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

How to guarantee success on your business loan application

If you are the owner of a small business, or are in the process of setting up a small business, then chances are you will at some point need finance for your business. In the past this was a simple process as banks and other financial institutions were very keen to help businesses out. In the current economic malaise however, things are just a bit trickier. 

Although the government is putting pressure on banks to lend money to small businesses, because they are considered to be the ‘drivers’ of the economy, some of them are still not lending as freely as they should be. That’s not to say there aren’t loans out there, just that you will need to work a bit harder. 

Whether you take advantage of loans from the government or from a financial institution you should be able to find something. Indeed there are loans for every type of applicant, from loans geared to women, to loans for people with bad credit to loans for veterans. Spending some time looking online is a good way to track down loans specific to your criteria.

Once you have a broad idea of where to look you will then need to consider the factors the loan companies will use when assessing your application. These range from your credit history (or the credit history of the business) to your experience in business (and education) and the business plan you have put together:

Perfecting your business plan – This is the most important part of your application so you need to make sure it is word perfect and that all the numbers add up. In your business plan you need to set out your short, medium and long term aims for the business as well as providing realistic projections of turnover and income for the next three years. You should include a worst case scenario to show you have weighed up all the risks and you should outline how much money you will be needing to borrow, where it will be spent and how you will be repaying it.

Picking the right lender – Once the business plan is written you need to select the lender you want to borrow from. There are a number of government loans and grants around at the moment (normally with excellent interest rates) so look through these first to see if you might qualify. Alternatively, compare the business loans on offer from the banks and find one that looks like it will fit your needs. Most importantly, shop around for the lowest interest rates and fees.

Picking the right loan – Next you need to make certain you get the correct loan for your needs. There are all kinds of different loans available to small businesses, from secured loans to expenditure loans to joint venture loans. Make sure you understand how each of them works and what they would mean for your business. If in any doubt, speak to a small business advisor.

Consult the small business administration – If you are looking for small business advice on any step of the loan process, get in touch with the Small Business Administration and they will offer you free and impartial advice.

Esther is a freelance blogger and writer who covers everything to do with starting a business and becoming an entrepreneur. She blogs about everything from business plans to setting up websites, staff costs to accounts receivable financing.

How floating charges are assessed

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Floating charge loans are secured by assets that have no fixed worth. An example of a floating charge is a corporate debenture which is an asset secured loan. Moreover, the assets that can be used to secure a debenture can include stocks, depreciable equipment and goodwill. No specific asset must be used to secure a floating charge, however the value of business assets should be high enough to pay for the loan if liquidated. 

In order for floating charge business loans to be redeemed by the lender either the loan is paid back by the borrower or in the case of default, the lender can appropriate assets owned by the borrowing company. This right of acquisition allows the secured assets to become what is referred to as 'crystalized' to exchange the debt from the loan according to the North Carolina Banking Institute. In other words, the crystallization of secured assets in a floating charge means the loan becomes a fixed charge loan due to non-payment under the conditions of the floating charge.

The reasons why floating charge loans have a transformative structure is due to the terms of agreement. Moreover, also per the North Carolina Banking Institute, although these types of loans are secured, the asset securities remain in the borrower's possession. The lender only has limited rights to the assets allowing the debtor company the freedom to do as it pleases with the assets so long as the loan is paid in accordance with the floating rate charge. Moreover, upon liquidation of assets, floating charge loans are subordinate to fixed charge and loans where control of assets rests with the lender.

Legal definitions of floating charge loans are shaped in part by judicial rulings; consequently they can have similarities and differences across national jurisdictions. Right to assets is an example of a similarity between legal definition of floating charge loans in both the United States and the United Kingdom. Moreover, under normal business conditions floating charge business loans do not require the borrower to obtain consent of the lender before selling secured assets. 

An area of meaning where a difference between the definition of floating charge loans is in how clearly the underlying assets are defined. For example, according to Freshfields Bruckhaus Deringer LLP, in the United Kingdom floating charge assets have legal precedence requiring them to be tangible via control and possession under Financial Collateral Arrangements Regulations. However, In the United States intangible assets are more likely to be considered as acceptable within a floating charge loan depending on how clearly the definition of an asset with changing value is defined.

