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Archive for the ‘Purchase Financing’ Category

Business purchase financing is one of the major hurdles that both the buyer and seller need to address early in the process. Many deals are not completed because the funding could not be secured. In the current lending environment, banks are more stringent than ever, so both buyers and sellers should be aware of what is needed to successfully secure a lending partner.

An overview of Business Purchase Financing

SBA 7a loans are often used for business acquisitions for transactions that range from $250,000 to $2,000,000. Banks underwrite the loans and the SBA guarantees them. Many buyers think that because the SBA / federal government is guaranteeing the loan that it will sail through. This is simply not the case. Banks will lose money if the buyer defaults, and the SBA has rigid guidelines that the banks must follow. More information on this topic later.

It is difficult to secure business purchase financing for deals below $250,000 and above $2,000,000. For deals below $250,000 buyers usually use home equity, savings, grants, seller financing or combinations thereof to purchase a business. For deals that are above $2,000,000, small M & A deals, the financing structure varies and is beyond the scope of this article. Banks usually will not finance a business unless that business has a documented history of profitability.

A View of Business Purchase Financing from the Bank’s Point of View

What exactly is the bank financing ? Unlike real estate, the bank is primarily financing goodwill which is intangible. The bank is financing an ongoing concern, a income generating operation, that is switching from one owner to another. The transition represents risk to the bank. A business may have been successful under one owner, but that owner is leaving! The new owner could run the business into the ground. Since the bulk of the sales price is goodwill, not hard assets, the bank would be left with very little to recoup any losses. Enter the SBA. Without the SBA these loans would not exist. With this being said here are the concerns of the banks – Cash flow, fixed assets, credit and history of the buyer and collateral. The SBA has criteria for these areas and each bank also has their own ratios for each of these items and some are more aggressive than others. (Remember, the banks do their own underwriting) Banks look at both the financial history of the buyer and the business to make their decisions.

Important factors buyers should know about business purchase financing before beginning their search

1. Down payment. Business purchase financing almost always requires 10% – 30% cash equity from the buyer. A seller’s note may be counted as a part of the down payment but the buyer will still need at least 10% – 15% cash to invest. The buyer can use home equity, pensions, IRAs etc. for down payments.

2. Credit. Buyers need to have excellent credit. Any negative credit history at all will be a problem. A very detailed personal financial history form must be completed and approved by the SBA. If you are married the SBA will also look at the credit of your spouse. If your credit is less than above average you may be able to get approved with non-spouse, co-signer.

3. Experience of the Buyer. For business purchase financing to be secured banks and the SBA will look at the experience of the buyer to gauge the degree of risk involved. If a business is highly technical or require significant expertise then the buyer will probably need that on their resume. For less complicated businesses, any sort of business leadership experience is very helpful. Buyers would be smart to have a resume prepared that documents past business operation experience. (Any, however insignificant, is better than none)

4. Interest rate. The rates are negotiable and it is advisable to shop the market. SBA loans are limited to 2.25% above the prime rate in the Wall Street Journal for loans with maturities of less than 7 years, and limited 2.75% with maturities of 7 years or more. As of this writing, Feb 2008, the WSJ prime rate is down to 6% from 7.25% only a month ago and 8.25% a year ago. Great news if you want to purchase a business. (6+2.25= 8.25%)

5. Term of Loan. Varies by bank. Many banks advertise up to 25 years for SBA loans. This is usually for a SBA loan that involves Real Estate. Straight business purchase financing is usually 7-15 years.

6. The discretionary earnings for the business should cover the debt and provide the buyer with a reasonable income. (Another reason that your personal financial history is required) Banks are realistic, you need to pay your bills. Alternative sources of income helps – spousal, investment, rental, etc.

7. Seller involvement. If the seller is involved with the business post sale and has a stake in the outcome that reduces the risk to the bank. Small seller’s notes are often needed and the seller may be required to continue to work in the business for an extended period of time.

A good idea is to speak to a banker that specializes in SBA loans, a business acquisition loan broker early in your process. Also, when inquiring about a business ask the seller or the broker if the business qualifies for SBA financing.

http://www.sba.gov is another great resource. Check to see if there is a SBA small business development office in your area.

If you’re looking to buy property that you can actually afford, then perhaps you should consider a mobile home. If you’re looking to buy a new home but don’t have adequate cash to make a big down payment, there are low down payment loans just for mobile homes that are available. However, when you’re shopping around for a low down payment property loan, it’s essential to ensure that you select a trustworthy lender. There are a lot of scam lenders online who try to take advantage of borrowers who are searching for mortgage loans that allow for low down payments.

Types of Mobile Home Loans

There are two familiar types of mortgage loans for manufactured homes and they are as follows:

Real property mobile home loans: These loans cover both the home and the lot on which the home is built. This loan is similar to any other type of mortgage loan and has similar prerequisites for introductory down payment like any other conventional home loan.

Personal property mobile home loans: These loans are meant for just the manufactured home and don’t cover the lot. They have similarities with personal loans but might still have down payment prerequisites dependent on the lender.

Other loans of this sort exist, such as construction financing loans, personal property loans and real property loans, which are some of the most popular.

