There are few bigger challenges for business owners and managers than waiting 30 to 60 days to get paid by their customers. Although large businesses can usually afford it, smaller businesses can't afford the wait. As a matter of fact, waiting to get paid on their invoices can create cash flow problems that affect the owners ability to meet payroll or pay the company's bills. This problem can be more frustrating if the business has a number of orders that it cannot fulfill because its cash is tied up in unpaid invoices.
How can invoice factoring help you?
Invoice Factoring, also known as accounts receivable factoring, is a financial tool that allows small business owners to capitalize on the power of their slow paying invoices. It allows you to turn your invoices into immediate cash, enabling you to fund your business operations. Although it is not a well-known fact, invoices from strong credit worthy commercial clients are excellent collateral, especially for factoring companies. Although most banks won't take invoices - factoring companies are more than willing to provide you with financing based on them. This makes it an ideal financing vehicle for small and mid size businesses, as well as knowledge-based companies and employee intensive firms.
How does invoice factoring work?
As opposed to most banks that lend you money against hard collateral, invoice factoring companies buy your invoices outright. The factoring company buys your invoices and provides you with funds immediately, while they wait to get paid by your customers. Factoring is best described with an example:
1. Let's say that you sell services to Company A and Company B. As soon as you provide the services, you invoice them.
2. At the same time, you send copies of the invoices to the factoring company, who buys them and provides you with an advance payment for them.
3. The factoring company waits to get paid by your customers. Once paid, any remaining funds are remitted to your company.
The invoice factoring process can be repeated every time you invoice, providing you with a flexible line of financing that grows with your business.
How much will an invoice factor advance my business?
Factoring transactions are commonly done as a two-installment sale. The first installment is called the advance and is paid to you as soon as you submit the invoices. Advances can range anywhere from 60% on the low end up to 90% of the gross value of the invoices. The average advance is about 75%.
The remaining installment, called the rebate, is remitted to you once the invoice is paid. Factoring fees are deducted from the rebate.
The cost of invoice factoring
The cost of a factoring transaction is determined by three criteria. First, the credit worthiness of your customers. Second, the length of time that your invoices take to get paid. Lastly, the monthly factored volume.
Your cost, actually called a discount, can be as low as 1.5% or as high as 12% per transaction depending on how you fit the previous criteria.
How can I determine if invoice factoring will help me?
Generally speaking, invoice factoring will help you if you have a business that has reasonable profit margins or is growing quickly. Mid size companies with 20% or more profit margins or large companies with 15% profit margins can usually do well with accounts receivable factoring.
About the author:
Invoice Factoring Group and its small business invoice factoring subsidiary can provide you with factoring quotes at no cost to you. Marco Terry, its president, can be reached at 866-730-1922.
Written by: Marco Terry
Showing posts with label Bank. Show all posts
Showing posts with label Bank. Show all posts
Wednesday, April 29, 2009
Friday, April 24, 2009
How To Finance Your Business When The Bank Says No
Do you own a growing business that needs financing? If you are like most business owners, whenever your business needs money you head over to the bank. Unfortunately, as most small business owners soon find out, most banks do not lend money to businesses unless they have significant collateral and a history of successful operations. This presents quite a challenge for business owners.
When banks are not an option, small business owners turn to what is known as the alternative financing funding market. Although the financing options discussed in this article fall under the alternative financing category, they are actually quite widely used and should be considered mainstream. Most major companies (including public companies) have used this alternative financing at one time or another during their growth history.
Most of the tools described in this article can only be used by businesses that are already in operation, and whose main requirement is working capital. Although startups can benefit from these tools, the companies will need to be in operation for a little while and have a growing list of clients.
General Invoice Factoring
Invoice factoring (also known as accounts receivable factoring) is ideal for business owners who cannot afford to wait 30 to 90 days to get paid by their clients. It allows a business to sell invoices from commercial customers to a financing company for immediate payment. The financing company buys the invoices at a discount and waits for the customer to pay.
