Hard Money Loans and Acceptable Exit Strategies

!: Hard Money Loans and Acceptable Exit Strategies

The best cliche I ever heard for hard money was, "always remember, it is hard money, not stupid money." This applies to both the borrower and the lender. This type of financing serves a purpose. Yes, the rates are high and the lender could charge more than 10 points. Still, the borrower chooses to pay the premium because the overall transaction just makes good business sense. Often, the borrower gains far more than what the loan actually costs. These gains make the loan "smart money" for the client.

In this unique lending space, the lender must lend wisely as well. If your lender is genuine and is in the business of lending fast money on "make sense" deals, he will always look for an exit strategy. An exit strategy is simply the borrower's game plan for retiring the debt. True, some hard money lenders are "loan-to-own" lenders. These types really don't care about the borrower's ability to pay back the loan because they hope the borrower defaults which results in them taking ownership of the property.

For all other hard money lenders, the borrower must have a clear, logical and reasonable exit strategy. Many loans of this nature never happen because the borrower cannot prove that there is a high probability of the debt being retired in 90 or 180 days (bridge loans are typically 12-24 months and exit strategies are not scrutinized as closely). For hard money deals, the following are acceptable exit strategies:

1. An approval letter from a conventional financing from an acceptable lender (SBA loans can take 4-5 months and hard money is often used in the interim)

2. A certain, verifiable business transaction that will enable the borrower to retire the debt

Unfortunately, the potential sale of the property or an approval by a less-than-reputable lender are not acceptable exit strategies. In hard money, the exit must be certain. Anything left to chance or the whim of another lender will be rejected.

Commercial loans in the niche space of lending do move fast and almost always generates more money for the borrower than what it costs. The key to a successful transaction is being able to retire the debt quickly and move into a more conventional, less expensive debt structure. Without a timely and likely exit, the benefits soon diminish.

Hard Money Loans and Acceptable Exit Strategies

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Start-Up Financing - Get a SBA Loan for Start-Up, Franchise, or Business Purchase

!: Start-Up Financing - Get a SBA Loan for Start-Up, Franchise, or Business Purchase

One of the best ways to obtain start-up financing for a small business is the SBA 7(a) Loan Program. The SBA (Small Business Administration) is a governmental entity whose sole purpose is to support small business in the United States. One of the programs it sponsors is the 7(a) Loan Program which allows new businesses to take advantage of bank financing.

There are 3 ways to use the SBA 7(a) Loan program when looking to finance your first business using a bank loan. We'll cover each and how they relate to the 7(a) loan program.

Start-Ups
The first business approach that can be utilized under the 7(a) program is starting a business from scratch. This means you've created the business idea yourself and you plan on launching your very own business. For this approach you will need to know several things:
30% of the Total Cost to start your business will need to come from your personal cash reserves. Your Business Plan will need to be strong because you'll have to convince the bank that even though your idea hasn't been proven yet, you're research and numbers show your confidence that it will work. Keeping the loan amount under 0,000 increases your chances of approval. You'll need to make sure your Income/Expense projections are as reliable as possible. Be prepared to answer several difficult questions from the bank regarding your business concept.

Know that the approval process will be harder when you take this approach to starting your first business, but not impossible. You'll just need to be a lot more thorough than when using the other 2 approaches.

Franchises
If you plan on buying a Franchise for your first business, getting approved for a 7(a) loan is a little easier. This is because of the support you will receive from the Franchisor. The strongest Franchisors have 2-3 week training programs which go a long way towards helping you build credibility with a bank. In addition, the on-going support from the Franchisor is a great tool to help make your business successful. Here are several things you need to know:
30% of the Total Cost to start your Franchise will come from your pocket, just like a start-up. You'll still need a Business Plan, but a lot of the information you'll need will come from the Franchisor. The Franchisor can provide sales results from there franchisees which is very helpful to banks when making a lending decision. You can count the Franchise Fee as part of your cash injection into the business. Banks have pre-approved lists of Franchises they are willing to finance. Find out from the bank if your Franchise is on that list. If it's not, they may still approve a loan for you, but it can take a lot longer because they'll need to go through a special process to approve the Franchisor.

Those are the basics when looking at financing a franchise. Keep in mind the better quality the Franchise, the better the chances you have of getting approved.

Quick Tip: It can be a red flag if your Franchise is not approved by your bank or the bank tells you it is unwilling to finance the Franchise you have selected. 9 times out of 10 the bank has a good reason for not financing that particular Franchise which could include failed Franchises, or weak on-going support from the Franchisor.

