Business loans

Business Financing

Business acquisition financing is right up there with your basic root canal. It may be necessary but it most certainly is not fun.

In fact the overall process for acquiring an ongoing business can be a mind sucking affair, very expensive,and in the end unfruitful.

Why is the process so frustrating?

The answer in many cases is the advisors involved.

That's right, the very people that are paid to complete the deal, are the same ones that kill it.

Let me explain.

All deals have two sides, a buyer and a seller. Both sides have to rely on their third party advisors for advise on such things as legal, valuation, taxation, finance, etc.

Unfortunately, the business acquisition financing issues do not tend to be dealt with in the construction of the purchase and sale agreement, creating sometimes unworkable issues for potential lenders.

When buyers and sellers rely heavily on advisors, there is automatically less chance for the deal to succeed. Why? Because it can be impossible for both sides to agree or reconcile issues between the advisors without great cost and time delays.

The advisors are commissioned by their clients to protect the client's best interest. But in this process of protection, it can be very difficult to get both sides to agree on all issues as both groups of advisors are coming at each issue from the opposite point of view. The result is a deal between buyer and seller in principal that can't get closed.

Even when the purchase and sale agreement does get finalized, there may be terms and conditions that are now not acceptable to your source or sources of business acquisition financing.

If the agreement has to be reworked for the lender, this can be the beginning of the end as it may have already taken the powers of heaven and earth to get everything agreed to and signed off the first time. Making revisions can be like opening Pandora's box with no hope of ever getting it closed again.

If this all sounds bleak and depressing, it certainly can be.

The stark reality is that if you're going to buy or sell a small business you need to self educate yourself to some degree before you get started.

Here are some points to consider:

Approach the deal on a Win - Win basis. Too often in deal making, one side is trying to pull a fast one on the other and try to come out better that they otherwise would have.

This is a dangerous strategy because no matter what you and the other party agree to in principle, the advisors will weigh in at some point and likely uncover any inequity that was created in the negotiations.

Not only does the deal now become more complicated as a new basis for agreement needs to be established, but there may also be distrust forming between the parties, either of which could end up killing the deal.

Working Capital Advances for Businesses

Working capital is essential for the running of any company. Merchants often require additional working capital in order to meet unplanned needs. One method of attaining this working capital is to approach a company like Capitallynk to raise the working capital as a loan.

The advantage for companies that seek small working capital loans is that merchant advance cash schemes often do not require any collateral from the borrower. There are no restrictions placed by the lender as to how the money should be utilized within the business. Such companies do not levy hidden fees or up-front costs on such transactions.

Companies seeking working capital loans opt for such funding schemes as they have a number of benefits. Companies that have otherwise been rejected from business loans can apply for a working capital loan on a credit card or debit card account. There are no fixed payments or predetermined time frame for this lending scheme.

The entire procedure is automated and hassles free. The loan is granted by the customer selling a dollar amount of future debit or credit card transaction sales at a discount to the loan provider. It is this guarantee that acts as a security and does away with the need for collateral.

There are two main requirements that lending companies impose on businesses applying for loans. The first is that the company should have been in business for a stipulated period. The company will also need to earn a certain percentage of its earnings through credit card based transactions every month to qualify for this scheme.

As each sale is settled, a percentage is automatically deducted and the issuing company is repaid. It is due to this reason that there is no fixed repayment schedule. Repayment is thus directly related to the earnings of the customer.

Business cash advance schemes allow companies to meet sudden demands for their products when working capital or ready materials may be in short supply. Such a loan ensures that the company has enough cash available to be operative and yet competitive at the same time.

CapitalLynk provides such working capital advances to companies that have been in business for four months with an average of $5000 in credit card transactions. Approval for loans is done within 24 hours and funding is provided within seven working days

Value Investing Still Work

The essence of technical analysis involves studying of past financial market data to forecast price trends and make an investment decision based on this.

Technical analysis only takes into consideration price behavior of the market. Unlike in value investing, technical analysis doesnt care about the value of a company.

What's the use of analyzing past market data when the market is random. There can be a 50% chance of going up and another 50% of going down, why do we still need to study Technical Analysis.

