Compound Profit Blog

Washington is constantly urging banks to increase lending. In spite of this, credit remains tight. Small business loan originations continue to lag and credit card issuers have significantly reduced lines of credit and canceled thousands of accounts. The American taxpayers bailed out the banks hoping that they would make loans and stimulate the economy. But given the current state of the economic mess, lending is probably the last thing the banks should be doing. Since the current recession was caused by an overextension of credit, making additional loans available doesn’t make sense.

Every loan carries the risk that it will not be repaid. Before making a loan, a lender must first accurately price the risk. If this isn’t possible, the lender reduces risk by lowering the total number of loans that it originates or the dollar amount of the loans. It has yet to be determined how costly new initiatives, such as cap and trade legislation and the healthcare proposal, will be on business. The unknown cost of these and other current regulations are interfering with the accurate pricing of risk. Therefore, lenders are reducing their risk exposure by reducing the number of loans they make.

Another hurdle for lenders is the risk-adverse nature of bank regulators. Although presidents and Congress have urged banks to make more loans, bank examiners have required just the opposite. Bank executives across the country have demonstrated that bank examiners have become extremely cautious in determining the value of a bank’s assets, thereby requiring an increase in bank reserves. This results in a reduction of lending.

 In an effort to control the money supply, the Federal Reserve began paying interest on bank reserves it held on deposit. Reserve balances immediately went up, and they have been rising ever since. Banks can borrow at low rates and place those funds on deposit with the Fed receiving a risk-free, guaranteed rate of return. This effort by the Fed to control the money supply and encourage lending has actually backfired.

In today’s tough economic environment, this risk of default is greater than it has been in years. High unemployment and the reduced value of collateral, such as housing, has required banks to tighten their lending standards to comply with more stringent bank regulations. As lending criteria becomes tighter, fewer companies and individuals qualify for loans.

Current economic conditions and levels of government oversight don’t support additional bank lending.

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The recent last minute agreement to raise the debt ceiling was only a temporary solution to our nation's biggest fiscal problem. No one really expected that the United States was going to default on its debt obligations, but the politicians certainly caused something of a world crisis in the financial markets.

While it is hard to say whether it is this administration's fault or the result of the previous administration's policies having to be addressed with an entirely different strategy, the fact remains that our country owes more than 14 trillion dollars.

The number is so big, it is hard to understand. Imagine 14 million attaché cases (18"x12"x4.5") each filled with a million dollars in hundred dollar bills. A trillion dollars would be more than enough to buy all of the homes that were foreclosed in 2007 and 2008. The 14.3 trillion dollars the United States is equivalent to being able to write a $2,000 check to every one of the roughly 7 billion people living on our planet.

Now that you have a clue as to the enormity of our debt, what does that actually mean? What impact does the current debt ceiling deal have on you and me? How does it affect small businesses?

When the powers that be finally came to some sort of agreement, the result was to add 2.4 trillion dollars to our nation's borrowing limit. As part of the deal, promises were made to cut spending by the same $2.4 trillion dollars. It is an attempt to stabilize our debt crisis and still allow the country to function normally and without having to go through a major financial disruption.

There is a price to pay for carrying so much debt. Standard and Poors, the financial rating agency recently downgraded the credit rating of the United States. The unprecedented move does not actually affect our ability to pay debt, but does create a question both at home and abroad about the financial stability of the world's greatest economy.

The Federal Reserve has promised to keep interest rates low over the next several years so not to cause a panic in the business community. While interest rates may go up on all types of consumer and business debt, they are unlikely to spike high enough to bring our slow economic recovery to a sudden halt.

Small businesses may suffer the brunt of the impact as not only may it be harder to borrow money, but the costs of running their businesses may increase. The fact remains that there is great uncertainty in what will be cut and if/when taxes will be raised.

Small businesses that are already struggling can be forced to close if taxes get any higher. The cost to hire an employee will rise. Government programs will be trimmed or completely eliminated. Who knows what will happen with Social Security and Medicare? Without doubt, everyone will be asked to cut back and sacrifice and that will mean additional hardship for the millions of small businesses in our country.

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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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Using its own working capital is an ideal way for a business to avoid debt and stay in control of its own destiny. The definition of working capital sounds complex, but it's just a lot of words to describe the difference between what a company owns verses what it owes. Technically, to figure out the amount of working capital a business has to work with, the business owner should add up all assets, including such things as computers, stocks and inventory, and figure out what can be converted to cash within the coming year. That would be the asset figure.

To get the liability figure, the owner of the business would need to add up all accounts payable that are expected to go out in the next 12 months, including employee salaries and benefits, debt payments, rent and so forth. This gives the business an idea of what its liabilities are and should be deducted from the asset figure to come up with a figure for working capital.

