Get creative: 10 ways to get your business funded

 US-PDGov

By Ruby P. Warthen

If the bank turned down your application for a small business loan, don’t despair. Banks have developed a reputation for turning down these applications, especially when the businesses have no collateral. A declined application does not mean that you’re out of options for funding for your business. Here are some creative ways to get the money that you need.

Factoring

If you don’t mind losing 15 percent of your accounts receivables, you can use factoring as a means to get money for your business. This process involves passing your receivables to a third party who will give you immediate cash. If your company is showing some growth you can use factoring until you have developed a sustainable cash flow.

Retirement accounts

You can take out a 60 day interest free loan from your IRA or 401(k) account. Pay the money back within that 60 day period and you’ll have the benefit of an interest free loan without fees. Before you dip into that fund, keep in mind that you could be putting your retirement money at risk.

Government grants

Do some research to see what grants are available at the local, state and federal levels. Enlist the help of an advisor if you cannot do the research yourself.

Peer to peer lending (P2P)

Sites like the Lending Club make it possible to get loans from total strangers. The loans are subject to a review of your credit score. Lenders will also take your business idea into consideration. Interest rates for these loans are usually very high.

Crowdfunding

With crowdfunding you appeal to others to invest in your cause, and you’ll repay the investment in some non-monetary contribution. You’ll have to come up with an appealing way to present your idea if you want to get others to invest.

Microfinancing

Microfinancing provides small loans, usually less than $10,000, for your business. Again, the goal is to present an appealing idea, but back it up with your experience, sales projections and demonstrate the viability of the business.

Supplier financing

Look for smaller suppliers who might be eager to earn your business. They might be more than willing to provide the financing you need. Don’t place a personal guarantee on the loan.

Contests

Keep your eyes are ears opened to spot opportunities to win money for your business. These contests sometimes result in substantial sums of money given out to winners.

Friends and family

It is risky business to get money from friends and family to fund your business. A lot of good businesses fail, for a number of reasons. When your friends or family invest in your business idea you need to sensitize them to the fact that the money could pay off, but it could just as easily be lost. There might be benefits from taking the money offered by this group, but you need to be very aware of the disadvantages.

Credit Cards

When all else fails, you can use business credit cards to fund your business. There have been many success stories of entrepreneurs using credit cards to fund a business. This option has some disadvantages as well, so beware. 

About the author: Ruby is a software developer working for an IT outsourcing company. Her current project revolves around creating financial asset management systems that can be used by different institutions. Follow her on Twitter @RubyPWarthen

What is a tracker bond?

Image attribution: 401(K) 2012; CC BY-SA 2.0

By Catherine Halsey

A tracker bond is a fixed-term investment in the stock market. Upon acquiring one, most of your money will be put in a deposit-based account, while the remainder will be invested in stocks. A tracker bond is set for a fixed term, usually of at least five years. During this time, no withdrawals can be made from the tracker bond. The buyer is given a certain level of capital guarantee, with the level varying according to the degree of risk they wish to take.

A tracker bond can be treated as a long-term saving option, for only once the bond has matured will the investor be able to access it.

Things to consider

When purchasing a tracker bond, the buyer has a number of options to consider. The term of the investment – be it five, seven or more years – will first be determined. Then there is the level of capital guarantee to set, depending on the buyer’s chosen level of risk. In addition, there is the participation rate, which measures the level of participation the investor will have in the growth of the chosen stocks. Finally, a cap may be placed on gains. Ideally, the investor will want there to be no cap on gains, as this limits the potential profit to be made.

Low risk

Tracker bonds are generally regarded as being low-risk investments. This is because many tracker bonds offer 100 percent capital security. This ensures that even if your stocks perform worse than expected, you will at the very least receive your initial investment back at the end of the full term. However, it is worth bearing in mind that were this to happen, your money would likely be worth less in five years’ time due to inflation.

Conversely however, if your bond performs well, there is the opportunity to make a significant return on your investment. How much you stand to make depends on a number of factors, including the cap (if any) that has been set; this may be set at 50% of your initial investment for example.

To maximise your return, choose a tracker bond that doesn’t offer 100% capital security. Provided you’re confident in the ability of your chosen stocks or financial indices to perform, this a smart way to increase your potential profit.

If you’ve got a sum you’re looking to invest but don’t relish the stock market’s unpredictability, a tracking bond could be the answer. There’s less risk, and if you choose well, you could be enjoying a lump sum in just five years.

About the author: Catherine Halsey writes for a digital marketing agency on a range of subjects. This article links back to http://www.ulsterbank.co.uk/ni/personal/saving/long-term.ashx

Crowd funding for a start-up venture

Crowd funding gives every-day people the opportunity to invest in a new business or product. Though unconventional, there are a number of benefits associated with crowd funding which extend well beyond generating enough capital to get your start-up venture off of the ground.

Potential client feedback

Crowd funding websites can often be used as a focus group of sorts. Potential clients are exposed to a new business or product. As a start-up business owner, you can use a crowd funding campaign to figure out if your intended client base is willing to spend money on what you have to offer. Several crowd funding websites also allow investing users to provide feedback on the perceived advantages and disadvantages of a business.

Marketing & sales practice

Every time you put together a crowd funding campaign or participate in follow up communications with prospective investors, you will hone the marketing and sales skills which are necessary for growing your business and driving profits. As the campaign progresses, you will fine tune your marketing tactics to suit the people who show the greatest interest in your products or services. The sales techniques developed through crowd funding will help maintain and grow sales forecasts by informing you how to sell your product to customers later.

Get to know your market

Crowd funding can also give you an idea of the size and demographic of the market your new business is best suited for. One of the most common mistakes new companies make is pouring too much money into products or employees due to an overestimation of the market size. The response you receive from crowd funding can help you determine how large of a customer base you will be dealing with at first.

Increased organization

Many new businesses struggle with developing an organized internal structure and that remove focus from other important parts of starting a business, like networking and fundraising. A crowd funding campaign requires organization within your start-up business. While running the campaign, you need to have concise mission statements, product descriptions and business models prepared for potential investors.

