Commercial Finance Blog

Uncategorized, Business FinancingOctober 24, 2007 1:24 pm

Fast Financing Options for Small Businesses

Cash flow is essential to the life of any business, big or small.  Proper allocation of cash resources will allow a business to flourish.  When revenue generation is at a lull, a business may need to seek funding options to ensure steady growth without interruption.  There are many quick financing options available to businesses.  The funding can be used for purchasing, refinancing, business expansion or for any development purpose.

Traditional Methods
Depending on the size and type of business, peer-to-peer and personal loans may be practical.  There is a plethora of resources on the web if personal contacts do not suffice.  Another traditional loan option is through a bank, however, institutionalized loans can take anywhere from weeks to months to process.  It may also be difficult to obtain one of these. 

Secured & Unsecured Loans
Other types of loans are the low rate business loans which come as secured and unsecured.  Unsecured loans do not require collateral but may charge a higher interest rate.  Secured loans are issued with the lowest rate of interest determined against a valuable asset the businessman owns.  Depending on the value of that collateral, the loan amount is determined.  Business owners with poor credit may also qualify, but with a higher interest rate.  In the case of non-repayment, the loan issuer gains the right to sell off the security to the asset.

Factoring
Invoice Factoring may be an option for companies that have clients with pending termed invoices.  Instead of waiting for the terms of payment, the business can factor the invoices, receiving payment from a funding source in as little as two days.  The invoices then become an instant capital source.

Purchase Order Financing is another great option for resellers and wholesalers.  Purchase order financing provides instant funds necessary to pay off suppliers through a letter of credit.  This allows a company to fulfill its supply requirements and move forward to selling to its own customers.

Equipment Financing
In the recent years, Equipment Leasing and Financing has become a booming industry in itself.  Through leasing and financing equipment, businesses can slowly pay for expensive equipment over time allowing them to hold onto valuable cash resources.  By leasing, business profit can grow without the burden of debt.  There is also a myriad of benefits to equipment leasing and financing including tax benefits, specialized product selection and maintenance, and more.

Online loan and financing providers are constantly competing for your business. The online application has evolved a great deal over the past years, allowing for better rates and speedier processing time for the funding seeker.  This may be a viable resource for those searching for a way to quickly acquire funding for their business operations.

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Business FinancingOctober 18, 2007 4:58 pm

Leases and Loans the Difference between Apples and Oranges

Because leasing has such a wide definition I am specifically talking about lease purchases; where the intent is to purchase the equipment at the end of the term.

What is the difference between a Lease and Loan? This is a pretty broad topic so I will try to cover it in bite sized chunks.

Technical…

Equipment Loan: is where the Lender (the party that is providing the money) is loaning out a specific sum of money to the Buyer (the party that is purchasing the equipment), that is to be applied towards the purchase of a piece of equipment. The Buyer purchases the equipment in their name and the Lender then files a UCC or Lien on the equipment until the agreed upon payments have been made.

Equipment Lease: is essentially a rental agreement. The Lender buys the equipment on behalf of the Buyer and after the agreed upon payments have been made the Buyer then can purchase the equipment for a predetermined residual amount. (Common residuals include $1, 10% or FMV, to be covered at a later date)

Real Life…

In short the difference between a Equipment Loan and a Lease is the ownership of the equipment during the course of the payment plan. Also a Lease by nature has to have some sort of residual at the end of the term.

 

Related Articles and Links:

Residuals

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Business FinancingOctober 2, 2007 8:21 pm

Section 179

Before you start scratching your head while scrolling down the page looking for sections 1 through 178 I am referring to the US IRS Code.

It’s day 2 of the 4th quarter rush and a lot of the new recruits have no idea why it gets so crazy in the office during this time. Most have to do with the general flow of business Equipment Seller are sending out promos to try and move inventory for a strong year end close; while one of the other major reasons is the tax benefits associated with financing during this time.

Technical… Section 179 of the United States Internal Revenue Code (26 U.S.C. § 179), allows businesses to immediately deduct the cost of certain types of property on their income taxes, as an expense (rather than requiring the property to be capitalized and depreciated). This property is generally limited to tangible personal property such as equipment and vehicles. Buildings are not eligible for section 179 deductions. Depreciable property that is not eligible for a section 179 deduction is still deductible over a number of years through MACRS depreciation.

Example: Purchase price $125,000

  • 1st Year Write Off:  $112,000
  • ($112,000 is the maximum Section 179 write-off in 2007
  • Normal 1st Year Depreciation: $ 2,600
  • ($125,000-$112,000 = $13,000 x 20% = $2,600)*
  • *Depreciation calculated at 5 years = 20%
  • Total 1st Year Deduction: $ 114,600
  • ($112,000 + $2,600 = $114,600)
  • Tax Savings Assuming Rate of 35%: $ 40,110
  • ($114,600 x .35 = $40,110)
  • 1st Year Savings / Lowered Equipment Cost: $ 84,890
  • ($125,000 - $40,110 = $84,890)

 

Real Life… You can write off up to $108,000 of the equipment cost the year you purchase it.

Easy Example: Purchase price $125,000

  • *Magic Happens…*
  • Save $ 40,000 on your taxes!

Related Articles and Links:

Section 179

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UncategorizedOctober 1, 2007 4:38 pm

Free Money

Is there such a thing as free money, the answer is simply… yes and no.
Not so simple right? Well what in life is…

It is officially day one of the 4th quarter, and if you watch any amount of TV you’ll start to see commercials for cars being financed at 0% interest.

T.I.N.S.T.A.A.F.L. (There Is No Such Thing As A Free Lunch): which isn’t to mean you shouldn’t take it. Officially the way 0% financing works is there is a blind discount to the customer that the seller of the equipment either overcharges on the invoice or discounts to the finance company for an apparent rate of 0%.

In plain English: If I am selling a tractor, or a truck, or even a printing press for $60,000 and decide that to help move inventory I am going to offer 0% to the customer; I need to first decide if I am going to raise the invoice price or take a hit on profit.
If I decide that I want to offer a 5 year term (60 months) at 0% interest than the customer thinks they are financing $60,000 for 60 months:

$1,000 * 60 months = $60,000

However behind closed doors the equipment seller is asking the finance company for only $55,000, while the finance company is collecting $60,000 worth of payments.

$60,000 - $55,000 = $5,000 (profit for the finance company)

In essence free financing is not so free, someone is always paying for it. If the seller of the equipment is taking a hit on profit to offer free financing than take it, the opposing side would be that the equipment seller is merely using free financing as a sales tool and raising the invoice price of the equipment beyond what is considered fair market value.

Be cautious of free financing if what you are buying cost less elsewhere.

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