The main advantage of factoring your invoices is that the financing company makes its decision using the credit of the payer, rather than yours. That means that if you own a small company that is doing business with a large credit worthy company, you are almost certain to have the transaction approved. Another advantage of factoring is that it does not have set limits like lines of credit. The level of financing is limited only by the amount you sell to credit worthy clients. General factors can work with most industries, although there are two main industry subspecialties - freight bill factoring and medical factoring.
Freight Bill Invoice Factoring
Trucking companies tend to be very cash hungry businesses. The owners need money to pay their drivers, pay gasoline and pay suppliers. However, most trucking companies also work with a high volume of freight invoices from credit worthy clients. That makes freight bill factoring an ideal solution for their cash flow issues. Just like in general factoring, the factoring company buys the freight invoices from the trucking company for immediate cash.. Furthermore, the risk for these types of transactions is lower than in general factoring. This means that trucking companies can qualify for preferential financing terms.
Medica l Factoring
Most medical industry businesses (doctor's offices, hospitals, medical testing centers and medical supply companies) make the bulk of their earnings by billing 3rd party insurance companies, Medicare and Medicaid. Unfortunately, insurance companies are notorious for paying their invoices in 30 to 90 days, creating cash flow problems at the medical office. Factor ing medical offices is a subspecialty of general factoring. Given the complexities of the insurance industry, it usually requires the participation of a factoring company with extensive industry experience.
Generally speaking, the medica l factoring company will provide you with financing based on your NET collectables rather then your gross collectables. They will also need to be part of the billing process, to ensure that they finance the right amounts. Due to its complexity, medical factoring is only accessible to medical businesses making at least $100,000 a month. However, if your business qualifies for it, you will find that it is a great tool to streamline your cash flow and grow.
Purchase Order Funding (a.k.a PO Financing)
Most distributors and import/export companies tend to be very cash hungry businesses, in part because of how the sales process works. Usually, the process starts when the distributor gets a purchase order (PO) from a client. They then purchase the items from their supplier, who then drop ships it to the end customer. This works well as long as the company has enough money to pay the suppliers and wait for their clients to pay for the product. However, sometimes a payment can take up to 60 or 90 days to arrive, creating a big cash flow challenge for the distributor. Other times, the company may become too successful and get a purchase order that is too big for them to finance. In these instances, the company should consider purchase order funding financing. With PO financing, a finance company handles your supplier payments and ensures that the goods are properly delivered. Once the client pays for the product, the transaction is settled and all parties are paid. PO funding is a product that truly allows you to grow your company - sometimes exponentially - while using someone else's money.
Copyright (C) 2006 - Commercial Capital LLC - All rights reserved. Article MAY be reproduced provided it is not modified and it is published with live links.
About the author:
About Invoice Factoring Group
Invoice Factoring Group can provide you with an accounts receivable factoring, PO funding financing,
When banks are not an option, small business owners turn to what is known as the alternative financing funding market. Although the financing options discussed in this article fall under the alternative financing category, they are actually quite widely used and should be considered mainstream. Most major companies (including public companies) have used this alternative financing at one time or another during their growth history.
Most of the tools described in this article can only be used by businesses that are already in operation, and whose main requirement is working capital. Although startups can benefit from these tools, the companies will need to be in operation for a little while and have a growing list of clients.
General Invoice Factoring
Invoice factoring (also known as accounts receivable factoring) is ideal for business owners who cannot afford to wait 30 to 90 days to get paid by their clients. It allows a business to sell invoices from commercial customers to a financing company for immediate payment. The financing company buys the invoices at a discount and waits for the customer to pay.
The main advantage of factoring your invoices is that the financing company makes its decision using the credit of the payer, rather than yours. That means that if you own a small company that is doing business with a large credit worthy company, you are almost certain to have the transaction approved. Another advantage of factoring is that it does not have set limits like lines of credit. The level of financing is limited only by the amount you sell to credit worthy clients. General factors can work with most industries, although there are two main industry subspecialties - freight bill factoring and medical factoring.
