Commercial Loans - From Application to Funding

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A commercial loan application process can be a daunting one if you don't really know what you are getting into. Most people just assume that it is similar to the process of getting a personal loan. Trust me, it is not! The wait can be frustrating and there is often a lot of paperwork going back and forth before you finally get an approved loan. A common approach is to go through a broker. Let's take a look.

When you loan application is submitted, the reviewer, typically a loan officer, will go through all the documents that you have submitted. He will look at your credit history, collateral, income statement and so on. If any additional documents or paperwork is required on your part, he will communicate this to you and allow you to resubmit the application. Typically, a loan applicant will have to provide additional information for certain loans such as loans for purchase of commercial real estate that will require documents such as area maps, appraisals and environmental reports.

Once all the documents necessary are ready in the loan packet, it will be submitted to several lending institutions for further approval. This process can be done by a broker who might be able to speed things up for you. The application will then be looked at by a loan committee or an underwriter who will provide the applicant with a letter of intent. A letter of intent is nothing but a preliminary document that will help the applicant and potential lender to agree on what exactly is being sought as a loan. This is called the underwriting process and additional paperwork might be requested depending on the individual situation. A decision will usually be made within a week.

An underwriter is the best point of contact for the loan applicant to negotiate important terms such as interest rates, repayment period and other details. Once a few lenders make an offer, the loan applicant will have to go through them and pick the most attractive offer that will suit his business. Once an offer is chosen, the applicant will have to sign the letter of intent provided by the particular bank that he is interested in. He might also have to pay related fees or deposits that will be necessary to complete the loan application process.

A closing agent will then take over the process if your loan is approved and will guide you through all the formalities that are necessary for closing. After paperwork is completed, you will receive your loan amount as a cashier's check or through direct deposit depending on how transfer was arranged.

A commercial loan application process can be a daunting one if you don't really know what you are getting into. Most people just assume that it is similar to the process of getting a personal loan. Trust me, it is not! The wait can be frustrating and there is often a lot of paperwork going back and forth before you finally get an approved loan. A common approach is to go through a broker. Let's take a look.

When you loan application is submitted, the reviewer, typically a loan officer, will go through all the documents that you have submitted. He will look at your credit history, collateral, income statement and so on. If any additional documents or paperwork is required on your part, he will communicate this to you and allow you to resubmit the application. Typically, a loan applicant will have to provide additional information for certain loans such as loans for purchase of commercial real estate that will require documents such as area maps, appraisals and environmental reports.

Once all the documents necessary are ready in the loan packet, it will be submitted to several lending institutions for further approval. This process can be done by a broker who might be able to speed things up for you. The application will then be looked at by a loan committee or an underwriter who will provide the applicant with a letter of intent. A letter of intent is nothing but a preliminary document that will help the applicant and potential lender to agree on what exactly is being sought as a loan. This is called the underwriting process and additional paperwork might be requested depending on the individual situation. A decision will usually be made within a week.

An underwriter is the best point of contact for the loan applicant to negotiate important terms such as interest rates, repayment period and other details. Once a few lenders make an offer, the loan applicant will have to go through them and pick the most attractive offer that will suit his business. Once an offer is chosen, the applicant will have to sign the letter of intent provided by the particular bank that he is interested in. He might also have to pay related fees or deposits that will be necessary to complete the loan application process.

A closing agent will then take over the process if your loan is approved and will guide you through all the formalities that are necessary for closing. After paperwork is completed, you will receive your loan amount as a cashier's check or through direct deposit depending on how transfer was arranged.

Commercial Finance and TARP Money Small Business Loans Considered

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There has been a lot of talk in the financial news about the challenges of getting money into the small business community so those companies can expand, hire more workers, and provide the economic engine to sustain our economic recovery. The Obama Administration has a plan, but like any plan to revive an economy, it requires all the players to be on board. If they are, then this infusion of small business financing money couldn't come soon enough.

