Author: onEntrepreneur

Raising money for small business start-ups is typically one of the most important but also one of the most daunting tasks for entrepreneurs. Bank loans and angel investors are often sought-after forms of business funding, but the rates of rejection can be really high. For example, in May 2022, Biz2Credit reported that big banks only approved 15.3 percent of all the small business applications it received. That means almost 84.7 percent were turned down! If you have been among that 84.7 percent or if your pitch to an angel investor has gone sour, it is not the end of the world. There are many things to…

A company’s burn rate, also known as cash burn rate, is an important metric to track, especially for startups and younger companies. Here’s what you need to know about calculating, analyzing, and optimizing your business’s burn rate. What is Burn Rate? A burn rate refers to the rate at which a company is spending its capital reserves and operating at a loss. There are two main types of burn rates: Use our Burn Rate Calculator to estimate your gross and net burn rates along with your cash runway time. The Importance of Managing Burn Rate Monitoring burn rate helps companies…

When it comes to saving money and freeing up working capital, the Internet can be a small business owner’s best friend. Going online can help with everything from cutting costs to saving time to generating revenue. Here are a few ways your company could more fully take advantage of Internet resources. Sell Online Selling your product or service online can be a great way to start off your business or an excellent way to supplement sales in your retail or other outlets. If you are just getting started, online sites like eBay, Etsy.com, and Yahoo! Auctions can help you get your product out…

Angel investors and venture capitalists get a lot of attention when it comes to small business financing, but in reality, startups get much more business funding from family and friends. A report from Fundable.com found that in 2013, friends and family members poured $60 billion into small businesses while venture capitalists invested just $22 million and angel investors contributed only $20 billion. In fact, 38% of all startup entrepreneurs in 2013 raised money from their loved ones, with the average investment totaling $23,000. Why are friends and relatives the biggest investors? Because they are the ones who know and trust the business owners the best. So,…

The biggest challenge most small businesses face is access to capital. Small businesses need lots of cash to get off the ground, grow, and expand. For most business owners, it is hard enough to get a loan from their local bank, but for some, it is almost impossible. These are the “credit invisibles,” according to a survey from the Consumer Financial Protection Bureau. The report found that “there are 26 million adults in the United States without a credit record.” This amounts to 11 percent of U.S. adults. Additionally, our results suggest that another 19 million adults (about 8 percent) have credit…

Commercial mortgages and residential home loans are both loans taken out on properties and they both use the property itself as collateral. What makes them different from each other? As a business owner, what do you need to know about making a commercial mortgage agreement? Borrowers While residential mortgages are usually between banks and individual buyers, commercial mortgages are made to a company or business. An individual could sign on to a commercial loan, but since the property is zoned for business use, for tax purposes, it is usually in the best interest of borrowers to sign as a representative of…

Once your business has gotten through its seed funding round and the gears of success start to turn, your next step is likely to get another infusion of capital through investment. This is the arena of venture capitalists. They look for thriving small companies that can bring them large returns on their investment. If you have made it to the stage where you can attract the attention of VCs, your business is in a good spot. Once you are ready to take on some of those investors, the key is to create some buzz for your company – a sense of…

Many business owners take on commercial mortgage loans in order to buy their own work facilities and real estate. In some cases, these commercial mortgages will have a balloon payment attached to them – a lump sum payment to repay the balance of the loan after three, five or ten years. Coming up with a chunk of cash that large is virtually impossible for most businesses, but there are several options to make these loans work. What is a Balloon Payment? Balloon payments are a way for lenders to reduce their risk and recoup a good portion of their money after a…

In the process of growing a successful company, finding the next round of funding is always on the business owner’s mind. Initial Public Offerings (IPOs) can be an exciting avenue to cash but they can also be complicated and expensive. In some cases a private placement round may be more effective. What is Private Placement? A private placement is a securities offering not to the public but to a select group of private investors, typically institutional investors like insurance companies, banks, pension or mutual funds. These nonpublic offerings do not have to be registered with the Securities and Exchange Commission as long…

Bringing your company’s initial public offering (IPO) to the market is an exciting day. It typically means your business is a genuine success and the masses are interested in buying into it. How do you know if you are ready to take your company public? The very first step is to see if you meet the requirements set by each market exchange. The two largest stock exchanges are the New York Stock Exchange (NYSE) and the NASDAQ Global Select Market. Each of these is regulated by the Securities and Exchange Commission which requires any company to have at least three…

Going public by launching an initial public offering (IPO) can be a major milestone and opportunity for growth. However, it also comes with trade-offs to weigh carefully. Potential Benefits of an IPO: The Pros of Going Public For example, a young tech startup may use IPO capital to acquire competitors, hire engineers with stock options, and gain brand visibility with consumers. Potential Drawbacks of an IPO: The Cons of Going Public For instance, a founder-led firm may wish to retain decision-making control and not have to disclose proprietary details or strategies. Key Considerations The decision of whether, when and how…

Asset-based loans have traditionally been considered last-ditch financing options for business owners. Yet in today’s changing financial climate, there may be some circumstances when asset-based loans can provide great benefits. What is an Asset-Based Loan? An asset-based loan is business financing that is secured by the company’s assets. These can be collateral in the form of tangibles like machinery and equipment or inventory, but they can also include accounts receivable or securities. The funding can be set up in many different ways like a traditional loan or a revolving line of credit, and lending amounts range from hundreds of thousands of…

