Unsecured Lines of Credit

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Unsecured Lines of Credit

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Business Credit

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Business Credit

How to Get a Business Loan in Five Steps. by: Dave Miller Need funds to startup or expand your business? Follow these steps: A lender looks at a loan request in three sections known as the “three C’s”. They are: Credit. Did you pay previous lenders back as contracted? Capacity: Can you afford to pay back this loan? Collateral: If you don’t pay back the loan from what asset can the lender recover their principal? Step one is: 1. Identify your strength and weaknesses in the “3 C’s”. Do this as would a lender – with a very critical eye. Identify your loan to value ratio and your debt service coverage ratio. If you have reason to believe that you credit is less than sterling, get a copy of your credit report including your credit score Each lender has different criteria with the cost of the loan being higher as your strength in the “3 C’s” is lower. Step two is: 2. Identify lenders who lend to your level of borrower and to your industry type. Call lenders to get their criteria. Learn about the SBA 504 program and 7A loan guarantees. Find who others in your industry have used for financing. If there is a gap (not a canyon, just a gap) between your borrowing ability and lenders criteria, a loan broker may be able to help. They spend their working hours finding second and third tier (more aggressive and more expensive) lenders and establishing relationships with them. They can act as a salesperson for your project in ways that you as a principal cannot. Step three: 3. If you cannot find lenders on your own, consider hiring a commercial mortgage broker. Be careful – in many areas there is little or no protection under the law for commercial transactions. While a small upfront fee for out of pocket expenses is reasonable, shy away from any that want large upfront payments. If they can do the deal they will be paid very well at settlement. If they can’t do the deal they shouldn’t be taking your business at all. Once you identify a list of potential lenders or hire a broker, get prepared. Do not think that the business loan process is merely a matter or forms and paperwork. While there is more paperwork than you’d ever want to see, it is more of an inquisition. Step four: 4. Be an expert salesperson for your project. Obviously, we think that your should use FundablePlans.com to build a written proposal. Whatever method you use, know your numbers and be able to defend them. Understand your market and be able to speak competently about it. Know your competition. Most importantly, (from step one) know your strengths and weaknesses as a borrower and be able to maximize the strengths and minimize the weaknesses. If you are successful with steps one through four, you will expect to “hit a home run”. You may, but most likely you won’t. Step five: 5. Don’t give up. Where one lender might have too many loans of your type in her portfolio, the next may need exactly your loan to meet his goals (loan officers are paid to lend). This is not to say that you should “beat a dead horse”, but if you have a viable project, a good presentation and good “C’s”, you will be able to get financing. Good luck with your project, if you have questions about funding feel free to use the e-mail link below. About The Author Dave Miller is a business consultant and the creator of FundablePlans.com, an online business plan builder at http://www.fundableplans.com. dave@fundableplans.xom

