Sba Loan Modification ? What If You Are Current?

A woman I used to work with had a sign on her desk that read “If you think nobody cares about you, try missing a loan payment.” While meant to be humorous, that little anecdote says a lot about how lenders choose to service their loan portfolio. More and more, SBA borrowers are coming to us after their lender turned them down for a loan modification.

The reason for the denial? They haven’t missed a payment.

Let’s look at this from the lenders perspective:

If a borrower is current on their loan, then it must stand to reason that the borrower has the money to make their loan payment. If they have the money to make their payment, then they clearly don’t have the need for a loan modification or deferment.

In today’s weak economy, lenders are overwhelmed with loan modification and deferment requests. Due to so many applications flooding the banks, the only logical thing to do is to “take care of” the most urgent requests. In other words, banks are going to put their effort into saving businesses that are on the verge of collapse, with the first symptom of collapse being missed loan payments.

Unfortunately, the result of the thinking described above means that borrowers who are current on their loan, borrowers who have sacrificed by cutting costs, employees, and even their own salaries, are getting doors slammed in their face in favor of borrowers who simply give up and stop paying.

So what’s the solution? Short of actually skipping payments (which is some cases really is the only way to get the banks attention), the best way to demonstrate the need for a modification is through cash flow analysis. In a nutshell, your cash flows need to demonstrate that the business operations are not generating sufficient cash flow to service the debt based on the existing terms. Just because you are making payments does NOT always mean that the business is generating sufficient cash flow, and that point needs to be driven home to your banker. (Note: if you are not comfortable crunching your own cash flow numbers, this is something that Distressed Loan Advisors specializes in).

Credit Tips For Small Business Owners

It is shocking that nearly all small-businesses fail in their first months or years of business. One of the primary flaws of the way people run their businesses is being lax when it comes to book keeping and cash flows. It is important for business owners to follow some simple but imperative steps in order to go maintain the success of your business.

One major flaw for new business owners is that they often do not have enough capital, or cash. This is caused by an underestimate of expenses and an overestimation of revenue. Make sure that you do not run out of capital by being conservative with your revenue and expense estimates. It may mean the difference between success and failure for your business.

Another important aspect of your business is attaining forms of business credit, like a business credit card or loan. It is difficult for business owners to understand what is completely necessary to get these types of loans. Quite often, business owners are not given an explanation to their rejection for business credit accounts, and therefore cannot fix the problems they’ve encountered.

One important thing that business owners should do to help ensure their success in credit application is become incorporated. It is a dire mistake for business owners to establish a sole proprietorship. One of these is because you are personally liable for anything that happens with the company. If your company gets sued, your company isn’t the only thing at stake – so is your home, your car, your personal accounts, and every other asset you own. Small business owners should never start sole proprietorships. They also experience taxation policies that are not helpful. If you are registered as a corporation, then you are going to get better credit and will be more successful financing your business. Incorporating your business makes it separates it from you as a legal entity.

In addition, small business owners who open sole proprietorships will use their personal credit accounts to finance their business. But doing this only deepens debt and further puts your business at risk from suffering from poor credit. Instead, incorporating your business allows business owners to attain business credit lines and avoid this dilemma. Incorporating your business actually gives you access to more capital and will improve your chances of success.

Business owners should also consider LLCs, or limited liability corporations. These offer the benefits of a corporation without the downfalls of a corporation. In addition, they protect individuals from having their personal assets taken from them if they are sued or if their company is sued.

It is important for business owners to take these steps in order to maximize their chance of credit acceptance and to maximize their capital. This is one of the surest ways to ensure business success. It is important for business owners to establish good credit and to have the right kind of business so that they can be approved for funding that will increase capital and allow for expansion and growth.

The Subjectivity and Relativity of Risk Assessments in Investment Decisions

It is a widely accepted belief that risk is an important factor in investment decisions. The income method of investment valuation stipulates that the price an investor is willing to pay for an investment is a function of the future expected cash flow, discounted by a rate that reflects the risk associated with receiving this expected cash flow. The Ibbotson build-up, Black/Green, and Schilt are three widely used methods valuators use to determine a specific discount rate to be applied to projected cash flows in valuing closely held companies.

