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Can a Goat Herder Teach Banks How to Loan to Small Business

Small businesses and entrepreneurs need to be able to get loans from banks to grow and or expand their businesses. Entrepreneurs and small businesses go to banks to get loans to make capital improvements, large purchases, buy a business, and generally expand their business. Basically small business have financing needs that go beyond the immediate cash flow generated by their business.

Imagine driving to the bank in your new Lexus, dressed accordingly, meeting with a bank loan officer and discussing your 5 years old business, your college degree, OK credit score, net worth of $500k and your business generating $50k a year in cash flow and asking to borrow $10,000. Do you think you will get that loan?

Now- For a moment pretend that you are a poor goat herder walking to town to get a loan, you don’t have any money to open a savings account with, you don’t have any normal collateral to secure a loan with, you don’t have a credit record as you have never been formally employed and you’ve never taken out a loan before. Also consider that you might even be unable to complete the necessary paperwork as you are illiterate. You earn about $1/day, and you want a loan of $250 to buy more goats to grow your business. Do you think you will get the loan? – Due to Micro financing the the goat herder may get the loan before the Lexus college graduate.

Many of us Entrepreneurs and Small businessmen/women donate time and or money to various causes or needs. I have been involved with Kiva since 2007. Kiva provides microfinance to Third World Entrepreneurs to help them grow their business. Kiva was founded by 2 former 20 something year olds that were former employees of TIVO and PAYPAL. Microfinance is the supply of loans, savings, and other basic financial services to the poor. As the financial services of microfinance usually involve small amounts of money – small loans, small savings etc. – the term “microfinance” helps to differentiate these services from those which formal banks provide. Why are they small? Someone who doesn’t have a lot of money isn’t likely to want to take out a $5,000 loan, or be able to open a savings account with an opening balance of $1,000. Hence – “micro.”

These are small loans, multiple lenders will “pool” their loans to come up with a lump sum to provide to the Entrepreneur. Again most of the Entrepreneurs I have loaned money to over the last 4 years earn less than $1/day. When an entrepreneur pays off a loan, I reloan those moneys to another. So far I have loaned to 18 different entrepreneurs and repayment of loans have been 100%. Since 2005 Kiva as a group has loaned almost $150,000,000 to almost 400,000 Entrepreneurs and repayment has been 98.27%. Why can this organization have such success in getting loans repaid from those with so little and banks in our “developed nations” loaning to those with abundant resources have problems so significant that these banks need a “bailout” from their government and ultimately taxpayers. Is it the conventional bank that is doing something wrong? Are they loaning to the wrong people on a consistent basis? How much of the blame falls on those that are requesting the loan?.

Currently how many good entrepreneurs and small business are not able to get loans as a result of mistakes made by conventional banks in the past. It seems to me that banks tend to over respond to problems. Obviously if you are a lender and want to have no loans default and you loan no money- you can achieve your goal. As a business broker I see the need for lending to allow buyers to finance the acquisition of buying a business. I also see income statements and balances sheets of reasonable small businesses that are using credit cards to help finance their businesses. It is hard for me to understand how our economy is benefiting by having small business owners take these “whatever is necessary” financing steps when traditional prudent lending to small businesses could truly be our fastest way to our economic recovery. The banks reduce/tighten their lending, the need for small business financing continues, higher interest is being paid through credit card financing, non-conventional means, and when does that higher expense cause employee reductions. Small business could divert money from high interest payments to investments and improvements that actually improve their business and create jobs.

Why can the goat herder get a loan and the Print Shop owner not? Or maybe if I were a banker I could ask why does the goat herder pay off his loans and the Lexus driving College Graduate Default? I understand there is a lot more that goes on between the comparison of a conventional bank and micro finance- but maybe conventional banks could learn something from Micro finance groups such as Kiva.

Are You Looking For Business Loan and Business Receivable?

Looking for business loan generally refers to the process by which a business owner researches and compares the different financing options available to find the one that is best suited the needs and capabilities of the business. Most business loans are available from the Small Business Administration (SBA), commercial banks, and non-traditional finance companies.

Most businesses consider the SBA when looking for business loans because this agency’s goal is to help small businesses succeed and contribute to the economy. The most common loan offered by the SBA is the 7(a) loan, which is available to small business owners who have been denied traditional financing and who can prove their ability to repay the funds borrowed. This loan requires applicants to submit business and personal financial documents and a business plan in order to be considered for approval. Other variations of the 7(a) loan may require additional documentation. Interest rates and repayment terms vary depending on the business’s financial stability and the type of loan obtained.

Most start-up small businesses do not look to commercial banks when looking for business loans because banks see them as too high of a risk. However, established small businesses may be able to obtain a bank loan with the necessary documentation. Like with the 7(a) loan, interest rates and repayment terms will vary.

Another option when looking for a business loan is an independent financial company. These companies usually accept high-risk borrower, such as start-up businesses or businesses with poor credit. Because they do accept high-risk applicants, their interest rates tend to be much higher than SBA and bank loans.

People looking for business receivable are usually referring to accounts receivable, an asset account that tracks the money owed to a business. This account is considered an asset because it records money that is legally owed to a company. Businesses often allow individuals and companies who purchase frequently or large quantities of products to buy those items on company credit. To add a transaction to the receivable account, the receivable must be debited and the revenue account must be credited. Once an account is paid off, the account receivable is credited and the cash account is debited to balance the business’s accounting ledger.