A wraparound mortgage, also known as an all-inclusive trust deed, is a creative way to allow you to purchase property without having to qualify for a loan or pay closing costs. This could be used when attempting to purchase commercial property without running the risk of being turned down for a large business loan. The process of obtaining the property is also expedited because the property does not have to go through a typical lender. It allows you to obtain property to conduct business in while you work to build your business credit. Growing your business credit will allow you to…

When the commercial lending market climate is dry, buyers and sellers of commercial real estate start looking for creative financing solutions. One possible alternative is called a “wraparound” mortgage. While not without its risks, a wraparound mortgage can create mutually beneficial sales when no mortgage credit is available. What is a Wraparound Commercial Mortgage? A wraparound mortgage is when a seller provides financing to the buyer directly. The seller holds onto the original mortgage. The buyer makes a down payment to the seller on a new loan drawn up between them and then makes monthly payments to the seller. The seller then…

While many small business owners decide to incorporate their companies in order to protect their personal assets from business liability, the financial benefits can extend far beyond that single goal. Turning your business into a corporation or Limited Liability Company (LLC) can provide everything from tax advantages to better financing options with small business lenders. Consider the following benefits: 1. Avoiding Double Taxes Incorporating can help you avoid the trap of double taxation—paying both corporate and personal income taxes—because the profits and losses pass through to you as the owner. Only personal taxes will be required. 2. Deducting Business Expenses…

Many companies need a helping hand when they are struggling to tide them over until business picks up. A bridge loan is a common means of business financing for just that purpose. Before diving into a bridge loan, however, it is important to understand all it entails. What is a bridge loan? First, a bridge loan – also known as a swing loan or gap financing – is a temporary business loan using collateral such as real estate or inventory. The collateral could also be receivables, fixed assets, or intellectual property. The interest rates tend to be steep because of the risk associated with…

Entrepreneurs need venture capital for different purposes. Every stage of owning and growing a business requires a lot of funding. Traditional small business loans are not available or even appropriate for all of these stages. Fortunately, there are several other viable sources of financing, among which are venture capitalists (VCs). Who are venture capitalists (VCs)? VCs are investors who provide promising companies with cash in exchange for an equity stake and the hope of greater profits in the future. There are venture capitalists seeking opportunities in every market segment, and many even specialize in certain stages of funding. In order…

To many entrepreneurs, their companies are their babies, their dreams, and their passion. And yet there may be a time to let it go or at least relinquish some control of it. Such an instance might be when an early buyout offer is received. Definition of Buyout A buyout is when another company offers to purchase a majority hole (51 percent or more) of a business, either in stock shares or partnership rights. When the deal is struck, the new owner can continue the business unchanged, but he or she could also merge it with another company, break it into…

The Small Business Administration has designed a program to help entrepreneurs that may have to overcome social or economic disadvantages in business by giving them a boost in government contracts. It is called the 8(a) Business Development Program and it can be a huge financial benefit to those who qualify. The 8(a) program is a nine-year plan with two stages. The first four years are the developmental phase when a socially or economically disadvantaged company gets mentoring and education, receiving opportunities to get government contracts with little or no competition. The second phase is the transition stage. During the last four years,…

The Small Business Administration’s 8(a) Program is designed to help socially and economically disadvantaged small business owners overcome those hardships. Securing a spot in the program can be a huge windfall for growing companies, but the process is not easy. Here are some tips on getting into and making the most of the 8(a) programs: In order to be a prime candidate for the program, your company should already have done some prior business with government agencies. The 8(a) program is not designed to teach entrepreneurs how to get government contracts, but it does give companies greater visibility among agencies. Start…

A second lien loan is a secured loan tied to one of the company’s assets, specifically an asset that already has a first loan attached to it. The asset could be the firm’s inventory or equipment, or it could even be the business owner’s own home. The second lien takes second priority if the borrower defaults on his or her debts. In the event the company has to be liquidated, the owner of the first lien loan will get reimbursed first, and the second will get whatever proceeds are left over from the sale of the associated asset. Most businesses experience times…

Having a stellar idea for a product or service is the first key ingredient to building a successful business. Putting sound financial strategies into place is possibly the next key piece to making sure your company thrives. Without a financial plan of how to manage business expenses and earnings, there is a good chance that soon there will be no money left to manage. Here are three of the most important rules for putting your business finances on a safe and secure path. 1. Bootstrapping Often Beats Debt While using credit cards to fund a business is a possibility, it…

An unsecured business loan is one that does not require collateral but is issued on the basis of the borrower’s creditworthiness. That means there is no house or car to lose if the business tanks. However, lenders know this too, and because they have to take on that greater risk, they charge higher interest rates than small business loans in order to hedge their bets. Borrowers should be prepared for hefty fees and rates. Unsecured loans come in many forms and with several different names. Payday loans, personal loans, merchant cash advances, working capital loans and corporate bonds are all types of…

Growing a business takes hard work, patience and usually a lot of cash. Small business loans can be one way to access the kind of working capital you need. Taking on debt for your business can be a little scary, but there are some times when the benefits can really outweigh the risks. Consider the following three reasons why it might be time to get a small business loan. 1. You Need to Hire New Employees If your company is growing fast enough that you need more help but don’t have the cash flow to support it, a business loan may be…