Advantages of Using Working Capital Verses Other Financing Options

As opposed to taking out a loan or using a credit card, using available working capital to grow a business puts it in a better financial position for the future. While borrowing money is sometimes necessary to start or continue a business, it comes at the price of having to repay it with interest and in a way is gambling with the future of the business. With working capital, there is nothing to repay and the money is there to immediately use as the business owner sees fit.

Selling company stock is another option that some business owners resort to in order to raise quick funds for the company. It is a viable option, but not one that comes without risks. There is always the possibility of having to sell too much stock, resulting in a shift of the power structure of the company. Again, working capital is a better solution because it leaves the management structure in place and give the leadership the ability to make decisions for the future of the company.

 Working Capital is Attractive to Investors

When business investors are looking for companies to invest their money in, they will often evaluate more favorably those that have managed to build up a fair amount of working capital. It shows that the company is responsible and therefore less of a financial risk.

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Don’t let anyone tell you something else: the small businesses play a major role in the American economy – there are tens of millions of small business owners paying taxes out there! Fortunately, it’s quite easy to start a new business these days, no matter if you’re planning to open an online bookstore or a gas station.

If you’ve just started a new business or you plan to start one, using a small business credit card in order to get the needed financing is definitely a good idea. First of all, a small business credit card will allow you to separate the personal expenses from your business-related expenses; using your own finances for your company’s purchases isn’t a good idea at all.

Some entrepreneurs are very organized and like to jot down all their expenses; if you aren’t like them, a small business credit card will be of great help, because you’ll receive monthly statements that show you exactly how much money you have spent each month. More than that, each payment that’s made using a business credit card can help you build business credit, and if you’ve got good business credit records for several months, you will be able to apply for a business loan, which will allow you to get access to larger amounts of cash with lower interest rates.

But what about established businesses? How can business credit cards help them? Even if your business is already profitable, picking a business credit card and keeping it in your wallet is a very good idea; this way, you will have access to a consistent source of financing, and this will help you get the needed money in case that one of your expensive pieces of equipment dies, etc.

As a conclusion, small business credit cards are powerful financing instruments that help you separate personal and business purchases and allow you to buy the needed equipment, merchandize, etc without using cash. Compound Profit has created a business credit card – MerchantCard – that can give you access to up to $250,000 per business location and allows you to have access to cash anywhere credit cards are accepted.

Contact us today for a complimentary consultation and you’ll discover why MerchantCard is preferred by hundreds of thousands of companies across the entire U.S.A. Here’s just a hint: availability increases each time payments are made.

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Starting a business is definitely an easy process nowadays; in fact, some of you might have started an entrepreneurial activity as kids, selling lemonade, cookies and so on. It might have been fun back then, but running your own business is definitely a much more rewarding task as an adult, because it allows you to set your own working schedule, make a lot of money, pursue your dream idea, etc.

It’s not an easy task, though. Starting a business isn’t a difficult process, but making sure that it runs successfully for many years takes a lot of hard word. It all starts with the planning phase: what would you like to do? And another immediate question would be: does the world need what you would like to offer? If the answer to both questions is a sound “Yes!” then you can move on to the following step.

It’s time to do some market research, figuring out what products and services you can offer. Then, ask yourself a few more questions. How does my competition do? What products and services are they offering? Do they struggle to survive? Is there enough room for another company (my company) in this industry? Can I offer additional products or services that they don’t have? Or at least can I offer the same products and services at a lower price and / or higher quality? How much money will I make from each product sale? Would buying a successful franchise work well in my area? Do I need to hire one or more employees from the very beginning? There are many more questions to ask, but I’ll let you do a little brainstorming by yourself; feel free to ponder on it because knowing the answers to these questions will maximize your chances to come up with a winning plan.

OK, so now you’ve got a great business idea, you have studied the market and you have written down a solid business plan. How do you intend to get the needed financing? If you plan to start a small business, the costs could be as low as 20$, enough to cover the costs for a domain name and a year of website hosting. Most viable business ideas will require more funds, though, so it might be a good thing to keep your current job until your business starts to produce a consistent income stream.

The needed funding can come from several sources: your own savings, your relatives’ savings, credit cards or business financing companies. Try to estimate your business’ monthly running costs as precise as possible, and then add 50% to that figure – you will definitely forget some things, and it’s always better to overestimate your needs, instead of underestimating them, and then trying to come up with the additional money out of thin air. Compound Profit offers financing for startups and established businesses at great rates, so make sure to contact us for a complimentary consultation.

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Recent stats claim that 45% of the new businesses have chances to survive for at least 5 years, and these fresh stats are much more encouraging than the 2006 batch, which was claiming the fact that only 1 out of 20 businesses manages to survive the first 5 years of activity.

