Small Business Financing – Case Study

Generally, borrowing funds from alternative debt financing sources is more expensive than taking out a traditional bank loan. However, many times companies either do not qualify for a traditional bank loan or credit line or must pay very high interest rates, include a co-signer/co-borrower, and/or attach communal assets. In that case, these alternative sources are excellent financing sources. Remember, banks determine the interest rate charged based on risk. The highest credit grade corporate customers are charged prime. All other businesses are charged prime + a risk factor. If a bank will not provide financing, the perceived associated risk is higher. These alternative funding sources mitigate their risks by specializing in a particular industry or asset class and compensate for this risk by charging higher fees and/or interest rates.

Example- SBA loan.

A data housing firm, Acme Technologies, made the decision to spin off its data management operations in preparation for its strategic acquisition by a larger corporation. The data management division had largely gone unnoticed despite its successful management by the division’s management. Needing to recoup some value from the division, which Acme’s CFO suspected might be terminated by Acme’s acquirer, Acme’s CFO made the offer to sell the business to the division’s management.

Although the division’s management team was skilled in a number of functional areas including sales, operations, and cash management, they had no experience handling complex financial transactions. They needed guidance so they used their network to find an advisor. They approached a U.S. Department of Commerce-sponsored Minority Business Enterprise Center (MBEC) located at a renowned university for assistance. The MBEC assigned a business advisor to help them.

The business advisor advised the management team to create a company to buy the assets of their employer. She then found a lawyer that completed their incorporation documents and successfully registered the company within three business days. Next, she spent hours requesting and compiling documentation to create an Executive Summary, pro-forma financials, and management team resumes to present to banks and direct lenders. Finally, she used her relationships with financial institutions to locate three entities that financed acquisitions and worked rapidly.

The CFO initially gave management six weeks from the time the offer was made to complete the transaction. The business advisor pushed back in conversations with the CFO and wrangled an extension. Several issues arose which the business advisor worked through quickly with the management team.

Two institutions, one direct lender and one community bank, emerged as the front runners. Both were highly responsive and flexible and recommended the use of an SBA loan. The community bank met face-to-face with the management team and championed the other banking functions it could provide, along with the long-term benefits of working with them. Subsequently, the management team opted to obtain financing from the bank.

Five weeks after meeting with the business advisor, the community bank provided a Letter of Commitment (LOC) to finance the acquisition. Three weeks after obtaining the LOC, the management team closed on the financing and the purchase of the division and began operating under the new company name, Acton Technologies.

Mezzanine Finance – Viable Financing During Tough Times

The economic outlook for 2008 remains suspect as the tumultuous conditions afflicting the financial markets have created a turbulent business climate for middle market companies that is likely to continue unabated well into 2009. Commercial banks and Investment banks recently the paragon of the financial services industry have become pariahs in less than a year.

Adversity, however, creates opportunity and indeed many companies have been successful in obtaining financing amid the melt down of the credit markets. Middle market companies looking to grow and needing capital to do so need not panic as banks pull back on financing and credit tightens. Money is still available for companies with solid business prospects – you just need to know where to find it and how to get it.

Mezzanine finance can play an important role in funding the growth of privately owned “middle market” companies in good times and bad. This type of debt financing, however, isn’t really understood by many outside of the industry.

Often called subordinated debt, mezzanine debt is often viewed as quasi equity. As such it is a hybrid of debt and equity financing that is often used to finance acquisitions, product development, plant expansion and new equipment purchases. Company owners also use it to diversify or invest in other opportunities.

Lenders that provide mezzanine financing, for the most part, lend based upon a company’s cash flow rather than a business’ assets. Since there is little or no collateral to support the borrowing, this type of financing is priced significantly higher than secured bank debt. Mezzanine financing is advantageous because it is treated like equity on a company’s balance sheet and may make it easier to obtain standard bank financing. It is also very attractive to a business owner as it reduces the amount of equity dilution, which increases the equity’s expected return.

Mezzanine financing has many of the debt features associated with traditional term debt including interest payments, covenants, and in some cases amortization. But it also has an upside in the form of an equity interest. Mezzanine debt is typically secured by the equity of the company rather than its tangible assets and is subordinated to the debt provided by banks and commercial finance companies.

