Financial Myths vs Financial Facts - Hydra Debt
Financial Myths vs Financial Facts

Financial Myths vs Financial Facts

Evaluating Funding Options for your B2B Business

The world of commercial finance is complicated. It is suggested that all businesses talk to their trusted advisors (CPA, Attorney, or Partner) before entering into any transaction that is financing will have long term effects on their business. The following statements are the views in line with the dictionary definitions herein below.

Merriam-Webster On The Web Dictionary Abridged Definitions:

MYTH:

Pronunciation: ‘mith

Function: noun

Etymology: Greek mythos

1 a: a frequently conventional story of ostensibly historical events that serves to unfold the main globe view of a people or explain a practice, belief, or phenomenon that is natural.

2 a: a popular belief or tradition which has grown up around something or someone; specially: one embodying the ideals and institutions of a society or section of society

2 b: an unfounded or notion that is false

FACT:

Pronunciation: ‘fakt

Function: noun

Etymology: Latin factum, from neuter of factus, past participle of facere

1: a plain thing done

2: the caliber of being real

3 a: something which has existence that is actual

3 b: an actual occurrence

4: an item of information presented as having objective reality- in fact: in fact

“a fool and his cash are easily parted”

FINANCIAL MYTH: Number 1

Boat finance companies that promise funding in 24-48 hours would be the best choice.

FINANCIAL FACT:

You should take time to compare alternatives, read the proposed contracts, and consult with your advisors unless you are desperate for funding.

It is recommended before you agree to terms, and carefully consider the risks regarding following matters that you read the proposed contract:

1. Percentage to be advanced: This may vary from 60% to 90% associated with real face value of an invoice. Will the portion to be advanced level be enough to help you grow profitably?

2. Your obligation to work with the finance business: Are you necessary to sell 100% of one’s reports receivable every month, or are you permitted to sell at your discretion? Are there monthly minimum charges and if so, could you be likely to use the services of the commercial finance business to the degree every month?

3. Will you be much more profitable if the finance is used by you companies services? In other words, can you afford to pay the commercial financing fees in order to develop your business?

4. Which source is better for you personally: a little commercial finance company, a large commercial finance company, or the asset based lending department of a bank? With the small companies, you are prone to assist the decision manufacturers and their often is more flexibility and discernment. With all the companies that are large you can accomplish larger transactions and this may be of great significance especially if your business is international. Banks may be an choice that is excellent your accounting is ideal and you’re good at coping with strict needs. Banks are controlled organizations with safety and soundness demands which generally make banks more conservative than private loan providers. GFS works together all three kinds of lenders.

5. Choice of law: If you are in California, and any dispute must be litigated in New York can you afford the risk that you might have to travel to protect your interests? Where are disagreements or disputes to be decided? Is there arbitration that is binding?

6. Penalties for early termination: Some yearly contracts provide that you are liable for “the greater of Two percent (2.00%) of the Maximum Credit Line, or the number of months remaining in the agreement multiplied by the Monthly Minimum Fee” if you want to leave the commercial finance company,. Could be the termination fee danger affordable?

7. Penalty interest if you client fails to pay on time: Some lenders provide that if a client defaults, you can substitute another invoice and not be charged a penalty. Other lenders may require that if a client fails to pay an invoice within 90 days, you are charged 20% of the face that is invoice plus 7.5percent per month until payment is created. Exactly what does the financing that is commercial require when your customer does not spend on time?

“Economical utilizing the truth”

If some body is affordable utilizing the truth, they omit information in order to create a false picture of a situation, without actually lying.

FINANCIAL MYTH: No. 2

Boat loan companies that promise lower prices will be the better choice. For example, Co. “A” offers 3% per month; Co. “B” offers 3.25% per month. Co. “A” is the choice that is best.

FINANCIAL FACT:

Contract conditions and terms determine your costs that are actual on whenever your clients spend. This requires analysis.

