StrongBusinessCreditBlog.com

No Guarantees is one of the cornerstones of Free Market Economics. There are no guarantees. Business success happens through methodical, daily efforts. Healthy competition in all sectors ensures that even the greatest company on earth can be quickly humbled by the next small, innovative enterprise to come along. The same goes with business financing. Many business owners are in the hot pursuit of a guaranteed loan. As surprising as it may seem, almost everyone who owns a business has been in this situation: wanting a guarantee—in writing—assuring the loan. In essence, everyone wants to know that their efforts are going to be worth the battle. Understandable as this impulse is, it is simply unrealistic.

In most cases, the loan amount issued by the lender is based on careful analysis of the borrower company’s financials (often verified through tax returns and projections), sales figures, and overall stability. Refer back to the 5 C’s of Lending for a better understanding of lender criteria. Other tangents can alter the loan process, such as unexpected discoveries of credit problems. Many entrepreneurs have a series of small business startups in their pasts; each of these past ventures will be subject to scrutiny during the loan process.

THE RISK OF ALTERNATIVE FINANCING

To anyone who has been denied a bank loan for a small business, it may seem that the proverbial door of opportunity has closed. Many choose to continue looking for a solution. For most that are determined to start a small business, alternative business financing can be a feasible solution.

There are several types of alternative small business financing available to entrepreneurs, but it’s important to understand the risks involved. Some financing alternatives include factoring, commercial credit lines, advance-pay programs, purchase-order financing and supplier-guaranteed lines of credit. Even these widely accepted alternatives have risks including higher interest rates attached to private and commercial finance lines, and reduced realized profits—primarily with factoring loans and cash advances paid against Visa or MasterCard merchant account receipts.

As every situation is different, it is important to weigh these risks and how they can affect your small business’s bottom line. In the case of credit card advances, if the 7%-15% that the lender requires for each card swipe still nets your business the revenue it needs to remain profitable, then accepting a loan to get you through a rough spot could be a viable answer. Similarly, if receiving a loan for 70% - 80% of your accounts receivable balance will bring your books out of the red, then the ‘risk’ may not seem high.

There are 3 primary factors to consider when seeking alternative small business financing.

StrongBusinessCredit continues to deal with clients who have already taken out alternative financing and those who are ready to do so. What we find constant and true is that no matter at which point we assume the process, the business owner always has room for improvement. Through lack of time and know-how, the business owner always benefits from the assistance of a professional. In almost all cases, the situation comes down to one fundamental—planning. Revisit your business plan. Even if it seems completely redundant to you and exceptionally unnecessary, it’s absolutely crucial to keep revisiting the business plan and projections. Again and again.

http://www.24-7pressrelease.com/press-release/no-loans-when-you-need-them-96395.php

Ilya Bodner
Small Business Owner
Initial Underwriting Group

Alternative financing may be the perfect solution for companies looking for additional means of securing adequate business funding. This form of financing may be used to carry a new venture through its early phases of development, restructure existing debts, or take the business to its next level. Conventional lenders such as banks and private lenders may shy away from riskier businesses and not focus on business credit. Furthermore, an established company may find itself needing additional capital, yet for various reasons is ineligible for a loan. 

    Alternative financing is provided through a non-conventional source. In this chapter, you’ll discover your options. Topics of discussion include factoring, commercial finance lines, advance pay programs, lease financing, purchase-order and supplier-guarantee financing, peer-to-peer business lending, strategic alliances and venture capital. The dangers of alternative loans are also discussed, as it is imperative to understand the consequences of your choices. As there are no guarantees in personal affairs, the same applies to business.

ALTERNATIVE FINANCING FROM A DIFFERENT PERSPECTIVE

    When a business owner or new entrepreneur seeks financing, many decision factors remain constant across the various types of financing, including the 5 C’s of Lending. With alternative business financing the lender can be a private investor, equity firm, or angel investor. Required additional documentation on the business is inevitable. Be prepared to include a thorough business plan for newer businesses, prior tax returns, and projected financials for multiple years of operation.

    A personal loan, or personally guaranteed loan, is mostly driven by the business owner’s personal credit. On the other hand, alternative business financing is valuated by the strength of the business, or business model. Many times, the creditworthiness of the business is determined by a Paydex Score through Dun&Bradstreet; or similar scoring by other business credit reporting agencies. Like any other loan process, when the requirements are met to the lender’s satisfaction, the business is then funded. Instating higher interest rates justifies the alternative lender’s risk, a process important to understand about these lenders.