As I explained in the earlier article about how psychology affects investment, investors move in a crowd approach (causing a trend) and this cause support (lowest price point of this trend) and resistance (highest price point of this trend) levels to be formed until something drives the stock higher or even lower.

Technical analysis is useful only if you want to 'predict' short term stock performance. Technical analysis is not so useful in predicting long term stock performance.

In a short run, stock prices are the effects of the actions of investors and , the prices are governed by intrinsic value of underlying business and past price movements and current or future news and rumours affects the decision of investors.

Eventhough technical analysis is not beneficial in a way to long term investors, i still believe its important to keep an open mind when it comes to investing and to read and learn as much as possible.

To summarise, value investors basically follows the below criterias when identifying potential stocks

1. Undervalued stocks
2. Low Price/Earnings ratio
3. Low Price/Cash flow ratio
4. Low Price/Book value ratio
5. Sound financial statements, low long term debt. The company must have enough cash flow to pay its long term debt with 3 financial years
6. Positive earnings in an upward trend
7. Strong management team and strategy
8. Competitive advantage of a company

How is technical analysis useful to value investors? Value investors can use technical analysis to identity investments who are over speculated. Over speculated stocks are hardly undervalued. They are usually overvalued due to the overcrowded speculation. Now, lets look back at rule number 1 of value investing, to identify stocks that are overvalued and have strong potential.

Now value investing is becoming too popular as its backed by Warren Buffett's success and everyone is learning and using the system of value investing. Do you still think value investing techniques will stick work since there are more people using value investing? I believe it will still work in some extend as we are dealing with long term investment as compared to short term investment. The criterias that we have identified for valued stocks for ways of identifying good companies. Good companies = strong financial potential and growth.

Home Equity Loan Or Line Of Credit

A home equity line of credit is very closely related to a home equity loan but the subtle differences can mean a lot. Determining which option is the best for you relies upon you knowing your current situation and having a clear plan for what you wish to accomplish with the money.

A home equity loan is a lot like a mortgage. With a home equity loan you are able to borrow the amount of your homes value that you have already paid off. The benefits of this type of loan is that it is almost always guaranteed since it is based upon the amount of your home that you already own, the terms are almost identical to a mortgage and you receive the entire amount of the loan up front after closing.

While a home equity loan is also based upon the amount of your home that you currently own, the terms of the loan are very different. A home equity loan is basically a credit card where the limit is the amount of equity that you have in our home. Instead of receiving one large lump sum of cash, you will receive an overdraft type of service on your account that will allow you to withdraw as much or as little of the equity that you wish to use.

Which choice is better for you? The answer depends upon what you need the money for. With a home equity loan the monthly repayment schedule is known and the interest on your loan will be lower than most other types of loans. However, with a home equity line of credit, you have instant access to cash and the payments will vary depending but the interest will vary. With this in mind the question really becomes do you need access to a varying amount of money or one known lump sum of cash?

A lump sum of cash with a set repayment schedule is great for specific things such as debt consolidation or the funding of specific projects with a predetermined cost. If you are considering debt consolidation for credit cards or any other high interest loans a home equity loan is most likely a very good idea. You will be able to repay all of your debt and will only have to make one monthly payment at a lower rate of interest that you are currently paying on your cards and other unsecured loans.

Home equity loans also make perfect sense if you know the exact amount that you need to borrow. While it is always nice to have cash on hand it is often better to have more credit available to you. The more of your credit limit that you use up the higher the interest rates will be for you and the tougher it will be to borrow more money in the event of an emergency. It is definitely to your advantage to only be in debt for a specific amount to complete one project.

A line of credit option may be better depending upon what you wish to do with your money. While you will still use up a portion of your credit limit, the payments and impacts on your available credit may be lower. With a line of credit you always have the same amount of money available to you. As you pay off the amount of credit used, you can reuse that portion if needed without having to apply for another loan. Also your payments may be considerably lower since you are only paying on the amount of money that you have actually used, not the total amount borrowed.