It’s good news for sure, but let’s look at the facts again: more than 1 out of 2 business owners fail to produce a sustainable venture. So what can you do in order to make sure that you’re among the others, who manage to create a successful company and see it growing as the time passes?

First of all, make sure that you have a good, solid business plan. Then, prepare for hard work and don’t expect to see good results within the first year of activity. Many aspiring business owners think that they’ve got a great, quick money making idea – most of the time, these ideas will be in line with the “get rich quick” schemes and these things simply don’t work, because running a business requires quite a bit of effort. Just ask one of your friends or a relative that runs a small business; you will see that being an entrepreneur isn’t as easy as it seems and you’ll also learn quite a few useful tips during the process.

One of the best pieces of advice that you could get is this: be prepared for the unprepared; you’ll greatly increase your chances to fail if you don’t take risks into account.

It’s always better to start the business using your own money; this way you’ll be much more careful with the initial investments, as well as significantly increase your chances to get a startup loan. Business credit cards such as Compound Profit’s MerchantCard can help tremendously, because they give you access to funds that can be used to sustain and grow your company; just make sure to pay off the balance on a regular basis and you will get access to significant, low cost capital for your business.

Paying your balance on time will also help whenever you plan to get a loan request; no bank or any other business financing company in the world will want to work with a firm that has a poor business credit; fortunately, a powerful business credit builder program can fix that problem for good at a low monthly investment.

One last tip: make sure to spend your working capital wisely, especially when you are just starting up; this might be the key factor that makes the difference between a thriving and a failing company. Have a great business plan that takes worst case scenarios into account, work hard, don’t expect quick results and spend your money wisely – these things alone will guarantee your admission within the ranks of those 45% successful entrepreneurs.

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As I meet business owners at networking or social events within the Washington DC Metro area and tell them about what we do, the first thing I state is that Compound Profit is an “Alternative Business Financing” solution provider to the small business community. The first question that usually follows is… ”What is Alternative Business Financing?”

So what is Alternative Business Financing? In today’s tight economical times when traditional banking institutions have stopped lending money to small businesses and have slashed lines of credit by 30-50%, the small business owners must look at “Alternative Business Financing” solutions or tools to stabilize and grow their business. That answer makes sense but usually does not make the proverbial “light bulb” go off. So these are examples of Alternative Financing Solutions that are available to the small business owner to help them grow and expand their business:

• Accounts Receivables Financing – Factoring, as it is most commonly referred to, is the practice of selling a company’s customer invoices (B2B invoices) to an authorized 3rd party (otherwise known as the Factor) and they will advance your company up to 90% of the invoice amount, collect the money from your customers, and then refund you the remaining 10% minus their processing fee. Unlike banks or other lending institutions, these companies do not lend based on your credit, but focus mostly on your customers' credit worthiness and / or strength in repayment. This is a great way for businesses to better manage their cash flow, purchase needed inventory, or cover operating expenses. There is no need to wait more than 30 days to be paid by your customers when you could take that capital and generate even more revenue for your business in only a few days. Our Smart Capital Advance program is an example of this type of solution.
• Friends & Family - If a bank is not willing to give you a loan, sometimes friends and family are more than willing to provide you the initial seed money or working capital for your business. Usually, friends and family can be the best source of financing because they know you well, and understand the social consequences of you failing to repay their investment.  However, sometimes it is best to keep business and personal relationships separate; otherwise, you risk to ruin those personal relationships. If you do move forward with getting financing from friends and family, make sure that you get all agreements in writing, even if your family members insist that it isn’t necessary.
• Purchase Order Factoring / Financing – Similar to Accounts Receivables Financing, Purchase Order Financing is the advance of funds to a company, based on the amount of the purchase order, so that the company can fulfill the purchase order. Purchase Order Financing is a solution that enables small businesses to go after and fulfill large orders. When used correctly, this can enable you to grow your company quickly. As opposed to bank financing, purchase order funding does not rely on your business credit profile, but rather on the financial strength of your customers. In other words, if you sell products to large companies or to government entities, purchase order funding can be a great way to finance those sales. To qualify for purchase order financing, your company must sell products. An ideal candidate for this type of financing would be a product reseller or distributor who is buying products from a supplier and then shipping the products to the client. Purchase Order Factoring is one of our core solution offerings as well.
• Angel Investors - Angel investors are private parties, and sometimes businesses, that invest their own funds into selected businesses. The angel investor becomes, in essence, a stockholder in your company, and is as concerned about your business' success as you. Each investor establishes his own guidelines, application methods and standards.  Angel Investors do require a fair amount of documentation (i.e. business plan, sales forecasts, sales and marketing plan) before they will invest any funds. In addition to that, the business owner must be willing to give some equity in the business to the angel investor.
• Merchant Cash Advance - Merchant Cash Advance programs grew from accounts receivable financing solutions. Merchant Cash Advance is a financing solution based upon the merchant’s future credit card sales. Specifically, the lender purchases a portion of the business' future credit card sales at a discount, the rate of which is generally based on the business' sales volume and history. In order to receive a cash advance, a business must be operating for a minimum of three to six months and must process a minimum amount of credit card sales (around $3,000 a month). Many lenders provide a short online application that can be reviewed within 24 hours. After approval, most lenders can send the money within a week. The merchant will receive all the money, while the lender collects a fixed daily percentage of the business' credit card sales until the debt is paid in full. Our Merchant Card program is an offshoot of Merchant Cash Advance programs within the industry.
• Peer-to-Peer Lending - With peer-to-peer (P2P) lending, the financial transaction occurs directly between individuals or "peers" without any involvement of a traditional lending institution. Companies such as Prosper.com monitor an online marketplace where borrowers post their loan requests and are connected with lenders who "bid" on the chance to finance the loan. P2P business loans are usually limited to $25,000, and if you default on your P2P loan payment it can negatively affect your business credit profile.
• Equipment Leasing – Leasing vs. Purchasing is a question that small businesses ask themselves every time they need equipment. Leasing offers many benefits over actually purchasing the equipment. For example, leasing does not require large down payments of cash, which can be put to better use inside the business to pay for current operating expenses. In addition, some leases allow customers to expense 100% of each monthly payment, thus resulting in a real tax benefit to the customer. We offer many types of leases: Small Ticket Leasing, Commercial Leases, and Municipal Leases but this is a discussion for another day.

