Interest rates sure to rise this year

With interest rates sure to rise this year, is now the right time to borrow? If you’re going to need that money, you’d better think seriously about it.

 

You don’t need a crystal ball to conclude that interest rates will rise significantly in 2017. If you think your business will need money in the next 24 months, the time to borrow is now.

The price of money is going up. Way up. Since late 2008, our economy has lived in an “interest-rate fantasy world” where the cost of borrowing money was extremely cheap. Everyone from Joe Smith looking for a mortgage to Uncle Sam financing a deficit has been able to borrow money at historically low rates.

The price of money is going up. Way up.

It’s no coincidence that rates have been so low. A confluence of factors has led to this:

  • Over the past eight years, the Federal Reserve has maintained a policy to keep the target federal funds rate (FFR) at between 0.0 percent and 0.25 percent, the lowest ever. This interest rate sets the benchmark for all other interest rates in our economy. The lower the FFR, the cheaper the interest you’ll pay on your loan.
  • The Federal Reserve also implemented several rounds of quantitative easing, which means it purchased debt securities from banks for cash. This added trillions of dollars in available lending money. With the “supply” of money available to lend increasing, the price of lending that money went down.
  • Foreign investors have had limited options for parking trillions of dollars in cash in safe places. The European economic crisis that started with Greece in late 2009 spread to other countries in the region. Suddenly, lending money to European governments—or even having money in euros—was seen as risky. This led to hundreds of billions of dollars being transferred to the U.S., creating an even greater supply of money here.
  • The havoc caused by the housing and financial crises devastated consumer finances, cutting off people’s ability to qualify for loans and making businesses think twice about borrowing to expand. This led to a precipitous decline in the demand for money just as the supply was increasing tremendously.

A Change Of Pace

This year, however, has been marked by significant changes in the global economy and in U.S. economic policy, which started reversing its history of low interest rates.

Earlier this year, the Federal Reserve announced that it would begin tapering off and eventually cease its quantitative easing program. This will drastically reduce the amount of new capital available for lending. But as the supply of money goes down, lenders will be able to charge more.

Conditions in Europe have also improved significantly. As of the second quarter of 2016, Germany’s economy, the largest in the region, has been growing and is no longer in a recession. Surveys taken of business owners and executives across the region indicate they’re feeling optimistic about the future and plan to increase investments and hiring. These positive signs point to an overall stabilization of the European economy, making it a viable investment alternative to the U.S. once again. As a result, foreign investors have already begun taking money out of the U.S. and investing it in Europe, thus impacting the supply of money available for lending here.

China and Japan are dumping U.S. Treasury securities. Earlier last year, the two countries sold a net $40.8 billion worth of U.S. Treasuries. The U.S. owes nearly $2.4 trillion to these countries, so the sale is relatively small compared to their overall holdings, but relative to what the U.S. needs to borrow every month to keep paying its bills, it’s significant.

The reason they sold is precisely because they expect U.S. interest rates to go up. The price of a Treasury security goes down as interest rates go up. In order to avoid a drop in the price of their investments, these countries are trying to get out as much as they can as soon as they can. This presents a significant problem for the federal government. In order to make lending attractive to us, they’ll need to raise the interest rates they offer on the money borrowed, which will lead to a general rise in rates.

 

So after all of this is sitting on the sidelines as the cost and availability of money really making sense?

Upgrade equipment? Follow these steps to decide if it’s time.

It’s best to start the process well before you actually need it. You increase your likelihood of landing your loan when you’re not in crisis mode.

Whether you run a fledgling company or you’ve been in business for years, investing in equipment upgrades can be an anxious process — from the time you first identify an issue to waiting for the bank to approve your loan or lease application.

Should you upgrade? Seven factors that might influence your decision.