Freight Bill Invoice Factoring
Trucking companies tend to be very cash hungry businesses. The owners need money to pay their drivers, pay gasoline and pay suppliers. However, most trucking companies also work with a high volume of freight invoices from credit worthy clients. That makes freight bill factoring an ideal solution for their cash flow issues. Just like in general factoring, the factoring company buys the freight invoices from the trucking company for immediate cash.. Furthermore, the risk for these types of transactions is lower than in general factoring. This means that trucking companies can qualify for preferential financing terms.
Medica l Factoring
Most medical industry businesses (doctor's offices, hospitals, medical testing centers and medical supply companies) make the bulk of their earnings by billing 3rd party insurance companies, Medicare and Medicaid. Unfortunately, insurance companies are notorious for paying their invoices in 30 to 90 days, creating cash flow problems at the medical office. Factor ing medical offices is a subspecialty of general factoring. Given the complexities of the insurance industry, it usually requires the participation of a factoring company with extensive industry experience.
Generally speaking, the medica l factoring company will provide you with financing based on your NET collectables rather then your gross collectables. They will also need to be part of the billing process, to ensure that they finance the right amounts. Due to its complexity, medical factoring is only accessible to medical businesses making at least $100,000 a month. However, if your business qualifies for it, you will find that it is a great tool to streamline your cash flow and grow.
Purchase Order Funding (a.k.a PO Financing)
Most distributors and import/export companies tend to be very cash hungry businesses, in part because of how the sales process works. Usually, the process starts when the distributor gets a purchase order (PO) from a client. They then purchase the items from their supplier, who then drop ships it to the end customer. This works well as long as the company has enough money to pay the suppliers and wait for their clients to pay for the product. However, sometimes a payment can take up to 60 or 90 days to arrive, creating a big cash flow challenge for the distributor. Other times, the company may become too successful and get a purchase order that is too big for them to finance. In these instances, the company should consider purchase order funding financing. With PO financing, a finance company handles your supplier payments and ensures that the goods are properly delivered. Once the client pays for the product, the transaction is settled and all parties are paid. PO funding is a product that truly allows you to grow your company - sometimes exponentially - while using someone else's money.
Copyright (C) 2006 - Commercial Capital LLC - All rights reserved. Article MAY be reproduced provided it is not modified and it is published with live links.
About the author:
About Invoice Factoring Group
Invoice Factoring Group can provide you with an accounts receivable factoring, PO funding financing,
Saturday, April 18, 2009
How To Clean Up Your Personal Finance
Are you one of those people who doesn’t open their bank or credit card statements? Do you take out store cards on the spur of the moment? Have you been with the same bank simply because it is less hassle than changing?
If you have answered yes to any of the above questions, fear not confused consumer, help is at hand, with some assistance from a few internet tools.
* Internet tool number one:
** The consumer champion site for personal finance information
Websites such as Fool.com, Fool.co.uk and Moneysavingexpert.com have proved extremely popular with consumers. Fool.com is more geared towards the US market, whilst Fool.co.uk focuses on the UK market. Both have an extremely diverse selection of information from investment and high risk options to personal finance and low risk options. There are extensive discussion boards, newsletter subscriptions, finance calculators and competitions. These sites not only answer your questions, they make you want to ask more.
Fool.com, Fool.co.uk and Moneysavingexpert.com are community based sites and function on consumers exchanging information between themselves, whether that’s about passing on recommendations or expressing concerns. The article “Ten Reasons To Fear The Future” by Cliff D’Arcy” on Fool.co.uk is a particularly good introduction to the financial aspects of modern life.
Martin Lewis has almost become a household name in the UK through his website Moneysavingexpert. The outspoken journalist and presenter offers a comprehensive resource on a range of personal finance topics. If you can put up with the cheesey photos of Mr Lewis and his catalogue poses, you will undoubtedly find this site extremely helpful.
