Financial Products 101 Overview

Confused by all the lingo and terms concerning the various financial products? Not quite sure which product is best for you – equipment lease or working capital loan? What are the requirements for each product and are they etched in stone? Read on for a quick lesson on 7 financing products for your business or church.

SBA Loans – Loans guaranteed by the Small Business Association, but provided through your local or national bank. The guarantee is for the lender, not you the borrower. Current approvals (up to $2M) given for purchasing an existing business, partner buyouts, real estate transactions, medical professionals. Borrower generally needs 620+ credit score. Individual lenders determine which transactions they are willing to approve and specific requirements.

Equipment Leasing – Used to acquire equipment considered essential to your business. Must provide vendor estimate/sales quote for requested equipment as funds are forwarded to vendor for payment, not borrower. Borrower can own equipment at end of term or lease new equipment. Two years TIB generally required, some start-ups may qualify. Minimum 620+ credit score generally required. Lease payments can be considered business expense and often used instead of paying large upfront amount to outright purchase equipment.

Sales Leaseback – Current owner of equipment agrees to sell their equipment to lender and make lease payments to secure working capital funds. Equipment must have large secondary market; equipment deemed too specific has limited market and not a good candidate. Equipment should be relatively new, less than 18 months. Borrower must submit equipment listing that details equipment specifics offered for sale to determine value given for leaseback. Each piece should be valued over $25,000. Generally good credit expected on borrower.

Account Receivables Financing – Also called factoring, increasingly popular form of obtaining line of credit, based on your average monthly receivables. Great way of obtaining operating capital without having to wait for your customers to pay. Approvals weigh heavily on the quality of your receivables, not as much on your credit. Receivables generally should average minimum $25,000 per month. Once approved, 60-80% of receivable is advanced to borrower after customer is invoiced. When customer pays factoring lender, the balance of invoice, minus processing fee, is forwarded back to borrower.

Working Capital Loan – This is a true loan product, reported on your credit report. Approvals generally based on overall cash flow availability (average bank balance and average credit card processing) as well as credit history. Credit score expected in 620+ range, average balances in $5,000 range. Approval amounts up to $100,000, repayment up to 12 months. Once approved, loan can be used for almost any purpose. Renewals are possible once initial loans are 80-90% repaid. Rates generally lower than merchant cash advance. Funding usually complete in 7 days.

Merchant Cash Advance – Cash advance is forwarded to borrower based on last 6 months of credit card history. Credit is not as important, but should be 500+ with no recent bankruptcies. Merchant generally must process $8,000 minimum per month – Visa, MC, AMEX and some lenders include debit card processing as well. Cash and check amounts are not affected. This can be an expensive financing product, best for those in need of quick funding, generally with no other options for securing money. Operating capital can be used for almost any purpose. Funding usually complete in 7 days. Seasonal businesses may need to submit 12 months of merchant statements.

Church Financing – equipment programs available for new and established churches. Can fund chairs, pews, audio-visual equipment, almost anything needed for the interior of your church. $5,000 minimum request, requires personal guarantor with 600+ credit. Equipment sales quote from vendor needed as payment is made directly to vendor for equipment. Church addition/construction loans also available, generally require $300,000 minimum loan request. Church financial and bank statements needed for review prior to approval.

Now you have a quick starting point to help determine which financial products best suit your needs. Be sure to be honest and upfront regarding all aspects of your financial situation when discussing and submitting your application. Credible lenders will complete due diligence activities and your request may be declined for lack of full disclosure.

New Life Settlement Legislation Could Set Stage for Other Financial Products

Texas Governor Rick Perry passed the nation’s first Medicaid Life Settlement law on June 14th. The law allows seniors applying for Medicaid to sell their life insurance policies for significantly larger amounts than the cash surrender value without adversely affecting their eligibility for Medicaid.

While seniors will be able to gain access to their money and pick the long-term facility there is huge opportunities for states to receive savings in Medicaid costs.

Previously seniors applying for Medicaid would surrender their policies in order to become eligible and spend the proceeds. Under the new law, life settlement proceeds would go straight into an account used solely to pay for long-term care. The legislation would not allow seniors to spend their settlement money on frivolous items.