  1. Is old equipment hurting productivity?If your systems struggle to perform tasks they were never designed to do in the first place, you could be at risk of losing potential revenue or prospective customers because your administrative systems can’t keep up with you.
  2. Is it prone to breakdowns or a struggle to repair?Aging equipment is bound to be less efficient and require more frequent repairs when it’s pushed beyond its useful life. If you’re limping along with an obsolete system that is unsupported by the vendor or you’re finding it increasingly difficult to locate consumables or replacement parts, you can only delay for just so long before you’ll be forced to upgrade. Better to proactively upgrade before your equipment fails completely and you — and your customers — are left in a lurch.
  3. Are you experiencing frequent bottlenecks?If performance is suffering because too much demand is being placed on a particular resource, then you’d be well advised to expand the existing system to make it accessible to more users.
  4. Is it preventing upgrades in other areas?Dependencies often develop between various systems or equipment so that, even when you’re eager to upgrade one piece of equipment, you can’t make the switch until you upgrade another piece of equipment that, in many cases is far more expensive to contemplate. For example, you’d like to implement a new administrative management system but you can’t do that until you upgrade and expand your server array. One upgrade can have a domino effect on other systems but sometimes you just have to tap that first tile to set the entire thing in motion.
  5. Is your image suffering?In any competitive environment, customers come to expect a threshold level of products and services. If you can’t offer services, features and benefits that have become an industry standard, you could be driving current and prospective customers away because they perceive you as outdated and unprofessional. Your antiquated systems and processes could be hurting your reputation. Customer confidence, once lost, is difficult to recover, so upgrades may be a necessity to maintain your competitiveness and a modern, professional image.
  6. What are the costs of action versus inaction?The benefits of an upgrade are usually apparent because you’re already highly aware of the problems the upgrade should solve. However, there may be hidden costs and unintended consequences that result from an upgrade. Be sure you’ve examined the upgrade from all angles and are aware of any interdependencies in your systems that could be affected. Create detailed projections on cost savings or revenue gains against the replacement cost and the expense of servicing and maintaining the new equipment.
  7. Does the timing seem right within the larger marketplace?Do things appear generally stable for the near term? Nothing is guaranteed in today’s economy, but pay attention to basic economic indicators that provide you clues about whether to proceed or delay. An announcement about lowered interest rates, a new financing program soon to be released or a change in a relevant tax deduction, are just a few of the factors that may influence your choices about whether to take action now or delay for a time.

Next steps: Funding for your equipment upgrade

Applying for a small business loan will require some effort on your part. It will take time to prepare and assemble the required documentation, so it’s best to start the process well before you actually need it. You’ll increase your likelihood of landing your loan when you’re not in crisis mode. Here’s what you can do to prepare.

  • Consult the professionals.Talk to your accountant about the best options for you and discuss the tax advantages or liabilities you should be aware of when considering whether to purchase, lease or finance. Work with your lender to determine the best type of loan for your needs and the loan terms that fit your situation.
  • Prepare the loan package.Loan programs differ slightly in their requirements, but nearly all will require the loan package to include your business plan, profit and loss projections and current financials. You’ll need to be able to clearly articulate why you need a loan, how much you need and how you plan to use it. Be sure your business AND personal finances are in order because, for small business loans, many lenders will use your personal financial position to help gauge how well you might manage a business loan.
  • Present your loan package.Request an appointment with the commercial lender you’ve selected, rehearse your presentation and make your case to the lender about how the loan will be put to use. You may want to invite the lender to your place of business for a tour of the operation and to illustrate your plans for upgrades, improvements or expansion.
  • Follow-up.Stay in regular contact with your lender while the loan package is under consideration. Respond to any subsequent requests from your lender for additional documentation as quickly as possible. Your rapid response indicates your desire to achieve a successful outcome.
  • Obtaining a small business loan or lease can be an intimidating, time-consuming process, but by educating yourself about the options and investing the time to create a compelling package, you’ll increase your odds of success.

Your Business Credit Score Can Impact Funding Terms

Good business credit can help you qualify for more credit at lower rates and have a positive effect on your repayment terms.

Lenders consider a number of factors before deciding whether to help fund your business needs. Amongst these factors, they may consider how well your business repays its debts. This is where a business credit score comes into play.

As a general rule, a higher business credit score indicates to lenders that your business is a more trustworthy borrower. If your business has solid scores, it will have a higher likelihood of getting approved for financing, it can help you access more credit at lower rates and have a positive effect on your repayment terms. Here are five ways having a good credit score can help you when applying for financing.

Higher Likelihood of Approval

Business owners with solid business credit scores have a greater chance of getting approved for financing. You might not know about this because, unlike personal credit, lenders aren’t required to notify you that they have made an inquiry into your business credit when you apply.

