Depending on whose stats you pay attention to, approximately 80% of small businesses fail within their first 5 years of operation.

In many cases, its not that a particular business could not succeed; there just wasn’t sufficient time to figure out how to succeed.

Which brings us to the worst small business financing strategy ever.

Here’s how it work.

The would be entrepreneur develops what they believe to be a sure fire business plan that can’t fail.

Unable to locate any form of start up capital, they start their business with credit cards as the only source of financing, and an expectation of sustainable business results within 3 to 6 months.

If everything goes well, the debt will be retired within a year and funds will start building in the bank account.

Sounds Good, right?

I mean the thinking lines up perfectly with all the get rich quick business opportunities that exist on and off the internet today where some of them even try to convince you to use your credit cards because the opportunity is soooooooo good and can’t miss.

The problem is that every business can miss.

Every single one.

And the vast majority do fail.

Have you ever spoken to someone who runs a successful small business; perhaps one that’s been around for 10 to 20 years?

If you take the time to ask one of these entrepreneurs about their start up period, what you learn may shock you.

Even some of the most successful small and medium sized businesses out there today had some hairy moments making a go of it in the early years.

And some times the difficult early years lasted for several years.

The point here is simply this.

The process of getting a business operating and successful can take many unexpected twists and turns, no matter how diligent you are in creating a thorough business plan and business financing strategy.

Therefore, to increase your probability for success you need to allow for the unknown, the unplanned, and the unfair.

A business financing strategy that cannot accommodate unforeseen events is not much of a strategy.

A business financing strategy that is based on high interest credit cards that can destroy both your cash flow and your personal credit is also not much of a strategy.

To improve your odds of small business success, here are some tips for developing a solid business financing strategy.

Invest Your Own Cash

If you have some of your own cash penciled into your business financing strategy, it will immediately increase your likelihood of getting some sort of start up loan.

The more “skin” you have in the game, the more interested a lender will be in approving your loan request.

There is also something to be said about the psychological incentive of losing your own money and the motivation it creates for you to work harder to keep it.

Create Contingencies in Your Cash Flow

Whatever you estimate your working capital requirement to be, double it. At least increase it by a factor larger than 1.

Things can and will go wrong, so give yourself a fighting chance and develop a business financing strategy that allows for less than perfect results.

Use Credit Cards Wisely

Used properly, credit cards can be the cheapest form of working capital that you have at your disposal.

Some business credit cards provide 40 days of interest free financing. If you pay off the entire balance every month, you have an extremely low cost of working capital financing.

But if you start carrying large balances without paying them down monthly, you will go from the cheapest source of working capital to one of the most expensive, and you will likely also destroy your credit rating in the process.

Make Timely Government Remittances

Small businesses are by default tax collectors. And the taxes collected can sometimes wind up funding the business for longer periods of time than they were ever intended.

Using government remittances as a business financing strategy is basically a bad idea.

Government agencies that are assigned to collect from you have large budgets and enough broad sweeping authority to create plenty of grief for you if you are too slow in paying.

If you apply for a business loan while you have an overdue balance with a government tax agency, your loan request will likely be declined.

Even after the balance is paid up, you may have burned your bridge with the lender as a history of overdue government remittances can brand you as a bad credit risk.

Watch Spending Closely At Startup

One of the things you can control early on is how much you spend and what you spend it on.

This is going to change in time, but if you can spend wisely in the beginning you may be able to avoid a cost cutting exercise further down the line.

While its normally true that you have to spend money to make money, you can still be smart about the spending process.

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With notable exceptions, commercial bank efforts to boost revenue by selling corporate finance and capital markets products to middle market have not met expectations. This, despite significant investments in investment banking capabilities, product training, and corporate finance training that have kept corporate finance teachers busy for several decades. Why is this? What can sales team leaders and market managers do?

Two Key Factors Reduced the Growth Rates for Capital Markets Capabilities

While the reasons for under-performance vary bank to bank, there are two universal themes. First, marketing strategies. The “service” organization (i.e. the capital markets group) and the field sales force did not mesh. The groups had different objectives and different compensation plans. Many sales people considered the investment bankers arrogant and transactional. The investment bankers considered the relationship managers dim-witted and antiquated. As a result, the two groups could not collaborate to define effective marketing strategies and to exchange the information each group needed to fully take advantage of opportunities.

