| Business News: Fed Commits to Keep Interest Rates Near 0% Until Mid-2013

Posted in Business Financing at 9:00 AM by Loftis Consulting

Last week, the Federal Reserve announced it would keep interest rates near 0% until mid-2013.  What does this mean to businesses?  A lot.  By keeping interest rates low, the Federal Reserve is ensuring low rates until mid-2013.  As a result, as a business owner you can make financing plans and investment decisions based on this. For example, now that I know that interest rates will likely not be raised until mid-2013, I can refinance some of my higher debt to lower debt and lock in today’s low pricing for the long-term. I can also maybe invest in some new equipment at today’s low rates.

For your business, you should begin looking at your debt, cash accounts and investments to determine how to lower your interest expense costs and raise the return on your investments. This is normally something a CFO would do.  By maintaining the proper debt and investment levels with the right timing and returns your business profitability and cash can be maximized.

| Business News: Treasury Releases Small Business Lending Funds

Posted in Business Financing at 9:00 AM by Loftis Consulting

The US Treasury Department set up a Small Business Lending Fund for $30 billion to spur bank lending during the recent financial crisis. $123 million has been released to six community banks with more to be released in the coming months.

| Small Business Financing Options: 3 – Invoice Factoring

Posted in Business Financing at 9:00 AM by Loftis Consulting

Invoice factoring is a form of business financing that has been gaining a lot of notoriety in recent years. It is a specialized form of business financing that is designed to help companies that offer net 30 to net 60 terms to their customers, but can’t afford to wait that long to get paid. Factoring invoices solves this problem by advancing funds to companies based on their slow paying invoices. This improves their cash flow and helps them stabilize operations, allowing them to grow.

Most factoring transactions are structured as the purchase of an invoice by a factoring company. The purchase is done in two installments. The first installment is called the advance, and is provided as soon as you sell the invoice to the factoring company. The percentage that is advanced is based on your industry, your track record, the payment record of your customer and market risk conditions. Most advances average 80% of the invoice. However, transportation companies using freight factoring can get advances as high as 90%. Likewise, staffing companies can get factoring advances that go as high as 90%.

The second installment, called the factoring rebate, is paid to you once the customer pays the invoice in full. The rebate will include the remaining amount that was not advanced, less any fees. For example, if the advance was 80%, the rebate will be 20%, less any factoring fees.

When a factoring company purchases an invoice from your company, it can do so with recourse or without recourse. In a recourse factoring transaction , the factoring company has the right to sell back to you any invoices that have not been paid within 90 days, regardless of the reason for nonpayment. A non recourse transaction is a little bit different. The factoring company will absorb the loss of a non paid invoice if (and only if) your customer does not pay the invoice due to a declared insolvency (such as a bankruptcy) during the purchase period. Each factoring company engineers transactions in their own way, so you should familiarize yourself with the terms of your contract.

One very important aspect of a factoring transaction is the notice of assignment. Before you start factoring invoices for a particular customer, the factoring company will need to setup the customer. This is usually a fairly quick process where the factoring company checks your customers commercial credit, and then notifies them that their invoices will be factored. The notification letter, commonly referred to as a notice of assignment, informs your customer that you are working with a factoring company, who is helping you with your receivables. It also contains a new payment address. Many times the payment can continue to be made in your company’s name, provided it goes to the new address. The notice of assignment is fairly standard in the factoring industry but each factoring company has its own version of it.

Although factoring transactions appear to have many moving parts, they are fairly simple to implement and can be easily integrated into most companies. One of its most important benefits is that factoring is flexible. The line is dynamic and tied directly to your sales. You can easily grow your financing – as necessary – provided you sell good products or services to a diverse number of credit worthy customers.