There was an interesting article recently in the Wall Street Journal, sub-section CFO Journal on June 23, 2011 titled "Banks Wary of TARP Approach to Small Business Lending," by Emily Chasen (Senior Editor). The article stated:

"The Obama administration's efforts to spur small-business lending through a spin-off of the Troubled Asset Relief Program (TARP) - hasn't exactly received thunderous support from community banks, who may be too worried about government intervention if they accept funds, and the creditworthiness of prospective borrowers, to make a dent in the frozen small business lending market."

Okay so perhaps you watched the TV Movie "Too Big to Fail" about the TARP Program and the financial crisis, fall of Lehman Brothers, and global economic crash. There was a decent write up on that TV Movie in the New York Times recently titled "The Financial Crisis Comes to TV" by Michael J. De La Merced published on May 23, 2011. In that movie we watched the fiasco, and the laws of unintended consequences during times of crisis management.

Now, another TARP Program comes to town, one which will lend money to small self-run businesses. Unfortunately, demand for little business loans is weak. Some say this is due to the uncertainty of future government regulations and the future economy and no little business owners wish to take the risks. Others say the small business community already knows the risks and the new regulations and therefore are not interested in borrowing more money, or taking on new debt.

This also means that small businesses will not be hiring more employees to help us with our unemployment situation here in the United States. And that of course doesn't bode well for the reelection of President Obama, or boost confidence in the business sector of the strength of the economy. Yes, it is quite important to have more funds available in the banks for small companies, but they are not willing to borrow money, even at the current low interest rates, and if it really isn't worth the risk for the bank's at those low interest rates then the program is likely to fail and not satisfy its objectives.

Our small business community is too important, and each and every one of those businesses is too small to fail, well most of them. And if they do fail, they should fail on their own accord, not at the hand of poor government policies or over regulation. The good thing in all of this is if you are a small self-run business, or a startup entrepreneur looking for funds, you might find them available, and you just might convince a bank to give you a decent loan for your future projects. Indeed I hope you will please consider all this.

Car Wash Loans - Pre-Qualifying For Car Wash Financing

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Having done many car wash loans, gas station and convenience store loans over the years, it never surprises me why people do NOT get their car wash loans financed. People call and frequently say "We have a full package on this deal."

I'm not sure what they consider a "full package" but it is rare that we see a full package for financing. As a matter of fact, truth be told, bankers initially do not want to see any full package. There is a saying "A sermon doesn't have to be eternal to be everlasting." You don't need everything initially. Bankers do not want to go through reams of papers or faxes or pdf, Word docs and Excel spreadsheets to figure out if there is a deal there or not. Think of it as eating a food for the first time and you're not sure if you're going to like it or not. You take a little taste, then if you like it, you dive into it. Bankers are the same way. They don't want to dive right into it, they just want to take a little bite and see if they like it.

The Five C's of credit have not changed over the years.

• Capacity
• Capital
• Collateral
• Conditions
• Character

Fundamentally bankers really want to know if the potential borrower is qualified to buy and run the business and if the business in question can verifiably cash flow to service the loan and if there is sufficient collateral for the loan. That is it plain and simple.

A clear and concise executive summary with a usage of the proceeds will answer many of their questions right up front. Many times lenders will move forward or stop based solely on the executive summary and usage of proceeds.

Normally when you submit to a lender for financing any type of property or business, you are submitting a personal financial statement, a resume, a recent copy of your credit report and information about the cash flow of the business in question. This will answer many questions right up front and will indicate whether the lender will want to proceed to the next step.

One of the common denominators and main reasons for defaults in the past few years has been that borrowers have had insufficient non-borrowed equity into the transaction. When you have little into the deal, it's easy to walk away from it when times get tough. The days of having minimal equity into a deal with large seller held seconds are pretty much gone. As well they should be. Would you really want to lend your OWN money to someone that had hardly any equity into a deal? Why should a bank?

Next, lenders want to know if they are qualified from an industry experience point of view to run and manage a business. It's one thing if you have managed a business for years and have found one that you would like to purchase, it's another thing I've you neither managed nor owned one and are trying to convince a banker that you are qualified. Some people seem to know how to make money with anything they do, but most people do not fall in that category. There are only two ways to make more money in an existing business, increase revenues, decrease expenses or both. There is no other way. If you do not have the experience to do this, the learning curve will be steep and difficult.