As you can see there are some big differences between a home equity loan and line of credit. If you are looking at a single project, such as a new car or adding a pool to your home, a home equity loan is the better choice for you. However, if you are looking at starting up a new business, wish to travel or can not settle on predetermined amount money, then a line of credit is the better option for you. With a line of credit you can use as much of your credit as you wish whenever you wish and, much like a credit card, you can reuse the amount of the line of credit that you have repaid with out having to re-apply for a loan.

The Bond Market

The bond market fluctuates on a daily basis and is a major determinant in the setting of interest rates. In fact, one can actually guess with an astonishing degree of accuracy as to any movement within a business day if there will be a rate adjustment, whether up or down, based on what the bond market is doing, specifically the 10 year bond. For clarity's sake, there a couple of different bonds that affect interest rates. They are:

The 2 Year Bond
The 5 Year Bond
The 10 Year Bond
The 30 Year Bond

The primary bonds that affect interest rates are the 10 year and the 5 year bond. To see actual, real time fluctuations in the bond market, go here at http://money.cnn.com/markets/bondcenter/ to see current prices for bonds. This is the one I view daily. The bond market is highly volatile. How do you read the graphs so as to know if interest rates will have a spike downward or upward?

While looking at the 10 year price graph (the farthest one on the right), if the 10 year price has a massive swing upward from say 99 28/32 to 103 28/32, rates most likely will have a decrease from current levels.

If the bond market fluctuation merits an increase or decrease in the loan broker's yield spread premium (their rebate), it will in turn affect the interest rate that is quoted to a client, which in this example would be a lower rate. If the bond price doesn't have much of a fluctuation during a normal business day, the rate will not move. Every day, in the morning, rates are received in the office. If a price adjustment is required, the primary lenders will immediately issue an adjustment rate sheet to their broker partners.

As I've said, interest rates are set based on the yield in the bond market at any given time. Let's show an example. If, for example, a $100,000.00 bond falls in value to $95,000.00, the corresponding yield (return) is significantly higher. Because the yield is higher, the prevailing interest rate that is set for the mortgage must offset the higher yield and provide a return on the mortgage for the lending institution. With all things being equal, the rates on fixed rate mortgages would tend to rise.

Multiple Forces in The Economy
There are many factors influencing interest rates for home loan in the US economy. Higher interest rates can cause fluctuations in the stock market which in turn affects the bond market. In fact, the bond market and the stock market are opposite sides of the same coin. One can't move without the other.

If the US Dollar rallies, bonds dip; when oil prices dip, bonds can as well. Generally speaking, when the bond market is up, the stock market is down. In addition, if economic news is worse or better than expected, it will cause a fluctuation in the US dollar currency pairs in the spot Foreign Exchange market (the FOREX), which can affect the bond market and in turn rates.

A quick example. A couple of weeks ago from this writing, the US New Jobs report was projected at 350,000 -- it only came in at 10% of that or 35,000. Once the report was announced, literally IMMEDIATELY the GBP/USD currency pair (Great British Pound and US Dollar) spiked upward. The GBP dramatically increased in strength with the US Dollar becoming weaker. One FOREX trader I know literally made $3,500 in five minutes as he projected the claims to be much less than expected.

Also, interest rates dropped that day due to the lackluster jobs report. Coming into the office that day, a wise loan agent would have locked some loans or at the least knew interest rates would had gone down that day. Truly, the US economy is a highly interdependent organism that is very fluid and dynamic -- it is never static or motionless. Some of the key economic indicators that affect the economy, and in turn interest rates, are:

Durable Goods Orders
New Home Sales
US Trade Balance
Jobless Rate
Weekly Initial Jobless Claims
Fed Chairman Speech Before Congress

The key economic indicators that can affect the bond market with corresponding fluctuations are:

Consumer Confidence
Retail Sales
Manufacturing Activity
Industrial Production
Jobs Growth
Inflation

Interest Rates Set

How are interest rates set -- a common refrain for those who broker loans. The first thing most clients or prospective clients will ask is "how are rates doing?" Or, "what rate can I get?"

It's understandable as the rate determines in large part as to what your monthly payment will be. Fundamentally, the interest rate is what you pay the lender in exchange for their lending you the money for your home loan.