Even though floating charge loans are secured and give lenders the right to assets and cash from sale of those assets, they are higher risk than secured loans where assets change hands. Moreover, since the floating charge loan is structured differently, it gives the lender lower priority over assets in the event of a company liquidation per the North Carolina Banking Institute. For this reason, when making floating charge loans, the ability of a borrower to remain solvent is significantly associated with the risk of that loan.

How Hard-Money Loans Work

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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.

Things to consider when investing venture capital

Becoming a venture capitalist requires lots of money, as start-up companies look to this source of financing as an alternative to business loans and other forms of debt. So naturally the first step is to acquire access to a large amount of funding either via personal wealth, financial leveraging, or business collaboration.

Venture capitalists combine investment capital with business knowledge to yield potentially soaring returns on their money. Anyone with financial know how can become a venture capitalist, but to be a successful venture capitalist involves a few important variables. This article will discuss those variables and also provide tips that can be useful to existing and future investors and venture capitalists alike.

• Raising Capital

For venture capitalists who are still not venture capitalists, but want to become venture capitalists takes financial savvy and business astuteness. One can either start out small turning over investments every few months with increasing profits or successfully influence a benefactor that one's venture capital choices will yield a better rate of return than any of that benefactor's current investments. Other sources of venture capital include savings from employment, capital gains from investments or loans from private sources.

• Business Valuation

Valuation of businesses is a key part of any venture capital investment. Venture capitalists must know how much a business is worth, especially if a majority ownership position is being taken in the company. To properly value a business involves forecasting, analysis of financial statements, understanding economic and market conditions such as supply and demand, regional variances in costs, logistics, asset management structure and so forth. Essentially each operation within the business should be assessed from bottom to top to arrive at a fair market and/or negotiable price per share in a business.

• Risk Assessment

Since many new businesses fail within the first 5 years of operation, a statistically verifiable risk exists with most if not all venture capital investments. Such risk involves competition, capitalization, managerial problems, overhead costs, marketing concerns and any unique factors specific to the type of business. For example, if the new business involves a recent technology, determining if all the bugs been worked out or if a high percentages of sales will return for warranty maintenance can have an impact on both business brand equity, labor costs and working capital management. Knowing and accurately predicting these things can help reduce the risk of a venture capital investment.

• Investment Strategy

Investment strategy comprises all the necessary steps utilized in achieving the long term objective of garnering an optimal return on one's investment. Investment icons such as Warren Buffett and George Soros and Richard Branson are all very skilled and knowledgeable business investors whose investment styles can be used as models for any venture capitalist seeking to model one's strategy on that of the professionals. Furthermore, investment strategy is the model by which investment success can be achieved. Such models may include factors such as entry strategy, exit strategy, negations terms, assessment of both ownership and managerial integrity among many other financial considerations.

• Tips for Becoming a Venture Capitalist

1. Know how to walk away. Some deals are just bad, not worth more time or money than is available and are doomed to fail. If one has already invested by the time such knowledge comes to bear, failing to not hesitate could cost more than one would like to lose.

2.  Develop a financial third-eye. All good investors have a business sense, a financial intuition and a know how to see an opportunity before the majority of other investors see the same opportunity. If one already has the business third eye, then develop it through knowledge, if one doesn't have it, learning to simulate it may help.

3.  Don't Panic and Persevere: If things don't always go according to plan, don't worry, even the best investors lose from time to time.

4. Dedicate: Over investing or speculating can cause one to lose site of one's investment goals. Keeping the eye on the ball and only investing in things one is completely sure about, confident in and knowledgeable about can make a difference.

5. Pay Attention: Missing important details and distractions can be all it takes to turn an investment sour. Since business is about profit, small oversights in profit margins, cost estimates and other forecasts can make the difference between a capital gain, a flat investment or capital loss.

Venture capitalism may sound fun and exciting but there is some skill to it. Simply throwing money around into businesses is one thing. Investing for maximum capital gain is another. Skilled venture capitalists like and know what details are important and maximize on them. The above information and tips illustrates some of the key variables used by and inherent to venture capitalists. Becoming a venture capitalist may take time especially if one is starting from the bottom, but it is achievable.

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.

The eifference between debt and equity financing

Companies use debt and equity financing to leverage capital expenditures, project development and operational expansion. Without leveraging company's financial growth is limited to retained earnings. For this reason debt and equity financing are often times considered vital to business expansion. Both debt and equity financing have advantages and disadvantages associated with them. This article will illustrate both forms of financing then come to a reasoned conclusion as to when and why each form of financing can be valuable.

