Finding Right SBA Loan For Your Business

Whether you are thinking of starting a business or you are already running one, money is your lifeline. Small businesses have financing as a major factor in keeping their businesses afloat and sometimes getting funding for the same proves to be most beneficial for them. Small Business Administration, SBA, helps piece it together for the…

Whether you are thinking of starting a business or you are already running one, money is your lifeline. Small businesses have financing as a major factor in keeping their businesses afloat and sometimes getting funding for the same proves to be most beneficial for them. Small Business Administration, SBA, helps piece it together for the small businesses. It offers them the funding that they need to operate the businesses and even grow them.

This is a federal government agency that has come through for many small businesses. Instead of lending the money directly to the businesses, it sets and uses guidelines for the loans through partners like credit unions, micro-lending institutions, banks and community development organizations. SBA eliminates lender risks by guarantee repayment of portions of loans granted. It can be termed as a win-win situation because the business people get the funding they need and the lenders get secured that the loans will be repaid making the agency very beneficial. The loans simply offer access to capital at lowest costs without the requirement to give up equity.

The loan programs

Important to note is that SBA loan programs are specifically structured for small businesses that do not have access to other kinds of financing. As a small business person, you should be familiar with the loan programs so you are able to apply for the right one for your business.

7 (a) loan program – It is the primary program intended to assist startups as well as existing small businesses that need financing. The loans are basic and the money can be for general business purposes like equipment, machinery, working capital leasing improvements, fixtures and furniture and other business needs. You can basically take care of business acquisitions, consolidating unsecured debts into a new loan, large inventory purchase and business expansion.

CDC / 504 loan program – This loan program under SBA offers long term financing purchase of large assets. The assets can include commercial real estate, buildings and land or even equipment. The loans usually cover 40% of total project cost, participating lender covers 50% and the borrower puts up the last 10%. Loans under this program are never used for inventory or capital.

Disaster loans – Businesses can be affected by disasters and this can be devastating for any business. SBA extends the disaster loans to businesses that are affected by disasters that have been declared. The low interest loans are structured to assist in replacing or repairing damaged machinery, personal property, business assets, inventory and equipment. You will basically manage to get back on your feet after disaster strikes at very low interests using this loan program.

Microloan program – The loan program gives very small loans to business startups, growing businesses or newly established ones. They usually have designated intermediary lenders by the SBA most of which are nonprofit organization with some experience in technical and lending assistance. Even though the small loans can not be used for the payment of existing debts or real estate purchases, they still come in handy for purchase of fixtures, equipment, machinery, supplies and inventory or used as working capital.

Let Technology Help In Getting Your Commercial Loan Application Approved

Every loan rep or a broker must know the significance of timing. The timing must be opportune; because if that is not the case, the deal will never float to completion. So we can say that timing is closely associated to getting the loan approval letter issued in no time. However, what must be done…

Every loan rep or a broker must know the significance of timing. The timing must be opportune; because if that is not the case, the deal will never float to completion. So we can say that timing is closely associated to getting the loan approval letter issued in no time.

However, what must be done when the borrower is not at all able to get the needed docs on time? Does that mean a long wait until everything gets approved? No. However, it will always involve a little hard work on your, the borrower's, part.

Today, in the age of the Internet, information can be accessed in no time; so you will have to leverage this particular piece of information technology to get your bridge loan or any other commercial property funding approved. However, many know little when it comes to leveraging the Internet in such a way that will expedite the loan-approval process.

Property pictures

One of the key items that every underwriter will need is the pictures of a property. There is no reason at all to wait for a borrower to give you property pictures. Rather, it has become way too simpler to find property pictures, now, by using Google Earth.

Here you can get your property's aerial views as well as the street views. So a click here and a keystroke there will get you your pictures that must be sent to the underwriter. However, it is still better to watch out as some pictures may be out of date. Which is why it becomes very important for you to note the date that is mentioned with the picture. If, however, you are submitting old property pictures to a lender, it will be best for you to update your lender and confirm the lending party that updated pictures will be provided once the loan-approval process is initiated.

Property details

Again, this is the second most important item that every underwriter will require for pushing your loan application one step farther in the loan-approval process. For example, if the borrowers tell you that there is an industrial building on the promises, but they are unable to dig up the information related to it, then you must not wait for them to provide you the details (such as the parcel size or the square foot value).

