Small Business Finance – The Next Big Banking Problem?

For the past year, most banks and lenders have been subject to both disastrous operating results and negative publicity. Actual commercial lending activity reported by banks conflicts with the usual attempt by politicians and bankers to portray banks as normal and healthy. Most bank financial results have been disappointing after working hard to solve massive residential loan problems. It is reasonable to ask if commercial banking has more potential disasters about to emerge based on what has been seen and reported so far.

Based on a number of business financing statistics, commercial lending to small businesses is already on life support. In many cases, without government bailouts many commercial banks would have already failed. As bad as that perspective might sound, this report will provide an even more negative outlook for the future of small business finance programs. Unfortunately for banks and lenders, it does appear that business loans will be the next big problem.

During the past year or so, several banking problems have received significant publicity. The largely avoidable difficulties were primarily tied to increasing home foreclosures which in turn caused various investments tied to home loans to decrease in value. Such investments lost value so rapidly that they became known as toxic assets. When banks stopped making many loans (including small business financing), the federal government provided bailout funding to many banks to enable them to keep operating. While most observers would argue that the bailouts were made with the implicit understanding that bank lending would resume in some normal fashion, the banks seem to be hoarding these taxpayer-provided funds for a rainy day. By almost any objective standard, commercial lending activities have all but abandoned small business finance needs.

Small business financing appears to already look like the next big problem based on commercial finance statistics recently released by many banks. The general decline in commercial real estate values during the past several years is a major factor in this conclusion. Because many large commercial real estate owners could not make their commercial mortgage loan payments or refinance business debt, this has resulted in some significant bankruptcies. The resulting bank losses are clearly having an impact now on commercial lending to small business owners even though these difficulties were primarily happening with large real estate owners and did not usually involve small businesses.

Bank losses on large commercial real estate loans have caused many banks to reduce or stop their small business financing activities, and this has clear similarities to the earlier situation of residential mortgage loan toxic assets causing banks to stop normal lending because of capital shortages. The bank losses from large commercial property investors are producing a ripple effect that has caused small business financing to effectively disappear until further notice. While small business owners did not cause this problem, they are suffering the immediate consequences when banks are unable or unwilling to provide normal levels of commercial financing to them. This bad situation is made even worse when we learn that many banks are hoarding cash and approving fewer commercial loans to allow them to quickly pay bailout funds back to the federal government. The primary logic for this approach is that it will allow banks to resume excessive bonuses and compensation to their executives.

Unfortunately one problem will lead to another, as is common with complex circumstances. The failure to obtain normal business financing will most likely lead to an increasing number of commercial loan defaults by small businesses. Prudent business owners should begin to take action now in a timely manner to avoid such negative consequences. The most serious small business finance problems can be anticipated and avoided with appropriate action.

Even if they do nothing else, business owners should have a straightforward conversation with a small business finance expert to assess how exposed their business might be to the brewing commercial banking problems. If recent events are any indication, the banks themselves will not be very forthcoming about problems with their commercial lending practices. For many small businesses, the most objective business financing expert is not likely to be their current banker. To increase the chances that they receive sufficient small business loans in the face of ongoing lending problems, a healthy amount of skepticism and caution will be helpful for business owners.

Understanding Small Business Finance

If you are an entrepreneur, then you know that there is always a need for small business finance to keep things going. Being able to get the money that is needed for your business means that you need to make several financial and non-financial considerations.

Firstly, before you search for funding for your business, it is important to know what type of financing required. Would the business need debt financing (a loan for running your business) or equity financing (money that is taken from savings or investors)?

Small business finance through debt financing means taking loans from credit unions, banks and other traditional financial institutions. Among the loans that are available are short-term loans which must be repaid, with interest, within a specific period of time. Such loans may be termed as demand loans as the lender can call in the loan for repayment any time. Small business finance longer debt loans are normally used for financing assets like renovations or investments in equipment.

There are many businesses that make use of lines of credit as a source of small business finance. They make arrangements with lending institutions for a set amount of available credit that they can draw upon when need arises. Lines of credit allows businesses to use the cash when they need it and they only need to pay back the amount that has been used and interest is paid on the outstanding balance of the line of credit. Numerous lending institutions offer credit cards as a means of small business financing. These cards are used by establishments to finance their operating expenses. But, credit cards can be expensive because of the interest rates. The cards are ideal for use if the balance is paid in full monthly.

Small business finance through equity is normally used in a limited manner. Informal source of equity funding includes friends and family; while the formal sources include venture capitalists. Venture capitalists generally have a considerable pool of resources that allow them to finance ventures and participate in some of the more crucial decisions in the business. However, these capitalists conduct studies before making the decision to provide funding.