Mezzanine debt is more expensive than secured debt or senior debt because of the increased credit risk assumed by the subordinated lender. The debt holders receive a higher interest rate than senior debt as well as a quasi-equity stake in the company to compensate for the increased risk. It is a much less expensive source of capital than equity financing; perhaps more important, existing equity holders are subject to significantly less dilution.

On a balance sheet mezzanine debt is found between the senior debt and equity. It is subordinate in priority of payment to senior debt, but senior in preference to common stock if a company is liquidated. It can take the form of convertible debt, senior subordinated debt or debt with warrants.

In the middle market, mezzanine lenders look for a fixed current coupon rate of 11% to 15%, which equates to a spread of 5% to 9% above the prime rate, plus the additional return from the equity stake in the company. This compares to a rate of 1% to 4% above the prime rate for term loans from senior debt lenders.

While most equity investors look for returns of between 30 to 45 percent, mezzanine investors look for annual returns of between 20 and 30 percent. Lenders tend to be flexible in tailoring the structure of the investment to meet the borrower’s operating and cash flow needs, which makes mezzanine debt a useful form of financing.

Most mezzanine loans last from five to seven years with the possibility of early repayment. Unlike bank debt, which usually requires amortization, mezzanine repayments are often not required until maturity. This allows a business owner to reinvest cash flow in growth opportunities rather than paying back senior debt.

Because their return is largely driven by their equity upside, mezzanine lenders are more accommodating during difficult business conditions. While a business owner may lose some independence, he rarely loses outright control of the company or its direction. Owners don’t usually encounter much interference from a mezzanine lender as long as the company continues to grow and prosper. Amounts raised through mezzanine financing can be substantial. A company can leverage its cash flow and obtain senior debt between 2 and 3.5 times cash flow. With mezzanine debt, it can raise total debt to 4 to 5 times cash flow depending on the risk appetite in the debt markets.

Mezzanine lenders are usually paid off through a recapitalization of the business with less expensive senior debt or through the accumulated profits generated by the growth of the business. For years, mezzanine debt has proven to be a viable source of growth capital to finance privately owned “middle market” companies whether the economy is going full bore as well as when it is in the tank.

Protect Yourself From Bank Fees

Do you use a checking account? You may be paying too much for the use of a checking account and could be saving bundles by switching or eliminating the use of a bank checking account altogether.

If you want to save money by using a checking account you need to use it wisely. Banks are happy to have you deposit money for short term use, but they plan on making money through fees somehow. What type of fees can you encounter simply by using a checking account?

Personal Finance Problem: ATM fees

Most people have an ATM card where they can retrieve money from their checking account funds any time of day. But did you know when you pull out a mere $20 you could be paying over 5% in fees?

Most bank ATMs will charge you an average of $1.25 for the use of their ATM console. To pull out $20 cash that’s a 6.25% fee on your funds. For $40 cash it’s still a 3.12% fee that you could put to better use.

At the worse end, if you choose to retrieve funds out of your checking account from an ATM owned by another bank you could be charged up to $3 for that little bit of cash. Ouch!

The Personal Finance Solution

o Don’t use ATMs unless you absolutely have to. For the price you pay to access your checking account, it’s not worth it.

o Use a bank that does not charge ATM fees. Some banks do not charge an ATM fee as long as you use one of their ATMs. National banks like Bank of America or Wells Fargo who have ATMs in cities all over the country may give you this deal. Take advantage of it.

o Use a debit card. Banks today offer to issue a Debit Card to access your checking account funds. Most retail stores will accept debit cards because the transaction is instantaneous out of your checking account and they get their money fast. The best part? No fees! Use the debit card whenever you can, but be sure to keep tabs on your checking account balance.

Personal Finance Problem: Check printing fees

When you order checks, especially ones with fancy options and decorations, you pay exorbitant fees for the price of printing. For each check you write you could be paying .10 cents to .25 cents per check. That adds up over $6 for the use of a book of checks.

