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Lending Business- Granting of Credit

Granting of credit is one of the fundamental and basic functions of banks. By their nature, banks intermediate between savers and users of funds – that is banks source funds from economic sectors with surplus funds in the form of deposits, and disburse the same to economic units that need them for various purposes in the form of credits or loans.

Apart from providing the fiduciary responsibility on depositor’s funds, granting of loans appears to be the next most important func­tion of banks since this activity represents one of the key sources of income for banks. However, consideration of requests for loans, income or profit motivation does not and should not becloud the lending financial institution from ensuring that the loan, together with associated interest income, is repaid fully and timely. One of the surest ways of ensuring that credit, together with its related interest income, gets fully repaid is through a thorough credit analysis.

The importance of loan repayment on the part of a bank borrower cannot be over emphasized given the unsalutary consequences of loan default on a bank, given that it is depositors’ funds that a bank lends out if the borrower of such funds fails to pay back for whatever reasons it behooves the bank to repay the depositor(s) at the maturity of such deposits. A typical depositor would not be interested in learning the reasons why a bank would not pay its depositor at maturity of the deposit, in fact even a little delay in paying a depositor could trigger uncontrollable avalanche of requests for repayment of deposits by depositors. Even depositors whose placements had not matured could demand premature terminations and these could culminate in a run on the bank and eventual failure of the affected bank.

In order to prevent the above scenario, if a loan beneficiary defaults in loan repayment and the deposit with which the bank funded the particular loan matures the bank could be forced to pay the depositor from any of the following:

i) the bank’s shareholders funds (retained earnings) assuming such is suffi­ciently available (ii) source another deposit at whatever cost or

(iii) borrow inter-bank at whatever prevailing rate to repay the depositor.

The implication of option (i) above is the erosion of shareholders fund and attendant shrinkage of the bank’s balance sheet footing. The implication of the other two alternatives could also be disastrous for the bank as they could range from erosion of profit due to unplanned cost increase through undue reliance on inter-bank funding with its inherent uncertainties and high cost.

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4 Tips on Franchise Financing

When looking into buying a franchise or handling a franchise financing, it’s a good idea to account for all of the benefits that you will encounter as opposed to starting a business on your own. A business model that has been proven to be successful should already be in place. Also, the franchise should have an established name so branding should not be an issue.

Most franchisors will provide some form of training for not only you working in a franchisee capacity, but also for your employees to get them up to speed quickly. They will assist with a marketing and advertising structure to help get the word out about your new business.

There are some drawbacks to opening a franchise. You will have to pay a franchisor fee to the corporation to use their name and their services. You also still have to face the usual fees that come with running a business; inventory, utility payments, supplies, payroll, housing (rent), etc.

That being said, it probably is more cost efficient and your liability will be somewhat limited dealing with a franchise. Not to mention, with the corporation helping you with your start up, and having a stake in you being successful, it’s probably more cost friendly than starting up your own business.

So what are your options for funding a franchise?

  1. Deal directly with the franchisor. Some franchisors offer franchising. They will loan money to you at a specific interest rate to help you get your franchise off the ground. If your franchisor doesn’t offer lending, see if they will assist in the lending process by pointing you to a lender they usually do business with.
  2. Go to a bank. Bank loans are usually how businesses finance their startups. Although with the bank industry as it is, it currently is more difficult to get approved for a loan. Just the same, there are some banks that specialize in assisting small businesses with their startup capital.
  3. Joint ventures. If there is someone you trust, who you know has the money, you could set up a joint venture. They could be a silent partner, putting up the finances while you handle the physical labor. If you do decide to investigate a joint venture, make sure you have a business savvy lawyer draw up air tight documents for both sides.
  4. Do it yourself. If you have the money, you can finance your own franchise. Although it would be more beneficial for you to keep your money and use it as collateral to finance your business (also called using other people’s money). You don’t want to put all your eggs in one basket, but if you feel you can recoup a quick return on your investment, then you may look at this as an option.
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The Pros and Cons of Leveraging Your Home for Cash

“Leveraging” is the process of converting the equity in your home into cash. Freeing up cash in this method can give a budding entrepreneur working capital for a new business venture.

There’s a number of advantages and disadvantages in using your personal residence to jump start a new business. I should know; my husband and I leveraged the equity in the family homestead to start up a new company. Thanks to prudent management, we’ve been weathering the recession relatively unscathed, though we’ve had our moments of anxiousness and sleepless nights.

