Getting A Business Financing Loan

Business financing loans are a line of credit which help people who are in business. There are different kinds of business financing loans that are offered to different lenders either to raise funds or loan capital to your business in order to expand your company.

Although there are many ways also to finance your business and one should have sufficient cash flow within the existing business you have so that the lender will be able to finance the growth of your company by its own means or you can turn to a bank or other financial institutions that can provide different variety of loans.

Having a business financing loan is not as easy since they have some criteria or financing programs where in you meet the following criteria such as:

Your business must have commercial customers
Your business must be established and must have consumers or customers.
They don’t finance on real estate projects

Some of the business financing programs:

Business are available of every size
Easy to obtain
Have many advantages over conventional business loans
Can be set up in a few days

There are some business financial loans that don’t require you to have a good personal credit or showing countless financial statements since their financing program or loan allows being flexible to help your business grow but before looking for a business financing loan, you need to know how business loans work and used.

You can see that there are many sources of financing loans that are geared to types of businesses but the sources have certain criteria for investment and loan but that depend to the area which they participate.

These are some of the areas of Business Financing Loan:

Commercial Property
Start-up Financing for business
Loans for Government
Purchase Order Advances
Leasing Equipment
Commercial Financing
Invoice Factoring
Asset Sales Leaseback
Investment Banking
Angel Investor s which is known as informal investor
Venture Capital known as Private Equity Capital

But private money business financing loan is different since it includes equity loan, hard money as well as private money loans. They limit only to small business investment companies, private investors, business angels, ventures capital firms and commercial lenders.

The loans have two types for you to choose when in regards of terms in payment. There is the short term and as well as long term which suits your budget and you will notice also that there are lots of commercial lenders, business loan brokers and business financing companies had gone out of business due to global crisis and many people were having loans anywhere and everywhere in order to survive.

If you need financing for your business, you need to plan and study hard of it since financial institutions requires business plan that includes detailed start up cost, marketing plans, monthly expenses, projected profit, etc. Remember that having a business one should do hard work, passion, and determination and have dedicated workers who desired to have the business of their boss grow with success.

So If you think that your business is doing good and need some additional capital for expansion, then you need to plan for that and think it over to have a successful business.

Financial Statement Analysis for Sales and Marketing Executives

While it is not necessary to be a qualified accountant to design a Strategy for Sales Perfection, a basic understanding of what is involved in financial analysis is essential for anyone in sales and marketing. It is too enticing, and often too easy, to use “blue skies” thinking in planning sales and marketing activities. It is even easier to spend money without fully realizing the return one is getting for it. It is critical that sales and marketing executives be more disciplined and analytical in the way they go about planning, executing and evaluating the sales and marketing plans and strategy. One way of introducing more discipline into the process is by having a basic understanding of the financial implications of decision making, and how financial measures can be used to monitor and control marketing operations. The purpose of this text is to provide exactly that, and the first chapter deals basically with an introduction to the activities involved in financial analysis.

The Income Statement

The P&L (profit and loss) statement otherwise known as the income statement is illustrated below. This is an abbreviated version as most income statements contain much more detail, for example, expenses are typically listed based on their individual.

G/L ledger account:

The income statement measures a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year. The income statement is also known as the “profit and loss statement” or “statement of revenue and expense.”

Sales – These are defined as total sales (revenues) during the accounting period. Remember these sales are net of returns, allowances and discounts.

Discounts – these are discounts earned by customers for paying their bills on tie to your company.

Cost of Goods Sold (COGS) – These are all the direct costs that are related to the product or rendered service sold and recorded during the accounting period.

Operating expenses – These include all other expenses that are not included in COGS but are related to the operation of the business during the specified accounting period. This account is most commonly referred to as “SG&A” (sales general and administrative) and includes expenses such as sales salaries, payroll taxes, administrative salaries, support salaries, and insurance. Material handling expenses are commonly warehousing costs, maintenance, administrative office expenses (rent, computers, accounting fees, legal fees). It is also common practice to designate a separation of expense allocation for marketing and variable selling (travel and entertainment).

EBITDA – earnings before income tax, depreciation and amortization. This is reported as income from operations.

Other revenues & expenses – These are all non-operating expenses such as interest earned on cash or interest paid on loans.

Income taxes – This account is a provision for income taxes for reporting purposes.