Also, do not whittle time away if you are unable to find the info for yourself. You can get the help of another wonderful fragment of information technology that goes by the name of LoopNet. This tool is one of the best ways to find all the reports associated to a property's history, sq. footage, parcel size, tenants, the land's tax history, etc. And what is the best part-it is, indeed, free to use. Plus, the tool even has a set of filters that can help you to differentiate good deals from the bad ones.

So when it is about getting to pass your applications for commercial bridge loans, it will be apt if you can provide the relevant information (related to property pictures and other technical details) on time. And, now, you can provide such relevant info at the push of a button.

Demand for Liquor & Procedure for Obtaining Business Loans for Liquor Stores

Liquor retailing is a business that has a steady demand throughout the year. If your store is in a good location, you will have a constant stream of customers. You are sure to do brisk business if you stock a wide range of products and build a reputation in the area where you operate. Unless…

Liquor retailing is a business that has a steady demand throughout the year. If your store is in a good location, you will have a constant stream of customers. You are sure to do brisk business if you stock a wide range of products and build a reputation in the area where you operate.

Unless you plan to put your own money into the business, you will have to apply for liquor store financing for purchasing a suitable store as well as for stocking it with an adequate volume of inventory.

SBA financing – The US Small Business Administration (SBA) is possibly the best source for meeting the entire range of requirements for liquor store financing.

The flag 7 (a) loan program can be used for several purposes, including purchasing real estate, furniture and fixtures, and even for establishing a new business. Money sourced through this program can also be utilized to buy inventory.

The other major SBA loan program is the CDC / 504. Its use is restricted to purchasing real estate and equipment.

Whichever SBA loan you opt for, you can be assured that you will pay the lowest rate of interest and also enjoy an extended repayment period.

But these loans do have several downsides. It is very difficult to meet the credit criteria that the SBA stipulates. Additionally, you would need to wait many weeks for an approval.

Bank loans – A bank loan could also be a good source to meet your liquor store financing needs. These traditional commercial lenders charge reasonable rates of interest, a factor that would enhance your cash flows and help you run a successful business.

Unfortunately, banks consider liquor store financing to be a high-risk area. Unless you are able to provide adequate collateral, you would find it difficult to get funding from this source.

It is also likely that you would have to furnish a personal guarantee, along with a list of the assets that you own. In the event that you default on your bank loan, there is a likelihood that you could lose your home because of the guarantee that you have provided.

Alternative lenders – There are a number of marketplace lenders that are open to advancing money for the purpose of liquor store financing.

These lenders enjoy several distinct advantages over bank loans. As they use an online application process, it is very easy to apply. There is no need to complete lengthy forms and submit copies of documents.
All you need to do is enter some basic data onto the lender's website. An algorithm will process your information and convey a credit decision instantaneously. In fact, it is possible to receive loan funds within a few days of applying.

If you plan to take liquor store financing from an online lender, remember that the interest you will pay is likely to be substantially higher than what you would pay for an SBA loan or a bank loan.

But these financial institutions do not have cumbersome procedures. Their credit appraisal techniques are also not as stringent as those followed by banks.

Making a success of your liquor business – Running a liquor store is not easy. Gross profit Margins are not very high, but you are required to maintain sufficient quantities of stocks, a factor that will increase your interest costs.

You would need to pay a great deal of attention to your working capital and cash flows if you want to maintain your profitability.

In addition to locating your store at a high-traffic location, it is important that you have some knowledge about the different products you sell. This will help you gain a loyal customer base and contribute to the success of your liquor store.

Project Funding Fees and Costs

Project Funding Payments. In the project funding world many entrepreneurs refuse to pay “upfront fees” towards their project. When you apply for debt financing, the funder may have to implement a financial structure to enable you to kick-start a project and as well to determine your ability to pay back the loan. Whilst it's true…

Project Funding Payments.

In the project funding world many entrepreneurs refuse to pay “upfront fees” towards their project. When you apply for debt financing, the funder may have to implement a financial structure to enable you to kick-start a project and as well to determine your ability to pay back the loan. Whilst it's true that you may not have to pay an upfront fees, there are often associated costs involved.