If you are thinking about leveraging your home for working capital to start a new business, the pros and cons we experienced may help you make up your mind.

Pros of leveraging your home for cash

Better chance of securing a loan. Banks aren’t too keen on loaning money on a business gamble and for an entrepreneur trying to break into a new business, loans can be tough to find because of the risk involved. Putting up your house as security may well be the only option possible for freeing up cash for a new business.

Better interest rates. Interest rates are determined by a number of factors including credit worthiness and what an entreprenuer is willing to put up as collateral. We discovered that interest rates were lowest when secured against our house.

Extra perks offered by the bank. By borrowing against the equity in our home, we became a “preferred customer” which came with some pretty cool perks. In addition to having a personal banker to help us with our finances, we received benefits such as fee free checking, free checks, free safe deposit box, free money orders and travelers checks, AND a waiver of the loan origination fee and appraisal. We even got a free set of Pyrex with insulated totes, something I didn’t think banks even did anymore. These freebies saved us nearly $2200 the first year, and about $600 a year thereafter.

Cons of leveraging your home for cash

The risk of repossession & ruined credit. There’s only one disadvantage to leveraging your home for a new business, but it’s a big one. If the business fails for whatever reason and the mortgage payments can no longer be met, the house will be foreclosed on which can be devastating for your family.

A foreclosure means more than just losing your house, it impacts your credit score and may also saddle you with a tax penalty. This excellent article details the consequences of a foreclosure and is a must-read for all homeowners.

If you are an entrepreneur who is leveraging equity for a new business, the only way to lower the risk of foreclosure is by not borrowing more against your home than you can afford to lose. Borrowing cautiously is key to finding start up cash for a business without putting your home at risk.

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Check the Zoning for a Business Location

Local zoning laws have a tendency to shift and change over time. As a city or community shifts and changes, so do the zoning laws that dictate how various buildings and lots can be used. Just look at the number of businesses in a city center that are located in what used to be residential housing and you will notice how true these changes can be. Whether you are looking for a space to put a new business or dealing with an existing business location, it is important to check the zoning regulations to make sure that the location is suitable for the business operations.

Zoning is determined based on what else is going on in a region or area. For example, is it residential, business, or zoned for park or other development? Just because the lot next door is zoned for business does not mean that the one you are looking at is as well. It is important to check with the local zoning office to find out exactly what the regulations before you decide on a location for a business. If possible, ask questions about potential changes while you are doing your investigating. The zoning professionals may be able to tell you the general trends in a certain area or neighborhood and give you a heads up for any laws or changes that could affect your business location.

If you are considering starting a home-based business or doing work from home, it is especially important to check on the zoning regulations of your home and neighborhood. There may be zoning laws that prohibit certain types of home businesses but allow for others or they may dictate what parts of the home or property can be used for commercial activities. It is far better to research and determine the zoning restrictions and allowances BEFORE you get started. Other licenses and registrations may hinge on your being in compliance with zoning regulations.

If your business operations change (say you want to add a commercial kitchen or begin doing child care or adult care) then you will need to go back and verify that the zoning regulations allow for the activities. It is possible to request a change to the zoning but it will take time, paperwork and expense. The first step, however, is knowing exactly where things stand in the “zoning department” so you can choose and/or change your business location to fit the work you plan to do.

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Stages of Business Every Business Owner Needs to Know

Everyone dreams of starting a new business. Many people always quote idea that can bring “millions” of gains. In reality, ideas is dime a dozen. Starting and growing a business is a hard work, but there are some things that can simplify, break tasks into small chunks, and highlight things that truly important.

Starting the business is the most exciting and fun time. Who does not like a birthday, new baby, or cute little puppy. It is the same thing that happen with business. Everyone is over optimistic, everyone is expecting to earn tons of money. Everything looks pink and fluffy. But a serious businessman knows the thorny road ahead. Seasoned leader would turn down over optimistic outlooks. Spending money on new office furniture, renovating the newly rented office space. Spending money on new fancy locks, putting trendy doors. Those are things that don’t make or break business. Instead of superficial things concentrate on designing tasks and projects to be done. Do the market research about product or service you about to start. Concentrate on defining parameters of the core products. Make sure that desires of the customers correlate with the ability of technical stuff to deliver. At this point almost every business requires a lot of money.

