Working Capital and How It Impacts Cash Flow

Looking at a few numbers won’t necessarily give you an idea of how well a business is doing. While a company that brings in $100,000 a year looks far less profitable than one that grosses $500,000, that outlook changes if you know that the smaller business only spends $10,000 on overhead while the larger drops $400,000. Understanding your working capital in this big picture approach is the best way to know how stable your company actually is. Once you figure that out, you’ll be much better equipped to assess your cash flow situation.

Running a business means accounting for every dollar that comes from and goes to your company. It also means knowing how much worth you have in both assets and liabilities. It’s easy to look at your bottom line and compare that to the revenue generated by sales, but that doesn’t account for the money borrowed to purchase the inventory that generates the revenue to begin with. For any company to survive, much less grow, they must maintain their working capital ratio so that the assets outweigh the liabilities. If this ratio is below one and your company isn’t worth as much as it owes, there’s trouble on the horizon.

Alternatively, a ratio in excess of one means cash flow can potentially be put towards other expenses. After overhead is covered and debts are paid, excess cash can be turned into growth capital to cover the cost of future expansion. The longer you keep your debts on the right end of this ratio, the more your business can grow.

Cash flow is something that your business won’t always be able to predict. It would be ideal if you could keep profits steady throughout the year, though most businesses have to deal with months and quarters when consumerism is down. It’s during these dry spells that your working capital has to pick up the slack. Hopefully, it doesn’t come to liquidating assets that you had hoped to keep, but having that option can sometimes be the difference between your business staying open or folding. If your asset-to-liability ratio is good enough, it can help you weather the storm until your cash flow picks up again and allows you to reinvest in your company.

Both cash flow and working capital are vital to the success of your business, and each is reliant on the other. As the business owner, it’s up to you to make sure that you look at a full financial summary to understand how to best manage your money.

Owner Occupied Commercial Real Estate: What You Need To Know

Business owners looking to own their own property may be looking at owner occupied commercial real estate as a promising option because it allows for certain tax benefits, as well as more control over using the property and shaving off excessive rental costs. If you’re interested in investing in this kind of ownership, you’ll want to know how to structure the ownership of the new property. There are several options to consider, which can either limit or increase liability, but also provide benefits.

First, you could set up ownership as a limited liability company, or an LLC. This will insulate you from liability claims that can be incurred from the property since an LLC is its own legal entity, separate from yourself or your company. However, establishing an LLC can cost you more than other ownership options, particularly in taxes. LLCs with multiple owners will require them to file partnership tax returns at the federal and state level, which will likely add to your costs if you should need a professional tax preparer, and getting attorneys to set up the LLC will cost money as well. Additional taxes can also be an issue if a corporation buys the property, which can include double taxation at the personal and corporate level.

Operating a piece of owner occupied commercial real estate is simpler with a sole or joint ownership, as this arrangement only requires one more form on your personal tax return. Your rental income or losses from the property will be taxed at ordinary rates on your return. However, property owners will be fully liable under this ownership structure, so it’s important to establish a full insurance policy that will cover your property. You’ll also want insurance if you enter a formal general partnership, which sets up an agreement between partners that should be prepared by an attorney. This kind of partnership formalizes the relationship and is geared to solve problems before they arise.

Finally, a formal limited partnership includes a general partner that has unlimited liability while the limited partner’s liability only covers the amount invested in the owner occupied commercial real estate. The general partner, typically a corporate entity, will have to file an 1120 tax form to report the income it garners from the property. On the plus side, this partnership does not require income tax payments. Instead, each partner’s income or loss from the property is taxed at ordinary rates on the partners’ return. Once you’re familiar with the options, you’ll be able to set up a structure for your real estate that will work best for your needs.

9 Top Seasonal Business Ideas

If you are looking to start your own business or simply looking for a way to increase your income without committing to working year round, a seasonal business is a perfect option. There are countless business ideas that only require working part of the year and if you are committed and passionate, you will undoubtedly be successful in starting your own business. The top 9 seasonal business ideas include opening a food truck, becoming a personal trainer, or chimney sweeper, opening a firework retailer, Halloween retailer, or Christmas retailer, or becoming a tour guide, tutor, or pet sitter.

Opening a food truck can yield significant benefits when parked near highly populated areas including college campuses and business centers. When the weather is nice, people are drawn outside and seek quick, convenient meals to curb their hunger. Another idea is to become a personal trainer. You can take various directions with this but focusing on New Year’s resolution crowds who are motivated to work out and willing to pay the price can be a great way to increase your income. Sweeping chimney is also an option which involves working in the fall and winter months, giving you summer and spring to relax.

If fireworks fascinate you, opening a firework retailer could be an enjoyable way to make some money between Memorial Day and Labor Day. Looking for work around October? Opening a Halloween retailer is another option that can be extremely profitable as people are often willing to pay top dollar to dress like people they are not. Yet another option for Holiday enthusiasts, is opening a Christmas retailer. People become extremely generous around the holidays and are willing to spend more than they would other parts of the year, making this a profitable seasonal business idea.

If opening a seasonal retail business does not interest you, consider becoming a tour guide. This is ideal for people who enjoy sharing their knowledge or have a passion for history and love interacting with others. Another option if you like to share your knowledge would be to become a tutor. Depending on your level of expertise, this could involve tutoring young kids, or even college students. The last business idea is becoming a pet sitter. If you love animals, this is the perfect business for you.