* Internet tool number two:
** The price comparison site for personal finance information
Kelkoo, moneynet.co.uk and Lowermybills.com (US) are now commonly exploited by consumers to ensure they are getting the best deal on their purchases. However, it is probably fair to say that more people shop around for clothes and music, than they do for their personal finance products, which is worrying as these cost significantly more.
* Internet tool number three:
** Online banking and account aggregation tools
The internet can be a scary thing and there is still much scaremongering about online security. However your details are often as secure online, as they are offline and providing you choose and hide your password effectively – there should not be a problem with people accessing your confidential information. Choose a password of eight characters or more, preferably replacing some letters with numbers, such “1nternet” or “passw0rd”.
Set yourself up with online accounts and you can proactively manage your finances yourself, without waiting for statements through the post or call centre agents to take your query. You can also save yourself bank charges by transferring funds yourself over the internet. Some banks charge large amounts for transferring funds when you can do it for no additional cost at all.
Personal finance doesn’t have to be about debt and the efficient co-ordination of funds may save you hundreds of pounds in the long-term.
Resources:
The Motley Fool UK
Personal Finance Information
*********************
About Rachel
Rachel would be really interested to get feedback on whether anyone actually reads this section. Rachel has written about living in straw huts, having the ‘Best Hits of 1987’ in her music collection, eating Green and Blacks chocolate and the fact that on her left foot - her second toe is bigger than her big toe. If someone feels like rescuing Rachel from obscurity, she would be grateful for an e-mail out of here.
Rachel also writes for the personal finance blog Cashzilla – A mighty personalfinanosaurus lives here - rargh
Don’t spam it though or she’ll eat you.
Contact details
Rachel Lane
Rachel@positiveinterest.com
Cashzilla personal finance blog
Written by: cashzilla
If you have answered yes to any of the above questions, fear not confused consumer, help is at hand, with some assistance from a few internet tools.
* Internet tool number one:
** The consumer champion site for personal finance information
Websites such as Fool.com, Fool.co.uk and Moneysavingexpert.com have proved extremely popular with consumers. Fool.com is more geared towards the US market, whilst Fool.co.uk focuses on the UK market. Both have an extremely diverse selection of information from investment and high risk options to personal finance and low risk options. There are extensive discussion boards, newsletter subscriptions, finance calculators and competitions. These sites not only answer your questions, they make you want to ask more.
Fool.com, Fool.co.uk and Moneysavingexpert.com are community based sites and function on consumers exchanging information between themselves, whether that’s about passing on recommendations or expressing concerns. The article “Ten Reasons To Fear The Future” by Cliff D’Arcy” on Fool.co.uk is a particularly good introduction to the financial aspects of modern life.
Martin Lewis has almost become a household name in the UK through his website Moneysavingexpert. The outspoken journalist and presenter offers a comprehensive resource on a range of personal finance topics. If you can put up with the cheesey photos of Mr Lewis and his catalogue poses, you will undoubtedly find this site extremely helpful.
* Internet tool number two:
** The price comparison site for personal finance information
Kelkoo, moneynet.co.uk and Lowermybills.com (US) are now commonly exploited by consumers to ensure they are getting the best deal on their purchases. However, it is probably fair to say that more people shop around for clothes and music, than they do for their personal finance products, which is worrying as these cost significantly more.
* Internet tool number three:
** Online banking and account aggregation tools
The internet can be a scary thing and there is still much scaremongering about online security. However your details are often as secure online, as they are offline and providing you choose and hide your password effectively – there should not be a problem with people accessing your confidential information. Choose a password of eight characters or more, preferably replacing some letters with numbers, such “1nternet” or “passw0rd”.
Set yourself up with online accounts and you can proactively manage your finances yourself, without waiting for statements through the post or call centre agents to take your query. You can also save yourself bank charges by transferring funds yourself over the internet. Some banks charge large amounts for transferring funds when you can do it for no additional cost at all.
Personal finance doesn’t have to be about debt and the efficient co-ordination of funds may save you hundreds of pounds in the long-term.