The Personal Finance Solution

Use banks that offer actual “Free” checking with no check printing charges. Or, simply forgo the use of checks and use a debit card for retail purchases and online banking to pay your bills.

Personal Finance Problem: Overdraft fees

This is the big one. Always – ALWAYS – keep your checking account in balance. If you pay by check or by debit card and overdraft more than is in the account, you could be slapped with a hefty fee up to $40. That’s just on the bank side. The retail store may have their own overdraft fee on top of your bank’s.

The Personal Finance Solution

Use overdraft protection. Most banks will allow you to have overdraft protection with a savings account. But that means you must have money in that savings account! Keep it stocked with enough to get you out of a jam. A $40 fee on a $5 overdraft can really knock you out financial if it occurs over and over.

Financing the Purchase of a Small Business

If only I was paid a dime for every buyer that has came to me thinking they can finance a business with no money down. The truth is and this has absolutely nothing to do with the current financial crisis. You cannot finance a business with no money down. Now before the emails start filling my mailbox up with exceptions please let me explain myself.

Financing a small business requires one of these 2 options: A down payment from the buyer and seller financing for the balance, or a 100% purchase by the buyer with no seller financing. Let’s discuss them in more detail.

Down Payment & Seller Financing:

No seller in their right mind will sell a business without some form of down payment. The buyer must have an equity investment into the business for the seller to feel comfortable financing the balance and more importantly turning the business over to a new owner. Without this equity, the buyer has no exposure and could simply walk away at any time.

The typical down payment on a small business with seller financing will completely vary from deal to deal. The motivation of the seller will play a huge roll in this equation. One seller may accept 20%, another can be as high as 80%. Typically sellers would like to see the down payment close to 50%.

Terms of the Seller Financing Note:

Negotiate with the seller financing so that you are 100% comfortable in being able to cover the debt service out off the income from the business. A good place to start would be to look at a seller note amortized over 5 years (60 months) at 6 or 7% interest. (Use a mortgage calculator or auto calculator at Bankrate.com to calculate the payment) On larger transactions, the financing can spread over possibly 10 years with a balloon payment due in 5 years. A balloon payment means you will be required to pay the balance off on the last payment.

So now that we know a down payment will be required, where and how do we get the money? There are several sources from personal savings, family, friends, private investors, and banks.

Bank financing the down payment or 100% of the Purchase:

If you decide to use a bank for your financing method on the down payment there are a couple key facts to understand. Today banks are requiring buyers to put down a minimum of 15 – 20% down payment. This is money you must come up with to get the loan. In addition, you will need to have experience in the industry or least management experience and a good credit score to even qualify for the loan. Yes, that’s right. You will need to have a good credit score. Next, they will take a very close look at 3 years financial history on the business. If the business does not have strong financial tax records then you need to be considering a personal loan from the bank because a business loan is out of the question.

Personal Loan:

If you have good credit you may be able to qualify for a personal loan from the bank to use as the down payment or purchase. You may have a home you can refinance, a CD to borrow against, or another asset that can help secure the loan.

The Common Misconception from Bankers:

It is very common for bankers that do not specialize in SBA loans to unfortunately mislead buyers into believing they can easily give them a loan. It is not the bankers fault in this; they are just trying to bring in new business to the bank. The truth is very few bankers know anything about buying or financing a business. In my opinion, they just bring the new application in, process the loan and it’s the team of underwriters behind the scene that are the decision makers and who have the restrictions set in place. The best way to find a qualified SBA loan broker is to contact your local Business Broker and ask for their opinion. Business Brokers are an excellent resource for financing.

3 Bank Qualifications Needed for a Small Business Loan:

1. Experience
2. Cash Down Payment 15%-20%
3. 3 years profitable financial history on the business

Negotiate and Make the Deal Work:

Now that you understand the financing structure required to buy a business, contact a local business broker and search for a business for sale that fits your requirements. Once you find that perfect business, have the broker negotiate the financing terms for you with the owner. Remember the Broker has every incentive to get the deal done and they will go to great lengths to make the pricing and terms work.