The amount of seasonal business ideas are endless, and they can be a perfect way to make some money without committing to a yearlong occupation. Opening a food truck, becoming a personal trainer, or chimney sweeper, opening a firework retailer, Halloween retailer, or Christmas retailer, or becoming a tour guide, tutor, or pet sitter are some possibilities. Depending on your passions and skills, you can find the ideal business for you.

How New Commercial Real Estate Investors Get Construction Loans

New commercial real estate investors who are thinking about getting construction loans to finance their development projects may need to understand what is required in order to qualify for approval. Getting financing for a building plan is much more challenging than other types of investments. Additionally, most loans that finance construction projects must be taken out from a local bank instead of one of the many different alternative fund sources available now. Banks may have stricter requirements in order to get approved. Before you go to the bank, it’s important to keep a few things in mind to help increase your chances of landing a loan. You need to have a high credit score, a sufficient income and information that details your building project to convince the bank to invest in you.

High Credit Score

When you’re applying for business funding, and you lack years of experience in the industry, your personal credit report can sometimes be evaluated. For many new entrepreneurs, there isn’t enough of a business credit file in order to use that as a deciding factor for loan approval. If you want to be a contender for a bank loan, you need to carefully examine your credit history long before filing out your loan application. If your credit shows an excellent payment history, a great utilization of credit accounts and no problems, you have a better chance of getting a commercial loan.

Sufficient Income

Another thing that is important for new investors to show banks for construction loans is their ability to pay a loan back. What banks look for is that your income is high enough to cover all of your debts. Some banks have a formula that is used in order to calculate the ratio between income and debt. If you meet the requirements with your income, you may be in luck when it comes to your eligibility for borrowing.

Building Details

Additionally, because construction loans concern plans for a building project, your bank may also need to get paperwork from you that details everything about the scope of the job that you’re taking on. They may need things like blueprints, income projections and contractor estimates for the construction process. This can help the lender get a greater picture of what it is you’re trying to accomplish with your real estate project.

Being the new kid in the real estate investing industry is tough already. What’s even tougher for new investors is the part where they need to prove themselves to banks in order to get construction loans. Getting these important loans can help you carve out your reputation and put your first project on the map.

Buying a Franchise Business for Emerging Entrepreneurs

If you’re trying to get something started as a beginning entrepreneur, one exciting opportunity that many new business owners choose is a franchise business. If you buy an established franchise, you can get a little more stability in the world of commerce as a brand new location. Many times, these chains have an already established customer base, a proven business model and a wealth of advertising and marketing campaigns that have previously ran. With a brand identity that has been shaped into customer’s minds, emerging entrepreneurs can get an advantage when going this route. Before taking the leap into opening your own franchise, you must be sure to research the industry, understand the contract and partner with a professional who can help you navigate the journey toward a successful launch.

Research the Industry

The first step in being part of this industry is to do your research. There are many different lucrative prospects out there, and you must look for something that matches your interests and goals. If you have experience in a particular field, you may want to go in that direction as well. Once you know which type of franchise you want to open, learn about each company that may be offering location opportunities in your preferred area. You want to understand the operating costs and potential profits for each organization in order to narrow down your choice.

Understand the Contract

When you have chosen the type of franchise business you want to go with, your next order of business is to understand the contract. The contract is the binding agreement that allows you to open a location that is part of the main company. It’s important to know as much as possible about the profit structure, sales quotas, corporate obligations and other things that may be expected of you as a franchisee. You also need to know what type of support the parent company can offer to new operators. Some businesses can guide your opening process alongside of you, while other companies leave you to deal with this stage on your own.

Partner With a Professional

Just like any other type of business opportunity, you want to make sure you protect yourself from any problems that may come up while opening a franchise business. That’s why it’s essential to partner with a professional lawyer or contract specialist before committing to anything in writing. Investing in this type of advice can save you money in the long run.

A franchise business can be an appealing possibility for those who want to be independent owners. While giving you your own establishment, they often provide additional support and a strong brand identity to help you get to strong revenues.

New to Property Investments? Try a CRE Loan

Investing in property can be one of the smartest financial decisions you make, but you may not know how to make the most of it. If you are new to property investment, you might want to take the time to consider what a CRE loan is and how it can be a benefit to your situation.

A CRE loan, or commercial real estate loan, is financing given to individuals who qualify to purchase investment properties. A lender will carefully look over your financial situation, the projected income value of the property and other aspects that will play into the transaction. After deciding that you qualify for the loan, the details will be structured in a way that offers you and your company the most benefit.

One way to give yourself a better chance of qualifying for the loan is to come up with a clear business plan and present it to the lender. Offer information about what you wish to do with the property. If you are going to rent out space, know who your target market is and have a plan that details how to appeal to those individuals. You really need to show the lender that your investment property will make money, rather than lose money. Another part of your business plan is having all the proper documentation in hand when you speak to the lender. If you are unsure of which documents are necessary, it might be a good idea to call ahead of time and find out.

The terms of your CRE loan will be specific to your situation. Some rates are fixed and others are determined by the current market. When discussing your repayment schedule with the lender, find out if the term will be amortized or not and whether or not you can plan for it to balloon. All of these things will help you determine how much to borrow, which could also help determine which property you end up investing in.

As someone who is new to property investing, it’s important you talk to someone who has done this a time or two. Your lender is a great place to start and could have just the information you need to get you going on the right path. With the option of a CRE loan and all the bells and whistles that come with this type of financing, you could be well on your way to purchasing the perfect property that will help you reach and go beyond the goals you have set.