Businesses applying to the Small Business Administration’s (SBA) most popular loan, the 7(a) loan program, are required to go through a business credit pre-screen if applying for a loan of up to $350,000. This involves checking the business’s FICO, LiquidCredit, Small Business Scoring Service score, or FICO SBSS score. The FICO SBSS score ranges from 0 to 300, and the minimum score to pass the SBA’s pre-screen is currently 140. Most banks and 7(a) lenders, however, require a 160 or higher.

Lower Rates

Even a slightly lower annual percentage rate (APR) can make a huge difference in the cost of a business loan or line of credit, so having a good business credit score can help even if the effect on your loan interest rate is marginal.

Imagine a business with low credit scores qualifies for a $200,000 business loan with a 12-month repayment period at 20% APR. If that business had a credit score high enough to help shave just 2% off that APR, they’d save over $2,000 on the total cost of the loan.

 

Better Repayment Terms

Obtaining a good business credit score before applying for business financing is particularly important for businesses that struggle to maintain a consistent monthly cash flow, because some lenders will offer longer repayment periods to businesses that can show they successfully repay their debts.

Let’s take our $200,000, 12-month term loan example from above. If the credit score of the business in question was good enough to help it qualify for a longer repayment term on that loan, say an 18-month term instead of a 12-month term, they would be responsible for paying back less than $13,000 per month rather than over $18,000 per month.

Higher Amounts

If you’re looking to finance a big purchase or large project, you’ll want to get your business credit in shape before applying for financing. Businesses with solid credit scores may be able to qualify for higher lines of credit or loan amounts—if lenders see that your business successfully pays back debts already, they’re more likely to lend you more cash.

Wider Variety of Financing Options

Having a solid score can help businesses qualify for another, less talked about type of financing that many businesses don’t realize are available to them: trade credit.

If you work with vendors or suppliers and have maintained solid relationships with them, they may be willing to extend you “terms.” For example, net-30 terms give you 30 days after the invoice to pay, while net-90 terms give you 90 days. This is actually the most common type of financing used by businesses and it can improve your business’s cash management should you qualify. Vendors and suppliers may look into your D&B PAYDEX score before extending this form of credit.

Not all lenders are going to look at your business credit scores, but because you may not know when your scores will come into question, it’s a good idea to keep them in good shape. Different lenders look at different scores, so it helps to know how multiple scores rate your credit before you start searching for financing.

 

Back to work…

Back to Business

Back to Sales

Back to reality

 

The Election is over

Lame “Everyone is waiting on the election” excuses are over
Back to reality
Back to business
Back to sales

 

And by the way, in case you missed the news, the economy is still not so hot.

 

Back to reality. The economy is still weak. Business is still slow. Your competition is still cutting prices. Your customers are still paying slowly. And you are struggling to create a difference between you, and the people with whom you compete. REALITY: Concentrate on YOUR economy, not THE economy.

What can you do that actually creates new and renewed opportunities to sell? PLENTY! But you have to renew your personal commitment to do more and work more.

Here are the elements you’ll need to devote time, creativity, and hard work to:
1. Understanding THEIR reality. You’re down because they are down. You’re slow because they’re slow. Meet with them. Talk to them. Understand them. Help them, and they will reward you with both business and loyalty. REALITY: Unless you help your customers win, you will continue to lose.

2. Value first. The more I espouse this philosophy, the more I am convinced it’s a key differentiator. Make a list of what you have discovered about your customers needs, and give them ideas to meet those needs. REALITY: Value first requires a new mindset.

3. Value perception. Whatever you decide to do in favor of the customer must be perceived by them as valuable. REALITY: If the customer doesn’t perceive it, then it isn’t.

4. Daily social media activity. Assuming that your policies and lawyers are coming to the reality that social media is dominating the world’s market attention, and are choosing to let you participate, get involved today. Begin your personal value-branding today. Goal yourself to gain 100 LinkedIn connections, achieve 500 Facebook followers who “like” you on your business page, and earn 250 Twitter followers who are re-tweeting the value messages you have to offer to them. REALITY: Social media is the new cold call.

5. Differentiation. Decide on what’s REALLY different about you. NOT what you think is different or better, rather what your customers think is different or better. And then get customer video testimonials that support those differences. REALITY: Testimonials are the only proof you’ve got.