How Are Rates Set?
So, how are rates set? Generally speaking, the longer the loan the more the risk to the lender and consequently the higher the rate. Of course, it's not as simple as that for there are a number of factors that determine how rates are set. There are three fundamental forces that determine interest rates.

The Federal Reserve
The Bond Market
Multiple Forces in The Economy

The Federal Reserve

The "Fed" as it is commonly called determines US monetary policy for the entire country. There was no central federal banking system in the US from 1783 to 1913 but that all changed with the Federal Reserve Act of 1913. Ostensibly, it is the central bank of the US. Don't let the term "Federal Reserve" throw you -- it is NOT a federal US government institution or department.

It is a privately-held organization. There are 12 regional Federal Reserve System banks throughout the US. In addition, the Federal Reserve seeks to constantly adapt its various monetary policies in a concerted effort to combat inflationary and deflationary pressures brought about due to changes in the domestic or global economy.

The Federal Reserve Board members meet eight times a year and generally only changes rates during a meeting. The 12-member Federal Reserve Board can control interest rates by changing the rates it charges banks to borrow money.

Here's how it can influence rates.

The Federal Reserve loans banks funds from their district Federal Reserve bank who pledge their commercial paper as collateral. The Fed essentially charges the borrowing bank interest on the loan. This is called the discount rate.

Banks or lenders then lend the consumer or borrower money charging their primary interest rate. The implications are self-evident. The higher the discount rate the Fed charges the bank, the higher the primary interest rate will be to the borrower as the bank wants to meet the minimum requirements as well as make a profit.

Many people think that when they hear current Federal Reserve Chairman Alan Greenspan make a monetary policy change with the Prime rate, it automatically affects interest rates. Not so.

The Prime rate increase or decrease may affect a Home Equity Line of Credit (HELOC), but it wouldn't affect interest rates. Interest rates also fluctuate with the various loan programs available to the borrower.

Leasing Benefits

Alternative to financing - Leasing is essentially an alternative to traditional financing and can be great for companies not able to obtain business loans.

100-percent "financing" – In many cases, leasing requires no down payment. This allows you to "finance" an entire purchase, including software, hardware, consulting, maintenance, freight, installation, and training costs.

Ease and convenience - Applying for a lease is easy, and lease arrangements can be structured to meet your individual requirements. Equipment leases can range from $ 2,000 to $ 2 million. For smaller amounts, you can complete a brief application and receive a final decision within days—often with no financial reports or tax returns needed.

Leases for more than $100,000 generally require detailed financial information from the business, and the leasing company conducts a more thorough credit analysis than it would for a smaller.

Flexibility - Lease terms range from 12 to 60 months, depending on the equipment type. Most leases can be structured so that payments are made with operating rather than capital funds. This can eliminate or reduce capital budget delays.

Leased equipment can be purchased later if capital becomes available. Plus, a percentage of the lease payments can be credited toward the purchase of the equipment.

Fixed, predictable payments - Having fixed lease payments enables you to accurately predict the impact of equipment expenses on your cash flow.

Conserves working capital - Leasing conserves your working capital by requiring only a minimum initial outlay of cash.

Tax Advantages - Operating leases are generally treated as a 100-percent, tax-deductible business expense paid from pre-tax earnings instead of after-tax profits.

Protection against inflation - Lease payments are based on the dollar's current value. And unlike bank lines of credit with fluctuating rates, your payments are fixed regardless of what happens to the market tomorrow, making it easier to budget, forecast and grow.

Working with a Leasing Companies When leasing equipment, keep in mind that the company selling the equipment simply makes a direct referral to a leasing company with which it does business.

And, usually, the company selling the equipment works with more than one leasing company. So be sure to get quotes from a number of leasing firms. It’s also a good idea to ask for referrals from friends and business associates.

Additionally, make sure you understand with whom you’re dealing. Are you talking to a broker—the person who simply structures deals, then gets them financed through any of the leasing companies he or she works with. Or are you dealing with a leasing company that is actually putting its own funds on the line?

Brokers can be beneficial because they have valuable insight about the leasing market and can help you find the best leasing solution for your needs. But as when dealing with any type of salesperson, you are responsible for handling the due diligence. Do your own homework to ensure you negotiate the most favorable lease agreement for your company.