Second, sales process. Bank sales managers took the view: “RMs are already talking to these companies. They can cross sell or refer opportunities for capital markets.” The sales managers did not see that customers don’t buy capital markets services the same way they buy more traditional bank products. Loans and other bank products have been sold through a “features/benefits/price” conversation. Capital markets products and services must be sold as if they are “professional services,” where ideas and professional competence are the primary value.

What will it take to close the gap? While much progress has been made, the most critical elements are:

1. better definition of market strategy and sales processes,

2. a new approach to training,

3. more focused sales management, and

4. a recognition and compensation philosophy that, at minimum, does not distract sales people from the task.

Better Definition of Market Strategy and Sales Processes

Market strategy, particularly target selection for each capital markets capability, is critical. Specialists and relationship managers must share a common understanding of “what a qualified prospect looks like” for each capital markets product or service. These definitions should be specific, for example: “Manufacturing companies with sales > $50 million who meet criteria for Bbb debt ratings and that are interest rate sensitive.” RMs must know these criteria for each of the opportunities they’re expected to find. These criteria enable RMs to plan their sales efforts and to forecast prospective business effectively. They also reduce the amount of “noise in the system” from opportunities that don’t deserve attention from scarce investment banker resources.

Crisp sales process definitions will help boost the number of opportunities identified and reduce effort expended in sales process. The field sales organizations and product specialists must define (for each product or service):

Sales process steps (from initial conversations through origination to the end of execution) respective roles in the sales process.
Hand-off points (as from RM to specialist and back again).
Information requirements for each service (what information RM or specialist passes to the other).
Service standards for response times to inquiries, lead times for presentations, and other sales support activities.

These definitions provide a framework for RMs and specialists to work together effectively, each knowing what they can expect from the other and when.

New Approach to Training and Sharing Information

To meet client expectations, bank training must prepare RMs for their roles in the sales processes (which differ by product or capability). Depending on the RMs’ roles in opportunity identification and selling, product training and sales training should be modified.

This is not a new problem. For example, in 1998, describing Merrill Lynch’s initial attempts to generate additional mergers and acquisition advisory business, Fortune magazine reported: “[Clients] wanted bankers who came to them steeped in knowledge of their industry and full of creative ideas…That was a problem for Merrill’s M&A bankers, who were generalists… Many bankers simply didn’t know enough about each of the industries to make provocative presentations…” (Fortune Magazine, April 27, 1998, page 138) Data provided by Greenwich Associates and other firms confirm that clients today expect the same from investment bankers and commercial bankers who want to provide the more strategic capital markets and corporate finance services.

Like Merrill, bank leaders now must make specific decisions around how they are organized and how their bankers are prepared to respond to these client expectations of advisors. The same logic applies in small business, middle market, and large corporate banking. Whether you’re offering M&A advice, Treasury Services, mutual funds, or debt financing, product training should be transformed into “customer training” to focus on:

Owner, CEO, or CFO issues and concerns.
The problems that the bank’s capabilities solve.
Questions that will help the RMs assess a customer’s goals and circumstances and draw conclusions about which investment bank capabilities are appropriate and what potential benefit will be created for the customer.
Answers to customer questions, including:
What does this do (explained in terms normal people can understand)?
When does this approach benefit a company like ours?
What are the alternatives?
Who have you done this for?
What will it cost and how long will it take?

Sales training should shift toward a professional services model in which the value comes from the expertise of team members, of which the RM is one. Clients want counsel from people who have been down particular roads before. They are looking for advisors who can take a view or a position about market conditions and other factors. Sales training should prepare RMs to probe these issues deeply and to offer opinions. RMs must be good representatives of the expertise that will later come from the capital markets professionals.

This begins with intimate customer knowledge. Generally speaking, RMs know their customers well at a transactional level – specific needs which the customer has decided to address. Generally, they do not know their customers well at the level needed to identify opportunities or capital market services. Key missing ingredients include.