About the Author

Commercial Capital LLC
Looking for invoice factoring? Commercial Capital LLC is a leading factoring company and can provide you with a competitive invoice factoring quote. For information, please visit their website or call (877) 300 3258.

| Small Business Financing Options: 2 – Mezzanine Financing

Posted in Business Financing at 9:00 AM by Loftis Consulting

As previously mentioned in an earlier posting, Small Business Financial Options: 1 – Bootstrapping, I will periodically focus on traditional and alternative financing options for start-ups and small to mid-size businesses.  Today’s topic is mezzanine financing, an alternative to more traditional business financing such as bank loans.

What is Mezzanine Financing?

Mezzanine financing is usually more appropriate for established businesses that need to expand their operations either through organic growth or by acquisition.  Mezzanine financing is a hybrid of debt and equity capital funding.  The financier provides funds in exchange for, in essence, a convertible note.  For example:

  • Company A gets money from Investment Fund Capital
  • Investment Fund Capital has the option to take an ownership or equity interest in Company A in exchange for the funding if Company A defaults either through untimely payments or less than full payment
  • Investment Fund Capital can also get the option to buy stock in the future even after the loan has been repaid within a certain time frame

Advantages of Mezzanine Financing

  • Less due diligence required than traditional bank financing
  • Relatively quick turnaround for funding
  • Little or no collateral required for financing
  • Controlling interest of company not required to be given up

Disadvantages of Mezzanine Financing

  • Higher interest cost (average rate of 15-30%) than traditional financing due to lower due diligence and collateral requirements
  • Growth plans must support future cash flows that enable the payback of loan principal and interest
  • Equity position may be given up which can be participatory or non-participatory

If your business is in need for external financing and have been turned down by traditional banks then mezzanine financing may be a solution.  Make sure you look at all of your options first before deciding.  As a Chicago-based CFO service provider with clients nationwide, Loftis Consulting may be able to help you figure out the best options for your business.

| How to Apply and Get a Bank Loan for Your Business

Posted in Business Financing at 9:00 AM by Loftis Consulting

It is nothing worse than applying for a bank loan and getting turned down and not knowing why.  This article will help demystify the process and give you the know how to get that business loan.

From the banker’s perspective, they have two major concerns:

  1. Lending someone else’s money (i.e. depositors)  out that they need to get returned – 1st priority
  2. Earning a profit (i.e. interest on loans) to pay dividends to investors – 2nd priority

As a result, bankers tend to be conservative when giving out loans.  They would not be in business long if they gave loans to non-creditworthy businesses.  You can increase the creditworthiness of your business by doing the following:

  • Build a positive personal and business credit history – Even if your credit is not stellar today, take the steps to move it in the right direction.  One thing you could do is to open vendor credit lines and pay on time to build a positive credit history.
  • Keep your debt-to-equity ratio relatively low –  A highly leveraged business compared to its industry peers could have a difficult time accessing bank loans.
  • Have a favorable reason for the bank loan – A great reason is that the the loan will enable you to increase revenue by allowing you to fulfill a substantial order from a client.  Other examples include lowering expenses or increasing productivity by purchasing upgraded equipment.
  • Have collateral –  The bank expects to be repaid from business profits but having collateral increases your chances of getting a loan.
  • Know your business – When the banker questions your business plan or other key assumptions for the amount of money you need, make sure you are able to explain why you need the amount you need.  A lot of times banks will grant you a loan but for less than what you need because you have not clearly articulated why this particular amount is needed.
  • Be able to understand and produce credible financial reports – If you do not have a good accountant or financial system in place, the banker will not be comfortable that you know what is happening with your cash flow.