Finding ways to continually please your customers and increase your profits are at the heart of most businesses. Creating more working capital and beefing up business funding are also high on the priority list. One strategy to boost sales and revenue many companies overlook is the art of ‘up-selling’ and its sister ‘cross-selling.’ Up-selling Up-selling means asking a customer to buy something more or better than they originally intended to. For example, you planned to buy a condo but your agent convinced you to buy a mansion. Cross-selling Cross-selling means asking customers to buy something complementary to their original purchase. For example, “Do you…

Starting up your own company can be exciting and full of adventure, but it can also come with big risks. Sometimes buying a young company can be even more exciting because you get the benefits of an existing operation with fewer startup financial risks. Even purchasing an existing company typically takes financing from banks or other lenders though. Those lenders will want to know why the business is worth the amount of money you are paying for it. While the actual value of a business is determined by formulas that include assets, liabilities and revenues, those factors are influenced by many smaller…

Getting started in the commercial mortgage market can be daunting if you are not familiar with the jargon. In order to be a savvy commercial real estate investor, you first need to learn the lingo. Here are seven of the most important terms used in commercial mortgage discussions: 1. Gross Income This is the total amount of money the commercial property will bring in. It includes rent as well as things like late fees or laundry or vending machine revenue. 2. Effective Gross Income This factors in how having empty apartments or tenant spaces will affect the gross income. The effective gross…

The beginning stages of building a business from the ground up can be very challenging, to say the least. Time and money are at the top of most entrepreneurs’ wish lists. Yet even once your business is up and running, there are still hurdles to jump over. Here are three important challenges on the horizon to look out for. 1. Managing Money Effectively As soon as cash starts coming in, there needs to be a money management strategy in place. Business founders need to have defined boundaries between their own finances and company finances. In the early stages, a business…

Every small business owner looks forward to the day his or her company takes off and has more demand than supply. You might need to pay for more inventory or marketing for gaining new customers, or in other cases, you may be ready to buy out the competition or merge with another firm. When that day arrives, it is smart to be prepared with a source of expansion financing – in other words, a way to pay for that quick growth. Here are three things to know to help you know when and how to secure expansion financing for your…

For companies whose products have a high sticker value, being able to offer customers multiple payment options is essential. Accepting credit cards, cash and checks is fairly standard, but there are also other financing choices that could help give your business a competitive edge. One of these is retail financing. What is Retail Financing? Sometimes called customer financing or consumer financing, retail financing provides customers with a short-term installment loan for purchases above a certain level. Here’s how it works: Your business partners with a retail financing company. When your customers make a purchase, they can apply for such financing.…

Venture capital is a buzzphrase these days among entrepreneurs. Young companies that have secured business funding from venture capital are seen as rising stars with great potential. And yet, while large initial investments can help a company get off the ground, there are plenty of reasons why bootstrapping may be a better idea. Here are the top three: 1. Autonomy There is no substitute for having total control over your business. It is your brainchild, after all. You are the one who is passionate about its success and while outside advice can sometimes be helpful, being able to call the ultimate shots is…

Finding enough and the right kind of small business financing is vital to every growing company. Small business loans can be a great windfall for any firm, but over the years several myths have been built up around them. While there can be some struggles and hard work associated with securing a loan, here are three myths that should be dispelled. Myth #1 – Don’t Ask for Too Much Money When asking a lender for funds, the amount is not so important as the reasons why you are asking for that sum. You should carefully calculate how much your company needs for…

When your company is ready to move to the next level, securing business funding is often the key to success. Venture capital can provide much-needed infusions of cash and sometimes provide helpful mentoring advice, but it can also be hard to come by. Try the following 4 tips to land that venture capital financing you seek. 1. Make a Long List Your chances of finding an interested venture capitalist can only go up the longer your list is of potential investors. Do not make the mistake of targeting just a few handpicked VCs; make a long list of those who might find your…

Most businesses protect themselves with insurance policies to cover disasters like fires, flooding, or earthquakes. However, while that basic insurance coverage will provide for repairs to the building or property, those repairs may take days to weeks to months and a lot of revenue will be lost during that time. There is an insurance policy that can provide business funding to a company recovering from a disaster. It’s called business interruption insurance. What is Business Interruption Insurance? Business interruption insurance covers the loss of a firm’s income as a result of a disaster. It typically covers things like business profits that would have been…

Meaning of Business Insurance Like home insurance, business insurance protects the contents of your business against fire, theft and other losses. It is prudent for any business to purchase a number of basic types of insurance. Some types of coverage are required by law, others simply make good business sense. Types of Business Insurance The types of insurance listed below are among the most commonly used and are merely a starting point for evaluating the needs of your business. 1. Liability Insurance Businesses may incur various forms of liability in conducting their normal activities. One of the most common types…

When you are on the hunt for investments from venture capitalists or angel investors, you may face some pretty intense presentations and meetings. The secret to being prepared for those encounters with potential investors is to realize that they all pretty much want to know the same 5 things. If you are prepared to give that information, you can kick your stress level down a notch and get to work at finding the right VC or angel investor. 1. Market Size Venture capitalists and other investors are typically more interested in products or services that can be sold to a wide audience…

Wrap-around mortgage financing is the perfect solution for you if your business has a little business credit history. Most lenders won’t give large commercial loans, or small business loans for that matter, to businesses with little or no credit history. You can avoid that problem with a Wrap-Around Mortgage because you purchase the property directly from the seller instead of going through a regular lender like a bank. The seller would act as the lender and benefits because you pay them a set monthly fee which includes their current mortgage payment, the predetermined monthly rate for the property, and it includes…