Safe Finance For Difficult Times

In mid-January 2009 the Monetary Authority of Singapore (MAS) launched its first SGD denominated Sukuk (a bond that adheres to the requirements of Shariah law) programme. With this programme the MAS aims to promote Islamic banking and ensure that the city state continues to mature into a significant Islamic finance hub in Asia. The pole position in this sector within the region is presently held by Kuala Lumpur.

The issuance of the Sukuk by the MAS is significant progress in the development of an Islamic banking market in Singapore as it gives Islamic banks access to local currency liquidity, something that is presently absent. It thus allows the banks to provide Shariah compliant, local currency products, and solutions. With the MAS benefiting from the highest credit rating of the Government of Singapore, an important element in the Singapore’s Islamic banks arsenal has been met.

The new Sukuk is important for another reason. It proves that regional governments are beginning to be pro-active in identifying, and accessing, alternative sources of funding. This is undoubtedly the result of very tight credit markets globally, an unwanted side effect of governments globally trying to borrow their way out of the global credit crunch.

What is also remarkable is that Singapore has again trumped Hong Kong in an important area of finance. Chief Executive Donald Tsang mentioned the intention of the Hong Kong government to promote the territory as a potential Islamic finance hub in his Policy Address in 2007. Since then the government has done very little to put this, I am hesitating to use the word, vision into practice. Checking around town you will find many a senior banker frustrated in their intent to get Islamic banking off the ground through a lack of serious government initiative.

Having said this, the timing of the Chief Executive’s original statement was perfect. It was made in a time of rising oil prices, providing the main proponents of Islamic finance in the Arab world with ample cash to fund new Islamic banking ventures as well as driving the growth of the Islamic finance industry. At the time, Hong Kong should have made every effort to benefit from this ideal scenario. It did not.

Although Hong Kong has missed this, albeit very important, opportunity I believe that it is not too late to position Hong Kong as Asia’s Islamic finance hub. The paralysis of the traditional banking system has opened the door for another bite at the cherry.

Let me explain. The basic principle that underlies Islamic finance is that of shared risk. Risk should be shared between the lender and the borrower. Consequently, the lender is expected to take a greater interest in the success of the enterprise. Muslims believe that it is unfair, as well as immoral, for the lender to be guaranteed the repayment of capital plus interest regardless of the outcome of the venture. This makes for very prudent financial management. As an extension of this, there are an increasing number of commentators who argue that a global financial system subject to Islamic principles would have meant a much safer system than the very fragile house of cards we are now subject to.

Adopting this system of finance would however require a significant leap of faith from several sectors. Although Islamic finance originates in the religious writing of Islam we should regard it as much more than that. It is a socially responsible way of arranging to meet the financial needs of society which goes way beyond the religious aspects upon which it is based.

As the financial gateway to China, Hong Kong now has the opportunity to lead the second wave in the development of Islamic finance in Asia. In addition to being home to the world’s third largest Muslim community, China is in need of foreign investments and the still cash rich countries of the Islamic world are increasingly looking for Islamic investment opportunities in the Far East.

To make this a marriage made in heaven some decisive action is required on the part of the powers that be, in addition to the industry having to educate itself on what is involved in a banking system that is based on the Islamic principles, and how this can be used beneficially for all parties involved. Some of the larger financial institutions in Hong Kong already have the necessary know-how. However, the industry at large, including accountants, bankers, and lawyers has a lot of catching up to do.

Take Advantage of Online Finance Management Tools to Manage Your Finances Better

Managing your finances is not always easy. It is a time consuming task to keep track of all your bank accounts, credit cards, mortgages and various other details of your personal finance. Traditional way of book keeping doesn’t solve your problem and most good personal accounting software comes at a price.

However, the good news is that there are better and free ways to keep track of your finances. What I am talking about here is free online personal finance management tools which not only help you manage your finances by making it easy for you to keep track of your bank accounts and other financial details but also makes it easy for you to take financial decisions wisely by providing sophisticated analysis. These online tools if used properly can be of great help as apart from tools to manage your various accounts they also offer tools which helps you to analyze your spending, project your savings etc..