6. Helping customers. If you know what your customers need, why not spend quality time actually helping them. Connect with them and offer genuine help. REALITY: Even if they don’t accept the offer, you will win their respect.

7. Brand building. This is BOTH for your product or service, AND you. REALITY: If you blog, have a personal website, and send a weekly email magazine, you can build both brands at once.

8. Creating WOW! There are huge opportunities right now to make a difference. Maybe it’s your email, your welcome, your delivery, your phone response, or your service. REALITY: You’ll know it when you hear it.

9. Breakfast and lunch. These are the two best times for relationship building and sales meetings. REALITY: You can combine this with WOW! by bringing a referral or prospect for your customer.

10. Creating and capturing IDEAS. The key ingredient to this entire “back to reality” process is your ability to generate and capture ideas. This requires new study, new habits, and new thinking. REALITY: Ideas come from focused thought, an open mind, a positive attitude, and a renewed belief that you can do it.

10.5 Forget your “sales-pitch” and lose your “sales-pitch.” It sounds pathetically like your competitors. It never ceases to amaze me that a sales presentation that ends in “send a proposal” or “I want to think about it” or “NO!” gets repeated over and over. IDEA: Collaborate with the last ten customers that bought from you. They have all the answers. It’s time to revise and revamp your value proposition, and present something new and exciting. REALITY: The more the prospect perceives value, the less that price will matter.

REALITY: Sales have not stopped, they’ve just slowed down. Your value and hard work will ensure you more than your fair share.

It’s not the external conditions and circumstances that stop us — it’s us!

In these troubled economic times, when everywhere you look there’s a rumbling of great uncertainty, I think we should all take a pause (and a deep breath) to think about our lives.

Are we moving in the direction we want to be? When things happen in the world that seems so far beyond our individual control, it can feel unsettling. And even though we think we are the masters of our own success, watching the news these days can chip away at our beliefs.

Even in tough economic times, you get to decide how to respond to certain conditions, opportunities, and outcomes—both good and bad.

While I don’t claim to be an economist, I do know one important fact. The economy is the same for everyone, it’s how you respond to it that determines how you feel about it.

The basic idea is that every outcome you experience in life (whether it’s success or failure, wealth or poverty, wellness or illness, intimacy or estrangement, joy or frustration) is the result of how you have responded to an earlier event (or events) in your life.

If you don’t like the outcomes you are currently experiencing, there are two basic choices you can make:

Choice #1: You can blame the event (E) for your lack of results (O).
In other words, you can blame the economy, the weather, the lack of money, lack of education, racism, gender bias, the current administration in Washington, your wife or husband, your boss’s attitude, the lack of support, and so on.

No doubt all these factors exist, but if they were the deciding factor, nobody would ever succeed.

For every reason it’s not possible, there are hundreds of people who have faced the same circumstances and have succeeded. It’s not the external conditions and circumstances that stop us — it’s us!

We think limiting thoughts and engage in self-defeating behaviors. We defend our self-destructive habits (such as drinking and smoking) with indefensible logic.

We ignore useful feedback, fail to continuously educate ourselves and learn new skills, waste time on the trivial aspects of our lives, engage in idle gossip, eat unhealthy food, fail to exercise, spend more than we make, fail to tell the truth, don’t ask for what we want, and then wonder why our lives aren’t working.

Choice #2: You can instead simply change your responses (R) to the events (E) until you get the outcomes (O) you want.
You can change your thinking, change your communication, change the pictures you hold in your head (your images of the world) and you can change your behavior (the things you do.) That’s all you really have any control over anyway.

Unfortunately, most of us are so engrained our habits that we never change our behavior.
We get stuck in our conditioned responses-to our spouses and children, to our colleagues at work, to our customers and our clients, to our students, and to the world at large. You have to gain control of your thoughts, your images, your dreams and daydreams, and your behavior.
Everything you think, say, and do should to become intentional and aligned with your purpose, your values, and your goals.

If you don’t like your outcomes, change your responses!

Here’s an example of how this works…
There was a large earthquake in Northern California.

Two days later CNN interviewed people commuting to work. The earthquake had damaged one of the main freeways leading into the city. Traffic was at a standstill, and what was normally a 1-hour drive had become a 2-3 hour drive.

