Free Business and Financing Articles

You have worked for weeks on a business proposal to bring a new product line to your company. You have carefully updated your business plan and secured all the necessary financial documentation. Now, several days later, you are sitting in front of the loan officer and despite all of the preparation, your application for a business loan is denied!

Being rejected for a loan can be an unpleasant shock, but with a little time and effort it is possible to rectify the issues that caused the rejection. First, you need to determine exactly why your loan application is being turned down.

The following is a list of common reasons why a bank may choose to deny a loan as well as some ways to handle it:

• Your business is under-capitalized. This is generally due to an unfavorable debt-to-equity ratio. First, you should try to include any outstanding notes payable to the company and list those as equity. Additionally, you can use the funds in your savings account and either invest it in your company or pay off any debts. Finally, you can try to secure a second mortgage, liquidate investments or even cash-in the value of your life insurance policy.

• Your company has not yet made a profit. Without a solid track record of profits, a lending institution may be unwilling to risk giving you a loan. In this case, you can create a more accurate picture of your financial situation by providing comprehensive income and cash flow statements You should also provide a detailed proposal of how you plan to make a profit in the future. Include a breakdown of the profits that you hope to achieve once you have secured the loan.

• The amount requested is too high. Lending institutions will often minimize the risk of granting a loan by reducing the principal so that it matches up to your collateral. Here you have a few options. First, you can reexamine the current net worth of your assets. If the determined value is unchanged then you could offer other items up as collateral. Finally, you can always reexamine your proposal and try to reduce the amount of money that is required to complete your venture.

Many small business owners have successfully avoided the arduous business of applying for loans by utilizing business cash advances. Business cash advances are based solely on the purchase of future credit card transactions and therefore do not have interest charges or obligations for repayment.

When you walk into a bank or a lending institution and apply for a business loan there is no guarantee that you will receive it. Although these institutions are in the business of loaning money in return for interest, they need to be assured that their investment will be returned to them for a profit.

Banks and lending institutions have set up certain criteria that help them to understand the business they are lending to and the reason they are requesting the money. The business applicant must therefore be prepared to fully inform the loan officer of the business’ operations and his reasons for seeking a loan.

One of the best assets that you can bring to a lender is a business plan. A well thought-out business plan should contain information concerning your products, clientele, and marketing strategies as well as future goals and profit projections.

The business plan allows the lender to get to know your business. The more complex your venture is, the more comprehensive your business plan should be. Thus a company that designs statistical software to project population growth would require more documentation then a sidewalk lemonade stand.

Since you may be involved in an obscure venture that, although profitable, is little understood beyond your customer base, you should be prepared to fully explain it to your loan officer.

The following is a list of information to prepare when trying to secure a loan:

1. Be sure to include a precise breakdown of your products. Do you manufacture, resell, or liquidate your product line? If you are service provider, then explain clearly what service(s) you offer.

2. The lender should be aware of your niche market and what distinguishes you from your competitors.

3. You should also be prepared to give the lender a complete breakdown of your operations. For example, if you are running a lemonade stand then you need to explain how you get your lemons, how they are processed to make juice, how the juice is displayed and sold, and how the profits are dealt with after the juice is purchased.

4. You should also let your lender know about your marketing and advertising techniques as well as the costs involved. This will give them a picture of the demographic you are serving and the effectiveness of your marketing systems.

5. Finally, you should explain the purpose of the loan. That way the lender will see if you will use the money for a legitimate business purpose. You should also include a breakdown of the profits that you hope to achieve once you are able to secure the loan.

Securing a business loan requires a great deal of preparation on the part business applicant, and sometimes the task can be pretty daunting. Many small business owners have managed to avoid the bureaucratic nightmare of loan applications by taking advantage of business cash advances. Business cash advances are based solely on your future credit card transactions. Once the cash advance facility purchases these transactions, the money is yours with no interest, no obligation to repay, and no restrictions on use.

How do you deal with bad credit, bankruptcy or litigation on a business loan application? What do you say about your bad credit history? Explaining your bad credit history on your business loan application is never pleasant, especially when you are dealing with issues such as bankruptcy or litigation.

