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The Secrets Of Bank Loans: Why Is It So Difficult To Get The Cheaper Ones?

The problem with bank loans is this: the cheaper it gets, the harder it is to obtain one. It is a common belief that a cheaper item is easier to acquire than those that are more expensive. This is true, but only in cases where you are expected to spend your money. Bank loans are the opposite. Because the banks are the ones that will give you some financial support, those that are cheap – that is, with low interest rates – are often the most difficult to obtain. Here are some of the reasons.

According to a senior banker who deals mainly with businesses, there had been an increase in the number of bad loans that affected the banking industry in the past years. With the recent economic crisis, companies are starting to face severe financial problems. This led to the decision of most banks to tighten its measures with regard to the granting of bank loans – lenders are afraid of the possibility that many of the loans that they would grant will not payoff.

This is consistent with what the other bankers are saying. In one survey of the Federal Reserve, only a small percentage of senior loan officers said that they easing their credit standards (9.5% for large and medium companies; 4.9% for small companies). Many admitted that they have started to tighten their standards following the recent recession.

Because of this, bankers report very low number of applications from high quality borrowers. It appears that the banks are fighting amongst themselves over the few good companies that need financial support. And instead of easing their standards to allocate other borrowers, the banks preferred to implement desperate schemes to lure these high quality borrowers. For instance, banks are willing to lower their interest rates and give away cheap loans than enter a very risky deal with a company that has a low credit rating.

Recent data showed the decrease in the interest rate spreads of many financial institutions. Spread refers to the difference between what the bank charges borrowers and the amount the bank needs to get the funds for the loan. The latest figures showed that 60% of large and medium business and 46% of small businesses report decreasing interest loan spreads.

This situation must be used by borrowers with good credit rating to their advantage. They should realize that banks have excess funds and that they – the borrowers – have the power to pit one lender against the other. It is high time for high quality borrowers to seal good deals with these financial institutions. Unfortunately, however, this statement is not true in the case of businesses that have bad credit ratings. But at least they now know what they have to do – obtain that high quality category to acquire loans that have very low interest rates.

In case of the lenders, banks have very few options. For instance, offering loans with lower interest rates are indeed better than having a risky deal with low quality borrowers. In the long run, however, banks must face the reality that they have to somehow increase their market. Financial institutions must explore various possibilities such as opening their doors to a specific niche while avoiding deals with companies outside their expertise.

The situation is not expected to get better soon. And the best way to deal with it is to adapt and use the available resources to achieve stability and success in light of the effects of the most recent recession.

More detailed information and useful advice can be found at Funded.com Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

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Funding Your Own Business

Say you are planning to have a business and, furthermore, you know the know-how to bring it into development.  The only thing you are losing is the cold money to get started.  What are your options?

Suppose you do not have a ready line of credit, an extensive bank administrator, rich family members or a significant store of retirement savings you are willing to risk, you are going to have to do some serious preparation and hard work.  Luckily, there are a number of sources of finance for the Business startup owner, at least one of which may be right for you.

SBA LOANS

Available only to U.S.-based businesses (but if you are outside the US you can look for something that has a similar program), the SBA (the U.S. Small Business Administration) has served a large number of business owners begin their own Business.  The SBA does not issue resources (money you do not have to pay back) or create financial loans straight, rather, it assures financial loans made by personal loan organizations thereby decreasing or removing the danger natural in new organizations and making loan organizations more willing to offer.

The main concern for the SBA is reimbursement ability from the income of the company as well as “good personality, control ability, security and owner’s equity”.  You will be expected to individually assure your mortgage.  This implies your personal belongings are at risk.

As for the types of organizations qualified for SBA financial loans, the SBA enforces the following criteria: the company must be “for-profit” (it only indicates that your company has a revenue reason, not that it has actually produced a revenue yet), ), be engaged in business in the United States, there must be “reasonable” owner equity (what’s reasonable will depend on the circumstances) and you are expected to use alternative financial resources first, including your own personal belongings.