The CNN reporter knocked on the window of one of the cars stuck in traffic and asked the driver how he was doing.

He responded, angrily, “I hate California. First there were fires, then floods, and now an earthquake! No matter what time I leave in the morning, I’m late for work. I can’t believe it!”

Then the Reporter knocked on the window of the car behind him and asked the driver the same question. This driver was all smiles.

He replied “It’s no problem. I left my house at five am. I don’t think under the circumstances my boss can ask for more than that. I have lots of music and Spanish-language tapes with me. I’ve got my cell phone. Coffee in a thermos, my lunch-I even have a book to read. I’m fine.”

Now, if the earthquake or the traffic were really the deciding variables, then everyone should have been angry. But everyone wasn’t.

It was their individual response to the traffic that gave them their particular outcome. It was thinking negative thoughts or positive thoughts, leaving the house prepared or leaving the house unprepared that made the difference. It was all a matter of attitude and behavior that created their completely different experiences.

If we all experience the same EVENT, the OUTCOME you get will be totally dependent upon your RESPONSE to the situation.

If you want to take control of how you respond to life, you’ll start noticing that your outcomes will be more along the lines of what you have always hoped.

Remember, you control your destiny so make it a fantastic one!

The Secrets of long term business relationships.

How can you get other people to become interested in you and your product or service? Dale Carnegie (How to Win Friends and Influence People) says by becoming genuinely interested in them. And he’s partially right.

The reality and the secret of a business relationship is that BOTH parties must be mutually engaged and mutually interested, and BOTH parties must be intellectually stimulated and emotionally connected. Otherwise it’s just a conversation that will be forgotten, unless the salesperson is taking notes.

The key to deepening a sales relationship, or any relationship for that matter, is to connect emotionally. Favorite teams, kids, college create emotion when spoken about, and the feelings and or situations are mutual.

The secret ingredient of a sales relationship is emotion. Emotion is a key link to rapport, relaxation, and response. Emotion takes conversations deeper and becomes more open. The desire to talk and reveal becomes more intense. It pushes you to trade stories and discover similarities.

To establish the ultimate long-term business relationship and to be memorable in the service you perform, you need personal information about your prospect or customer. The more information you have, the better it is to establish rapport, follow-up and have something to say, build the relationship, and gain enough comfort to make the first sale, and with consistent follow-through, many more. The difference between making one sale and building a long-term relationship lies in your ability to get this information.

If given a choice, people will buy from those they can relate to. People they like. People they trust. This stems from things-in-common. If you have the right information, and use it to be memorable, you have a decided advantage.

Or you can decide “That’s too much work, I can make sales without becoming involved with the client.”

This philosophy gives the advantage to someone else – your competitor.

Technologies small businesses use that may soon be obsolete

We hear a lot about all the technologies that will one day change our lives like drones, driverless cars and 3D printed body parts. That stuff is for real and, yes, it will have a huge impact on the world…within the next decade.

But what about the short term? What about the next 2-5 years? There are many technologies that you are using in your business which will become obsolete in that time frame. And the last thing you want to be doing is investing your money in the wrong place. Here are just three business techs that will be disappearing from earth sooner than you think. Not entirely…but they’ll be pretty much dead.

On-Premise Accounting Systems

Remember the good old days when you could purchase your QuickBooks, Peachtree or One-Write (what’s that?) accounting software, install it on your computer and be good to go? Get ready to say goodbye. The big software developers like Intuit and Sage are re-directing most of their development dollars to cloud-based applications. It makes sense – cloud applications are more easily supported, scalable, accessible, upgradable and integrated with other cloud-based systems. If you’re looking for a new accounting system this year, lean heavily to those either providing cloud-based solutions or that have a plan to.

Credit Card Machines

I know what you’re thinking. Sure, there are all these “mobile” payment options available out there. But I’m still using my credit card for 99% of the things I buy! New mobile read credit card scanners is definitely there. But the transition is not happening as fast as expected. What’s the tipping point? More adoption by Millennials? Lower transactions fees to encourage retailers? A digital driver’s license for your smartphone? All or some of the above? Whatever the answer, it’s ultimately going to happen. Using mobile payments will ultimately be more convenient, more secure and more profitable for the credit card industry (and all those industries that indirectly benefit). If you’re a merchant, a restauranteur or do anything where you accept a credit card at your location, you’ll find yourself accepting far less cards and far more mobile payments over the next 2-5 years. The POS device that only accepts credit cards will be a thing of the past.