It goes without saying that a borrower should have decent credit and not have an inordinate amount of personal debt. To an extent, personal debt is more important than a person's credit score, although the credit score is definitely important.

Lastly, will the business service the debt based on current revenues and expenses. If this is not, what will the borrower do to change that trend. Many business will service the debt but much of the revenues might not be on the books they claim on their tax returns. Lenders can only go by what they declare, not what they have in a separate ledger.

If you get past these initial steps, you have a very good chance of obtaining financing for the commercial property or business you are evaluating.

Business Loans And Financing Types

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Business loans are a fact of life that has to be dealt with by every businessman at some point or the other, and often on a regular basis. The large number of loan types, terms and lenders willing to provide financing often creates confusion about the right kind to apply for. Here's an introduction to the variety of financing options that might help make it easier.

Term, Collateral & Source: The basic categorization of the financing requirement has to be into two types. First, whether it is a short term or long term need. Secondly, whether it can be secured or has to be unsecured.

This basic categorization will decide the rest of the choices. For instance, a short-term, unsecured loan can be an amount borrowed from friends and/or family for working capital. It could also be a line of credit, credit card-based loan or one based on accounts receivable.

On the other hand, a secured, long-term loan could be for a startup, real estate purchases and capital investments such as equipment purchase or leasing. It could also be funding required for expansion or acquiring another company. These types of business loans are provided by banks and other well established lenders.

Equipment Financing: The equipment serves as the collateral, and the financing can be for either purchase or leasing. This is usually a long-term loan, and monthly payments are the norm. If the borrower defaults on payments, the lender will only seize the specific equipment that was financed, so the rest of the company and the borrower's personal wealth are not at stake.

Lines of Credit: This is short term financing where a specific amount is available. It can be used for immediate needs like inventory and working capital, but not for capital investments. Interest is charged only for the amount actually used up by the borrower, and not the amount approved.

Credit Card Advances: This is not about a company paying suppliers or bills using credit cards, although that's possible too. The credit card advance being considered here is a loan offered by a lender against expected future card sales. Approval and amounts lent will be based on the past record of the same.

Factoring: An enhanced version of the above card advance is known as factoring. This is where yet to be paid invoices are sold to a lender at a discount. This ensures that the business gets paid immediately, even if customers take some time to clear their bills.

Obviously, this isn't all of it even if it does cover the broad types of business loans. There are many more variations and possibilities, such as cash advances, government backed financing for small businesses, and so on. Sometimes, it's even possible to get grants.

Regardless, that doesn't change the basic dynamics of a company's financing needs. A short-term, unsecured loan will carry a higher interest charge while secured, long-term financing will be available on better terms. Before signing off on it, it's important to consider whether taking on more debt is necessary.

Business Loans - Be Ready For These Lender Questions

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Business loans are unique because they are backed by a whim and a prayer while also being for a lot more money than one typically finds in personal loans. Given this, it should be no surprise that lenders have more than a few questions they want to hear answers to before they will loan significant amounts of money to your business.

Basic Questions

Let's start with the basic questions you can expect. These are simple, but you will be surprised how many people are unprepared to answer them. Hesitation is death when speaking with a lender. You need to convey that you have an ironclad plan and that means having answers ready for the following questions:

• What do you plan to do with the loan amount?

• How will you repay the loan on time?

• What loan amount are you seeking and why do you need that specific amount?

• Can you offer collateral and, if so, what is it and the value?

• Will you personally guarantee your business? This is a tricky question. Ideally, your answer should be no as you should keep business and personal credit separate. However, if your business is in desperate need of money, you might not have an option and might have to personally guarantee your business. Think this one over very thoughtfully.

These questions may seem simple, but you need to think out concise, direct answers. Sadly, the lender isn't just going to take your word for it. Even the best verbal answers aren't worth anything if they are not supported by documentation.

Every answer you give needs to be supported with documentation. How will you repay the loan on time? You should tell the lender you can do it because the property revenues provide more than enough to meet the obligation. Then you should show them. Pull the information you have supporting the income being produced, the expenses and the profit. Show how the said revenues more than satisfy the payment on the loan that you are asking for.