Businesses who offer credit accounts must be prepared for customers who fail to pay their accounts on time. To encourage quick payments, many businesses offer discounts to accounts paid off within a short time period and charge late fees to accounts that are not paid in time. If a customer continually fails to pay his or her balance, the business has the right to turn the customer over to collection agencies and attorneys to receive payment.

Because the business receivable account is an asset, it may be used as collateral for funding. Lenders may allow a business to use the accounts receivable and other assets to secure a loan with a lowered interest rate. Businesses can also sell their receivable account to another company for immediate cash. This financing option is known as factoring, and it is not considered a loan.

Looking for business loan?
Looking for Business Receivable?

What Kind of Business Can You Run From Home? The Top 5 Businesses That Can Be Run From Home

There are hundreds of businesses that can be run from home. Some people have dog grooming businesses or sell homemade canned goods or if you are in the trades, base their office inside their own home. To start a business that you can run from home, you are going to want to do something that you have, at the very least, some experience with. For example, your not going to want to be a personal trainer if you never have personally trained someone before or haven’t had the proper training to be one yourself. You need to have enough experience in the business you decide to open up or you won’t seem as credible to your potential clients. This especially becomes important in a service oriented business where the more credentials you have is directly correlated to how much you can charge for your services and how attractive your business looks to potential clients.

If you have found a business that you think has enough of a desire by customers, you will then need to figure out how to attract them to the business. Initially, to start a business that you can run from home it may seem challenging to attract customers. Advertising can get expensive fast. There are always the traditional affordable means like placing a small ad in the newspaper or setting up homemade flyers at high traffic areas that has your contact info on it. You will want to create business cards and a company name or brand for yourself. Small phone book ads are always great to broadcast your business.

Word of mouth is always a great way to attract customers. Talking to people at work or even people you meet at the grocery store is one way to utilize word of mouth to spark business. Radio and TV are pretty costly and may not be in the budget initially. The main thing you want to keep in mind when doing this is knowing where your customers will be looking to satisfy their need of your product or services. For example, if you have a business that involves selling custom pottery, you don’t want to place ads in a fitness facility. Post your ads at a local farmers market or at a grocery store where your potential clients frequent most.

One very underutilized method for creating traffic to your home-based business is through the internet. This can get very expensive especially if you don’t know what you are doing or if you hire an online marketing company to do all the work. You want to find the very inexpensive and even free ways to advertise online if you have a minimal budget. Social media is a great way to create business. On Facebook, you can create fan clubs or profiles on your business and can create invites for all of your contacts to check out. Another way is to create discussion forums on subjects related to your business and have links to your website or blog. To run a business from home, the key is being able to funnel the appropriate traffic to your business effectively. You want to be able to attract the right customers to your business in such a way as to pre-qualify your clients. This is a more efficient way of marketing and will pay off in the long run.

Once you have your business set up, a good idea would be to research the various types of write-offs you can utilize. Rent and mortgage payments can be partially written off and even you property tax as well. Depending on the type of business you decide with, there are many ways this can be done so make sure you consult with a certified accountant for information on how you can for your business. It will save you a lot of money come tax return time.

The top 5 businesses that can be run out of home are:

1. Landscaping and yard maintenance

This is great because it has a relatively low startup cost and keeps you in shape while you make money! Your vehicles and fuel can be used a business expense. It is great because even if you have very little experience in landscaping, you can always start off with lawn and yard maintenance first. Then, as time rolls on you can learn about landscaping through local work shops or take courses on the subject and further expand your business down the road to include landscaping. The key here is to try and land big yard maintenance contracts with businesses or residential complexes, which always need weekly care and will give you that constant income flow.

2. Senior care and child care services

The baby-boomer generation is a very big population, and the oldest of that generation turns 65 in 2011 and the last of that demographic turning the age of 65 in 18 years! You should have a nice steady stream of potential clients rolling in for a long time to come. Child care is great because it provides a great service to busy working families or single parents. As well, for both types of businesses it can be a very fulfilling job and are very easy to set up right out of your home. You would definitely need some credentials and extra insurance for that type of home based business.

3. Cleaning services

Many people have very busy lives and have very little time to keep their home organized and tidy. Many businesses would love to hire a company on a contract to keep their office space neat on a weekly or daily basis. Again, if your able to land bigger contracts, it keeps a good flow of income and keeps you busy.

4. Health and fitness instructing

Whether you are a yoga instructor, fitness instructor, personal trainer and the like, it is a great business to run from home. You can utilize your own space in you home for instructing classes if you have the space or you can even sublet space out at local health and fitness clubs if you live in an apartment or somewhere where space may be limited.

5. Web design and online marketing

There are so many variables to this type of business and can be very customizable. Whether you have a great product you want to sell, or if you want to create websites for another business, the possibilities are endless. There are great inexpensive means to learn and be trained how to do this type of work, and the work is not very physically demanding. The misconception of this type of business is that you need a lot of training to know how to do this, but there are only a few key steps in developing a an attractive website or being a great online marketer.