Confidence building

When members of your new business’s target market invest in your start-up it increases your confidence in the business model you have created. Any successfully secured capital creates good will in a new company, but when it comes from the general populace there is another level of confident satisfaction achieved.

Crowd funding is a great way to raise money for your new business while learning valuable lessons that will continue to be useful long after the financing phase is complete.

Danny has been working in the financial industry for over a decade. He currently works for Factor Funding Co, which provides cash flow solutions for growing businesses.

Guest post: Top tips for acquiring private equity investment

By Stuart Green

This article looks at seeking private equity investment, and gives advice to business owners who are looking to acquire this for their business.

 

Private equity?

Although the private equity market has been growing since the 1970’s there are still a lot of businesses out there that wouldn’t know the first place to begin when it comes to seeking out private equity investment. The tragedy here is that there are many business who could benefit from private equity investment massively, however feel that being turned down for a bank loan is the beginning and end of any quest for financial support. How can you cast off the shackles and get the investment you and your business needs in order to move forward successfully?

 

Compare the meerkat

Okay, admittedly the famous website does not allow you to search for the best private equity deals, but it is taking us to the point we are making. When buying your home insurance you would never just choose the first one you see would you? Of course not, so even if your business is in dire financial straits and you need investment today, take the time to shop around and choose the best deal for you. Another rash decision could be the end of your business and should be avoided at all costs.

Generally, you will be looking at the options available, which will usually be as simple as a general fund or something that is specialised in your sector. It is up to you which you go for, however be aware that you may find yourself turning over a greater percentage of future profits if you enlist a private equity firm with expertise in your sector.

   Image: Tax Credits, Flickr;  CC BY-S.A. 2.0

Show empathy

By this we mean put yourself in the shoes of a private equity firm. Of course, this can be the most difficult bit as you will naturally think that your business is a great bet. If you struggle to see your business through the eyes of an investor then enlist the help of a friend or your accountant, who will give you honest feedback on the strengths and weaknesses of your business plan. Taking care of this early will give you the best opportunity of acquiring investment, as well as ironing out any issues that are likely to put investors off.

 

Have confidence

A strong part of any investment proposal will involve you, and more specifically your own level of confidence. While an investor will be attracted by what seems like a sensible, watertight business plan with excellent potential for revenue generation, you still hold the key. By having confidence in your plan and the ability to convey that confidence without crossing into arrogance will stand you out as a very strong investment opportunity.

Dealmarket is an online private equity marketplace that offers a selection of private equity funds to investors and entrepreneurs. 

Guest post: How to maximise your chances of getting government funding for your business

US-PDGOV

By Andrew

Banks and other private lenders are not the only parties to ask for funding assistance if you need financing for your business. There are various state and federal programs that are providing and managing grants or funding allotted to troubled or needy businesses. There are specific government agencies or institutions that are tasked to offer and provide such grants.

Government funding is just out there, waiting for the right business applicants that need financing. But the financial assistance will not be easily and quickly provided to just about any company. The government funding agency has to make sure the money will not be put to waste. It may have its sets of requirements and standards to screen and approve/disapprove funding applications. How can your business maximise its chances of getting funding from any government granting agency?

•   Write and put up a well defined and clear mission statement for the business. Some people think the mission statement is just for formality but government funding agencies and institutions look at it as a necessary factor especially when granting and awarding government funding. The statement should effectively convey the essence and goals of the business.

•   Write a good grant letter. It should effectively persuade specific government agencies to consider providing or awarding grant to the company. Some business owners hire experienced grant writers to write the grant letter, which is necessary to complete the grant application or proposal.

•   Set clearly defined and ideal outcomes for specified projects. The business may be seeking grant funding for particular projects. It should present a projection of how those projects will do well and how those can bring about desired outcomes. Government funding agencies also need to make sure the money they provide to businesses will be returned on or before the specified duration.

•      The financial systems of the company should be in place to effectively project, show, and track how the potential funding will be spent. Government funding agencies need to make sure there is a sound financial system. This is necessary to protect the funds granted to businesses. Those may decline or refuse a grant application if the financial system of the company is not in good state. 

•    There should be programs that will ensure overall sustainability of the business. Community projects should also be well presented and should clearly give an idea how those will be used for the advancement not just of the business but also of stakeholders and the communities. Government agencies want to be sure their funding will be well and sensibly spent.

•     There should be specific actions or measures to recognise and/or honour grant donors. This is not just for flattering government funding providers but to give them what is due to be accorded to them following the grant. 

•       The business should ensure that it has independent contractors or specific employees who will manage the grant. Those should also be tasked to complete required reports that are required or mandated on a regular basis by government agencies or foundations. 

Andrew has been working in the finance industry for several years with a specialty in business finance. Andrew has a BA in Business Administration and has written numerous articles in prominent finance blogs.

Guest post: How to manage your business debt

US-PDGov

 By: Mickey Colon

Managing your business debt wisely is a top priority if you want to run your company efficiently. In some cases the debt is tied to the business entity instead of the owner. But even though the creditor can only go after business bank accounts and assets, poor management of the account can negatively affect your business reputation.

In other cases creditors will hold you, the owner or representative, personally responsible for a debtyou accrued while running the business — particularly if you signed a personal guarantee to start the account. Either way it’s important to stay on top of your business debt accounts and make every effort to get them under control.

Create a Business Budget

Whether you’re a large tech conglomerate with over 100 employees or the owner of a small main street flower shop, you must have a business budget in place. Lack of a budget is one of the top reasons why many business owners get into debt in the first place and also why they continue to stay in debt.

Your business budget should accurately list your estimated monthly business income and expenses. That includes employee wages, office rent, office supplies and other costs to operate the business including your monthly debt expense. Your income may vary each month depending on the type of company you run, so estimate the revenue for each month in advance.

Pay Down Plan

Make a commitment to funnel your business profits (income less expenses) to your debt accounts until your balances are more manageable. If necessary, be prepared to make major sacrifices to put your business in a better position debt-wise in the short-term. For instance, you may have to pay yourself a lower wage or no wage at all for a few months until your accounts are paid off.