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Business Lines of Credit

Five Strategies To Strengthen Your Company s Financial Management by: Jeff Schein Too many businesses wait until a crisis occurs before they start to focus on improving their financial management. Often, by that time, it can be too late. By setting aside an hour now to evaluate the strengths and weaknesses of your company s financial management activities and systems you can save a lot of time and aggravation. It can also help increase your profits, and at the end of the day that is what it is all about. The following are five strategies that will help you start to build a strong financial foundation and build value in your company. 1. Set up a financial control system The first thing you need to start with is a control system so that there is consistency in your process and procedures. A control system is designed to prevent and detect errors in your daily activities. For example, is there is a standard way of processing your receivables, payables and inventory? If there are no standard guidelines to follow, there is probably no control system. 2. Have daily access to your account information Make sure that you can access your account information every day; it is invaluable to managing your cash effectively. With most banks providing internet access at a reasonable cost, there is no reason not to have instant access to account information. 3. Manage your cash components Concentrate on managing your three main cash components: accounts receivable, accounts payable and inventory. Let s take a look at each component: Accounts Receivable Make sure your credit and collection system is working efficiently. Any excess investment in accounts receivable increases the need to borrow more money to avoid a cash flow deficit. That means that if you are carrying excess receivables you are probably carrying excess debt and you have a direct cost of having to carry that extra debt in interest payments. Even if you finance the receivables through internal equity, there is still an indirect cost; the opportunity cost of using that equity elsewhere which could include expanding your inventory to increase sales, reducing debt or earning interest on cash balances. Your accounts receivable collection period defines the relationship with the cash flow process. Every month you should be calculating your collection period and comparing with previous periods and relating those results to industry averages. Any material differences should be investigated. Your credit policy can influence your cash flow and earnings. Longer credit terms can increase sales and earnings, but any decision to offer more liberal terms requires an estimate of the trade-off between the cost of the larger investment in accounts receivable and the bottom-line benefits of a higher sales volume. Remember that increasing your credit terms will bring in less credit worthy customers which can increase your bad debt expense. You can, however, use price increases to offset more liberal credit terms. When you develop a receivable policy, consider the following: Check the financial health of customers before offering them credit. Consider obtaining cash on the first order. Do not make your invoice terms too generous. Charge interest to customers who pay late. Give discounts for early payment. If you are offering discounts, the terms should be attractive enough to encourage customers to take the discount. This can also serve as an early warning signal; if a customer doesn t take the discount, or all of a sudden stops taking the discount, then you may want to investigate further before extending credit as it could be a sign of financial trouble. Do not wait longer than 30 days for a late payment before you take action; you need to minimize your company s exposure to bad credit. Put it into dollar terms, if you have a $1,000 bad debt write-off and a 10% profit margin, you need to generate an addition $10,000 in sales just to make it back. Inventory First, keep in mind that because of carrying costs such as warehousing and insurance it is more expensive to carry inventory than to carry accounts receivable. That is, reducing an investment in inventory provides you a larger bottom-line benefit than a comparable reduction in accounts receivable because you are also reducing the carrying costs. As with your receivables, it is important to complete a monthly analysis of average inventory held in days. Compare to previous months and industry averages and investigate any material difference or change. A periodic inventory count is a fundamental requirement; any items that are overstocked should be investigated. A sales forecast is vital, without it you lack the necessary management information for inventory control. Your target inventory investment should equal your normal investment for core sales plus a built in safety stock (for example if a re-order is delayed you want some extra stock on hand) plus some amount for any anticipated growth in sales. You can use the following equation to determine your economic ordering quantity: SQRT (2SO/CP) where SQRT = square root S = anticipated annual unit sales O = fixed costs per order C = annual inventory carrying cost, as a % of a products purchase price P = unit purchase price for product Note that the above equation attempts to minimize inventory cost by answering the question of how much and how often you should order inventory. It is not perfect; the equation does not take into account volume discounts and assumes that your demand is constant. However it is a tool that can be used to help in your decision making process. The following are 10 questions you can use to review you inventory process: 1. Do you have a sales forecast? Do you compare forecast to actual sales and adjust the next forecast accordingly? 2. Do you know which items account for 80% of your sales? These items should be managed closely. 3. How fast can you get inventory? 4. How do you order inventory? 5. How much inventory do you order? Do you order extra just to save a few extra cents? 6. Do you know the cost of holding your inventory? 7. Do you rely on just one or two suppliers? 8. How frequently is inventory analyzed to determine obsolescence and makeup? 9. Do you have a policy of determining what is obsolete inventory and how and when to get rid of it? 10. Do you have an inventory reporting system to provide the necessary tracking information? Accounts Payable Although you want to stretch your payables as long as possible, much like you offer attractive discounts to your buyers you should also take supplier discounts as often as possible if the terms are attractive enough. Make sure your payables are tracked on a regular basis – such as weekly – and that your payment system runs smoothly. As with receivables and inventory, complete a monthly analysis of your accounts payable and compare to previous periods and industry averages. Any material difference or change should be investigated. Make sure vendors understand your company in case there is a situation where you need to stretch your payables. You need a plan to deal with those situations where you may have an unexpected spike in your payables. You should re-evaluate you vendors on a regular basis to make sure you are getting the best value. 4. Budget It is fundamental, you need to plan for growth and you need to forecast for problems. You need to prepare a budget. Besides completing a budget for expected sales, you should also complete a budget for a disaster situation, like your sales are cut in half. The benefit is very straight forward; it forces you to ask yourself how you will be able to keep the company running in such a situation. It will also point to areas where you may be able to save money right away and free up cash flow. It s like having a disaster plan; you only have to act on it when disaster strikes, but it is much easier to concentrate when you do not have a crisis at hand. 5. Develop a strong relationship with your Bank Devote attention to building relationships with your bank. Always keep them up to date on where your company stands. If you hit a difficult patch it is much easier to get your bank on board if they understand your business. Contrary to opinion, banks do not necessarily jump ship as soon as you fall into trouble. They are willing to work with small business through tough times, and gaining their trust to do so is much easier the more confidence they have in you and your company. They way to accomplish this is to be transparent in your dealings and to give them timely financial information. Use you bank as a resource for cash management. There are products available that can increase your cash flow, or arrangements that can be put in place to increase your interest returns. But you still need to make sure they are cost effective. About The Author Jeff Schein is a CGA and offers consulting, advice and coaching in the areas of business planning, business modeling, strategic planning, business analysis and financial management for new ventures and growing small businesses. Visit www.companyworkshop.com or mailto:jeff@companyworkshop.com