How to Get Commercial Real Estate Loans for Your Property Investments

Getting approved for commercial real estate loans can be more challenging than other types of business funding. Real estate has suffered major losses within the last decade, and some types of lenders have disappeared from the menu of choices due to bad business deals. The good news is that it is still possible to fund your property buying, as long as you have a solid plan of action. You also need to carefully research your potential real estate leads to make sure you are on the right path. The economic climate in today’s commercial property world leaves not much room for error when picking investments. When it’s time to apply for a loan, it’s important to know about the down payment realities, credit score requirements and the right sources of funding for your real estate dreams.

Down Payment Realities

While in the past it may have been possible to secure an investment property loan with little or no down payment, that era is now over. Today, lenders are less willing to fund commercial property purchases if the entrepreneur is lacking a down payment. Because commercial buildings are often much more costly than a residential home, you may be looking at a sizeable piece of capital that needs to be raised before you go out seeking a loan. Your options may include taking the time to save up for your necessary down payment, or finding another loan product so that you can borrow the essential funds.

Credit Score Requirements

Lenders for commercial real estate loans today have increased the credit score requirements so that only the most promising buyers get approval. They have tried to reduce the risk of financing buyers who have had real estate financial problems from the past. That doesn’t mean that your credit score needs to be perfect. You just need to make sure that you don’t have any major blemishes on your credit score such as bankruptcies, judgments or foreclosures. If you’ve had problems in the past, the general wait time for derogatory marks to fall off of your file is seven years.

Sources of Funding

The contemporary market for commercial real estate loans has developers looking at many different sources of funding to get the necessary capital for their projects. This market, which used to be dominated by banks, is now opening up to other types of lenders including private individuals, venture capital groups and other alternative funding opportunities.

Property developers working toward the right commercial real estate loans have a greater task ahead of them today because of industry conditions. Savvy investors spend time growing their down payment and increasing their credit score to get the best loan possible.

How AR Funding Gets Capital For Your Business

There are many complications that can come along with owning a small business. When you need to take care of specific tasks, such as stocking up on inventory or paying your employees, you need available capital to make it happen. When you provide services for customers, but you are not given payment for said services in a timely fashion, it can halt operations. In order for you to have access to the cash flow that your business deserves, you need to find a way to obtain this cash in a pinch. One surefire way for you to be able to achieve this is through AR funding. There are many ways that this service can help you find capital for your business.

The concept surrounding AR funding is incredibly simple. Essentially, a third party company will purchase your invoices from you for jobs that have already been completed, but not yet paid for. Right away, you will be given a percentage of the total amount owed to you. The company will then take on the responsibility of collecting this debt. Once the full amount of the invoice has been paid, you will be given the difference. This service is useful because it takes the weight of collecting a debt off of you, but you still are able to reap the benefits of receiving the payment that you are owed for services provided.

Unlike bank loans and other traditional financing options, AR funding does not put you or your business in any kind of debt. This is because you are not borrowing money. You are paying a company to come in and collect what you are already waiting for. This means that you do not have to worry about your credit score being harmed at all by the decision to use this type of funding. On top of this, you will not have to worry that you are bothering your customers when you are expecting payment from them. Instead, your funding company will take over this duty, and you will still be able to reap the benefits all the same.

AR funding can do wonders for your small business, especially when you are waiting for money from customers. Take a look at various companies offering this service in the area in order to get a better understanding on what the service itself entails. In time, you will be able to see all of the wonderful advantages that this can bring to the door of your business.

The Smart Way To Use Venture Capital Financing

Venture capital financing is an excellent option for anyone who’s opening a small business in a niche market and is having trouble finding reliable sources of funding from institutions and other methods. While this financial assistance is certainly helpful when it comes to putting the pedal to the metal in the developmental stages of opening a business, there are some things which any business owner can do in order to maximize the effectiveness of the funds granted to them (and get more to begin with) while building the foundation for their next business venture.

First, knowing what’s needed from the loan in question can make all the difference. Normally, when a business is being built, the owner must decide whether or not it will be a high-impact situation or simply a small business. The type of loan and the amount received should reflect these goals in order to ensure that the business is getting all of the needed assistance without getting in over its head when the time for repayment rolls around. Furthermore, any owner needs to decide how much they are willing to sacrifice for the development and future growth of the business. Relocation may be a necessary part of making a business work, and lenders will take this into consideration when an owner applies for venture capital financing.

Another important part of making the most of venture capital financing is doing the homework. There’s a lot of language which exists almost exclusively within the business world, and for newcomers it can be more than a little confusing. Before agreeing to anything, understanding what’s being offered and at what cost is a must, and lenders will want to see that any applicant has the lingo down to a science before striking an agreement, particularly on a risky business. Pairing this with a real in-depth knowledge of the market in question can help to ensure that a business is making the best of its funds and using its financial assets in the smartest way possible. Considering the cost of funding for any business, this is imperative for a successful operation.

There are many ways to waste cash when beginning a business. This can place a huge financial burden on a new business which it might not be able to overcome. This is why it’s important to do everything possible to use venture capital financing responsibly, and in a way that will promote growth and development within the company for years to come.

FHA Loans for Beginners

Are you in the process of buying your first home? Or are you returning to the market following bankruptcy or foreclosure? If so, an FHA loan might be the right type of mortgage for you. FHA loans are perfect for new borrowers of those with imperfect credit. Because FHA mortgages are insured by the government, lenders offer them to borrowers who don’t meet the stringent requirements of conventional mortgages.

An FHA loan requires mortgage insurance to counterbalance to the lenient qualification requirements. If you are approved for an FHA loan, you will be required to make additional mortgage insurance payments. The amount of the insurance and period of time you’ll have to make the payments depends on the loan-to-value ratio and the amortization period.

