Maintaining a Good Relationship with Your Bank

It is important to maintain a healthy relationship with your bank and bankers

After you have got your loan, it is essential to maintain good relationship with your banker by keeping the communication open at all times. Not only should you keep them apprised of the business progress but also clearly convey if you foresee any problems occurring with the business. Keeping problems hidden would be a mistake and it is more than likely that your banker will be able to help you out in case you need some further assistance with business financing. A relationship that you built on trust with your banker will enable you to borrow money in the future as well if your business does well and needs further capital input for growth and expansion. You can invite your business banker to visit your business and see how the proceeds from the loans are being put to use.

You can also work at expanding your circle of the people you know at the bank. Go for a meeting once in a while and spend time talking to people especially those further up the chain of command. The more people you know that the bank will make it just that much easier to go the next round of financing.

Using Credit Cards to Finance Your Business

Using Your Personal Credit As a Business Loan

At the end of the day, another way to find the funding for your business is to use your own personal available credit. Usually almost everyone has personal credit available to them in the form of the credit cards. This is considered a riskier way to finance the business since it has a higher interest rate. If you use your card for cash advances rather than to buy equipment, the interest rated can even be higher.

One way that many people offset the higher interest rate on their credit card for the purpose of using it for business startup cost is by taking advantage of low interest credit card. It is common to receive offers for low interest credit cards by someone who has a good credit history. Many of these offers can be found in personal mail. By transferring the balance from one card to another as soon as interest rate rises, a business owner can keep the risk level low. However, you need to keep a careful eye on the timeframe beyond which the interest rate is likely to rise on your low interest credit card.

While charging to your own credit card should be avoided , it is the quickest way to get the money for a business need specially if the money required is for a short amount of time and for a relatively smaller smaller amount.

Business Loan For Starting a Franchise

Getting a business loan for starting a franchise can be easier than for other business

Getting finance for business is perhaps one of the largest challenges that business start up places. If the business owner and entrepreneur cannot find the resources personally and within his own assets, he is likely to try and find it from external sources. There are all kinds of resources and places where to look for a business loan as well as the nature of the loan also differs from one source to another. However, when we come to a franchise business, there is one more option that may be open to the entrepreneur which is not available to other business startups. A franchise requires money to start up just like any other is.

One advantage is that the franchisor could be offering a direct financing to help franchisees with part or all of the cost of the startup.

This kind of funding may take the form of equipment, real estate or inventory financing. The idea is to free up as much cash was possible so that the franchisees have more capital to work with.

Many franchises are not directly involved in the lending but have established relationships with major business lenders in different cities and states. These banks and commercial finance companies are more open to working with franchise businesses since they are usually large businesses and can generate a better sense of trust in the lender. In many circumstances the franchise also has an established track record and can establish their ability to pay back the loan by presenting financial documents, balance sheets and income and loss statement from their own company as well as other franchisees that may be operating in the same state or city.

The franchisor that you are interested in can tell you about any direct or indirect or preferred lenders programs that are available with them. The uniform franchise offering circular, UFOC usually includes this information.

Even if the franchisor is not part of the preferred lending program with any lender, you may find it easier to approach banks and lending institutions to get loans for a business that is a franchise of a known brand name. If the bank has already lent money to similar franchisees in the city or state, they may already be familiar with the franchisee’s needs. This will improve your chances of getting a loan and also speed up the process. You can speak to other franchisees in your state and see how they financed their business.

Once you have located the lender you will need to provide the same information and follow the same steps as you would with any other type of business loan, which is to say that you will have to give them a business plan, personal financial statement and cash flow projections.

Getting Business Loans – Borrowing From Finance Companies

Business Loans from Commercial Finance Companies

As mentioned before, there are many resources very when sick of debt finance business loan to start a business. One such option is nonbanking commercial vendors of commercial finance companies. In the recent past these lending institutions have expanded their focus and specialization to small businesses as work. This is even more true since many small banks that traditionally meet local small businesses and startup entrepreneurs have been showed up in mergers. By taking in the business of smaller banks, larger commercial finance companies and banks have managed to expand their lending business to small business startups as were. The advantage of approaching commercial finance companies is that just like the banks they are more willing to look beyond mere statistics and numbers. They may be willing to consider getting a business loan on less strict guidelines and requirements. Here are some of the well-known commercial finance companies that can help you get started with your business.