The Components of Net Income:

Operating income from continuing operations – This comprises all revenues net of returns, allowances and discounts, less the cost and expenses related to the generation of these revenues. The costs deducted from revenues are typically the COGS and SG&A expenses.

Recurring income before interest and taxes from continuing operations – In addition to operating income from continuing operations, this component includes all other income, such as investment income from unconsolidated subsidiaries and/or other investments and gains (or losses) from the sale of assets. To be included in this category, these items must be recurring in nature. This component is generally considered to be the best predictor of future earnings. However, non-cash expenses such as depreciation and amortization are not assumed to be good indicators of future capital expenditures. Since this component does not take into account the capital structure of the company (use of debt), it is also used to value similar companies.

Recurring (pre-tax) income from continuing operations – This component takes the company’s financial structure into consideration as it deducts interest expenses.

Pre-tax earnings from continuing operations – Included in this category are items that are either unusual or infrequent in nature but cannot be both. Examples are an employee-separation cost, plant shutdown, impairments, write-offs, write-downs, integration expenses, etc.

Net income from continuing operations – This component takes into account the impact of taxes from continuing operations.

Non-Recurring Items:

Discontinued operations, extraordinary items and accounting changes are all reported as separate items in the income statement. They are all reported net of taxes and below the tax line, and are not included in income from continuing operations. In some cases, earlier income statements and balance sheets have to be adjusted to reflect changes.

Income (or expense) from discontinued operations – This component is related to income (or expense) generated due to the shutdown of one or more divisions or operations (plants). These events need to be isolated so they do not inflate or deflate the company’s future earning potential. This type of nonrecurring occurrence also has a nonrecurring tax implication and, as a result of the tax implication, should not be included in the income tax expense used to calculate net income from continuing operations. That is why this income (or expense) is always reported net of taxes. The same is true for extraordinary items and cumulative effect of accounting changes (see below).

Extraordinary items – This component relates to items that are both unusual and infrequent in nature. That means it is a one-time gain or loss that is not expected to occur in the future. An example is environmental remediation.

The Balance Sheet

The balance sheet provides information on what the company owns (its assets), what it owes (its liabilities) and the value of the business to its stockholders (the shareholders’ equity) as of a specific date. It is called a balance sheet because the two sides balance out. This makes sense: a company has to pay for all the things it has (assets) by either borrowing money (liabilities) or getting it from shareholders (shareholders’ equity).

Assets are economic resources that are expected to produce economic benefits for their owner.

Liabilities are obligations the company has to outside parties. Liabilities represent others’ rights to the company’s money or services. Examples include bank loans, debts to suppliers and debts to employees.

Shareholders’ equity is the value of a business to its owners after all of its obligations have been met. This net worth belongs to the owners. Shareholders’ equity generally reflects the amount of capital the owners have invested, plus any profits generated that were subsequently reinvested in the company.

The balance sheet must follow the following formula:

Total Assets = Total Liabilities + Shareholders’ Equity

Each of the three segments of the balance sheet will have many accounts within it that document the value of each segment. Accounts such as cash, inventory and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt. The exact accounts on a balance sheet will differ by company and by industry, as there is no one set template that accurately accommodates the differences between varying types of businesses.

Current Assets – These are assets that may be converted into cash, sold or consumed within a year or less. These usually include:

Cash – This is what the company has in cash in the bank. Cash is reported at its market value at the reporting date in the respective currency in which the financials are prepared. Different cash denominations are converted at the market conversion rate.

Marketable securities (short-term investments) – These can be both equity and/or debt securities for which a ready market exists. Furthermore, management expects to sell these investments within one year’s time. These short-term investments are reported at their market value.

Accounts receivable – This represents the money that is owed to the company for the goods and services it has provided to customers on credit. Every business has customers that will not pay for the products or services the company has provided. Management must estimate which customers are unlikely to pay and create an account called allowance for doubtful accounts. Variations in this account will impact the reported sales on the income statement. Accounts receivable reported on the balance sheet are net of their realizable value (reduced by allowance for doubtful accounts).

Notes receivable – This account is similar in nature to accounts receivable but it is supported by more formal agreements such as a “promissory notes” (usually a short-term loan that carries interest). Furthermore, the maturity of notes receivable is generally longer than accounts receivable but less than a year. Notes receivable is reported at its net realizable value (the amount that will be collected).