A wrap around loan allows you to purchase property without having to qualify for a loan. This can save time, and also the hassle of getting denied for business financing. The seller, known as the lender in this case, will sell you the property for an agreed-upon amount. You will pay the seller that amount as a fixed monthly payment which includes interest charged by the seller. The amount that is to be paid to the seller includes what is owed on the loan and the equity accrued on that property. The seller, or lender, makes extra money by charging a higher…

Venture capital limited partnership is a limited partnership that invests in small businesses with high growth potential. A venture capital limited partnership seeks out small businesses in markets with high potential for growth. A partnership is a business entity made up of one or more general partners. These partners pool their money together to invest in small businesses. Most of the investments they make are high-risk investments, but the potential for a greater return on investment is why they make these investments. Often times the venture capital limited partnership will become a percentage owner of the firm they are investing in.…

Venture capital financing can inject your business with the necessary capital.  Venture capital financing can be an outstanding source of capital for a qualified business. There are millions of venture capital dollars available worldwide. Connecting with the right group of investors is important to get the financing your business needs to succeed. Not every business qualifies for venture capital financing, so it is important to be aware of other financing options for your business. You can easily run an analysis on your business to determine if you are a good candidate for venture capital financing. Look at your business and see…

Venture capital equity means investing financial and human capital in partnership with you. Venture capital equity is the business of investing capital, either financial or human, in partnership with your business’s management team. Investments are made into new start-up businesses, or for the expansion of an existing business. Investors prefer investing in a more established business with a history of profitability, but they are open to all businesses that have good potential. Before a venture capital firm will consider your business for an investment they will look to see that your business has a new and unique product or service which…

Unsecured business loan financing can be used for almost anything surrounding your business including the purchase of equipment, remodeling, office expansion, or marketing. With this loan, your business would get approved for a line of credit that can be drawn on whenever the need arises for additional financing.  With the unsecured business loan, your business is not required to use collateral to secure the loan. Another benefit of this type of financing is that you are only charged interest on the money you borrow from that line of credit. Banks and other lenders who will look over your application for…

Underwriting is the process through which a lender determines if your business is creditworthy and should receive the applied for loan. All businesses need capital of some sort to get started, and being able to pass underwriting to receive financing in the form of a business loan is a key step to the success of your business. The best thing you can do for your business to make sure you can pass underwriting is to get your business credit scores established and in place. Without business credit scores you will more than likely be declined for the commercial loan, and…

Turnaround financing can improve a dying business. Turnaround financing is for companies that have had a history of bad performance. It involves the challenge of improving a business by investing more money, or capital into the dying business. Often times the company is bankrupt or simply not performing. Turnaround financing includes the capital invested into the stagnant business. This capital could include financial capital or human capital. Often times a group of investors or other private parties with capital and management savvy will finance the dying business to improve their own operations. Sometimes a company an investor will invest money into…

Takeover financing refers to the funding obtained to gain control over a corporation through the purchase of its stock. The Concept of Takeover Financing Takeover financing means exactly what it sounds like. The goal is to utilize stock purchases as a means to obtain control. The corporation being targeted for takeover is commonly known as the “target,” and its assets often serve as collateral for the substantial loan required for the acquisition. Forms of Takeover Financing 1. Tender Offer This takeover can also take the form of a tender offer meaning that there is a public invitation for all shareholders…

Sweat equity is a human contribution to a business. Sweat equity refers to the efforts of executives or other shareholders in a company. This does not include money that is put into a business, which is financial equity. It is the time and knowledge that an individual or a group of individuals put into a business to make a result. Sometimes a business can use sweat equity to cut start-up costs. You can offer shares of business stock to business service providers instead of money. This action is most often referred to as “equity compensation”. The service providers benefit because they…

Startup loan financing can provide financial flexibility for entrepreneurs. Startup loan financing often includes an unsecured line of credit. This can have many distinct advantages for any entrepreneur. A startup loan can be used for a variety of general business expenses including the purchase of new and improved equipment, remodeling, expansion of commercial location, new software, or marketing expenses. Some advantages to a startup loan in the form of lines of credit are that you have easy access to draw on that line of credit whenever you want. That means you can buy inventory or business equipment while it is on…

Startup funding helps turn your vision into a reality. Startup funding is necessary for most businesses to get off the ground. This capital refers simply to the capital needed to launch a business including initial product or service development and marketing. There is a variety of startup funding options available. These most commonly include angel investors and private investors. Before you start going after startup funding it is important that you plan ahead, or you will become just another business that fails to receive financing. Having an effective business plan is one of the first places to start. No investor will…

Startup capital is necessary to start your business. Startup capital is the money needed to begin your business. This would include everything essential for product development and the product launch. Before going after startup capital make sure you know how much money you need, and then how you will apply those funds. Being as specific as possible with the plans for the money will increase the likelihood that your business will get financed. Other factors needed before going after startup capital is a business plan that spells out everything about your business. Make sure that you spend some extra time on…

Small business loan is financing for your business success. Small business loan capital is one of the more common methods of raising financing for your business. A loan of this nature can be obtained through a standard lending institution like a bank or from the U.S. Small Business Administration (SBA). They help entrepreneurs every day by providing guaranteed loans. The qualification process for a small business loan from the SBA has become easier over the years. There are factors that help determine whether your business will qualify for a small business loan. If your business has been fully operating for more…