Medicare/Medicaid costs are going to continue to increase as our population ages. These costs are then passed along to the state and federal government who are dealing with reduced revenue and budget cuts.

If the government continues these programs without any significant policy changes there were be significant financial consequences. Currently federal tax revenue is used primarily to pay interest on current debt, Medicare, Medicaid and Social Security. Which means a third of the federal budget will have to be financed in order to pay for other programs as well as defense. Unfortunately, the taxpayers will ultimately pay with increased taxes, reduced services and other economic woos.

Similar legislation is being introduced in New York, California, Florida, Kentucky, Louisiana, Maine and New Jersey.

The Texas legislation would ulimately save Medicaid $20 million a year, according to According to Michael Freedman, a lobbyist for life settlement company Coventry First LLC. If other states follow Texas’ lead the savings could make a serious fiscal impact.

“If life settlements and their potential for cost savings are any indicator, many states may adopt similar legislation for seniors with structured settlements and annuities applying for Medicaid,” said James Goodman, Co-Founder of CBC Settlement Funding.

If similar legislation happened in the annuities market, this could adversely affect Medicaid complaint annuties and their effectiveness.

It is currently unknown of any additional states are considering similar legislation or if states will consider introducing legislation for seniors with annuities.

Introduced in 1965, Medicaid is a health program designed for US citizens and permanent legal residents with low incomes and limited resources. It is the largest source of funding for medical and health related services nationwide and implemented on a state level.

The Best Financial Product Ever Created – Credit Cards

It has dawned to me that people have taken for granted the use of credit cards. One day, I was in a bank and the person standing in front of me was complaining to the bank employee. He insisted that he has received a pre-approved card and wants it to be returned and deactivated immediately. The bank employee simply explained that being a valued customer, the bank has chosen him to receive a pre-approved gold card. The bank employee further explains that the card was free from any annual fees for the first year. If he ever so decides that he doesn’t want to use the card, he can simply discontinue or have the credit card cut. But the guy insisted that he wants to return the card today and have it deactivated immediately. He explained that he had heard a lot of stories people drowning in credit card debts.

As I was standing behind him, I couldn’t help myself but be sad for this guys situation. He was given something wonderful but he thinks and focuses that a Credit card is something evil and it would probably bring him enormous debt that he wanted to disposed of it right away. I believe credit cards is the exact opposite. These so called “plastics” were made to make life simpler, convenient, and give us opportunity to spend in cases of emergency. Although some consider them to be a double edge sword, it’s actually our knowledge and discipline that needs to be checked when using it. A few tips on how to they should be used:

1. Use your Card to pay for something that you already have cash to pay for. Instead of carrying your cash every single day, you bring along with you your credit card for convenience. But never pay for something or a service without setting aside the cash to pay it off when your due date arrives. Once you start using a Credit Card expecting NOT to pay the full balance in it’s due date, that could be the start of accumulating credit card debt.

2. You can actually extend the number of days of your due date. When you will receive your billing statement which usually arrives 2 weeks before your due date to settle it, you can actually start using your credit card at that time. This would mean that those purchases you made right after you receive your billing statement for that month would mean that it would be included in your next cycle of billing. This would mean you have extended the number of days till your next billing due date.

3. Don’t completely think that these cards sole purpose if for purchasing things that we need. These cards can actually be used a source of funds for business. Let us say you have a friend from another country who is looking for a laptop. It so happen that laptops in the United States are typically much cheaper compared to the other countries. So you intend to buy one and sell it off with a small markup to your friend. Instead of putting out cash you can use your card to purchase it, travel and sell it to your friend, come back and probably that would just be in time for you to pay off your Credit Card bill. You can even purchase that item by amortizing it and paying in small amounts monthly while you sell your item and get paid with the full amount in cash.

There are really a lot of advantages of using credit cards that’s why I would certainly consider this to be the best financial product ever created. Just have discipline in using this wonderful product and not fall into a Credit Card debt.