If you find yourself with a shortfall (loss) or breaking even every month it’s time to make some tough decisions on how to run a more lean and mean operation. In the meantime, avoid continuing a pattern of accumulating debt — if your past expenditures haven’t helped you turn a profit, it may be time to re-evaluate your entire business strategy.

New Habits

Once you get back on track with your business debt, make it a habit going forward to try to pay off your balances before each billing period ends. So for instance, if you charge $1,000 at the beginning of the billing cycle for inventory, make it a point to pay off that $1,000 as soon as you receive the proceeds from the associated sale. This way you avoid interest expenses.

Also, as a savvy business owner you should constantly be on the lookout for a better credit deal. Shop for new business card deals periodically and talk to your local credit union.

Bio: This article was provided by America’s debt help Organization, serving the public with unparalleled content about a range of topics, such as reducing debt, credit card consolidation help, mortgage modifications, planning retirement and helping Veterans get out of debt.

How Hard-Money Loans Work

Image attribution: FreeDigitalPhotos.net; standard royalty free license

Hard money loans are formally non-credit based collateralized loans. According to the Federal Deposit Insurance Corporation (FDIC), hard money loans are subprime loans, a term that many identify with high interest real estate financing for borrowers with bad credit. In addition to being non-credit based loans, hard money loans are an alternative form of financing that do not necessarily require real estate as collateral for bridge loans, distressed property funding and cash-flow financing. Moreover, in the case of mezzanine capital loans, hard money lenders offer financing with the option to convert debt from business loans into an equity stake in a company instead of collateral. 

The reason hard money lenders are not only subprime lenders is because they also specialize in facilitating financing with unique financial services that may not be available through traditional financial institutions. For example, Vital Funds Inc. is a hard money lender that offers a range of financial services such as proof of funds, bank guarantees and standby letters of credit. In a sense these are financial documentation services that allow investors or businesses to gain another source of financing elsewhere.  

As with all financial transactions, hard money loans are regulated. Federal statutory law and individual state laws still determine the underlying legality of if and how hard money loans takes place. However, this does not mean hard money loans have to use the same lending policy and procedures as banks. Generally, hard money loans are easier to qualify for because of a simplified application process. A draw back of hard money loans is that they typically have double digit interest rates that are higher than some credit based loans.  

Just as a car title loan assists with providing quick short-term financing, hard money lenders help facilitate short-term financing solutions; a difference between the two loan types being considerably higher amounts of capital. The specific amount of hard money loans can be quite high and range from hundreds of thousands to billions of dollars. Hard money lenders specify lending range, term, collateral requirements and interest rates prior to the loan. For example, the hard money lender Western Capital Partners, LLC offers loans between $1-7 million up to 75 percent of the value of real estate collateral for a term of no more then two years and no less than six months.   

The use of hard money loans can be substantiated in a number of ways. First, hard money loans can bypass lengthy application procedures for larger amounts of money. For example, hard money loans assist borrowers with time sensitive financial circumstances such as pending foreclosure or short-term financing for a real estate development. A second reason to use hard money loans is based on the notion hard money lenders are not obligated to operate based on credit. In other words, hard money lenders can help individuals and businesses that would otherwise experience difficulty obtaining loans using more conventional resources such as federally insured mortgages.

How To Start a Business in Nevada

With no State corporate, franchise or personal income tax, Nevada may be just the state to start a business in. What's more, business documentation filing fees in Nevada are lower than in several other States and Nevada Limited Liability Corporations (LLC's) can be managed by one person comprising all the roles of executive officers required by law in some other States. 

To clarify the distinction of non-taxation of Nevada businesses, the Nevada business code specifies that while LLC's are not taxable as business entities at the State level, the income received from the business by its owners is still reportable at the Federal level via Internal Revenue Service filings. (tax.state.nv.us)

The process of starting a business in the state of Nevada follows some standardized procedures similar to other states. That is to say State and Federal regulations are still applicable despite Nevada's limitations on what information they report to the Federal Government. To be sure, an employer identification number is required for most businesses, and acquiring a registered agent is codified in addition to obtaining appropriate licensure and registration via the Nevada Department of Taxation. 

It is important to note, that a State Business License is not required for all corporations such as not-for profit corporations, revocable trusts and individually managed LLC's (tax.state.nv.us), however municipal licenses or permits may be required even if a State license is not. Websites such as businesslicenses.com can be of assistance in determining which local licensure may be needed.

Filing fees and State reporting requirements for Nevada businesses can be ascertained through the Nevada Secretary of State and Department of Taxation, that's website is listed at the bottom of this article. As with other states, the filing fees and requirements can vary based on business structure. A registered agent can assist with this process and both the State filing and renewal fees are lower in cost than in several other States. To simplify the paperwork involved it may help to visualize the process in terms of a small series of tasks as listed below:

1. Compare cost advantages of Nevada businesses with other States
2. Assess legal and regulatory environment for the business
3. Perform a market and SWOT analysis (Strengths, Weaknesses, Opportunities and Threats)
4. Evaluate and/or acquire capitalization, and assets necessary for operation
5. Obtain a registered agent
6. Incorporate, register, document and pay fees as required
7. Appraise the need for equipment, staff, property and additional insurance

Some of the steps involved in starting a business in Nevada should ideally be similar to starting a business in any location. These pre-requisite steps pertain to the business plan, marketability, capitalization, feasibility etc. The latter stages in starting a business are more State specific and involve determining fees, operating cost and profit margin benefits of state registration, filing and incorporation requirements in additional to legal protections and environment which the business will operate under. Researching these steps one by one via the sources provided with this article and via independent consultation with business, and incorporation specialists may be worth the initial costs if the business is likely to achieve profitability.

The advantages to starting a business in Nevada have to do with several factors including 1) 'low' registration fees, 2) favorable income, corporate and property taxes, 3) Business privacy rights and 4) a business litigation process similar to that of the Delaware and 5) ability to have individually run LLC's. Some of these advantages are business specific meaning the type of business can effect how a businesses will be required to report income at the Federal level and file with the Secretary of State and Department of taxation at the State level. Generally, the advantage of registering a business in Nevada may be worth consideration, with potentially added benefits in regard to business that will benefit from local markets, revocable estate trusts and Limited Liability Corporations.

