Accounts Receivable Financing – Options for Growing Companies

Every business has one thing in common and that is the need for cash. Even charitable organizations need a steady and constant flow of donations in order to keep the lights burning. Cash flow is simply the grease that lubricates the machine and allows it to function properly, but when the machine runs dry it can slow down or grind to halt causing pain and misery for those working in it.

Shangri La for any business (and their bankers) is when cash flow becomes so predictable that the business seems to run itself and profits are at a level that supports the owner’s lifestyle well beyond his actual needs.

What about the company that is on a growth trajectory and is pouring every cent back into the company to support its growth and pursuit of new business? The orders are coming in at a faster and faster pace which should be a good thing and new customer relationships are being formed which should lead to a solid stream of new orders in the future. So what’s the problem you ask? The problem is when you get an order you have to purchase materials and pay people to fill the order. For example, it may take 14 days or longer from the time the order comes in until the product is shipped, and you have not yet received any payment from the customer. Once the product ships and the invoice is created, your customer has 30 days to make payment and in all this time you have not received a penny, yet you had to meet payroll 3 times, purchase materials, and pay for the other items necessary to run your business. So even though the growth seems great, you are feeling the cash flow crunch of keeping up with orders as they accelerate in number and perhaps even size.

Your banker hears your story and he gives you a line of credit that seems small but you’ll take it because you need every penny right now and you don’t want to upset a customer by turning them away or shipping late due to a cash flow issue. This line of credit gives you some temporary relief which you needed but you already see the trouble ahead if the growth continues. That’s right, you max out the credit line to get caught up and fill orders but can barely meet the minimum payments required by the bank.

But how can this be since the company is growing so much and revenues keep increasing? Well it all goes back to the fact that it takes you at least 45 days to get paid from the time the order comes in, and that is if all your customers are paying on time. With some quick analysis you may discover that your “turn” is something approaching 60 days or even beyond. Ask any of your employees if they would wait 60 days for a paycheck! (Actually, I take that back, do not ask since they may think something is wrong with the company and walk out.) For a mature company with a slow growth rate the waiting period is not a problem since they will simply access their line of credit and pay it down as their invoices are paid without the worry of unexpected or unpredictable orders. In addition they will also be taking advantage of quick pay discounts from their suppliers. Missing supplier discounts can be no small deal since I personally know of a distributor who takes the savings from quick pay discounts as his annual bonus since he sees it as a reflection of his good management. This amounts to a few hundred thousand dollars per year for this owner. Not to shabby for saving 2% from his suppliers on products that were already planned for purchase. For a growing company, missing the opportunity to save 2% from supplier can be very painful, as the need for cash increases with each new order yet you are still waiting for payment from previous orders and the line of credit at the bank is maxed out.

The bank really does not like this scenario because they view it as a management problem and therefore a risk issue. You have taken short term money (bank line of credit) and turned it into long term financing by maxing out your line with no real hope of paying it back or down anytime soon even if the bank has a clean-up provision, which would require you to pay the line off annually. The bad news is simply this: Banks don’t like you. Banks think you are too risky because with strong growth you might blow-up at any second. It’s as if bankers had a choice they would never board an airplane until it had leveled off at 30,000 feet and would parachute out before the initial decent thus avoiding the risks associated with fast acceleration at take-off and the possibility of a hard or crash landing. Of course this is hyperbole when I say they don’t like you when the reality is they simply just prefer to lend to mature companies. They understand your situation and know most companies have to go through growth cycles to reach maturity, they just don’t want to participate in the risk. Your banker is your friend he is just a friend that does not like you right now but you should continue to pursue a strong relationship with your banker since it can be so much more meaningful than just a service provider who makes loans.

So now what? You have orders piling up, a maxed out credit line, a banker who wants his money back and won’t lend more, discounts you are unable to take advantage of from suppliers, another payroll is due and the bank account is looking a little thin. Do not despair because you have the most important asset in the business world, and that of course is your customers and their orders that result in invoices. You are now a candidate for cash flow financing. In fact, you were a candidate before it got this serious, but this scenario helps illustrate the point. You have a growing asset on your balance sheet and that is your accounts receivable, but you cannot feed your family on invoices, only cash will solve that problem. So we need to liquidate your accounts receivable and move it to the cash column and one of the easiest ways to this is by selling them.

In today’s financial marketplace you have several choices when it comes to cash-flow financing. I have already touched on the most traditional form and that is a bank line of credit secured by your account receivables or in some cases it may be an unsecured line with only your signature to back it up. Next you have bank sponsored accounts receivable financing which will vary somewhat from bank to bank with most banks not offering this type of financing except through a third party partner. This could be a viable option for the business I have discussed here and it would look something like this:

Transaction sizes are typically: $10,000 – $5,000,000

Advances: up to 90% of eligible accounts receivable

Services (will vary): customer credit reviews both new and existing

Invoice processing and mailing

Collection Services

Management Reports provided to you

Fees: Typically 1-3% of the invoice depending on size and your average turn.

