A Description and History of Accounts Receivable Financing Loans

An accounts receivable financing loan is exactly what it sounds like. Your business can take out a loan against money that is owed to you, so it’s essentially borrowing from yourself. When you need money quickly, it could be that untried option that you’ll actually get approved for. If you find the right bank or lending institution, you might even be able to negotiate reasonable short term repayment and get an affordable interest rate. Some banks right now are offering less than 2% for loans of up to thirty days. That extra month can be a huge boost if you’ve just made a large sale of existing inventory and need cash to purchase additional inventory while you’re waiting for payment on the last sale.

The difference between an accounts receivable financing loan and more traditional loans is that banks look at the credit score and payment history of those who owe you money instead of your own history. For those with bad credit or companies just starting out, it may be advantageous to have the bank look at the customers you’re invoicing instead of you when you’re attempting to get your hands on some working capital financing. Traditional loans are always hard to come by, especially in this economic climate, unless you happen to have stellar credit or lots of collateral.

What is Factoring?

One of the oldest financial practices for merchants having difficulty making ends meet is the sale of accounts receivable for a percentage of what they are worth. This process is known as factoring, because when you sell your accounts receivable, you sell them to a factor. The practice is very common in the debt collection business. That’s why you often hear from multiple collection agencies on the same debt. The first one will attempt collection and then sell it to another agency, one that is actually a factor, for a percentage of the paid value of the debt. They then use the cash to expand their business or purchase debt from other agencies.

Your bank may not offer to buy your account receivables outright, since they’re not in the business of purchasing debt, but there are a number of agencies and online sites where you can find someone to take those unpaid invoices off your hands. What you want to do when shopping for this type of loan is to seek out the highest percentage of debt that factors are willing to offer. They won’t pay dollar for dollar, so don’t waste your time asking, but some will give eighty or ninety cents per dollar if they can see a strong likelihood of receiving prompt payment.

History of Factoring and Accounts Receivable Financing

The practice of buying someone’s debt in return for cash goes back to pre-colonial England, when merchants would sell their invoices in return for cash to pay workers and finance trade ventures. Since many of these merchants ran small operations, the credit worthiness of their buyers was evaluated before the money was given. Just as it is today with smaller companies selling goods and services to larger, more credit worthy companies, back then the merchant himself couldn’t get financing unless he had firm commitments from larger distributors and retailers. This early form of accounts receivable financing loan laid the groundwork for what would become an invaluable source of financing in the late 19th and early 20th Century.

After the Civil War in the United States, new markets opened up with the development of what was at the time considered advanced technology. The invention of the cotton gin in 1793 had actually given merchants the tool they needed to mass produce textiles, but transportation methods were still primitive. By the 1870′s, steam engines and iron clad ships were making the world a smaller place and telegraph lines made communication much simpler. The industrial revolution began and once again small companies and independent merchants were selling goods and services to larger manufacturers and textile mills. Factors became popular again and banks began to issue their own version of accounts receivable loans.

Who are the Best Candidates for AR Financing Loans?

The small company with little or no credit selling to the large corporation with an established payment history is the best candidate for this type of loan. As more and more people are using the internet to strike out on their own, the banks see an increase in the number of applicants for this type of funding. Think of the independent programmer designing apps for iPhones or Blackberries. The company buying those apps will probably take a while to make payment for them, but their invoice is considered as good as cash by a financial institution because they have top-of-the-line credit. Take out a thirty day loan against those invoices and you’re looking at an interest rate of as little as.69% in some cases and a maximum of 1.59%.

Economic Roadblocks and Reasonable Alternatives

When the nation or the world is experiencing a period of rapid growth and a growing economy, the banks are more likely to lend money using the accounts payable financing loan option. With the situation being what it is today, you’ll have to show growth within your industry and present invoices that are going to established companies in no danger of going under. Many of the big players in the retail industry, once considered untouchable, have gone out of business in the last few years, victims of over-leveraging during a brutal recession. Banks and other lenders took a hit when those companies defaulted and they are being more cautious now as a result.

That is not to say that getting a loan is impossible. Look for short term schedules and ask for smaller amounts when you first start seeking this type of financing. If you have clients or customers who have been established for a while, present their invoices to the bank. They count as collateral. If your clients are relatively obscure and have little or no credit worthiness, try using your credit card sales numbers and ask for a merchant account cash advance. You might have better luck with one of those.

