How Asset-Based Loans From Commercial Finance Companies Differ From Traditional Bank Loans

When it comes to the different types of business loans available in the marketplace, owners and entrepreneurs can be forgiven if they sometimes get a little confused. Borrowing money for your company isn’t as simple as just walking into a bank and saying you need a small business loan.

What will be the purpose of the loan? How and when will the loan be repaid? And what kind of collateral can be pledged to support the loan? These are just a few of the questions that lenders will ask in order to determine the potential creditworthiness of a business and the best type of loan for its situation.

Different types of business financing are offered by different lenders and structured to meet different financing needs. Understanding the main types of business loans will go a long way toward helping you decide the best place you should start your search for financing.

Banks vs. Asset-Based Lenders

A bank is usually the first place business owners go when they need to borrow money. After all, that’s mainly what banks do – loan money and provide other financial products and services like checking and savings accounts and merchant and treasury management services.

But not all businesses will qualify for a bank loan or line of credit. In particular, banks are hesitant to lend to new start-up companies that don’t have a history of profitability, to companies that are experiencing rapid growth, and to companies that may have experienced a loss in the recent past. Where can businesses like these turn to get the financing they need? There are several options, including borrowing money from family members and friends, selling equity to venture capitalists, obtaining mezzanine financing, or obtaining an asset-based loan.

Borrowing from family and friends is usually fraught with potential problems and complications, and has the potential to significantly damage close friendships and relationships. And the raising of venture capital or mezzanine financing can be time-consuming and expensive. Also, both of these options involve giving up equity in your company and perhaps even a controlling interest. Sometimes this equity can be substantial, which can end up being very costly in the long run.

Asset-based lending (or ABL), however, is often an attractive financing alternative for companies that don’t qualify for a traditional bank loan or line of credit. To understand why, you need to understand the main differences between bank loans and ABL – their different structures and the different ways banks and asset-based lenders look at business lending.

Cash Flow vs. Balance Sheet Lending

Banks lend money based on cash flow, looking primarily at a business’ income statement to determine if it can generate sufficient cash flow in the future to service the debt. In this way, banks lend primarily based on what a business has done financially in the past, using this to gauge what it can realistically be expected to do in the future. It’s what we call “looking in the rearview mirror.”

In contrast, commercial finance asset-based lenders look at a business’ balance sheet and assets – primarily, its accounts receivable and inventory. They lend money based on the liquidity of the inventory and quality of the receivables, carefully evaluating the profile of the company’s debtors and their respective concentration levels. ABL lenders will also look to the future to see what the potential impact is to accounts receivable from projected sales. We call this “looking out the windshield.”

An example helps illustrate the difference: Suppose ABC Company has just landed a $12 million contract that will pay out in equal installments over the next year, resulting in $1 million of revenue per month. It will take 12 months for the full contract amount to show up on the company’s income statement and for a bank to recognize it as cash flow available to service debt. However, an asset-based lender would view this as receivables sitting on the balance sheet and consider lending against them, depending on the creditworthiness of the debtor company.

In this scenario, a bank might lend on the margin generated from the contract. At a 10 percent margin, for example, a bank lending at 3x margin might loan the business $300,000. Because it looks at the trailing cash flow stream, an asset-based lender could potentially loan the business much more money – perhaps up to 80 percent of the receivables, or $800,000.

The other main difference between bank loans and ABL is how banks and commercial finance asset-based lenders view the business’ assets. Banks usually only lend to businesses that can pledge hard assets as collateral – mainly real estate and equipment – hence, banks are sometimes referred to as “dirt lenders.” They prefer these assets because they are easier to control, monitor and identify. Commercial finance asset-based lenders, on the other hand, specialize in lending against assets with high velocity like inventory and accounts receivable. They are able to do so because they have the systems, knowledge, credit appetite and controls in place to monitor these assets.

Apples and Oranges

As you can see, traditional bank lending and asset-based lending are really two different animals that are structured, underwritten and priced in totally different ways. Therefore, comparing banks and asset-based lenders is kind of like comparing apples and oranges.

Unfortunately, many business owners (and even some bankers) don’t understand these key differences between bank loans and ABL. They try to compare them on an apples-to-apples basis, and wonder especially why ABL is so much “more expensive” than bank loans. The cost of ABL is higher than the cost of a bank loan due to the higher degree of risk involved in ABL and the fact that asset-based lenders have invested heavily in the systems and expertise required to monitor accounts receivable and manage collateral.

For businesses that do not qualify for a traditional bank loan, the relevant comparison isn’t between ABL and a bank loan. Rather, it’s between ABL and one of the other financing options – friends and family, venture capital or mezzanine financing. Or, it might be between ABL and foregoing the opportunity.

For example, suppose XYZ Company has an opportunity for a $3 million sale, but it needs to borrow $1 million in order to fulfill the contract. The margin on the contract is 30 percent, resulting in a $900,000 profit. The company doesn’t qualify for a bank line of credit in this amount, but it can obtain an asset-based loan at a total cost of $200,000.