Debt sources of financing

Debt financing includes collateralized bonds, debentures, business loans from banks, and lines of credit. Generally debt financing comes with an interest rate somewhere between 3-8% depending on the type. For this reason debt financing can be less expensive than equity finance depending on the expectations of the equity financiers. Debt financing may not always generate enough capital to perform intended business projects and goals as this type of financing tends to be more conservative in its lending requirements.

Equity sources of financing

When using equity as a source of financing a company is seeking capital from investors through the issuance of shares. These shares can be common or preferred i.e. having voting rights or priority in the case of company liquidation. Equity financing can also take the form of employee stock options which replace direct pay in the form of a corporate benefit. In the case of common and preferred shares, equity financing can be variable based on stockholder expectations and type meaning the higher the expectations, the higher the cost of financing.

Advantages and disadvantages of debt and equity financing

In business, both debt and equity financing have their advantages. Debt financing from financial institutions is subject to formal approval from lenders and monitored by organizations that rank the quality and credibility of corporate bonds. For this reason, debt financing can not only be a source of cheaper leveraging, but also an indicator of how viable a projects and goals actually are in terms of how convinced lenders and analysts are about the quality of the debt.

On the other hand, in a competitive market place, venture capital and equity financing can mean the difference between innovation, market share and a competitive edge. Often, such ventures can have more risk and therefore demand more return on investment making the financing more expensive. Nevertheless, if a business can garner a return on capital greater than the cost of goods and services including equity costs, then those projects become profitable.

Depending on the type of business, competitive ventures requiring excessive equity financing may simply be unnecessary, impractical or not in accordance with the goals of the business owners. In other words, not all businesses are designed to rapidly expand and yield growing profits on an annual basis. Businesses that simply intend on yielding a steady profit on an annual basis may benefit more from debt financing because of its structured and cost effective nature.

In the case of Equity financing, businesses that lack credibility, start ups and rapidly expanding businesses however may make positive use out of equity financing not only because it may be the only source of capital around but because it can provide the leverage necessary to accomplish the corporate vision.

Summary

Financing is a form of leverage not uncommon to most businesses in one form or another. Smaller businesses tend to use less, fixed or no equity financing due to corporate goals, cost of financing and business size. Contrarily, large high-powered industry leaders and high growth firms may find it essential to raise capital through equity financing to accomplish annual forecasts, corporate goals and owner objectives. Each form of financing has its advantages and disadvantages as this article has illustrated, but in the end financial leveraging is something that may be required for business survival and profitability regardless of cost.

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)

How Banks Analyze A Company For Loans

Since banks' profitability is partly determined on how well they analyze corporate loan applications, the company loan application is quite relevant in banking risk management. To help the bank determine company viability and capacity to repay a loan, many financial, operational, market and economic factors are weighed into the loan application and company analysis. 

This article will discuss these factors. Section I will discuss the relevance of bank policy and loan criteria. Section II will go into greater detail about the specific items banks look at in analyzing and assessing corporate viability. Lastly, section III will discuss the analytical tools used by banks in evaluating company performance and qualification.

Bank policy and loan criteria

Bank policy is the framework within which loan applications are considered. The first step in a company loan application is compliance with the banks policy. Otherwise could immediately disqualify a company from qualifying for a loan and bypass the company analysis altogether. An example of bank policy in regard to company loan applications are the type of companies and company loans the bank provide. Moreover, some banks specialize in specific types of business loans only, making loan applications outside this criteria invalid. Moreover, the bank policy may also outline different analytical criteria dependant on the types of loan.

The bank officials' skill and carrying out of bank policy is also important in the loan application process. Loan officers often follow pre-determined criteria for approving loans and understanding these criteria is helpful if not essential in understanding how banks analyze company loan applications. Thus, the loan criteria are the broad requirements that a loan application must comply with to be considered further. The steps of loan analysis can vary but generally follow specific instructions and criterion.