Inventory – This represents raw materials and items that are available for sale or are in the process of being made ready for sale. These items can be valued individually by several different means, including at cost or current market value, and collectively by FIFO (first in, first out), LIFO (last in, first out) or average-cost method. Inventory is valued at the lower of the cost or market price to preclude overstating earnings and assets.

Prepaid expenses – These are payments that have been made for services that the company expects to receive in the near future. Typical prepaid expenses include rent, insurance premiums and taxes. These expenses are valued at their original (or historical) cost.

Long-Term assets – These are assets that may not be converted into cash, sold or consumed within a year or less. The heading “Long-Term Assets” is usually not displayed on a company’s consolidated balance sheet. However, all items that are not included in current assets are considered long-term assets. These are:

Investments – These are investments that management does not expect to sell within the year. These investments can include bonds, common stock, long-term notes, investments in tangible fixed assets not currently used in operations (such as land held for speculation) and investments set aside in special funds, such as sinking funds, pension funds and plan-expansion funds. These long-term investments are reported at their historical cost or market value on the balance sheet.

Fixed assets – These are durable physical properties used in operations that have a useful life longer than one year.

This includes: Machinery and equipment – This category represents the total machinery, equipment and furniture used in the company’s operations. These assets are reported at their historical cost less accumulated depreciation.

Buildings or Plants – These are buildings that the company uses for its operations. These assets are depreciated and are reported at historical cost less accumulated depreciation.

Land – The land owned by the company on which the company’s buildings or plants are sitting on. Land is valued at historical cost and is not depreciable under U.S. GAAP (generally accepted accounting principles).

Other assets – This is a special classification for unusual items that cannot be included in one of the other asset categories. Examples include deferred charges (long-term prepaid expenses), non-current receivables and advances to subsidiaries.

Intangible assets – These are assets that lack physical substance but provide economic rights and advantages: patents, franchises, copyrights, goodwill, trademarks and organization costs. These assets have a high degree of uncertainty in regard to whether future benefits will be realized. They are reported at historical cost net of accumulated depreciation.

Current liabilities – These are debts that are due to be paid within one year or the operating cycle, whichever is longer. Such obligations will typically involve the use of current assets, the creation of another current liability or the providing of some service.

Bank indebtedness – This amount is owed to the bank in the short term, such as a bank line of credit.

Accounts payable – This amount is owed to suppliers for products and services that are delivered but not paid for.

Wages payable (salaries), rent, tax and utilities – This amount is payable to employees, landlords, government and others.

Accrued liabilities (accrued expenses) – These liabilities arise because an expense occurs in a period prior to the related cash payment. This accounting term is usually used as an all-encompassing term that includes customer prepayments, dividends payables and wages payables, among others.

Notes payable (short-term loans) – This is an amount that the company owes to a creditor, and it usually carries an interest expense.

Unearned revenues (customer prepayments) – These are payments received by customers for products and services the company has not delivered or for which the company has not yet started to incur any cost for delivery.

Dividends payable – This occurs as a company declares a dividend but has not yet paid it out to its owners.

Current portion of long-term debt – The currently maturing portion of the long-term debt is classified as a current liability. Theoretically, any related premium or discount should also be reclassified as a current liability.

Current portion of capital-lease obligation – This is the portion of a long-term capital lease that is due within the next year.

Long-term Liabilities – These are obligations that are reasonably expected to be liquidated at some date beyond one year or one operating cycle. Long-term obligations are reported as the present value of all future cash payments. Usually included are:

Notes payables – This is an amount the company owes to a creditor, which usually carries an interest expense.

Long-term debt (bonds payable) – This is long-term debt net of current portion.

Deferred income tax liability – GAAP (generally accepted accounting principles) allows management to use different accounting principles and/or methods for reporting purposes than it uses for corporate tax fillings to the IRS. Deferred tax liabilities are taxes due in the future (future cash outflow for taxes payable) on income that has already been recognized for the books. In effect, although the company has already recognized the income on its books, the IRS lets it pay the taxes later due to the timing difference. If a company’s tax expense is greater than its tax payable, then the company has created a future tax liability (the inverse would be accounted for as a deferred tax asset).

Pension fund liability – This is a company’s obligation to pay its past and current employees’ post-retirement benefits; they are expected to materialize when the employees take their retirement for structures like a defined-benefit plan. This amount is valued by actuaries and represents the estimated present value of future pension expense, compared to the current value of the pension fund. The pension fund liability represents the additional amount the company will have to contribute to the current pension fund to meet future obligations.