Getting a Low Down Payment Mobile Home Loan

The best place to start your search for a low down payment loan is with the financial institutions that you deal with. They include the following:

The bank or credit union where you have a savings or checking account. Lenders who have previously offered you a loan.

On certain occasions, lenders offer affordable interest rates and other favorable terms to their existing clients. This is the reason why you need to begin with lenders that you’re already working with. You must remember that your search shouldn’t leave out all other lenders, since your current lender might not always offer the best terms or interest rates.

Not every lender offers loans for manufactured homes, so when you’re contacting them to make queries about down payment necessities and rates, make sure to determine that the loan is for a manufactured home.

Down Payment Requirements

Down payment requirements for manufactured homes differ from one lender to another. The amount that you have to put forward as a down payment is dependent on different elements. For instance, a low credit score might cause the lender to ask for a bigger down payment for approving the loan.

Outcomes of Low Down Payments

A low down payment on a manufactured home loan might have financial consequences. A low or no down payment might attract a higher interest rate than a mortgage loan with a 20% down payment. You might also face extra monthly fees, like private mortgage insurance. Keep in mind that with larger down payments, your monthly loan payments will be smaller.

Benefits of Smaller Down Payments

Some borrowers lack the funds necessary to make a considerable down payment. In this situation, a smaller down payment is the only means to buy a manufactured home. Some borrowers favor the use of available cash to pay for closing costs rather than having them included in the loan. By contrast, some borrowers wish to become homeowners with some cash in the bank, and therefore opt for more financing.

The first aspect to acknowledge when seeking purchase order financing is that most factoring companies are very choosy when dealing with this type of financing. There is not a firm set of regulations to follow concerning invoice financing because each situation is very unique and has to be assessed as such. It is typically very difficult to find purchase order financing however, there are factoring companies out there that are willing to take that type of risk.

Purchase order factoring provides existing businesses with a financial solution to continue operating. However, it should be mentioned that these companies typically will only finance those businesses with a proven track record in their said industry. Turning purchase orders around into account receivables is a business solution that will free up working capital and extend finances to the business in a timely manner.

Purchase order factoring should be considered a short-term solution to finance a large purchase or to manufacture specific goods that are already sold. For example, if a company manufactures iron staircases and a popular building company has given a invoice to order a set number of them, factoring can come in extremely handy. It is unlikely that the manufacturer of the staircases has an over abundance of operating capital to purchase materials and manpower for all of these staircases. Most often, banks won’t touch this type of financing so the feasible and low cost solution is to seek out a reputable purchase order company that can advance cash on that invoice.

When purchase order financing companies assess a specific invoice financing request, there are several determining factors that have to be understood. If the company that has issued the purchase order is not credit worthy, it is likely that the invoice factoring company will not lend assistance. Purchase order financing is a very risky business due to the nature of the business. The company is lending money on the premise that the company that has issued the invoice will pay for the goods or services. It is easy to see that any purchase order company would have to be very stringent with their rules surrounding this area in order to be successful. These companies are sticking their necks out to supply a potential customer with the funds required to fulfill their end of a invoice agreement. It is completely understandable that they would be picky and selective in choosing this set of clients.

In order to be considered to qualify for purchase order financing the business seeking financial help must have been in business for no less than a year. The type of transaction that is being considered for invoice factoring must be prominent in the business history and have at least a $100,000 transaction minimum. There are several issues that will depend on the type of industry the business is in and the credit history of the business and the customer.

We are continually told there are significant benefits to lease (finance) equipment purchases in a business. Let’s examine some of those benefits.

Economic stat’s tell us the equipment leasing and financing in Canada and the U.S. totals Billions of dollars. Historically almost 1/3 of all equipment has been financed, not purchased. We will look at some of the true benefits of leasing – every benefit many not necessarily accrue to every firm who finances, but many will, and the business owner or financial manager should understand how his firm can benefit from this financing strategy.

When we break down the benefits of leasing into a large number of single positive points we find that these benefits can be simply grouped into a number of key categories. They are as follows:

*Business in general find it easier to account for leases – payments are fixed

*Leases can be structured to have the business own or not own the equipment at the end of the term of the lease

* Many businesses are either incapable, or do not choose to address the technological aspects of the equipment they are financing – Leasing gives them maximum flexibility in that area. For example a company leasing technology generally wants to use the technology, which evolves. It does not wish to purchase or lock into ownership of technologies that are evolving. Think computers!!

* Lease financing has maximum cash management flexibility – payments can be tailored with longer amortizations, seasonality according to the customers business, fixed regular payments ( term loans tend to have variable, not fixed rates ) etc.

* Budgeting: More often than not this is usually the main reason most customers give for financing equipment – the financing provided during the leasing exercise allows the company to potentially acquire more equipment than it might have in a straight ‘ purchase’ scenario. In many cases little or nominal down payment is required. The vast majority of customers also pay the taxes on the equipment and maintenance via the fixed monthly lease payment. Companies that are either growing quickly, or in some cases are having some level of financial challenge will always tend to gravitate to the leasing solution.