Although banks are in the business of lending money and are eager for your business, the truth is that it will be more difficult to secure a business loan if you have bad credit.

When it comes to applying for a business loan with bad credit, the main thing to remember is to be as open and clear as you can. Believe it or not, you will better your chances with full disclosure of your situation. Moreover, keeping things hidden from your lender is not only practicing in bad faith, but it could lead you to some serious legal hot water.

It is important to note that if you have put yourself in a corner with willful deceit or fraudulent business practices, the following suggestions will not be of any assistance.

How to Handle a Bankruptcy

In today’s business world, filing for bankruptcy has become more and more common. Often, it represents a necessary move on behalf of the business owner to deal with overwhelming financial liabilities.

When dealing with bankruptcy, full disclosure is needed for the lending institution to make a fair and accurate offer. When a loan executive considers your credit reports, if the information is scant he or she may very well not understand the full story behind your insolvency.

Therefore, it is in your best interests to provide a full written disclosure of the events leading up to your declaring bankruptcy, the methods used to satisfy your creditors and your performance since that time. If you were discharged from your bankruptcy, it would be good to provide those records also. If you were not responsible for your financial insolvency, you should have written records proving your innocence, including affidavits from third parties substantiating your innocence.

How to Handle Litigation

If you are in the midst of litigation, you must fully document the events leading up to the court action and the results of said litigation. This will allow you to put these events into perspective and give the loan officer an idea as to how the action affected the overall value of your business.

It should be noted that most lending institutions will not offer you a business loan if your litigation is still in progress. They will want to wait to see what the final decision will do to your business value before they make any judgment in regards to your business loan application.

Divorce can also affect your small business loan application even though it may not result in bad credit. If you were in business with your spouse, you should provide full documentation to the loan officer as to how the business was affected by your separation. You should include any divorce papers describing terms, bank records and ownership division. Also, if you were in the process of divorce, it would be better to wait until final judgments have been made so you can make an accurate report to the loan officer.

In general, if you are applying for a business loan with a bad credit history, then remember that honesty is the best policy; it will protect both you and your lending institution.

Many small business owners with bad credit have managed to avoid the difficulty of applying for loans by taking advantage of business cash advances. Business cash advances are solely based on future credit card transactions, eliminating the need for a complete dossier on your life. Since the money is technically yours to begin with, there are no restrictions on its use, no interest charges and no obligation for repayment.

When you step into the office of a loan provider for that necessary business loan to make improvements to your company, you should know that they are examining more than your financial status and business plan. The amount of collateral that you are offering as a security is a big factor that weighs heavy in loan approval process.

Banks are in the business of lending money, but they need to minimize the risk of their loan offer in order to protect themselves in the event that you default on your payments. By offering collateral to back your application, the lender is protected from financial loss.

Definition of Collateral:

Collateral is a term used to refer to tangible items that can be liquidated and resold by the bank in order to recover the outstanding portions of your business loan.

In the case of a grocery store, for example, collateral would include business machines such as, the cash registers, weighing devices and food freezer. In general, perishable items, such as fruits and vegetables, cannot be considered collateral. However, some nonperishable inventory, may be considered.

The Use of Collateral When Applying for a Loan

Banks are in the business of lending money, but they need to minimize the risk of their loan offer in order to protect themselves in the event that you default on your payments. By offering collateral to back your application, the lender is protected from financial loss.

If you own the property where you do business, or have a home or a car, you may want to bring in the ownership papers. When you apply for a business loan, it is a good idea to bring a complete list of items that you may be able to utilize as collateral to support your loan application. This will increase your attractiveness as a loan customer. Make sure that any documentation, such as appraisals, you may have regarding your assets, are no more than six months old.

The loan officer will take these documents, and at their discretion, complete their own appraisals of your assets. When they are finished and satisfied with your application, they will return to you with an offer and a request for collateral.