Fees V's Cost:

A fee is when you are asked to pay for the services of providers whether it be for the arrangement of the fund package through the intermediate or a fee levied by the funder themselves. This fee is normally levied at the end of the funding procedure.

A cost is something that can not be avoided. The money goes towards actual events such as purchasing a bank instrument on your behalf, blocking funds within a hedge fund, securing private equity money. All these incur costs.

What Is Included In The Cost?

Costs can include an array of things such as securing collateral. Let's say you have a project which has NO collateral and is not yet generating any revenue. Generally funders / lenders protect the money loaned out by securing it against some kind of collateral. As a project which is at its beginning stages, they will not have any collateral. It is quite common that funders will have to go and obtain external collateral by purchasing instruments to secure against the project.

Often this involves another corporate entity to pledge their assets against the instrument for 1 year and 1 day. You now have two parties at risk, the corporation pledging their assets against the instrument and the lender purchasing the instrument to lend against it – this incurs costs. Other costs can include 1) due diligence 2) to pay for flights for face to face meetings, 3) blocking money within a hedge fund, 4) securing funds from private equity investors, all of this incurs very real costs. Not to say that all companies have these costs.

Payments and Commission

Getting project funding can be quite ruthless. Please read your agreements and terms thoroughly when applying with brokers or lenders as it's been known that some companies are charging ridiculous sign up fees, retainers, Skype call fees and an exit fee. All this can be legitimate however there are those funders out there who are just out to collect on the fees and very rarely bring any funding results. I've heard that some companies are charging 20K for just the sign up fee and exit fees can be making it difficult for companies to go elsewhere if they have not received funding within 12 months.

Some Important Facts About First Position Commercial Mortgage Notes

Creating attractive interest is a challenge in today's low interest rate environment. The attractiveness of First Position Mortgage Notes is in the fact that investors (lenders) are held in the first position as a lien holder of the property – so there is a hard asset (real estate) providing the security of their investment. The…

Creating attractive interest is a challenge in today's low interest rate environment. The attractiveness of First Position Mortgage Notes is in the fact that investors (lenders) are held in the first position as a lien holder of the property – so there is a hard asset (real estate) providing the security of their investment.

The 50-year average for homeownership in the United States is about 65%. Most experts see that number reducing as the move to rental communities continue to rise along with the challenges that younger consumers are finding in securing sustainable employment which is directly correlated to one's ability (and desire) to own a home. The marketing for traditional residential mortgage financing in today's marketplace has created a higher understanding of how these loans work for consumers. Couple that with the competition in the residential financing market and it is understandable why most adults understand residential financing. But what about Commercial Real Estate?

Each and everyday consumers leave their homes and visit multiple commercial properties – for work – for dining – for shopping – for entertainment – but few understand that differences in the commercial financing market versus the residential financing marketplace. The term “commercial loans” is mainly segmented into “multi-family properties (5 plus units), office buildings, retail centers, industrial and warehouse space, single tenant box buildings (such as Lowes and Walmart), and specialty use properties such as gas stations, schools, churches, etc. Regardless of the use the access to commercial loans is quite different than residential borrowing.

In residential borrowing the normal procedure is for the lender to request 2 years of tax returns, bank statements, pay stubs, credit check, and appraisal of the property. The loan underwriters primary focus is the borrower's ability (through an income and expense model) to make the monthly mortgage payments including taxes and insurance.

In a commercial loan the lender will first look at the condition of the property and its ability to service the loan out of the cash flow from its day to day operations. The lender will request copies of current leases (rent roll) and two years of the borrowers operating history. In addition, they will review recent capital improvements, internal and external photos of the property, and lien and title searches. With these documents in hand the underwriter will create a debt-to-service coverage ratio (DSCR) to determine if the property can cover the claims that the new loan will carry with it. In addition, the lender will look at third party appraisals paying attention to not only the property in question but also the surrounding area and the trends in the marketplace.

A commercial borrower needs to have strong financials and credit history to qualify for the loan. However, the lender places the greatest weight on the properties ability to sustain the loan over that of the borrower's personal situation. This is in direct comparison to the underwriting of residential mortgages where the borrower's personal financial situation is of a higher concern than the property that is part of the mortgage.