Company performance factors

Financial strength from revenue, cash-flow and project management, streamlined operations, competitive positioning, financial ratios and corporate valuation are just a few of the items a bank may look at when considering a company loan. Other factors include the size of the loan, existing debt, credit history, loan use, business plan, application quality and applicant presentation. These are a lot of things for a busy business manager to consider in order to obtain bank financing, but it is in a nutshell, how banks manage their loan risk. Examples of a few of the specific qualifiers a bank may measure are below:

•  Company ability to provide all required documentation

• Debt level below a percentage of total average annual income

• Debt level below a percentage of company asset value

• Potential and probability of loan to facilitate profitability

• Credit history, and credit score

• Banking history and assets held within the bank

• Proven company compliance with government tax code

• Compliance with loan terms and agreements

The bank itself is yet another factor in how a company is analyzed for loans. This is so as different banks may have varying loan requirements, expectations, risk structure, bank policy, financial environment, economic forecasts, liquidity etc. These underlying factors are likely to influence how a bank analyzes a loan application in the sense that it predisposes the bank to either be stricter or more lenient on some aspects of loan applications.

Analytical tools used by banks

Without analytical tools a bank official would have little means by which to determine if a company's loan application meets company performance factors as required by bank policy. Several analytical methods and tools are listed below as sourced both independently and from http://commericalloananalysis.com . These tools are used by banks and taught to bank officials so they are better able to accurately determine the viability of a company in its ability to repay a bank loan.

• Ratio analysis

• Cash-Flow analysis

• Operational risk assessment

• Bookkeeping evaluation

• Breakeven analysis

• Forecast and probability measurement

• Multivariate analysis

Each of the above analytical tools is designed to measure different aspects of a business' performance. Since no one metric is able to provide a complete picture of a company's valuation, ability to repay, credibility, profitability etc. multiple analytical tools must be used. 

Definitions of each of these analytical metrics can be found by performing a keyword search for each term. For example, to learn more about the different types of ratios used in banking analysis of company loans, the keyword ratio analysis can be typed into a search engine search bar. Additionally, calling a bank's loan department and asking if they can provide information on loan assessment criteria can help a company better prepare for and meet the loan application criteria.

How to save money running a startup

Knowing how to save money running a startup not only helps the competitiveness of a business, but can also benefit the business owner and the valuation of the business itself. Cost management is an essential aspect of business management especially during times when revenue is lower, and affordable business financing is harder to come by.

The startup money saving tips in this article target key areas in a business including  (1) administrative costs, (2) operational costs (3) financing costs, and (4) overhead costs. Lowering costs can also be considered in terms of whether or not the cost is recoverable or non-recoverable. Non-recoverable costs are expenditures that can be recovered in part or in full as assets. Non-recoverable costs on the other hand cannot be recovered except indirectly in the form of sales.

• Pass through business structure and tax deductions

Sole proprietorships and S-corporations are pass through businesses meaning income and expenses from the business pass through to the owner(s). By setting up one of these businesses, any qualifying expenses from the business can be used to reduce personal taxes as well.  In this sense, proper allocation of costs ends up saving money on taxes for the owner through running the startup.

To illustrate the advantages of pass through businesses a hypothetical example of Mr. Jones a consulting agent is used. Mr. Jones owns a consulting company that's revenue is $80,000 for one year. Mr. Jones decides to purchase a vehicle and deducts it as an expense from his business income because he can't deduct it from personal income. Thus, if the vehicle costs $25,000, the total remaining taxable income is only $55,000 instead of $80,000. 

In addition to company asset deductions, by qualifying for home office deductions, a startup business can save money on the cost of rent or mortgage costs per proportional use of living space used for business operations. This is another tax benefit of earning money through and utilizing a business for a higher retained income. For example, if 20% of rent is a home office deduction and the rent is $1000, $200 taxable at 25% is $50 in savings assuming the business is profitable enough to benefit from the deduction.

• Energy efficiency and Overhead savings

Money can also be saved running a startup with lower overhead costs. Overhead can comprise a large portion of a non-recoverable business expenses; finding ways to reduce these costs can potentially have dramatic affects on liquidity, and asset value. The more costs that don't increase a startup businesses value, the less profitable and valuable a business becomes. Anything that maximizes efficiency and lowers cost without negatively impacting revenue is probably a beneficial cost savings and utilization technique.

1.  Mortgage commercial property

2. Reduce square footage with vertical usage of space

3. Adjusting lighting: High efficiency lights have the same output for less 

4. Operate business in a lower cost

5. Install self-generating energy equipment

6. Lower storage requirements with supplier shipping

• Non-overhead expense reduction techniques

Non-overhead startup costs are those costs associated with running specific tasks within the business. For example, if a telephone is used to set up appointments it is a non-overhead costs. Reducing these costs without hampering the functionality of a startup business is another way to improve a business' competitive positioning, efficiency and profitability. Whenever considering a cost, it can be helpful to ask if it is available elsewhere for free or lower cost, how essential it is to the business and what can be used as a lower cost alternative.