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Sometimes you just need to re-program things to make them work better – that’s what we’re also suggesting when you review your lease finance and equipment loan financing strategies for your company.

Let’s examine how you can maximize your leasing strategy to attain maximum benefits and minimum hassle! That’s clearly a win win strategy.

Focus clearly on eliminating what we can only call the ‘hassles’ of dealing with other types of financing, It’s all about ‘ time’ and your ‘ business bandwidth ‘ today when you are visiting a new asset acquisition. Without a doubt we can state that leasing equipment is by far the quickest method of obtaining an approval, satisfying both your vendors need as well as your own time constraints.

With only a very basic financial calculator you can quickly review all your lease finance options – the favorite question of almost all clients is: ‘What will my monthly payment be?’ It’s about time for you to answer that question yourself, and make sure that your cash flow and working capital remain intact on the equipment loan financing you are contemplating. How? Just remember that the only elements to any lease are: term, rate, amount financed, payment, and end of term option. If you know any 4 of those you can always solve for the final item, which in our case is payment. You should assume an interest rate that is consistent with your firms overall credit quality.

Business owners and financial managers should view their lease finance acquisitions in the context of your overall financial strategy. You might need to ‘re-program’ your thinking on buying and paying for assets outright. Doesn’t it make more sense to keep your cash and line of credit reserves intact, and match the useful economic life of the asset you are acquiring to a predicable cash outlay?

A quick way to ‘re-program’ your leasing needs is simply to always use the same business template for each asset you are acquiring. They key aspects of that decision template, if we can call it that are: cash flow budgeting re the monthly lease payment, reviewing the asset in the context of not having to draw on your business operating line of credit, determining how long you will use the equipment for (thereby matching term and payment) and finally, factoring in balance sheet and tax advantages into your asset acquisition decision.

What’s the biggest ‘re-programming’ issue with most firms. It’s simply their mild obsession with rate. Yes a rate has to be competitive, but view the lease financing rate in the context of the current interest rate environment, the challenge of getting traditional bank financing, and the fact that in the current 2011 environment rates are probably going up and not down. The real reality is that you determine your own rates in your new leasing re-programming strategy! That’s because the largest factor in determining rates for equipment financing is the manner in which you properly present your overall credit quality and financial health.

In summary, equipment loan financing, aka ‘leasing’ has been around for over a hundred years in North America. Take a hard look at why you finance your assets, reprogram your strategies around benefits and ‘how to,’ and acquire your assets with the knowledge you have made the best financial decision for your firm. Need help? Given a choice we’ll take an expert over a rookie any day! Speak to a trusted, credible and experienced Canadian business financing advisor who will work on your ‘ re-programming strategy with you!

Much has been written about how finance organizations can become strategic partners with the businesses they support. While purported experts point to a variety of frameworks, scorecards and key performance indicators, etc. as the keys to bridging the gap between finance and business, these trite ‘solutions’ have done little to make finance the strategic business partner it seeks to be. Worse yet, pursuing these ideas has put finance organizations on a treadmill where they expend energy and resources (e.g., money and time) ultimately to get nowhere while the issue persists. So if you are still looking for a silver bullet or quick fix to this seemingly incurable problem, stop reading now.

Given the time, money and effort spent, you may be a bit demoralized and even speculating that the finance-business chasm cannot be crossed. Paradoxically, the link between finance and the business has been under finance’s proverbial nose for some time – resource allocation. A serious concerted effort to optimize an organization’s resource allocation ultimately enables finance to develop the bridge between finance and strategy. This discipline known as corporate portfolio management works to actively manage the company’s resource allocation as a portfolio of discretionary investments. All companies allocate their resources – very few optimize their resource allocation. Finance is uniquely positioned to enable this because they sit at the nexus of information and data required to undertake a corporate portfolio management effort. (Note: Corporate portfolio management is often referred to by different terms so as a point of reference, terms such as IT portfolio management, enterprise portfolio management, product portfolio management, project portfolio management, resource allocation and investment optimization are similar. In fact, these all are slices or subsets of corporate portfolio management.)