Office Phone Systems

Once upon a time you needed a phone system for your office and it was a big investment. There were servers and software and individual units. You had to hire a firm to implement it all and then train your people. For a small company it was a huge hit to cash flow, even when it was leased over a hundred years. Well, things have changed. A phone system, provided by VirtualPBX, costs about $10 per month per mailbox. Like competitors such as Grasshopper and RingCentral, this company provides all the capabilities of an in-house system but through the cloud. Callers get an automated attendant and then choose from a dial-by-name directory. Calls are transferred to smartphones or purchased units. Voicemails are stored online. All messages are forwarded via text and email. It works! Look for those in-house phone systems to become a thing of the past, particularly for smaller companies with smaller budgets.

 

Making Sense of the Financing Process

Making Sense of the Financing Process

The financing process runs like clockwork here at SFG. After all, we are in the financing trenches all day, every day. We understand that to people on the outside of the financing world, the process might not be second nature. In fact, it’s typically quite the opposite. That’s why we have put together this eBook to cover the ins and outs of the equipment financing process.

Inside this eBook you’ll find:

  • What you should know before you begin working with a lender
  • How to select a lender you can trust
  • What you should know about the application
  • How to decipher the financial documents
  • How funds are distributed from the lender

The Plan

Approaching a lender for financing isn’t something you should do on a whim. You will need to prepare first.

Know what you need and why you need it. Simply walking into the lender’s office and saying “I need four trucks” likely won’t get you very far. Why do you need those four trucks? Has your bakery business picked up so much in the last several months that you can’t handle all of the deliveries with a single truck? Do you need to replace your current fleet of delivery trucks because they are ten years old and constantly breaking down? The key here is the reason. It may be obvious to you, but your lender is going to want to know how the new piece of equipment is going to be beneficial to your business.

Consider your time frame. If you have to make that massive amount of deliveries in your single truck tomorrow, you’re going to need financing a lot sooner than if you’re just looking to upgrade your fleet. It’s important to have an idea going into the financing process of how soon you’re going to need the equipment. That way, your lender will know from day one if they are going to have to move mountains to speed up the process for you – in many cases, they will.

Know where your finances stand. Before you go waltzing into that lender’s office, you’ll want to pull your credit report and recent financial statements. That way you’ll have an idea of any errors or blemishes that might be red flags to your lender and you’ll be prepared to talk about them. On top of this, you should be prepared to answer questions about your monthly, quarterly and yearly revenue, average bank balances, and credit history.

Select a Lender You Trust

Now that you’re certain that you need financing, the next part of the process is to find a good lender. Before you run right into your nearest bank, be sure to consider your options and do some research.

There are many different types of lenders, from a traditional bank to a non-traditional “alternative” lender. Consider what you are looking for and the benefits of each. Be careful, though, some banks will not finance used equipment and will likely put many more restrictions on your loan.

Once you’re settled on the type of lender and think you’ve found a good place, go online and check out their website. Is there any­thing there that raises a red flag or doesn’t sit right? Do a Google search and read all that you can about that lender. See if you can find reviews of other peoples’ experiences. The more you know the better.

Complete the Application

You’ve selected a financing partner you’re excited to work with and you’re ready to sit down and tackle the application. Easy, right? Maybe. Making a mistake at this part of the process could mean your funds are delayed, which could be costly if you’re count­ing on that money for an important business need.

Remember, the lender is going to want to learn a number of things from your applica­tion – most likely the length of time that you’ve been in business, your overall revenue, an average bank balance, and your credit score. It’s important to give the lender only and exactly what they ask for. If the lender wants to see bank statements from the last three months, don’t send bank statements for the entire last year, even if it might paint your business in a better light. This will only give the lender more paperwork to sift through and could confuse the process.

On the same token, don’t withhold critical information about your business. If they ask for bank statements for John Doe’s Tasty Bakery, but you give them bank statements for your other operation, John Doe’s Bread Shop because both businesses will be using the new equipment, but you didn’t tell them about your second business in the first place, then you are going to slow down the process.