Sources:

1. http://sos.state.nv.us/business/
2. http://ezinearticles.com/?Incorporating-a-Business-in-Nevada&id=831882
3. http://www.activefilings.com/states/nevada.htm
4. http://www.smallbusinessbible.org/nevadacorporation.html
5. http://www.nvinc.com/nevadairs.htm
6. http://www.tax.state.nv.us/documents/TPI%2001.03%20NV%20Business%20License.pdf

Disadvantages of small business loans

The disadvantages of small business loans aren't always made clear by lenders who may collect lending interest regardless of whether or not a small business fails. Between 2006-2008 business bankruptcies rose from 19,695 to 43,546 according to the American Bankruptcy Institute (ABI). 

Included in those bankruptcies are the approximately 50% of small businesses that are reported to fail within the first 5 years of operation by the U.S. Small Business Administration website (sba.gov). Some of the disadvantages of a small business loan can include 1) loan objective failure, 2) cost of the loan, 3) affect on business credit rating and 4) implication to shareholders.

• Impact on business credit

Creditors use total credit used in relation to total available credit in calculating credit scores. If this ratio is too high it could negatively affect future financing activities for the business. For example, if a line of credit or business credit cards are used to sustain daily operations during the cash conversion cycle and to facilitate accrual accounting, that credit may be negatively impacted by a business loan for another project. When obtaining a small business loan it is a good idea to assess any potential financial impact on other loans or credit.

• Loan non-performance

Small business loans can and do have pitfalls or disadvantages. The business plan which was used to obtain the loan could fail making the cost of the loan higher than the rate of return on the loan. Consumer trends can dip, cyclical markets may stay in downturns, and a long drawn out secular market may lead to potentially unsustainable leverage for a small business. In other words, it may be a good idea to build in a reasonable amount of cash flow redundancy into a small business in case forecasts and otherwise consistent projections do fall short.

• Cost of loan

Some loans simply are too expensive to be beneficial even if the loan is considered a calculated bridge to a future financial or business goal. This is especially the case with unsecured loans or small business loans with fiscally oppressive terms of agreement. A loan cost that exceeds the return on debt is usually a risky decision unless the loan is implemented in a solid two-step forecast. For example, a seasonal loan that allows a retail business to stock up inventory for the up season or continue operations during the down season.

• Implications to shareholders

If the small business has shareholders, the shareholders may be displeased if directors and officers poorly acquire and implement business loan activities. The displeasure of shareholders could have negative consequences to the equity positions within the business or the roles of directors in the business. Some loans may take a complete business cycle to have its desired impact in which case strong reasoning and evidence for the loan may be useful in regard to discussion with shareholders.

• Faulty risk assessment

If a lending bank is insured against loan defaults they may only apply the minimum risk assessments required to issue a loan and secure debt which may simultaneously increase the risk of loan assessments made by small businesses. This is especially the case for unsecured loans. Unsecured loans don't require collateral, have high interest rates, aren't always offered with borrower scrutiny and are generally higher risk. If a secured loan is risky for a small business, then an unsecured loan may not always be a good choice.

In summary, small business loans have potential disadvantages as well as real disadvantages. The differences between potential disadvantages and real disadvantages are their financial actuality such as cost, and credit impact whereas potential disadvantages may include leveraging of a failing business and loss of shareholder confidence and equity. 

Small business loans vary in risk that make the riskier loans more potentially disadvantageous than low risk loans. However, even with low risk loans, there may be way to finance business projects and operations in a more effective way. Adequate inventory control, reorganization, internal audits, business strategy adjustment ext. may all contribute to less need for debt and a more profitable and functional business.

Sources of Investment Capital During Business Down-Cycles

During a business down-cycle, investors are more likely to be cautious and weary of business opportunities requiring investment capitalization including personal business financing. This is because it is more likely than not business revenue is in a down trend thereby increasing the potential of locking money into stagnant or negative returns. Of course not every business deal is that simple and opportunities to make money in down markets do exist or can be offset by higher medium to longer-term capital gains.

• Investor specialties

Conservative investors are the least likely to be  willing to invest during a business down-turn. Angel investors or venture capitalists with a taste for risk and an eye for potential are better prospects. These kind of investors can be found independently or through consulting firms such CB Insights and may have conditional business sectors and objectives in mind.

• Utilize an underwriter

Investment underwriters can bring experience, and contacts that would otherwise be inaccessible when searching for willing investors during a lull in business activity. Private and public investment underwriters can help business owners and managers navigate regulatory requirements and  investment products to better suit capital infusion objectives and managerial goals. Investment banks can be found through referrals or public open directories such as DMOZ.

• Consider mezzanine capital

Mezzanine capital adjusts the type of financing in a way that may be preferable to investors willing to invest during periods of lower cash-flow. This is because mezzanine financing may give investors greater income earning opportunities through higher rates and expanded options such as convertible bonds with high interest rates.

• Emphasize low risk

If investors are afraid to invest because of a lack of business credit history or limited financial performance, low risk debt instruments may be the way to go. Low risk investments give investors first priority in terms of debt repayment arising from corporate insolvency and may also provide a fixed rate of return to the investor seeking to achieve more diversification.

• Utilize business network

Business networks that can tap into private financing can be a way to avoid lengthy bank lending procedures. These investors may offer a more private investment with alternative negotiation options. For example, an investment may include a less tangible collateral such as a client network or a free consulting expertise.

• Exhibit financial strength

One of the strongest way to find willing investors during a business down-cycle is having a strong business to start with. Moreover, a good business model that has a proven track record should have a reasonable chance of obtaining investors even during a recession. This type of investment capital is driven by earnings consistent growth and favorable growth forecasts.

Finding willing investors during a recession can be more challenging during the low end of a business cycle. Nevertheless, with strong proposals, and a proven business model, finding investors during a periods of less revenue doesn't have to be impossible. Naturally the healthier a businesses financial position is, the easier it will be to attract investment. Even so, fixed rates of returns and appealing loan terms combined with the investment acquisition techniques in this article can help facilitate business capitalization.