It would be in your best interest to see how they have valued your assets. Banks will typically undervalue your assets in order to cover any costs that might be incurred by liquidation. This is meant as a safety measure for the bank, but some loan officers can be overzealous in their duties and give your assets an unrealistically low value.

When the value of your collateral is set too low then you could be required to offer more collateral than necessary. Alternatively, the lender may choose to raise the interest rates or decrease the principal amount offered to counteract the supposed shortfall. Therefore, do not be afraid to negotiate for a more favorable appraisal.

Getting a business loan from a bank is a labor-intensive experience. Even if you possess superb negotiating talents, it may result in a financial prison that could sabotage your ability to do business or in the worst cases, be the cause of your bankruptcy.

Many small business owners have avoided business loans all together and have taken advantage of business cash advances with great success. A business cash advance is a form of funding whereby a financial facility purchases future credit card transactions from you. Since the amount given to you is your own money, there are no interest charges and no obligation for repayment.

Whether you operate in a real world setting out of a storefront in California, or you have an online venture based on intellectual property, chances are you will need an extra infusion of capital to either expand or improve your business. One of the most common ways to acquire the additional capital that you need is by applying for a business loan.

Be Prepared with the Right Documentation

Getting a loan is no simple matter. You are required to come up with the necessary documentation in order to prove to the lending institution that your business is worthy of receiving the loan. This means putting together your profit and loss statements, your inventory breakdown and other such account reports.

You will also have to supply your business plan and a proposal for the intended use of the loan funds. This proposal will have to include a detailed breakdown of costs, profit projections and repayment estimations. Once you have these together, you need to know a few things as you negotiate your loan.

Consider the Lender’s Point of View

When you approach a lender for a loan, remember how they make their money. Financial institutions function on creating money from the money that customers pay or deposit. They may give off an air of indifference, but in the end, they really want your business.

Consider the loan officer to be a salesperson, just like someone who sells stoves at an appliance outlet, except that this person is trying to sell you a product made up of money. Without the sale, they fail to make commission, so know that you are in the driver’s seat.

Get to Know the Different Types of Loans

There are several different types of business loans available to you, so you do not need to take the first one you are offered.

One such option is called a simple interest loan. This type of business loan has monthly interest charges based on the amount of principal left to pay off. This means that as you pay off your loan, the interest also decreases, and you will reduce the total amount of interest that you will have to pay in the end. If you are seeking to pay off your business loan early, then this may be an option to consider.

Another type of business loan is an installment loan. This is known as a front-end loaded loan. This means that the amount of interest you are required to pay is based on the initial principal. Thus, the amount of interest that you need to pay remains the same regardless of how much of the principle you have already paid off. In this case, rushing your payments or making balloon payments to end your loan early will make no difference to the interest owed.

Of course, this route requires a great deal of effort and a lot of footwork. Many small business owners have successfully tried another option to secure capital called a business cash advance. In a business cash advance, you sell future credit card transactions to a business cash advance facility. Because this is technically your own money, there are no interest charges and there is no obligation for repayment, and you do not have to jump through a thousand hoops to get it.

What is a policy loan and what are the benefits in comparison to a business loan? How does a policy loan work?

If you are seeking some extra capital for your small business in order to expand or improve your operations, there are many funding options to choose from. While you may be familiar with a getting a standard business loan from a bank, a less common source of funding could come from your life insurance policy.

How a Policy Loan Works

Some life insurance companies will lend you money against your loan policy. If you carry a policy of $50,000, you can approach your insurance company for a business loan for some or all of your policy’s value. If you require money to redesign the front of your store or to launch a new marketing campaign for a new line of products, you can access this money from your policy.

A policy loan is a loan and is, therefore subject to interest. After all, the insurance company is using your money to build their own capital by investing it in various interests. By taking the loan, you will be reducing their investment base, thus decreasing their investment return. To counteract this, they will require you to pay interest on your loan even though you are technically using your money to make this business loan to yourself.

The Benefits of a Policy Loan

One of the benefits of taking out a policy loan is that there is no obligation on how you use the money. This means that if you suddenly change your mind about how you want to use the loan, no penalty will be applied.