Small business funding provides working capital for your business through debt or equity financing. Small business funding is readily available to all businesses and entrepreneurs. These funds are available through business loans, investors, SBA (Small Business Administration) programs, lines of credit, accounts receivable factoring, merchant account factoring, business credit cards, and more. Obtaining the right amount of small business funding can be a difficult task for your business, so it is extremely important that you understand what it takes to get capital. Being prepared before actively going after small business funding will reduce the chance that you will come up short…

Silent partner is a business partner who provides capital but does not participate in the management of the company. Any person who contributes nothing other than financial support to a company is considered a silent partner. Silent partners, commonly referred to as silent investors, make investments in businesses without getting involved in day-to-day management. An investor who contributes funds and has complete faith in the general partner’s capacity to expand the company is known as a silent partner. A silent partner is a person who participates in a company’s profits and losses but is not actively involved in its management. An…

Seed funding helps companies with a new product launch. Seed funding is most often confused with startup capital, but they are two different things. It is provided to help a business develop an idea, create the first product, and market the product for the first time. Companies that typically qualify for seed funding are around a year old, and they have never created a product or service for commercial sale. The company is generally so young that the key management team has not yet been assembled, or if it is intact it was recently formed. Seed funding is most commonly provided…

Seed capital is money used as the initial investment for a new product or service launch. Seed capital enables businesses to launch a new product or service without depending fully on a business loan. The funds for this form of financing are typically provided by private investors who are looking for a high return on their investment of at least 30 percent. The investors look to invest in an industry with a market of at least $1 billion, and they also want an industry with few competitors for your business. Businesses that typically obtain seed capital are young companies around one…

Second round financing allows you to maintain profitability and continually expand your business. Definition of Second Round or Series B Financing Any kind of financing that takes place after a business generates enough revenue or profits to no longer be regarded as a start-up but has not yet reached complete establishment is known as second round or series B financing. A second round typically refers to a venture capital arrangement, though it could also be an IPO or debt issue. Second round financing is for the initial expansion of an already established company. The company will have consistently growing accounts receivable…

Secondary public offering is an excellent method for a company to raise additional working capital Secondary public offering financial moves are an excellent way to generate quick capital for a business. This is the sale of all or most of the securities by the top stockholders of a particular company. The proceeds from the sales benefit the company. Often times the company itself owns most of its own stock. A secondary public offering falls under the SEC guidelines, so it is recommended that it should be conducted through a registered broker dealer or an investment bank. This will help your business…

Secondary financing plays an important role in some commercial real estate transactions. A second trust deed is often utilized to reduce the LTV (loan to value) of the first loan. This allows the buyer to qualify for the loan much easier. Loan to value is one of the key factors that lenders consider when looking at a mortgage application. With secondary financing, the borrower benefits because the monthly payments are lowered. They also benefit because the second loan is just interest payments so it allows for full deductibility. You will need to meet with your tax advisor to make sure…

SCOR is the Small Corporate Offering Registration. SCOR allows small businesses the opportunity to go public with their business. It also enables them to avoid the legal costs and regulations associated with going public. This can be a tremendous opportunity for a small business to get financed. With a SCOR offering, a company can advertise to investors and sell their securities to any interested party. Each year up to $1 million can be raised with this option. The securities are sold ‘over-the-counter’, and are not sold via an exchange of any sort. The trades are made directly by brokers or dealers either…

SBIC is the Small Business Investment Company SBIC is a private investment company co-funded by the Small Business Administration. SBICs provide businesses with debt or equity financing options. The government understands the importance of small business to the US economy, so they started this program to really help businesses get off the ground. This is one of several small business-related programs supported by the government. All of the SBICs are privately owned, but they are licensed and regulated by the Small Business Administration. Using their own capital and loan guarantees from the government these financial institutions make equity and debt investments into…

Sale and leaseback financing is a way for companies to access capital by selling assets they already own, like equipment or property, and then leasing them back long-term. This frees up cash while allowing continued use of the assets. How Sale and Leaseback Works Key Benefits Considerations Overall, sale and leasebacks allow access to capital while retaining the productive use of assets. For equipment-intensive businesses, it can provide an alternative financing option worth exploring.

Rollover mortgage allows refinancing of loan balance at the current rate. Rollover mortgage is best defined as a short-term loan in which the unpaid balance is refinanced every few years at the most recent rate. This can be great for a borrower if the interest rates fall in the next few years. It can be a great risk to take if you expect interest to drop. Instead of being locked into a 15 or 30-year loan with the same interest you will be refinanced. If you aren’t careful a rollover mortgage can really hurt you if the interest jumps up too…

Risk capital is funding for firms with excellent growth potential. Risk capital is provided most of the time by venture capital firms or other investors that are willing to take a big risk with the potential for a huge financial gain. Most of the time regular lending institutions like banks will not provide capital for a risky business model, so that is why businesses of this nature have to seek to gain risk capital from investors. These investors are looking for returns greater than 30 percent on the original investments. They are very picky as to whether or not they will…

Revolving line of credit provides capital for your business in times of need.  Revolving line of credit financing can be an excellent method for financing your business. With a revolving line of credit a bank will lend a specific amount to a borrower, and after it has been repaid the amount can be borrowed on again. This could give your business the peace of mind that additional capital is available if needed. Your chances of first getting approved for a revolving line of credit will increase dramatically if your business has started establishing business credit scores. These scores are different than…