The SBA also enforces restrictions on the use of loan proceeds. For example, although the proceeds can be used for most company requirements (the cases given by the SBA include “the purchase of real estate to house the company operations; development, remodelling or leasehold improvements; getting furniture, furnishings, equipment; buy of inventory; and operating capital”), you cannot use the loan proceeds for financing floor-plan needs, to pay current financial debt, to create expenses to the business owners or to pay past due taxes etc.

As a common concept, loans for working capital must be repaid within seven years and loans for fixed assets must be paid for by the end of the economic life of the assets (but not to exceed 25years).

ANGEL INVESTORS

Angel Investors are good spirits with a healthy sense of self-interest. Determining they can get a higher come back if they are ready to take a bit of a risk, they are also often effective business owners themselves and want to give other a hand up. Think of financing from angel investors as a link or gap-filler between being a start-up and preparing for venture capital.  The kinds of money we’re referring to here are between about$150,000 and $1.5million.  Beyond this point you are in low venture-capital area. The SBA reports that there are around 250,000 angels in the U.S., financing about 30,000 organizations a year.  So, how do you connect with one?  Not a easy task, unfortunately.  It comes down to networking.  Begin by speaking with professional and business associates – they will often know someone who knows someone etc..  However, we at funded.com can help you in this.

VENTURE CAPITAL

You’re in the big teams now.  Usually you are in the ballpark of millions (of money that is) rather than a thousand.  Venture Capital organizations look for their return on investment from capital appreciation rather than interest (unlike banks, for example).  They’re generally looking for a return of 500-1,000% on exit. It will not shock you to learn that vc’s are particularly hesitant of internet-based organizations right about now and not surprising.  It also provides them right.  But if you have a powerful Business Plan and powerful development potential, this could be an option for you longer term.

One of the common issues about this form of financing, however, is that you have a limited control over your business. Venture Capital usually wants to have control on your business, in return for their risk. A venture capitalist will have to seat as a board member, for example. Always remember, that it’s in the vc’s best passions for your company to be successful, so providing up some control in return for outside skills may well be something worth thinking about.

For this, your best bet would be to begin out by analyzing the various loan program provided via the SBA (or your local equivalent).  But do not ignore, close to home sources first.  If you have household resources at your convenience (for example) and you are assured that your business will be effective (and unless you’re assured about that, don’t get into financial debt with *anyone*, let alone household members), better to begin out slowly and convenience into outside sources of financing as your company (and, furthermore, your company’s cashflow) can support it.  After all, Uncle Jack is much more likely to know about the temporary income meltdown than Uncle Sam.

More detailed information and useful advice can be found at www.funded.com Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

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Showcase Diversity In Your Business

Some investors aren’t just interested in your business ideas. They also want to know that you embrace diversity. A business can have diverse employees or focus on supplier diversity, or encompass both in the business model. As globalization becomes standard practice for all businesses from the large corporation to the sole proprietor working at home, diversity of people and spend becomes more important.

Why do investors care? They care because the makeup of the population and the marketplace are changing. In the U.S. alone, the highest birth rates are among minorities and every state has increased in racial and ethnic diversity since the year 2000. However, the U.S. is just one segment of the total global marketplace, albeit the largest single entity. As businesses go online to find rapid business growth, they must attract a diverse customer base. It only makes sense that the business would add diversity to its internal operations in order to better compete.

When investors are considering funding a business, they want as much assurance as possible that the internal culture, systems and processes mesh well with the reality of the marketplace. An organization that is committed to diversity and has a definitive strategy for ensuring diversity becomes a reality is one that proves it fully understands the complexity of the global marketplace. In other words, diversity can be leveraged into enduring success, and that is what investors want to fund – a business that is on the path to lasting operational success.

Before approaching investors, it’s important to analyze the diversity of your organization. Awareness, alignment and sustainability of diversity in employees and suppliers are concepts that should be put into practice.

Browse http://www.funded.com for more advice about getting your business funded.

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Business Innovation Attracts Investors

Innovation is one of the many qualities investors look for when evaluating a potential investment opportunity. Angel investors, venture capitalists and even banks and other financial institutions are looking for new and creative ideas, problem solving approaches, business models and technology. An espresso machine for the car? Clean coal? Heat generated from fabric? “Green” bridge building material? New take on social media? All of these represent real and innovative products and services that attract investors.