If you think an FHA loan might be the right fit for your situation, you can check out the basic requirements before applying. Make sure the property you want to finance qualifies under the FHA restrictions. FHA loans are only available for a property that will be the primary residence of the borrower. You can’t apply for an FHA mortgage to finance a rental property or vacation home. The property must also be examined by an FHA-approved appraiser. Additionally, there are limits on the amount of an FHA mortgage, which are based on the state and county in which the property is located.

If the property passes the requirements, the next step is making sure you, the borrower, meet the qualifications for approval. You must have a steady income from a stable job. FHA loans also have specific credit requirements. To qualify for the lowest down payment amount, 3.5% of the purchase amount, you’ll need a credit score of at least 580. If your score is between 500 and 579, you will have to bring a 10% down payment to the closing table. Credit scores are useful to lenders as indicators of your credit-worthiness. However, a lender decides if a borrower qualifies for a loan on a case-by-case basis. There are additional credit requirements if you have a bankruptcy or foreclosure in your past. As a general rule, you must be more than two years past a bankruptcy and three years past a foreclosure to qualify.

FHA loans are ideal for first-time homebuyers or those who have recently re-established good credit. Because the FHA mortgage requirements are less strict, borrowers must pay mortgage insurance. If you are interested in applying for an FHA mortgage, it’s important to BE sure that both you and the property meet the loan requirements.

Why Business Owners Are Using Equipment Sale Leaseback Financing

If you are a business owner and you are not yet familiar with sale leaseback financing, it could be quite beneficial for your business to explore. This type of financing is a way to turn qualifying equipment into an influx of cash that can be reinvested into your business.

Companies that own heavy construction equipment or industrial equipment can borrow up to half of the liquidation value of that equipment, and then pay it back with interest over a period of 3-5 years. These terms can be even better than those with a standard small business loan, which is one reason to consider this option. While the equipment serves as collateral, the company can continue using it to generate revenue. The company receives a lump sum of cash that can be used to purchase additional equipment or hire more employees, which can also contribute toward revenue.

Business owners considering sale leaseback financing should keep in mind that liquidation value is not the same as fair market value. Liquidation value is the estimated proceeds from sale of the equipment at auction. Business owners should also be confident that they can make all the monthly payments in full and on time, otherwise the equipment may be seized to satisfy the debt. Because the size of the debt is half the liquidation value of the equipment, defaulting can result in a significant loss for a business.

A business owner with a clear plan for expansion who simply needs more money to put that plan into action is well-positioned to take advantage of the benefits of sale leaseback financing. This business expansion plan should account for coverage of monthly operating expenses as well as payments on the loan. The best case scenario for a business is to be able to increase revenue generation as soon as possible after receiving funds.

Of course businesses with excellent credit have multiple options at their disposal for raising cash, but this may be one avenue that they have not yet used. For business with credit that may pose limitations in other circumstances, this sort of financing may provide them with an opportunity where they might not otherwise be able to generate funds.

Based on these various advantages, sale leaseback financing is worth considering for business owners. For those whose credit may not support a traditional loan but who have a clear plan for business expansion and revenue generation, it can be a smart move to receive the cash infusion necessary to move forward.

Launching Advertising For Your Small Business? Consider These Financing Options

Owning a small business can present plenty of challenges. One large one that you might face is how to get new clients through the doors of your establishment. While there are plenty of ways to go about this, one surefire way to see new customers come to your business is through a solid advertising campaign. While this can be an excellent way for you to go about growing your company in a healthy way, it can also be quite expensive. In order for you to do what is right for your small business, you need to know how you are going to finance your advertising campaign. Here is how you should go about beginning the process.

The first thing that you are going to want to do is learn the exact costs of your campaign. Advertising is not cheap, but you should not take out more than you require. When you go into debt, it can be very difficult to get out again. You will want to make sure that you know the specifics about funding you will need before you apply for any type of loan. Contact local advertising agencies and ask questions about pricing. Obtain useful quotes that you can use to make sense of the needs of your upcoming campaign. Once you have this information, it can help you to move forward with your plan.

Next, you are going to want to start researching various lenders that you can consider for your finance needs. There is a common mistake among business owners to immediately go for the easiest and most accessible financing option. Usually, this means opening up several credit cards that you can use to pay for all of your expenses. While it might seem appealing, it is actually an easy way to go into frustrating debt. The interest rates attached to these cards are generally much higher. This means you will pay back a great deal more than you initially spent, which goes against the idea of safely growing your business. Small business loans can be a much better solution for funding your advertising campaign. These loans are structured specifically for the needs of small businesses, so you can expect your best interests to be in mind throughout the process.

There is a lot to be said for growing your business. When you figure out a way to safely expand via an advertising campaign, it will mean new levels of success. Make sure that you take time to research financing options before you begin and you will have an easier time making the right calls.

How Entrepreneurs are Getting Startup Financing

Without capital, it is simply impossible to get your startup up and running. Whether you need the cash for advertising or to pay your employees, you will initially need money for your small business. For the vast majority of business owners, the bank offers the most reasonable means of acquiring funds, but there is no guarantee that you will get the loan. If you need startup financing, but you have been turned down for a loan by the bank, read the information below to learn about other options.

Personal Funds

Personal financing is a great option for business owners who have access to savings. If you are denied a loan, it may be possible to use some of your own funds to pay for business expenses. This prospect may sound intimidating to many people, but if your business is projected to generate a considerable amount of revenue, this may be the best way to go. Before you invest your own savings, be sure to have a concrete business plan in the works and a way to provide for yourself until business picks up.