Sources:

1. http://bit.ly/aFUKV2 (CB Insights)
2. http://bit.ly/dt1mjl (Investopedia)
3. http://bit.ly/9alG2j (DMOZ)

The Loanable Funds Model and Business Borrowing

The Loanable Funds Model is an economic theory that states business borrowing and lending is determined by the interest rates businesses pay for those loans, and the availability of capital through the banking system and other traditional sources of capital. 

With higher economic liquidity, interest rates decline, and when the inverse occurs, a tighter money supply results. An important question about the loanable funds model is where and how availability of financial liquidity is facilitated as this mechanism determines if an increase in the money supply becomes available to businesses and if it does, at what cost.

Another aspect of the theory of loanable funds is that it may be best perceived in light of the financial dynamic that surround it. For example, according to a report by Anthony J. Makin published by the Australian National University Press, an overabundance of liquidity provided by federal monetary policy financed in part by overseas borrowing may actually have an inverse affect to what was originally intended.

A reason for this financial circumstance is that costs of capital are expensive for the state leading to potential spending cutbacks in infrastructure that fosters growth. Moreover, in this scenario, the demand for more expensive private business financing can actually decline leading to a potential net decline in economic liquidity and growth on top of an increased national cost of debt that in the long-run leads to higher costs for business loanable funds.

In terms of business, the loanable funds model is more likely to have economic benefits if those funds follow their intended purpose, and  the low cost of loanable funds is financed by surpluscapital rather than deficit spending. The reason this may not always happen is that in the case of U.S.banks, money borrowed from the government at cheap interest rates may not necessarily make its way to businesses.

This is because if banks find other opportunities with lower risk for similar or higher returns their borrowed funds are better spent elsewhere. Additionally, as mentioned above, when low cost loanable funds come from deficit spending, it eventually leads to a need for higher interest rates to finance that spending and less consumer and business spending due to a higher cost of capital. So in effect the loanable funds model is somewhat dependent on how and where the capital from loans comes from.

Thus, to summarize, according to the loanable funds model, interest rates in general rise and fall together regardless of their source i.e. government, corporate or private. This is an important correlation to consider because even in times of high cost of capital, private loans are likely to also reflect the rise in risk premium and/or real interest rate. In such case, private loanable funds don't necessarily vanish but come with higher cost, indicating a cost demand relationship and not a supply and demand relationship.

In addition to the above, with the increased cost of loanable funds, comes increased risk and lower availability of many types of business loans. The incorporation of monetary policy, alternate source of capital, inflation and broader economic circumstances into the loanable funds model can have considerable impact on decisions made by businesses and economic outcomes for those businesses.

Sources:

1.http://bit.ly/gRHoRN (Iowa State University)
2.http://bit.ly/eP9qT7  (Australian National University)
3.http://bit.ly/fkXFkE   (Harvey Mudd College)
4.http://bit.ly/dEUeUr (Economy Watch)

Understanding Private Stock Offerings

Private stock offerings, also known as equity financing is the issuance of share ownership of a business or corporation through the offering of stocks through private sale. When a business entity decides to issue stock it is attempting to expand ownership and/or raise capital for business ventures. A stock offering is different from an incorporation share structure which is established when a company is formed.

Depending on the type of business the share structure may be initially limited to 100 shareholders or less in the case of a S corporation or more than 100 shareholders in the case of a C corporation. However, the number of shareholders does not necessarily have to equal the number of shares and often does not. Limited partnerships, as opposed to general limited liability partnerships may have shareholders who have only partial liability protection in relation to general partners and the number of shareholders is limited by the number of partners which tends to be quite small. 

Cross referencing share structure requirements with share offering allowances can help avoid confusion in the offering process, but generally speaking C-Corporations are the least likely to experience complications regarding number of shareholders.

Types of private stock offerings

There are three types of private stock offerings used in the United States. These are the "Private Placement Memorandum (PPM), Limited Partnership Offering (LPO) and the Small Corporate Offering Registration (SCOR)" (www.cfss.com)

The Limited Partnership Offering is designed for businesses structured and incorporated as limited partnerships and therefore this method of stock offering may not be utilized by S corporations and C corporations.

Small corporate offering registrations vary from state to state depending on state laws and procedures. Currently not all states allow this type of offering but a large number of states do. This type of offering is quite flexible in that it allows sale of stock to any interested persons rather than just "accredited" and "unaccredited" investors.

Investor accreditation is important in the Private Placement Memorandum offering which limits the number of potential investors to those with high personal wealth, experience and knowledge in the purchase of stocks and potential risks. A limited amount of additional investors are also allowed in this type of offering but they too must pass certain knowledge requirements. There are also restrictions on the amount of capital that can be raised using this method and how many times a year stock offerings can be made.

How to offer stock privately

Although issuing private stock is more simple than a public stock offering there is a fair amount of due diligence, careful though and preparation that ideally goes into the decision and process of issuing private stock. Knowing one's business inside and out, its needs, the effects of a stock offering, risks and benefits are all important factors to weigh. Additionally, understanding the process, and requirements can not only help a business owner or owners determine whether or not they require outside assistance, but also how much of that assistance may be necessary. The following is a general guideline of the some of the steps involved in private stock offerings.

• Incorporate the company as a partnership, S-Corporation or C-Corporation

• Become familiar with financial goals and capital requirements 

• Familiarize with the three types of stock offerings i.e. partnership, small business or C-Corporation

• Assess liability, legal and management risks and incorporate this into the decision making process

• Consider the benefits of legal counsel or business consulting services

• Create a detailed prospectus that includes stock, financial, legal, and business information

• Prepare additional paperwork, sale and recording items.

Advantages of private stock offerings

There are several unique advantages to issuing private stock. Most notably, the great amount of capital infusion into a business that has the potential to be cheaper than bank loans or other forms of debt financing. Some of the benefits of private stock offerings are listed below:

• No Securities and Exchange Commission (SEC) registration required

• In the case of SCOR offerings, stocks can be resold in stock exchanges

• Capital generation and infusion into the corporation

• Less publicity of corporate financial records, strategies and operations

• Taxation of earnings may be limited to shareholders

Disadvantages of private stock offerings

There are also potential disadvantages to private stock offerings, specifically in some cases liability, decline in the value of stock and therefore equity capital, and greater management accountability.

