for them to take a client from near disaster, bankruptcy, negative cash flow; you name it, and turn them around.
Where to Find Alternative Funders
Alternative funders are everywhere. You just don’t hear about them. Bankers sometimes don’t know they exist. Bankers who do know of these sources will sometimes refer clients to these types of funders. If you are in need of funding, ask your banker, your CPA, or even your attorney to assist you in locating one of these sources.
You can also check with your local business consultants, chambers of commerce, or community business centers in your area for assistance. If they cannot help you, then contact a source such as myself who does specialize in this area of funding.
Decision Time
When is the right time to seek alternative funding? You have to decide when and if this is the right avenue for you and your business. Timing is everything.
This boils down to two things:
1. Are you willing to take the next step to grow your business?
2. Are you serious?
It is decision time! Taking the next step to help you and your business get to the next level is important but you must be open to these non-traditional means of funding your business. Remember, you do not have to allow the current economic climate to be drawback to you. Get the capital your business needs today!
Thursday, March 17, 2011
Dwindling Cash Flow Is A Problem
By Karlene Sinclair-Robinson
To any business owner, Cash Flow is KING. Small Business owners know this. Everyone knows this.
Business owners today are tapping into whatever available cash reserves they have. This is not always the best thing to do but they might not have an option. Survival is the primary reason entrepreneurs are using their cash reserves. It is vital to stay afloat and be able to come through our current economic situation that is affecting many.
Unfortunately, for many small business owners, their cash flow is dwindling. This is a fact for many, not just small businesses. Why is this so? Take a look at the news today and you can find the answer to this question. Many business owners have to make adjustments based on reduced consumer spending, business-to-business payment defaults, and government taking a longer time to pay their invoices. These are all factors attributing to many business owners falling back on whatever little cash reserve they do have.
Accessing their cash reserves for a short period is one thing, but going back to it numerous times leaves them in a precarious position during times like these. This is even harder for the small business owner. When they do not replenish the business cash reserves or see a way to do so in the near future, they are walking a tight rope with the likelihood of going into a negative cash flow situation or even worst.
Dwindling cash flow does not make for a great outcome if the cash reserves cannot be replenished within a given time or the business owner cannot see a way of making this happen. Situations like this could result in the business owner having to reduce the number of hours they are open for business, possibly lay off employees, or even worst, close their business for good.
In light of the current economic situation and the business cash flow position, business owners must determine what has to be done to help them during times like these. How to go about this is not always easy to do. Figuring out the components that can work together to benefit the business is vital.
10 Factors to Consider During a Cash Flow Crunch
1. Assess how the business currently operates.
2. Assess how the business uses current resources.
3. Assess what the business pay for the goods and services needed.
4. Determine if the business requires all the supplies, machinery, and/or equipment you purchase or services you use.
5. Assess outstanding receivables position.
6. Assess the business’ growth potential into new markets.
7. Be sure to assess the added skills the staff can bring to the business.
8. Assess the business’ borrowing power through traditional sources.
9. Assess whether it is time to seek Alternative Financing even before you exhaust all other avenues.
10. Assess alternative sources and financing programs that can get you to where you want to be.
Once the business owner has gone through this exercise, they can then make adjustments to determine going forward. The possibility exist that the business could be in survival mode and still be okay based on spending habits or how the business owner facilitates being paid for goods or services. This is a good time to look at the goods and services offered and determine how to diversify the business effectively. Once you get back on track, be sure to model this process so that the business does not end up in the same situation again.
If the business owner must access working capital through traditional or non-traditional means, they can better identify the type of source best suited for their current needs. Knowing the immediate, short-term, and long term needs of the business early on will assist the business owner during times when cash flow is a problem.
To any business owner, Cash Flow is KING. Small Business owners know this. Everyone knows this.
Business owners today are tapping into whatever available cash reserves they have. This is not always the best thing to do but they might not have an option. Survival is the primary reason entrepreneurs are using their cash reserves. It is vital to stay afloat and be able to come through our current economic situation that is affecting many.
Unfortunately, for many small business owners, their cash flow is dwindling. This is a fact for many, not just small businesses. Why is this so? Take a look at the news today and you can find the answer to this question. Many business owners have to make adjustments based on reduced consumer spending, business-to-business payment defaults, and government taking a longer time to pay their invoices. These are all factors attributing to many business owners falling back on whatever little cash reserve they do have.
Accessing their cash reserves for a short period is one thing, but going back to it numerous times leaves them in a precarious position during times like these. This is even harder for the small business owner. When they do not replenish the business cash reserves or see a way to do so in the near future, they are walking a tight rope with the likelihood of going into a negative cash flow situation or even worst.
Dwindling cash flow does not make for a great outcome if the cash reserves cannot be replenished within a given time or the business owner cannot see a way of making this happen. Situations like this could result in the business owner having to reduce the number of hours they are open for business, possibly lay off employees, or even worst, close their business for good.
In light of the current economic situation and the business cash flow position, business owners must determine what has to be done to help them during times like these. How to go about this is not always easy to do. Figuring out the components that can work together to benefit the business is vital.
10 Factors to Consider During a Cash Flow Crunch
1. Assess how the business currently operates.
2. Assess how the business uses current resources.
3. Assess what the business pay for the goods and services needed.
4. Determine if the business requires all the supplies, machinery, and/or equipment you purchase or services you use.
5. Assess outstanding receivables position.
6. Assess the business’ growth potential into new markets.
7. Be sure to assess the added skills the staff can bring to the business.
8. Assess the business’ borrowing power through traditional sources.
9. Assess whether it is time to seek Alternative Financing even before you exhaust all other avenues.
10. Assess alternative sources and financing programs that can get you to where you want to be.
Once the business owner has gone through this exercise, they can then make adjustments to determine going forward. The possibility exist that the business could be in survival mode and still be okay based on spending habits or how the business owner facilitates being paid for goods or services. This is a good time to look at the goods and services offered and determine how to diversify the business effectively. Once you get back on track, be sure to model this process so that the business does not end up in the same situation again.
If the business owner must access working capital through traditional or non-traditional means, they can better identify the type of source best suited for their current needs. Knowing the immediate, short-term, and long term needs of the business early on will assist the business owner during times when cash flow is a problem.
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Spank The Bank: The Guide to Alternative Business Financing
The Small Business Owner's Guide to Alternative Funding