The Ibbotson method utilizes historic rates of return on publicly traded investments, combined with risks associated with the specific industry and company being valued. The Schilt method derives a discount rate by adding various risk premia to the risk-free bond rate. Ranges of premia are specified according to risk factors, such as earnings stability, depth of management, competitiveness of the industry, and the size of the company being valued. Black/Green takes a similar, but more detailed approach.

Despite differences, all three methods falsely assume that only the inherent risks in operating the business need to be considered in the valuation process. I contend that the unique characteristics of potential investors have profound effects on how risk assessments are made in real world investment decisions. Not all potential investors have the same subjective attitudes towards risk. Not all potential investors have the same depth of financial resources, business experience and management acumen. These subjective and relative aspects of risk have a great bearing on how risk assessments are made. Their variability makes the risk of owning and operating a business a relative, rather than an absolute, quantity.

All three of the standard methods of developing a risk related discount rate assume that that the expert valuator analyzes the inherent risk associated with various operating characteristics of a closely held business. Based upon this analysis, the valuator develops a discount rate that will be used in capitalizing the projected future income stream and developing a fair market value.

However, in trying to model the behavior of potential investors in small closely held businesses, it is the attitudes of those potential investors toward risk and not the attitudes of CPA/CVA valuators that matter. As a group, CPA/CVA valuators do not necessarily have the same attitude toward risk as potential small business investors, who therefore may not make the same quantitative assessment of risk as a CPA/CVA valuator. Based on my experience with small business owners, I would predict that CPA/CVA valuators are more risk averse than most small business investors are.

Of course, not all small business investors have the same attitude toward risk either. Certain investors will largely ignore the risk of an investment if they perceive the potential return to be very high. Furthermore many small business investors have non-monetary motivations for investing in small businesses. For such investors, the inherent risk associated with receiving a future cash flow may not be assessed as it is for a passive investor seeking only a future cash flow.

Some advocates of the income method concede that certain investors do not view the risks of a particular investment as they do. Some proponents of the income method claim that investors who do not pay sufficient attention to the inherent risk of an investment, or who fail to give the same weight to various risk factors as expert valuators, are irrational. This view implies that CPA/CVA valuators are the arbiters of what constitutes rational investment conduct. While as a class we may be more risk averse than other groups of people, who is in a god like position to claim that being more risk averse is equivalent to being more rational?

Let’s turn to now to the relative aspects of risk. Everyone would agree that walking across a high wire without a net is a risky proposition compared to walking across a living room floor. Nonetheless, the degree of risk associated with walking across a high wire without a net is not absolute: it depends on who is doing the walking. Clearly, if a trained high wire performer does the walking, the activity is less risky than if an untrained person attempts the feat. In this sense, the risk of walking on a high wire is a relative phenomenon. A similar situation exists in any particular line of business.

Most of us would agree that there is more inherent risk in an industry sensitive to business cycles, like construction, than one where demand for the service is relatively constant, such as tax preparation. However, a buyer who has previous experience operating a construction business faces less risk than a buyer who has never run such a business. Likewise, if a potential buyer has a great deal of capital and access to lenders, that buyer will be able to weather the inevitable cyclic downturns better than a perspective buyer who lacks these assets. The simple point is that different potential investors in closely held businesses are in a position to change the inherent risk of operating a business. Some investors can decrease the inherent risk of operating the business, while others can increase the risk.

This point may be overlooked, because advocates of the income method fail to recognize that the investment contexts of publicly traded and closely held companies are dramatically different. An investor buying a few hundred shares of Microsoft is not going to have an impact on the operational performance of that company. An investor buying a controlling interest and becoming intimately involved in the day-to-day management of a closely held company is going to have a significant impact on the operations of that company.

Another relative aspect of risk involves diversification. As modern portfolio theory points out, the degree of diversification associated with a portfolio of assets has an impact on the risk associated with holding any particular asset. If a potential investment in a closely held company represents nearly 100% of an investor’s holdings, that investment is judged as much riskier than if it represents only 5% of the investor’s holdings.

