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Understanding Banking and Bank Issues

Generally, for you to thoroughly understand how your banking system works you have to work hard to reduce any bits of ignorance that may be dogging your understanding. A good start is to first understand the financial terms used in the industry and avoid always trying to let someone else handle everything for you. Go a step further and start by learning the mere basics by researching about the must-know financial terms.

Just like preferences and tastes, our perception towards banking varies from one individual to another. Many people will not want anything beyond the simplified versions of banking that we normally know. Then, there are those that will definitely want to more than to just deposit today and withdraw tomorrow.

As of 2010, there are increasing numbers of financial analysts who are trained specifically for banking issues. As a result, there are people who think that it is nonsensical for them to sit with a calculator and analyze every transaction to sniff out any errors.

Most of the time, it is in the analyst’s docket to ensure that all the latest developments are understood and that no new terms fly past him.

All the aspects regarding banking and finance are interrelated. Today, when it comes to futures and forwards, stocks, investment and portfolio theory, analysts are discovering that to understand finance, there is a dire need to interlink financial terms to each field.

Knowledge is one of the most essential tools that you will ever need if you decide that it is about time you had financial freedom. You need it so that you can break onto that next level that you felt you needed to enjoy life.

It is advisable to tale your time and understand some of the very common financial terms we here everyday. Make it your business to get ahead by advancing your knowledge in that field. Today, sound financial decisions that have to be made require a lot of financial sense. We should try to make these decisions without having to rely on a professional.

Equipment Financing and the Five C’s of Credit Evaluation

Equipment financing lenders, as well as banks, use the Five Cs to evaluate loan applications: Character, Credit, Cash Flow, Capacity and Collateral. However, while banks look at small-to-medium size companies from a Fortune 500 perspective, equipment financing companies see applicants from a small business perspective, which highlights a sixth C: Common Sense.

Here is what a lending institution means when referring to the Five Cs:

CHARACTER -

Every lender wants to understand what type of borrower an applicant will be in order to make smart, safe credit-granting decisions. The longer a company has been in operation, the more its payment history and outstanding credit reveal management’s attitude toward debt and making timely payments. Public records and references can come into play; still, the most reliable yardstick is the character of a smaller company’s owners. How they manage their personal financial obligations is usually a reliable indicator of the likelihood of their making timely payments. The more closely held a company, the more attention given the personal credit history of those in charge and their prior business history. No matter how solid a business plan appears and how reliable a company’s owners have been in the past, the realistic lender also wants the assurance of personal guarantees from the company’s owners. This may take the form of a signature or a pledge of cash or other collateral.

CREDIT -

Business credit reports offer a quick glance at a company’s willingness to pay trade accounts on time, as well as any derogatory public records, such as suits, liens, or judgments that negatively affect a company’s credit rating. Such reports also show any UCC filings. Potential equipment lenders are interested in the depth of a business’s borrowing history. The longer a company has been in business, the easier it is for a lender to determine credit stature; a good ten- or twenty-year credit history obviously carries enormous weight. This places a startup company less than two years old at a disadvantage. So, when traditional data sources, such as Dun & Bradstreet and Paynet cannot supply adequate information, the personal credit histories of a company’s owners become highly important.

CASH FLOW -

Lenders want to see that any company applying for a loan earns enough money to meet payroll, cover fixed operating expenses, and comfortably make timely payments on a new equipment loan or lease. While there are a number of ways to define cash flow, lenders most often calculate the cash flow available to repay new debt as net profit plus such non-cash expenses as amortization and depreciation.

CAPACITY -

Capacity is similar to a football team’s depth chart. The capacity to weather bad times is equally important to a company seeking funds. Capacity acknowledges that sometimes unforeseen things happen: a key employee becomes unable to work; a major customer is lost; an economic turn-down drastically reduces demand for product or services. Any number of other unlikely – yet possible – disruptions can negatively affect a company’s cash flow. And these disruptions can be temporary or permanent. So, capacity measures a company’s ability to pay off an equipment loan or lease with cash reserves or its ability to quickly convert real estate, stock, or other assets into enough funds to cover debt.

COLLATERAL -

How much collateral, above and beyond the equipment being financed, a company needs to secure a loan or lease depends largely on the nature of the lender and status of the business. A traditional bank often requires a blanket lien on all assets of the business while an equipment finance company normally uses only the equipment for collateral. A few lenders also offer sale-leasebacks and refinancing of existing equipment debt. This allows a company to free up cash flow or lower their monthly payment through equipment loans or leases.

COMMON SENSE -

Every decision to purchase and every decision to grant financing must be based on common sense. A lender needs to understand how additional equipment will increase the company’s stability and growth. Notwithstanding the risk every lender takes and the gamble every company makes when purchasing new equipment, for both lender and borrower, the foundation of a decision to finance equipment begins and ends with common sense.

An Opportunity For Growth Through Accounts Receivable Financing and Business Factoring

Have you ever seen a great growth opportunity for your business, but had to pass it up because you were unable to finance it? Have you ever looked at a large balance for your accounts receivable, but a much smaller number in your bank account? Have you recently started your business, have it successfully operating, but struggled with ways to finance it to reach the next level?

If you can relate to any of these scenarios, there are alternative financing solutions that you may be able to utilize. As a small company there are many times when traditional financing is not available, cannot be obtained quickly enough or is not sufficient.

Adequate working capital is often the biggest issue facing any business, but especially the small business. One of the reasons most businesses falter or fail, particularly in the early years, is inadequate working capital. Often it is completely preventable by having an increased cash flow through accounts receivable financing or factoring

If your business has accounts receivable from other businesses or government, these are valuable assets that can be quickly turned into cash. It is a process that is centuries old and has been utilized by larger companies for years. It is now available to small businesses and can alleviate cash flow issues. This form of financing is usually more costly than the traditional types of financing, but it is more readily available, more flexible and more opportunistic.

The approval process can be quick and uncomplicated. After filling out a short application, your business, customers and accounts receivables are evaluated. Funding can usually start within a two week period and ongoing funding is available whenever you need it, limited only by your company’s growth. As soon as you issue an invoice, it is verified and funds can be advanced to your bank account usually within 24 hours. Instead of waiting 30, 60 or 90 days to receive payments from your customers, you can have immediate access to cash, usually for 70%-80% of the invoice amount.

Once these funds are advanced to you, they are available to you for whatever you choose. Funds can be used for business expansion, meeting payroll, increasing sales therefore increasing your profit, new product development, purchasing additional inventory, seasonal fluctuations, purchasing at a trade discount, marketing or advertising expense, paying taxes, or buying/repairing equipment. Once your customer makes a payment, you are advanced the remaining funds less a transaction fee.

Factoring and accounts receivable financing can be utilized by many industries such as distribution, manufacturing, and professional services. It is also ideal for more difficult to finance industries such as construction, transportation, staffing and medical.

The best feature of this form of financing is that YOU maintain the control and equity in your company. You do not accumulate any debt, therefore your balance sheet improves. It is an ideal situation to assist in improving or establishing a credit rating. Even though bank loans or credit lines may be less expensive, this is another option to quickly and easily grow your business.

Remember…nothing is more costly than a lost opportunity!