Revolving collateral allows you to secure a loan. Revolving collateral is a unique way for your business to secure a loan. It is slightly different from regular collateral like a vehicle or real estate. With this type of loan, the collateral is always changing. The most common types of collateral used for revolving collateral are accounts receivable or inventory. Getting approved for a business loan with revolving collateral can be extremely difficult, to begin with so it is important to make sure you plan properly. You need a good business plan which shows exactly how you will make money, discuss how…

Reverse acquisition allows your private company to go public without regulatory requirements. Reverse acquisition is a technique where a private company can go public and avoid heavy regulations in the process that come with an initial public offering (IPO). Typically this sort of transaction is accomplished when a private company purchases a company that is already traded publicly. You would then strategically place your management within that business. A reverse acquisition can also cost less in the long run than an initial public offering. An IPO will require tons of time and often times legal fees to make sure it goes…

Receivable factoring allows you to sell invoices for instant capital. Receivable factoring enables your business to have fast access to cash by allowing your business to sell account receivables for products or services to companies that factor the invoices. They give you cash for the invoices, and also collect the payments and generate reports related to payments. This is an important part of any new business’s success. This transaction is also known as receivable funding or financing. Often times new businesses will outgrow their operating capital so they need instant capital for general operating expenses. Sometimes cash flow can be slowed down…

Real estate sale and leaseback is an excellent financing method increasing in popularity. Real estate sale and leaseback financing allow your business to get instant access to working capital while saving money on taxes at the same time. Your business would sell its commercial property for regular fair market value and then immediately leaseback the property. Your business gets the equity because you will get 100% of the full market value at the time of sale. That equity can be invested in your business. With a real estate sale and leaseback you can improve the balance sheet as well. You also…

Real estate sale-leaseback financing is when a business sells its commercial property for current market value and then instantly leases it back. They sell it to gain built-up equity which frees up capital that can be used to invest back into the business. There are many other benefits to this transaction as well. Real estate sale leaseback makes your equity work for your business. The balance sheet of your business is improved greatly and you retain control of the property. Since you will be leasing the property you can defer a good portion of the tax liability. With a lease, you…

Real estate purchase loans are typically business loans that are collateralized with commercial real estate. Loans to expand or improve your existing business and loans to refinance existing debt. Both conventional and government-guaranteed loans are available. Financing can be secured for virtually any kind of business, including but not limited to: MotelsApartmentsShopping centersRetail storesOffice buildingsAutomobile dealershipsOwner-occupied buildingsManufacturing facilitiesHealth care facilitiesand more . . .

Purchase order financing offers quick cash flow reserves. Purchase order financing is an excellent method for a business to obtain quick capital. It is a great solution when cash flow reserves are low. The problem happens with many businesses because the suppliers want you to pay upfront with a C.O.D., but your customers want to pay you on net 30 or net 60-day terms. Cash flow is a common problem for manufacturing companies, especially because while the goods are in transit, the invoices are not paid by the buyers. Purchase order financing frees up your cash for critical business expenses. Another…

Purchase order factoring – Grow and expand with your business. Purchase order factoring sometimes called “contract funding is great for businesses needing financing during times of growth and expansion. Cash flow reserves often become insufficient, and additional financing sources are needed. The problem comes when suppliers want a business to pay upfront via C.O.D., and the buyers want to purchase the goods on net 30-60 day terms. This means there is no incoming cash during manufacturing while the goods are in transit, and until the invoices have matured. Purchase order factoring solves this problem by paying for the cost of the…

Reverse merger allows your private company to go public. Reverse merger financial transactions are becoming increasingly popular and accepted. It is an alternative means for private companies to go public. The public shell is a vital aspect of a reverse merger transaction. A public shell is a publicly listed company with no assets or liabilities. It gets the name “shell” because the only thing remaining from the current company is its corporate shell structure. When a private company merges into this entity it becomes a shell. There are several benefits to a reverse merger when compared to an Initial Public Offering…

Public shell is a viable alternative to going public Public shell transactions are a widely accepted, alternative means for a private company to go public. A necessary component to a completed reverse merger transaction is the public shell. The public shell is a publicly listed company with no assets or liabilities. It is called a “shell” considering all that exists of the original company is its corporate shell structure. By merging into such an entity, a private company becomes public. The benefits of doing a Public shell, as opposed to an IPO, are: You will receive a higher valuation for your company.The…

Privatization is defined as the transfer of ownership from the public sector to the private sector. Privatization can also refer to the repurchasing of some or all of a company’s outstanding stock by employees or a private investor.  The reverse process is called nationalization which is the process of transferring assets to public ownership.  A benefit of stock privatization is that companies compete to place the highest bid on your stock. Three main types of privatization: Share Issue- When stocks are sold on the stock market.Asset Sale- When an investor buys parts of or all of a company through means such as an auction.Voucher- Shares…

Private investment in public entity – Also known as PIPE investments Private investment in public entity financing takes a big stake in publicly traded companies whose valuations have dropped since going public, and now are seeking new sources of a cash infusion to use for business capital. Angel investors or internal sources will typically be available to fund start-up companies, but venture capitalists want deals with more of a history behind them because they are investing more. They will be more likely to fund businesses with an established business model and a few years of operation. A venture capitalist is more…

Private equity investments are the most important funding source in the entrepreneurial marketplace. Private equity investments contribute to the funding of around 25 times the number of businesses the venture capitalists fund each year. Private equity investments are usually derived from a high-net-worth individual who represents an essential source of funding for early-stage, high-risk ventures. It is estimated that one-seventh of the 300,000 + start/early growth firms in the US receive funding from angel investors. This translates into over $20 billion of investment in approximately 50,000 deals each year. This investment group exceeds venture capital sources which are estimated at $5 – $7 billion spread over 1,000…

