Commercial Bank Consulting to Improve Small Business Loans

The process of dealing with business lenders has become more difficult for small businesses, and commercial bank consulting appears to be an effective method for realizing working capital and business loan success. Locating a qualified business financing expert is a primary step in choosing a commercial bank consultant. While this task is almost certain to be difficult, it must be pursued until a business owner is satisfied with their choice.

Even though this report refers to commercial bank consultants, this does not mean that the small business finance expert selected for this role should only be familiar with banks. To the contrary, in the current commercial lending environment it is absolutely essential to include non-bank sources in the overall evaluation of practical commercial loan options. But from a practical point of view, a suitable business bank consultant must also be capable of distinguishing between the good banks and bad banks.

Certainly many observers will question whether there are really any banks which can be viewed as good banks. In the end all that is really needed is just one bank that meets specific business requirements. An important part of commercial bank consulting is to identify one (or more) candidates qualifying as a good bank if a small business is currently using what is deemed to be a bad bank and still needs an ongoing commercial banking relationship in some form. In a dose of reality, only a few good banks can consistently pass the test for final consideration when a new business bank is selected based upon specialized and unique small business finance criteria.

This report is encouraging that small business owners be prepared to take aggressive steps when searching for effective commercial mortgage loan and working capital management options. Commercial borrowers should benefit whether the business bank consultant is called upon to serve as a commercial finance expert providing a second opinion or as a commercial loan umpire to make a final call before completing any new financial agreements.


Financing the Owner Builder

As an owner builder, you will most likely need to borrow money. However, most lenders tend to be very strict about financing an owner builder, while many will not lend to an owner builder at all.

Many Owner Builders end up wasting precious time and money, trying to find out which lender to go to, and who has the best rates available.

As time is often of the essence, it is important that the person you speak to, knows what they are talking about. This can be difficult in an industry where everyone makes the claim “if we can’t get you the money, no one can”. Unfortunately all brokers were not created equal!

How much Can You Borrow?

Whilst lending criteria varies from lender to lender, as a general rule, with an owner builder loan the lending institution will allow you to borrow up to 80% of the LVR (loan to value ratio).

Lenders would usually use one of the following to determine the value of the project.

  • Lender A) Hard Costs
  • Lender B) End Value
  • Lender C) Hard Costs & End Value – The lesser of the two.

Hard costs are defined as being the actual cost of the land and the actual cost to construct the house. End Value is the property’s overall value once construction is completed. This is determined by a valuation report on completion

For example

Client “Jim Brown”, purchases land to the value of $250,000. The cost of constructing his home is $500,000. His total hard costs are $750,000.

Once Jim’s home is completed and valued, the valuation comes in at $850,000.

  • If Jim was to use Lender A, he would be able to lend 80% of his hard costs. His maximum lend would be $600,000 (being 80% of $750,000.00).
  • If Jim was to use Lender B, he would be able to lend 80% of the property’s value, once completed. In this case, Jim’s maximum borrowing capacity would be $680,000, being 80% of $850,000.00
  • If Jim was to use Lender C, lender uses a combination of these two factors, the lesser of the two values would normally be used. In Jim’s case, this would bring his maximum borrowing down to $600,000.

Progress Payments

Lenders usually advance funds in five to eight stage payments. Most lenders will use five progress stages. Stage payments are always in arrears of the work completed and never prior to.

The lender instructs a valuer to go out to the site and value the work completed. Some lenders pass this cost on to the borrower. Most however, cover this expense themselves. Where the costs for valuations are the borrowers’ expense, the amount would usually be in the vicinity of $250 – $300 per valuation.

Whilst the amount advanced by the bank at each stage is determined by a valuation, the stages would usually be broken down as follows:

    Slab 20%
    Frame 20%
    Lock Up 30%
    Fixing Out 20%
    Completion 10%

Documentation

As an Owner Builder, there is specific documentation you will need to provide. Typically, this will include:

    • A full set of DA approved plans
    • Full specification & finishing schedule
    • Construction Certificate (CCC) where applicable
    • Any engineering detail
    • Estimated breakdown of costing. (Your mortgage broker should be able to provide you with a template for this)
    • Owner builders warranty and public liability
    • Resume of any building experience you may have

Depending on the LVR (loan to value ratio), you may be required to get a QS report. This would be at the borrower’s expense and in the vicinity of $500 – $2000.00 depending on the complexity of the project and the value of the property.