• Loss of complete ownership

• Increase in paperwork, and accounting record keeping requirements

• Increased responsibility to shareholders

• Dividends may be a requirement and/or expectation of investors

• Potential for lawsuit in some instances of business malpractice

Choosing to issue stock privately can be a big step in a businesses growth and is a decision that is left in the hands of the business owner(s). This decision may be best thought out carefully in terms of business goals, objectives and profitability. Understanding potential liability risks and benefits to the business in addition to the requirements and changes to the business operation that are subsequent to the offering are important. The information in this article provides a brief acclimation to the private stock offering process and may serve as a starting point or reference to the procedure of private stock offering and various attributes pertaining to it.

Sources:

1. http://www.jbv.com/lessons/lesson24.htm
2. http://www.cfss.com/stockofferingbasics.htm

How Your Attorney Can Help You Fund Your Business

Attorneys who are skilled in formation of new businesses and have experience working with people in businesses can be an invaluable aid in locating capital for a start up business. The reasons attorneys can be useful in this process is not only their legal know how, but also their research skills, and contacts. A few of the ways which attorney's may be able to help in the financing of new business are as follows:

• Shareholders

Some businesses require shareholders to come into existence. Attorneys who have incorporated other business' in the past may know other business owners who are willing to become a shareholder for a nominal fee and a stake in profits. What's more the lawyer(s) may be familiar with equity investment groups and/or other organizations actively involved in small business financing.

• Venture capital

Venture capital investors usually seek out smaller corporations to invest in because of their potential for growth. Attorneys with strong networks in the business field may be aware of venture capitalists and/or investors willing to contribute funds to the newly formed corporation.

• Non-Profit and tax exempt corporations

If a business is started up as a not-for profit, religious or other tax exempt organization it may be eligible for Government subsidizing. Attorneys skilled and knowledgeable in the incorporation process of these types of business may also be able to assist in the government financing process.

• Bank loans

Bank loans for small businesses can be complicated and sophisticated. Legal assistance in the application procedure can help iron out important questions the bank may have regarding solvency, collateralization and investment protection criteria in the loan application procedure.

• Payment plans and pro-bono services

Since the hiring of an attorney often can be a significant expense, those attorneys may be willing to assist in the start up of a new business out of their own interest of getting paid. This interest could take the form of deferred payment, payment plans or even pro-bono services. Talking to an attorney about these things before incorporating or registering a small business may help in determining if the lawyer(s) and/or law firm is willing to provide any type of assistance in the matter.

• Financing sources

There are many sources of financing, some of which are more difficult to locate than others. Corporate attorneys who know about start up businesses and financing of these businesses may also have knowledge of alternative financing sources for new businesses as the start up costs for such businesses are often considerable. For example, the lawyer(s) may be knowledgeable of the United States Small Business Administration programs available to new business owners and may be able to assist in obtaining financing from that program and others like it.

Attorneys are more than just the people who help new business owners file paperwork and register companies. They are also skilled and knowledgeable persons who in some cases have great experience and ability in the business field. Adept, connected and experienced attorneys may possess the key that will enable a business owner to follow his or her dream and not only form the right kind of company but obtain the right kind of financing.

Guide to Commerical Secured Loans

Commercial loans are borrowed funds that assist businesses finance aspects of business operations that require immediate capital. These loans may be acquired from a number of sources including commercial banks, other companies, or private lenders, and are in many cases not used to finance large purchases such as buildings, other companies, or land real estate. However, asset backed commercial loans are used for longer term financing such as in the case of corporate acquisitions, large and expensive equipment and property. Below are some examples of secured commercial loans in a broad sense of the term:

• Secured business line of credit

• Business mortgage 

• Corporate asset backed security loans

• Secured debentures 

• Short term secured equipment loan 

• Acquired asset backed term loans

Secured commercial loans are collateralized with something of value that is owned by the company seeking the loan. This provides the bank more security in the case of loan default, failed forbearance or delinquency. Some examples of assets that may be acceptable collateral by commercial loan lenders are listed below. However, it may be useful to note some lenders may only consider a few types of collateral for the sake of simplicity and lending policy.

• Inventory

• Accounts receivable

• Liquid assets such as bonds, and equities

• Property, plant or equipment

• Legal settlements

• I.T. applications, patents and property liens

Where to get a commercial secured loan

As mentioned above, lenders of commercial loans include various financial institutions, companies, or private lenders. Depending on the business structure, sought after loan terms and amount, those willing and able to lend can vary. For example, a small commercial bank will be in a less suitable position to finance a large fortune 500 company seeking a short term commercial loan than a larger financial institution. The following link is a sample commercial loan application from regalfinancialbank.com.

To elaborate further, some financial institutions may not take a preference to collateralized lending over other aspects of companies finances such as monthly net income and revenue in relation to cash outflow and liabilities. Different locales, regions and countries may offer different types of commercial loans so it is important to research the loan specifics to match the loan requirements. Below are few examples of U.S. commercial lenders and financial institutions that finance secured commercial loans.

• General Electric Money Worldwide 

• Bank of America 

• CIT 

• Wells Fargo 

• Wachovia Corp.

What to look for in a commercial secured loan

Secured commercial loans may be simple or complex depending on the needs of the company, size of the loan and terms of the loan itself. In some cases law firms may facilitate the legal documentation of secured commercial loan transaction whereas in other cases the loan may follow a more standard agreement and terms. Sometimes than can impact the potential benefits of a commercial loan are listed as follows.

• Competitive interest rate

• Length of loan

• Fees, surcharges and/or additional costs

• Interest and/or penalties for default indemnification

• Percent and/or type of assets used as collateral 

• Down-payment and insurance if any

Other things to look for involve the commercial loan lender itself. The lender's financial solvency, location(s), variety of loan products, ability to service a loan and experience in the industry can all be relevant to a obtaining a secured financial loan. If the loan is complicated and difficult to obtain, this may be an indicator of the lenders capacity and willingness to lend.