Operationally you generate one or more invoices and send them to the bank daily in batches and they fund your account at 90% of the total invoice amount within 24hours. Bam! Instead of waiting 30 or more days for your customer to make payment you receive 90% of your money immediately. You have just accelerated your cash flow to within 24 hours and can now use that money to make payroll, take advantage of supplier discounts, purchase inventory, and INCREASE SALES without fear of customer credit issues or late payments. Essentially what you have done is outsource your accounts receivable management process all while getting paid in 24 hours.

What happens to the other 10%? This money is usually held in reserve against any unpaid invoices. For example, if you have an outstanding invoice of $1000 that your customer fails to pay within 90-120 days, the bank will use the reserve to receive payment and then try to collect on the account. So the reserve protects both you and the bank by allowing the bank to get paid back and preventing you from having to write a check to the bank because one of your customers failed to pay their invoice.

There is a product called Business Manager that works in a similar fashion and is available in a few hundred community banks around the country. Business Manager is a program that allows community banks to purchase the accounts receivable of their commercial and industrial clients while monitoring the performance of those accounts. It is a powerful program for both banks and business with the funding percentage, fees and reserves typically about the same as in the previous example. For the sake of full disclosure, I used to work for the company that created the Business Manager program. I still think it is a great program, especially for small businesses because it allows you to maintain a bank relationship prior to reaching that mature cycle and graduating on to more traditional financing solutions all while receiving funding in 24hours and online access to your reports.

Next we have traditional factoring. This is where you sell your invoices to a funding source (the factor) at a discount in return for immediate cash. Advances are typically in the 70% to 95% range of eligible invoices and fees will vary. Often there is no reserve account, instead the factor receives payment directly from your customer and pays you the 5% to 30% remaining minus the fees for the factor. Some factors place a stamp right on the invoice to show the change of address of where payments are to be made and others are able to do it silently by having an overall change of address and payment sent to a lock box. Most businesses prefer the factor to remain silent if possible, so you will want to check with the individual company. In addition, factors can provide funding to companies in the start-up stage to $100,000,000 in sales or more. This is because they are not concerned about your credit, but that of your customers. They will also want invoices that are verifiable and to know that you and your team are solid managers and experienced in your industry. In fact your company may be in a turn-around situation or bankruptcy and a factor may still provide funding because they are looking at your customer, not you.

Besides providing funding, a factoring company can also become your outsourced credit department. They will check customer credit quality; set customer credit limits; and provide daily monitoring of credit accounts. In many, if not most cases, today you will have real time access to reports such as accounts receivable aging, collection, and reserve reports. This gives you the ability to monitor your invoices and the average turn which should be decreasing at this point. The factor will also provide collection services and these will vary from company to company with some allowing for customization of the collections process.

The common thread between the different programs available is the conversion of your account receivables to cash by a funding source, whether it’s a bank or private entity. Check the exact terms and fees and be sure to be aware of what your responsibilities will be to the funding source. Cash flow financing may provide the needed solution for growing companies or companies that need a cash injection to make it through a turn-around.

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Buying a House With No Money At All! 100% Financing Options Made Simple

“NO MONEY DOWN!” “100% FINANCING!” “103% FINANCING”

Buyers love seeing and hearing those words. And why wouldn’t they? First-time buyers make up 40 percent of the home buying market. This is nearly half of all homes sold.

Consider this. There were just over seven million homes sold in 2005, not including new construction homes. This means that nearly THREE MILLION buyers bought their first home last year.

Marketing to this segment, if you are a real estate agent, is an absolute must! Of these first-time homebuyers more than four out of every 10 bought this home with no money down.

On average, first-time homebuyers put down less than 2%. Around 10 years ago, the average first-time homebuyer put down a little more than 10%.

I would say that nearly seven out of every 10 loans I do has 100% financing and it’s not just first-time homebuyers. However, most potential first-time buyers don’t even realize this option is available to them and that’s why this newsletter will focus on them.

The real estate market flourished over the last few years in large part to 100% financing for first-time homebuyers. Suddenly, buying a home is possible for nearly everyone. More first-time buyers have been able to enter the marketplace than ever before. Banks have become more liberal and lending standards have loosened. There are many, many ways to get 100% financing.

You can get 100% conventional financing with credit scores as low as 620 and a fairly recent bankruptcy.

You may be able to get a government loan with an even lower credit score. 100% financing is available for nearly every borrower. You can even buy a $2,000,000 home with no money down today. That’s two MILLION, not a typo at $200,000. Amazing, but true.

Many potential first-time homebuyers never think of buying a house because they don’t believe they have enough money for the down payment.

They’ve been told through the years that they need a 10-20% down payment to buy a home. Obviously, this simply isn’t true.

Let’s look at most of the 100% financing options:

1) 100% No Down Payment Programs.

These programs require the buyer to pay ordinary closing costs. These programs come in all varieties from 2, 3, 5, 7, and 10 year adjustable rate mortgages to 30 year fixed mortgages. All are usually available as interest-only too.