Copyright (c) 2010 Trey Markel

Land Financing & Home Loans

There are many things you need to know before applying for a home loan or for land financing. You can approach your local bank or any one of the many lending institutions available. This form of financing is great, as it prevents your money from being stuck until you can make enough to pay back the loan amount.

Home Loans

Home loans are required to finance the purchase of a residential property. There are certain criteria that need to be complied with to be eligible for a home loan:

o You have to be an Australian citizen or a permanent resident returning to Australia.

o A migrant or an employee on an Employer Sponsored Visa (temporary or permanent; most subclasses can apply).

o A migrant on a Permanent Skilled, Skilled Independent or a Skilled Independent Regional (Provisional) Visa (most subclasses).

o A non-resident of Australia can also apply if they want to invest in Australian real estate. You have to have an ongoing income from employment, investments/rental property or have other sources of income.

o If you are an investor, have Business Skill or a Talent Visa (most subclasses), then you can apply for a home loan.

o If you have a business in your country of origin or in Australia for the past two years, you are eligible.

The above listed criteria is only to check whether you are eligible for a home loan or not. If you are, then you will need to fill in the application form provided by the financial institute of your choice. Every institute has its own terms and conditions, which should be all right with you. Once you agree and fill out the form and submit it, the company will then consider your application. If it is approved, only then will you get the first disbursement of the loan.

Land Financing

Land financing is required by construction companies and landowners. There are two types of land financing available; let’s discuss these in detail:

Standard Draw Down

This land financing loan is for construction purposes. These funds are used for residential or commercial properties. The lender company will see if the planning permits, building contracts and stamped building plans are in order and allow the owners to apply for a loan. A construction loan advance is given to the maximum tune of 70 percent of the building valuation, although the norm is to take around two-thirds of the property value.

Land Development

These loans are to help the construction company acquire the land they will require for the construction. Also, the company requires funding for the development of the land before it can be constructed upon. Lenders give loans amounts which are two-thirds the land value. Approaching a lender before commencing construction, though, requires the submission of the stamped plans; fixed price building contract, permits and sometimes even the pre sales must be submitted. Most companies don’t offer such lending services, so please confirm and also enquire about their terms and conditions.

Residential Real Estate Investor Rehab Loans

Purchase Rehab Real Estate Investor Loan.

There are great opportunities for real estate investors in the market today. This is the best market for real estate investors in our lifetime. Unfortunately financing is not available as it has been in the past. There are options for financing purchase and rehab projects for real estate investors. Whether you are investing in commercial multifamily housing or residential investment properties there are lenders to finance purchase or refinance investor rehab projects. Since no secondary market for this type of funding exist, your deals will fall into one of two categories. Your deal will either be non conforming investor rehab funding or hard money rehab funding.

Non Conforming Real Estate Investor Rehab Loan.

Conforming real estate investor rehab loans do not exist. Conforming means there is a secondary market that will purchase these loans on wall street. The secondary market would have established criteria that all projects would have to conform to. Since this market does not exist the first category of loans are considered non conforming. Any non conforming investor rehab loan funded in this must meet similar guidelines to conforming mortgages. Whether commercial or residential these loans would meet the guidelines as all other loans except they require major rehab and are investment properties. This means the borrower, real estate investor, would need good credit, verifiable income, an ability to repay the loan, acceptable down payment and reserves, and higher licensed bonded contractors to do the rehab. The advantage to the non conforming real estate investor rehab loans versus the hard money loans is that the rate and fees are substantially lower. The dis advantage is that there are many more qualification criteria and it takes longer to get the financing. But if you qualify and have the time it may be to your advantage to get a non conforming rehab loan versus a hard money real estate investor loan.

Hard Money Loans.

Though the rates are much higher with points required from 4% to 10% hard money loans could actually be more profitable to real estate investors than non conforming investor rehab financing. First of all these loans generally fund in 2 to 3 weeks. Secondly, the qualifications are much less and therefore you can do more loans. You may only qualify for a hard money loan when you will not meet the criteria for a non conforming rehab loan. As such you have no option.

Qualifications to get Non Conforming and Hard Money Investor Loans.

Both programs require you to purchase property where the after rehab value is 65% or less. Both programs require you to have an acceptable exit strategy to pay off the lender. Non Conforming rehab financing programs will always require a down payment of at least 20% of the total purchase and rehab costs. Hard money rehab funding programs may or may not require the down payment. Both programs will make sure the contractor or investor has the experience and sometimes licensing to complete the project. So if you have the experience, property, exit strategy and assets you can make lots of money by purchasing and rehabbing investment property.