This should be a trend for every answer you give. Words are cheap unless they are supported. If you can't support them with documentation, then you better be one heck of a salesperson because the lender is going to be a hard sale.

Benefits Of Invoice Factoring Services

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The very nature and essence of capitalism is such that there is no single, defining business model or entity that will remain constant but rather, there will be a natural ebb and flow as some business types will flourish and others will fall by the wayside and wither. For a considerable number of years, the business financing world had been dominated by the commercial lenders and banks who dictated the terms at which the business owners would be able to acquire additional revenue.

However, as public confidence and support of the banks began to decline, this meant that the profit margins of the banks began to taper off. This process was further aided by virtue of the actions of the banks themselves which had introduced extremely rigid and oftentimes, arbitrary rules dictating the terms on which a business owner would be able to acquire financial support. In effect then, observations that the banking community had priced themselves out of the market were eerily accurate indeed.

As a result of all of these different reforms and shifting attitudes that were taking place around this time, the invoice factoring services were enjoying a period of rapid growth, development and expansion and so record levels of business owners were actively seeking out their services. Who could blame them? With such generous services, incredible value for money, extremely competitive practises and above all else, impeccable value for money all helped to further cement the position of the invoice factoring services as a new force to be reckoned with and ultimately, respected.

What then, are the actual benefits of invoice factoring services?

They are as follows.

Cost saving policies protect the profit margin of the business owner

Without a doubt, one of the most attractive features of a factoring agency is that they will directly ensure and protect the profits of the client company that hires them and they do this by ensuring that it is they who are fully responsible for the collection process. Therefore, the expenses of hiring administrative staff for the chasing up of debtors and the money that is owed is now left to the collection agency.

This also has the added bonus of ensuring that the client company has the benefit of ensuring that they are able to actually focus squarely and solely upon their own business practises. As a wise Native American proverb goes:

"If you chase two rabbits, you will lose them both."

Another way in which the client company will be able to save money by using the factoring agency is due to the fact that the client company will not be responsible for the payment of interest or penalty fees. Given that these are widely recognised to be the two most costly variables associated with the usage of a bank loan, this is welcoming news indeed.

An Introduction to Revenue Based Financing for Small Business Owners

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In the new economy it can be very difficult or impossible for a small business owner or entrepreneur to find capital to support the development of new ideas. Historically, small businesses and entrepreneurs have sought capital through "Angel' investors and lending institutions and these options are increasingly unavailable to even well established businesses. The revenue-based finance model, sometimes called the royalty-based finance model (RBF), is a financing plan that was introduced over 50 years ago and is gaining popularity today. The RBF model provides unique benefits to both the small business and the investor.

The RBF model is a non-dilutive system in that the small business owner does not lose any ownership in the company, this factor tends to be the most important and desirable feature of the RBF funding system to small business owners. Additionally, the investors payout is capped to a specific amount that is paid out of the revenue the company earns within a specified time period. Business owners benefit by receiving investment dollars to build their business without losing ownership and investors benefit by receiving payouts as soon as revenue is made by the business. The investor has purchased the rights to the revenue earned by the small business, but they have not purchased any other ownership of the business. The terms of the RBF model are typically negotiated to allow some time for revenue to accrue before payouts need to be made, and typically there is a time period limitation and a payout limitation that is included in the negotiated terms.

This model is now used by many investment companies across the nation including even local and state government agencies. Notably, not all small businesses or investors will benefit by using this model. Investors who agree to RBF terms need to accept the 'capped' earning potential of the investment. Businesses with low profit margins and limited flexibility on pricing should careful negotiate the terms of any RBF financing plan to make sure their revenue stream can support a regular deduction and payout to investors.

The RBF model can give a revenue stream for any business and may offer a mechanism for funding both well established business institutions and upstarts, equally.

Account Receivables Factoring - A Cash Flow Solution For Healthcare Providers

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As a medical provider your biggest asset is your accounts receivable ("A/R")- the payment you expect to get from Medicaid/Medicare, HMOs, private insurances, personal injury lien settlements, or worker's compensation insurances. Unfortunately, due to the current inefficiencies and bureaucratic nightmares in our healthcare system a medical provider has to wait 15-150 days, or more, to monetize this asset. That hinders the provider's ability to conduct business, pay staff, order supplies, pay rent, advertise and grow the business. Most providers turn to their local banks for working capital loans, but most of these banks have limits, strict requirements and hindrances that make it difficult to obtain these loans. Some banks don't want to lend against A/R while others only focus on large medical providers with substantial history.