Family and Friends

If your family and friends support your business idea, they may not mind contributing to your startup costs. These people may be eager to provide you with assistance, and they may be willing to provide that assistance now. Before taking the money of your acquaintances, you should be sure that you have a stable and realistic business plan to reference. You should also be careful – being unable to repay family members or friends can result in disaster.

Crowdfunding

Over the past few years, crowdfunding has drastically increased in popularity. Crowdfunding involves visiting websites in order to find like-minded investors. If these investors agree with your vision, they each contribute a small amount of money to get your business off the ground. There are different types of crowdfunding, but they all work in a similar manner. 

Credit

For many people, additional lines of credit can be used for startup financing. If you have a decent credit history and the drive to succeed, there is nothing wrong with using credit cards or loans to finance your startup. Just be sure that you can make the minimum monthly payments before you resort to personal loans and credit cards.

Final Notes

Simply put, there several ways to secure startup financing without having to deal with the bank. Use your best judgment, and select the method that best supports your business goals. When you do this, you will definitely choose the right financing method.

The Top 9 Small Business Financing Methods

There are many different ways to secure small business financing. Some of these ways are harder than others, but they can all provide you with the capital you need to make your dreams materialize. If you are ready to finance your small business, read the list below first.

1. Bank Loans

Depending on your needs, banks offer a variety of long and short-term business loans. Some of these loans will even cover asset needs and real estate costs. Loans are a great option, but you will need a stable credit and income history for approval.

2. Angel Equity

Many entrepreneurs will be forced to sell a stake in the company in order to get it up and running. If this happens, be sure to choose a respected investor who does not impose too many demands.

3. Economic Development Organizations

Local economic development organizations are often willing to provide low-interest loans alongside banks. If you do not have the revenue to cover the interest, some of these organizations may be willing to defer your payments.

4. Friends and Family

Friends and family members may be willing to loan you money if they believe in your ability to run a business. Furthermore, they may be willing to sell their interest back to you for a negligible amount.

5. SBA 7(a) Loans

SBA 7(a) loans are federally-sponsored debt-refinancing loans. They guarantee the lender against a portion of potential losses, and interest rates usually vary according to the loan amount.

6. Customers

If your customers are willing to issue advance payments, you may want to take them up on their offers. A significant portion of successful entrepreneurs funded their operations with customer cash.

7. Smart Leases

Smart leases are a commonly overlooked form of small business financing that offers cash to cover inventory costs. If you choose to apply for one of these loans, you should be sure to examine the interest rate first (they can be higher than bank loans).

8. Vendors

If you do not have enough money to purchase supplies, vendors may be willing to chip in. If your business plan sounds alluring enough, they may even be willing to contribute cash as well.

9. SBIR Grants

Small Business Innovation Research (SBIR) grants can provide you with a way to transform your intellectual property into a business endeavor. This process is fairly extensive since it involves the government.

In short, there are multitudes of ways to secure small business financing. Some of these ways involve the bank and others do not. Just be sure to choose the one that provides you with the best interest rates and terms.

Using Mezzanine Loans For Commercial Real Estate

Large amounts of capital are often required for acquiring, developing, or refinancing commercial properties. As traditional mortgages become more difficult to obtain, mezzanine loans have become an attractive solution for financing commercial real estate acquisitions. Traditional mortgages have increased in interest rates, often require collateral and can have a lengthy application process. None of these things are associated with mezzanine financing. This and several other factors account for mezzanine financing’s increasing popularity over the years.

Filling the Lending Gap With Mezzanine Financing

With the increased reluctance on the part of traditional mortgages, commercial real estate investors may not be able to borrow the entire amount needed to finance a property. Equity investors used to fill this gap, but today they may require a large enough share of equity that borrowers may find it difficult to realize a return on their investment. Rather than turning to a high-risk equity investor, many borrowers are turning to mezzanine loans. These loans carry greater risk than a mortgage, but have a greater possibility of return for the borrower than associated with equity investors.

Risks Associated With Mezzanine Financing

Entering into a mezzanine loan agreement for commercial real estate typically happens when the borrower already has mortgage obligations. These obligations take prominence over the repayment of the mezzanine loan, therefore increasing the risk that the mezzanine loan may not be paid on time. Because of this, mezzanine lenders require a greater return than mortgage lenders. The interest rates are determined by a combination of the structure of the capital being provided, the risks associated with the property being financed and the relationship that has been established between the lender and the borrower.

Terms of Mezzanine Lending

While mezzanine loans are typically used in the same way, it is difficult to generalize the terms of a loan. The deal structure will be based on the unique situation of the lender and the borrower. Terms are dependent on trust. The loan can be structured as either debt or equity. This depends in part on how much capital is being borrowed. As part of a mezzanine agreement, lenders may also require varied amounts of control in the lending relationship.

Despite the risks associated with mezzanine financing, many lenders and borrowers are seeing it as a viable and lucrative alternative to traditional financing options. Be sure before taking on mezzanine loans that your priorities are in line with those of the lender, as this long-term financing option requires a good working relationship between both parties.

The Benefits of Fix and Flip Loans

So you’re interested in joining in on the fix and flip market? Not sure how to get a head start? You may want to look into taking out fix and flip loans to help you get an edge on the market. One of the many benefits of these loans is that there is something out there for everyone; no matter your experience with home flipping, there will be a loan option available for you to consider.