Business Clients Capital Corp., Princeton New Jersey. This finance company offers loans of $200,000-$10 million to entrepreneurs in manufacturing, distribution and service industries who typically have sales revenue from $1.5 million and cannot get loans from traditional sources.

GE Commercial Finance, a subsidiary of General Electric, is the small business administration lender offering 7(a) and 504 loans with low down payments, fixed and variable interest rate and longer repayment terms. In many states, GE commercial finance is a member of the SBA preferred lender program which means faster service for borrowers.

Business Lenders, Hartford, Connecticut. This company is willing to look beyond the traditional methods and guidelines of the lending criteria for a business loan. They came to consider character and ability as well. Someone with a poor credit rating can still qualify for a business loan depending upon why the credit problem arose in the 1st place.

Commercial lenders require a business plan, a personal unnatural statement and cash flow projection that helps them evaluate the profit-making potential as well as ability of the business and the borrower to pay back the loan. You’ll be expected to come up with 20 to 25% of the needed capital yourself. For more information about commercial finance companies call the Commercial Finance Association at 212 595-3490 or visit www.cfa.com.

Getting Business Loans – Borrowing from a Bank

Borrowing a Business Loan from A Bank

These are some of your common places where you can start looking for a debt financing loan for your business. These are some of the main sources and also the things that you should know about each of them.

In this section we will talk about taking a business loan from a bank.

Till sometime back, banks did not constitute what the time and cost to give loans to small businesses that required funding that was under $25,000. These clones were considered too costly to administer and the cost was not considered what it. However, things have changed a lot in the recent past. Apart from serving the market of corporations and real estate developers that seem to be not generating as much business as they were when the economy was a boom time, banks and lending institutions have started giving more importance to small businesses. Many banks have added special services and programs as well as streamlined their loan paperwork to reduce their own cost for these kind of loans.

Banks made it more cost-effective for themselves to give out small loans to small businesses and have realized that this is the huge market potential for them as well. While the advantages that more banks and large lending institutions are open to lending money to small business startups, their evaluation is still based on figures and a standardized rating system. This means that for someone who is starting out and does not have enough of a background or business history to reflect the business potential, it may still be difficult to get a loan from the larger banks and lending institutions. Dealing with larger banks and lending institutions for a business loan also means that the personal characteristics and traits of the entrepreneur get ignored and the decision is solely based on statistics and numbers.

Because of this reason, a lot of entrepreneurs prefer to work with community banks where a large part of the decision is based on the personal relationship. Community banks are small enterprises and usually give more personal attention to a person applying for a business loan. Smaller community banks can also be more flexible and give more weightage to a persons character and integrity as well as personal relationship as compared to larger lending entity such as a corporate international bank.

However you should not think that getting a loan from a Community Bank is all that simple. You will still need to meet the credit and collateral department just as you would at a large institution. The only difference is that a personal relationship with the bank and the bank also matters. If you have been staying in the same town for the past 2 decades and your family has been well known and been banking with the same bank, that very fact is going to count for a lot when it comes to the final call of granting you the business loan.

Getting a business loan from a bank is also about developing relationships. If you have been banking with the same bank for the past few decades, it makes sense to approach and target the bank as of potential lender. If you haven’t gotten to know your bank is still now, you can start visiting the chambers of commerce meetings, go to networking events and take part in community functions that your local bankers and other potential wealthy investors in your area are a part of. Getting a loan business might start from getting a banker or a potential investor person interested in your business venture.

You can increase your chances of qualifying for a loan by finding a lender whose experience matches your needs. Talk to your accountant, lawyer, friends and other entrepreneurs who have dealt with banks in your area. Find out which ones are more legible and open to funding small business startups. Putting in the work initially to find the right lender has many long-term benefits and will pay off in the long run. If you can develop a long-term relationship with the bank, not only will you find funds to start up your small business but will also find it easier to get the extra required funds in the future when you want to grow and expand.