Submit the Application

In the end, the timeframe depends on you as well. If the lender sends you the appli­cation, and you sit on it for four days before you send it back, you are slowing down the process for yourself. Be prepared for the lender to come back and ask for more information or clarification on parts of your application.

Once you have submitted your application, and it has been approved by the credit team (usually within 1-to-48 hours), the lender will begin to assess your options and what programs might be a good fit for your needs.

The Financial Documents

This is when the lender will draw up the financial documents. The documents will include information on payment terms and your financial responsibility.

It’s usually not necessary to have a lawyer go over the paperwork, but don’t be afraid to call in counsel if there’s something that doesn’t sit right with you or something you just don’t understand. Be sure to read the entire document carefully. Don’t worry! Though it may seem like there is a lot of financial jargon in the financial documents, almost all of it has to do with consequences and actions the lender may take if you don’t pay your bill on time. As long as you pay on time, you generally won’t have anything to worry about.

Remember, if you do have an issue paying, call your lender first before just skipping out on your bill. Chances are they will be much more willing to work with you if you call and explain your situation.

The Funds

Once the signed documents have been returned to the lender, the lender will ensure that the documents are signed in all of the correct places and that nothing has been altered. Now, the lender may begin the funding process.

The lender will call the vendor for the delivery date of the equipment and request their payment terms. At this point, the vendor will likely deliver the equipment to you. It is your responsibility to look over the equipment and ensure that it is exactly as advertised and free from damage. Look carefully, as this is an important step!

If all is well with delivery, you’ll give the lender a verbal authorization and funds will be released to the vendor. In almost all cases, the contract will start when money leaves the lender’s hands.

Repayment

Once the funds have left the lender, the financing process is complete and the responsibility for repaying the loan lies in your hands. Be sure to make payment in accordance with your contract terms.

If your financial agreement is a lease, you will most often return the equipment at the end of the lease term, but in some cases you may be granted the opportunity to purchase the equipment at “fair market value” or at set a price outlined in the initial contract.

Now, you’re ready to finance your next piece of equipment!

 

Vehicle for Your Business

Questions to Answer Before You Get a New Vehicle for Your Business

Personal taste and your pocketbook are usually the deciding factors when choosing a new vehicle. If you’re in the market for a new car, light truck, or van that you plan to use at least in part for business, you’ll want to make certain decisions before you shop to help you make an informed decision. The answer to these questions can affect the type of vehicle you select, your cost, and your tax write-offs.

Should you get a new or pre-owned vehicle?

Buying a used vehicle can save you money. Look for warranties that will provide coverage if something mechanical goes wrong. Check for gas mileage efficiency (older models may be have a lower MPG rating than new ones), which will impact your operating costs.

From a tax perspective, whether the vehicle is new or pre-owned does not affect your write-offs. If you buy rather than lease the vehicle for business, you can depreciate the cost, but dollar limits usually apply. For vehicles purchased last year, there had been a higher dollar limit applicable to new vehicles because of bonus depreciation; since there is no bonus depreciation this year, there is a single set of dollar limits for both new and pre-owned vehicles purchased in 2015.

Last year, if you bought a new vehicle for personal use from February 17, 2014, through December 31, 2014, you may have been able to deduct the sales tax on the purchase; this tax break does not apply in 2015 (unless Congress extends it).

Should you buy or lease the vehicle?

Leasing a vehicle may enable you to drive a more expensive one than you could if you purchased it. However, as a practical matter, you must consider the type of driving you do to determine whether leasing is really an option for you. For example, if you expect to drive more than 15,000 miles a year, leasing may not be a good choice because of cost — most leases limit annual mileage to no more than 15,000, with excess mileage charged at a pricey rate.

Tax-wise, it may or may not make any difference whether you own or lease the vehicle. You have two options for write-offs:

Deduct actual expenses. In this case, you’d deduct depreciation (within set limits) if you own the vehicle, or lease payments if you lease it. Lease payments could provide a larger write-off in some situations; it depends on the type of vehicle you lease or buy. Deductions for other costs, such as insurance, gasoline and repairs, would be the same whether you own or lease.