1. Store information digitally

2. Use an online fax and web based telephone

3. In-source services with existing staff

4. Market via the internet and word of mouth

5. Obtain marketing research via low cost contract

• Financing

Cash flow and necessary equipment are important aspects of a start up business. Knowing how to save money running a startup business can also be achieved by adjusting cash flow and equipment financing.  For example, by combining a line of credit with accrual accounting a cost free cash conversion cycle can be implemented which affords businesses greater payment options for its clients.

1.  Use accrual rather than cash accounting

2. Establish an interest free 30 day business line of credit

3. Purchase using no money down, interest free financing options

4. Buy used or seek out free or low cost business necessities

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.

Basic services typically offered by U.S. banks

Typical banking services are designed to serve basic and perpetual financial needs. At the consumer level most people need somewhere to put their money so a savings account is fairly standard. Also, many people require a means to pay bills including checks, credit cards and online bill paying services. Banks often offer their own credit cards and/or debit cards to facilitate the customers spending requirements and preferences. The typical services offered by local banks are as follows:

• Checking and Savings Accounts
• Front desk services including Cashiers checks, Money Orders and Wire Transfers.
• Credit cards and Online Bill Paying Service.
• Car Loans and car loan refinancing.
• Savings vehicles: CDs, Money Market and IRAs.
• Mortgage Lending.
• Automated Teller Machines and drive through banking.
• Merchant accounts and business loans

Although Bank services often exceed the scope and function of typical banking services, they are primarily designed to serve individuals and small business' financial needs. Picking a bank is like picking a friend who is going to manage your money. The different banks may have slightly different services, interest rates and customer support. It can be helpful to visit or investigate several banks before choosing the one that is right for you.

Additional banking services

Since the passage of the Riegle-Neal Interstate and Branching Efficiency Act of 1994 and the Financial Services Modernization Act of 1999, bank services have not only become offered by banks operating across state lines but have also diversified to include a range of financial products and services. This means a banking client does not necessarily have to go to more than one bank to receive different services.

To illustrate the above point, some banks can simultaneously provide brokerage accounts, checking accounts, money market accounts and credit lines. Depending on the financial institution and its policies banking services still differ from financial institution to financial institution. Banking fees for basic banking services may also span a range of prices.

Depending on the liquidity, asset value and lending policy of a bank, loan types and sizes may vary. Some banks may provide car loans and refinancing of mortgages whereas others may not be quite so focused on these types of loans.

When searching for, switching or evaluating a bank, being aware of the financial services it offers, the fees, customer service, loan requirements, and ease of loan process may be a good idea. This can help ensure the bank serves your particular basic banking services, but that it can also work with you on your future banking needs and goals.

How to get good rates on loans: How much to take out, how much to pay off

Low rates on loans add up to less cost for the borrower and that is important when obtaining a loan whether it is for a vehicle, business, home or other purpose. Several factors go into achieving a low rate on a loan and understanding these variables can be key to acquiring the best loan rate possible.

Loan choices and several low loan rate determinants are discussed in this article in addition to cost related aspects of loan amount and payoff. In other words, obtaining the right loan, with a good interest rate and how to manage the loan involves assessing contributing factors to low loan rates and choosing the right loan based on those contributing factors.

Contributing factors to low rate loans

Loan rate ranges vary between types of loans; for example, new car loan rates can vary from 4.5%-6% dependent on the length of the loan term whereas credit card loans can range from 9%-20%. For each category of loan, a range of rates will often exist which gives you the loan borrower a chance to obtain the lower rate in that range. Typically, some of the factors that influence the rate a loan will achieve are listed below:

• Good credit rating and score
• Low debt to income ratio
• Economic environment
• Choice of financial institution
• Type of loan

Choosing the right loan

Being aware of loan rate readjustments, terms of agreement, and financial institutions' business approach and risk tolerance can also affect loan rates including interest on business loans. In other words, a newer bank or bank interested in increasing its revenue may adjust rates to stay competitive and attract more business if the increase in loans outweighs the loss of revenue from utilizing a lower interest rate. Refinancing a loan may also present loan borrowers with an opportunity to lower loan rates.

Choosing to apply for a loan and requesting the right amount for a loan can also be important because the loan amount will not only factor into how much the minimum loan payments will be, but how practical and feasible these payments are. Moreover, paying off too much of a loan too early may be disadvantageous if that money can be used to earn more money to pay off the loan elsewhere.