Resources:
The Motley Fool UK
Personal Finance Information
*********************
About Rachel
Rachel would be really interested to get feedback on whether anyone actually reads this section. Rachel has written about living in straw huts, having the ‘Best Hits of 1987’ in her music collection, eating Green and Blacks chocolate and the fact that on her left foot - her second toe is bigger than her big toe. If someone feels like rescuing Rachel from obscurity, she would be grateful for an e-mail out of here.
Rachel also writes for the personal finance blog Cashzilla – A mighty personalfinanosaurus lives here - rargh
Don’t spam it though or she’ll eat you.
Contact details
Rachel Lane
Rachel@positiveinterest.com
Cashzilla personal finance blog
Written by: cashzilla
How Banks Can Help You Improve Your Personal Finance.
If any institution is known for managing finance, it is banks. This is why many people seek advice about personal finances from professionals at their local bank. Banks can provide you with personalized finance solutions. They can help you better manage your finances.
Talking to a bank advisor can often help you find out what financial solutions are available and how can these solutions can work to your benefit.
In order to boost your confidence in your personal finances and your future, you need to understand your goals and needs. When you thought throughwhat you really want your personal finances to look like, you can go seek help from your bank.
Even if you have a concrete plan that includes all your wants and needs, but only a vague idea about what your financial future looks like, you should still drop in for help. They are there to guide you in your quest for personal financial liberation. They are there to help you--and you should utilize their services: that's what they are there for.
They are not the enemy. They are committed to helping people who seekhelp in financial matters.
Look at your current personal finance situation. Are you happy with it? Have you tried everything to better it on your own, to no avail?
If you have honestly tried it all, maybe its time you entered your bank and had a chat with them. They are there to aid you with almost all the issues surrounding your personal finance: How to pay less interest on a loan; how to save; and how to ensure that your mortgage rates don't increase.
And that's just a fraction of what they can offer you. Stop in your bank today, get advice, and start your journey on an alternative, better planned financial path.
About the Author
Affordable Web Designs - http://www.kalinawebdesigns.com
Home Equity FAQs - http://www.homeequityfaqs.com
Written by: Sarah Thomas
Talking to a bank advisor can often help you find out what financial solutions are available and how can these solutions can work to your benefit.
In order to boost your confidence in your personal finances and your future, you need to understand your goals and needs. When you thought throughwhat you really want your personal finances to look like, you can go seek help from your bank.
Even if you have a concrete plan that includes all your wants and needs, but only a vague idea about what your financial future looks like, you should still drop in for help. They are there to guide you in your quest for personal financial liberation. They are there to help you--and you should utilize their services: that's what they are there for.
They are not the enemy. They are committed to helping people who seekhelp in financial matters.
Look at your current personal finance situation. Are you happy with it? Have you tried everything to better it on your own, to no avail?
If you have honestly tried it all, maybe its time you entered your bank and had a chat with them. They are there to aid you with almost all the issues surrounding your personal finance: How to pay less interest on a loan; how to save; and how to ensure that your mortgage rates don't increase.
And that's just a fraction of what they can offer you. Stop in your bank today, get advice, and start your journey on an alternative, better planned financial path.
About the Author
Affordable Web Designs - http://www.kalinawebdesigns.com
Home Equity FAQs - http://www.homeequityfaqs.com
Written by: Sarah Thomas
Saturday, March 28, 2009
Get A Better Refinance Deal Than Your Local Bank Offers
Gone are the days when money could be fetched either by mere mortgaging or financing something. Now it is time to get money via an amalgam of the two i.e. Mortgage Refinance. Mortgage refinance is a smart idea to have a good credit sum and repay it in an easy fashion. In simple terms a refinanced mortgage is one where a borrower repays a previous loan by taking a new one. The main motive behind refinance mortgage is to get a lower interest rate, lowering their payments or to take cash out of their home equity. So basically in mortgage refinance refers to taking a secured loan to replace the existing loan that is secured via some assets of yours.