For example, if you are new to flipping houses for profit, you may qualify for a hard money loan, or a private money loan. These don’t require previous experience or great credit, but they do have higher interest rates and can be costly. If you have flipped homes before, you may qualify for a bank loan—these are very cost-effective, yet processing and approval times may take longer than other loans would. There are also some great real estate crowd-funding loans you might consider, if you have previous house-flipping experience, and these can only take a few days to process. It can be a good option if you find you are short on time, and it may also provide a little more money than the other types of loans can typically approve.

Other benefits of fix and flip loans include the life span of the loan itself—these loans typically last up to one year tops, and you settle the loan transaction when your house sells with the money you have received from the buyer. In the meantime, while you are actually fixing up the home, you only need to pay interest on the loan. Additionally, the loans themselves can fund the majority of your project; typically around 65%-85% After Repair Value, depending on the loan type you selected.

Loan funds don’t have to be limited to purchasing the home itself, however. These loans can be utilized for all kinds of necessities that rehabbing requires, such as supplies, contracting services and staging costs. It’s true that you can also use personal resources to cover rehab costs, like a personal loan or credit card; it all really comes down to planning wisely. The benefit of fix and flip loans is that they are designed specifically for the task at hand, with terms that stretch just the right length of time and generous funding to accommodate exactly what your home needs, when it needs it. By learning more about these loans and finding out whether it’s right for you, you may be doing yourself a big favor in getting into the house flipping market.

Valuating Commercial Real Estate Properties

Valuation is a key component of making smart commercial real estate investment decisions. The price of property, or even what has been paid for that property in the past, are not necessarily equivalent to the value of the property. It is worth taking the time to do the calculations to estimate value before making a decision to pursue or pass up an investment opportunity.

There are three methods commonly used to estimate property value in real estate. The sales comparison approach is used primarily for residential real estate and undeveloped land. The cost approach is best suited to commercial properties that are infrequently bought and sold, such as schools, hospitals, churches and government buildings. For commercial real estate properties that generate income, the income approach yields the most accurate estimates. The income approach is concerned with potential rental income of the property as it relates to investment made in the property.

Via the income approach, you can calculate property value based on capitalization rate. First, estimate the gross annual rental income the property will generate. Next, estimate potential vacancy rates and resulting lost income, as well as anticipated operating expenses such as maintenance, repairs and property management. Deduct these losses and expenses from the gross annual rental income estimate, which yields the net annual operating income.

From here, divide the net operating income by your desired capitalization rate to yield the property value, or the sales price you may be willing to pay. The capitalization rate is the rate of return on the property that you expect based on the investment you will make. You may run the calculations multiple times with varying capitalization rates to see how the rate will be affected by a range of sales prices for this commercial real estate property. However, while you may have a desired capitalization rate at the time of purchase, the actual rate will fluctuate over the course of your investment due to external factors beyond your control, such as changes in the market as a whole.

Once you have purchased the property, the capitalization rate can be used over time as a metric to determine whether to hold or sell the property. If the capitalization rate drops, it may be an indication that you should sell, even if the market value of the property increases. Likewise, if the capitalization rate rises even if the market value of the property does not, it can be worth holding the property.

Valuating commercial real estate properties requires careful research and thoughtful estimation, as well as patience to run series of calculations. However, the benefit of doing so is that you are far more likely to make a profitable investment.

What Makes Commercial Lending Special

Commercial lending involves loaning money to established entities or groups of people including businesses, limited labiality corporations, and partnerships. Cash flow and the stability or reliability of a company are extremely important when it comes to getting approved for a commercial loan. After a lender has reviewed the financial information of an entity and believe the applicant is reliable and will be able to repay the loan in full and on time, the bank loan will most likely be approved.

The Benefits of Commercial Loans

One of the benefits of commercial loans is lower interest rates as opposed to other types of loans or business credit arrangements. This proves beneficial for companies because it allows them to pay less for their financial assistance. Since the interest rates are lower, however, the standards for approval are higher than other loans. The stability of a company and its cash flow are vital considerations for a lender. They will investigate various documents regarding finances, tax information, and even the entity’s contracts with suppliers or customers. Despite commercial financing being more difficult to obtain and sustain, it is worth the effort

Key Differences 

Commercial loans differ from consumer loans in various aspects, one of which is time span. Commercial loans are often shorter and if they are longer, they need to be secured by collateral. Another key difference between the loans deals with accountability. With consumer loans, the lender wants nothing more than the payments to be paid on time but with commercial loans, the lender continuously requests documentation. This could include financial statements or insurance information for collateral. An entity’s financial situation is constantly being looked at by the lender.

Another factor that sets commercial lending apart is the fact that commercial loans rarely come from credit unions. With the new federal regulations, credit unions are unable to lend businesses loans in most cases. Alternatively, Small Business Administration approved lenders are a viable option for commercial loans. They offer a variety of loan programs including general small business loans, real estate and equipment loans, and even disaster loans which offer a low-interest way to recover from a business disaster.

Understanding commercial lending and what sets it apart from other lending options is critical for any business or other entity. For most businesses, their financial statements and tax information will play key roles in the lender’s decision to extend a loan and will be continuously checked on to ensure the company will continue being able to repay a loan. It is different from consumer lending in the fact that the money is loaned solely to established business entities, and commercial loans are often obtained from Small Business Administration approved lenders.

How Women Are Running Their Own Businesses With Alternative Financing

While the growth of women run business is at an all-time high, women still face significant barriers in accessing traditional forms of financing in comparison with their male peers. Although women now own nearly a third of new businesses, they only receive about five percent of the total dollar amount of traditional business loans issued by brick and mortar banks. Over half of all college graduates are now women, and yet women still have on average, far less capital to invest in new businesses.

No wonder so many women are now turning their attention to alternative financing options to grow their businesses. With such a crucial, rapidly growing need, there are now more options than ever.

