Phantom Commercial Loans

The description of phantom commercial loans was inspired by earlier terminology related to phantom software or similar phrases which generally referred to high tech companies announcing that they were planning to issue new products at some vague point in the future. The usual motivation was to discourage consumers from buying a competitive product because the manufacturer would usually suggest that their yet to be released product would surpass an existing item in one or more ways. Because such a large percentage of these announcements were often not followed by the actual sale of software, the product which was announced with such fanfare but never ultimately made available for sale became known in many circles as phantom software because the intended use of the definition suggests something that only appears to be real.

Phantom Commercial Loans

Sadly a similar event is now occurring more frequently with respect to business financing and working capital finance. Lenders which either do not have sufficient funds for routine lending purposes or which do not really have a serious interest in actively providing commercial loans are nevertheless making announcements about the availability of their financial services for small businesses.

While it is hoped that this trend will not continue, it is simply too early to provide a confident prediction as to how this will unfold over the next year or so. Because borrowers should always have the most accurate information for any potential loan transactions, it is suggested that they take some extra precautions to ensure that any banking representations are fully examined and confirmed for accuracy before proceeding in attempts to secure working capital.… Read More

Need For Venture Capital Stable in Questionable Economy

The declining economic trend continues. An old axiom in business says that the best time to start a business is during an economic crisis, but all indications show a similar downward trend in available venture capital.

It seems that most venture capital groups sit with cash, overcoming the uncertainties that dominate the economy. Not because the money isn’t there; the group just doesn’t want to take the risk now. Why is that?

Need For Venture Capital Stable in Questionable Economy

The aim of most new companies is to make it an IPO or be acquired by another company. The failure rate in starting a business is very worrying. With rising fuel costs an increase in the costs of all other things, including capital equipment, labor and supplies, as well as construction and real estate. Companies that will not invest in their own businesses will most likely not acquire other companies. With the high costs associated with starting a business, people rely on initial profits to fund their new business.

Unfortunately, these businesses that open with little money do not survive. Consumers will not spend money today, competition is high, and the cost is too expensive to promote and advertise new business.

How Venture Capital Helps Small Businesses Become Big Businesses

The entry of money in the initial phase of start-up helps businesses to acquire equipment, real estate, and other things that are not related to day-to-day business operations. This type of investment helps businesses to grow very quickly. Usually.

In this economy, consumer confidence is low. People sit with cash reserves and don’t buy new products … from small appliances to cars, they either fix what they have or do without. The service industry was also hit. More consumers choose to do it themselves than hiring a company.

Venture capital allows beginners to buy the equipment and inventory needed to grow quickly and start making money faster than they should. This allows new companies to promote and reinvest, attract new and growing customers without turning the wheel by making money just to immediately buy something that is needed.

Helping the economy

The importance of venture capital now is that many companies that have been successful in the past year no longer make money. They are trapped in neutral conditions and do not produce significant benefits. Outdated equipment. Improvements needed for constant business infrastructure. They need to compete to survive and to do that, they must improve their situation.

This is not trickle down or trickle up theory; it is a tricky theory. The business of buying equipment to make money by attracting more customers and keeping people working builds things that other companies need to supply the company … You get the picture.

This is an economic network. That’s one thing that needs to be successful for our economic system to succeed. Even the United States Government is involved with offering money to certain industries. Say what you want, no matter your politics, but the Federal government is the largest venture capital provider in the country. Usually, venture … Read More

Green Business Equals Danger For Greenhorn Investors

I am not suggesting for a moment that all Green businesses are bad investments, but I am suggesting that whenever a bubble appears or to there is much enthusiasm for an idea, that a number of the businesses ideas sold to unquestioning investors will turn out to serve the middle men far more than the money men.

As the investors, the business angels, we need to be on our guard.

There appear to be two dangers with the current alternative or green energy fad.

The first is the classic investment risk taught by Benjamin Graham and discussed in his book The Intelligent Investor. Graham, the mentor of Warren Buffett, took apart the reasons for investing in the 1950s boom industry – the airlines.

His analysis has been proven to be right as Buffett now claims that in 50 years, airline investors taken as a whole still have not had a return on their money.

However, Graham did spot that a large number of companies supplying the new industry did make a lot of money for investors. Airports, retailers and caterers have done well.

Graham’s conclusion was that it is far better to supply a growth business sector than to be a part of a great swam of investment as inevitably too much money will be invested too easily squeezing the profit margins of good ideas.

The second risk is that climate change will turn out to be a Malthusian idea that solves itself as population growth, mutually assured destruction and other apocalyptic scenarios usually do.

This is illustrated by the increasingly skeptical scientific community which is beginning to raise its head against the slavish commitment to all forms of greenery.

I and my fellow investors are not scientists, but it is worth noting their scientific concerns as it could up-end a few business models and a lot of start up ideas.

