Sunday, July 30, 2006

Bid On A Loan

Peer-to-peer lending via the internet was the subject of a recent article in The Wall Street Journal . Prosper Marketplace is trying to create an e-Bay style marketplace that connects borrowers and lenders.

Typically useful for individuals who have bad credit or have a hard time obtaining traditional financing from a bank, this service provides lenders an opportunity to fund these non-conventional loans ranging in amount from $50 to $25,000. Interest rates can go up to 29 percent depending upon the state.

Noting that the process was simple and timely, one borrower said, “you’re bypassing a whole bunch of steps that are draining, time consuming and non productive”.

If your business doesn’t quite fit the mold, consider borrowing against your company’s assets – purchase order financing, factoring and equipment leasing are all sources of working capital that may help you meet your financing objectives.

Please feel free to contact me with questions or ideas for future articles!

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Forbes: Are You Ready for a Bigger Bank?

Forbes Magazine posted an article on July 19th entitled, "Are You Ready For A Bigger Bank?". I get asked this question from time to time and I think it’s an important issue for businesses of all sizes seeking bank financing.

The article includes five signs that you may have outgrown your local bank. The one that particularly caught my eye is “credit crunch”. In my experience, this is the reason many borrowers decide to pursue alternative sources of financing. Sometimes this involves just switching banks and other times switching to another type of financing such as asset based financing products like p.o. financing, factoring, asset based revolvers or leasing.

Check out the article – feel free to let me know how your company has dealt with a credit crunch!

As always, please feel free to contact me with questions or ideas for future articles!

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Wednesday, July 26, 2006

New Website for SCORE

According the USA Today Small Business Connection blog, SCORE is a great resource for entrepreneurs and small businesses who need advice on a variety of issues including obtaining financing.

The new website has just gone live and you can visit at

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Tuesday, July 25, 2006

CFO Magazine – Inflation and Interest Rate Worries

If you’re a business owner or chief financial officer of a small or mid-sized business, no doubt concerns of inflation and interest rate increases have crossed your mind these last few months as the Fed continues to raise the benchmark interest rates that determine a company’s cost of obtaining bank loans and other forms of capital.

In the July 2006 edition of CFO Magazine, Joseph McCafferty notes that CFOs are worried that interest-rate increases could choke current economic growth.

In the article, John Graham, a finance professor at Duke's Fuqua School of Business states that "CFOs are telling us that their companies can ride it out for now, but that we are a couple of steps closer to the danger zone for the U.S. economy".

Further noted is that a top concern related to the increase of interest rates is the possibility of rising salaries and wages.

Now is a good time to make sure your bank is up to speed on not only your recent successes, but also any challenges that you’re facing and how you’re dealing with those challenges. A regular flow of communication with your banker will be a great advantage if the economy incurs a downturn and your business suffers. The more your banker understands your business and its challenges, the more likely you’ll get extra help should cash flow experience a bit of strain.

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Saturday, July 22, 2006

The Tax Man – Pay off the IRS Now!

George Harrison wrote the lyrics for the song, The Taxman, when he realized how much money the Beatles were paying in taxes once they started making money.

Taxes – one of the two most certain things in life (the other being death). Once the IRS decides you owe them, there’s no escaping.

If you find yourself in a situation where you owe back taxes to the IRS, you may find yourself with an almost impossible situation when it comes to raising money. Knowing that the IRS has a first priority lien on all of your assets should you have a past due tax liability, many lenders will simply not lend to your company.

If you have sufficient accounts receivable, you could sell them to a factor and then utilize the proceeds to pay the IRS in full. By removing this tax lien, you would then expand the list of companies that might consider providing lease financing, p.o. financing, factoring or even a bank loan.

There are also a limited number of factors that will buy your accounts receivable when the IRS has agreed to a subordination agreement or when the IRS has agreed to silence its tax lien as long as you’re current on your IRS payment agreement.

So if you’re tired of working for no one but the taxman and would rather focus on growing your company, consider factoring as a solution to your working capital needs.

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Wednesday, July 19, 2006

Is Home Equity Fueling Your Business?

With the rapid increase in housing values in certain markets over the last five years, many business owners relied on home equity loans and lines as a cost effective method to fund their business needs. With home equity lines priced at or near the Prime Rate, it was an easy decision to defend.

In Southern California, the LA Times reported today that June home sales declined by 17.5% compared to the same period a year earlier. Prices increased a mere 6.0% for the same period.

With home inventories on the rise and interest rates following the same pattern, “we expect more markets to see prices flatten or decline a bit in the second half of this year," according to DataQuick President Marshall Prentice.

What does this mean to a business owner? If you are using a home equity line or loan to fund your business, you might need to look to other financing options to provide fuel for your business as the equity in your home is likely to flatten or drop. Also, if your bank has provided you with a business line of credit secured by your home equity, your banker may not be as comfortable approving an increase in your business line of credit.