Microloans

Microloans are typically offered by nonprofit organizations who cater specifically to high need groups such as women, minorities, veteran and disabled entrepreneurs. Many even require applicants to provide proof of low to moderate income levels. These groups actively seek out those who are most routinely denied by traditional financing organizations. Microloans are also offered in a smaller amount than is traditionally available, usually maxing out at $50,000. For many, this smaller dollar amount is an advantage, especially when first establishing a business. Often, larger loan amounts can be overkill.

Smaller alternative financing loan amounts can mean better repayment terms and lower interest rates. A smaller loan amount can provide just enough scaffolding to allow you to establish your business without overburdening you with large interest payments.

Business Lines of Credit

Opening up a business line of credit also subverts the need to finance an overly large amount of money. Not only will a well-managed business line of credit help you improve your business credit score, which can improve your future loan application prospects, it allows you to access capital on an as needed basis.

With a $50,000 loan, you will be paying interest and finance charges on the total amount whether you need every penny of that balance or not. With a $50,000 line of credit, the whole amount is available to you if necessary, so you have the security of an increased emergency working capital, combined with a substantial decrease in fees and interest payment.

Other Alternative Financing Options

Other, more recent alternatives such as crowdfunding and peer to peer lending, which connects individual donors and lenders with entrepreneurs stray even further from the traditional lending model. Many of these options function more like a grant, issuing funds that do not need to be repaid at all. Do not be afraid to think out of the box when it comes to financing your business.

Freight Factoring for Shipping Companies

As the owner or fleet manager of any shipping or trucking company, freight factoring is a service which should definitely be considered when it comes to financial details and ease of operations. This is a service which offers an advance on receivable goods, paying the delivering company on the same day that they complete their assignment in return for a small fee associated with completion of the service. While at a glance this can seem like a bit of a trivial arrangement, it’s actually a great boon for anyone who owns a shipping company for several reasons.

First and foremost, freight factoring provides shipping companies with a fast and reliable resource of working cash flow. Because business owners do not have to wait for extensive periods of time for payments to come through, they have much more flexibility in the budget for development. They can use the funds in order to pick up more goods for delivery, purchase new vehicles and equipment, hire more drivers, or complete any other tasks which they deem necessary for a happy and healthy work environment and the maintenance of a lucrative business. Many who invest in this type of arrangement take advantage of this revenue by getting more trucks on the road. The more goods they have in the lanes, the higher their profits will be when the deliveries are made. Furthermore, aside from the small fee, this service comes at practically no cost to the shipping company who signs on. In fact, in most cases the back office work regarding paperwork and accounts are handled by the factoring firm, freeing up employees of the shipping company to attend to other crucial duties necessary for operational stability in the workplace, further facilitating growth, development and stability for the company.

Some freight factoring firms also offer advanced services such as back office support or technology that not only keeps track of deliveries and payments, but can actually design a complete and comprehensive business plan to help get any shipping company on track. This is a great opportunity for a business of any size or shape.

Of course, no financial arrangement is a perfect fit for every company. Therefore, speaking with a professional or a representative of a factoring firm will be the best way to determine if freight factoring is an ideal solution to a shipping company’s financial issues and future growth. Exploring all available options prior to making a decision is the key to building a happy, healthy and successful shipping company.

An Introduction To Business Acquisition Loans

When looking to purchase a business, financing can be a major concern for many, and sometimes prevents entrepreneurs from pursuing this course of action at all. In the aftermath of a recession, the last thing many individuals wish to do is risk their cash in an endeavor that may or may not work out. Fortunately, for those who are serious about purchasing a business from its previous owners, they can take advantage of business acquisition loans. This is much like a traditional bank loan, but has a great deal to offer those who find themselves in this situation. Of course, there are pros and cons associated with this process which must be fully understood in order to make a well-informed decision.

Business Acquisition Loans are Similar to Bank Loans.. Just Better

As previously stated, business acquisition loans are much like bank loans, but there are a few key differences. First and foremost, these arrangements are overseen by the Small Business Administration, which holds banks to certain standards when it comes to their interest rates and repayment expectations. Therefore, anyone taking advantage of this loan can rest assured that they are receiving fair and legal terms. When creating the terms for the loan, collateral will more than likely be required by the lender. In this even, recipients of this type of loan are able to use the existing business’s assets such as real estate, vehicles or equipment as collateral in lieu of their own personal assets. This can remove a great deal of stress from the situation and create a sense of security for the new owner that otherwise would not exist. Furthermore, the success of the business prior to the new purchase is taken into consideration during this process, and those which were successful are considered less risky and therefore create lower rates.

Things to Do Before Requesting for Business Acquisition Loans

However, there are some requirements you must tend to before looking into such financing. To be ready, and fast track your way to approval you’ll want to have these things ready: You must already have a business plan in place – so if you haven’t gotten to it or finished it, the time is now. Also, the lender will evaluate your assets. So have them on standyby. Another, is the ability to personal financing available for the purchase. If a business was not successful before the purchase, rates are likely to be steeper as well.

Business acquisition loans can be a great way for a new business owner to reboot their purchase, but reviewing the facts prior to signing an agreement is an essential part in deciding whether or not it’s the right option.

Have Slow Paying Clients? Try Construction Factoring

If you work in the construction industry, you have likely already had several issues with slow-paying clients. Construction projects can be very lengthy and complicated endeavors that require extra patience and flexibility when it comes to receiving payments. This can make it very difficult for you to be approved for traditional bank loans. Without a loan, where will you find the cash to begin your next project, make it through a slow season or pay your employees on a regular schedule? One excellent option, when done correctly, is construction factoring.