Innovation represents a brand new way of managing something whether its products or services. Innovation adds an edge to competitive dynamics by spurring consumer demand and thus business growth. Investors look for the potential that a company can gain momentum as a startup entrepreneurship or as an existing business that is ready to use innovation for expansion.

Innovation in the marketplace is actually the foundation for commerce. Small businesses have generated approximately 64 percent of the net new jobs in the economy over the last 15 years. Small businesses also hire more than half of the employees working in the private sector. Entrepreneurship in all forms attracts a myriad of investors who are ready to fund the next innovation start ups or business expansions. That’s because innovation, by its very nature, finds untapped markets where consumer or business needs remain unmet. Innovation represents a goldmine of opportunity for the entrepreneur and the investor.

To attract the investors, you will need to put your ideas in a business plan. The plan will need to show how and why that untapped market exists and how and why the new idea can fill the gaps in these potential markets. For some entrepreneurs, the difficult part is not coming up with ideas. The difficult part is capturing the innovative spirit of the idea in a solid business plan. Fortunately, it’s easy to get professional assistance because some innovative ideas are simply too good to let them get away.

Browse http://www.funded.com for more advice about getting your business funded.

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Two Ways to Define Sustainability and Attract Investors

Sustainability is a topic of interest today, and it interests investors and businesses. There are two ways to consider sustainability. Sustainability may refer to the ability of a company to maintain organic growth as it expands operations. Sustainability also references corporate responsibility in support of the community and environment. Either way, many business opportunities are created and investors must decide which ones present the most opportunities.

In today’s economy, the two types of sustainability actually merge. There are companies that have found organic growth by offering environmentally sound products and services. As green technology advances, those businesses on the cutting edge of new product and service development need financing for research and development, manufacturing and innovative marketplace implementations. These are exactly the kind of companies that many investors are looking for because these entrepreneurs represent the future which means long term success.

Sustainability used to be a fad concept, but now it’s an imperative – either way you want to define sustainability. Businesses that can grow in the current economic climate are the operations that learn to be lean and productive and more likely to succeed and expand through the years. Businesses that contribute to the environment by offering green products and services are poised for explosive growth as global and domestic environmental issues come to the forefront. Investors are ready to accept the risks of opportunity as long as the business has a strong business plan. Whether you need startup funding or expansion funding, if you can show you’re a sustainability leader then there are investors ready to help you march forward.

More detailed information and useful advice can be found at https://www.funded.com Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

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Funding for Innovative MWBEs Ready to Grow

It’s true that it remains a tight capital market so finding investors in the private traditional financial institutions and locating public grant and loan funding is still challenging. Even as banks ease up on credit availability they are tightening requirements for credit approval. On the public sector side of doing business, Congress is reining in spending and that means less government money available to flow into grants and low interest small business loans. Minority and Women Owned Business Enterprises (MWBEs) must find alternative sources of capital to fund their growing businesses.

It’s a fact that MWBEs have become a powerful engine for economic growth and jobs creation. According to the 2007 U.S. Census Bureau Survey of Business Owners, MWBEs now make up the fastest growing new business segment in the U.S. To continue growing requires funding to build capacity so that small to mid-sized businesses can bid on larger procurement contracts and projects.

There is no reason to miss out on opportunities for growth because of funding when there are many alternative funding sources. These sources include angel investors, venture capital and equity partner investors. MWBEs that have a proven track record of business success and are poised to take the business to the next level of growth should not wait for the economy to pick up steam. The growing determination by large corporations to increase supplier diversity spending means that MWBEs have unprecedented opportunities to bring their innovative and creative businesses to the marketplace in expanding roles.

There are investors and there are opportunities, and that is the perfect partnership.

Browse http://www.funded.com for more advice about getting your business funded.

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Removing Barriers to Minority Business Success

The minority business owner developing a business plan can do so with the knowledge that angel investors offer non-traditional funding sources that break down barriers to opportunity. It’s no secret that minority and women businesses (MWBEs) have faced hurdles in areas of market access and financing over the years. That is changing with growing awareness and education of the marketplace and a growing robust effort by corporate America to improve access. The increased knowledge and awareness has also positively impacted the private funding market which only serves to expand opportunity.