Another positive aspect to the policy loan is the repayment process. Unlike a standard business loan, there is no set repayment plan. In fact, because the money is technically yours, you have no obligation to repay at all.

This advantageous in that it protects you in the event that your investment in the business does not pay off.

However, you should be aware that by borrowing this money, you effectively reduce the total payout of your policy by the amount of money you borrowed plus interest. Thus, if you borrow $10000 against a $50000 policy, you will only have a $40000 payout.

Many small business owners have considered this option of increasing their capital through a policy loan and have found it to be too risky for the potential returns. Therefore they have opted to try a different method called business cash advances. Business cash advances are similar to policy loans, in that they do not require repayment.

But business cash advances are superior to policy loans, as they do not compromise your family’s security in a time of hardship. These advances are based solely on the purchase of future credit card transactions.

How do you use your company’s resources to its maximum? How can you successfully run your small business? After investing so much time and money to start your small business, you want to know exactly how to run it successfully.

The first thing to realize is that although you may be concerned about making an income, with a small business, success is not necessarily measured by the bottom line- especially if you are just starting up. A successful small business is really one that uses its resources to the maximum, and this only happens when the business owner is well informed.

There are numerous articles online that offer advice on how to successfully run your business. Though these articles include several important tips, such as making a business plan and paying attention to your cash flow, I felt that many fundamental ideas were either missing or under emphasized.

What follows is a list of these essential ideas on how to run your small business to its maximum:

Start small; think big! We are living in an “instant generation.” Many people are looking to “get rich quick” with as little investment as possible. Even if someone has a solid business idea, without hard work and  a lot of patience, often this bubble bursts, and the venture is unsuccessful.

The best thing you can do for yourself and your business is to start small and set realistic goals! There is almost always room to expand later on once you have established a customer base and standard operating procedures.

Know where and how to get capital you need!  The business financing industry goes way beyond standard business loans (See my article, “Alternative Financing 101″). You can for example, lease equipment, or factor your accounts receivable. So before you offer you house up as collateral, make sure to do your research. 

If a loan ends up being your best option, then interview prospective loan providers. Choose the lender with whom you can build a long-term relationship in case you need to get another loan later on.

Outsourcing! Recognize your company’s strengths and focus on them- especially at the beginning. Outsource anything that is not a skill or will take away from your company. Typical outsourcing includes, shipping, billing, secretarial work, and web design.

Marketing! When it comes to small business, advertising goes beyond plastering your name in as many places as possible. This only works for big companies with established brand names. Here quality and not necessarily quantity is most important. If you rely heavily on word of mouth, then put a lot of emphasis on your customer service. If you have a website, then don’t just optimize it for a search engine. Make sure it has good and clear content.

Value your workforce! Whether you are paying minimum wage or top dollar, your workforce is your most valuable asset. If your workers are happy then they will do a better job for you. They should feel respected, valued, and treated fairly. Also, encourage them to give advice on how to improve your business. 

Stay in touch with your market! Take time to talk to your customers. Ask for feedback, do surveys, and be flexible to act on what they tell you.

Good Luck!

What are some popular, alternative financing options for small businesses? Small businesses seek alternative financing when a traditional bank loan is not an option.

The world of alternative financing may be more vast and “mainstream” then you realize. Since the funding in this category is generally more accessible, alternative financing has been the boon of many small businesses that lack the collateral, good credit and business history needed to secure a “traditional” loan at the bank.

If you own a small business, and you are seeking additional capital, then you should consider alternative financing. However, keep in mind that while some options provide excellent opportunities for business owners to get the capital they need, other methods are more risky and should be used with caution.

First here are some popular alternative financing methods that you should either avoid or use cautiously:
Credit cards

With high interest rates, debts can spiral out of control, leaving you with a bad credit history that can hinder your chances of getting traditional financing in the future.
Bad credit business loans. There are many companies that will offer you a loan against your bad credit, but be aware that these loans carry very high interest rates (usually in the range of 20%). With these loans you are also more likely to encounter predatory lending.