As a part-time CFO and business consultant, I know there are some variables that you cannot control that can impact the ability for you to get loans such as economic conditions but barring these factors if you follow these tips you should be able to get that loan to grow your business.

| How to Find the Right Business Bank for You

Posted in Business Financing at 9:00 AM by Loftis Consulting

As a part-time CFO service provider, I cannot express strongly enough how important it is to find the right business bank for you and your business. For me personally, I needed a bank that fit both my personal and business needs, which I did. I was looking for a bank with multiple locations as well as a substantial ATM network since my clients were not only local but national. I also wanted a bank that had local authority to grant me business credit in the form of credit cards and lines of credit, which it does. I have learned that I have enough to worry about and my bank should not be one of them. You should do your homework upfront to make sure the bank fits you and not the other way around. Here are some tips on how to choose the right bank:

1. The bank has a business division focused on lending to small and medium-sized firms

This is relatively easy thing to check out.  You can do a quick internet search to find out the top small business lenders.  Once you have the list you should call and find out if they already service clients in your particular industry. It will be easier to get bank credit when the bank is familiar with your industry and you do not constantly have to educate them on your business.

2. The bank offers a mix of services and products that are important to you

Each business is different so you want to make sure that the breadth of products and services offered fit with your business today and for the future.  You do not want to have to switch banks because you out grew them.  You want a bank that can support your growth.  In order to ensure this, complete a list of items you want today and the near and not so near future.  These items may include traditional loans, lines of credit, SBA loans, business and employee credit cards, direct deposit, 401k services, online banking, payroll and so on.

3. The bank has the capacity to offer loan amounts that fit with your company’s projected growth

This can be found out by asking the right questions such as

  • What is the average loan size the bank makes to small businesses today?
  • Is the bank growing fast enough to support your financing needs as your company grows?

4. The bank has the retail and online banking channels that fit your company’s needs

It is important that your chosen bank have a robust retail and online banking capability.  As a Chicago-based part-time CFO provider with clients inside and outside of Chicago this was a top priority for my business.

  • The bank branch both online and offline must be convenient for your business office but for your actual operations.  For example, is it readily accessible for you to get cash on hand for cash paying clients during your regular business operations?
  • Does it have good online banking capabilities wherease you can easily download banking transactions into your accounting software resulting in time savings?

You may have other needs not listed but this should get you started on finding the right bank for you.

| Begin to Prepare for the Rise in the Cost of Debt

Posted in Business Financing at 9:00 AM by Loftis Consulting

The Federal Reserve will begin to end its support for financial markets in June 2011.  As a result, interest rates charged for debt is expected to rise.  How fast they will rise is open for debate.  Many companies, large and small, are loading up on debt to take advantage of the very low interest rates.  These companies include Johnson & Johnson and Texas Instruments.

Why is this important to your business or to you personally? This is the time to take stock of your finances, both professionally and personally and decide if this is an opportunity to lower your debt costs.  Lower debt costs have have a substantial impact on your bottom line. Make sure to do a full analysis incorporating the costs of refinancing or taking on new debt beyond just the interest rate.

As a Chicago-based part-time CFO service boutique firm, no matter where you live or work, you should be able to prepare for the rise in the cost of debt.

| Small Business Financing Options: 1 – Bootstrapping

Posted in Business Financing, Start-up Ventures at 9:00 AM by Loftis Consulting

Over the next several months I would like to discuss in detail the different types of financing options available to small businesses.  The financing options will vary from simple, bootstrapping, to more complex such as venture capital.  In the same vein, the more complex the financing option the more funding that tends to be available.

Bootstrapping Defined

The first financing option I would like to discuss is bootstrapping.  Bootstrapping is maintaining and growing your business using existing but minimal resources.  One example of this is working out of your home instead of renting office space. This can work for many services businesses that have the option to meet clients at their place of business or some mutual location such as a coffee shop or cafe.

Why Bootstrap?

Bootstrapping allows you the freedom to run your business your way without input from investors who may have a different vision for the business than you do.  In addition, you own the business 100% and therefore will enjoy all of the upside the business will obtain once it grows and becomes profitable or more profitable.