PROGRAM HIGHLIGHTS AND HOW DO I QUALIFY FOR THIS?

o 2.5%-3.5% of the total loan amount in cash required to pay closing costs and two month’s of your new loan payment in the bank for reserves.

o Stated income, stated assets and even No Doc is an option with decent credit.

o Plan on having a mid credit score of at least 660 if you cannot fully disclose your income to qualify.

o If you can fully disclose your income to qualify, your mid credit score can sometimes be as low as 580.

o These loans are designed for people who have some money for closing costs. You can qualify for this with credit scores as low as 580.

This is the most popular 100% financing option on my team.

2) 100% No Down Payment and Seller Pays Your Closing Costs.

The exact same loan program as #1, with all of the same loan program options above, but with a different twist. The seller pays all of the 2.5%-3.5% in closing costs. This is the way to go if your buyer has no money at all but fairly decent credit.

PROGRAM HIGHLIGHTS AND HOW DO I QUALIFY FOR THIS?

o The seller pays the 2.5%-3.5% of the total loan amount to pay closing costs.

o You are still usually required to show two month’s of your new loan payment in the bank for reserves.

o Stated income, stated assets and even No Doc is an option with decent credit.

o Plan on having a mid-score of at least 660 if you cannot go fully disclose your income to qualify.

o 580 mid credit score is usually the minimum required on full doc loans but plan on a much higher interest rate.

o These loans are designed for people who have no money for closing costs.

Nearly every loan program out there today allows for the seller to pay your closing costs. This means no money out of your pocket.

If you don’t have the necessary reserves or you don’t have the ability to get them, it is not a big deal, and you should still be able to get the loan. However, it’s important to notify your preferred lender of this immediately as this could change the availability of the loan program and likely your interest rate.

3) 103% Loan With No Down Payment, Little or No Closing Costs.

Maybe your seller refuses to pay for closing costs and your buyer has no money to close. Then 103% loan programs may be the way to go. This means the lender finances the closing costs as well. The requirements on this program are stricter and the options fewer.

PROGRAM HIGHLIGHTS AND HOW DO I QUALIFY FOR THIS?

o The lender pays the 2.5%-3.5% of the total loan amount to pay closing costs and ties this into your loan.

o You still may be required to show two month’s of your new loan payment in the bank for reserves.

o Stated income, stated assets and even No Doc is NOT usually an option regardless of your credit.

o Plan on having a mid-score of at least 620.

o These loans are designed for people who have no money for closing costs and the seller refuses to chip in.

The interest rates on these programs are higher and the program selection is more limited. If possible, it’s a better move to go for #1 or #2.

4) VA Loans

If you are a Veteran, VA loans require no money down and the seller can pay your closing costs. The rates are very good and the credit requirements are not very high.

PROGRAM HIGHLIGHTS AND HOW DO I QUALIFY FOR THIS?

o Must be a veteran in active duty, or honorably discharged.

o The seller usually pays the 2.5%-3.5% of the total loan amount to pay closing costs but the Veteran can pay too.

o Must fully disclose your income to qualify. You cannot go stated income or No Doc.

o You will not be required to show two month’s of your new loan payment in the bank for reserves.

o Stated income, stated assets and even No Doc is NOT an option regardless of your credit.

o Plan on having mid-score of at least 560 – 580 although there is no formal guideline on this.

o These loans are designed for Veterans only.

5) FHA Loans

This isn’t really a “No Money Down” option, however many first-time homebuyers have found that the FHA loan is one of the best alternatives when they don’t have much money to put down.

With an FHA loan, you could put down as little as 3%. FHA loans are easier to qualify for. If your credit is less-than-perfect, the rates on an FHA loan are usually far better than the sub-prime alternative that you may be facing. For example, if you have a 580 mid-credit score, your options may be FHA or a sub-prime loan. FHA would probably be cheaper for you.

Now, 3% may seem like a lot to come up with, but many people find that when they put their minds to it, it’s not that difficult. FHA allows this 3% to be gifted to you by a family member, employer, or even a charitable organization.

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Accounts Receivable Factoring an Alternative to Traditional Financing

It’s a problem many businesses face: Lack of cash flow makes it difficult to progress to the next level. However, accounts receivable factoring can provide a viable solution for almost any type of company.

This billion-dollar industry is a popular alternative for businesses wanting to speed up their cash flow. Accounts receivable factoring allows you to have quicker access to capital, instead of waiting 30 to 60 days to receive customers’ payments. Selling invoices lets you generate instant cash advances that you can put to good use for your business. You can spend the funds on anything you choose, including payroll, taxes, equipment and inventory.

With accounts receivable factoring, you essentially liquidate your outstanding invoices to a factoring company in return for immediate working capital. The company purchases the invoices at a figure less than face value, and then collects the full amount later when the receivable is due. In essence, you avoid the time involved with handling your own collections–not to mention the hassle and expense of dealing with bad debts.

Accounts receivable factoring is a feasible alternative to conventional financing like loans, credit lines and credit cards. And it’s ideal for smaller and/or less well established companies that may not be able to qualify for loans. Unlike with traditional financing, approval for accounts receivable factoring isn’t contingent upon the creditworthiness of your company. Instead, it depends on your clients’ financial stability and payment history.