It is suggested which you carefully think about the contract terms regarding exactly how interest is charged along with your experience regarding exactly how your visitors typically spend to project the true expenses of financing. Listed here are several examples:

1. You sell an invoice with a real face value of $100.00. Assume the contract charges are 3% for 30 days, with an 80% advance to you and your customer pays the commercial finance company the full amount due on the 30th day. You take an $80.00 advance on day 1 as well as your customer will pay the commercial finance company $100.00 regarding the 30th day:

– Suppose Lender “A” charges 1% for every single 10 days period. Assume “Payment date” is defined into the commercial finance contract as the date the finance company receives payment from your customer pays plus ten (10) banking days. Ten banking days are two calendar weeks. You will be charged for 44 times. One per cent for the initial 10 times, plus 4 per cent for the following 34 days equals a charge of 5%. Your cost = $5.00.

– Suppose Lender “B” charges 1.5% every 15 day duration. Assume “Payment date” is defined in the finance that is commercial as the date the finance company receives payment from your customer plus three business days for check clearance. You will be charged for 33 times. You will be charged 4.5%. Your cost = $4.50.

– Suppose loan provider “C” describes “Payment date” as the day they receive the check or wire funds transfer. This finance that is commercial stops the interest clock on the day they get repayment from your customer. You shall be charged 3%. Your price = $3.00.

– Suppose Lender “D” defines “Payment date” as the time they receive funds and fees daily interest only regarding the actual funds advanced, also understand depending on diem interest. As you are now being charged 3% on $80.00 your cost = $2.40.

2. In every agreement this is of “Payment date” and approach to interest calculation are critical to anticipate your actual costs of financing. All of the above ways of calculation, except Lender “A”, might be reasonable on account of the potential risks inherent in the deal. Gregg Financial solutions works to obtain the most acceptable rates and terms for the customer’s initial capital; and GFS works to cut back commercial finance costs while you develop.

3. If you customers typically pay in 60-90 times, a contract that will require a interest that is minimum for 60 days is not unreasonable. This condition may be a required for medical accounts financing that is receivable.

4. Consider whether or not the commercial finance company’s contract requires you to sell every invoice (100% of all invoices) on the day you issue them, or may you sell individual invoices up to 59 days past due, according to your needs? There are tradeoffs: lower price vs. flexibility. It is very much a question of assessing your commercial financing requirements and your gross margins to purchase financing costs.

“Easier said than done”

If something is easier said than done, its more difficult than is sounds. It is often used when someone suggests you to definitely do something hard and tries to ensure it is sound simple.

FINANCIAL MYTH No. 3

You can figure out the best finance company to work alongside by simply by comparing a number of different websites.

FINANCIAL FACT:

Web sites are marketing. Knowledge of the lending company, their reputation and business techniques are crucial to select sensibly.

TIPS TO THINK ABOUT:

When evaluating the most likely financing that is commercial to utilize, ensure:

-the provider is a reputable company

-your contract corresponds with any verbal or written quotations

-you are aware of any penalties that are financial you intend to end the contract early

-the funding credit limits are adequate for your initial needs

-you have read the contract carefully before signing it, checking the amount of funding and notice durations

-you realize all stipulations, therefore the expenses you are going to need to pay

Commercial Finance Brokers assist numerous devoted finance that is commercial and banks across several businesses of all sizes. There are many areas of specialization, such as purchase order financing, accounts receivable financing, stock financing and SBA funding. Most commercial finance companies limit their services to one or two of these categories. A finance that is commercial will evaluate different companies and match you with the one that most useful fits for your business needs. Additionally they keep a watch that is close commercial finance companies that may charge non-competitive fees and will not match you with them. In addition to comparing rates, there are many points to consider when choosing services.

To anticipate issues with customers that inevitably arise, find out what level of customer service they offer to help resolve problems. Do they provide telephone support and in-person meetings, e-mail help and live chat, or a combination of services? Choose the commercial finance company that provides multiple methods to reliably target issues or responses questions. Think about variations in where you stand positioned plus the time zone where in actuality the finance that is commercial is found. Exactly how will this affect cut off times for capital? Exactly how will this impact your capability to achieve your key finance representatives?

You might want to ask for a list of references before you do business with them. Make sure to ask such questions as:

-Were they able to quickly process your money needs?

