Proven Tips For Business Finance – Part I

If you want to safeguard your business’ failure, you must learn the different ways of business finance, how to conserve cash and bookkeeping, and how to raise funds. You will not be able to succeed in your venture without sufficient funding. Following is a brief rundown on how to ensure your success by taking care of the finances in the most efficient manner.

Raise More Fund Than You Actually Need
Before you start a new venture, it is very important for you to understand that you more or less get only one chance to raise fund. Therefore, you have to be very careful about what you need, what your sources are, and how much money will be sufficient. You are strongly recommended to arrange more funds than you actually need. This extra amount should go to your emergency fund. For example, you calculations may prove to be wrong at a later stage and then you may find it very difficult to arrange business finance a second time. That extra funding will be a great help in such cases. Always remember, your business propositions may become unviable if you carry on with figures that are too conservative. So, plan accordingly.

There Are Better Alternatives Than Bank
Depending upon your actual needs and requirements, there can be several alternatives for raising funds that may prove to be much better and cheaper than bank financing. Therefore, you must thoroughly research your requirements first, such as how much amount is needed for your business and for how long. For example, if you need it for a short period of time, re-mortgaging your house will be a bad idea. Likewise, renting and leasing options can be more suitable if fund in needed to support equipment purchase.

Keep Your Financers Informed With Your Business Plan And Progress
When it comes to business finance, it is also very important for you to inform all the parties involved in the venture with the latest updates about your plans and how things are progressing. The idea is to get a good understanding of the needs of the people associated with your business in some way or other. If you keep them in dark, you will have a very tough time running your business operations smoothly and successfully. On the other hand, if your banks and financers are thoroughly updated with the latest happenings and developments, they will be more sympathetic to your needs.

You are also recommended to stick to set procedures, especially when it comes to chasing debts. There are several other tips as well about business finance, which I will explain in the next part of this article. For example, I will walk you through the various ways on how to deal with cash shortage – after all, cash is king for any business. So, do not forget to check out back.

Merchant Cash Advances and Working Capital Basics For Small Business Financing

It is frequently a good idea to get back to basics, and this is particularly appropriate for small business owners when they are reviewing if they can increase their cash flow with business cash advances while reducing processing costs. Because many businesses have experienced both decreased sales and increased difficulty in obtaining bank financing, this review of basic working capital management processes should be helpful to most commercial borrowers. The possibility of reducing a significant business expense is likely to be appealing to even the most successful small businesses.

While they will not be discussed here, there are other working capital financing options to consider for a business which does not accept bank cards from customers as a payment option. A minimum monthly volume of bank card sales which typically varies from $5000 to $10000 is needed in most cases to obtain business funding based upon credit card receivables factoring. A lump sum payment is received based on projected future credit card processing transactions when merchant cash advances are obtained by a business. As credit card purchases are processed, the business financing is repaid automatically and gradually (typically covering about seven to eight months). Because they do not have another reliable commercial funding source, this strategy for obtaining working capital is used by many diverse businesses. The need to consider this option has also increased because banks are routinely reducing or eliminating business lines of credit in almost all areas for small businesses.

This might be the perfect opportunity to review the cost structure currently in place for a business because this approach to working capital management is tied so directly to credit card processing activity. Many small business owners chose their credit card processor based upon a recommendation from a colleague or banker. It is not unusual to hear that costs or terms were not reviewed thoroughly before signing a processing agreement.

As indicated, future credit card processing activity is used to repay a business cash advance. A portion of each transaction is automatically allocated toward repayment. In order for this to happen, the processor must agree in advance to handle it properly. Not all credit card processing providers will agree to help with the merchant cash advance repayment process. When this occurs, alternative processors can usually be arranged with minimal impact on daily business operations. A common occurrence is for a small business to realize significant cost reductions when replacing one credit card processing provider with another because costs were often overlooked when the initial agreement was signed.

One of the primary precautions to observe when a small business owner is considering a business cash advance is to ensure that the company providing the business financing does not rush to change credit card processors before determining if they can complete the desired working capital financing. Attempts to change processing arrangements immediately are a clear indication of one of the most serious abuses seen during recent years for companies appearing to offer merchant cash advances. An initial evaluation of whether they can provide financing and in what amount is a more normal and appropriate approach for the commercial funding provider to take. Checking with the existing processor to determine their ability to facilitate repayment of the working capital to be advanced to the business borrower would then be the next step if the initial findings were acceptable to the business. Even if their current processor is willing to work with the business cash advance provider, businesses should consider asking for a review of cost saving opportunities involving their credit card processing.

