Compound Profit Blog

Before you can begin to get business loans you have to be able to do two simple things. You have to be able to determine your business fundability accurately, and determine what your immediate needs and future needs will be.

Is Your Business Fundable?

There are several aspects that go into determining your businesses fundability when it comes to getting financing. The first thing banks look at is your businesses credit and then they will need to see some record of income and profits from that business if it has been in operation for any length of time.

If you are just starting out, those two aspects of business fundability are not always present. Some lenders may suggest using your personal credit to give your business credibility, but that is a dangerous game and one that should be avoided whenever possible. You can develop some business credit by opening vendor accounts and purchasing supplies on account, paying them back within the stipulated timeframe. Most vendor accounts are payable within 30 to 90 days. Make sure you completely understand the terms you are agreeing to and always meet your obligations so you create a separate credit rating for your business.

Income and profits from a startup are not available for a lender to determine your ability to repay a loan. If you have a solid business plan that is well thought out and does not suggest exaggerated expectations, a lender may use that to determine your businesses ability to repay a loan.

What are Your Needs?

It may be tempting to get a loan for as much money as you are eligible for, but that isn’t necessarily a good idea when applying for a business loan. First, if you ask for the maximum amount you can get it may make your debt ratio so high your business credit score actually goes down.

Another reason not to overburden your business with an exceedingly high loan is that you will be paying interest on money that you don’t actually need. Why pay more if you don’t have to? It can be tricky to determine exactly how much money you need, both now and in the future and you don’t want to cut yourself short. That’s another area where a very thorough business plan can help you understand your needs and give you the tools you need to make the right decisions for your business.

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Unsecured financing is an excellent option for a small business that needs to borrow money without a credit check. The loans must be paid back in a shorter time frame and do require a higher interest rate than secured loans. You have easy access to the money for emergency situations and do not need to use your home or business as collateral. There are very high interest rates on these loans because they are very risky to the lenders. Some lenders may not get their money back until after the liquidation sale of your business because there is no collateral required for the loan and you do not need to risk your home or business building with a lien on your property. You will however, have a financial obligation to repay the loan amount.

If your company is doing well, then an unsecured loan could allow you to improve your small business to a better level of profit. The unsecured loans are a handy tool if the banks will not extend you any more regular credit on your business. Many small businesses need to have more money, especially when they are growing. You may be able to service more customers, but simply not be able to finance the additional equipment that is needed for more production. The unsecured loans usually need to be paid back in a number of months or perhaps a very few years but if you believe that you will make more in profit during that time than you will spend on the unsecured loan, then the loans could be a good choice for you.

Even with a bad credit rating, you could receive unsecured financing that could protect your small business. You might not have the money that you need to repair a service truck that you use to replace gutters with your small business, so for you, having an unsecured loan would allow you to fix your truck and continue installing gutters. Without that truck, your business could be closed. Those unsecured loans do offer an option for the small business owner that may not be able to survive without getting the high risk loans but lenders do charge higher interest rates because there is a high risk of having to go to court for their money if the borrower can not repay the loan. However, with unsecured financing, you could stay in business and protect your investments.

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Factoring, also referred to as accounts receivable financing, is the process by which a company sells its outstanding invoices or accounts at a discount to a finance company which then assumes the risk associated with the accounts in exchange for immediate cash. In this instance, companies are essentially trading future earnings potential for the ability to immediately obtain cash to finance separate projects or cover different expenses.

The particulars of the financial agreement vary depending on the nature of the account and on the nature of the financing institutions personal policies and guidelines. In most instances, the financing company will charge a 5% fee associated with the proceedings, which, may or may not be less then other comparable financing options. Additionally, every account has a value assigned to it on an individual basis. Basically, the lending institution will assign a higher base value to an account relative to how recently the account has been opened. For many small businesses, financing of this form offers several benefits.

Manage Collections.

Many small businesses lack the resources necessary to properly pursue and manage collections. This form of financing allows companies to continue normal business operations while only suffering a minor loss on specific accounts. Though factoring companies are often uninterested in purchasing accounts greater than 90 days past due, most accounts will qualify for financing.

Free Up Capital.

For companies involved in the production process, a majority of their working capital is connected directly to their inventory levels. In the event that a customer wishes a delayed payment schedule, smaller operations are often left facing extended downtime between the completion of an order and payment collection. Factoring allows companies to minimize downtime while maximizing capital liquidity levels.

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If you own a small business, you should consider using purchase orders to help finance the purchase of your goods and services. Not only will your business save money, you may be able to extend your payment terms and keep your money in the bank a little longer when you use purchase orders.