Private capital investors refer to private individuals who contribute their skills and money to start-up companies. They often work in groups to improve the efficiency of their due diligence and to allow them to complete larger deals. Private capital investment groups typically consist of 80-90 members and will expect around a 30-40% return on the investment they make in the business. Private capital investors are the largest source of risk capital. Private or “angel” investors fund 20-30 times more businesses than venture capitalists.  Their timeline for repayment is generally more lenient and relaxed than a venture capitalist. This is why many owners choose private capital…

Primary offering is the initial sale of a company’s stock.  The revenue from the sale of the stock will go straight to the company.  Many companies use this as a way of raising capital because it helps young companies as they are trying to grow.  There are still established companies that use this, but only if they are still private companies. The main type of primary offering is equity financing. This is when a company sells common stock or preferred stock to investors. It is usually done through an underwriter called an investment banker. The company will give up ownership equity in their business…

Pre-qualified funding is the process of pre-qualifying your business funding request before you apply. This makes your business look much more appealing to the lender. It also requires that you know the exact funding guidelines of every funding source. We know what funding sources have to offer and we know what it takes for you to pre-qualify. This means that we will show you exactly where your business may need to improve to qualify for more funding in the future.

Preferred debt is debt that the repayment of or lien position takes precedence over other debts. Your first mortgage would be a preferred debt over your second mortgage. The main types of preferred debt include interest on mortgages, equity loans and equity lines of credit. The interest from these types of loans is tax deductible. Not included in preferred debt are auto loans, credit cards, signature loans, personal loans, and student loans.

Pledging assets is an offering asset to a lender as collateral for a loan. During the period of the loan, the lender has possession of the asset but is not able to seize ownership unless the business defaults on the loan. When/If the debt is paid off and all the loan conditions have been met, the lender then returns the asset to the borrower. In mortgage lending, a pledged asset can also drastically reduce the initial down payment. This allows the borrower to retain possession of the asset, and maintain its capital appreciation, without having to sell it to gather enough for a…

PIPE investments (Private Investment in Public Entity) take a sizable position in publicly traded companies whose valuations have dropped since they went public and now are seeking new sources of the cash infusion. Early-stage companies must normally rely on internal or angel investors for their source of capital. Private investors and venture capitalists want deals with a longer investment period and companies established business models that have recently discovered a new market. Basically, they are looking for a huge return on their investment in the shortest time possible. This feat is only attainable by a select number of businesses and…

A permanent end loan refers to short term financing of real estate construction projects which are then followed by long term financing, called a “permanent end” loan. This type of loan is usually issued to a buyer of the new construction project upon its completion. Construction loans normally work together with permanent end loans. For example: The land developer gets a $10 million construction loan to build 50 homes in a housing tract.When a home becomes ready to sell, a buyer goes to their local bank or other lending agency and gets a $300,000 permanent end loan from their lender to purchase…

Paid in capital also known as contributed capital. Paid in capital is the capital a company receives from investors on top of the par value of the stock. Simply stated, any money the company gets from investors over the stated value of the stock is known as paid in capital. For example, if an investor buys shares for $15/share from a company whose stock’s par value is stated at $10/share, the company’s paid in capital is $5 for each share sold. Contributed capital must be listed under the owner’s equity portion of the balance sheet under either stated capital or paid in…

Open end lease is a lease requiring an additional payment at the lease end, the amount of which is dependant upon on the fair market value of the asset at that time. An open end lease is typically used for commercial purposes. Commercial leases are much more unpredictable than non-business lease, so lenders use open end leases to take the majority of the risk away from themselves and place it on the lessee. With a closed end lease, all the lessee has to do at the end of the lease is return the equipment. They have no other obligations, except if the equipment is…

Open end credit is an agreement by a lender to lend a specific amount to a borrower and to allow that amount to be borrowed again once it is repaid. This is also known as a revolving line of credit. Some examples of Open end credit include: Credit CardsHome Equity Credit LinesStore Specific Credit Cards There is often a finance charge associated with open end credit on the unpaid balance of the account. The size of the finance charge is generally agreed upon in writing before the open end credit account is issued. It is a good idea to review every…

Off-balance-sheet financing is financing from sources other than debt or equity offerings, such as joint ventures, R&D partnerships, and operating leases.  Usually used by companies in order to keep their debt to equity-ratio low.  The most common form is operating leases. With operating leases, the institution that owns the asset and leases it out keeps the asset on its balance sheet. The company that leases the asset only records the expense for the use of the asset on its balance sheet. There are many different rules and regulations provided by the GAAP(Generally Accepted Accounting Principles) to determine whether or not companies should list actual assets…

Nonrecourse debt – A secured loan with no personal liability. Nonrecourse debt is secured by some form of collateral, under which the borrower has no personal liability.  If the loan defaults, then the lender only claims the collateral.  The borrower’s liability is limited to the collateral put down for the loan.  If the collateral is less than the amount still owed when the loan defaults, it is a loss for the lender. To combat this, lenders will typically only lend a maximum of 80-90 LTV (Loan to Value) of the property used as collateral. This means that the lender will only…