Breaking down barriers to access benefits everyone. Minority and women entrepreneurs are innovative and bring new perspectives to the marketplace. Angel investors can help them bring that innovation and creativity to the marketplace more easily by working outside of the mainstream financing system. A match between angel investors and an MWBE can produce results.

Of course, the MWBE entrepreneur must still use proven strategies that increase the likelihood angel investors will accept the business plan. When presenting a business plan to potential investors it’s important to show confidence and leadership, prove thorough knowledge of the competition and the industry, and above all, ensure the innovation and creativity of product, service and business is made abundantly clear. Once a company obtains angel investing, it is easier to move up a step into the next phases of financing which include venture capital and eventually commercial funding.

Angel investors can be ‘angels’ in many ways. They are not hemmed in by traditional processes which is exactly the way traditional barriers can be broken down.

More detailed information and useful advice can be found at www.funded.com Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

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The Typical Angel Investor? No Such Thing!

Have you ever wondered where angel investors come from or what type of people you are going to present a business plan to? Is it a Donald Trump type of person – flamboyant and quite wealthy? Or is the investor someone more like your neighbor down the street who has quietly amassed a small fortune yet lives frugally? The truth is that the angel investor could be either person or a group of people.

The stereotype of an angel investor is someone who is a hardened business entrepreneur who has amassed great wealth but is always ready to create more. The image is of someone who swoops in, evaluates the business plan, does some inquiries and then funds a startup with the expectation of high returns. In reality, the angel investor may not be wealthy but is financially savvy.  Many are still employed but looking for a way to grow their money by promoting innovative new businesses.

Angel investors fill a gap that exists between the venture capitalist and the commercial lender. Venture capitalists and financial institutions lend larger amounts with the former willing to accept high risk and the latter expecting minimized risk. Many angel investors invest smaller amounts of money, $20,000 instead of $200,000, but there are no limits so $500,000 up to $2 million is possible. They don’t want to play an active role in the business, but do have business savvy. Mostly they just want to make money.

Angel investors are also groups of people who pool their money to fund startup businesses. They include investment clubs, professional groups like doctors or lawyers and even other entrepreneurs. The reason there is a bit of mystery surrounding angel investors is simply because they keep a low profile, so are difficult to categorize. What you do know is that they are financially savvy, thorough in their evaluation of businesses and hopeful of earning a high return on their investments. So don’t stereotype angel investors because they can be anyone.

More detailed information and useful advice can be found at www.funded.com Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

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Control and Angel Investors

As you consider the various types of funding for a new businesses or business expansion, one of the important questions that arise concerns control. How much and how often will the angel investors get involved in your business once the funding is approved? The answer depends on a lot of factors including the negotiated terms and the success of the enterprise that is funded.

Many angel investors aren’t interested in having a say in day-to-day operations. They simply want you to accomplish what the business plan said you would accomplish and earn the investment return that is expected.  The investors know what progress is being made because you will have to submit financial and performance reports on a pre-established basis. This is true for all types of investors whether they are angel investors, equity partners, venture capitalists or banks giving business loans

Security Issues

Control issues really come down to how secure the angel investors feel about the success of your enterprise.  Though it goes without saying that investors approving start up funding or business funding for expansion believe the projects will succeed, they are savvy enough to know there is always a degree of risk. The higher the risks, the more control the angel investors will require.

A solid business plan will be realistic and a profit must be shown at some point even if not the first year or two. The best plans though are not guarantees the initial forecasts will be met. The types of control angel investors may require include the following:

  • Passive investing in which investors providing business funding rely on the quarterly, monthly and annual reports and have virtually no contact with the business management or board of directors
  • Passive investing in which investors are available for consultation when requested
  • Active investing in which angel investors sit on the board of directors and have full voting rights
  • Active/passive investing in which the angel investors advise the board of directors as mentors
  • Active investing in which the angel investors assume an executive management position like Chief Executive Officer

The Full Gamut of Control

As you can see, angel investor control runs the full gamut from no participation to running the company.  Some investors will take control of the majority share of stock to gain full control of the company like equity partners; however, that is not the preference of most angel investors. They are not investing to become business owners, but rather to make money. In addition, if there is more than one angel investor, the group may designate a single representative as the primary contact.