Let us first delve into the factors that instigate a refinanced mortgage. There are several reasons that instigate people to opt for refinance. For instance
(a) Mortgage refinance reduces the interest rate on your mortgage. It not only minimizes your EMIs or monthly installments but also brings down the total amount that you need to repay.
(b) Another wonderful feature of mortgage refinance is the reduction in the tenure of the loan, which is immensely effective in saving lot many bucks.
(c) Mortgage refinance is a smart idea to consolidate or fuse the amount you need to repay.
(d) Mortgages refinance serves you with the most essential thing i.e. cash in hand. You can draw on an equity built up in the house to acquire cash amount for several purposes such as your daughter's marriage, child education etc.
(e) If you want to have an adjustable-rate mortgage i.e. ARM and a fixed-rate loan in order to ensure you regarding the mortgage payment, mortgage refinance is a brilliant idea.
However there are other things to be taken into consideration. First and foremost mortgage refinancing can be recommended if the present rate on your mortgage is at least 2 percentage points higher than the existing market rate. Second you need to know that for how long you propose to stay in the house. Third you need to know that according to many sources given the costs of refinancing, it takes at least three years to realize completely the savings made from a relatively lower interest rate. Finally in order to go for mortgage refinance is to enlist complete expenditure of refinance and calculate your monthly installments. Knowing this will enable you to decide whether you should opt for refinance or not.
Well before going for a mortgage refinance you can also ask yourself questions ponder over questions such as- by how much will your existing monthly installment be lowered, what will be the financing cost that you will have to pay, how much will you owe in the house and for how much was the initial payment for the house made etc. Once after going through the various factors and conditions you feel it is appropriate to go for a mortgage refinance (which is true with most of the cases) then the first step is to consult a good real estate agent, mortgage lender as well as an attorney and other legal practitioners. Searching online is even an excellent option.
About the author:
Mansi gupta writes about mortgage refinance .
Written by: Mansi gupta
Let us first delve into the factors that instigate a refinanced mortgage. There are several reasons that instigate people to opt for refinance. For instance
(a) Mortgage refinance reduces the interest rate on your mortgage. It not only minimizes your EMIs or monthly installments but also brings down the total amount that you need to repay.
(b) Another wonderful feature of mortgage refinance is the reduction in the tenure of the loan, which is immensely effective in saving lot many bucks.
(c) Mortgage refinance is a smart idea to consolidate or fuse the amount you need to repay.
(d) Mortgages refinance serves you with the most essential thing i.e. cash in hand. You can draw on an equity built up in the house to acquire cash amount for several purposes such as your daughter's marriage, child education etc.
(e) If you want to have an adjustable-rate mortgage i.e. ARM and a fixed-rate loan in order to ensure you regarding the mortgage payment, mortgage refinance is a brilliant idea.
However there are other things to be taken into consideration. First and foremost mortgage refinancing can be recommended if the present rate on your mortgage is at least 2 percentage points higher than the existing market rate. Second you need to know that for how long you propose to stay in the house. Third you need to know that according to many sources given the costs of refinancing, it takes at least three years to realize completely the savings made from a relatively lower interest rate. Finally in order to go for mortgage refinance is to enlist complete expenditure of refinance and calculate your monthly installments. Knowing this will enable you to decide whether you should opt for refinance or not.
Well before going for a mortgage refinance you can also ask yourself questions ponder over questions such as- by how much will your existing monthly installment be lowered, what will be the financing cost that you will have to pay, how much will you owe in the house and for how much was the initial payment for the house made etc. Once after going through the various factors and conditions you feel it is appropriate to go for a mortgage refinance (which is true with most of the cases) then the first step is to consult a good real estate agent, mortgage lender as well as an attorney and other legal practitioners. Searching online is even an excellent option.
About the author:
Mansi gupta writes about mortgage refinance .
Written by: Mansi gupta
Wednesday, March 11, 2009
Bridging Finance Loan
Bridging finance is a short-term loan that is used as a way to provide funding for the purchase of a new property while the borrower awaits the sale of an existing property. Unless all the stars are in perfect alignment, it’s tricky to coordinate the sale of one property and the purchase of another property so that the transactions occur simultaneously.