There are six sources for commercial real estate borrowing – Portfolio Lenders – Government Agency Lenders – CMBS Lenders – Insurance Companies – SBA Loans – Private Money / Hard Money Lenders.

Portfolio Lenders – these are mostly comprised of banks, credit unions, and corporations that participate in commercial loans and hold them on their books through the maturity date.

Government Agency Lenders – these are companies that are authorized to sell commercial loan products that are funded by governmental agencies such as Freddie Mac and Fannie Mae. These loans are pooled together (securitized) and sold to investors.

CMBS Lenders – these lenders issue loans called “CMBS Loans”. Once sold the mortgages are transferred to a trust which in turn issues a series of bonds with varying terms (length and rate) and payment priorities in the event of default.

Insurance Companies – many insurance companies have looked to the commercial mortgage marketplace to increase yield on their holdings. These companies are not subjected to the same regulatory lending guidelines that other lenders are and there before have more flexibility to create loan packages outside the conventional lending norms.

SBA Loans – Borrowers that are looking to purchase a commercial property for their own use (owner-employed) have the option of utilizing a SBA-504 loan which can be used for various types of purchases for one's own business including real estate and equipment.

Private Money / Hard Money Loans – For those borrowers that can not qualify for traditional financing due to credit history or challenges with the property in question – hard money loans may be a viable source of funds for their intended project. These loans have higher interest rates and cost of money than other types of loans. Regardless of the higher costs of borrowing – these loans fill a need in the commercial mortgage marketplace.

Commercial Mortgage Loans can be either recourse or non-recourse in their design. In a typical recourse loan the borrower (s) is personally liable for the loan in the event that the loan is foreclosed and the proceeds are not sufficient to repay the loan balance in full. In non-recourse loans the property is the collateral and the borrower is not personally held liable for the mortgage debt. In typical non-recourse loans a provision called “bad-boy clauses” are part of the loan documents which state that in the event of fraud, intentional misrepresentation, gross negligence, criminal acts, misappropriation of property income, and insurance windfalls, the lender can hold the borrower (s) personally responsible for the debt of the mortgage.

Understandably, in commercial mortgage negotiations the lenders prefer recourse loans where the borrowers would prefer non-recourse loans. In the process of underwriting the lender and borrower (s) work to create a loan that meets both parties need and objectives and if an impasse presents itself – the loan is not issued.

The world of commercial mortgages offers investors the ability to participate in a marketplace that can have attractive yields, principal safety through lien positions on real estate assets, and durations (12 months to 5 years) that are acceptable to most. The creation of ongoing monthly interest through holdings such as Commercial Mortgage Notes is attractive to both consumers and institutional investors.

The Working Procedure Of Debtor Finance

Debtor financing is gaining continuous popularity to finance the growing businesses. It enables you to pay for the organizational expenses using the slow-paying invoices. It provides a flexible line of credit which depends on outstanding invoices and may be very beneficial for both small and large businesses. Let us try to know more about Debtor…

Debtor financing is gaining continuous popularity to finance the growing businesses. It enables you to pay for the organizational expenses using the slow-paying invoices. It provides a flexible line of credit which depends on outstanding invoices and may be very beneficial for both small and large businesses.

Let us try to know more about Debtor financing, its working, and benefits in this article.

What is Debtor Finance?

Debtor Finance is a non-specific term alluding to items that store an organization by financing its invoices. It is also known as Cashflow finance. The two most basic types of Debtor financing are Invoice Factoring and Invoice Discounting. Both of these tackle the same issue and give same advantages. Be that as it may, they work in a different way and offer diverse features.

How Debtor Finance Works?

As a business conveys services to the customers, the solicitations invoices raised are sent to the financier. The financier then checks the invoices and advances up to 90 percent of the unpaid receipt esteem inside 24 hours. The business can then get to the available assets as required. The remaining rate of the receipt is paid to the business once the client receive is fully paid, less a little charge.

The business can hold control of the accounting and accumulations capacities, or they can select the lender to control this capacity as a component of a full administration arrangement. Most Debtor Finance financiers offer online access to reporting, permitting the business to track installation receipts.

There are two types of Debtor Finance:

Disclosed:

In this type the debtor or customer is informed on invoices that funds are directly payable to the financier. This is termed as Invoice Factoring.