If you are still clueless about what I am talking about or have heard about online finance management tools for the first time, you may like to take a look at Mint.com. Mint is perhaps the most popular online personal finance management tool at the moment. It is a free service that integrates all your bank accounts, credit card accounts at one place which makes it easy for you to keep track of them. This saves you the trouble of keeping track of your bank accounts manually which can be quite time consuming if you have multiple bank accounts (we all have right?). Imagine all your bank accounts being tracked for debit/credit and being updated for you to view it on the same place. Sounds quite convenient, isn’t it? These online personal finance management tools provide you with exactly the same thing.

Moreover the online personal finance management tools also provide you with customized analysis of your spending and projection of savings thereby enabling you to make better financial decisions.

Security has been always an issue with financial matters, more so when it comes to trusting a third party website with your bank account details. But most of these websites works by authenticating your bank accounts in a standard secure way which doesn’t require them to store your account credentials and it is verified using standard gateways. This makes them more secure to use.

Racing Awards, Medals and Customized Gear for Runners

Running, whether it be a 5k with the family, a 10k for an extra challenge, or a marathon for the elite runners, can be a very exciting and memorable experience. Running is a very personal sport to lots of people, as it can be great exercise and can make you look and feel very refreshed. Tons of awards are given out to winners at races each year. For people organizing these racing events, finding customized and personal running gear can be difficult, as well as finding unique prizes for running champions. When orchestrating a race, you want to have a memorable competition. Medals and unique prizes can help to make the race more exciting. Participants can keep prizes as souvenirs, and remember the experience better because of a keepsake.
The most important souvenir a competitor can take home is a winning medal. Those are worn with pride, and showed to family members and friends. They are often hung on walls, or shown off where they can be seen. Of course, medals need to be personalized, unique, and specific. You cannot award a running champion with a medal that doesn’t recognize what it’s for. It is often a perfect idea to find a company that will provide you with customized prizes for winners. Often, you can ask for customized medals that include the date, the name of the race, and the name of the company sponsoring and orchestrating the event. That way, when people proudly show their winning medal to others, the people who made the event happen will receive the credit and publicity they deserve.

In addition to medals, running apparel and gear can be a great way to make the race more memorable. Unlike medals, gear is commonly worn and would be used often. Passing out swag, such as customized shirts, jackets, hats, and bags can be a great way to add to the excitement of the race. Races with their own gear are viewed as more unique, as they have customized logos and attractive designs. Shirts can be given out to families, and jackets can be sold at the finish line. Hats can be passed out before the race to keep the sun out of the athlete’s eyes. And, of course, bags can be kept forever and used for multiple occasions. Having the name and date of your race on these items can help to increase publicity and help the runners remember what a successful and memorable race it was. Customizing these mementos can help to define a great race, and will definitely help a race to be more exciting and enjoyable.

Gamble on Line – Possess these Various Advantages for your own

There Really are assorted kinds of games and sports which can be found around the world and human beings possess significant interest within them. There’s simply no uncertainty at the simple fact this one among the absolute most essential explanations for why the games and sports really are all important to this public is on account to how those toss some type of troubles .

There Is just 1 particular certain form of video sport which likewise causes it to be into this set of their treasured games which people are able to playwith. And it’s also not any aside from betting. Betting fulfilling the exact same and is exactly about challenges. There are areas. But once again if it regards betting on line the huge benefits really are far a great deal greater than that which it’s possible to see right now.

Now you Must definitely make certain which you’re choosing the optimal/optimally internet web sites as a way to acquire through together using the practice of betting absolutely. And this is what’s going to offer a great deal of benefits to you.

A Variety of Benefits of gaming Internet:

After Would be the numerous benefits of betting on line that individuals have to be mindful of:

· Convenience:

Comfort Is decidedly among the greatest explanations. Here really is some thing which functions being a boon because you aren’t going to need to go everywhere whatsoever.

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This Is another benefit that is important you have to know of. The internet singapore casino has ever let exactly the exact same as properly. You may be certain you are surely becoming to engage in midnight or sunrise much.

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Each of In making certain you’re receiving through, These items can help you With the consequences for on line.