There is also some equity small business finance that are received from people who are called as “angel investors”. These are normally people who have deep pockets and are willing to provide funding.

Be Prepared for the Problems in Used Car Financing With Solutions Before You Start

Financing properly is more important in financing a used car than when buying a new car. Most problems that occur in buying a used car are due to there being a problem connected with the financing. Getting the used car financing worked out properly is the key to a successful used car purchase.

Most buyers aren’t aware of how important the paper work is to making the deal a successful one or a failure. They view it as paperwork that should be completed as quickly as possible so they can drive away in their new car.

To start with, it’s very important to get the deal agreed upon by the salesman to be put in writing in the contract. This often involves determining monthly auto loan payments based on an interest rate. Sometimes, the interest rate a customer qualifies for is inflated so the dealership can make extra profit.

This headache can easily be avoided by obtaining independent vehicle financing before going to the dealership. This means the consumer can proceed as a “cash buyer” and negotiate only the price of the car. Car salesmen prefer customers to be “monthly payment” buyers because, in this way, it is easier to obscure the total cost of the vehicle.

Independent car financing can be obtained from a bank, credit union or on-line lender. With the popularity of the internet, applying for used car refinance is proving to be simple and very easy to do. Many on line lenders respond very quickly – sometimes as short as 15 minutes by email or telephone. If the application is approved, the borrower is given a credit limit at an established interest rate. Sometimes a blank bank check is issued with no obligation to use it.

“For the majority of consumers, even if you know you have good credit, there is a little apprehension and tension around applying,” one lender said. “So instead of going into a dealership and giving them your information and being sent to the coffee machine to wait for an answer, you can apply on-line, 24/7.”

Most people familiar with how used car dealerships operate confirm that obtaining independent car financing is beneficial to most consumers. .

The most common problems that have a negative impact on a person trying to finance a used car –and their solutions – to ensure that things go smoothly are the following:

Problem #1: Many consumers don’t know what their credit rating is when they apply for an auto loan. The strength of their credit score largely determines what kind of interest rate they will receive. Therefore, it’s critical to make sure your credit report is in the best shape possible before shopping for a car.

SOLUTION: Order a copy of your credit report and look for items that may stand in the way of you getting a good rate. Correct any issues or errors promptly. Are all of your lines of credit in good standing? Are there any signs of identity theft? The credit bureaus will tell you how to correct errors when they send you the report. The following numbers and Web site addresses will assist you in checking your credit.

How to Successfully Capitalize on Special Finance Leads?

In a highly competitive market, it is very difficult to generate quality special finance lead by the dealers. The process results in unnecessary wastage of time, energy, and money. In spite of spending a lump sum amount on advertisement and on running PPC campaigns in Google, still a dealer fails to produce the desired number of leads to meet the monthly target. Dealers who cannot generate their own leads depend on the professional lead providers to supplement the flow of new sale opportunities.

All providers produce new sale opportunities through their own marketing efforts. They usually have a couple of websites for an effective auto lead generation. Through advanced adverts offline and online and use of social media, the highest quality of leads are generated in real time. Pay-Per-Click (PPC) campaigns are used extensively to generate as many leads as possible.

When sending the leads to the dealer client, the professional lead generators ensure they are sending only the best quality leads. A team of efficient professionals works to separate the good quality leads from the bad ones. Usually a provider uses a lead tracking software to track the number of leads coming from different sources from websites, landing pages, blogs, advertisements, etc.

Bad quality leads are generated when so-called potential car buyers don’t respond to calls being made from the lead generating company’s office or for that matter don’t reply to the emails sent at least 48 hours ago. Such sets of people are termed as ineffective leads and the list containing the personal details of such individuals are not sent to the dealer. Effective leads are those that respond instantly to a call or an email and show a genuine interest to buy a car.

There is a misconception amongst many dealers that the providers send a lead’s personal details to multiple dealers. The lead generating companies have teams that check whether the same leads are being sent to more than one dealership or not. Cross checking of leads received should also be done on the dealer’s part to reject duplicate leads.

The reason for the huge popularity of the external lead generators lie in the fact that they guarantee the generation of maximum high quality leads. Once people fill up an online inquiry form to learn more about a dealer and the auto loan application and approval procedure, the generator instantly starts following up with those people. Through regular communication and responding to the queries of potential car buyers, special finance lead can be generated successfully.