These are just some examples of alternative financing solutions that are available to small business owners. By using these alternative sources of capital, many business owners will be able to grow their business to a point that they do become creditworthy in the eyes of their financial institutions. Compound Profit is the #1 Brand in Alternative Financing and we have a variety of solutions to help small businesses grow and expand their business.

Anuj Mehta, Regional Director/Principal Advisor

Phone: 877-386-3716 ext. 221

Fax: 877-490-4224

http://www.cprofitdc.com

amehta@cprofit.com

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As a company that finances auto wraps for advertising purposes, Compound Profit receives calls every week from the vehicle wrap vendors and from businesses that consider using vehicle wraps advertising and need financing options. 

Because of the turmoil in the banking systems now and the uncertainty in the economy, many banks that regularly made micro loans for the small business community in the past, are now declining those funding requests.

Compound Profit’s ProntoLease financing for vehicle wraps and other types of commercial signage fills a financing void and has become very popular with wrap shops and their customers.

We recently financed a vehicle wrap for a customer for one of our approved ProntoLease Vendors, Signs Now, in Fort Meyers, Florida.  The vendor owner, Udo Upeslacis, advises that the financing option provided by CProfit’s ProntoLease program helps him close vehicle wrap sales that he would otherwise lose. Signs Now is one of only six PDAA certified shops in Florida and the only PDAA shop in Southwest Florida.  If you are located in Southwest Florida and are in need of a quality vehicle wrap or other commercial signage, contact Udo at 239-277-0553.

Udo advises that… “Customers who want multiple wraps for their company vehicles often suffer sticker-shock and want financing options other than cash or credit cards.  The ProntoLease program allows them to finance their wraps with a single one-page application, no tax returns, no financials and no additional collateral. They can also enjoy tax advantages when they use the ProntoLease financing option.”

Based on the number of inquiries that Compound Profit receives from B2B owners who want to promote their goods and services, I believe that they are finding the vehicle wrap mode of advertising to be very productive.  The ProntoLease financing option allows them to take advantage of the many benefits of a vehicle wrap.

Compound Profit began offering lease-financing on vehicle wraps in 2008 and the demand has grown significantly. We advertise nationwide for vehicle wrap vendors / dealers and their customers who are seeking financing options other than cash or credit card. We pass along those leads to our approved ProntoLease wrap shop vendors across the country.

In summary, vehicle wrap vendors and their B2B customers find that this type of advertising offers a very good Return on Investment (ROI) when they can get short-term financing for their vehicle wraps for as little as $99.00 per month.

Robert Jacobs is an Account Executive with Compound Profit.  Mr. Jacobs helps small to medium size business owners get capital for growth and cash for operating expenses… when the bank has to say no. Visit his web site at http://www.cprofitrj.com  for more information.  He can also be reached at (877) 386-3716, ext 134.  Learn more about Compound Profit’s Smart Capital Advance solution for business owners and for bankers at http://www.smartcapitaladvance.com/jacobs

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