As an Owner Builder, you have an extensive range of loan packages available to you, including Low Doc & No Doc Loans!

Where possible, seek mortgage advice prior to starting construction. The person you seek advice from should have considerable experience with Owner Builder finance, as it is a specialized field.

A Few Tips to Remember:

  • Where possible, seek mortgage approval prior to starting construction with a specialist in Owner Builder Finance. (www.builderfinance.com.au)
  • Whilst finance can be obtained part way through construction, the process is simpler if approval is obtained prior to any work commencing on the site
  • Documents needed include: DA approved plans, specifications, engineering detail & estimated breakdown of costs.
  • Keep your costs realistic
  • Keep lending under 80% LVR


Credit Financing

SR&ED Tax Credit Financing is somewhat misunderstood, or in fact not really considered by many Canadian business owners and financial managers in Canada. We use the word ‘considered ‘simply because many SRED claimants are not aware that their SR&ED claims can be financing as soon as they are filed – in some cases prior to filing!

So let’s return to our topic – what are the two things you need to know about financing your SRED tax credit. We’ll keep it simple –

1. You have to have a SR&ED claim to obtain financing for the claim!

2. A SRED financing claim is in fact similar to any business financing application – frankly it’s quite simpler and more focused!

Is that it? Yes, it’s as simple as that. SR&ED tax credit financing is one of the most unique ways to bring valuable cash flow and working capital back into your firm. Just the very nature of SRED itself suggests that your firm relies heavily on the credit to recover the capital you have spent under the government’s quite generous non repayable grant.

So let’s return to our point # 1 – to finance a claim, you need a claim. The SRED program in Canada is the governments rebate; in effect it’s a grant, back to Canadian business for any investment you make in research and development. More and more information is coming out everyday from government and private sources which suggest that many firms who are eligible for the program either aren’t aware of it, or even more disappointing, don’t know how to go about preparing and filing a claim. We are often amazed when some clients infer that it’s ‘too much trouble ‘to prepare a SRED claim.

A couple of points can be made on this subject. We have met a small handful, and we repeat small handful! Of clients over the years who prepare their own filings. This of course is possible, legal, and in some business owners minds ‘cost effective. The hard reality is that most firms don’t have the technical and financial know how to complete a claim on their own. (Apologies to the firms which successfully prepare a file their own claims – you know who you are!)

The majority of claims in the SRED area are prepared by what is known as SRED consultants. We tell clients that these consultants are high specialized, are up to date on current government SRED and accounting matters, and in most cases work on contingency – meaning that they prepare the claim at their own risk and time, and charge a fee which is totally based on success of the final claim approval. If Canadian business owners and financial managers don’t choose to pay a contingency fee then they can play a flat rate based on the SRED consultant’s time on the claim and filing. Naturally more often than not the SRED fee has to be paid as soon as the claim is completed, even if you still have to wait several months to a year to get your funds.

More importantly, as it relates to the financing of the SRED claim, a claim tends to be more financeable when it is prepared by a reputable consultant in this area. And in fact when you claim is financed, either at time of filing or prior, the SRED consultant can also be paid in full or in part out of the financing.

So the bottom line on our point # 1 is simply – make yourself aware of the program if you are not, prepare a solid claim with the use of a reputable consultant, and be knowledgeable that the claim can be financed during preparation or at time of filing.

Let’s move on to point # 2- Clients ask, is it really that simple to finance a SR&ED tax credit. There is only one answer, which is of course yes. You should treat your SRED tax credit financing just as any other basic financing. Because this area of Canadian business financing is somewhat of a boutique are you should ensure you are working with a credible, trusted, and experienced advisor in this area.