Firstly, there is a generally held view by the (admittedly few) academics that I know that if a scientist wishes to receive funding for research he is well advised to research ‘the affects of climate change’ and that research into ‘climate change – the myth’ isn’t currently being funded. By making the assumption that climate change is real, researching get money, if not then not.

Therefore, the scientific literature being published is already biased by the incentives of the research grant process and therefore, can needs to be viewed as biased in favour of climate change. The latest report from the IEA (International Energy Agency which made the front page of the Financial Times) might be a good example as it take it as proven that global temperatures are rising).

Next, dissent is beginning to break out in normally green magazines such as the UK’s Big Issue (sold on the streets by UK homeless) as well as larger circulation magazines such as The Economist.

In fact, a recent letter to the Economist by Horst-Joachim Luedecke, retired professor of physics, Heidelberg set out three reasons to be skeptical … Read More

Business Plans for Angel Investors

Angel investors, venture capital firms, and private firms all going to see a well written business plan as it relates to your intended startup operation. A year-to-year budget is necessary when you’re seeking any type of financing especially if you are working with an angel investor. Commonly, you may need a private placement memorandum in addition to your business plan. You will be required to have a subscription agreement that allows these individuals to place money with your business. Your CPA can assist you with calculating the anticipated ROI for your business.

There are many drawbacks to working with a venture capital firm or angel investor for funding purposes. Regular payments to an investment can be a yes or no factor as to whether or not you receive the funding that you need for your business. As such, and within your business plan, you may want to discuss royalty based financing. Royalty based financing typically requires that your business has a very high amount of gross income. There many benefits to working with private equity firms. However, it should be noted that not all businesses need that capital in order to launch their operations.

In regards to angel investors and SBICs, most of these people do not expect that their investments will undergo an initial public offering. You should be aware of the complications as it relates to small business financing. As stated earlier, angel investors typically do not make loans to businesses. However, hard money mortgages are becoming a very popular method of generating a very high return on investment for me to investors. Your lawyer should have a number of documents prepared for you in regards to raising capital. There are many negatives when working with angel investors, which we will further discuss in several of our future articles.

Angel investors want to know how you intend to spend the capital, and within your business plan you should thoroughly discuss this matter. It is imperative, within your business plan, they you have a very well-developed industry analysis that is included with any documentation that you’re going to provide to potential investor.

If you are writing your business plan for a venture capital firm then additional attention must be provided as you will most likely be obtaining a large amount of capital. Venture capital firms are typically willing to put their money in business ventures that provide the least demand it amount of risk possible the greatest return possible whereas financial requirements vary from individual to individual. If you do not know how to properly put together a business plan for a venture capital firm then it may be in your best interest to work with a business planning consultant in order to receive the finding that you need.… Read More

Alternatives and Tips On Working Capital Finance By Banks

Canadian business owners and financial managers seeking finance by banks or other sources are generally experiencing growth in sales and profits. That’s the good news, which is of course offset by the fact that this type of success requires additional working capital.

Liquidity has become the name of the game and ‘ cash is king’ even today never seems like a worn clich. A recent study by the Conference Board of Canada indicated that the key worries of business owners were working capital cash flow. (Also referenced were ‘ regulatory issues and competition’)

So you have assets… but can those assets generate cash flow by banks or other alternate sources.

For working capital purposes it’s all about ‘ current assets ‘ which include typically receivables and inventory. As you invest in those two assets to generate sales your working capital needs go up, and your ability to manage and turn over those assets plays a key role in the sourcing of working capital by banks, and non bank institutions.

You should not be afraid to enter into traditional or alternative working capital solutions if you have properly managed current assets – you are simply monetizing for liquidity, and that’s rarely a bad thing.

So are Canadian chartered banks the solutions to your needs. Probably, possibly, maybe is our answer, meaning that if your firm is capable of meeting bank criteria for a revolving line of credit your needs typically can be met. Of more and more concern to our clients is their ability to not be able to generate sufficient financing for the sister of receivables, aka inventory.

That then takes us into an alternative for bank financing, which is the fast growing area of asset based financing, in particular asset based lines of credit. These facilities cost more, but give you total margining of the market value of your receivables, inventory, and, guess what, we’ll throw in equipment and real estate if you want to temporarily margin them. And remember, your balance sheet is not taking on debt when you enter into either a bank or alternative asset based line of credit, you’re simply monetizing your financials for cash flow.

The reality is that alternative methods of financing are growing more popular – yes they are more expensive, but if your firm generates sufficient margins and return on equity your ability to tap into virtually unlimited working capital can prove to be a very positive experience.

The reality of working capital finance by banks or alternative methods is always the same – you need to determine your asset turnover, there will always be times when you need a bulge in inventory and A/R to fund your growth.

Liquidity, that’s what it’s all about. Speak to a trusted, experienced and credible Canadian business financing advisor in order to ensure your traditional and alternative business financing options are first, clear, and second, available!… Read More