Commercial Loans for Small Business and Job Creation

Well, it looks like our economy is finally turning the corner and the small businesses are starting to show a profit, much like the corporations have been for the last 18 months. Indeed, there are a lot of retained earnings at the corporate level, and the banks are on solider footing and willing to make more small business loans now.

We are also entering an election year, and typically that is good news for the US economy. In my retirement I do a little bit of business consulting, and the other day I was assisting a small business person prepare a business plan, put together some proformas, and the other required documents to secure a business loan. She had decided not to go with a SBA or Small Business Administration loan because of all the stipulations and requirements, which did not make sense for her financial wherewithal, and abundance of personal assets.

Nevertheless we got to talking about what she was planning on doing with the money and it turns out she was going to expand her business so she could make more money. In doing so she will be hiring more individuals, and right away she will be hiring three new salespeople and two for marketing. That's five additional jobs that she will be creating. She will use some of the loan money for cash flow as the salespeople and marketing department sign up new corporate accounts.

Indeed, perhaps this shows how commercial loans for small business adds to job creation in this country. The corporations are very good at collecting money for their goods and services, and they are extremely good at lobbying protectionistic rules and regulations from government to stifle their competition or put up barriers to entry. But for a small business person caught in the trap of a poor business cycle or the uncertainty of future regulations it causes entrepreneurs to forgo the risks associated with business expansion, or taking out more credit in their personal name or in the name of their business.

Prior to now, there was not a whole lot of lending going on in her industry or sector, and although there was some, it hasn't been until now that she felt confident enough to go out and risk capital or borrow more money. Now she does feel confident, and she is moving this ball forward and down the field. Indeed I hope this will help others see how important commercial loans are for small business and job creation. Please consider all this and think on it.

Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank. Lance Winslow believes writing 23,100 articles was a lot of work - because all the letters on his keyboard are now worn off..

Commercial Loans and Business Plans Considered

It's not easy to write a business plan, but it is paramount that entrepreneurs do so. For instance, consider if you will the type of folks who are entrepreneurs - gregarious types of individuals, who are probably not very good with the fine details as accountants are. Therefore, they often have trouble preparing business plans. Nevertheless they need to do this so they understand what they're getting themselves into, and evaluate their potential business opportunities appropriately without allowing their optimism to run away with the game.

Over the years, since retirement, I have helped various entrepreneurs in their businesses, and often they need to get funding or financing to start these endeavors, so they go and look to get a commercial loan. The bankers know that entrepreneurs aren't very good at writing business per-startup plans, so generally they except business plans which are half baked, or in the case of the small business administration, they have a form which is filled out by the entrepreneur in place of the business plan, it's about 13 pages.

However, a decent start-up plan could easily run 40 pages including the proformas in the back. It seems to me rather than making it easy for entrepreneurs to get commercial loans and therefore requiring less than adequate business plans - that we should be moving in the other direction, stipulating that the business plans the very well done. Indeed as a taxpayer I am concerned that my tax dollar will subsidize the SBA loan program. And many of these loans fail, but right now the taxpayer and SBA guarantees 90% of the loan with the local banks which make the SBA loans.

Since the bank has very little risk because the government is guaranteeing 90% therefore they are only on the hook for 10%. Are you beginning to see the problem with this? If entrepreneurs and small business people can't prepare start-up plans, and they aren't sure what they're getting themselves into, why an Earth is the SBA and commercial business banks providing more rope for these future business owners to hang themselves with? Indeed that makes no sense at all does it?

Perhaps, this is why I often tell entrepreneurs to create a business startup plan, then look at the real numbers, and play devil's advocate a little bit against their overbearing opportunistic enthusiasm and hyper drive optimism. Indeed, I hope you will please consider all this and think on it. If you have any questions, comments, concerns, or even case studies, I would be glad to hear about it. Please shoot me an e-mail.

Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank. Lance Winslow believes writing 23,300 articles by May 23, 2011 is difficult because all the letters on his keyboard are now worn off.

Invoice Factoring For Businesses Today

Today's small business owners are struggling and many looking for answers as to how these tough times will affect the overall value of their businesses.

It is times like this in our economy when we actually see an increase in a tactic known as invoice factoring, when a business sells its accounts receivable invoices at a discount. Invoice factoring has helped many companies survive and stay in business in the midst of the current global economic downturn.

A recent report tracking the health of small business, (BizBuySell.com) indicates that there has been a decline in business-for-sale transactions and valuations. Plus, the number of closed transactions reported in the first quarter decreased by 36 percent as compared to the same 2008 time period.

Another area that is dropping during this current economic environment are the value metrics for businesses. Revenue multiples for closed transactions dropped 5.5 percent to.69 in the first quarter of 2009, while cash flow multiples fell 3.8 percent to 2.69. The way this is determined is by dividing the selling price of a business by its annual revenue or cash flow.

The same report also indicates that median business sale price for closed transactions decreased 17.3 percent to $165,500.

Valuation multiples are going down and now buyers are hesitant to pay the asking prices for a business. Uncertainty causes concerns about a business's cash flow and future revenues.

Apparently buyers are having difficulty accessing the capital they need to purchase a business, and keep it going. The traditional banks, and venture capitalists, or angels, as well as SBA-backed loans have all simply dried up. Therefore, when there are fewer buyers able to bid on most businesses, there's less pressure for upward pricing.

Economic conditions have made it more difficult to close deals than ever before, but a number of business brokers are reporting a record number of buyer inquiries due to an increasing number of layoffs.

The good news is that market conditions for small business transactions should improve as selling prices continue to decline. The reason for this is because credit will slowly become available to new buyers.

Standard factoring companies have been around for more than 4,000 years. A highly effective cash management strategy, invoice factoring allows businesses to obtain funds based on their current accounts receivables and benefit immediately from 90 percent advances against invoices that would otherwise not be paid for 30, 60 or 90 days.

A business often times doesn't get paid right away for a product or service that it has already delivered, so the bottom line is that accounts receivable factoring, also known as single invoice factoring, might be an answer. Factoring is an extremely quick way to turn a company's receivables into cash rather than waiting up to 90 days for an invoice to be paid. Factoring companies - also knows ASN factors - will look at your customers' credit rather than yours. The single invoice factoring process includes due diligence that typically takes one to two business days. Once completed the client is at liberty to offer invoices to the factor for purchase.

Factoring is not a loan - it is the purchase of a financial asset, or the receivable. Factoring varies from a bank loan in several ways. Banks base their decisions on a company's credit worthiness, whereas factoring is based on the value of the receivables. Bank loans involve two parties, while factoring involves three parties.

Factors typically look at the creditworthiness of a client's customers and they do not expect to buy 100 percent of a company's receivables. There are no minimum or maximum sales volume requirements. All the factors professional rates are competitive because each client's circumstances vary, which may have an impact on the fees charged. The program allows choices of invoices to be factored, enabling customers to retain most of their money, while spending the minimum fees to guarantee adequate cash flow.

Upon receipt of invoices, the factoring company checks the credit of the debtor named on the invoice to make certain that the sale represented has been completed satisfactorily. Once completed, the debtor is advised of the purchase by the factor and the client receives their funding. At the end of the credit period, the debtor pays the factoring company directly completing the transaction.

Single invoice factoring, or spot factoring, is an extremely fast way to turn receivables into cash.

Just Factoring is a specialist, independent and importantly, experienced brokerage that provides specialist advice on Invoice Factoring and the often complex process of finding a factoring companies. For more advice and a free consultation visit our website www.JustFactoring.co.uk