From Resource Allocation to Strategy

First, it is worth understanding the tie between resource allocation and strategy – they are the same. Where you allocate your resources is your strategy. PowerPoint presentations, speeches by senior leadership, strategy bullets nicely framed on a wall, etc. are all interesting and potentially useful, but they are not your organization’s strategy. For instance, if your stated corporate strategy is to have the most engaged and loyal customers (this sounds good, right?), but you allocate all your investment dollars to acquiring new customers, your strategy is actually around customer acquisition. This is a very simple example but clearly demonstrates the dichotomy that can and often exists between a stated and real strategy.

A great article entitled “How Managers’ Everyday Decisions Create – or Destroy – Your Company’s Strategy” that recently appeared in the Harvard Business Review (February 2007) nicely articulated the connection between resource allocation and strategy and also pointed to the need for a corporate portfolio management discipline. “How business really gets done has little connection to the strategy developed at corporate headquarters. Rather, strategy is crafted, step by step, as managers at all levels of a company – be it a small firm or a large multinational – commit resources to policies, programs, people and facilities. Because this is true, senior management might consider focusing less attention on thinking through the company’s formal strategy and more attention on the processes by which the company allocates resources.”

The upshot of this is that if finance can enable the process to enable better resource allocation (which is strategy), they will have succeeded in becoming a de facto strategic partner to the business.

The Two Levers of Corporate Portfolio Management

So now the question turns to how to build a corporate portfolio management discipline and ensure its success. A successful corporate portfolio management effort is predicated on two dimensions.

1. Modern Portfolio Theory (aka the process) – This is what people generally think of when they think of corporate portfolio management. It is comprised of:

* Investment valuation – This includes defining what an investment is. It is worthwhile to take an expansive definition of what comprises an investment because this is not just capital expenditures (capex), but also should include operating expenses (opex). In general, 25-40% of an organization’s expenses are discretionary and hence are investments. Investment valuation also requires consistency of valuation methodology which necessitates using driver-based models to create projections and also looking at past NPVs and ROIs to consider strategy and other qualitative aspects that drive investment ‘value’.

* Portfolio allocation – This requires determining investment areas/themes and the associated allocations. Basically, what are my strategic priorities for investment and how much will go to each area? For example, 25% in customer acquisition, 20% in IT, 55% in customer retention. The allocation should also consider the risk profile of investments, e.g., 60% in low risk, 30% in medium risk and 10% in high risk.

* Portfolio optimization – This requires selecting the best investments to support the portfolio allocation and periodically rebalancing the portfolio to ensure consistency with desired portfolio allocations. The aim is to maximize strategic and financial return per unit of risk.

* Performance measurement – A key element of successful corporate portfolio management is capturing actual investment results to enable promise vs. performance. Doing this ultimately lets an organization improve ongoing investment valuation based on actual results and allows it to rebalance the portfolio based on performance achieved.

Most people with a finance background will recognize the above tenets of portfolio theory. The problem with most of the discussion of corporate portfolio management is that it assumes that people behave according to a theoretical/rational construct. While various experts like to offer platitudes saying things like, “Just manage your company’s investments like you manage your own investments,” they fail to realize that many individuals may not even manage their own personal portfolios as they should. They may know what they should do but emotions, intuition, and other external influences take them off this rational path. What often leads us astray in our personal portfolio is what leads us astray in an organizational setting – behavior. The challenge in an organization is magnified by the fact that it is hundreds or thousands of people whose behavior that needs to be considered. And so this is the second fundamental lever of corporate portfolio management – organizational behavior.

2. Organizational Behavior – In order to optimize one’s corporate portfolio, the behavioral elements must be understood with:

o A data-driven mindset – Organizations often make decibel- or intuition-led decisions and corporate portfolio management, like 6-Sigma, requires data and analytical decision making.

o Silos removed – Corporate portfolio management success requires people thinking about what is best for the organization and not just what is best for “my world” – silos and organizational dynasties need to be broken down.

o Incentive alignment – People should be motivated by similar short- and long-term incentives.

o Accountability & transparency – There should be a willingness to share information and effectively create a marketplace for investments.