There are many ways to get money. If the leadership have good connections and great standing with the banks, borrowing from the bank is the best and cheapest venue. If the leadership have network of proven angel investors, or venture capitalists, one needs to be very clear what your business willing to give up to get money from them. The best way is to get one of the venture capitalists in the leadership of the company. Their business connections and expertise will help business not only getting money but in marketing and penetration of markets. As a rule: don’t borrow money from friends or family.  Also, don’t get your friends get involved into business. It is a business, not social club

Well, your business overcame all your growing pains and you are finally releasing the product. You already scaled up your marketing. Your website done fantastic SEO. You have hired your first saleswoman. Don’t forget to do one thing: shoot the designers and engineers. No, I am not telling you to physically eliminate them. You have to get them to stop working on the product. See, the big secret from the high tech, no product appear on market fully functioning. If you make a perfect product, you are too late to the market. Designers and engineers who have spend considerable time, emotions, and sweat on the product, have feeling that is their baby. They will continue working on improving it forever. You have to freeze the design and send it into production. There will be issues that need to be addressed, but the product have to start flowing to the customers. You do a short celebration of releasing the first product, make sure to give a lot of praise and recognition to the people who were involved. But the product is in the hands of marketing and sales now. You have to push sales, and finally get positive cash flow into your company.

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3 Business Ideas So Weird They Might Just Work

New year, new you, new business too. If you are out of ideas on what to start this year of the Dog, here are some bizarre ways to start rolling that money in. DO NOT underestimate these ideas; Facebook was once a virtual yearbook and look at how gigantic it is right now.


1. Start robotized cafe.

Everyone is talking about AI and robotization of the workplace. So, why not start your own robot cafe.

In the robocafe the client selects and pays for coffee through the mobile app or touch screen at the cafe. After the order robot chooses desired grains of the selected roast, grinds them, adds desired topping. Within a minute or two you get the coffee you like.

In this instance robotization helps not only to go without problems with personnel, but will also be a marketing hook, since this automatization is still novelty, your cafe will attract a lot of attention. A company in San-Francisco already has set up the shop.

To start such business you can contact the company that already in this business, or you can gather a team of engineers and make your own product.

2. Blockchain Mining Hotel

Blockchain mining is very popular these days. Everyone knows the quick rise of the Bitcoin, Ethereum… To support crypto coins a lot of computer power required. There are many mining farms where computers with powerful video cards perform calculations. Or specialized mining computers where the people earn crypto coins for profit.

Many people try mining at home, but when scaling up, these miners have problem. Scaling up mining is not easy. To solve this question many entrepreneurs already started building good business.

Mining Hotel – it is rental business. To start you get about 1000 square feet commercial space. Install shelving to hold equipment, create good ventilation, connect to reliable fast internet. Have large electrical supply. In some cases the question of reducing price and increasing power solved by installing natural gas generators. You just need 24 hours security guards, and system administrator.

You can provide to the miners turn key physical mining pool solution and collect monthly rent.  1000 square feet can allocate at least 50 farms. Rent from each $60 up plus cost of electricity.

3. Overshakes or FreakShakes

Overshake is variation of the shake that overflows and has large, freaky head over it. For it base you take basic milkshake, smoothie, or ice cream. Then you just pile up toppings. Use whip cream, candies, cookies, donuts,…

The size and ingredients are limited only by imagination and creativity of dessert chef. You know that freakshakes created not only for their taste. These are the most photographed and posted dessert pictures on social media. People pose with them for selfies and post them on social media. This is why this trend is quickly developing.

If you are planning a small but cosy cafe, give this dessert a serious consideration. Overshakes can be strong marketing driver of you establishment, that will lead to many new visitors.

If you don’t’ have ability to open your own cafe,but you are creative person and can cook, you can establish yourself as an expert in this niche. Develop proprietary overshakes, take pictures of your experiments and post it on YouTube. With creative and inventive approach you can have viral video, which will create your audience. Type in YouTube Freakshakes and you will see the videos on these themes.

With time you can make money by developing for different cafe or restaurants your copyrighted freakshakes and send your viewers to patronage those cafe’s. This is a win-win situation. The owner of the cafe, when using your service will not only get great addition to the menu, but also new visitors referred by you.

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