Here are some other reasons why accounts receivable factoring is a viable source of funding:

- Accessibility – The unique approval process makes qualifying possible for companies that are small, young and even those with a history of liens and bankruptcy.

- Control – You control exactly how much accounts receivable to factor, when, and for which customers.

- Predictability – You can determine when you will receive customer’s payments based on the terms with your factoring company. This can result in a “smoother” cash flow cycle.

- Debt Avoidance – No debt is incurred, so there are no monthly payments to make.

- Flexibility – The added cash flow can help you offer better terms to large customers, as well as offer instant credit guarantees for new customers–which can increase your sales.

- Savings – You can pay suppliers quicker and enjoy discounts for early payments.

Who Should Capitalize on Accounts Receivable Factoring?
With all the benefits involved, the appeal for accounts receivable factoring is quite obvious. But how can you be certain invoice factoring can provide the right fit for your company? Generally, if you pay for labor or materials before receiving payment from your customers, your business can benefit from factoring.

More specifically, eligibility for accounts receivable factoring requires that there are no existing primary liens on your invoices. Also, your customers must be financially sound and have a positive history of paying invoices. Otherwise, accounts receivables factoring may be the answer for you if:

- Your business cash flow is stressed by lengthy billing cycles.

- You can’t obtain bank loan approval due to a lack of longevity, profitability, assets and personal guarantees.

- You could increase sales by enhancing your terms to new and larger customers.

The Accounts Receivable Factoring Process

The accounts receivable factoring process is relatively straightforward. First, you complete an application and provide the factoring company all the necessary information about your business and accounts receivables. Keep in mind that each factoring company prefers different types of clients. Some want to work with companies with annual revenues of at least a million dollars; others like to deal with businesses making as little as a $5,000 per month. Additionally, some factoring companies specialize by region or industry.

Next, the factoring company does its due diligence and prepares all the necessary legal paperwork. This step can take anywhere from five to 10 business days. After you have established a working relationship with the factoring company, the hardest part is done.

Thereafter, you simply prepare customer invoices and then send them to the company to receive an immediate cash payment. The factoring company will bill the customer and follow up to ensure receipt of payment, handling all the accounting, invoicing and other payment processing responsibilities.

If everything checks out with your invoices, you can receive a cash advance anywhere from 70 to 90 percent of the value of the purchased invoices. Once your customers have submitted their payments directly to the factoring company, you’ll be sent the “unadvanced” amount of the invoice, excluding a financing charge. (Some factors maintain customer accounts similar to a bank’s revolving credit account. In this case, your available balance would vary with the number of accounts receivable outstanding, with interest being charged on a daily average balance.)

Transaction fees for accounts receivable factoring vary from company to company. But typically, accounts factoring fees range from three to five percent of the invoice value. And the fee may actually be as low as 1 percent, depending on the quality of your accounts and level of risk involved. It’s important to note that the fees assessed by factoring companies is generally more than what you would pay for a short-term commercial loan. Therefore, it’s most beneficial to use accounts receivable factoring to create quick cash, not as a source of long-term financing.

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Making Foreclosure Loans Work For You

While it may be nearly impossible for a homeowner whose home is in foreclosure to get a property-saving loan, it is actually quite common for those seeking to buy foreclosures to qualify for the loans they need to purchase the properties.

Because most lenders who have taken possession of foreclosed properties insist that they be sold for at least two-thirds of their appraised value, any borrowers whose credit record qualifies for a loan of that amount will be able to bid on the properties. Should they pick up the properties at 33% discounts, they can use the difference in the appraised value of the homes to get a building loan.

Capitalizing On Foreclosure Loans

Suppose, for example, that a lot valued at $60,000 is sold at a foreclosure auction for $40,000, and the property’s new owner borrows against his $20,000 additional appraised value to finance a loan for the cost of placing a home on the property. If he spends $200,000 in construction costs, home, sells the home with the $60,000 lot for $350,000, he can pay off all the loans and walk away with $90,000.

Using Foreclosure Loans In Pre-Foreclosure

Those who want to maximize their chances of getting homes at deep discounts should pay attention to foreclosure listings and be willing to contact homeowners who are still in the preliminary stages of the foreclosure proceedings. A homeowner might be interested in selling to a private party rather than see his or her home sold at auction. The homeowner might settle for receiving a percentage of their accumulated equity and having the balance of the mortgage paid off. They will get some cash for a down payment on a new home, and have a much easier time finding a lender because they have avoided foreclosure.

And those using foreclosure loans to arrange these kinds of pre-foreclosure purchases will not have to wait for the property to reach the auction block, where they may not be able to compete with other bidders. The best time to approach a homeowner is after he or she has been served with a demand for payment stipulating the amount of money it will take for the foreclosure process to be stopped.

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Laptop Computer’s Financing To Update Your Equipment

You should take a look at these promotions and analyze whether you can take advantage of them or not. Here are some tips on how to decide whether a particular promotion suits your needs or not.

Banks and financial institutions want to invest their money and thus they offer loans and lines of credit. Computer manufacturers want to sell their products and thus, associating with lenders widens their sales by making laptop computers more affordable. You, as a consumer can take advantage of this situation and shop around both for lenders and laptops and get the best offer possible. There are many bargains out there.