 

Types of Business Loans and Debt Finance Available to An Entrepreneur

The options available to you when it comes to taking a loan to start the business are many. In fact the same kind of business loan can be written under another name in different banks. The same kind of business loan can differ from one bank to the other in terms of the conditions that apply. For example, a commercial loan in one bank might require you to pay equal installments of principal and interest every month whereas in another bank it may be shaped as a balloon loan where only the interest is payable monthly and the entire amount gets payable in the form of a balloon payment on the last day of the loan.

Here are some of the common kinds of business loans that banks and lenders extend to entrepreneurs. Having a general idea and information regarding the kind of finance that is available to you from these institutions a good idea before you start exploring your options.

Line of Credit Account for A Business

A line of credit account is an extremely useful account that every business owner should have with his or her bank. Even if you do not require this account to provide you with capital to start and operate the business, it is still an arrangement that you should work towards having with your bank. A line of credit helps protect a business from emergencies such as stalled cash flow. A line of credit account is meant for purposes like purchase of inventory and payment of operation cost as per the business cycle meet. They are not intended for purchase of equipment or real estate. Line of credit loan is usually short-term loan that extends cash to the checking account of the business. Every bank has a different method of funding the business but the basic idea is that it covers the checks written by the business by transferring the money to a business account. The business pays interest on the money that is actually used from the time that it is paid back.

A line of credit account usually has the lowest rate interest as it poses the least risk to the lender. The lender has the right to cancel the account if it feels that the business is at risk. The interest payment is usually done on a monthly basis and the principal is paid at your convenience. This kind of an account is also referred to as a revolving line of credit. The tenure of this kind of loan is usually one year but it can easily be renewed with the bank provided your payment history has been regular and good. Many banks require that the account be completely paid off for at least 7 to 30 days in each contract year.

Even if you do not need a line of credit account right now, it is a very useful arrangement to have your bank. You do not have to pay anything till the time that you actually use it. Start talking to your banker today to see what arrangements you can make to have this account activated for your business. The bank will probably want to see your current financial statement, the latest tax returns and a projected cash flow statement to consider your application.

Installment Business Loans

These are fairly regular kind of loans where the amount borrowed is given in a lump sum to the business. The loan is repaid back in equal monthly installments which covers both the principal and the interest. Different kinds of loans are written according to different business needs. You can get a installment loan to serve any business requirement. The interest and the payment on the loan is usually amortized from the date of loan inception to the final day of the loan. You can usually pay off the installment loan before its final date without any prepayment penalty as well. The interest that you saved is appropriated accordingly. The term of the installment loan is usually correlated to the use. A business cycle loan may be written for a four-month installment loan and will carry a low rate of interest since the risk to the lender is for a very short duration of time. Business cycle loans can be written from one year to 7 years whereas real estate and equipment purchase loans may be written for 21 years. An installment loan is also occasionally given with quarterly, half yearly or annual payments where monthly payments are not appropriate to the nature of the business.

Balloon Business Loans

Although these loans can be found under many different names, the one feature that distinguishes the balloon business loan is that only the interest is payable on a monthly basis whereas the rest of the loan becomes due in the form of a lump sum large payment on the last day of the loan. The full amount of the loan is given to the business when the contract is signed. In certain circumstances, both interest and principal can be paid off on the last day of the loan with a single balloon payment. These Loans are usually given to businesses who need to wait for a specific date before receiving payment from a client at which point they will be able to pay back the entire amount borrowed along with interest. In all other regards, balloon business loans are similar to installment business loans.

Interim Business Loans

Interim loans are usually used to make periodic payments to contractors building new facilities and a mortgage on the building is used to pay off the interim loan. The main consideration for the lender is who is going to pay off the loan and how reliable is the security and commitment of the borrower.

Secured and Unsecured Business Loans

There are mostly 2 major forms of loans that you can be for your business, secured and unsecured. If the lender knows you very well and is well aware of your business along with having faith in its integrity and stability, he may be willing to write you an unsecured loan. An unsecured business loan does not use any asset of the business or personally of the business owner as a collateral. The lender gives this loan to business owner because it considers the business a low-risk. However, as a new business owner it is highly unlikely that you will qualify for an unsecured loan since you will not have a performance history or a record of profit and cash flow for your business based on which the lender can be sure of your ability to pay the loan back without the need of a 2nd payment method which usually comes from a collateral. It may still be possible to get an unsecured loan when you are starting a new business if you have long-term personal relationship with a particular bank.