Bridging finance or a “bridge loan” as it is more commonly referred to, makes such transactions possible. They keep the borrower from ending up in a dire financial situation as can happen when forced to pay two mortgages at the same time. Bridge loans can be used either for business or for personal reasons.
Primarily short term in nature, the process for obtaining a bridge loan is similar to that of most types of loans. Most importantly, it’s advisable to work with a lender that has experience with this type of loan. Also, since the need for a bridge loan often arises with little advance notice, being pre-approved for such a loan is a good idea.
Bridge loans typically are structured as interest only loans meaning that the borrower pays only the interest on the loan each month. The borrower continues with this repayment plan until the property the loan is being used for is sold. When the sale finally does occur, the proceeds of that sale are used to repay the principal. The principal payment typically is in the form of a one-time, lump-sum payment.
The lender does not need to worry too much about default because the borrower is required to put up collateral to secure the loan. This can be in the form of another piece of property, business machinery or inventory on hand. But rest assured the lender will still thoroughly review the credit history of the applicant, the business and any partners or others with an ownership interest to assess the level of risk it is undertaking.
The interest rate assigned to the bridge loan is based on several factors: the anticipated risk associated with the bridge loan, the prevailing interest rates and a premium added by the lender. Since bridge loans are short-term, generally not longer than two years, the lender has only a short time to make money on the deal. The profit is derived from the interest rate.
Expect to pay a higher rate of interest for a bridge loan. And remember, the monthly payments on a bridge loan generally will be for interest only. Expect to pay off the bridge loan in full, usually as a one time balloon payment, as soon as the property is sold.
In the event that the property is not sold before the bridge loan matures, it can usually be converted to a conventional loan without paying a penalty. But it’s always a good idea to double check this before assuming.
About the Author
Specialists in Commercial Bridging Finance Commercial Lifeline. Independent UK based Commercial Bridging
Finance brokers.
Feel free to reprint and distribute this article as you like. All that we ask is that you do not make any changes, that this resource text is include, and that the link above is intact.
Written by: Darren Yates
Bridging finance or a “bridge loan” as it is more commonly referred to, makes such transactions possible. They keep the borrower from ending up in a dire financial situation as can happen when forced to pay two mortgages at the same time. Bridge loans can be used either for business or for personal reasons.
Primarily short term in nature, the process for obtaining a bridge loan is similar to that of most types of loans. Most importantly, it’s advisable to work with a lender that has experience with this type of loan. Also, since the need for a bridge loan often arises with little advance notice, being pre-approved for such a loan is a good idea.
Bridge loans typically are structured as interest only loans meaning that the borrower pays only the interest on the loan each month. The borrower continues with this repayment plan until the property the loan is being used for is sold. When the sale finally does occur, the proceeds of that sale are used to repay the principal. The principal payment typically is in the form of a one-time, lump-sum payment.
The lender does not need to worry too much about default because the borrower is required to put up collateral to secure the loan. This can be in the form of another piece of property, business machinery or inventory on hand. But rest assured the lender will still thoroughly review the credit history of the applicant, the business and any partners or others with an ownership interest to assess the level of risk it is undertaking.
The interest rate assigned to the bridge loan is based on several factors: the anticipated risk associated with the bridge loan, the prevailing interest rates and a premium added by the lender. Since bridge loans are short-term, generally not longer than two years, the lender has only a short time to make money on the deal. The profit is derived from the interest rate.
Expect to pay a higher rate of interest for a bridge loan. And remember, the monthly payments on a bridge loan generally will be for interest only. Expect to pay off the bridge loan in full, usually as a one time balloon payment, as soon as the property is sold.
In the event that the property is not sold before the bridge loan matures, it can usually be converted to a conventional loan without paying a penalty. But it’s always a good idea to double check this before assuming.