-Was the approval process simple? The length of time achieved it just take?

-Was the company easily accessible through phone and email?

-How long made it happen take before you received funds?

-If you’d a challenge along with your account, exactly what did they do to solve it?

-How did your customers answer using the commercial finance company? Did they are handled by them appropriately?

-Would you recommend this business?

“Face Value”

You accept the appearance rather than looking deeper into the matter if you take something at face value.

FINANCIAL MYTH: No. 4

A contract that is non-recourse you do not have to pay for the finance you to definitely spend unless your business when there is a standard.

FINANCIAL FACT:

Many contracts require you to pay unless your client files bankruptcy or goes out of company.

There are two main basic kinds of factoring: non-recourse and recourse. Recourse factoring is the most common. The commercial finance company generally will fund every invoice you submit, but will require a refund plus their fees for invoices that are not paid within a specific period of time, usually 90 days with recourse factoring.

Non-recourse factoring might free your company of any obligation for non-paying accounts, if, and only if, it really is undoubtedly “non-recourse” without conditions.

The commercial finance company with a non-recourse contract will have more stringent policies for the invoices they will accept. The commercial finance company agrees to purchase the invoice from you and takes some or full responsibility for its payment in a non-recourse contract. This will depend on the agreement terms. Credit insurance might be required. This is an additional expense.

Non-recourse factoring generally is defined in commercial finance agreements to suggest: in the event that customer doesn’t pay in restricted situations, it isn’t your condition. For instance, should the consumer declare bankruptcy or walk out company you aren’t accountable to pay back once again the commercial finance company for the advance on certain invoices. But, if there is a warranty issue, if anything at all is wrong with your product or service, you may be held responsible for the advance you received. While the commercial finance company can assert a breach of many warranties and representations in your agreement as a defense to accepting obligation for a loss because of non-payment in a agreement that is non-recourse.

There are commercial finance companies that will provide a mix of the two. These companies will promise to assume the risk of your invoices but require you to swap in a replacement of equal or greater value for slow-paying or defaulted accounts. This is not a”non-recourse that is true agreement into the literal feeling of the concept as you have to substitute non-performing invoices with new invoices which are prone to perform.

On top, non-recourse noises much better than recourse. If the charges for the factoring that is non-recourse significantly higher than full recourse, is the added cost to transfer the risk of payment default worth the expense? How many of your customers will file bankruptcy or go out of business? Over a period of time it may cost you more of your potential profits to transfer some payment risk to the commercial finance company.

Many finance that is commercial offering full non-recourse factoring conduct extensive credit checks on the customer before they will pay an advance on an invoice. This is a benefit to all concerned. When it is predictable that an invoice will get paid by a creditworthy customer, the invoice are bought. This credit quality check is of benefit for you as you usually do not want to knowingly sell your products or services or solutions to businesses that are not likely to spend. Having said that, there could be companies you’ll prefer to do organizations with which do not meet with the creditworthiness requirements for non-recourse factoring. There may be compelling business reasons to choose recourse vs. non-recourse factoring.

“Look after the cents plus the pounds will look after by themselves.”

After themselves, meaning that if someone takes care not to waste small amounts of money, they will accumulate capital if you look after the pennies, the pounds will look.

“Hook, line and sinker”

If someone takes or believes something hook, sinker and line, they accept it completely.

FINANCIAL MYTH: No. 5

Startup businesses with a brand new hot product need venture capital to cultivate rapidly.

FINANCIAL FACT:

You are able to develop exponentially with purchase order financing, factoring, and stock financing from a finance company that is commercial.

In general, more items you sell, the bigger your profits and earnings. The greater amount of orders you have got, the more it is possible to sell, supplied it is possible to spend your suppliers upon delivery. Purchase order financing is much like stock funding for products in transit to your client.

Commercial boat loan companies offer purchase order funding to pay for your suppliers, helping you to close the sale and deliver your instructions to your customers. This frequently involves a page of credit utilising the commercial finance company’s credit to guarantee payments to the factory producing the merchandise, especially if the factory is not found in the United States.