Luckily, providers have other cash flow options - MEDICAL FACTORING!

Medical factoring is a type of invoice factoring where a financial institution (factor) provides a medical provider with an advance payment based on the provider's outstanding accounts receivable (invoice). The factor advances funds and waits for the invoice to be paid from third party insurance carriers. Medical factors will consider any provider that bills third party insurance carriers, i.e. doctors, doctor groups, DME/HME, Home Healthcare companies, Medical Transport and Translation companies, Imaging Centers, Labs, Urgent Care Centers and many more. Here's how it works:

1. A medical provider establishes a relationship with a factor

2. A medical provider submits bills to the 3rd party insurance carrier.

3. A medical provider submits a copy of the billings to the factor.

4. The factor advances up to 80% of the net collectable value. This is important since the advance is not based on gross billings, but rather on the expected net collectable value. Funds are wired or directly deposited into the provider's bank account within 72 hours. This timing and advance rate will change if your receivable is related to personal injury or worker's compensation.

5. The remaining 20% is a financing cushion or reserve in case some bills do not pay or are erroneous.

6. Once the bill is paid by the 3rd party insurance carrier the factor returns the financing cushion minus a factor fee of 2-6%/month. There are no upfront costs as all the underwriting expenses are paid out of the first funding (typically $300-$1,000).

The beauty of medical factoring is that it is determined solely by the provider's ability to generate bills (invoices) thereby providing access to capital for smaller or non-bankable providers. There are no limits - you grow, you factor. Most importantly, the provider now has a clear understanding of when cash flows will come in and can finally concentrate on treating patients!

As a medical provider your biggest asset is your accounts receivable ("A/R")- the payment you expect to get from Medicaid/Medicare, HMOs, private insurances, personal injury lien settlements, or worker's compensation insurances. Unfortunately, due to the current inefficiencies and bureaucratic nightmares in our healthcare system a medical provider has to wait 15-150 days, or more, to monetize this asset. That hinders the provider's ability to conduct business, pay staff, order supplies, pay rent, advertise and grow the business. Most providers turn to their local banks for working capital loans, but most of these banks have limits, strict requirements and hindrances that make it difficult to obtain these loans. Some banks don't want to lend against A/R while others only focus on large medical providers with substantial history.

Luckily, providers have other cash flow options - MEDICAL FACTORING!

Medical factoring is a type of invoice factoring where a financial institution (factor) provides a medical provider with an advance payment based on the provider's outstanding accounts receivable (invoice). The factor advances funds and waits for the invoice to be paid from third party insurance carriers. Medical factors will consider any provider that bills third party insurance carriers, i.e. doctors, doctor groups, DME/HME, Home Healthcare companies, Medical Transport and Translation companies, Imaging Centers, Labs, Urgent Care Centers and many more. Here's how it works:

1. A medical provider establishes a relationship with a factor

2. A medical provider submits bills to the 3rd party insurance carrier.

3. A medical provider submits a copy of the billings to the factor.

4. The factor advances up to 80% of the net collectable value. This is important since the advance is not based on gross billings, but rather on the expected net collectable value. Funds are wired or directly deposited into the provider's bank account within 72 hours. This timing and advance rate will change if your receivable is related to personal injury or worker's compensation.

5. The remaining 20% is a financing cushion or reserve in case some bills do not pay or are erroneous.

6. Once the bill is paid by the 3rd party insurance carrier the factor returns the financing cushion minus a factor fee of 2-6%/month. There are no upfront costs as all the underwriting expenses are paid out of the first funding (typically $300-$1,000).

The beauty of medical factoring is that it is determined solely by the provider's ability to generate bills (invoices) thereby providing access to capital for smaller or non-bankable providers. There are no limits - you grow, you factor. Most importantly, the provider now has a clear understanding of when cash flows will come in and can finally concentrate on treating patients!