Clearly, risk assessments play a role in real world investment decisions, but the nature and extent of that role is vastly more complicated than implied by the risk measurement approaches used in the income method of valuation. In the real world, differences in subjective risk tolerances will effect investor decisions. In the real world, investors have the ability to change the inherent risk of operating specific closely held businesses. In the real world, the risk of investing in a particular closely held business will depend on an investor’s ability to diversify his or her total portfolio of holdings. By failing to take into account these relative and subjective aspects of risk all variants of the income method give us a greatly oversimplified and inaccurate account of how investment decisions are actually made.

Small Business Loans: Monetary Support for Your Dreams

 

Money is the power that can run a business smoothly and successfully. If you are tensed due to the limited funds you have to run your business, you can apply for a small business loan. These loans take into consideration all the big as well as small needs of your business.

 

Running a business is a venture full of uncertainties. It requires an individual to be ready with cash in hand to meet any sort of emergency or unscheduled expense at any point of time. Such a financial provision could be a small business loan. These loans are a financial assistance for a business organization to overcome its crisis situation without disturbing its financial statements.

 

Small Business Loans can be availed for any purpose without any restriction on its usage. A borrower may apply for this loan to start or expand your business, purchase or refinance equipments, cope up with certain unexpected or unscheduled expenses or restructure the balance sheet. Other than these it can also be used for paying off current debt to avoid higher interest rates or pending balloon payment. For these purposes a borrower can apply an amount ranging from £ 50,000 to £250,000 for a term of 1 to 5 years.

 

A small business loan allows a borrower to easily access funds with a reasonable monthly installment. These loans offer the flexibility to design a loan schedule so that a loan does not turns ugly for the borrowers. A loan schedule is a strategy that allows you to plan the installment plan for repaying the loan amount with convenience and protect your cash flow from getting affected.

 

Since cash flows represent the accurate picture of a company, a borrower should try to refinance most of his/her assets, real estate, commercial equipment and vehicles, to arrange for a loan. With this he can free up the cash flow for other urgent needs.

 

To conclude this, it can be said that money is the essence of a business. Thus, it becomes extremely necessary to retain funds in hand for the smooth functioning of a business.

 

Business Plans are for Small and Home Businesses Too

It cannot be stressed enough how important it is to write a business plan. Most people feel that if they plan to set up a small business or home based business, they need not write a business plan. Big mistake! Here are some important reasons why it is a must to invest your time and effort into writing a sound business plan.

1. Back-up your application for funding

To make your dream business work, you might need external sources of funding like a Business Loan from a bank or investment from Venture Capitalists or other funding agencies. For any of these establishments to invest in your venture, you need solid proof that your business idea is profitable and sound.

2. Re-establish viability

A business plan is not just to justify how great your business idea is or to convince someone to back you up with funds. It is important to write one also to understand the viability of your business idea. A business plan will help you research the market and give you insights into how viable your business idea really is and if it is the right one for you.

3. Deal with problem areas

A good business plan will force you to do a complete SWOT (Strengths, Weakness, Opportunity, Threat) analysis of your business idea. Once you do so, a lot of underlying realities will come to light, some of which you may have not thought of. Being prepared with the real picture will equip you to deal with eventualities.

4. Share your business objectives with your team

A well laid out business plan will outline the business objectives with much more clarity and vision. Sharing these objectives with your new team will give everyone a fundamental idea of the common goals and set a platform for role clarity and expectations.

5. A clear financial analysis

A thought out plan will lay on the table, a lucid picture of your financial requirements, assets, cash-flows and future projections relating to expenses and profitability.

6. Chalk strategy for business growth

It is important for every business to have a clear plan of action as to how you shall market your business. It is imperative to identify the contributing growth factors to your business. A clearer vision of the future is important so as to channelize your efforts in the right direction, at the very beginning.

7. Valuation of your business

A good business plan will help you good an overall valuation of your business by giving you a summary of your assets, growth potential, book value etc. This is important for the future, in case you need to sell your business or want to exit the market.

Most people that they should write a business plan only if they plan to apply for a business loan or require funding from venture capital funds etc. Others feel that writing a business plan is a waste of time as it takes a lot of effort to tell you what you already have figured out in your head. Now you know why writing a plan is crucial to your business.

Next Page »