A factoring company will buy your unpaid invoices from you, which means you can receive your payment within a period of days rather than months. You get a significant chunk of the money owed to you upfront and then once your client has paid, you will be given the rest of what you are owed minus a factoring fee, which is negotiable but usually runs from two to six percent. Once your invoice has been sold to a factoring company, they will be responsible for issuing liens and enact any other protective measures necessary to ensure that your payment will arrive within a reasonable amount of time.

People working in the construction field are going to need to put some extra effort into finding a service that specializes in construction factoring. The delayed payment schedule of the construction industry may cause you trouble with your factor if they do not have experience working with people in your field. Construction has a chain of payment, which often means that your company will not get paid until the general contractor has been paid. This makes it difficult to estimate when payments will arrive, which causes problems for traditional lenders and bank loans. Factors who regularly work with construction companies will already know how to handle the difficulties of this payment structure. Also, because progress payments are so common in construction contracts, ask your factoring company upfront if they will be able to accept them.

Large projects can be very profitable for construction contractors and subcontractors, but they often require a significant amount of money upfront for supplies, payroll and other necessities. Developing a good relationship with a construction factoring company can really improve your peace of mind as well as your ability to accept more work and maintain a happy staff. A good factoring company has all of the experience and knowledge about the construction field necessary to make sure everyone gets paid in a timely manner.

Is It Time to Consider Business Debt Refinancing?

Business debt refinancing allows businesses to pay off multiple current high interest debt obligations by consolidating them into a single lower interest debt instrument. When a business has accumulated multiple debt obligations with less than advantageous terms, consolidating them into one loan can help the business increase cash flow and save money. You Might Want to Consider Debt Refinancing If..

Your Business Could Use a Reputation Boost

It can help your business reputation to have as little debt and as few creditors as possible. Refinancing multiple debt obligations under a single loan can be a step in the right direction, especially if your business was under threat of litigation due to non-payment of debt. Even if circumstances have not grown so dire, refinancing reduces the number of accounts and creditors a business is juggling and makes it easier to manage monthly payments.

You Need a Longer Term for More Cash on Hand 

If current debt obligations are short term, refinancing to a longer term debt instrument can stretch payments out over a longer period, which makes each payment smaller. This means that the business has more cash on hand and a greater monthly cash flow. Cash flow is important for purchasing supplies and equipment, as well as ensuring employees will be paid on time.

It Allows You to Save You Money

Debt refinancing is only helpful if it saves a business money. Therefore it is important to understand the full scope of loan terms when comparing refinancing options. The terms of a loan — the interest rate and the amount of time you have to repay it — will depend on several factors. These factors include the size of the loan, the value of the collateral you can offer to secure the loan, and the amount of risk of default that the lender is willing to accept. That is, if the lender perceives your business to be a high risk for non-payment, your repayment period may be shorter and your interest rate may be higher.

There is a Clear Picture of Any Fees Associated

Loans can include other fees besides interest, such as service fees and repayment penalties. It is essential to have a clear picture of the sum total cost of the loan in order to effectively compare it with your current situation as well as all debt refinancing options under consideration. If all the fees and penalties offset the money being saved by a longer repayment period and lower interest rate, then refinancing is not helpful.

You Operate Within a Set Budget

If your business has a history of operating within a set budget and has a positive outlook for the future, it is possible you have simply accumulated multiple debt obligations. In this case, debt refinancing could be a smart move to get your business back on track and preserve your good credit and reputation.

To request debt refinancing, please contact us at Financial Capital Solutions today! 

Is Factoring Better than Collection Agencies?

Every business experiences the stress of growth while trying to remain profitable. Your business needs working capital for everyday operations, but what if your customers are slow to pay? This is when you could use a helpful solution to financial worries.

Several options exist for struggling business owners who need cash. You could acquire a conventional loan, but this depends on your credit and desire to take on the debt. Interest fees have to be considered, but the time constraint of long application processes can hinder you, especially if your budget is already stretched. Whether you’re just starting out or established, this might not be a viable option.

Factoring services and collection agencies provide solutions for business owners who need working capital. Depending on the age of your receivables and how fast you need the cash, these options could provide you with the funds you need to keep going.

Which One Is Better?

Factoring

If you need cash immediately, factoring could be the best solution. This alternative to conventional loans is the most cost effective and fastest when compared to hiring a collection agency. You can sell your invoices, usually those less than 60 days old, to the service for a 24-hour turnaround of available funds.

The company will first check the accounts receivables for creditworthiness. Once the service accepts your invoices, they will normally subtract a fee of 3 to 7 percent of the total and pay you the difference.

Collection Agencies

A collection agency will take on debts that are aged. If you have invoices older than 30 days, they will utilize various methods of collecting the money for you. The process could involve sending letters or making phone calls to the debtor. If the invoice goes unpaid, efforts might turn to legal action. Overall, you won’t get paid until the debt is collected. This could cost valuable time, but if you have no other way of collecting the money, it could be a way to recover at least a portion of the old invoices.

The fees for collection agencies are far more expensive than those of factoring services. Once the agency receives the money, you will probably be charged anywhere from 25 to 30 percent of the collected amounts before you receive your funds. The key here is the age of the account. If you have large accounts that normally pay on time but experience the occasional downturn, this type of service could be advantageous.

Your business depends on your cash flow. Factoring can keep you at full operating speed while you concentrate on the future instead of spending time collecting debts from the past.

To request factoring financing, please contact our team at Financial Capital Solutions today!