Bootstrapping Tips

  1. Trade equity for expertise – This means you give up some of your company ideally for something that will make your company grow.  I would not recommend giving up equity for something that will only help you in the short-term but something do recommend it for something that has long-term value such as a sales expert that can get your business in front of the right customer set such as big box retailers for a product manufacturer.
  2. Use bartering creatively – This is similar to trading equity for expertise but instead you are giving up your expertise or product to get something in return.  This is good for both short-term and long-term goals. For example, for a company offering online marketing services you could offer your marketing services for accounting services.
  3. Take advantage of free software – There are so many free business productivity applications today in which you can easily convert the documents into Office format.  A couple of examples are Microsoft’s Open Office.org for office software such as word processing and spreadsheet software.  Another one is Zoho which has customer relationship management (CRM) and invoicing applications.

These are just a few ways to bootstrap your business.  As a  part-time CFO, one of the most important things you can do it to just think before you spend and I am sure you can come up with lots of way to make your money lasts longer.

| The Best Small Business Credit Cards

Posted in Business Financing at 9:00 AM by Loftis Consulting

Last month I talked about advantageously using small business credit cards to manage and cut your expenses.  You can read this post by clicking here.  Now I would like to provide a top list of small business cards according to bankrate.com.  These cards are great because they offer cash rebates on purchases that are relevant to your business such as gas, supplies and travel. In addition, many of the cards offer reward points that can be used towards travel or additional cash back.

  1. American Express offers quite a few different small business cards so you should be able to find one that meets your needs under their umbrella.  American Express Blue for Business features an interest rate between 11.24% and 19.24% with an introductory rate of 0% for 15 months.  Blue for Business allows  you earn one point per dollar spent.
  2. Capital One Preferred with no hassle miles offers the same features as the American Express Blue for Business but its interest rate is higher at 14.99% – 22.99%.  However, the really cool feature with the Capital One card is that you can have your image or logo on your business card.
  3. Capital One Venture for Business is good for rewards.

These are just a few that are recommended for your business.  Go to bankrate.com to find more.

To learn more about part time CFO and Controller services offered by Loftis Consulting that can help take your business to the next level visit our website.

| How to Use Business Credit Cards to Cut and Manage Expenses

Posted in Business Financing, Cash Management at 9:00 AM by Loftis Consulting

One way to improve your business finances is to responsibly use credit cards to manage your expenses. Unlike personal credit cards, business credit cards provide detailed summaries of expenditures and allow you to give some  payment responsibilities to trusted staff members such as clerical staff and sales people who may need to spend money on the companies behalf through the use of employee credit cards.

However, I believe with my experience as a business consultant, the most important feature of business cards is the ability to cut expenses by  taking advantage of cash rebate offers or low to zero percent financing but only if you shop around for the best deal and choose what fits best for your cash flow situation.

For example, for a business that does not have any cash flow issues, you could follow this scenario:

  1. Pay all of your monthly business expenses such as office supplies and so on that usually cost you $1,000 per month on a business credit card that offers a rebate of 5% on all purchases.
  2. You pay off the credit card at the end of the billing period so not to incur any interest charges.
  3. You receive a 5% credit on your billing statement at the end of the month resulting in your office supplies only costing you $950 vs $1,000 thus saving you $50 on office supplies.

Just think, the more you charge the more you save. If you charge $10,000 a month then its $500/month in savings.

In order for this to be most advantageous, you must pay the balance off each month to avoid interest charges.

Other tips for credit card usage include:

  • Only consider credit cards with low interest rates and fees just in case you need to carry a balance.  Websites such as bankrate.com and creditcards.com show comparison rates and features of different cards.
  • Your small business credit card usage and payment history effect your personal credit score and vice versa.  Most small business owners are required to use their personal credit history and provide a personal guarantee when applying for a business credit card.  A bad credit score can increase your credit costs.
  • Periodically check around to make sure you are getting the best card that fits your situation. Two things could happen. (1) Your situation changes where a rebate card is no longer advantageous and you need something that lets  you keep a balance for 60 days rather than 30 days cheaply or (2) A better card offer comes along.

By using these tips you can effectively lower the cost of running your business with little effort.  To learn more about how Loftis Consulting can help you effectively manage cash in your business, contact us today at (312) 772-6105 or visit our CFO Services page.

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