Deduct an IRS-set standard mileage rate. In this case, the annual deduction is based on miles driven and not the cost of the vehicle, whether you buy or lease, or any other factors. The standard mileage rate takes into account any depreciation or lease payments, as well as other costs of operating the vehicle. The standard mileage rate for business driving in 2010 is 50 cents per mile. (There is no write-off for personal driving, which usually includes commuting to and from work.)

Should you or the business own the vehicle?

Whether you put the vehicle in your own name or in the name of your company depends on a variety of factors:

Insurance. Coverage for business-owned vehicles is usually more expensive than personal coverage. However, if the business has several vehicles, there can be a “fleet” discount.

Liability exposure. If the vehicle is involved in a lawsuit, it’s better to have your corporation own the vehicle so that you have no personal liability exposure.

Tax savings. Corporate ownership of a vehicle can mean greater deductions. The corporation can write off 100 percent of the costs related to the vehicle (subject to depreciation limits discussed earlier). If you own the vehicle, you can only write-off business-related costs and, as a shareholder-employee, can only deduct these costs as a miscellaneous itemized deduction (only amounts in excess of 2 percent of your adjusted gross income are deductible).

Should you buy an alternative energy vehicle?

If you want to help the environment and save on fuel costs, there is a number of alternative energy vehicles that you can choose to drive. There are special tax incentives for doing so, whether you buy the vehicle for business or personal driving:

Hybrid vehicles may allow you to take a tax credit. The credit varies with the manufacturer and model number. Some hybrids, no longer qualify for any credit.

Electric vehicles may also give you a tax credit of up to $7,500.

 

There may also be state tax incentives for alternative vehicles, such as breaks on sales tax or tax credits.

 

Closing thoughts

In the final analysis, personal preferences and your pocketbook may be the deciding factors in your selection of a vehicle. However, the answers to the questions posed above could help you determine certain things, such as whether to buy or lease. It’s a good idea to talk over your concerns with your tax advisor and run the numbers to see what choices are best for your situation.

 

Why Are Asset-Based Loans for Smaller Businesses So Expensive?

An inside look into the cost structure of asset-based loans compared to commercial bank loans, and whether or not predatory pricing practices are at play.

Many smaller businesses don’t qualify for bank financing, their credit scores are too low,
the business is new, or other circumstances place them outside the strict lending parameters
of a bank. Even if a business does qualify for a bank loan, the process may move too slowly for the company’s liking. Thankfully, alternative lenders can provide accounts receivable financing, machinery and equipment loans, purchase order financing, inventory loans, and much more.This type of financing, known as asset-based lending, or ABL, is on the sharp increase.

But why does ABL sometimes seem so expensive?

  •   Is ABL perceived as riskier than commercial and industrial (C&I) loans?
  •   Is this a case of predatory pricing by alternative lenders?
  •   Is this an issue of scale, where larger allocations become cheaper to administrate?

    Comparing Cost Structures: An Inside Look

    Interestingly, the default rates on ABL and C&I loans are actually similar to each other. In both types of financing for smaller businesses, the risk-adjusted premiums are therefore similar too. However, ABL and C&I loans have very different cost structures. The cost of initial underwriting and of monitoring over time is low for C&I loans, while in ABL these costs are much higher. This is because ABL underwriting is more robust, and there is continuous monitoring over the lifetime of the loan.

    In other words, the risk-adjusted interest component in ABL is really modest, just as in commercial lending. It is underwriting and loan servicing costs that drive up the overall cost in ABL. These underwriting and loan servicing costs are more like fixed costs. They are proportionally higher for smaller credits. For larger companies, these costs are amortized over greater financing amounts.

    Is There Any Predatory Pricing?

    There is a common belief, especially among hedge fund managers and sponsors, that there are inefficiencies and predatory pricing in the small business lending space. But they are wrong. What is driving the cost of ABL is a very different cost structure. Lenders in this space need deep underwriting and collateral monitoring experience, and unlike for C&I loans, the specialized task of monitoring assets extends across the loan cycle.

The ABL market is made up of many “pools” of lenders that have different risk appetites. Within each such pool, there is an efficient, competitive environment. But as a borrower, you need to know which pool to “fish” in. Borrowers need to be cautious which group they approach, given the risk profile of their business. This is difficult for an entrepreneur to know, and lenders may not necessarily reveal that they are in the wrong pool for you.