Confidential:

In this type the debtor or customer is not aware of the fact that the funding being provided. This is known as Invoice Discounting.

Invoice Factoring:

Invoice Factoring is a disclosed finance facility intended to enhance an organization's Cashflow by transforming invoices into working capital. It gives speedy access to up to 90 percent of the estimation of verified Invoices. The remaining equalization, less charges, is made available to the business once installation is received from their customer. This facility is a recreation facility. The small businesses which have cash flow problems uses Invoice Factoring.

Invoice Factoring is normally given as a full administration arrangement, with obligation gathering, deals record organization and reportingave to organizations who do not have their own credit administration assets. The lender's expert obligation accumulation administrations can help with gathering obligation expeditiously and proficiently. Be that as it may, with a figuring understanding set up it is still workable for a business to keep dealing with their own obligation gathering if craved.

Invoice Discounting:

The classified finance facility intended to enhance an organization's cash flow by giving financing against the organization's outstanding receivables is known as Invoice Discounting. It is used by the large companies which have a proper credit and collection procedure. It gives snappy access to up to 90 percent of the estimation of the confirmed Invoices. The remaining balance, less charges, is made accessible to the business once installation is received from their client.

Invoice Discounting is generally utilized by built up organizations that have an in-house accumulations or credit administration division These organizations deal with their own special accumulations and need not bother with the financier to gather invoices for them. Organizations exploiting Invoice Discounting may not require all invoiced funded, and may just utilize it as a sort of overdraft office for critical stock buys or wages. Invoice Discounting permits a business as far as possible on the sums attracted down to control interest costs.

By and large, the length of the record is all around overseen, just the business and the financier know about the Invoice Discounting facility.

Advantages of Debtor Finance:

  • Enhanced Cash Flow: Generally the sales are turned into funds within 24 hours.
  • Power to Negotiate: It provides the flexibility to the businesses to negotiate better with the suppliers.
  • Flexibility: The Debtor Finance facility limits grow in-line with sales.
  • Payment Discounts Elimination: It eliminates the need to offer payment discounts to the customers. Debtor Finance fee is normally less than the prompt payment discounts.
  • Business Equity Retention: It enables you to access funds for business expansion, through Debtor Finance instead of selling business equity.

Invoice Factoring Benefits:

  • It helps in a better credit management.
  • It helps to assist the businesses having a strong or weak balance sheet position.
  • It helps to assist businesses which may fail to qualify for traditional banking products.

Invoice Discounting Benefits:

  • It suits to the businesses which have traded positively and have a positive net assets position.
  • It also suits to the businesses that are trading without any creditor problems.

The Right Way To Question An Underwriting Condition

You are seeking some type of commercial or business financing. You may be purchasing a building, in need of additional capital, or replacing outdated equipment all of which will improve the running of your commercial enterprise, your overall profits and your life. Of course there's an ongoing process to go through and you've gleefully given…

You are seeking some type of commercial or business financing. You may be purchasing a building, in need of additional capital, or replacing outdated equipment all of which will improve the running of your commercial enterprise, your overall profits and your life.

Of course there's an ongoing process to go through and you've gleefully given the lender every piece of documentation they have requested with your application. The lender tells you that they like the deal and everything looks good, except about the time you think you are home free, a request for something new pops up that you are simply not able to provide.

Sometimes it does not exist or providing it would infringe on your clients / customers right to privacy. You are told that without this further information your request is denied. Waves of disappointment float over you because you felt confident you fit the parameters when you made your initial inquiry. If you have reached this point, consider refraining from hastily looking into other solutions or starting the process all over again with a different Bank until you have more information.

When an underwriter requests for additional documentation that appears outside normal loan requirements, most people will ask “Why do they need that?” instead of asking:

“What question do you need answered here?”

To the untrained eye the loan process can appear to be fairly black & white without room for creatively. This request for additional documentation is a symptom of a lack of clarification that's arising from the documentation you originally submitted.

You may feel frustrated when you are asked for additional documentation and it can easily feel like excessive scrutiny. However I am always amazed at how resilient we are once we have more understanding of where there is a lack of clarity rather than the feeling that someone in the back room is asking for “everything and the moon” simply because they can. Remember that the only time a lender actually meets you is through your information. They are assessing their risk and your character based on the information that is front of them. Do not take it personally.