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Business Loans

Comprehending a Credit Report by: Melanie Cossey Obtaining a credit report is an excellent way to begin taking control of your financial future. It’s recommended that you review your credit report once a year, not only to be aware of your standing with creditors but to also keep abreast of errors and fraud. However, once your report arrives you may have trouble making sense of it. How are you to read and understand a credit report? There are three major credit reporting agencies that issue credit bureau reports; Experian, TransUnion and Equifax. It is recommended that you obtain reports from all 3 credit report agencies as they most likely contain varying information since creditors subscribe to agencies on a purely voluntary basis. The credit reports provided by each of the different bureaus may present somewhat differently but generally speaking the information will be broken down in much the same way. There are four main parts to the credit report: personal profile, credit history, public records and inquires. Check each section carefully for any errors. Note any errors you may discover on a separate piece of paper as you read over your report. Personal Profile At the top of the credit report you will find all your basic information such as your full name, current and previous addresses and employers, social security number, and date of birth. Your spouse’s name may also appear if applicable. In addition, you may notice several variations of your name listed. This can occur when creditors record the information incorrectly. These discrepancies are usually left on your credit report. It is important however, to ensure that your address is correct. An incorrect address could alert you to a possible identity theft. Credit History The next section is your credit history. This provides you with an itemized list of your current active, past closed accounts and their balances or arrears. Listed first is the name of the creditor and your account number for each bill–sometimes the account numbers may appear partially obscured for security purposes. These debts could include real estate mortgages, credit cards, car loans, or medical bills. There will be a column for identifying the nature of the account; Joint, Individual, Undesignated, Authorized User, Terminated, Maker, Co-signer or Shared. There will also be a notation of the date when the account was opened, number of months the account payment history has been reported and date of last activity. The report will show your high credit limit or the maximum you are allowed to borrow, if applicable. There is a column for Terms which indicates the number of instalments or monthly payments remaining on the account. The next few columns will show the balance remaining on the account, any past due amounts and the status of the accounts. There are two types of accounts; instalment and revolving. An Instalment account means that there are fixed payments and a specific ending date, such as with a car loan. A revolving account is one with no fixed ending date as with credit card debts. Creditors like to see few revolving debts. The credit report will indicate the different types of accounts and also may assign it a numerical ratings system. You may see such symbols as R1, R2, R3 or I1, I2, I3.The R or I indicates Revolving or Instalment and the numbers indicate the payment history of the account as follows; 0- account hasn’t been used yet 1- paid as agreed 2- 30 plus days past due 3- 60 plus days past due 4- 90 plus days past due 5- 120 plus days past due 7- Collection account or bankruptcy 8- Repossession or foreclosure 9- Charged off or bad debt The credit report will also show a record of any debts that have been turned over to a collection agency. It will show the date the collection was reported, the name of the company handling the collections and the company or lender that the loan was originally issued with and the balance remaining on the account. Public Records These are reports obtained from local, state and federal courts. They will indicate records of bankruptcies, tax liens and monetary judgments. Overdue child support records may also be shown. These public records will remain part of your credit history for seven to ten years and reflect negatively on your total credit score. Inquiry Section This section reveals any parties that have obtained a copy of your credit report over the last two years. There are generally two types of inquires, hard and soft. A hard inquiry is one initiated by you, whenever you apply for a loan or fill out a credit application. A soft inquiry comes in three forms; companies that wish to offer you promotional applications for credit, current creditors that are monitoring your account or credit bureau inquires requested by you, the consumer. These soft inquires do not show up on credit reports that businesses receive, only on copies provided to you. Although many lenders will view too many inquiries on your report as negative, it is important to note that two or more ‘hard’ inquires within a 14 day period count as just one inquiry. Credit Score The credit report can also reveal your credit score. A credit rating scores is a means of calculating an individual’s credit risk to determine how likely they would be to make good on a loan. The score is a three digit number ranging between 300 and 850. The higher your score, the better it reflects on you as a borrower. A good credit rating score will enable you to negotiate for better interest rates. Disputes What if you should find an error on your credit report? Once you have discovered an error, contact the credit bureau that issued the credit report and state in writing what you found to be inaccurate. You will find the contact information listed at the top of your credit report. The credit reporting companies must reinvestigate the claim within 30 days. They will then contact the party that submitted the item and attempt to resolve the dispute as quickly as possible. Remember, you have the right under the Fair Credit Reporting Act to dispute any inaccurate or fraudulent information that may appear on your credit report, and should do so in a timely fashion. Once you learn to read and understand a credit report, you are moving towards a more secure financial future. Obtain your report today! About The Author Melanie Cossey is a successful home based freelance writer. Melanie writes many informative articles on the topic of credit, such as What is a FICO score and why is it important and Comprehending a Credit Report. To lean more about credit reports visit http://www.ultimate-credit-report.com for more on credit scores visit http://www.ultimate-credit-report.com/credit-score.html

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Business Credit

Can You Acquire Good Credit Overnight? You Bet. by: Omar M. Omar Your credit file may not reflect all your credit accounts. Although most national department store and all-purpose bank credit card accounts will be included in your file, not all creditors supply information to credit bureaus : Some travel, entertainment, gasoline card companies, local retailers, and credit unions are among those creditors that don’t. If you’ve been told that you were denied credit because of an “insufficient credit file” or “no credit file” and you have accounts with creditors that don’t appear in your credit file, ask the credit reporting agency to add this information to future reports. Although they are not required to do so, many credit bureaus will add verifiable accounts for a fee. However, understand that if these creditors do not report to the credit bureau on a regular basis, the added items will not be updated in your file. Sample Letter to Add Positive Information to Your Credit Record ________________________________________ Date Credit Bureau Name Address City, State Zip To Whom It May concern : After reviewing my recent credit report from your company, I noted that my credit report does not include information that I know is important to providing a complete picture of me as a credit using consumer. Therefore, I request that you add the following account information on my credit file. Creditor : Address : Account Type : Date Opened : Credit Limit : Balance : ( If it’s an open account ) If there is any fee for this service or for any additional information you might need from me, you can reach me at ( your phone number ). Thank you in advance for your unparalleled assistance. Sincerely, your signature Your Name Address Social Security Number Date Of Birth ________________________________________ For Example : Suppose you had bought a used car from a used car lot 4 years ago. And the cost for your used car was $8000.00, which you have paid off in 2 years. If you can show on your credit report the auto loan you’ve paid off, that can dramatically change your credit report. Therefore, what you can do is contact the your used car dealership and demand for your account to be reported. Or you can request a copy of your auto loan payment history to be mailed to you so you can mail it yourself to the credit bureaus. It’s important to ask yourself why a certain account was not reported on your credit report. In most cases small businesses avoid reporting to credit bureaus because it cost businesses money to report your payment history to credit bureaus every month. To put it simply, every business who wants to report their clients account payment history will have to subscribe to these credit bureaus and the subscription cost the business money. About The Author Copyright. http://www.deleteuglycredit.com Omar M. Omar is the owner of http://www.deleteuglycredit.com. The website is dedicated to provide credit consumers with information about their credit right and how to dispute inaccurate information on their credit report. Omar M. Omar is also the author Of “The Credit Repair Bible” book. You have permission to publish this article electronically or in print, in your Newsletter, on your website, or in your E-Book, as long as the author’s Resource Box is included with the article. omar@deleteuglycredit.com