Summary

Secured commercial loans are asset backed loans used to finance business activities or purchases needed in short term operations. However, in some cases long-term asset backed commercial loans are financed, a common example of which would be a commercial mortgage. Specific financial institutions that specialize in commercial loans, corporate lenders and private lenders may offer commercial financing.

The type, terms and availability of commercial loans can be an indicator of how likely and easy it will be to find financing for such a loan. The more complex, large and uncommon the loan, the more likely it may be the loan will have to be customized and facilitated through legal and commercial negotiation. With all secured commercial loans, the terms, charges and details of the loan are important in determining the advantages and competitiveness of the loan.

Sources:

1. http://www.businessdictionary.com/definition/commercial-loan.html
2. http://www.gelending.com/Clg/Resources/lendingFAQs.html#Faq8
3. https://www.chase.com/index.jsp?pg_name=ccpmapp/commercial/prod_serv/page/cbc_faqs
4. http://www.fwwlaw.com/showarticle.aspx?Show=291

Different kinds of bank loans for small U.S. businesses

Small Businesses may obtain financing for various aspects of business operations through specialized bank loan products. This article will illustrate the various types of loans available to business owners through banks in addition to indicating how such loans can be approved. A discussion of a few banks and their loan products will also be provided for the purpose of further illustrating the types of loans available.

Types of bank loan products

• Lines of credit

A line of credit may be either a secured or unsecured account i.e. collateralized loan or uncollateralized loan. Lines of credit are similar to credit cards but usually have interest rates based on the prime rate and are thus lower. Lines of credit are more flexible than credit cards because they also act like accounts and checks can be written against them.

• Cash flow loans

Cash flow loans are used to finance periods of time within the cash conversion cycle. In other words, the time between providing a service, invoicing, and receiving the payment and then paying creditors. The shorter the cash conversion cycle is the more money a business can save in cash flow expenses such as interest on the cash flow loan or other source of credit. Companies that operate on a cash basis may not have the same requirements for cash flow as a business using the accrual method of accounting.

• Business credit card

Business Credit Cards have higher interest rates but can be used for solid bookkeeping. The reason credit card loans are good for bookkeeping is all the transactions are recorded electronically, immediately or soon after the expense has been charged. This can lower accounting expenses as some of the financial reporting is included as a service of the loan.

• Debt refinancing loan

Banks also offer debt refinancing loans that can consolidate other business debt at a lower interest rate. For example, if company A has 3 credit cards with other banks at an average interest rate of 14%, Bank B may be able to provide a loan refinancing all 3 credit card's debt at a lower interest rate. This allows the bank to acquire new business and the business owner to obtain a lower monthly payment.

• Equipment and machinery loans

Equipment and machinery loans can include vehicles, tractors, conveyor belts, irrigation systems etc. Many types of businesses have unique equipment and/or machinery needs for which these loans are designed for.

• Start up loans/seed capital

Seed capital is a loan used to financing the opening and initial operation of a business. In this case, small business seed loans are applied for and either approved or rejected by the bank. These types of loans can have rigorous application requirements that can be subject to significant scrutiny by the bank. Depending on the type of bank and their specialization, seed capital loans may be easier or 

harder to find.

How to qualify for bank loan products

Qualifying for bank loans depends on several factors including the interest rate of the loan, the type of loan product and the financial and professional credentials of the applicant. The more secure i.e. collateralized, high interest rate loans to clients with good to excellent credit histories and strong business fundamentals are the bank's ideal loan and customer because this provides a low risk of default and high rate of return.

Banks can't always have it there way however, and sometimes competition for loan products can cause interest rates to drop and loan application incentives to be introduced. For example, free services through the bank if a loan is approved. Depending on the type of loan the following criteria may be used when considering a loan application. Naturally, the better an applicant meets the criteria, the more likely the loan will be approved.

•Business Credit Rating

• Balance Sheet Information 

• Financial Ratios ex. Current ratio, profit margin on sales, debt to assets ratio.

• Professionalism and Quality of Application

• Collateralization

• Banking relationship

Banks and bank loan products

There are many banks to choose from with varying loan products. Some banks have specialized loans such as vehicle loans while others may have more general loans. Larger banks have more capital to lend and so obtaining a loan may be easier through a large bank if the loan is for a large amount. A few of the larger U.S. banks that either specialize or write a significant amount of business loans are listed below.

1. Bank Of America: This large U.S. bank has a wide array of business loan products.

2. CIT Coporation: A business friendly bank specializing in business loans.

3. CitiGroup: Another of the larger U.S. banks with large asset resources and loan products

Local banks may not be able to provide the same liquidity and financing as larger banks but they may have better customer service and loan products that suit one's business better. For example a local rural bank may have loans specifically for farming equipment and machinery. Depending on the type of loan, different smaller banks may specialize in or more types.

Small business loans are in plentiful supply within the United States. The variety and terms of U.S. business loans can be quite diverse and the application requirements depend on the type of loan in addition to other factors such as risk to the bank, rate of return etc. When researching a small business loan, the information contained in this article may be useful as reference and/or starting point for obtaining the right loan for a small business.

Tips For Obtaining Business Loans From U.S. Banks

Opportunity is not always hard to come by in terms of U.S. business loans, however tight economic conditions such as recession can make credit standards higher. Nevertheless, even in periods of economic recession private, commercial and government lenders such as the Small Business Administration (SBA) can be found to finance existing business operations with both secured and/or unsecured loans. Of course to acquire a loan a loan application or bid needs to be approved, and that is a key step in obtaining a business loan. Getting approved for business loans takes into a account several important business related factors that indicate a businesses performance.

• Credit rating

• Collateral

• Business model and history

• Market share

• Financial statements

• Tax status

• Financial ratios such as debt/equity, turnover, and profit ratios

An additional factor contributing to financing of business loans include the ownership and management of the company. Lenders may look at management skill, know how, and experience in assessing the application of any financing. The loan application itself can also have an impact as this is how the applicant presents his or her company to the fancier. The following tips provide additional information regarding the loan application procedure.