When it comes to non-credit based small business financing, the benefits are evident. There is a very good chance you will be able to take advantage of great interest rates as long as your established business credit is favorable. Non-credit based small business financing comes in many different forms and is an excellent way to begin building your relationships with vendors. Many vendors will extend credit without a credit check if you have your Tax-ID number and a few other solidifying factors. In turn, when you make your payments to these particular vendors, they’ll report favorably to the credit bureaus—and you’ll be well on your way to building strong business credit. This can be true for the reverse situation as well. If you are unable to make your payments on time, these vendors may report late or slow payments to the credit bureaus and damage your small business credit before you ever get it off the ground. Be careful with non-credit based financing, because it’s not a loophole for lending terms. Many businesses have come to StrongBusinessCredit because they have been crippled through mischievous actions taken by owners on non-credit based payments.

GETTING RID OF BUSINESS DEBT

    To ensure that your business continues to be successful and profitable, it may be advantageous to get rid of short term debt. Below are some helpful hints for staying most productive:

ü   Focus on one debt at a time. If you can afford to put more money into one debt than any others without incurring late fees or bad marks on your business credit, it will be easier to rid the business of debt.

ü   Avoid new debt. Taking out a new loan, for example, is counterproductive to paying off business debts—it only creates more.

ü   Increase your Business Profit Margin. Higher profits should first be spent on reducing debt. If higher profits are maintained, they will soon end up in the owner’s pockets.

ü   Strategize on YOUR plan. As discussed throughout this book, thorough planning is essential. Paying down a debt is no different.  Have a plan that works for you, and follow your own directions relentlessly.

    The bottom line: these tips are merely guideposts; your success relies on your business plan. Always plan for the worst! StrongBusinessCredit suggests referring back to the chapter 1, dealing with business plans and proper projection planning. Within your original business plan, the bad times you may encounter should be predicted and mitigated. Without such precautions, your business is vulnerable to failure.

President Obama’s determination to rope in the free-for-all that’s been going on in the credit card industry and this has bankers worried. Four years ago Congress passed a bill that made it very difficult for a U.S. citizen to write off their debts by declaring bankruptcy. This included credit cards, which made bankers jump for joy due to the fact credit card interest is a fat resource for the bank’s coffers.

With all the restrictions the banks have been forced to endure since the new President began to lay down the law and make it fair for everyone, bankers felt they had been given enough slaps on the wrist. They are not taking well the news that soon there will be laws in place that restrict how much they can increase interest rates on credit cards.

Credit card companies will not be able to use “universal default” as an excuse to raise your interest rates and you may even be able to get your old, lower rate back by consistently paying on time for six months.

Employers Holdings Inc. came up with some survey datum recently that gives a sense of reactions by small business owners to President Obama’s efforts to encourage entrepreneurialism.  The small business leaders surveyed represented 500 companies with 1 to 99 employees. The results show a general atmosphere of concern for the economy and worry about being able to cope with operating expenses.

• 72% believe their company revenue will go down in 2009
• 55% do not expect the small business stimulus package to be helpful to them
• 47% feel that the Obama Administration will be a stronger advocate for small business than the Bush Administration, 47% feel it won’t, while 6% are undecided
• 81% believe they will be forced to cut costs in 2009
• 42% expect they will need to slash 2009 expenses
• 21% are concerned they will have to lay off staff this year

Most small business owners have not seen enough evidence to form an opinion regarding the Obama’s efforts to stimulate small business lending through the Small Business Administration.

The kick-off for National Small Business Week will be held this year in Washington, D.C. with over 100 small business owners gathering at the Mandarin Oriental Hotel for three days of events. The agenda includes awards going out to small business owners whose accomplishments significantly contributed to the “economic well-being of their families, employees, community and nation.” Small business owners will also be acknowledged for their success in small business advocacy, disaster recovery, government procurement and for performance in their association with the Small Business Administration.

This year the public forums will cover news and information designed to help entrepreneurs with the challenges of a tight economy,  using social media to promote business, beneficial innovation and technology, starting and marketing a new business.

Live webcasting of the public forums will be available at http://www.nationalsmallbusinessweek.com/.

New small business leaders and managers have to develop at least basic skills in financial management. Expecting others in the organization to manage small business finances is clearly asking for trouble. Basic skills in financial management start with the critical areas of cash management and bookkeeping, which should be done according to certain financial controls to ensure integrity in the bookkeeping process. Small business owners should learn as soon as possible how to generate small business financial statements and how to analyze those statements to really understand the financial condition of the business. Financial analysis shows the “reality” of the situation. Financial management is one of the most important practices in business. This topic will help you understand basic practices in small business financial management, and build the basic systems and practices needed to help your small business thrive.

    StrongBusinessCredit is a huge fan of professional mentoring. If you are inexperienced in small business financial management, then you should acquire an accountant to help you set up your bookkeeping system, generate financial statements and do some basic financial analysis. But don’t count on an accountant to completely take over your responsibility for financial management. The accountant can help you set up a bookkeeping system, generate small business financial statements and analyze them, but you must understand financial data to the extent that you can understand the effects of your management decisions, the current condition of your small business and how decisions will affect the financial condition of your small business in the future.