Coloring Pages Growing Horizons Of Kids

Children are amazing. They know whatever they are taught. If You wish to enhance the horizon of one’s children, and it’s time to get them participated together with coloring pages. Yes, even they all are on line pages that offer many different ways to bring the hidden talent in your kids. These coloring pages comprises of exceptional lessons that are conveyed at a manner that is fundamental to enable kids to grasp.

Coloring Pages – Benefitting Childrem

Worrying concerning the cost in Association? Chill, as they truly have been available at no price tag. Furthermore, you need to stay away from the stress of shopping for exceptionally costly gadgets that are educational. Everything you will need to have is your distribution for your own printer. It can open the pathway for both kiddies to take high benefits in association with internet colouring pages.

You must be wondering why children Have to Be included in coloring. The main reason is that coloring an image will absolutely control the entire attention of one’s kid. They is going to be in a favorable position to concentrate regarding completing their work followed closely by presenting the most useful finished merchandise.

Parents Can Be Getting Brief Repite

Additionally, Mom and Dad Will Have the Ability to Acquire short respite as your Children will probably undoubtedly be coloring pages which is really a funny exercise. On the web coloring pages have been well known to give children several of the best educational gains entirely. They is going to soon be memorizing numbers along side titles of veggies as well as creatures.

More vulnerability to coloring, simple will probably be learning methodology. Kiddies will secure a chance to fortify the coordination between eye and hand . Since they’ll be learning to color lines, abilities will grow in a ultimate manner. Psychologists state that coloring offers an insight into emotions of children in an imaginative way.

Which exactly are you thinking? Involve your kids with coloring Pages in the earliest.

Types of Wood Siding Available for Homeowners

When building your home, even the smallest decision could make a world of difference in what it ultimately looks like. This is also true when undertaking an exterior redesign project. Siding, among other key characteristics, is one of those big decisions that could entirely alter your home’s exterior appeal based on your decision.
Although plastic siding has become a popular option in recent years due to pricing, traditional wood siding remains the preference for many homeowners. This is because wood siding offers customers numerous benefits over their plastic counterparts. Benefits include:

• Wood siding is eco-friendlier than plastic

• Wood is more aesthetically appealing

• Many types of wood are naturally resistant to mold, mildew, and rot, which allows the home owner less maintenance

• Wood lasts longer

• …And much more

One of the main benefits is that wood naturally takes to paint, stains, and other decorative options incredibly well. Plastic, on the other hand, often must be crafted in the customer’s color choice – meaning that options are limited. Once decided upon a type of wood siding, however, you can then choose any type of finish. Whether you want to paint your home the colors of the rainbow, or opt for a natural dark wood stain, anything is possible. Below we look at four of the most commonly used types of siding available: board and batten siding, bevel, tongue and groove, and lap siding. Each has their own aesthetic appeal so that there is something for every person’s unique tastes.

Board and Batten Siding

Board and batten siding is a vertical design created by using two different sized boards. The wider boards are set beneath, while the narrower boards are placed atop the joins. These narrower boards are called ‘battens.’ There are no set widths, so homeowners can choose their preference. The most commonly used measurements, however, are 1 inch by 3 inch battens placed over 1 inch by 10 inch boards.

Bevel Siding

Bevel siding is the most commonly used siding. Installed horizontally, boards are cut at an angle so that one side is thicker than the others. This creates a shingle effect, or the appearance that the boards are overlapping one another. Tongue and Groove Siding Tongue and groove siding is incredibly versatile. Available in both rough and smooth board finishes, it is fitted together tightly to give a sleek appearance. It can be installed in any direction, which does not only include horizontal and vertical, but also diagonal.

Lap Siding

Lap Siding is also known as Channel siding. This siding is very versatile, with installation capabilities for any direction (like the above tongue and groove siding). This unique siding features boards which partially overlap one another, and the ultimate results are a rustic appearance like those of a hunting cabin. If you’re interested in learning even more about wood siding -including less commonly used types available – you can contact your local siding specialist or construction expert. They will be able to give you more detailed information, including a price estimate for your area.