Credit Card Promotions On Laptop Computers

By associating with certain credit card issuers, manufacturers or retail companies offer their laptop computers payable in several installments with 0% APR. These offers are excellent as you can purchase your laptop on several payments without having to put all the money down. Some of them even offer a 10% discount on the retail price in order to attract more customers. It can actually end up being even cheaper than purchasing in cash.

What do they get in return? Well, the manufacturer or Retail Company gets to sell the products and the credit card issuer gets to retain you as a client for at least a year if you select 12 payments or two years if you select 24 and so on. These practices create fidelity at a very low cost for the credit card companies and though you may not pay interests for this particular purchase you will pay interests for all the others you make.

Small Loans For Laptop Purchases

These loans are offered by retail companies sometimes in association with financial institutions sometimes by creating a financial institution ad hoc. These loans feature advantageous terms and small installments to attract consumers. The idea is to make goods affordable when they would otherwise be rather expensive. With these small loans laptops are presented as affordable items because the purchase price is concealed behind the small installments.

These loans have simple qualification processes. Usually the only requirements for approval are some sort of identification along with a copy of a paycheck receipt or some other proof of income. Some retail companies will require only a copy of a credit card resume sent to your home to show proof both of income and residence. Thus, getting approved for these loans is fairly simple and has little to no hassles at all.

As you can see, laptops can really be affordable if purchased through these means. Thus, if you were planning or considering the purchase of laptop computer you may want to shop around for these offers and choose whether to buy your laptop with your credit card or by requesting a small loan specifically created for this purpose. In any case, you can get a great deal and repay the money in affordable installments.

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Buy Now, Pay Later With Boat Finance

Previously, when boating didn’t have such popularity as it holds in this day and age, it was much more complicated to find a person or organization that would facilitate you a boat loan. Nowadays, the condition is the opposite, and the predicament of the buyer is seeking the suitable company to get a boat loan from. Usually, there are three main sources from where you can acquire a boat loan; your bank, your credit association in addition to financial service institutes, also recognized as marine lending specialists.

In the same way, there are 3 common types of loans presented to people who wish to gain boats on a loan. One of them is the “fixed rate and fixed term” sort of loan that has a uniform monthly payment is necessitated throughout the span of the loan.Following the very last disbursement has been finished, the boat has been totally compensated for. “Variable rate” loans don’t contain a fixed loan rate. The rate varies with distinctive rate indices. To give a precise understanding of this kind of loan, the adjustable duration has to be observed. Balloon payment loans are remunerated absolutely at the end of the loan period.

Many new or second-hand boat dealers employ their own finance supervisor for carrying on the handling of boat loans. These supervisors take into account such things like the filing the application form plus the stuff that have to be done to to finalize the deal in the shopper’s name. Many dealers are associated with the National Marine Bankers Association, an union of marine lending professionals. Make certain when issuing an application for a boat loan to indicate that you desire to deal with National Marine Bankers Association. doing it this way, you stand to obtain extra discounts off the transaction expenses.

Moreover, getting your boat funded by an attributed dealer can also be advantageous for you. First of all, such dealers generally have contacts with a number of sources for financing. Not only will there be a big possibility of you being able to obtain your loan, nonetheless, you may also have the probability to decide on which source you desire to get. Such dealers are also capable of giving manufacturer’s warranties for specific items. This will highly safeguard your boat finance. Also due to their connection with the boat manufacturers, dealers are able to give you discount outlets for specific brands in addition to models. These outlets can be “initial delayed payment”, “no interest for numerous months” or lessened prices for a particular duration.

The submission method may alter amongst numerous lenders. Lenders might accept loan applications by phone or via a complete application. Whether it is to be by phone or not is determined by the quantity of the boat loan requested. The bigger the amount, the more details have to be remembered. High loan levels require every single point to be written down in black and white in a entire application. In case credit inquiry is needed by the level of the boat finance loan, the applicant may be requested to give tax returns for a specific number of last fiscal years as in addition to personal income statement.

The information regarding credit standing is important when it’s about resolving the right size that might be supplied to you as a boat investment loan.

Previous to putting forward your applying form for a boat loan, certainly, you will need to have unquestionably settled on the boat that you desire to get the boat finance for. Some info regarding the boat as the year, make as well as model, extra equipments plus upgrades, all sums are put into the computation of the absolute worth or cost of the boat. The additional significant information you ought to be ready to give to the lender are as follows:

(1) the purchase price of the boat,
(2) additional fittings you are determining to install,
(3) tax expenses as well as
(4) documentary charges.

By tying up the boat finance application, you are allowing the lending company to look into your credit position. This is called the loan underwriting method. These methods will comprise observing your individual credit capacity as well as the true value of the boat to be invested. Your credit as well as your debt to income ratio will be determined. Then the factual market rate for the boat you wish will be investigated by investigating other boat sources as well as obtaining the average going price for the particular model as well as brand.

After all the above has been conducted, and if the results are favorable for the boat loan, then the contract will be settled and you will claim the boat. For supplementary security measures on the part of the loaner as well as the lender, the total loan transaction may be supplied to an Escrow service to cut back the possibility of fraud.