Minority business finance is the process of providing working capital to minority-owned businesses either through debt or equity.  It has been shown that minority business owners are more likely to have their requests for funding denied than white business owners. Even if a minority-owned business did get funding from a lender, it would receive less money, per dollar of equity, than a white-owned business. There are several organizations and government institutes that are aimed at funding minority-owned businesses. The Minority Business Development Agency is a federal agency that focuses on growing minority-owned businesses.  There are also several Business Development Centers that help minority entrepreneurs with starting…

Micro loans provide your business with small capital injections that can really make a huge difference to your company. Typically micro loans are $35,000 and under. They also work for both newly established and start-up companies. No matter what stage in developing your business is in, you should consider this financing option. These micro loans are most often provided by the SBA (Small Business Administration) as they provide the money to non-profit community lenders who are responsible for making the loan decisions locally. The SBA also guarantees other types of loans as well. They will guarantee up to 70% of some…

Mezzanine finance funding can come in the form of stand-alone subordinated debt or equity transactions. Most often it is found in the form of subordinated debt. Mezzanine financing is a great alternative to other forms of financing where interest in the company must be given up. It is more of a mix between traditional debt and equity financing and retains some benefits from both. Since there is no collateral required to secure mezzanine financing, interest rates are typically very high. Sometimes interest can be as high as 20-30%. If the borrower defaults on the loan, the lender providing the mezzanine…

Mezzanine financing – Bridging financial gaps Mezzanine financing gives businesses access to capital when a bank won’t finance them initially. It is an excellent method for a new, but profitable company to gain capital while getting their financials in better order so they can receive a more standard bank loan. It generally includes subordinated convertible debt and yield-based preferred shares, often structured with warrants or options. Basically, mezzanine financing is a combination of both debt and equity financing. The financing starts off as a debt loan, and the lender can take over an equity ownership position if the loan is not…

Definition of Mezzanine Investment Mezzanine investment financing (also referred to as third-stage capital) refers to a later-stage investment provided to a company that is already producing and selling a product or service, for the purpose of helping the company achieve a critical objective that, in many cases, will enable it to go public. Mezzanine investment financing provides for major expansion in companies whose sales are increasing, and whose cash flow is break-even or slightly positive. Example of Mezzanine Investment Company A is expanding and intends to build a new office complex. All preliminaries are in place: the plans, zoning approvals, building…

Mezzanine funding, in a generic sense, is a venture capital term used to describe funding for a company that is somewhere between being a startup and IPO, or Independent Public Offering. It can come in the form of stand-alone subordinate debt (the most common) or equity transactions. Sometimes it will start off a as a standard debt loan with interest, and if the initial loan is not paid back on time or in full the lender will take an equity ownership role. Mezzanine funding is short-term lending for long-term benefit. Since there is a lot of risks involved for the lender,…

Merger and acquisition funding at a competitive rate requires a properly structured transaction. Financing for such scenarios comes in a variety of alternatives. These financing alternatives include: New private equity placementSale-leaseback vehiclesBridge or term loansOther mezzanine-type productsRevolving lines of credit The advantages of growing through acquisition Key personnel acquiredIncreased purchasing powerGreater geographic reachExpanded product linesHeighten industry recognitionIncreased customer baseReduction in overhead Merger and acquisition financing requires you to work closely with: Private equity investorsInvestment bankersCommercial Lenders All of whom help produce the results that will lead you through the maze of corporate funding alternatives. In order to finance the assets and…

Merger financing enables the combination of two quality companies. Merger financing is a necessity when two companies want to join forces and form a much larger company. This financing is also used when a company wants to completely buy out another business. The financials of the merger need to make sense, so having a good plan of how the merger will improve the business will get you in the right direction to obtaining the financing needed.  Merger financing will require that you work closely with: • Private equity investors• Investment bankers• Commercial Lenders We have a free business capital directory that has over…

Letter of credit is a document issued by a bank that guarantees the payment of a customer’s drafts for a specified period and up to a specified amount. Letters of credit are commonly used today in international trade when a supplier in one country does business with a wholesaler in another country. If business A wanted to purchase a large order of supplies from business B, business A would go to its own bank and request a letter of credit. When business A is approved, their bank will send the letter of credit to business B’s bank. Business B’s bank will then notify business B that the…

Leveraged buyout financing (LBO) is typically provided for the strategic purchase of other product lines, divisions, or companies. They can also be used for, but are not limited to management buyouts, acquisitions, divestitures, valuations and refinancings. When doing a leveraged buyout, be prepared to: Raise and negotiate terms of senior, subordinated, and equity financingFind strategic and financial partners for these transactionsOrganize business plansHire needed management personnel, where applicableStructure new employee benefit plansCommunicate effectively with employeesNegotiate long-term supply and use agreements What to expect: Leveraged buyout financing usually takes the form of cash flow lending that is underwritten based on the…

Later stage funding is normally for a company expecting to go public usually within a year. Often this funding is structured so that it can be repaid from proceeds of the public offering and non-included in any IPO sale restrictions. Later stage funding investments are for companies with: More than $25 million in gross revenue potential.Large National or International market potential.Management teams with successful track records. Second, third and mezzanine financings are all considered later-stage and funded by venture capital investors and/or, in the case of mezzanine financing, can also include corporations or strategic investors. As in first-round financings, valuation…

Joint venture financing for commercial property Joint venture financing is a means of structuring a mortgage in order to help you, the client, maximize cash flow potential. How? By “teaming” you with a lender as an investor. Definition of a joint venture similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship. In this case, the joint venture concerns commercial real estate and…