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Business Financing and the Credit Crunch

The credit crunch has hit some small businesses very hard and with banks not lending many are at a loss of where to get needed funds. Don’t fret there are money sources beyond banks even if you rarely hear of them. Which source is best for any particular business depends on why the money is needed.

If the business is looking to buy equipment it is often best to try to get the equipment dealer or manufacturer to finance the purchase. Not all companies have this option in place but always ask because it can often be much cheaper than borrowing from another source.

Credit cards can be another option. However before you run out and charge a “high ticket” item (like a piece of equipment) you will want to call around and get the best locked in interest rate you can find. Yes, I am telling you to shop for credit cards. I know that may seem a little crazy but calling that 800 number on the back of your cards and haggling to get a lower rate can save you hundreds of dollars in interest. Play one card against the others and make sure the rate you are quoted is locked in for a long period of time. A low initial interest rate is not what you are looking for you want at least 12 months guaranteed at the rate you are given.

Private lenders are another possibility. Private lenders are not to be compared with loan sharks. These individuals have money they are willing to lend to others at a higher interest rate than they can get putting the money into the bank. They are willing to accept a bit more risk in order to get a higher rate of return.

If you need money and have a good reason for needing it, there is always a way to get funds.

Small Business – Looking For Business Financing and Business Funding

Looking for business financing generally refers to entrepreneurs searching for funding resources for a business. Businesses need capital for start-up and operating expenses, and many financial institutions provide loan programs to fulfill that need.

When looking for business financing, most entrepreneurs go to the Small Business Administration (SBA) first. This government agency supplies funding to business that employ fewer than one hundred workers and that have been denied by traditional lenders, such as banks. Their most common loan program is the 7(a) loan, which guarantees a certain percentage of a loan provided by a traditional lender. The loan requirements for start-up and existing businesses differ somewhat, but both require applicants to supply personal and business financial documents along with a written business plan. If a business meets the criteria for a 7(a) loan, it can download and print the application available on the SBA’s website to give to a lender who participates in the SBA’s guaranty program.

Existing businesses looking for immediate business financing usually turn to factoring. With factoring, a business sells its accounts receivables to another company, known as a factor. Most factors require businesses to process credit cards and to have been doing so for a certain length of time, usually three to twelve months. Once approved, the factor collects the payments on the accounts from the business’s clients until the funds are repaid. Factoring is not considered a loan; therefore, no debt is incurred on the balance sheet.

Looking for business funding refers to entrepreneurs who are searching for ways to fund a small business. Funding is needed for start-up and operating expenses. Many lenders provide specialized loan programs to assist small business owners in starting and maintaining their business.

A majority of entrepreneurs go to the Small Business Administration (SBA) when looking for business funding. This government agency provides loans to small businesses that employ fewer than one hundred workers and that have been denied by traditional lenders, such as commercial banks. Their most common loan is the 7(a) loan. The application requirements for start-up and existing business differ, but both require certain financial documents and a business plan. Certain variations of this loan may require additional documentation. To apply for the 7(a) loan, applicants should collect all needed documents and take them to a lender who participates in the SBA guaranty program. With this program, the SBA will guaranty a certain percentage of a small business loan in order to alleviate the lender from unnecessary risk.

Another source to consider when looking for business funding is a private investor. A private investor will contribute large sums of capital to a business in exchange for a portion of the profits. The best way to attract potential investors is to have a well-written, feasible business plan. Before an investor contributes any capital, it’s best to make sure that he or she is providing equity, not debt. Debt means the investor expects the business to repay all or part of the given capital.

Finance and Its Affect on Real Estate Values

Financing goes through cycles similar to the real estate market. There are times in history, where if you literally had a pulse you got a loan. Actually there have been cases in recent history where dead people have actually gotten financing for homes. Also during lenient times real estate can be bought with no money down or very little. This essentially allows people to buy homes with no real risk, at least financially speaking they can’t lose their 20% down payment if they put down zero.

When loan requirements are limited or virtually nonexistent this has a significant impact on real estate values. What happens is values climb rapidly with no end in sight. The reason is simple since everyone can get a loan then the number of buyers looking for homes is basically endless. Even people who never could afford to buy a home can buy their dream homes. This happens due to banks making loans based on stated incomes and stated assets. Essentially the borrowers just say what they make and what they have with no proof. When anyone can get a loan to purchase a house then the demand for homes is much higher than the limited supply and values appreciate accordingly. This has happened numerous times in history. The most recent time period was 1995-2005, 10 consecutive years of rapid appreciation.

At some point the gravy train ends and values have climbed to historic levels never before seen. A significant number of buyers who have never should have gotten loans, like the dead people end up not being able to meet their loan requirements. When this happens and the banks start having large numbers of defaults on loans, the banks now decide to re-evaluate their lending requirements and tighten them out making it much harder for buyers to get loans. Banks also require much larger down payments then zero down. All these restrictions also make it much harder for home owners to refinance their current properties. During this time period of tightened requirements there are a far less number of buyers, a good estimate is about half of the prior buyer pool. Therefore when banks tighten loan requirements and the buyer pool essentially is cut in half then the demand for homes decreases dramatically and supply stays the same or in most cases increases. Values have no choice but to drop drastically, even faster than they appreciated.

The point is that current loan requirements and restriction have a significant impact on what direction the real estate market will head in the future and should be taken into consideration when making real estate decisions.