Research banks and bank loan products

Banks often refer to their loans as "loan products", a somewhat detached and objective perspective on the nature of financing which can be a good thing in business. Surveying different banks for their loan products puts the loan seeker in the driver's seat. At this stage in the game forget about pleasing the bank, find the bank with the "loan products" that pleases you, after all, they will be getting paid to finance you if the loan is approved.

To research bank loans let no stone be unturned and look high and low for a bank loan that has a competitive interest rate, low collateral requirements, flexible and venture minded approach to loans, in addition to credibility, reputation and other banking services. After finding this ideal bank, or a close to one can find, this bank could end up financing future loans and bank activities so keeping that in mind may also be useful

Prepare a good application and/or business proposal

All business loans from banks come with applications and these applications along with professionalism, character, credit rating and business or project plan are what will determine if the loan is approved or not. If the business is already in operation and has a proven track record of moderate or better success acquiring the loan will probably be easier as the history and collateral within the existing business can provide an application with a lot of credibility. In such case, the new project should rely on the viability of the project while also highlighting past performance.

Start up business loans can require complete integrity, know how and commitment to have a chance at success. The reason for this is start up companies have the greatest statistical chance of failure within 5 years of operation. Banks know this and will likely be conservative in their analysis of the application. A good business plan can nevertheless achieve financing. Furthermore, business plans project market growth, market saturation, product and/or service practicality, accurate cost and sales estimates, marketing strategy, inventory and asset management, bookkeeping systems etc. Essentially, every detail is important when planning a business because things can and do go wrong and being prepared for those circumstances is essential.

Types and amounts of business loans

Depending on the size and scope of the bank, the type of loans available may be large or small, collateralized or uncollateralized, high or low interest, subsidized or unsubsidized. There may even be some international banks willing to finance the business so excluding those options right away might not be prudent. A few of the types of loans are included in the following list.

• Lines of credit

• Cash flow loans

• Credit Cards

• Start up or Seed Capital

• Equipment loans

• Project Development loans

• Debt refinancing loans

Some of the above loans are easier to obtain than others. For example, credit cards are easier to obtain partially because the interest rate is so high it lowers the risk for the banks. With the lowered risk of return, the banks are able to offer more credit loans but base the amounts of these loans largely on credit history rather than usage. Many of the loans other than seed capital loans can be applied for online and receive a fairly quick approval depending on the bank. The amounts of these loans can range from a few thousand dollars or less to a hundred thousand dollars depending on the needs, size and cash flow of the business.

Obtaining a business loans may be a challenge, but can be a viable alternative to independent business financing. Some types of bank loans may be specific to businesses already in existence and are consequently aimed at financing operations rather than establishment. Nevertheless, some banks and lenders do have start up and seed capital loan programs but the application process tends to be more scrupulous. For this reason a new loan applicant might be advised to distinguish between loan products and pay close attention to application guidelines. Additionally, various loan products for businesses some offer better rates and terms than others making research of the different banks and available loans quite useful.

How to Find Private Funding for a Small Business

Multiple sources of privately funding a small business exist, and there are many ways to find these sources of financing. Lenders and investors alike are numerous, and thus finding them is not necessarily the most difficult part in obtaining small business financing. In other words, finding private funding for small businesses involves locating the most appropriate financier(s), and then proving to them, the investment and/or loan is worth making. 

The key(s) to obtaining funding is generally multi-tiered involving some or all the following factors 1) a solid business history, 2) an excellent business plan, 3) demonstrated credibility and commitment to the business 4) knowledge of the business and industry and 5) organizational skills and the ability to carry out the business plan.

If one has all these proverbial "ducks in a row", the next step is to find the funding, and at as low a cost as possible. Since there are several sources of private financing for a business, it is probably not imprudent to take a little time exploring and discussing the different lending options and terms with lenders. If the business is a new business that hasn't been incorporated yet, the business structure such as limited liability corporation, partnership, small business etc. in addition to the articles of incorporation and bylaws will determine how many shares, if any can be offered to private investors and at what price.

Sources for funding a small business 

Several of the different avenues for funding a small business are listed below. These sources of financing generally have varying terms. For example, a venture capitalist may seek out partial ownership of the company and its net income whereas an private lender not interested in ownership will more likely seek out a periodic interest rate and eventual payment of the principle of the loan. What's more, partners or co-owners may only seek out profits when they earned as they have a vested interest in the survival of the business.

• Private stock offerings

• Partnership and business structure

• Venture capitalists and/or angel investors

• Online and offline private lenders

• Seed and start up grants from private organizations

• Networking via accountants and attorneys

• Listing via affiliated organizations of interest

Approaches to take when finding funding

As with most funding, the co-owners, lenders, partners, investors etc. are interested in the stability of their loan and/or investment. For this reason demonstrating either the likelihood of the loan being paid back or the return on investment is important. If one already has the knowledge and skill to effectively run a business successfully, but little or no financing to operate the business, a next step is to prove the business will work by making obvious the adeptness of the ownership and/or management in the following ways.

• Professionalism

• Strong documentation of business plans and/or performance

• Excellent interpersonal and communication skills

• Viable personal and/or business credit rating

• Dedication, know how and proven fervor and skill in the business

Lenders and investors will often not just look at what's good about the business and its management, but also what is bad. They may look for holes in the operations, declines in valuation, revenue, or profit margin statistics and seek out explanations and answers for scenarios, financial actualities and future predicaments. It is consequently, also important to be ready to answer these questions well.

Summary 

Funding a small business is a dream many persons pursue to achieve their life goals, realization of their passions and in living out a rewarding and fulfilling life that is meaningful and happy. In the case of start ups, this dream is often the vision that will carry on throughout the life of the business as it evolves. For existing businesses, there may be new projects in the works, bigger dreams, liquidity concerns, seasonal factors etc. that require additional funding.

Essentially funding a small business requires strong presentation and proven ability and capacity to carry out a business plan/continued small business operations. There are many sources for financing small businesses, and finding the sources may be easier than proving to them a small business is worth funding. This article has illustrated some of the sources of private business financing for small businesses in addition to some of the ways to go about obtaining the small business funding once the source has been located. As with any business venture, achieving success can be competitive, and therefore obtaining the financing can also be competitive.