Let’s cover some of the very simple key basics around the financing of your claim. Most firms are eligible, under the program itself, to receive anywhere from 20-50% of your expenses in the R&D area. Your SRED claim will ultimately have a final value, which is made up of the federal and provincial portions combined. Let’s assume its 200,000.00 as an example. You and your accountant have filed your year end financials, and included a SRED claim of 200k. What happens now if you want to finance that claim. The reality is that you simply have to fill out a standard business financing application – just as if you were borrowing for any other matter. In our case the ‘collateral ‘, if we can call it that, it’s the SRED claim.

Important to note hear that you are not incurring debt or creating a ‘ loan ‘ on the SRED – Your balance sheet stays intact, you are simply ‘ monetizing ‘ the SRED claim in order to generate working capital and cash flow now. Generally you receive approximately 70% of the claim as an advance, with the 30% held back and payable to yourself in full when you final claim is audited, approved, and that cheque from the government is ‘in the mail ‘! The financing feels itself, associated with the tax credit financing are deducted from that final 30% holdback. You can generally create a SRED loan for a period of a minimum of 60 days, but most SRED financing generally last from 3-12 months, depending on the size of your claim, its eligibility with CRA, and whether you are a first time filer.


ERP Software Financing

In our case – we serve Microsoft Business Solutions ERP and CRM products: Microsoft Great Plains, Microsoft CRM, Navision, Microsoft RMS, as well as we do customization and integration to these products. We would like to share with you our experience with financing through Microsoft Financial Corporation, the entity handling software financing for Great Plains, CRM, Solomon, Navision & Axapta.

o 0% interest financing. Well – this is probably a dream or something that should not be practiced (otherwise you compromise MRP list price). However, considering the nature of software – this is something that costs nothing to sell – assuming that all the software development expenses and costs are already behind. From time to time Microsoft Business Solutions practices this 0% financing. Right now (June 2005) new customers are enjoying this promotion

o Increasing Number of Clients – who use financing. Last year we saw clients who were trying to increase their market share, by fueling their efforts with financing of all the kinds, including MBS financing. This year we see regular clients, who are using financing just to stabilize cash flow. Some of these clients have enough cash to purchase the system, but they still finance.

o Car vs. House financing. This is classical American dilemma. In my personal opinion – you can not pay upfront the price of the real estate, so you use mortgage to finance you house. However, again this is my personal opinion – car financing is something you should probably stay away from, because car loses value as you leave the dealership place – you can not sell the car on your own for the same or similar price. Software is very challenging asset – from one side – ERP might be something your business get he market value on, from another side – if it is not implemented or implemented only half of the way – it might be the burden. Maybe you, as business owner have to do your homework long evening and weekend hours to decide on your MRP financing.

o Consulting Paradox. This is something I would prefer to keep silence about and tell when I face to face with the prospect. You can finance not only the software, but also the implementation. Imagine the situation, when Microsoft Business Solution Partner gives you the proposals where Software list price is k$25 and estimated services to implement the systems are another k$25. You can finance k$50. And if you catch 0% promotion – you finance services at 0% and the most amazing fact is – MBS Partner will get the money upfront from Microsoft Finance Corporation for both pieces (k$50)

o How to trade your system in? if you or MBS partner failed to implement – is it any known way to trade in the system. Well – this is the place where we would like to stress – consider first to be conservative and do not use financing…


Should You Finance

Should you, or shouldn’t you? We’re talking about your SRED tax credits, filing the actual SRED claim for financing purposes, and the role of ‘SRED consultants’ in the whole process.

A basic primer never helps, as we still today run into many clients that don’t even know what the whole cra SRED program is, let alone use it, and let alone use the proceeds for working capital financing.

If you’re a speaker they say it’s good to know about your ‘ target audience ‘. Well, our target audience is very clear! Whether you are a start up, or an established Canadian company, and if you are spending any money at all on research and development costs, then, guess what – you’re our target audience today.

And, if you can utilize the program the ability to finance your claim for immediate cash flow and working capital improves your balance sheet immediately, certainly from a liquidity viewpoint – and cash is always king we are told.

Let’s cover off who those SRED consultants are, because they are a key process in the filing, and to a certain degree, financing of your claim. That claim of course allows you to get your firms share of the 3-4 Billion dollars of annual cheques that are written to your competitors, and our goal with our information is to get that funding into your hands as soon as possible.