A purchase order system is actually a credit system for purchasing goods and services. Most companies accept purchase orders as a form of payment. You simply give them your purchase order number and they will bill your account. At the end of their billing cycle, they will send you an invoice for the payment due in full. If you set up an electronic purchase order system, everything can be done automatically online.

You will save many valuable working hours by setting up a purchase order system. The system will handle all of your bills electronically, as your bills can be paid automatically by wire or ACH. You will not have to deal with writing checks or balancing your books, as a purchase order system will do these things for you. You can completely eliminate your paper system, which in turn will eliminate the common mathematical mistakes of a paper check writing system.

Purchase order systems match the invoices with the purchase orders and then automatically issue the checks for each vendor when the terms are due. If your accountant is just opening invoices and paying them, you are missing out on about 30 days of payment terms. If you have a purchase order system, the system will not pay the bills until they are actually due. This leaves your money in the bank a little longer to draw interest. It can also improve your cash flow and credit rating, since the money that you owe stays in your bank account longer.

 

The best way to maximize your purchase order financing is to pay for your purchase orders with a credit card when the purchase order is due. For example, if you bought something on a purchase order with Net 45 day terms, the bill would be due 45 days from the invoice date. If your credit card is due in 30 days and you paid for the purchase order merchandise on the 45th day with your credit card, you would actually not have to pay the bill for the merchandise for 75 days. Find a credit card that offers a rebate or incentive program and you will save even more on your financing.

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Everyone knows that money didn’t exist from the  beginning of time; prior to its invention, people didn’t have access to working capital, so they simply bartered or exchanged goods. Later on, various nations used gold dust, clam shells, cocoa beans (and so on) as money; nevertheless, this didn’t simplify the process too much, so the invention of money was the result of a needed, expected course of action. While some money is still made from precious metals today, most of it now is exchanged electronically as bytes through computer networks around the world.

The first American colonists were using all sorts of currencies (mostly from England, France and Spain) for their transactions; it’s a known fact that by the end of the 18th century there were about 20 officially accepted forms of legal tender in North Carolina alone! Different states had different payment instruments, with tobacco being used as money in the form of “tobacco notes” in the state of Virginia for over two centuries.

The first credit bills which were accepted as legal tender were printed in Massachusetts as a means to pay the soldiers for their military expeditions, and could be exchanged for silver or gold. Meanwhile, by the end of the 18th century, many private banks were allowed to produce their own bills, so in only a few decades there were thousands and thousands of different U.S. bills floating around the continent.

The end of the 19th century brought the death of the silver dollar; the massive gold supplies that came from Alaska and Australia imposed gold as the currency standard. Despite all of this, a few decades later, the great depression (which cut the net national product to less than 50% from its initial value) forced Congress to raise interest rates significantly, in order to keep a proper gold vs. dollar ratio.

The Federal Reserve System, which was set up in 1913, continues to act as a national bank, regulating the money flow and thus ensuring the much needed economical stability. The Federal Reserve Notes are the only currency produced in the U.S.

Amazing facts:

1. Producing a penny costs about... two pennies! The price of Zinc (the main ingredient in the penny formula) has increased a lot during the last decade, so the government is actually losing money with each penny that’s minted.

2. Congress authorized the usage of paper money in 1775 in order to finance the war, but they had to give up the idea quickly, because the printing costs were greater than the value of the bills.

3. The Secret Service was founded in 1865; its main role was to fight the counterfeiters and thus restore people’s trust in the U.S. currency. Its authority broadened two years later, giving it the responsibility to discover any possible frauds against the U.S. government. Congress passed an Act making it unlawful to counterfeit coins 12 years later, in 1877.

4. There are many theories regarding the origin of the dollar sign, but we know for sure that it had been used way before the U.S. dollar bills were invented back in 1875. Strangely, the dollar sign doesn’t appear on any of the U.S. bills.

5. Congress authorized the production of the first U.S. dollar coins in 1792, but paper money wasn’t produced until 1861 – and each one of the produced bills was initially signed by hand by a handful of people!

6. The U.S. reduced the size of their bills by about 30% in 1929, in an effort to save money by using less paper. As an added benefit, the new bills have been of great help in fighting counterfeiters because the new designs were standardized.

7. The largest U.S. bill ever printed was a $100,000 note; nevertheless, this bill has never been released to the public, only being used for transactions that were involving the Federal Reserve and the Treasury Department. Other seldom found bills include the $500, $1,000, $5,000 and $10,000 notes, which can be found in limited quantities (mostly in museums) these days.

8. The paper used for the bills (which is secretly produced by a single manufacturer from cotton, linen, colored fibers, polymers, etc) can be folded about 5,000 times without needing to be replaced.