However, the owner tells his sales manager that he thinks the ABL is too expensive. “Expensive compared to what?” the sales manager asks him. “We can’t get a bank loan, so the alternative to ABL is not landing the contract. Are you saying it’s not worth paying $200,000 in order to earn $900,000?” In this instance, saying “no” to ABL would effectively cost the business $700,000 in profit.

Look at ABL in a Different Light

If you have shied away from pursuing an asset-based loan from a commercial finance company in the past because you thought it was too expensive, it’s time to look at ABL in a different light. If you can obtain a traditional bank loan or line of credit, then you should probably go ahead and get it. But if you can’t, make sure you compare ABL to your true alternatives.

When viewed in this light, an asset-based loan often becomes a very smart and cost-effective financing option.

Where to Find Car Loan Low Interest Finance

You may be surprised to learn how much you will be able to save when you take out car loan low interest finance. If you have been working hard to negotiate the best sale price on your new car, you certainly won’t want to negate the savings you make by paying dearly for finance. There are many companies around who can offer you a good deal on an auto loan and, when looking for car finance, you should aim to pay the lowest rate you can.

When looking for car loan low interest finance you should ensure that you consider all options available to you. A lot of people feel more comfortable sticking with their own financial institutions or the larger bank lenders as they seem to think they will be able to provide the best loans at the best rates. This is not always the case. These days there are a large number of non-bank lenders who provide car loan low interest finance.

Probably the best place to start looking for car loan low interest finance is on the internet. The majority of non-bank loan providers operate solely online as it is an easy way to set up their business without having to outlay a lot of capital. These companies also have minimal running costs, so they can afford to offer car loan low interest finance and still make a reasonable profit.

It is important, when searching for car loan low interest finance, that you realize that interest rates can vary considerably between lenders these days. Ensure that you take the time to shop around and get as many quotes as possible, as you may never know when you will come across the perfect auto loan at the lowest price around. It is only by approaching as many lenders as you can that you will have any success in finding car loan low interest finance.

Looking for car loan low interest rate financing is quick and easy when you do it online. Not only can you compare lenders at a time that is convenient for you, but you will only need to enter your details once in order to receive multiple quotes. The other great thing about getting car loan low interest finance online is that the application process is incredibly straight forward. Once you have found a great rate from a reliable lender, you will be able to apply for your loan online by completing a standard application form. Your application will be submitted to your lender immediately and so the processing of your application is a lot faster.

One thing that you will need to be cautious about when getting car loan low interest finance online is that you will need to ensure that the lender you go with is legitimate and reputable. Sometimes a company that offers ridiculously low rates may not be the most trustworthy, so always take the time to find out more about a lender before signing on the dotted line. You can check out the business ratings of various lenders online through the Better Business Bureau or through auto finance review sites.

The Best Free Android Finance Apps

Obviously many people will be skeptical as to how good free apps actually are, with many consumers actually purposefully not downloading free apps due to fears that they will crash or being infected with various ways of stealing your money. However these fears are totally unfounded and without evidence so do not let this put you off. Now to the apps:

PayPal

If you have been on the internet at some point then you will have undoubtedly heard of PayPal. The service facilitates payments between people via a simple email address, avoiding the complexities usually associated with bank transfers and the like. The PayPal Android app allows users to manage their PayPal account just as they would through the official website. The app is totally secure and allows you to make purchases or deposits also amongst other activities on the move, a very useful addition to the marketplace.

Quote Pro

Quote Pro is also an incredibly useful app, used by many on a daily basis it has fast become one of the most downloaded in its range. Not only can you obtain extremely detailed and accurate information about the range of stocks you have an interest in, but you can also keep an eye on your portfolio of stocks and shares.

Tip Calculator by TradeFields

Tip Calculator is perhaps one of the most imaginative apps I have personally seen on the app marketplace. It is incredibly useful for an aspect you will have probably have struggled with every time you’ve been out for a meal, the tip. Not only will the app inform you of the total tip you should be leaving behind, but will also divide the total tip amount between the number of people at the dinner, saving much embarrassment, delays and napkin calculations!

Currency Converter

How many times have you been in a foreign country or at the airport and have been wondering how much you will actually get in return for your dollars? Numerous times in all probability. The currency converter provided by Pocketools will enable you to be provided with an accurate, up to date and independent currency exchange valuation allowing you to shop around to find the best exchange rate. Not only does this app provide you with the current exchange rate, it will also give you data on the currency of your choice over the last 5 year period through the use of many easy to read graphs.

Mileage

This is without doubt one of the best apps I have personally seen. With the rising prices of gas which look set to continue for the foreseeable future it is a great way of ensuring that you are driving as economically as possible and therefore saving as much gas as possible. I haven’t an idea about how it works but it does, the interface is also extremely slick, simple to navigate through and to understand.