Stephen Bush is Chief Executive Officer of AEX Commercial Financing Group and is a small business financing [] expert who helps commercial borrowers in all regions of the United States. Please contact him to discuss practical commercial finance options for working capital management and commercial real estate loans. Steve has provided candid advice to small businesses for more than 25 years. Prior to founding AEX Commercial Financing Group, he served as an officer in the U.S. Navy Supply Corps and as a financial investing/real estate investment consultant. Steve received a BA degree in Business Psychology from Miami University (Oxford, Ohio) and an MBA in Real Estate Finance from the University of California (Los Angeles). He specializes in commercial loans, merchant cash advances and business finance consulting for small business owners.

Alternative Business Financing Source – Factoring

The process of factoring refers to selling your accounts receivable invoices to a third party. The third party then assumes obligation of collecting the invoices, taking the weight off of your shoulders. For this “service” however, the third party will charge you a respectable fee by discounting the receivables market value.

For instance, if your company sold a product for $50K to a client, and are still waiting to collect the $50K check, you may want to consider factoring. The factor will buy the invoice from you at a discounted price, perhaps for $45K, and will collect the $50K at a later date thus making $5K themselves.

The price a factor pays you depends on several things, such as the risk involved and time required until collection. However, the cash provided by these factors can be crucial to your business. If you are short on cash, opting for a factor may be a very appealing option. Likewise, if you operate in an industry with a long receivables turnover ratio, and have a substantial account receivables balance, third party factors may work wonders for your cash flows.

One of the best every day examples of third party factors is a credit card company. Although the business model is slightly different, the underlying concept is still that of a third party factor.

For example, 15 years ago you would go to the grocery store and pay your $100 grocery bill with a check. The grocery store would then hand the check over to the bank, where the bank processed the check and performed a funds transfer. The entire process could take anywhere from 3 to 7 days, if not more until the grocery store received the funds.

Today, you may pay that same bill with a credit card. The credit card company typically fronts the cash to the grocery store. Thus, the grocery store receives the money instantly, and not 7 days later. For this “service,” credit card companies charge an approximate 3% fee to the business. As a result, the grocery store only receives $97 dollars, but it has the funds right away.

Many stores don’t mind credit card payments, despite the 3% fee, because it gives them instant cash, and also avoids the problem of bounced checks. Bounced checks are basically accounts receivables that never get collected, and simply cost your business money in the long run.

Although the example above is based on credit card companies and not a traditional third party factor, the same principles still apply. Cash is king, and the option of having cash instantly at a fee-based price may be very appealing to business seeking to raise capital in the short term.

Top 5 Ways to Kill Your Chances of Getting Business Financing

As I’m working on various financing engagements, I’ve noticed a trend of behaviors and am using this avenue as a therapeutic sounding board. This article is dual fold. It’s a chance for me to rant and get some things off my chest while providing constructive feedback to you as to what NOT to do when searching for business financing.

There are ways to present yourself and ways NOT to present yourself. Today, I’m going to focus on my top 5 ways to kill your financing chances in hopes that you can avoid them.

1) Not Answering Questions Completely or Honestly – Nothing will ruin your credibility faster than being evasive with your answers; or worse, not being truthful. If you’re hiding information that is later caught, it makes me wonder what else you’re hiding. Your credibility is shot. Some people want to put a rosy face on a less than ideal situation…well don’t. In order to find you the best financing for your business, it’s important to disclose the good, the bad and the ugly. No business is perfect and these flaws WILL come out in underwriting. So be upfront…show everything, warts and all.

2) Not Following Through on Your Commitments – If you commit to providing information by a certain date, call back at a specific time, or meet at a certain time, etc. and don’t follow through as promised, you’re viewed as undependable and unprofessional…and nobody wants to deal with that. Say what you mean and mean what you say. If you follow through on your commitments, your clout goes up dramatically because of all the mediocrity in the world.

3) Radio Silence – If you think being late with your commitments is bad, going underground and ceasing communications is equivalent to you saying that you don’t want your deal done. Aside from a family emergency or something life threatening, I can’t think of any other reasons that are acceptable to just stop communicating. “But I’ve been soooo busy”, you might say. SO WHAT! I’m swamped and put in 14-16 hour days and don’t need or want to hear excuses like that. Please remember to stay in constant contact.