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Inn Financing Without Tears

You have been dreaming for years. Those glossy magazines and snazzy web sites with those wonderful, historic lodgings, glorious gardens, and inviting rooms are a regular mainstay. Your travels have taken you to places where you were greeted by strangers who treated you like old friends. You slept on feather quilts and abundant pillows, awakening to the aroma of fresh coffee and baked breads, then shared breakfast with others like yourselves: road warriors of the bed & breakfast circuit. You just love these quaint and ornate homes, the unfaltering hospitality, the sumptuous meals. After all, entertaining has always been a love of yours and you think, “We could do this!”

Cut to six months later: you’ve been talking to innkeepers about the Inn-keeping lifestyle, and they told you it wouldn’t be easy. You attended one of those seminars, and they told you it wouldn’t be easy. You’ve been taking stock of what it would really mean to quit that job or take early retirement and live on an innkeeper’s “salary,” and now you realize it won’t be easy. But this is Inn-keeping! You’ve always wanted to do this. It can’t be that bad, or why would so many take the plunge?

Good question. It’s a question that all prospective innkeepers must ask themselves. Just for a moment, let’s assume that you have satisfied yourself that you are, indeed, cut out for Inn-keeping. You would like to be your own boss, even if your life will be guided by your guests. You can still decide to close for a week (if you plan ahead) to take a vacation. You can always be closed on Mondays if you want. You are prepared for the cut in income, figuring you can get by fairly modestly, and besides, you have a little something extra from wise investments or pensions. You’ve been checking out ads on countless web sites looking for the perfect bed & breakfast for sale, have actually received information and consider yourself to be actively “in the market.” Well, maybe a couple of years away. That’s OK. It’s better to plan ahead and know what you’re getting into.

You are really serious about buying an inn now, and you want to make an offer but need to figure out exactly how to finance the purchase. This is where the dream of owning a bed & breakfast can start to slip away unless you’ve done your homework and planned adequately. Because financing is where most contracts fall apart.

A bed & breakfast inn is a hybrid entity. Alas, it’s neither a “house” nor a “hotel.” If it were just a house you wanted to buy, a lender would look at your available cash for down payment and closing costs, would review your income and “other debt,” would work with certain ratios to determine how much of your income could be used to finance a home, and could tell you, within a very narrow range, how much you could afford to pay for a house. No furniture. No business. You keep your job. That assumes, of course, that the house appraises out for the purchase price and your credit is squeaky clean.

For a hotel or motel, or maybe a convenience store or other business, a lender will look at the business, will examine and analyze the cash flow, will determine the value based on actual and projected cash flows, will consider how much you can put down initially (they generally want 30% plus with reserves for operating capital, etc., though there are exceptions). If all of this pans out, and you can convince that lender that you know what you’re doing (past experience in the same business, hopefully) you might get the loan and be on your way.

But a bed & breakfast? What’s that? It’s a bit large as a home, a significant portion of which will be used for business. This, of course, creates some interesting tax considerations when applying your rollovers, but that’s another story. A bed & breakfast is typically very heavily weighted by the real estate component as opposed to the business component, where that convenience store is often just the opposite. Nevertheless, the dream B&B you’ve found may, in fact, have a fairly decent cash flow. If it does, there are a number of avenues you can pursue. The first, and by far the easiest (though hardly the most common), is owner, or seller, financing.

If an innkeeper has owned the inn for a number of years, especially if they converted it into a B&B from a house, they may have experienced a substantial amount of appreciation and have little or no debt. Often these owners are interested in moving on and will consider owner financing as a good investment.

Like any lender, they will want to know your credit history, see a credit report, have a complete, certified financial statement from you, and will be confident that the cash flows from the business will cover debt service and living expenses on top of operations. However, don’t expect many sellers to finance 90% of the deal. Maybe you can buy a house with 5% or 10% down payment, but it’s unlikely that many innkeepers will finance that much. Keep in mind that, like a bank, security is paramount. You will be purchasing the real estate, the personal property (fixtures, furnishings, etc.) and probably will be paying for intangibles (good will) as well. Your initial investment will likely have to cover the intangibles, the personal property, and a substantial portion of the real estate. That can amount to a sizable outlay. You need to keep something in reserve for improvements you may want to make and to cover you in those slow early months.

Let’s say your seller doesn’t want to finance, and many don’t. They have other plans for their money. If the business is really solid and can be documented (current innkeepers take note!), the next best bet is often a local bank. Despite strict regulations about lending parameters, many bankers still take an interest in local ventures and, especially, real estate. If the loan is “non-conforming” but there is value in the property and a sufficiently large down payment to protect their investment, money may be forthcoming as a portfolio or “in-house” loan. An introduction to the local banker by the current innkeepers (if they’ve had a good relationship) can be a good way to get started, especially if there’s been any bank financing in the past.