SRED consultants are private individuals and firms, somewhat boutique in nature, that specialize in writing and filing your SRED claim. Filling out any government form for us has always been a daunting task, but to miss the opportunity in a SRED filing and getting approval isn’t just embarrassing, it could cost your firms thousands, or tens of thousands of dollars in missed refunds. So these consultants tend to be very experienced in SRED claim process, and have the ability to maximize your SRED tax credits to bring you the most dollars possible.

Who isn’t interested in a non repayable credit from the government? Certainly no one we speak to. So we think you would agree that the ability to ‘ get with the program ‘ so to speak, when it comes to a SRED claim is beneficial to any firm. And by the way, only privately owned Canadian firms can benefit in this manner from SRED tax credits.

So your firm is eligible – you’re either a first time filer, or you have been doing this for years. What else could you possibly benefit from in this program? The answer is, we think, that you should consider financing your claim. Why does that make sense? To us maybe its too obvious, but the ability to cash flow your SRED tax credits into immediate working capital puts you one step ahead of the game when it comes to your business growth.

Financing the claim is a very simple process. Locate a Canadian business financing advisor that is trusted, credible and experienced in SRED tax credit financing. That person will help you understand the basics of the financing – which is essentially a bridge loan collateralized by your claim. In effect you’re financing or monetizing a government receivable. Your receive approximately 70% of the valued of your filed claim, now, which we think is better than waiting, 3, 4 or even 12 months for your claim to be approved and to receive your funds via the government.

Claims can be financed within a matter of weeks, and the process is simply a business application supported by the information around your SRED claim. Having your claim prepared by one of those qualified SRED consultants just simply lends credibility to your filing. So, should you or shouldn’t you. Our recommendation – file a SRED claim if your are eligible. Finance it if you want cash flow and working capital now. It’s as simple as that.


Easy Finance Solution

If you think that you cannot enjoy the facility of loans because you do not have the provision of home or property then you have surely not heard of non homeowner unsecured loans yet. With the wise and wide development of finance market, getting loan assistance under any circumstances has actually become a trivial issue of few clicks. Being a homeowner is no more the only pre requisite of availing loan services to tackle with your treacherous economic issues. The entire range of non homeowner unsecured loans is extensively served in the market for all those people who are living with their parents, friends or as tenants.

Non homeowner unsecured loans are offered to the populace without collateral. Hence, by taking this loan assistance, the borrowers are allowed to enjoy complete redemption from making arrangement for submitting security against their loan demand and this probably stand as the most popular reason for which people like to opt for this loan plan. Moreover, as no property or valuable asset is provided by the borrower, no time is wasted in assessing its value and clearing the clause of collateral verification. In fact, it even facilitates the processing mechanism of non homeowner unsecured loans and allow the borrowers to have the advantage of securing a good amount of funds in the shortest possible duration.

However, the absence of collateral submission may stand as a reason for high rate of interest charged on non homeowner unsecured loans by few lenders but with the growing competition in the market, there is still a possibility of getting this loan plan at a low and affordable interest. So, all you have to do is to conduct a decent, product market research through the medium of internet, where all leading finance companies are available with their websites that display each and every detail about the loan and the services attached to it. Under this loan scheme, a loan seeker is usually allowed to place a demand of amount up to £25000 with repayment duration of 10 to 15 years. Moreover, these loans can be used to fulfill for any kind of purpose from arranging fund for your child’s wedding to clear the huge stacks of pending debts.

Bad credit may act as an obstruction in procuring non homeowner loans as poor credit score mainly increases risks for the lenders. Hence, to equilibrate the bad credit history, a borrower can show details of his or her income and employment documents so that the lender gets totally assured with the repayment ability. In fact, you can also try to clear few of your easy debts before approaching for this loan assistance. Nowadays, almost every bank, money lending agency and finance company is dealing in this option and thus, you simply need to browse through the World Wide Web to have the list of reliable and reputed lenders offering this loan. Other sources such as finance consultancies and finance directories can also be taken into consideration for accomplishing the same purpose. Therefore, do not stress yourself more with any urgent monetary requirement and doubtlessly go for this loan facility to enhance your damaged economic status.