Finding out what the actual question is that the lender / underwriter needs answered allows you to wear your own creative hat around how else you can provide this clarification. I have also noticed with clients the calm that comes from knowing the aspect that is not clear to the lender. This question allows you to understand the piece of the puzzle the lender is trying to put together to get you the financing you want.

Factoring in the 21st Century

Invoice Factoring allows a business to sell its accounts receivable to a third party at a discount of usually 1 – 2%, for generating immediate cash flow for the business. The question that comes up is whether such invoice loans are practicable in today's business scenario, when the options for funding and borrowing are vast.…

Invoice Factoring allows a business to sell its accounts receivable to a third party at a discount of usually 1 – 2%, for generating immediate cash flow for the business. The question that comes up is whether such invoice loans are practicable in today's business scenario, when the options for funding and borrowing are vast. The reasons for entrepreneurs preferring business receivable factoring to traditional financing are many. We have discussed a few hereunder, in light of the business environment in the 21st century.

Today, the word 'monopoly' is actually erased from the dictionary of global economics. Every single product or service has a rival waiting in the market. In such a scenario, the last thing an entrepreneur wants is for his business to struggle for cash flow. Invoice factoring lets a business generate immediate cash, albeit at a greater interest rate. But, any businessman worth his salt will tell you that it is always better to lose a few bucks, than to lose a customer.

One of the concerns, which we have heard quite often, is where the customers will lose faith on the company, if they receive invoices from the factors. Rather, it's quite the contrary in the current scenario. Factoring gives you a dual benefit – firstly, a specialist would be reverting your bills from the customer, which means it will be done in a more professional manner; Secondly, with the growing use and benefits of factoring, customers are more than willing to work with a business which keeps its cash flows clean. Moreover, since your payment burden is released, you can deal with your customers without the added stress of recovery of payments.

Accounts receivable lending has been on the rise after the financial crisis hit the economy in the 'W-recession'. Lending became stricter and compliances were made more difficult. In this scenario, factoring became a major source of funding. This is simply due to the fact that paperwork is negligible, making it extremely convenient. Also, invoice factoring is essentially the sale of an asset for immediate cash. The factors can pay their clients, without increasing the debt burden.

For small businesses and B2B businesses, invoice factoring and accounts receivable factoring are blessings. Factoring has become an important source of financing for these businesses, and is substituting traditional financing means to a large extent. Less paperwork, more convenience, and a transfer of risk of bad debt to a third party; all make invoice factoring a preferred means of finance to the 21st century businesses.

How To Write A Business Plan That Will Get You The Funding You Need!

Whether you are starting a new business or have an existing business seeking a capital infusion it's a good idea to develop a fluid business plan that provides a roadmap for your company's direction and intended success. Your plan should project out for the next three to five years and include the following eight categories:…

Whether you are starting a new business or have an existing business seeking a capital infusion it's a good idea to develop a fluid business plan that provides a roadmap for your company's direction and intended success. Your plan should project out for the next three to five years and include the following eight categories:

1. An Executive Summary: This is the most important part because it provides the reader with a quick snapshot of your business. I recommend you complete the following sections first as they will shape and add a richer dimension to your summary.

2. Company Description: Describe your company, what you do, how you do it and the needs your company fills. It is your marketing script that can quickly help a lender or investor understand what you are definitely bringing to the market place.

3. Market Analysis: Obviously it is fiscally responsible to research your target market but this step is often neglected with the excuse of what appears to be a “good idea”. Who is your target market and why is your product or service relevant to them. What need are you satisfying and how is the market currently filling this need? Who are your main competitors and what advantages does your business or product offer over them.

4. Organization & Management: A good outline of the management structure of your company shows that you've considered every detail. Include flow charts wherever possible with narratives to show which person or job title is in charge of every function of the daily operations. As you write your narrative make sure that all job responsibilities are well-defined. In addition address the existing or proposed legal structure of your business. Discuss any legal or compensation agreements you currently have or would want to have in place.

5. Service or Product Line: Define your product or service in as much detail as possible? Address the benefits to your customers or clients and address the life cycle of the product or service with solutions for future replacement products and the potential for “upselling”.