A secured business loan is what most of the business owners will qualify for, specially if they are a startup. A secured loan is given to a business by getting some sort of collateral as the secondary method of payment in case the business happens to default. A secured loan usually comes with a lower rate of interest than an unsecured business loan. If the loan is for a longer duration of time such as moment 12 months or is used for the purchase of real estate or equipment and does not seem 3 of risk, the lender will usually require that the loan be secured by using an asset of the business or that of the business owner such as the real estate or inventory. Most of the circumstances, the a set that is used as a collateral for a secured business loan is expected to last the loan itself. This means that the value of the asset should be intact or have even increased during the life of the loan so that it can be used to recover the money lended to the business.

Since the lender expects the collateral to pay off the loan in case the borrower defaults, it is valued appropriately. For example a 20,000 piece of new equipment can probably secure a loan up to $15,000. Receivables are valued for up to 75% of the amount due and inventory is usually valued at up to 15% of its sales price.

Letters of Credit

Letters of credit are typically used to make payments to the foreign countries and guarantee payment to suppliers by substituting the banks credit. Letters of credit are given up to a set amount of time for specific period of time.

Other Kinds of Business Loans

There are a large number of loans that are written by banks and finance companies all across the country for the purpose of lending to businesses. These loans can be in different forms and, under different names. Some of the common loans that can be used for the purpose of starting the business are as follows.

  • Term loans, both short and long term according to number of years there for.
  • Second mortgages where a 2nd mortgage on the real estate is used to secure a loan, usually long-term. 2nd mortgages are also known as equity loans.
  • Inventory loans and equipment loans for the purchase of new equipment and inventory and secured by the same.
  • Accounts receivable loans secured by outstanding amount due to the business.
  • Personal loans where your personal collateral guarantees the loan which you in turn lend to the business.
  • Guaranteed loans in which a third-party such as an investor, spouse or the small business Association guarantees the payment of the money to the business loan lender.
  • Commercial loans which is a standard loan that a bank offers to small businesses.

Once you have understood the different business loans and the major features of each, you are in a better position to negotiate with the lender and promote your business in a favorable light to secure the business loan that you require.

What Is Debt Financing – Funding a Business With Business Loans

Debt Financing / Business Loan For Business Startup

Unlike equity financing, debt financing for a business does not include handing over a share in the business to investor. Debt financing simply means getting required business capital in the form of a loan that you have to repay according to the terms and conditions of the loan program. Debt financing to start a business or to infuse it with extra capital is what can be truly called a ‘business loan’. Any other kind is usually in the form of an investment, in return for a share in the business which makes is equity financing.

There are many sources that you can use to get debt financing for the business. These sources include business and personal loans from the bank, commercial lenders and even your own personal credit cards.

The reason why only debt financing can be called business loans and not any other is because in other kinds of business funding such as through investment angels and other individuals who give you the money, you usually have to part with a share in the business. These individuals become a part of the business and their profit depends on the profit generated by the business. Therefore it is more of an investment than a loan. Even when you borrow money from your friends and family, it could be an investment or a loan.

If the person takes a share of your profit, then it is equity financing and you give the person a share percentage of the business income. The better the business does, the more profit the investor makes. However, it is equally possible for family member or a friend to give you a small business loan as well. The same is possible for any individual if he believes in your business. Many investors in a business will want to give you the money as a form of a loan rather than invest in its future performance. This way they can state the percentage return they want and be more certain about when they are going to get back their money.

Whenever you take money from an individual, make sure you get an agreement made by your lawyer that states all details of the loan. If it is a debt finance and the person has given the money as a loan, he should not be able to claim part ownership of the business in the future.

Basically, whenever you borrow money from a bank, lending institution, finance company, individuals or another business that has to be paid back according to a schedule, or a certain amount that includes the principal borrowed and the interest agreed upon, after an agreed upon duration, it is know as a business loan.

A person who gives the business loan has no right of ownership over your business and cannot claim a share in its profits. Similarly, the debt that you owe the lender of the business loan is not lessened by the fact that your business goes in to a loss. The only claims that a lender of a business loan can make is against any collateral that you have used as a security and guarantee to get the loan. These could include personal assets like stocks and bonds or business assets like equipment, inventory, real estate, accounts receivable etc.