If your intention is to acquire a full service inn with a restaurant, then the Small Business Administration (SBA) may be the best way to go. There are a number of banks and non-bank lenders who process SBA loans, some better than others, so shop around. Doug Carleton, who is an approved SBA lender and member of The B&B Team of Professionals, is one of the best. Remember two things above all else: restaurants have a very high failure rate, and most lenders are leery of making restaurant loans unless you have a track record to demonstrate your expertise. Also, SBA loans can be slow (depending on the bank) and expensive due to the SBA guarantee fees, so you need to be prepared for a process that may take six months and the expenditure of several thousand dollars in surveys, environmental studies, etc. Often times, however, the fees can be financed, and, if you are prepared and working with a good lender, the process can be expedited. Some SBA loans are assumable, so be sure to ask if the current owners have an SBA loan and look into its assumability.

As to bank financing, there are some lenders who will extend “no doc” (no documentation) loans. With 20%-40% down payment on the real estate, they will assume that you won’t walk away from the property, and if you do, their investment will be covered. How you pay for it, in their mind, is your problem. Please note that I said “real estate” not “bed & breakfast.” That down payment will apply to the appraised value of the real property, and you will have to pay for the personal property and intangibles separately. In the end, there’s still quite a lot of cash going out.

You’re starting to feel depressed. You’ve exhausted the banks, the SBA lenders have turned you down, the owner owes too much to finance you (or just wants cash), but you really want to buy and the seller really wants to sell. What to do now? One possibility, and this is usually a last resort, is the use of an investment company that specializes in the purchase of mortgage notes. In reality what happens at closing is that the owner finances the sale. He simultaneously sells the note to an investor (for a discount), the original loan is paid off, the seller goes away with cash, and you own the property but will be making your payments to the new investor who holds the note. The best way to make this arrangement work is to plan ahead with a note investor so that the interest rates, the amounts paid, the size of the discounts, etc. can be juggled to reach a happy medium that works well enough for everyone. In these cases, most likely the buyer will have to pay a bit more, the seller will walk away with a bit less, and the investor will be very happy! But if it works, who’s to complain?

Needless to say, there are many ways to finance a bed & breakfast or country inn, but none of them is without problems. Almost all will require a sizeable capital investment up front. In every case the entire financial picture of the purchaser must be taken into account. Are there other assets? Is there independent income, either from investments or retirement? Will one of the purchasers be working an outside job or telecommuting? If you are working with a knowledgeable inn broker, be prepared to provide enough information that he or she can find a property that has the potential of meeting your personal and financial objectives. In the end, the best advice is to plan ahead, become informed, and be realistic. If you do, you’ll be happily on your way to Innkeeping! Good luck!

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Assess The Worth of Your Home with Secured Homeowner Loans

Do you know that your home will enable you to avail loans? Do not think it is a hallucination…it is a reality. Now all homeowners can avail loans by using their home as security, as secured homeowner loans are giving all homeowners a chance to worth their property and avail loans for fulfilling numerous purposes.

As a secured loan, homeowner loan offers borrowers to borrow money against the equity of their home. The word “equity” is defined as the value of the borrower’s home after deducting mortgages and liens. . The term for repayment varies within 3 to 25 years

Secured homeowner loans are offered with various interest rates, such as, fixed, variable, capped, discounted and cash back.

Secured homeowner loans are available at fixed interest rate. In such cases, the rate of interest remains same during the loan period. Oppositely, in case of variable interest rate, the rate of interest varies in accordance with the changes of loan market.

A capped rate of mortgage can be defined as variable rate mortgage that has a fixed limit, which is known as ceiling. It indicates that in this option, borrowers know that how much they have to pay per month as highest monthly payment. Such kind of secured homeowner loans could be advantageous while the interest rate hikes up.

With discounted rate a homeowner is offered a discount from the standard variable mortgage rate and this discount is applied for a certain period. In case of cash back secured homeowner loans, lenders offer a lump sum that borrowers can use for various expenditures. Normally, these loans are given either with a standard variable rate or with tracker mortgage.

Secured homeowner loans are offered against the borrower’s home. This implies that in case, one fails to repay the loan amount then his home will be resized by the lender. So, one should think of his repayment capacity before applying for a secured homeowner loan.

However, some advantages of secured homeowner loans are inescapable. These are as follows:

oRelatively low rate of interest

oSince these loans are offered against home thus, with this option borrowers can borrow more

oIts flexible repayment period is also an added benefit.

Usefulness of secured homeowner loans is unavoidable. A vast field of usages has made these loans more popular among the homeowners. Some common usages of these loans are home improvement, paying off debts, arranging holiday trip and many more.

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Is Accounts Receivable Financing Right For Your Business?

With banks and other lenders making it more difficult for businesses to get cash these days, entrepreneurs have to look at other financing options. One area that is often overlooked is accounts receivable financing. Basically accounts receivable financing involves using your outstanding invoices as collateral for a short term loan. If you want to stop waiting for slow paying customers and get your money fast, then this may be an option for you.

Many commercial clients have become accustomed to paying in 30, 45 and 60 days. It can be difficult for a growing business to extend such long terms. Borrowing against your receivables will allow you to get money for your business right away. This is an excellent source for companies that are experiencing growth that they do not have the cash flow to keep up with.