Long-term capital-lease obligation – This is a written agreement under which a property owner allows a tenant to use and rent the property for a specified period of time. Long-term capital-lease obligations are net of current portion.

Statement of Cash Flow

The statement of cash flow reports the impact of a firm’s operating, investing and financial activities on cash flows over an accounting period.

The cash flow statement shows the following:

How the company obtains and spends cash

Why there may be differences between net income and cash flows

If the company generates enough cash from operation to sustain the business

If the company generates enough cash to pay off existing debts as they mature

If the company has enough cash to take advantage of new investment opportunities

Segregation of Cash Flows

The statement of cash flows is segregated into three sections: Operations, investing, and financing.

Cash Flow from Operating Activities (CFO) – CFO is cash flow that arises from normal operations such as revenues and cash operating expenses net of taxes. These include:

Cash inflow: is the positive influx of funds from (1) positive revenue from sale of goods or services (2) interest from indebtedness and (3) dividends from investments.

Cash outflow: is the negative (payments) most commonly categorized as (1) Payments to suppliers (2) payments to employees (3) payments to the government (4) payment to lenders (5) payment for other expenses.

Cash Flow from Investing Activities (CFI) – CFI is cash flow that arises from investment activities such as the acquisition or disposition of current and fixed assets. These include:

Cash inflow is the receipt of cash from (1) the sale or disposition of property, plant or equipment (2) the sale of debt or equity securities or (3) lending income to other entities.

Cash outflow is the payment of (1) the purchase of property plant and equipment, (2) purchase of debt or other equity securities, or (3) lending to other entities,

Cash flow from financing activities (CFF) – CFF is cash flow that arises from raising (or decreasing) cash through the issuance (or retraction) of additional shares, or through short-term or long-term debt for the company’s operations.

Financial Statement Analysis

Vertical Analysis

Analyzing a single period financial statement works well with vertical analysis. On the income statement, percentages represent the correlation of each separate account to net sales. Express all accounts other than net sales as a percentage of net sales. Net income represents the percentage of net sales not used on expenses. For example, if expenses total 69 percent of net sales, net income represents the remaining 31 percent. Vertical analysis performed on balance sheets uses total assets and total liabilities for comparison of individual balance sheet accounts.

Horizontal Analysis

Horizontal analysis is the comparison of data sets for two periods. Financial statements users review the change in data much like an indicator. Optimistic analysts look for growth in revenue, net income and assets in addition to reductions in expenses and liabilities. Calculating absolute dollar changes requires the user to subtract the base figure from the current figure. Expressing changes with percentages requires the user to divide the base figure by the current figure, and multiply by 100.

Trend Analysis

Review of three or more financial statement periods typically represents trend analysis, a continuation of horizontal analysis. The base year represents the earliest year in the data set. Although dollars can represent subsequent periods, analysts commonly use percentages for comparability purposes. Users review statements for patterns of incremental change representing changes in the business in questions. Financial statement improvements include increased income and decreased expenses.

Ratio Analysis

Ratios express a relationship between two more financial statement totals, and compare to budgets and industry benchmarks. Five common categories of ratios exist: liquidity, asset turnover, leverage, profitability and solvency. Reviewing ratios for performance compared with prior periods or industry specific benchmarks provides financial statements users with recognition of strengths and weaknesses.

Limitations

Analyzing financial statements presents an opportunity for reviewing past data and possibly budgets. However, the data used is historical in nature, indicating it may not be a good representation of the future due to unforeseeable circumstances. Market value of assets and liabilities can be under or overstated significantly leaving statement users unaware of the real value of a balance sheet. Pro forma statements, or forward-looking financial statements, provide estimates at best resulting in speculation.

Cost-Volume-Profit

Cost-volume-profit analysis provides owners and managers with an understanding of the relationship between fixed and variable costs, volume of products manufactured or sold and the profit resulting from sales. The financial relationship includes contribution margin analysis, break-even analysis and operational leverage. Financial statements provide the data to perform cost-volume-profit analysis.

Contribution Margin

Contribution margin analysis allows managers to look at the percentage of each sales dollar remaining after payment of variable costs, including cost of goods, commissions and delivery charges. Managers and owners use this analysis to help determine the pricing, mix, introduction and removal of products. Contribution margin analysis also aids managers with determining how much incentive to use for sales commissions and bonuses. Comparing each product offered affords the opportunity to look at product profitability and product mix.