About the Author
Specialists in Commercial Bridging Finance Commercial Lifeline. Independent UK based Commercial Bridging
Finance brokers.
Feel free to reprint and distribute this article as you like. All that we ask is that you do not make any changes, that this resource text is include, and that the link above is intact.
Written by: Darren Yates
Saturday, March 7, 2009
Alternative Venture Finanace:Federal Grants and Loans
While most companies seeking venture capital initially think about angel investors and venture capitalists, a large alternative source of financing is federal grants and loans. The two largest federal grant programs are run by the Small Business Administration (SBA), and by Small Business Investment Companies (SBICs).
An SBA loan, regardless of whether it is a direct loan from the SBA, or, as is more common, a bank loan guaranteed by the SBA, is essentially a bank loan. The benefit of it versus a traditional bank loan is the rate. SBA rates are typically much less than traditional business loan rates.
In most cases, in a guaranteed SBA bank loan, the SBA guarantees 90 percent of the loan will be repaid to the bank. As such, banks are at much less risk than in most other loans, and are a bit more flexible with regards to who they offer these loans. However, the SBA usually requires the founders of the company to personally guarantee the loans, which makes them risky should the venture collapse.
Alternatively, Small Business Investment Companies (SBICs) are privately organized corporations that are licensed and regulated by the SBA. Small or emerging businesses which qualify for assistance from the SBIC program can receive equity capital and/or long-term loans from these companies. Essentially, these companies provide their own capital, which is supplemented by federal funds, to the companies they fund.
Interestingly, U.S. taxpayers benefit from the SBIC program as tax revenues generated from successful SBIC investments have more than covered the cost of the program. Likewise the program has created hundreds of thousands of jobs.
In summary, SBA and SBIC financing are viable alternatives to financing from angel investors and venture capitalists and should be considered in the capital raising process. Similarly to angel and VC financing, companies seeking SBA and SBIC financing need a strong management team and value proposition, and a highly professional and compelling business plan in order to raise the capital they need.
About the Author
As President of Growthink Business Plans, Dave Lavinsky has helped the company become one of the premier business plan development firms. Since its inception, Growthink has developed over 200 business plans. Growthink clients have collectively raised over $750 million in financing, launched numerous new product and service lines and gained competitive advantage and market share.
Written by: Dave Lavinsky
An SBA loan, regardless of whether it is a direct loan from the SBA, or, as is more common, a bank loan guaranteed by the SBA, is essentially a bank loan. The benefit of it versus a traditional bank loan is the rate. SBA rates are typically much less than traditional business loan rates.
In most cases, in a guaranteed SBA bank loan, the SBA guarantees 90 percent of the loan will be repaid to the bank. As such, banks are at much less risk than in most other loans, and are a bit more flexible with regards to who they offer these loans. However, the SBA usually requires the founders of the company to personally guarantee the loans, which makes them risky should the venture collapse.
Alternatively, Small Business Investment Companies (SBICs) are privately organized corporations that are licensed and regulated by the SBA. Small or emerging businesses which qualify for assistance from the SBIC program can receive equity capital and/or long-term loans from these companies. Essentially, these companies provide their own capital, which is supplemented by federal funds, to the companies they fund.
Interestingly, U.S. taxpayers benefit from the SBIC program as tax revenues generated from successful SBIC investments have more than covered the cost of the program. Likewise the program has created hundreds of thousands of jobs.
In summary, SBA and SBIC financing are viable alternatives to financing from angel investors and venture capitalists and should be considered in the capital raising process. Similarly to angel and VC financing, companies seeking SBA and SBIC financing need a strong management team and value proposition, and a highly professional and compelling business plan in order to raise the capital they need.
About the Author
As President of Growthink Business Plans, Dave Lavinsky has helped the company become one of the premier business plan development firms. Since its inception, Growthink has developed over 200 business plans. Growthink clients have collectively raised over $750 million in financing, launched numerous new product and service lines and gained competitive advantage and market share.
Written by: Dave Lavinsky
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