Business Purchase
The final way you can use the SBA 7(a) loan is to buy your first business. This is a little easier than a start-up or a Franchise because the business will need to have been operating for more than 2 years and profitable for you to get a bank loan. A business that's been operating profitably has proven results which make banks very comfortable when loaning money to buy them. Again, key points you need to consider:
You will only need to come up with 20% of the Total Purchase Price in cash as opposed to 30% with the other 2 options. In almost all cases the bank will require you to pay for an independent valuation of the business. A bank usually will not lend more than 50% for the dollar amount beyond the value of the assets of the business (determined by the valuation), otherwise known as Goodwill (or Blue Sky Equity). The seller can finance a portion of the 20% cash injection you're required to come up with. You will need to obtain the last 3 years of business tax returns and financial statements from the seller.

That's a quick summary of how the SBA 7(a) Loan program can be used for 3 different approaches to starting your first business. If you would like to find out exactly what you need to do to get approved for a SBA 7(a) loan, please visit http://7asecret.com

Start-Up Financing - Get a SBA Loan for Start-Up, Franchise, or Business Purchase

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Sons of Anarchy - Season 2 Recap

!: Sons of Anarchy - Season 2 Recap

SAMCRO faces new criminal and personal threats when the League of American Nationalists, a racist group, tries to end the club's gun business. LOAN and renewed ATF aggression compromises SAMCRO's relationship with the Irish. Gemma is framed for murdering a RIRA member and Jax's infant son Abel is kidnapped by the dead member's vengeful father.

Sons of Anarchy - Season 2 Recap

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Can't Get a Small Business Loan? Consider a Joint Venture Partner

!: Can't Get a Small Business Loan? Consider a Joint Venture Partner

A joint venture partner, or strategic partner, is sometimes overlooked as a possibility of funding. What is a strategic or joint venture partnership? It's when two companies combine efforts to obtain a goal that would be difficult for either one of them to achieve individually.

For example: You may have the product and the other company the distribution system in place to reach potential customers. If you jointly market the product, both of you win. You don't have to fund the costs of reaching the potential customers; the other company can broaden its product offering, and therefore value, to its customers by offering your product. That company doesn't have to fund the research and development costs of a new product.

Another example: You have a product that requires injection molded plastic components that are produced by expensive specialized custom equipment. Normally a company that provides the injection molded plastic components would charge a hefty fee to build the custom equipment, and also charge you for every part produced. A strategic partnership might mean that in exchange for not paying for the custom equipment up front, you will pay the plastics company a small fee, similar to a royalty on your sales for a limited time period. You win, because you don't have to invest cash in equipment and the plastics company wins by having a revenue stream greater than the custom equipment would generate.

One more example: Your product has customers in several different markets and can be used for several different purposes. Let's say it's a new kind of applicator for creams, lotions, soap, and medications. Another company has a lotion for the treatment of skin irritations available by prescription only. You sell the exclusive rights to use your product to apply prescription lotions to that company. Since you have several other major markets for your product, giving up one, the application of prescription lotions, won't have a material effect on your future, and you get much needed cash now. The other company now has a product that helps in its brand identification and sales.

One last example: You have a customer database that has been successful in selling your products. You offer a company that has similar, but not competitive, products the usage of your database in exchange for a percentage of the sales generated.

To find a potential joint venture partner look in your industry trade journals for announcements. Search business newspapers like the Business Journal http://www.bizjournals.com. Look for companies that provide complementary products or services to your own company, or those in a market that would be appropriate for your products. Attend trade shows. And of course search the web.

If you don't want to take out a loan or sell part of your company to outside investors, a joint venture partner can be exactly what you need. You can grow your company, find new companies, or target a new market without expending additional money. It's a win win situation for both you and your joint venture partner.

Can't Get a Small Business Loan? Consider a Joint Venture Partner

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Monopoly Men and the Federal Reserve

!: Monopoly Men and the Federal Reserve

The Power Elites mission was to integrate central banking into the system, eliminate the gold standard, gain cheap credit and thereby earn money from the inflation. Although they were adversaries (JPMorgan, and John P. Rockefeller) they had a common mission (ultimate power) therefore they created a merger. In 1896 JP Morgan and John P. Rockefeller merged (eventually to become JPMorgan Chase & Co) to expand their empires with the aid of government (they knew that through the government enforcing their cartels best interest would be of the greatest advantage) ;( Rothbard, 1984). They had a marketing campaign to sell the idea to the public, seeing the inflation from loans would finance their businesses. Their idea was to position the Federal Reserve System, because with the gold standard there was no way that they could manipulate the interest rate; ergo no interest rate, meaning no money for their initiatives. Their promotional efforts received a development in 1907, due to the fractional reserve banks were ruined when people found out about their methods which created a bank run. Fractional reserve: a finance method where only a small percentage of bank deposits is supported by tangible available cash and are attainable for withdrawal) ;( Investopedia, 2011). Note: A business running via fractional reserves would be deemed fraudulent, because it is loaning out something that one does not have. Working on the peoples fear Wall Street promoted a central banking system ...

Monopoly Men and the Federal Reserve

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