To illustrate, if a fixed rate car loan in the amount of $10,000.00 with a monthly payment of $42.00/month and no prepayment penalty is paid off in full within the first few months of the loan, and the loan borrower also wanted to re-model a section of their house, the benefits and opportunity associated with remodeling the house may be lost by paying off the loan too early.

Individual and bank debt to equity comfort zones vary meaning a ratio of .l or less than 10% may be required by some persons or financial institutions in order to issue the loan, but others may facilitate loans with much higher ratios. Generally, a fiscally responsible financial institution will not make a loan, unless they believe it can be paid back with relatively low risk.

In the case of credit cards, the risk may be higher based on the credit rating of applicants, so interest rates can rise more dramatically for these types of loans. Another rule of thumb is the size of the loan affects the availability and ease of getting a loan. Larger loans such as mortgage loans involve greater risk so more paperwork, financial reporting and review of the loan applicants borrowing capacity can take place.

Summary

In summation, loan choices vary and can benefit for a little insight into the loan process, how loan rates are determined, what the loan will be used for and when. All the variables in the loan decision play a role in an invisible equation of risk, opportunity, affordability, and relevance of the loan.

Assessing one's own individual, family or business financial needs and capabilities is a key part in determining if the loan will be approved and how necessary or useful a loan can be. Sifting through bank rates, debt levels, credit ratings, loan payment plans, and use of capital can be time consuming, can also be a valuable asset in acquiring a good loan and affordable loan interest rate.

How much debt is too much?

One of the most important aspects of debt management is one's ability to repay it. If one has considerable assets and savings in addition to an income more debt can be comfortably taken on than someone who has an income and no savings. Thus one should not only consider the ratio between debt and income but other financial indicators. What's more, when a business or individual is experiencing fast financial growth it can be beneficial to take on more debt as this assists in the growth process and is based on anticipated earnings in the future.

When considering how much debt is too much consider things like mortgage, car loans, credit cards, medical bills, student loans, margin accounts and/or any other loans. Consulting money management resources such as the Federal Trade Commission for additional guidance is also helpful. Add to these other expenses such as daily living expenses such as insurance, utilities, food and entertainment. They all add up and one should know exactly how much money is available every month to pay these financial obligations. When the bills outweigh the resources, financial despair may soon be at hand. A few factors to consider when taking on debt are as follows:

• Confidence of debt in relation to future income and financial performance
• Comfort level of debt as considered in relation to assets, expenses and income
• Capacity to pay back debt in a hurry and finance an emergency should such a situation emerge

Assuming one is aiming for some debt to improve life goals or business performance, several key factors should be considered when taking on any kind of debt and are included as follows:

• Income level and stability
• Debt interest rates
• Asset taxation
• Opportunity cost of debt
• Benefits of debt

The more steady and higher one's income the better equipped one is to handle debt to a certain level. If the debt's interest rates are too high the amount owed may compound monthly causing the total annualized debt to rise. What's more, if one's assets, especially those purchased using debt have high levels of taxation, the amount to disposable income one has around tax time may go down. In this case think twice before financing a larger home, luxury automobile or boat.

Also of relevance is opportunity cost; if a financial obligation requires one to invest time and energy such as in the case of student loan debt, professional training or certification is the lost time working worth the debt taken on? Naturally, this leads us to the benefits of debt. With debt one may improve one's life, but the potential is also there to make one's life more stressful as payments may just be too high.

Debt is often encouraged by banks and businesses because it means more money for them, with the partial exception of business loans. All one has to do is pass a credit check and it is a green light to hand over a piece of one's financial life to another person or organization. Proper debt management can facilitate professional growth, increased income and a higher standard of living,  however it is also wise to balance loans and interest accrued on those loans against things like income, interest rates and taxation.

Deciding how much debt is too much is a personal choice. Debt is somewhat of a subjective term because some people feel more comfortable with it than others. So it is important to know how much debt one is willing to risk. Having said that there are several concepts to consider once one has agreed to take on debt of any kind.

While comfort with debt is an important factor there are also several other variables a debtor should consider as well. When deciding the ideal debt to income ratio for oneself, it may be helpful to consider the information presented in this article. Debt can pay off better than one anticipated, but it can also be a pitfall if used unwisely or incorrectly.