9. Starting with 1993, all paper money (except the $1 bill) include micro-printing, which wraps the “The United States of America” text around the portraits that are printed on the bills – the text appears 12 times on the $100 bill. The size of the micro-printing is only 0.006 inches, so you will definitely need a magnifying glass if you want to read the text.

10. While a $1 bill will only last for about 2 years, due to its special texture, a $100 bill can be used for up to 10 years without getting deteriorated.

I’ll have to admit that the U.S. bills don’t look too exciting when compared with other countries’ bills, but their somewhat dull aspect was intended – it allows the subtle incorporation of more and more security features, and thus limits the amount of counterfeit bills on the market.

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Many small business owners have experienced this: you go to the bank hoping to get a loan for your business, and after they look through your paperwork you get a polite “sorry, we can’t help you”. While some of the entrepreneurs might take it personally, this is just the bank’s way of saying “you pose a great risk, so we are afraid that we might lose our precious money”.

Things change dramatically when you use an invoice factoring company, though. The factor isn’t interested in your paperwork, but in your customers’ financial strength; if they are solid, you won’t have any problem getting upfront money for your invoices. It’s true, the bank sees your accounts receivable as being financial assets as well, but it doesn’t want to use them as a guarantee because of the long waiting terms that can sometimes go up to even 4 months; however, the factor is ready to purchase your invoices and wait until it cashes the money.

Now why would the invoice factoring company take on a higher risk? To begin with, the risk isn’t that big, especially if your customers are in a good shape from a financial point of view. It’s all common sense, you would say, but try and tell that to your banker! And then, the factoring company wants to stay in business, while the banks appear to have lost their desire to work with the small business owners. I would also add the fact that the factors are used to dealing with some of the toughest clients, so they have much greater chances to collect the money from them than you do.

Defaulting on a bank loan can make you lose your business; the consequences are much less dramatic even with recourse factoring, and even if your customer didn’t pay the invoices to the factoring company. It’s clear that we are still going through troubled economical times this year; fortunately, the constantly evolving business environment offers great opportunities for the entrepreneurs that can adapt their business financing strategies to the actual parameters of the economy.

Invoice factoring is a business that exceeds one trillion dollars across the U.S.A., being used by hundreds of thousands of companies, regardless of their size. Compound Profit offers invoice factoring services with rates that start at only 0.75% from the value written on your invoices, so contact us for a free consultation.

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Many people would like to start a small business but they are worried because they don’t know how to get the needed capital. We can’t blame them for that; the stats show clearly that most business fail because they don’t have access to cash, with most companies failing during the first year of activity. It’s a good idea then to keep track of your precious working capital by starting small, without spending too much money from the very beginning, and then buying more and more equipment, hiring more and more people, etc as your business starts to produce more and more income. With all these things in mind, let’s look at the most used financing instruments.

1. Personal credit cards. These might be good for people that are just starting up, but must be used carefully; the interest rate is quite big, so make sure to pick the best offers and (most of all) spend the money wisely.

2. Personal loans. You’ve got good chances to obtain a personal loan from a bank if your financials (especially your income and credit score) are looking very good. Most experts recommend that you should apply for a personal loan while you’re still being employed; this way, you increase your chances of getting a bigger personal loan.

3. Home equity loans. They are similar with personal loans, but in this case you have to offer your house or some other property as collateral. While I can’t recommend this particular financing instrument, I have to admit that it’s got some advantages, like the ability to get a larger loan for a longer term (10... 20 years).

4. SBA loans. These loans are backed by the U.S. Small Business Administration, so the banks will take less risks in case that you default your loan payments.

5. Business loans. Getting a business loan might look like a complicated task when you’ve just started your business, because your company didn’t prove its successfulness yet. Fortunately, if you have a good business plan there are quite a few ways to get financing for your business from the alternative financing companies.

Compound Profit has several financing options that allow the business owners to get working capital even if they’ve just founded their companies, so contact us today for your 100% free consultation.

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Quite a few business owners struggle to pay their suppliers and payroll these days. Sometimes, this might be good news: the company is growing and it doesn’t have too much liquidity at its disposal. Unfortunately, many times this situation has to do with the customers taking way too much time to pay their accounts. It’s true that your company can also grow by offering better terms to its customers, but this could lead to serious cash flow problems.

On top of that, the banking regulations are more and more severe, so many businesses are struggling to survive and grow, mostly because their owners aren’t aware that there are other alternatives. One of them, receivables financing, is offered by the “factoring” companies. The company sells its business to business / government receivables to the factor and gets close to 90% of the dollar value right away, receiving the remainder (minus a small service fee) about a month later, when the factor gets paid for those invoices. This financing method doesn’t depend on your personal or business score, the amount of year in business, collateral, etc – what really matters is your customers’ credit.