Lease financing has always been perceived as a strong financial acquisition alternative. In the economy of 2009-2010 where ‘ cash is king ‘ alternative financial such as the lease option is a strong

Having trouble finding a way to finance that new or used car purchase? One of the biggest concerns on the minds of many is how they are going to pay for necessary living expenses, such as a car. Especially if you have a poor credit score, financing your car purchasing can prove to be a challenge. However, no challenge is impossible to overcome -especially if you have access to the right information to help you make wise decisions.

Poor credit car financing may add an extra burden to your monthly budget, therefore, it is important to think carefully about whether or not you are truly in a position to purchase a car at this time. While poor credit car financing does provide you with a way to get wheels underneath you, it can be damaging in the long run if you are not suitably prepared to follow through on the decisions that you make.

Here are the two most important questions to ask yourself before you finance your car, despite your poor credit:

Can I afford monthly car payments?

Even if you take out a poor credit car financing loan, you will still need to make monthly payments towards to balance of that loan. These payments will be with you for years to come, in most cases. If you fail to make a payment, you may also run the risk of having the car repossessed. Therefore, be sure that the decisions that you make in terms of price and financing are decisions that you can feel comfortable with – regardless of what changes may happen to you financially in the future.

Do I really need this car?

It may seem obvious to some people that it would be a bad idea to purchase a vehicle that you do not truly need. However, a car purchase is a sign of success to many people. Therefore, many people choose to purchase cars and other items that they do not need simply to have the pleasure of driving them. Poor credit car financing can make this purchase possible, but is it really a necessary purchase that will get to the finance position that you’ve been hoping for?

Ask yourself why you need the car. Is it for transportation? If so, then the car may actually be a necessity. However, if you feel like you need to purchase the car to send a message or feel good about your social standing, then perhaps it is time to reevaluate your purchase.

Financing the purchase of a car is a commitment that you should take very seriously. After all, it affects your credit, income, and financial reputation. Therefore, even if you require poor credit car financing arrangements, make sure that the car is something you truly need and can afford prior to taking out a loan. You’ll be better off for having a sound financial plan and sticking to it in the long run.

While many investors have found that buying foreclosure properties a great way to invest in real estate, they have also found that getting the financing to get started can be a bit tricky. This is especially true if you already hold a mortgage for your own home. If you want to begin building your real estate empire with foreclosed properties, then you need to have a good understanding of all the options that are available to you. Knowing how to finance foreclosure property can be just as an important piece of your success as the property itself.

One way to finance your purchase of foreclosure properties is to utilize low interest lines of unsecured credit. These loans are given by a bank and are generally designed to be given as a general purpose or a business loan. It is not considered a mortgage and would not traditionally be used to purchase a home. If you are running your real estate investments like a business though, they may approve you for this type of financing. This type of loan is not intended to be spread out over many years like a mortgage would. In the investor’s mind, this should be considered a short term loan that will give you the cash in hand necessary to complete the transaction, and then pay the loan off in full as soon that the property is sold again. The bank essentially fronts you the cash that you need to turn the deal.

Another way to consider financing your purchase of foreclosed property is by using FHA loans. This type of financing is for a completely different kind of investor. It is not designed to be used by real estate hounds who want to buy and then turn over the property as quickly as possible. Buyers who utilize this program are often required to own a property for a specific amount of time before they are allowed to sell it again. This is a great tool for individuals who are looking to get into their first home at a good price. Foreclosed houses often need a lot of work, and the FHA loan can be used to fund the rehab and renovation, thus driving up the value of the home for resale at a later date. Purchasing using an FHA loan would be considered as more of a long-term investment, but can still be a great place to start.

Hard money lenders are a more specialized, and slightly more risky, type of financing. These lenders are not banks, and thus are not held to the stringent lending standards that banks held to. The higher interest rates that are charged by hard money lenders establish these as short-term solutions that are designed to be used by experienced investors who have a proven track record of being able to turn a property around quickly. The hard money lender will front the cash for the deal, and will be repaid in full as soon as the property is re-sold.

One way to buy foreclosed property is with a traditional home mortgage loan. Many investors shy away from this method of financing because it can be time consuming to get set up, but if this is something that you are familiar with and can do as a second mortgage, then it is a completely viable way to finance the purchase of foreclosure properties. You simply need to put the wheels in motion for the loan well in advance of the auction, since you’ll need to have cash in hand on that day.

A discount mortgage can be another good way to finance the purchase of foreclosed properties if you are planning on selling it quickly. Discount mortgage typically have flexible interest rates. This means that the rate can go up in the future. If you can find a good rate to initiate the loan at, and are comfortable with the notion that you need to sell the property before the rate goes up, then this might be the financing method for you. If you get stuck with a property that you can’t sell, then you may want to refinance the property as a traditional mortgage with a fixed rate, just to protect the base of your investment.

In an effort to avoid financing through traditional means, many investors are becoming money partners. By pooling their cash resources they are available to act quickly on foreclosed properties and then divide the proceeds from the sale of the property back into cash when the deal is done.

A few real estate investors utilize high limit credit cards to finance their investments. This is a high-risk investment, as they are counting on being able to turn the property over quickly in order to make the credit card payments. If they can’t, then they could be in trouble quickly.