Experienced service providers spend all their time in doing quality research on the type of target audience a dealer wants to have. The providers will use the latest, innovative marketing strategies to create a long lasting impression in the minds of the people. One of the best chances to increase visibility is to have a strong presence in various social media web platforms for maximum auto lead generation. Through maintenance of social media accounts and regular posting of interesting articles, relevant news, photos, and videos on Facebook, Twitter, LinkedIn, Google+, and so on grabbing the attention of potential car buyers can be increased to a large extent.

Matthew S Barredo is an expert researcher of special finance lead. He has over 7 years of experience in the genre of finance auto lead and the same. In this article, he has tried to educate the readers about choosing an ideal car lead generating company and auto lead generation for steady sales and profit.

Small Business Financing Options – Despite the Credit Crunch

There’s no question that the financial crisis and ensuing credit crunch have made it more difficult than ever to secure small business financing and raise capital. This is especially true for fast-growth companies, which tend to consume more resources in order to feed their growth. If they aren’t careful, they can literally grow themselves right out of business.

Amidst all the gloom and doom, however, it’s important to keep one thing in mind: There are still options available for small business financing. It’s simply a matter of knowing where to look and how to prepare.

Where to Look

There are three main sources you can turn to for small business financing:

Commercial Banks – These are the first source most owners think of when they think about small business financing. Banks loan money that must be repaid with interest and usually secured by collateral pledged by the business in case it can’t repay the loan.

On the positive side, debt is relatively inexpensive, especially in today’s low-interest-rate environment. Community banks are often a good place to start your search for small business financing today, since they are generally in better financial condition than big banks. If you do visit a big bank, be sure to talk to someone in the area of the bank that focuses on small business financing and lending.

Keep in mind that it takes more diligence and transparency on the part of small businesses in order to maintain a lending relationship in today’s credit environment. Most banks have expanded their reporting and recordkeeping requirements considerably and are looking more closely at collateral to make sure businesses are capable of repaying the amount of money requested.

Venture Capital Companies – Unlike banks, which loan money and are paid interest, venture capital companies are investors who receive shares of ownership in the companies they invest in. This type of small business financing is known as equity financing. Private equity firms and angel investors are specialized types of venture capital companies.

While equity financing does not have to be repaid like a bank loan, it can end up costing much more in the long run. Why? Because each share of ownership you give to a venture capital company in exchange for small business financing is an ownership share with an unknown future value that’s no longer yours. Also, venture capital companies sometimes place restrictive terms and conditions on financing, and they expect a very high rate of return on their investments.

Commercial Finance Companies – These non-traditional money lenders provide a specialized type of small business financing known as asset-based lending (or ABL). There are two primary types of ABL: factoring and accounts receivable (A/R) financing.

With factoring, companies sell their outstanding receivables to the finance company at a discount of usually between 2-5%. So if you sold a $10,000 receivable to a factor, for example, you might receive between $9,500-$9,800. The benefit is that you would receive this cash right away, instead of waiting 30, 60 or 90 days (or longer). Factoring companies also perform credit checks on customers and analyze credit reports to uncover bad risks and set appropriate credit limits.

With A/R financing, you would borrow money from the finance company and use your accounts receivable as collateral. Companies that want to borrow in this way should be able to demonstrate strong financial reporting capabilities and a diverse customer base without a high concentration of sales to any one customer.

How to Prepare

Regardless of which type of small business financing you decide to pursue, your preparation before you approach a potential lender or investor will be critical to your success. Banks, in particular, are taking a much more critical look at small business loan applications than many did in the past. They are requesting more background from potential borrowers in the way of tax returns (both business and personal), financial statements and business plans.

Lenders are focusing on what are sometimes referred to as the five Cs of credit:

o Character: Does the company have a strong reputation in its community and industry?

o Capital: Lenders usually like to see that owners have invested some of their personal money in the business, or that they have some of their own “skin in the game.”

o Capacity: Financial ratios help lenders determine how much debt a company should be able to take on without stressing the finances.

o Collateral: This is a secondary source of repayment in case a borrower defaults on the loan. Most lenders prefer collateral that is relatively easy to convert to cash, especially equipment and real estate.

o Conditions: Conditions in the borrower’s industry and the overall economy in general will play a big factor in a lender’s decisions.

Before you meet with any type of lender or investor, be prepared to explain to them specifically why you believe you need financing or capital, as well as how much capital you need and when and how you will pay it back (if a loan) or what kind of return on investment a venture capital company can expect. Also be prepared to discuss specifically what the money will be used for and what kind of collateral you are prepared to pledge to support the loan, as well as your sources of repayment and what measures you will take to ensure repayment if your finances get tight.

You should also ensure that your financial statements and records are current and that your internal control systems are adequate for handling the level of accounting and bookkeeping lenders and investors expect.