4) Sloppy and Unprofessional – When information presented is sloppy and unprofessional, it shows little care was used when preparing it. Many conclusions can be drawn, whether true or not. Maybe they’re not smart; maybe they don’t care; maybe they’re not serious. Whatever the conclusion, it will not help you get your financing. Make certain to prepare as if you’re providing the financing and ask yourself what you would want to see.

5) Form Over Substance – If you find that funding sources are cutting meetings short or they don’t want to have them at all, chances are you’re providing form and no substance. What’s this? It’s when you talk a good game and it ends there. You might get lucky and schedule a meeting or two, but when they catch on that the magic ends there, so will your meetings. Don’t discuss business philosophy or high-level theory. Have specific, concrete information about your company, why you need financing, how you’ll pay it back, etc.

BONUS: Here is a sixth way to kill your chances to get business financing…

6) Not Saying “I don’t know” – It seems simple but so many time people will stumble their way through trying to answer a question instead of just saying “I don’t know”. We’re all human. It’s OK to say “I don’t know; I’ll have to get back to you with an answer”. Don’t guess, or worse, make something up. Trust with others is always easier to build when you’re honest.

Kevin McArdle is a Principal with CDK Capital, a boutique commercial finance firm that provides small to mid-size businesses alternative business financing strategies to help grow, improve cash flow & preserve capital. These strategies include Venture Capital Financing for technology companies, Accounts Receivable Financing for business experiencing cash flow problems, and Equipment Financing for buyers of capital equipment.

Business Finance and Business Loans Versus Residential Loans

More residential real estate investors are exploring commercial real estate and business loan alternatives as a result of the increasingly chaotic investment environment for residential financing. In these circumstances prospective commercial property owners, business investors and business owners should educate themselves about choices for the business opportunity financing and commercial loan climate that currently prevails throughout the United States.

Environmental requirements for business finance will be a complex issue for numerous business investments. Environmental issues involved in a business loan will primarily depend upon the commercial lender as well as the type of business. More extensive requirements can impact both the cost and timing for a commercial mortgage loan.

Tax returns and financial statements for a business loan are likely to be a concern for all commercial borrowers. Whereas residential mortgage financing is likely to involve only personal tax returns, most business financing will include a review of business tax returns as well. Business financial statements and personal financial statements will be required for certain kinds of business opportunity financing and commercial real estate financing.

Secondary financing will often be a means of acquiring desired commercial loans. The use of seller financing or secondary financing is a prudent business financing strategy to reduce capital requirements for the borrower. Secondary financing will not be accepted by all commercial lenders.

An unexpected requirement for many commercial loans involves sourcing and seasoning of funds. When purchasing a business, some lenders will require that borrowers document where the down payment is coming from (sourcing) and how long the funds have been in that location (seasoning). If a borrower cannot adequately provide this documentation, the choice of commercial lenders will be more restricted.

Collateral and cross-collateralization for business loans will be an insurmountable obstacle for some commercial borrowers. Collateral requirements for business financing will depend on many factors such as down payment, type of business, credit scores and the type of financing needed. Cross-collateralization refers to lender requirements involving personal collateral such as a home used as collateral for a business loan.

Any requirement for a business plan when obtaining commercial mortgages is likely to be expensive and time-consuming. A business plan is not always required for a business loan, but when one is required this will add significantly to the cost and length of the loan process.

An increasing problem for commercial borrowers seeking refinancing is an unreasonable limitation for getting cash out of the new loan. Commercial lenders differ significantly regarding restrictions imposed on the amount of cash out to the borrower when refinancing. Some lenders will not permit any cash out whatsoever while others will limit cash received by the borrower to a particular amount. The preferred approach is to use a lender that will allow cash to be paid out up to an agreed loan-to-value (frequently 75%).

It is important to to thoroughly analyze business financing lockout penalties. A lockout penalty is much more severe than a prepayment penalty in that such penalties can effectively prevent a commercial borrower from selling or refinancing during a prescribed period (often two to five years).

In addition to the issues noted above, numerous other key business finance and real estate mortgage issues will also be important to evaluate. Commercial mortgage requirements are very different from residential financing requirements in the United States. We have prepared several other business finance overviews addressing additional factors that will be significant for most commercial borrowers. Separate report topics include SBA loan refinancing, business opportunity financing, stated income business loans and commercial appraisals.