Difference between Venture Capitalists and Investment Angels

It is true that an investment engine looks at the same factors as a venture capital firm or a venture capitalist when it comes to investing in a business. However, there are differences between the 2. The 1st difference lies in the source of the funds. A venture capitalist invest funds from other sources and money that belongs to other people. An angel investor takes his own money and puts it into the business.

However, the difference between the 2 that is going to make all the difference to your business is that you are more likely to succeed in getting required capital from an investment angel whereas it could be next to impossible to get an investment from a venture capital firm for business start up. The venture capital kind of funding for business startup has almost dried up and is usually only available to businesses that already have a proven track record.

The reason that you stand a better chance of being able to get the required capital from of Angel investor is that you are dealing with a person on a more one-to-one and personal basis. Many investment angels are not driven by profit alone. These people could be interested in the general concept of the business or having been entrepreneurs themselves, by the excitement and the sheer interest that they have in your field of business. Investment Angels also tend to get more personally involved in the business and share its vision and idea for growth. For this reason investment angels are more likely to be persuaded by an entrepreneur’s drive to succeed persistence and motivation.

Hence, it is important to convey a sense of your background, experience and motivation to the potential Angel investor. Your company business plan should be accurate and perfect and address the concerns regarding the growth potential of the business as well as how the angel’s investment s going to pay off.

Even if your business plan gets rejected by the angel investor, he or she may be able to refer you to somebody else who could you be in a position to invest. Whatever arrangement you reach with the investor, be sure to have it referred to and examined by your attorney. Have the agreement written down in writing and make sure it addresses all aspects of the investment such as how long will the investment last, how will you return it, what is the rate of interest to be calculated, how will the investment be cashed out etc. Also carefully detail the amount of involvement each investor will have have in the business and how the investment will be legalized.

Pay special attention to the possibility of the investor turning his current equity or future loans to your business into controlling interest. Such a deal could mean that you lose control of your business in the future.

Finding Business Angel Investors Online

Now there is a way for angel investors to be able to find your business online. There is a website launched by the SBA which helps accredited angel investors find entrepreneurs in need of capital. This online network is known as the Angel Capital Electronic Network, ACE-Net.

This website has a search engine that allows various angel investors to look up the details of the entrepreneurs listed such as the company’s product or service and the amount of financing desired as well as other pertinent information about the business.

Both the angel investors as well as the entrepreneurs must needs certain eligibility criteria to be listed on this website. For example only accredited angel investors who have met income in excess of $200,000, amongst other qualification, are listed on the website. Angels can also place their own description of the kind of business they are willing to invest in and get e-mailed whenever a company meeting those parameters appears on the network.

For more information regarding how you can list your business on the ACE-Net, Angel Capital Electronic Network, and what eligibility criteria you require to meet, you can visit HTTP://acenet.csusb.edu or contact the SBA’s Office of Advocacy at 202-205-6533.

How to Convince Angel Investors to Invest in Your Business

Getting an Angel Investor to Invest In Your Business

Once you have located potential investors who are in a position to give you the startup capital that you require, how do you really convince them to give you that money and clinch the deal. The kind of presentation that you need to make to an angel investor is the same as what you would make to a venture capital firm. An angel investor usually likes to see the following things in a business before she can be convinced to put in his own money.

Strong management. The investor needs to be convinced that the business is in good hands and the business will be handled professionally.

Track record. If you have already been doing business, what has been the track record of the business so far.

Proprietary strength. Propriety does not necessarily mean that you must have the patents, copyright or trade marks on all your products but simply that your product or service should be innovative and interesting enough to develop a strong consumer base.

Window of opportunity. Investors also like to see whether your business product or service is something that it is taking advantage of the lack of competition or demand not meeting supply kind of a situation. If you are a business who is getting into the field where there is nobody is, your business stands to grab the lion’s share of the consumers before other businesses.

Market potential. Investors also like to see the potential for growth in the market as well as the demand. If your business has the potential to grow as a change order franchisee in various locations in different cities and states, the investor is likely to be more interested.

Return on investment. Most of the investors will expect to make a minimum of 20 to 25% over 5 years. However, they may be willing to accept a lower rate if your business is a low-risk venture.