6. Marketing & Sales: Marketing is an investment in future sales but only if it's done correctly. A plan that is not thoroughly researched can be extremely costly and have disastrous results. Take the time to detail a well-researched marketing strategy. I can not stress enough the importance of research, knowing all of the costs and anticipated time to recoup your investment upfront is paramount to getting the results you want.

7. Funding Request: If you are seeking financing, state how much you need to move forward and illustrate how you intend to use these funds. This is an important step even if you're investing your own money in the business. Make sure you also include an outline for repayment.

8. Financial Projections: If you are an existing business you'll want to include a historical accounting of your company's financials plus a current year-to-date balance sheet and then financial projections for the next three to five years. Be sure to address how the additional capital will increase your revenues over this time period. For a new company starting out your projections will be based on current and future market trends.

I also recommend you complete your well written business plan with a table of contents and an appendix at the end. The appendix is ​​optional but it's a place to put valuable information such as permits, resumes, applicable leases and other pertinent documents.

Using Non-Bank Lenders to Fund Short-Term or Transitional Business Financing Needs

The Challenge: Traditional Bank Lenders usually do not like funding businesses during periods of variable cash flow or unpredictable contractual – eg, periods of very high business growth, or on the flip side, reduced operating performance. The Solution: Non-Bank (Alternative) Lenders specializing in asset based lending or those that provide short term bridge loans can…

The Challenge: Traditional Bank Lenders usually do not like funding businesses during periods of variable cash flow or unpredictable contractual – eg, periods of very high business growth, or on the flip side, reduced operating performance.

The Solution: Non-Bank (Alternative) Lenders specializing in asset based lending or those that provide short term bridge loans can often look beyond the turbulence of a transitional period to fill a company's funding needs until the business is able to return to a traditional lending relationship.

Key Considerations for Borrowers:

  • Cash is King: Focus on the cash availability and debt service of the alternative loan, not the interest rate
  • Do the Rewards Outweigh the Cost of Capital ?: If the benefit of the taking on the new business is greater than the cost of the capital, high interest rates may be well worth it
  • Plan Your Exit: Develop a clear plan at the outset to move back to a bank from an alternative capital source

Bank Lenders do not like lending money to businesses when cash flow and / or collateral is in flux, for example:

  • Example A : business goes through a heavy growth spurt causing either a significant inventory build that requires additional working capital financing, or creating a period with uncertain future cash flows and sometimes insufficient collateral coverage depending on the cash conversion cycle; Egypt
  • Example B : A business experiences a difficult operating period due to, for example, an operational restructuring, a sales force realignment or miscalculating the scope of a major project- creating negative cash flows or earnings

In such circumstance like these, a bank lender may reduce available funds (eg, increase the reserve in a borrowing base or carve out specific collateral), ask for additional collateral or simply ask the company to find another lender.

Non-Bank Lenders are often willing to look beyond the turbulence of a transitional period to understand and structure around the real risks in order to get comfortable providing the necessary capital

Alternative lenders are structured to lend into periods of uncertainty – they usually have greater flexibility to tailor their loans to:

  • Provide additional growth capital during periods of rapid expansion, not penalizing a business for investing as may traditional lenders

  • Fund a business in the early stages of a demonstrated turnaround, much earlier than when a traditional lender would lend

Alternative lenders also provide more flexible terms (cash debt service, amortization, loan maturity, covenants) and cash availability than do traditional lenders, and for this charge higher interest rates.

Key Considerations when Borrowing from a Non-Bank (Alternative) Lender:

Businesses turn to non-bank or alternative lenders when traditional lenders will not provide the required capital or bank terms are too restrictive. Here are several key considerations when evaluating an alternative loan:

  • Cash matters most so focus on required cash debt service (principal and interest), not the loan's interest rate
  • Often the total debt service for an alternative loan at a higher interest rate will be lower than the total debt service of a traditional bank loan because of much lower principal payments
  • If the benefit of taking on the new business exceeds the cost of borrowing, high interest rates may be worth every penny
  • Have a realistic plan for moving back to a traditional lender before you take on a bridge loan
  • Make sure the loan will provide a cash cushion if the transition takes longer, or costs more, than expected
  • Ask yourself – does the lender understand my company and appreciate me as a customer? The answer should always be yes. If it's not, find a lender that does