Why isn’t this financing method much more widespread, then? Believe it or not, many companies don’t even know that it exists! And other people think that it is a costly financing method, when it fact it is very cheap – here’s an example:

An entrepreneur has got a $1,000 invoice in January and receives 80% ($800) from the factor as an advance payment. Thirty days later, the factoring company, who has a (let’s say) 3% rate for its factoring services, pays the business owner another $200 – 3% from the invoice value, so the business owner gets a total of 970 U.S. dollars in exchange for his / her $1,000 invoice.

This is a plain 3% service fee, and it is clear that the business owner will pay the same small amount of 3% if he / she decides to sell the invoices each month of the year; the total service fee for 12 invoices of $1,000 each = $12,000 will only be $360 (3% from the 12,000 U.S. dollars). Quite a few business owners believe that the percentages add up and thus believe that the service fee is 3% x 12 month = 36% -> nothing could be more wrong!

Other alternative financing companies offer rapid credit card payments and similar services, but the service fees add up quickly and easily reach 5%, being bigger than the ones used by the factoring companies. In addition to that, factoring doesn’t add any debt to your balance sheet and offers you a free customer credit check.

Working capital factoring and purchase order factoring are just a few of the business financing services offered by Compound Profit; its highly trained Profit Advisors are looking forward to offering you a complimentary business analysis, in order to find ways that will help you grow your business. Christy Giroux is a Regional Director of Compound Profit of Arizona and can be reached at 1-877-386-3716, ext. 249. Visit http://www.cprofit.com for more information.

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The financial crisis has determined the traditional lenders to raise their credit standards, as well as their commissions, making it harder and harder for many business owners to get bank loans. This happens because the banks aren’t willing to risk their precious finances by handing them over to a company that has less than perfect business credit records. What surprises me, though, is the fact that very few business owners, especially small business owners, have heard about working capital factoring; this article will hopefully be a good introduction.

The first myth that has to be debunked is the information that factoring is a financing option used only by the struggling small businesses. Nothing could be farther from truth: huge companies use factoring on a monthly basis because they can access financing instantly, without affecting their cash flow, and get to benefit from tax advantages as well.

On the other hand, it is true that small businesses can get the maximum benefit out of this financing instrument because they can’t grow properly (or even survive!) when their money is tied up in their accounts receivable, since they don’t usually have a lot of cash at their disposal. It’s depressing, but many clients, be them huge corporations or tiny businesses, prefer to pay using checks or simply decide that your company has to wait for 1, 2 or even 3 months before receiving the payment for the delivered products and / or services. Now that’s sad news!

Working capital factoring is the process through which an alternative financing company, also known as a factor, provides the needed financing to these companies by purchasing their creditworthy invoices at a discount. This gives the small business owner quick access (in only 1-2 days) to the needed money and has a 100% success rate, provided that the invoices are issued by a trustworthy company. Your company’s credit score, the number of years in business, and so on aren’t important; it’s not a surprise then that more and more company owners prefer to use factoring instead of trying to get loans from their banks.

Compound Profit’s factoring rates start at only 0.75%, so feel free to contact us for your free consultation.

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ProntoLease is Compound Profit’s “micro ticket lease” financing option and can be used for products that cost from a few hundreds of dollars to tens of thousands of dollars. It’s the perfect financing option for business owners that want to increase their sales and profit by providing a quick financing alternative to their customers.

ProntoLease is a great choice for end-users that have a less than perfect credit score or for the ones that don’t have any credit; nevertheless, it is a perfect match even for the end-users that have a perfect credit score and are looking for a financing option that’s suited for small value products and / or are aware of the potential tax benefits that arise from using this financing option.

As an example, many small businesses that are in the “signs and vehicle wrap” market use our micro ticket leasing product, because it’s a financing option that increases their sales in an area where, because of the small profits, no other financing company is interested in. The advantages for the “signs and vehicle wraps“ business owners are obvious:

- You benefit directly by having access to a financing option from a company that has a greater approval rate than any other leasing company on the market;

- You can attract clients that can’t afford to use cash, credit cards or bank loans to acquire their signs and wraps. In fact, ProntoLease works fine even if your clients have poor credit or have just started their business;

- The approval process can take as little as 24 hours;

- Get the chance to up sell new clients and cross sell existing clients, giving them an alternative that eliminates their existing budget restrictions;

- ProntoLease pays your vendors half of the money up front, motivating them to more forward much more quickly with your orders.

We think that the most important benefit for the business owner, though, is the partnership that forms between his / her company and Compound Profit. Our success depends on your success, so we will offer you the best financing options in the industry, making sure that they are tailored for your specific needs. ProntoLease is just one of our many business financing solutions, so contact us today.

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