Home equity lines of credit

No matter how sure you are of your business’ success, is it worth betting your house on it?

Cash in the value of your life insurance policy

Ask family of friends

Even if this is an option, money can put a strain on relationships. So while your business may be well funded, you may end up emotionally bankrupt.

So now that we have seen the bad and the ugly, let’s consider some more attractive methods:

Equipment leasing

This is an attractive option for small business owners who do not have enough capital to pay for the expenses of operating and expanding their company. By leasing their equipment, instead of purchasing it, businesses can free up their working capital and thereby take advantage of opportunities to expand or improve operations.

Taking on a partner

You can alternatively acquire funds by having someone invest in  your company and become a partner. The investor can be either an active parter or a “silent” one who is not involved in the business’ daily operations.

Seller financing

If you are looking to start or buy a new business, then seller financing is something to look into. Sellers of small businesses generally allow the buyer to pay some of the purchase price of the business in the form of a promissory note. Sellers will usually finance between one and two thirds of the sale price that can be paid back with interest over several years.

Invoice factoring

If you are looking for a way to free up capital that is tied to customer invoices, then invoice factoring is a viable option. In this case, a business sells its accounts receivable at a discount to another company. This company then provides instant payment.

If you are looking for ways to expand your salon business, then you may want to consider adding spa services. From a full service day spa to simple “dry” treatments, offering spa services in your salon is an excellent opportunity to capitalize on this rapidly growing segment in the personal care industry.

The benefits of adding spa services

The biggest benefit of adding spa services to your salon is that it is an easy opportunity for growth. There is so much flexibility and variety in the spa services industry that it can accommodate virtually any budget or physical space.

In addition, you will not only open up your business to new markets, but you will also present a lot of convenience to your existing clientèle. If you offer a collection of hair, beauty, and spa services, then you provide a one-stop solution for all your customer’s beauty needs. This way, a client can schedule a number of services in one visit, rather than going to several different establishments.

Some Common Spa Services

The following is a list of popular spa services commonly offered at salons and day spas in four categories: nail services, make-up, hair removal, and skin and body care.

Nail services include:

• Manicures (both traditional and French manicures)
• Pedicures
• Nail wrapping
• Acrylic nail application
• Sculpted nail application
• Nail tipping
• Paraffin treatments
• Skin exfoliation

Makeup services include:

• Cosmetics application
• Color analysis
• Eyelash tinting
• Eyebrow tinting
• Ear piercing
• Hair-removal services include:
• Electrolysis
• Waxing
• Eyebrow arching

Skin and Body Care:

• Facials and body exfoliation (which may involve the use of salt glows, body polish, enzyme peels, and body masks like mud or paraffin)
• Massage (full body massage, facial, and hand or foot massage)
• Wraps and packs used to combat cellulite and reduce water retention
• Hydrotherapy treatments  which include: whirlpool baths, Scotch hose (by which streams of water are directed on the client to improve circulation), and hot tub treatments.
• Body tanning, including self-tanners and tanning beds

Considerations Before Deciding which Services to Offer

•  How much capital can you invest? One of the most important considerations with any kind of expansion is determining how much capital you can invest.
• Do you have access to outside sources of funding, such as a business loan? Do you, or can you, lease some of your equipment? You should also consider alternative forms of financing, such as business cash advances via invoice factoring.
• Do you have the option to expand your space? Before deciding which spa treatments to offer, you also have to be realistic with the amount of physical space you have available. Many “dry” services, for example, such as nail care, message, and make up application, require very little additional space and equipment. The “wet” services, on the other hand, will need a wet room. A “wet room” is a tiled room with special shower facilities for the hydrotherapies mentioned above, as well as any body treatments that must be rinsed off after application, such as  body masks and exfoliation.
• What do your clients want? Get in touch with the needs of your customers. Speak to them, or have them fill out a survey. Find out what services are already offered at other salons or day spas in the area. You should also consider your customers’ economic background and the amount of free time they have.

Ultimately, with a little research, adding spa services to your existing salon provides an excellent opportunity to enhance your business and enter new markets.