Moving organizational behavior is the larger challenge and this takes time to change. At American Express, we have actively worked on changing organizational behavior and have made significant inroads over time, but it has not happened overnight. We have conducted cross unit investment reviews, sponsored an internal corporate portfolio management conference and even created a resource allocation simulation to visibly demonstrate the benefit of corporate portfolio management.

One of the great things about being a professional investor is the opportunity one has to apply his or her long-term experience to the investment environment that is unfolding (or coming unglued) in the present. If nothing else, most successful investors develop a consistent strategy that allows them to take advantage of short-term changes and the opportunities that they create in a somewhat unemotional manner. You can always tell a “newbie” by a “let’s see how you do for a year” comment, or a “what’s hot” question.

Wall Street would like us to ignore the fact that the stock market is a cyclical beast that changes direction periodically, and almost never at the turn of a calendar quarter or year— cycles vary in length, breadth, and direction. Inevitably, less experienced investors get caught with their portfolio egos unprepared for market realities.

Similarly, Wall Street would like investors to look at income securities (bonds, CEFs, preferred stocks, etc.) with the same analytical eye that they use for equities. They too are expected to grow in market value forever, even though it’s the income that the investor is after. High total returns mean missed profit taking opportunities more often than they signal increased income.

So as much as the wizards would like us to believe (a) that up arrows are always good and down arrows always bad, and (b) that they can get you safely hedged (protected) against the bad stuff with all forms of creative portfolio care products; its just never going to work that way.

Cycles are a good thing. They cleanse the markets of both fear and greed residue, and (all appendages crossed please) this time, perhaps, they’ll point out that both multi-level derivatives and congressional tinkering don’t ever produce the intended results.

Unfortunately, investors in general are a lot like teenagers. They know everything immediately; expect instant gratification; take unnecessary risks; fall in love too easily; ignore all voices of experience; prefer the easy approach; and feel that the lessons of the past just can’t possibly apply to what’s going on now. Duh, dude!

That said, what can Joe the plumber do to protect his 401(k), IRA, or personal investment portfolio from the Bernies, Nancys, and Harrys that are waiting in ambush? How does he protect himself from unregulated scams, and Wall Street toxins now, and into the future?

Well, it requires a slightly more mature mindset than the new media allows most investors the patience to develop, and an appreciation of the miracle drugs that have saved the lives of comatose portfolios victimized by the correction viruses of the past.

What if: (1) In the 30’s, you had purchased shares in from 20 to 40 prominent, dividend paying, NYSE companies, or even in October ’87, or ’97. Now, if you had sold all those issues that gained 10%, and reinvested 70% of the profits keeping a diversified portfolio of similar stocks, hitting “replay” religiously, how much more market value would you have today?

What if: (2) At the same start date, 30% of your portfolio was placed in high quality income securities, and 30% of the income produced (and the remainder of that produced by equity profits) was reinvested similarly, how much more income would you have today than you do now?

If you combined the two analyses, how much more working capital would be in your wallet? You would be amazed at the results of this research; it would lead you to these portfolio life saving, and KISS-principle preserving, conclusions:

One: Every market up cycle produces profit-taking opportunities, and all reasonable profits should be realized— in spite of the taxes. Two: Every market down cycle produces buying opportunities, and buying activities of three kinds must be continued throughout the downturn.

Three: Compound income growth is a wonderful thing, so find investment vehicles that can be added to routinely and, if spend you must, always spend less than you make. Four: Unhappily, nearly all of your past decision-making has been back—wards.

Just as the process described above is significantly more difficult to implement with mutual funds and other products, so too is the three-pronged strategy for dealing with market opportunities.

Reinvest portfolio generated income in three ways, and leisurely according to your planned, working-capital-calculated, asset allocation. Good judgment and an awareness of overall industry conditions are always required:

One: Add new equity positions, in new industries if possible, and keep initial positions smaller than usual. Never buy a stock that does not meet all Working Capital Model (WCM) selection criteria, and never stray more than 5% from your overall portfolio asset allocation guidelines.

These acquisitions should be monitored closely for quick turnover, at net/net profits of from seven to ten percent, depending on the amount of smart cash (WCM again) in your portfolio.