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Business Lines of Credit

Business Start Ups… Let’s Play Ball by: Sue and Chuck DeFiore Starting a business is like starting your own baseball team. Start-up (Spring training) is when you are doing your research, deciding on a business name, zoning requirements, setting up your business, deciding on what form your business will take (sole proprietorship, corporation, LLC). You’re assembling all the parts of your business (team), getting ready for the season (your opening day). Once spring training is over, and the season begins (your business is open) you start making your run around the bases. Getting to first base is the hardest (obtaining your first customer, making your first sale, doing your first consultation). You are helped along to second base by the support staff (players) you assembled. Moving around the bases constitutes all the steps, hurdles, obstacles, however you want to think of daily business grind. This is part of running a business ( and what the game of baseball is all about). Having game plans to deal with certain contingencies. Being aware of what your staff is capable of. Some of your staff will be single hit players. Others will hit doubles. Some will hit or make the triple play, while others will hit home runs. Your employees (players) look to you, the business owner, (their coach), and learn from you. They will look to you for direction (signals), on how they should respond (play the game). The season (your first year in business) gives you the opportunity to assess your staff (your team) to ascertain where they work best. Do you need to make changes (change the line-up). Obviously, some will perform better than others. It’s up to you, as the leader (coach) to decide who belongs in what position, where their strong points are, where their weaknesses are, and how to utilize them to the best of their abilities. Be sure to set up staff (team) meetings. How successful your team is (your business) will be determined by the end of the season. Are you just one of many new businesses in your area, or will you make the playoffs (distinguish your business, find your niche, make a name for yourself in your area). Making the playoffs and/or winning the championship means your business has made it. You paid your dues. You’re in it for the long run. You’re part of the business community (recognized by the other teams). Now you’re ready to play every season. You use spring training of each year to feel out the other teams (find out what your business competition is doing) and make any adjustments you need to keep your business (team) in the thick of things for the coming year. If you listen real carefully you’ll hear……”Let’s play ball!” Copyright 2002 DeFiore Enterprises About The Author Interested in having your own successful, home based creative real estate investing business? Chuck and Sue have been helping folks start successful home based businesses for over 17 years, and we can help you too! To see how, visit http://www.homebusinesssolutions.com for the latest FREE tips and tricks, educational products and coaching in creative real estate investing and home based businesses. No time to visit the site? Subscribe to our FREE “how to” Home Business Solutions Digest, it’s like having your own personal coach: mailto:subscribeHBS@homebusinesssolutions.com coaches@homebusinesssolutions.com