If your business has receivables, inventory or equipment, now is a good time to evaluate other sources of potential financing. Don’t wait till it’s too late!

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Tuesday, July 18, 2006

Banking By the Numbers

According to the Wall Street Journal's "By the Numbers" column, the most important factor to small businesses in selecting a bank is location. One of the reasons cited is that smaller businesses have a lot of cash deposits to make so proximity is an advantage. With changes in technology enabling businesses to deposit checks from their own offices, one might assume this factor will become of lesser importance over time.

The third most important factor was being "a reliable source of credit" followed by "speed of decisions". I'm curious at to whether this will change with the growing risk to the economy created by higher fuel bills and higher interest rates.

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Monday, July 17, 2006

When Supplier Credit Runs Out – Purchase Order Financing Steps In

Have you been in this situation before? Your company is growing rapidly and your suppliers are unwilling to extend any further credit so that you continue to meet the requirements of your customer.

You might turn to your bank (if you have one), but they express concern over your length of time in business, your customer concentration or your high growth rate. Besides, lending in order to help you fulfill purchase orders is not necessarily included in their product offerings.

Purchase order financing is an option you might consider – with a firm order for a creditworthy customer, you can borrow enough money to cover your cost of goods sold. If your margins are at least 15-18%, this may be a quick solution to keep you on track to grow your company’s revenues!

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Wednesday, July 12, 2006

Recover from Turmoil with Factoring

In today’s LA Times, Cyndia Zwahlen writes in the Small Business Report about a small catering company that was experiencing financial chaos - “Debt was piling up. Vendors were calling for payment.”

Many start-up and small businesses find themselves with cash flow problems for a variety of reasons. Employees and suppliers require timely payment, but the cash to pay those bills by collecting on their accounts receivable may not occur for up to 30 days and longer. The challenge may become even greater when one or two clients represent a disproportionate share of a company’s revenues.

Factoring, or accounts receivable financing, could be an excellent solution to solve a cash flow problem. Factoring is quick, is based upon the creditworthiness of your customers and is rarely impacted by customer concentration issues.

Use factoring to improve your cash flow and get back to growing your business.

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Monday, July 10, 2006

0% Equipment Financing – Is it right for you?

Cisco Systems Capital just announced it has extended its Easy Lease 0% finance package to the end of December 2006 in a move to help more small and medium-sized businesses invest in smart data and communications solutions.

Do 0% financing programs make sense for businesses acquiring new business assets?

Here are three questions to ask yourself when considering a 0% financing offer…

First, are you paying a higher price for the item in exchange for the 0% financing? You might be better off asking for a cash rebate or lower price and arranging your own financing.

Second, do you have strong enough credit to qualify for this low rate? If the credit criterion to qualify for 0% financing is too stringent, you may not be approved unless you’re company’s credit score is perfect.

Third, for how long a term is the 0% financing available? If the term is too short, then you may end up with higher monthly payments than you can afford. It might be a better fit with your cash flow to obtain a longer lease term.

Other factors may come into play as well. Be sure to call if you need any assistance in evaluating your lease financing options.

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Friday, July 07, 2006

Use of Equipment Leasing Increases

Equipment leasing continues to be an excellent source of financing for businesses acquiring assets including machinery, construction equipment, office equipment, medical equipment and point of sale equipment to name a few. According to the Equipment Leasing Association, originations were up more than five percent for the month of May, totaling $5.9 billion in new business volume for both equipment leases and loans.

Leasing helps preserve working capital and often creates tax advantages for the lessee. Additionally, leasing can be much easier to obtain than a loan - many lessors can approve a lease financing for up to $100 thousand after review of a completed one page application.

If your company is planning to buy new equipment, lease financing may be an excellent financing solution for your consideration.

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Wednesday, July 05, 2006

Small Business Borrowing Rates Increasing Again

Last week, the Federal Reserve’s Open Market Committee announced an increase in the federal funds rate to 5.25 percent marking the 17th consecutive increase in this benchmark interest rate. No doubt, many small business borrowers immediately felt the sting when commercial banks raised the prime rate to 8.25 percent.

Historically, about 75 percent of all small business loans under $1 million are prime based according to Dr. Econ at the Federal Reserve Board of San Francisco. If your small business utilizes bank loans, equipment leasing, factoring, P.O financing or any other type of asset based financing, there’s a good chance that it’s just become more expensive to run your small business.

Will the increases in these borrowing rates stop anytime soon? Some market analysts are suggesting that the Federal Reserve may take a pause in raising the federal funds rate. Nonetheless, it’s probably an excellent time to review your own company’s policies on credit, collections and payables and take steps to improve your cash flow.

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