As soon as the items are accepted by the consumer, an account receivable is established. An invoice element, or finance that is commercial that purchases accounts receivable, pays for the purchase order funding. You are compensated the profit as soon as your customer will pay.

The financing that is commercial may follow these actions:

Page of credit (to guarantee manufacturer payment for products) –> Purchase Order Financing (pays manufacturer/supplier) –> Accounts Receivable Financing (pays Purchase Order Financing) –> Inventory Financing –> Customer pays –> Factor is paid –> you’re paid earnings from your own product sales after financing expenses are compensated.

Commercial Finance Brokers allow you to know what funding is available according to your position, at competitive rates.

“Play hardball”

If someone plays hardball, these are typically extremely aggressive in trying to attain their aim.

Venture Capital Funding

The Venture Capital Business:

Venture capital is money provided by professionals who invest alongside administration in young, rapidly growing businesses which have the possible to produce into significant contributors that are economic. Venture capital is an important source of equity for start-up businesses.

Professionally managed venture capital companies generally are private partnerships or closely-held corporations funded by private and public pension funds, endowment funds, fundamentals, corporations, wealthy individuals, foreign investors, therefore the endeavor capitalists themselves.

Venture capitalists generally speaking:

-Finance new and rapidly growing companies;

-Purchase equity securities;

-Assist in the development of the latest products;

-Add value to your company through active participation;

-Take higher dangers with all the expectation of greater benefits;

-Have a long-term orientation

When it comes to an investment, venture capitalists carefully screen the technical and business merits of this proposed business. Venture capitalists just spend money on a small % of the organizations they review and also have a perspective that is long-term. Going forward, they actively work with the company’s management by contributing their business and experience savvy gained from helping others with similar growth challenges.

The main advantage of investment capital investment is you to expand your business and obtain market share before someone beats you to it that you get money that enables. Venture capital is not a loan that needs to be repaid; rather, venture capitalists (VCs) invest their money in exchange for equity (an ownership share) in your company. VCs get their cash out only when your business is acquired by another ongoing company or “goes public,” that is, whenever its shares could be publicly exchanged on a stock change. The disadvantage is the fact that you’re no further the owner that is sole of company and may lose control. Moreover, a VC may move your company towards an Initial Public Offering (IPO) of publicly traded shares faster than might be best for the health that is long-term of business.

In general, the earlier the stage where you receive funding, the more you have to give up. A few VC companies or “angel investors” might invest in what is not yet a operating that is real but simply a notion. For $500,000, they may take a 60% ownership within the company, and place in their management that is own team. They might fund the company for another $5 million, taking yet more equity if they decide that this can become a viable business (“proof of concept. The original business owner might retain only a 5% to 10% ownership by the second round of financing.

Exactly what are the benefits and drawbacks in having capital raising Funding as someone?

Benefits:

– Financial strength for international competition

– Share buy-back opportunity

– more straightforward to get noted on a stock market

– No conflict of great interest

– VC system can boost the business’s business

VC’s provide experience, advice, and mentoring. These are typically objective, helpful with networking and employing the people that are right. They add prestige and credibility to your company, share the risks, and help eventually to sell the business.

Cons:

– shed area of the ownership

– Cannot handle the business as a business that is family-run

The possibility of working with a VC are their concern is more for a lucrative and exit that is mandatory compared to your concern for your employees and customers. You loose independence to manage your company and also the VC’s might have the right to fire you and your management group. It could be a full-time job to manage the endeavor capitalists which can be funding your organization. Venture capitalists frequently require:

– Anti-dilution security. If the business’s stock cost falls any time in the future, they get extra stock for free.

– Dividends. Along with stock, they get an assured rate of return.

– Liquidation choices. VCs get their principal and dividends straight back before anyone else gets anything.

– Participating preferred. They get to increase dip-they first get their investment plus dividends, then value of their stock.

– Mandatory redemption. This involves the business buying their stock straight back by a date that is certain developing a deadline for an exit occasion.