Finance

Finance, whilst the name of the app may not excite you or conjure up ideas that this app is going to change the world it certainly fills a gap in the market which needed a simple app. It’s similar to Google search in many aspects, it provides a very basic user interface, but one that is incredibly effective and performs its job excellently. If you already use Google Finance or are considering starting to use it then this app is vital, it synchronizes everything meaning it’s like being on your main PC.

Financisto

Financisto is another great money manager. The ability to create long and short term budgets for holidays, short breaks or just a simple shopping trip is a real plus point for this app and one which has seen it rocket in terms of popularity. In addition to this the app has the capability to check your recurring payments amongst many other essential financial activities; this has left many users of the marketplace wondering why there is no charge.

Be Prepared for the Problems in Used Car Financing With Solutions Before You Start

Financing properly is more important in financing a used car than when buying a new car. Most problems that occur in buying a used car are due to there being a problem connected with the financing. Getting the used car financing worked out properly is the key to a successful used car purchase.

Most buyers aren’t aware of how important the paper work is to making the deal a successful one or a failure. They view it as paperwork that should be completed as quickly as possible so they can drive away in their new car.

To start with, it’s very important to get the deal agreed upon by the salesman to be put in writing in the contract. This often involves determining monthly auto loan payments based on an interest rate. Sometimes, the interest rate a customer qualifies for is inflated so the dealership can make extra profit.

This headache can easily be avoided by obtaining independent vehicle financing before going to the dealership. This means the consumer can proceed as a “cash buyer” and negotiate only the price of the car. Car salesmen prefer customers to be “monthly payment” buyers because, in this way, it is easier to obscure the total cost of the vehicle.

Independent car financing can be obtained from a bank, credit union or on-line lender. With the popularity of the internet, applying for used car refinance is proving to be simple and very easy to do. Many on line lenders respond very quickly – sometimes as short as 15 minutes by email or telephone. If the application is approved, the borrower is given a credit limit at an established interest rate. Sometimes a blank bank check is issued with no obligation to use it.

“For the majority of consumers, even if you know you have good credit, there is a little apprehension and tension around applying,” one lender said. “So instead of going into a dealership and giving them your information and being sent to the coffee machine to wait for an answer, you can apply on-line, 24/7.”

Most people familiar with how used car dealerships operate confirm that obtaining independent car financing is beneficial to most consumers. .

The most common problems that have a negative impact on a person trying to finance a used car –and their solutions – to ensure that things go smoothly are the following:

Problem #1: Many consumers don’t know what their credit rating is when they apply for an auto loan. The strength of their credit score largely determines what kind of interest rate they will receive. Therefore, it’s critical to make sure your credit report is in the best shape possible before shopping for a car.

SOLUTION: Order a copy of your credit report and look for items that may stand in the way of you getting a good rate. Correct any issues or errors promptly. Are all of your lines of credit in good standing? Are there any signs of identity theft? The credit bureaus will tell you how to correct errors when they send you the report. The following numbers and Web site addresses will assist you in checking your credit.

The Best Finance App

The best finance app, in my opinion, is Mint.com’s mobile app. Here is a list of its features and finance app alternatives if you prefer to use an app other than Mint.com.

Mint.com (Free)

I have been using mint for a long time now and believe it is the best finance app. Intuit bought this web site a while back so it is very secure, using bank level encryption.

Mint gives you a quick overview of your finances, which you can put on one of your main screens in the form of a widget. The widget will show your current cash amount and your credit debt. It will also show you the last time your information was updated, so you can be sure that you are looking at the most recent information.

Once you set up a monthly budget, you can access it with the app to make sure you are staying on track for the month. Mint is very good at knowing how to categorize your transactions for budgeting purposes and it will let you know if it does not know how to categorize a transaction.

The app automatically gives you alerts for various things, which include the availability of large deposits, what bills will are due in the next few days, etc.

You can get a very general picture of you investments with this app. By that, I mean if you simply want to know the balance of you accounts, you will be happy with this app. If you want to get more information about the performance of specific investments, you will need to go to the website.

To set up this app, I would suggest you log on to the main website to input all of you account information and set your budget. Once that is completed, you simply download the app, log in, and all your accounts are ready to go.

Adaptu Wallet (Currently Free)

Adaptu Wallet has many unique features like tracking loyal programs and creating spending forecasts. The app also allows you to store photos of insurance and business cards, which will decrease the clutter inside your wallet. The app is currently free, but the word on the street is they will start charging for usage sometime in 2012.

Pageonce (Free or $4.99 for Gold version)

Pageonce arguably has the best interface of all the finance apps. Your key account balances are placed in thumbnails that appear on the home screen. Contrary to popular belief, this app does provide PayPal support even though many claim it doesn’t. Balance updates are not as fast as Mint.com or Adaptu, some transactions take days to update. The Gold version has the useful ability to pay bills directly from the app, and this is the only finance app that can do this. The gold version also removes all the ads from your app.