Break-even

Break-even analysis considers the sales volume at which fixed and variable costs are even. Owners and managers must consider two primary figures when calculating the break-even. First, gross profit margin, which is the percentage of sales remaining after payment of variable costs. And fixed costs, including administration, office and marketing. Financial statements provide both sets of data necessary to calculate the break-even volume.

Operational Leverage

Every business model contains slightly different operating leverage, which compares the amount of fixed costs to sales. Businesses with higher fixed costs will experience a larger multiplier in their operating leverage, indicating less sales growth results in more profit. However, the same is true for losses, where small reductions in sales exponentially increase net losses. Less operating leverage results in less growth of net income.

Financial Ratios

A financial ratio expresses a mathematical relationship between two or more sets of financial statement data and commonly exhibits the relationship as a percentage. Profitability, solvency, leverage, asset turnover and liquidity comprise the five standard ratio categories. Managers and owners should review the ratios period over period, determining where unfavorable trends exist. After reviewing trends, benchmark ratios against industry standards, which managers can acquire from a variety of sources including industry-specific organizations.

A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise’s financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm’s creditors.

Ratios can be used to judge the organization’s “liquidity”, i.e. can it pay its bills, its “leverage”, i.e. how is it financed and its “activities”, i.e. the productivity and efficiency of the organization. Taking liquidity analysis only, this has a bearing on new product planning, marketing budgets and the marketing decisions.

Business Finance Funding Advice and Commercial Financing Help

The Working Capital Journal is one of several commercial financing resources which should be reviewed regularly by small business owners to assist in keeping up with the imposing difficulties posed by rapid changes in the business finance funding climate. As noted below, there have been some surprising actions taken by lenders as a direct result of recent financial uncertainties. The increasingly complex and confusing environment for working capital finance is likely to produce several unexpected challenges for commercial borrowers.

The working capital finance industry has primarily been operating on a regional and local basis for many years. In response to cost-cutting that has permeated many industries, there has been a consolidation that has resulted in fewer effective commercial lenders throughout the United States. Most business owners have been understandably confused about what this might mean for the future of their commercial financing efforts, especially because this has happened in a relatively short period of time.

Of course, for some time there have been ongoing complex problems for commercial borrowers to avoid when seeking commercial loans. But what has produced a new set of business finance funding problems is that we appear to be entering a period which will be characterized by even more uncertainties in the economy. Previous rules and standards for commercial financing and working capital finance are likely to increasingly change quickly, with little advance notice by business lenders.

Business owners should make an extended effort to understand what is happening and what to do about it due to this realization that substantial changes are likely throughout the United States in the near future for commercial finance funding. At the forefront of these efforts should be a review of what actions commercial lenders have already taken in recent months. The Working Capital Journal is one prominent example of a free public resource that will facilitate a better understanding of the responses by business lenders to recent economic circumstances.

By publicizing actions taken by commercial lenders, this will contribute to these two goals, both of which are likely to be helpful to typical business owners: (1) To highlight controversial bank-lender tactics with a view toward reducing or eliminating questionable lending practices. (2) To help business owners prepare for commercial finance funding changes. To assist in this effort, sources such as The Working Capital Journal are encouraging business owners to report and describe their own experiences so that they can be shared with a broader audience that might benefit from the information. Some of the most significant commercial financing changes reported so far by commercial borrowers involve working capital loans, commercial construction financing and credit card financing. A notable situation of concern is that predatory lending practices by credit card issuers have been reported by many business owners. Some specific businesses such as restaurants are having an especially difficult time in surviving recently because they have been excluded from obtaining any new business financing by many banks.

One of the few recent bright spots in business finance funding, as noted in The Working Capital Journal, has been the continuing ability of business owners to obtain working capital quickly by business cash advance programs. For most businesses accepting credit cards, this commercial financing approach should be actively considered. Business cash advances are literally saving the day for many small business owners because most banks appear to be doing a terrible job of providing commercial loans and other working capital finance help in the midst of recent financial and economic uncertainties. For example, as noted above, restaurants are virtually unable to currently obtain commercial finance funding from most banks. Fortunately, restaurants accepting credit cards are in a good position to obtain needed cash from credit card receivables financing and merchant cash advances.