– need enrollment rights. The VCs can force the business to file a registration declaration with the Securities and Exchange Commission to start an initial public offering-another way of forcing an exit event.

– Approval rights. The VCs must approve any financings that are new have actually the right to participate.

– Reps and warranties. You can also need to accept liability that is personal representations you’ve made about key aspects of the company. They will have the right to sue you for all you own them any bad news if you forgot to give.

SUMMARY: There are no easy choices. If you have orders for your product with a sufficient gross margin, commercial finance companies may be your choice that is best. If you wish to develop your product and lack the main city to fund your online business to develop the item, market your brand and accept instructions, venture capitalists could possibly be the best thing that ever happened to your company. If you commit to a commercial finance company, you can terminate the contractual relationship. If you commit to a venture capitalist, the exit strategy is in their domain.

“Make a mint”

If some body is making a mint, they have been making a lot of money.

“Feel the pinch”

If someone is in short supply of feeling or money limited in some other method,

they are feeling the pinch.

FINANCIAL MYTH: # 6

All boat loan companies charge interest on 100% regarding the real face value for the invoices you offer in their mind.

FINANCIAL FACT:

Some boat loan companies base their fees just on actual amount of cash you obtain.

There is a sizable selection of pricing into the commercial finance business. Although competition tends to hold prices down, different industries may be charged more because of historical risk. For instance, medical and construction accounts financing that is receivable become more expensive than commercial financing for a staffing agency.

At one extreme, some commercial finance companies require that 100% of invoices be sold and interest is charged on 100% of the invoices. This may be reasonable because the business is high risk and if your company goes bankrupt, the commercial finance business cannot collect some of the funds that have been advanced level.

The best pricing available is computed with regard to the actual funds advanced with interest payable on a daily basis for the period the funds are utilized. This is called per diem interest. Most banks and some commercial finance companies provide this option which might be referred to as a “line of credit” or “asset based financing” for larger deals.

Assume a finance that is commercial charges a 3% monthly fee and you sell an invoice for $100.00. Assume further that you customer pays in 5 days. Here is a range of costs you would pay, based on various minimum contract payment and time terms:

Based on 100% associated with invoice:

59 day term that is minimum $6.00 expense

30 day minimum term = $3.00 cost

15 time term that is minimum $1.50 expense

10 day minimum term = $1.00 expense

Per Diem interest 5 days = $ .41 expense

Centered on an 80% advance Per Diem for 5 days = $ .33

“Leave no rock unturned”

If you look everywhere to find something, or try everything to achieve something, you leave no stone unturned.

“Game Plan”

A game plan is a good strategy

FINANCIAL MYTH: # 7

A finance company contract with no term is preferable to a contract with a one year term.

FINANCIAL FACT:

In the event that you will be needing funding for one and rates and terms are lower, the one year contract may be a better choice year.

“Keeping your alternatives available”

If someone is keeping their options open, they’re not going to limit by themselves or exclude any course that is possible of.

FINANCIAL MYTH: No. 8

SBA loans are comparable at every bank.

FINANCIAL FACT:

Some banks originate SBA loans with delegated authority. This enables additional financing for purchase order, records receivable and inventory from alternative party loan providers producing more money for development.

“Put your eggs in one basket”

If you put all your eggs in one basket, you risk everything on a single opportunity, which, like eggs breaking, could go wrong.

FINANCIAL MYTH: No. 9

All finance business agreements, terms, and conditions are comparable.

FINANCIAL FACT:

Terms range from fair to onerous. You entrust all your cash flow to a commercial finance company when you factor invoices.

“Comfort Zone”

It’s the temperature range where the body doesn’t shiver or sweat, but has an sense that is idiomatic of place where people feel comfortable, where they can avoid the worries of the world. It can be physical or mental.

FINANCIAL MYTH: No. 10

All boat finance companies require that the customers be notified that you are dealing with them. That is called verification and notification.

FINANCIAL FACT:

Some boat loan companies allow non-notification factoring. This will make the funding transparent to your client.

“just take the plunge”

Though you know there is an element of risk involved if you take the plunge, you decide to do something or commit yourself even.