Two: Add new income positions when yields are unusually or artificially high, and watch for quick profits in this area as well. When yields are normal or lower than normal, diversify into new areas. For better results, do more “ones” than “twos” if possible.

Three: Add to positions in stocks that have maintained their quality rating and dividend while falling 30% or more from your cost basis. If the addition doesn’t produce a significant change in cost per share, return to “one” or “two”.

What will you do to differentiate your financial organization in a time of stagnant economic stimulus?

Outsourcing is still growing, and historically, back-office information technology functions have taken a front seat in most outsourcing initiatives. However, in the coming years, chief financial officers and chief information officers will work collaboratively in spending significant time and effort to continue aggressively cutting costs and strategically streamlining front-office functions.

This phenomenon occurs because technology is a key driver in the financial services industry. As a result, larger organizations have been bullied into retaining and growing large IT staffs to accommodate their need for specialized systems with innovative attributes and functionality. Successful small to mid-sized firms have relied on outsourcing vendors to help create an environment and staff with the right mix of experience and talent to accomplish what larger organizations have permanent staff in place to achieve.

As your institution migrates to a more strategic financial model, a strategic consulting firm can help you fill gaps and make adjustments to your financial road map that should address these questions:

How should we engage IT through the process? What amount of interaction and input will we need from that part of our organization?
How will our financial service organizations remain confident that they can control risk and remain in control of the business when moving to an outsourced model?
How will we know whether a vendor can conform to our regulatory requirements?
How will our organization continuously improve cost and efficiency after transition to a service provider?

When outsourcing your financial functions, there becomes the ability to hand over things such as risk, compliance and management. In today’s competitive economy, outsourcing should not only be used to reduce cost, but should be used to achieve strategic initiatives. Do not just hand over control of your company; create a line of attack using leading practice methodology and a service provider that will differentiate your institution from the leading competitors. Think strategy!

The average investor’s thinking needs to change. We need to teach ourselves to invest in the stock market using common sense, not emotion. I treat my investment activities like a business. If a trade is not working out as I had planned, I close it out and move on to the next one.

My real estate investor clients have told me that the profit is made at the purchase of a property, not on the resale. Can that be applied to the stock market? Sure, my clients do that very thing.

A change in thinking will shift your focus from hoping for a particular trades increase in value to monitoring the trade during its expected life. I say expected life because that is known prior to entering into the trade. Yes, you will have a definite exit strategy!

You need to learn to train yourself to operate your investing activities like a business, watching the trade through its life cycle. I can assure you that you will feel in control and not at the whim of the stock market.

Did you know that there are stock market investing strategies that allow you significantly more control over the outcome? I know that the stock markets most successful investors do not just hope things go their way. They simply use the tools at their disposal to give them the best chance of success.

Successful investors use strategies that tip the odds in their favor, and they have learned to treat investing as a business. What are these strategies? Well, that is beyond the scope of this article. However, in order to find the success you are looking for you can start by changing the way you think.

Is investing in today’s stock market a frightening thought? Why not consider investing in real estate?

With most of the media focusing on the “great depression” and the “market’s volatility” it’s hard to remember that “all real estate is local.” Falling prices can bring real opportunities and now may be the time for you to consider investing in real estate.

Selecting an investment strategy that works best with your own strengths and goals is key. Have you ever considered any the following real estate investment strategies?

Creative Acquisition: You will need money – or – partner up with someone that has some. Creative Acquisition answers the question: How can I get this deal done? Some people have said that this is the REAL real estate acquisition strategy.

Joint Venture: Build a team. Make sure each team member brings something to the table. Money. Credit. Confidence. Resources. People Skills. It’s all good. This strategy proves the power of leverage.

Lease Option: This strategy combines two elements: (1) a lease which gives the rights to reside in the property and (2) an option to buy that property at a later date. You’d better know what you are doing and your individual state laws when structuring a Lease Option deal!

Master Lease: A good master lease example is if you lease an office building from an owner and then sublease individual units to tenants. The lease between you, the investor, and the property owner is called the Master Lease. You will not necessarily need lots of money or credit, but you’d better be good at negotiating and understanding complex contracts!