There are two main types of accounts receivable financing. The first is to actually get a loan against your receivables. Newer receivable are worth more money, and many companies may not even be willing to loan against debts that are over 90 days. This type of loan is repaid, plus interest, when the accounts actually pay.

The other option is called account factoring, or invoice factoring. Instead of getting a loan against receivable with invoice factoring you actually sell your receivables to a factoring company at a discount. The lender will pay a percentage of the receivable upfront, about 80% on average, and the balance, less the factoring fee, when the account is paid. This can be a valuable tool for a small business. Not only do you get the money you need right away, but also it does not show up as a liability on your balance sheet. This can be a huge advantage if you are looking to get other types of loans or credit extended to your company.

There are several advantages to using your accounts receivable for collateral. It allows a company to reduce resources previously spent collecting on debts and generate fast cash to grow the business. Accounts receivable financing also frees up capital that previously was tied up in inventory. Lenders generally do not require a business plan or tax statements so it may be easier to obtain this type of loan than some more traditional financing methods. There are of course some drawbacks. Cost can be high, so it is important to shop for the best rates. If your company is experiencing a lot of growth and is having trouble accommodating all customers because of a lack of funds, then accounts receivable financing may be the perfect solution.

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Financing Legal Fees (Factoring)

While most small and medium sizes law firms want to grow and prosper, few have the necessary working capital to handle increased case loads or extended settlement payment. Factoring, which is the purchase and sale of accounts receivable (in this case, legal fees) at a discount at or near the time of creation (settlement), can help solve this all too familiar cash flow problem.

Financial transactions with attorneys are shaped by ethics issues. The intrinsic problem is that the non-lawyer entity has an incentive to attempt to “maximize its earnings to the detriment of the representation of clients.” However, once a case has settled, these issues are not in play any longer and the ethics issues go away.
Legal fees on settled cases are just like any other account receivable and can be sold, assigned, factored or otherwise financed.

Specialty finance companies like CapTran (www.captran.com) will purchase legal fees on settled cases. Most companies will deal in all fifty states.

o Minimum Transactions amounts are as low as $5,000

o Individual fees can be aggregated to meet minimum

o Maximum Transactions amounts are generally in the millions as most factoring companies are very well capitalized

o A portion of a fee may be sold

o Generally, there are no application fees

o The fees must have no known motions or actions challenging the settlement

How it works

Once a case has settled and all documents have been properly executed by both plaintiff and defendant, the fee receivable is purchased for a small discount, usually between 2% and 12% depending on the payor and amount. The main difference in rates is the factor’s estimation of the time it will take to collect the fee.

Step 1 – Master Fee Purchase Agreement

A Master Fee Purchase Agreement is executed specifying the terms of the under which fees will be purchased, including minimum and maximum amounts, advance rates, fees and rebates.
Before you begin factoring, please fax us the following documents:

o If your firm is a Proprietorship:

o Fictitious Business Name Statement or other document you filed with your local governmental agency allowing you to conduct business under your company name;

o If your firm is a Professional Corporation or Limited Liability Company (LLC):

o the document stamped by your state governmental agency confirming your company’s registration and allowing you to conduct business under your company name. This is often known as a Charter or Articles;

o A copy of the declarations page of your malpractice insurance policy.

Step 2 – Submit Fee Purchase

Submission of fee for purchase using factor’s submission process/forms. (CapTran has an online e-from to make the process of submitting fees for purchase as easy as possible.) The documentation is simple and closing is usually within 24-48 hours.

Documentation:

o Copy of client fee agreement

o Copy of settlement or judgment

o Must be signed by defendant

o must be signed by insurance company or other payor

o Letter of instruction from attorney to payor directing payment to factor’s bank or lockbox.

Step 3 – Acceptance

Purchase of fees is subject to the factor’s acceptance,(acceptance occurs when you receive your advance), at their sole and absolute discretion at a the discount from face value agreed to in the Master Fee Purchase Agreement, which is usually wire transferred directly into your checking account.
The discount will include the factor’s fee as well as any margin or “haircut” form the face value, which the factor has required. Usually, the factoring of legal fees requires no haircut if the payor is of unquestioned credit worthiness.

The assignment and letter of instructions from you is sent to the payor of the fee (usually an insurance company).

Step 4 – Payment

The payor sends their checks to the factor, which amounts are credited to your account, as received.

If the payor pays in a timely fashion (less than 90 days), you will also receive a Rebate when enough money has been collected to close any particular transaction. The Rebate is calculated by a predetermined formula that adjusts the original discount in Step 3. Here’s an example assuming a 12.5% factoring fee and a rebate of 4.8% for payment within 90 days:

Amount of Fee $10,000

Less Advance Disocunt (12.5%) $1,250

Net Advanced to Attorney $8,750

Rebate if payment within 90 days (4.8%) $480

Net retained by attorney if paid within 90 days = $9,230

Net retained by attorney if paid after 90 days = $8,750

Every factor has its own rules, preferences and idiosyncrasies. However, the welcome mat in clearly out for accomplished small to medium sized law firms.

Some firms also offer working capital loans which may, for certain firms, compliment factoring very nicely.

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