The control issue can be one of the more difficult areas to negotiate at times. Though an entrepreneur needs money, he or she doesn’t want to give up control of their vision or dream. You can take care of that issue by submitting a solid well thought out business plan that is realistic.

More detailed information and useful advice can be found at http://www.funded.com.  Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions.  If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.

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Corresponding with Investors

Off and Running..

You have signed up a BBB accredited funding network, created a profile and made the final edits on your business plan. You are finally ready to post your funding request, upload your business plan and start contacting investors. You wait for a period of time, and you get some solid responses to your postings and your inquiries.

You see a first name and a last name initial, and one person has a company listed in their description response. The other two responses don’t mention a company, just a first and last name, and only one of the two potential investors has a telephone number. What now?

What Next After I Get Some Responses?

First, you have to look at what types of funding providers and investors generally belong to an accredited funding network. The idea of being part of an investor’s network is appealing to most investors and funding providers because it creates an organized approach for finding many great start-up companies and funding requests without having to sift through hundreds of telephone calls and written funding requests that may not suit their interests. Some funding network members enjoy a degree of anonymity, while some want to promote their company when they do find the right investment seeking matches.

Some investors may ask for your business plan, or they may ask that it be posted online or sent to their email address. Some investors may not want anything sent to their email address until they get a chance to further evaluate what you are trying to accomplish.

To NDA or Not to NDA, That is the Question

Start-ups and other business ventures that require funding will sometimes wonder: What if the investors steal my idea? Yes, this can be a legitimate concern. However, to appreciate the full picture of communicating with investors you need to know that 99% of those on a trusted funding network are out to make money by looking at many, many deals and would rather benefit from your idea by investing and not by stealing. Some investors don’t mind signing non-disclosure agreements ( NDAs), while some do, and some have their own NDAs that they may provide.

Who are These Investors?

A trusted funding network that is accredited usually pre-qualifies investors and funding providers with telephone interviews and/or by checking out websites, but that would be the extent of the prequalification process. The process is designed to not exclude the small individual investor that may have $20,000 to invest in a good business idea and to not limit larger individuals or groups that prefer a degree of anonymity. Usually the initial prescreening process weeds out most of the scammers trying to pose as investors. Ultimately, practicing due diligence is up to you prior to releasing any information other than your business plan and your telephone number and prior to paying fees.

Funding providers typically found on a trusted and accredited funding network include Angel Investors, Venture Capital, Individual Investors, Investing Groups, Institutions, Foundations, Micro Lenders, Banks, Brokers (nominal prepaid fee) and Brokers (paid at closing).

How Do I Know if an Investor is Legitimate?

Typical red flags indicating an investor may not be legitimate include not having a track record of successful deals and representing themselves as having been in business for a period of time though you can’t find information on their company through the state or country of their office of origin. Another red flag is an investor that wants an upfront fee prior to financing. However, there are successful brokers that have a proven track record that do require a nominal fee.

It’s a good practice to have an experienced attorney do some research on potential investors prior to accepting any funds. It works the other way too. Investors should never release funds without investigating business investments. If you find an individual wealthy investor, you may want to travel to meet him or her as you establish your correspondence. It is not uncommon in larger deals that are $1million or more for investors to require a nominal fee be placed in escrow while they pay to conduct some due diligence of their own, appraisals etc. The criteria for return of the funds should be spelled out.

Preparation is Important

When you decide to move forward with an investor or funding provider it is always good to clearly have your terms defined prior to your postings and before contacting them.  In that way, if an investor starts negotiating any additional terms, you are ready to defend your position and stand your ground. It is important to be patient and not to rush. Let the investor make the next move.

More detailed information and useful advice can be found at http://www.funded.com or the Funded Blog at http://www.funded.com/blog.