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Business Loans

Business Funding by: Monte Zwang Every business needs money at one time or another. The process of obtaining financing can be daunting and the chances of success limited if it is approached in a disorganized or haphazard way. Lenders are conservative critters; however it is important to understand that it is their job to lend money, and they are happy to do so if their risk is reasonable. The chances of obtaining a business loan are greatly enhanced if you adhere to the following procedure. KNOW WHAT YOU NEED Understand how you intend to use business financing, how much funding you need and how you intend to repay the loan. Be able to communicate this clearly and confidently with prospective lenders. UNDERSTAND YOUR CURRENT SITUATION If you are an existing business, are you profitable, and does your balance sheet have positive equity? What does your credit look like? Have a clear understanding of any existing liens and lien priority. Know your credit score and answers to derogatory credit issues (liens, judgments, slow pays, collection actions) before presenting your application. If there have been credit, profitability or equity issues in the past, present a credible argument as to why these issues have been resolved or how this loan will change this situation. KNOW YOUR OPTIONS All lending is critiqued from a risk standpoint. Certain levels of risk will qualify for certain types of financing. The level of risk is reflected in the cost of the financing. The more secure a lender’s money is, the less it costs you. Get creative. Financing takes many forms, and is available from a wide range of sources. Standard (conventional) bank financing usually offers the best interest rates, however it is the most difficult to qualify for. These loans appear as a long-term liability on the business balance sheet. Conventional loans are available through banks and other lending institutions and can be guaranteed in whole or part by the SBA. Revolving Lines of Credit are another form of business financing. This type of loan is secured by accounts receivable or inventory and is available from a bank or an Asset Based Lender. Credit cards are a form of revolving line of credit. An Asset-Based Line of Credit (ABL) is considered alternative financing and is available to borrowers who are too highly leveraged for a bank. Real Property, Equipment Leases and Notes are another form of business financing. In these contracts the collateral for the loan is the property or equipment itself. When there is no outstanding balance owed on the asset, the property or equipment could be used in a Sale-Leaseback transaction. Here, the asset is sold to the lender for cash, and the borrower leases the property from the lender until the loan is paid. Landlords can be a source of financing. It is not uncommon for a landlord to contribute dollars or rent concessions to the development of a tenant s space. For this loan, the landlord may require a Percentage of Gross Sales Clause in the lease as repayment. Extended vendor terms for purchase of product may provide short-term operating capital loans. In the event that additional credit strength is required, loan guarantors or borrowing someone s credit may help the borrower qualify for less expensive financing. Be flexible. Your final package may be comprised of several lending solutions PRESENT A CLEAR AND UNDERSTANDABLE PROPOSAL Lenders need to know who you are personally, professionally and financially. The lender needs to evaluate Income Tax returns (Corporate and Personal), financial statements (income statement and balance sheet) and a cash flow projection. The balance sheet has to look a specific way. The Current Ratio should be at least 1:1, and the Debt to Equity Ratio should be at least 4:1. Be specific as to how the money is going to be used and how it will be paid back. Lenders want to know what is securing their debt. Lenders evaluate the quality of the collateral, and want to insure that it is adequate to secure the debt in case of default. A secondary source of repayment is required prior to granting standard financing. The personal guarantee of the borrower is often required. In some situations, a lender may seek secondary collateral. Secondary collateral is simply some other asset in which you have equity or ownership, i.e. equipment, property, inventory, notes. Business funding is not difficult if the borrower is creative and realistic. Know how much money you need and how you are going to use it. Be prepared to defend your needs and anticipate the lender s questions. In the event that a lender cannot grant your request, perhaps it is the way a loan is packaged. Find a lender who is willing to make recommendations that will help you find financing. A good lender will tell you quickly if they can help you or not. If an intelligent and organized package is presented, a timely response is warranted. About The Author Written by Monte Zwang of Steele Development Corporation, a consulting firm specializing in business development and financial strategies. You can reach Steele Development by calling 206.878.9666 or online at www.Steeledevelopment.com. info@steeledevelopment.com

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