Subject To: Using this strategy, an investor purchases a property “subject to” the current owner’s financing staying in place. As some have said, “You get the deed, but you don’t get the debt.” Do you have bad credit? It’s not a problem when using this strategy! This one is my personal favorite.

The objective is to match your strengths and goals to the strategies you decide to use!
Happy Investing!

Judith Dudley

Judith Dudley

President, Alternative Sources, Inc.

There’s a boom going on and it is towards continued investment in second homes. Of late second home purchases have represented a significant percentage of all homes sold in the developed western world. Of particular note are investment strategies in high-demand holiday or vacation areas and high growth investment locations. Investors are now considering their second homes as better investments than stocks, with many purchasers indicating they planned to buy additional properties within two years to grow their portfolio.

Financing for second home investments has become easier in recent years with financial institutions or lenders recognizing the pattern of property speculation and the need for second home loans to support these initiatives.

Landlords and Mortgages

When considering second home loans at a minimum the lender or financial service organization will want to see proof that you’re actually going to generate decent returns or cash flow from your investment. This will be considered to cover at minimum the majority of the costs or outgoings, but often the profits too. Often, the lender will ask for a business plan or statement of income for the property. You shouldn’t count on your bank taking into account your second home’s estimated rental income into consideration without a track record. You as the purchaser/owner may veer towards optimism, where the bank will veer towards pessimism. Even for a property with a long rental history most professional lenders will only consider 75% to 80% of the value for investment. So it is very important that you consider your sources of finance, the type of finance and the value of finance before you search for property.

There are a number of sources of funds for second home loans that may be considered by investors.

Equity release finance is one such source where mortgage property is used as collateral for additional property funds. In this instance the value of a current property that you own or part own is assessed to determine how much capital is available based on the outstanding mortgage and present value. An extension to your mortgage may then be granted to support new investment initiatives. The benefit of this finance is that it is often cheaper to finance when based on the original mortgage rate.

Second Mortgage finance or second mortgages are the way in which homeowners finance second home purchases. These funds may be used for down payments on 2nd homes, or for home improvements or extensions on primary homes. The benefit to this form of finance is that the finance is often associated with the original mortgage for security and subsequently is often cheaper.

The decision to use equity release investment funds with a mortgage refinance or to apply for a second mortgage for second home loans depends primarily on the needs of your investment and your ability to repay the new loan. If you have a low interest rate and favorable terms on your existing mortgage, you may want to consider a second mortgage for financing the down payment to purchase your investment property.

In the current climate a lot of companies are experiencing critical cash shortages. Business owners need to understand how to finance their enterprise. The Board has the responsibility in this process to make sure that the correct financing strategies are in place, and are well focused and resourced.

The Board should make sure that the financing strategies cover the following 10 questions:

1. Is it the right time to seek financing?

2. Will the required financing be enough to meet the needs of the company?

3. Are the documents to support the financing request completed to high quality professional standards?

4. Does the company have an experienced and competent management team that can deliver against the strategies and plans?

5. Are the right financial instruments being investigated (utilised) and in conformity with all securities laws and regulations?

6. Are the right sources being approached?

7. Have all opportunities to release cash from the balance sheet been explored?

8. Is the optimum capital structure in place to sustain growth and allow for future capital raises, if they are required?

9. Is there an adequate cash management system in place to protect the money lent or invested into the company?

10. Will the company be able to afford the financing being sought?

Many company owners complain about their difficulty in obtaining the financing they want. Their frustration is linked to their doubts that investors are ready to put money in to companies experiencing temporary cash shortage. I do agree that the current economic and financial climate has made it more difficult to get cash, yet I would stress that there is no shortage of available money. In fact, in my experience, there is a shortage of companies who can step up to the mark and demonstrate what investors are looking for. Such companies would have put in place viable strategies; have plans on how to tap into new market opportunities; have the right talented management teams that can seize those opportunities and who can execute the plans well. Even when all of those ingredients are in place, I often observe that company owners are unrealistic about the valuation of their company and refuse to give up sufficient equity to attract the level of investment they require. Put simply – it is better to own a small percentage of a very successful company rather than 100% of a failed one.