Business Finance and Credit

Business Finance and Credit

Rule #1 of a Business Line of Credit – Banks Finance Performance Not Vision:

As a business owner, you have probably felt the wrath of your bank’s credit policies and are still wondering what happened; or worse, still have a relationship with them on their terms! What you probably did not realize is that it has always been a one sided, unrequited relationship. The majority of business owners have little or no idea how bank credit works and how it can affect their operations. Unfortunately, business owner will constantly return to their banks repeatedly expecting a different outcome (definition of insanity).

Have you ever been declined for a business loan that you needed to increase or improve revenue? The cardinal sin of the majority of business owners is that they use a completely different matrix for finance than their banks. This is because the majority of business owners make two erroneous assumptions:

  1. A short term liability like a business loan is exactly like cash on a balance sheet
  2. Internal growth rate is a function of debt service

First, I will address number one. Have you ever heard of a company that “grew into bankruptcy”? Sounds counterintuitive but this is how it happens; Although an operating line looks and smells like cash to a small business owner because they can purchase inventory, make payroll, expand their business, etc; it is a liability! The bank knows this, which is why the finance performance not vision. They cannot accurately measure your financial condition without determining the ability to cash flow the debt you as a business owner are requesting from the bank. Business owners generally dismiss this because they treat liabilities like cash but neglect to acknowledge the drag they are creating on their business.

This leads to number two. Internal growth rate is the retained earnings of a business that also projects the ability to handle debt. This is what banks look for. If your projected growth is beyond the internal growth rate your company can handle, by definition you need external financing. What if you have a potential for explosive growth as the result of an improving economy? Refer to rule number 1! For a lack of a way to put it, banks do not care. They are more concerned about debt service and collateral and vision provides neither.

To be fair to banks, it is extraordinarily difficult to quantify their client’s operational capacities without underwriting performance. Performance is the matrix for banks because performance signals several things:

  1. Barrier to entry has been met
  2. Equity is more than likely build into the success of the business
  3. There it probably more collateral
  4. The businesses systems and operations are prove
  5. Core competencies are well defined

Therefore, a bank can peruse through the financial condition of the prospective business and determine their ability to debt service the short-term liability they are providing with depositors cash deposits who are expecting a guaranteed return on the money. The truth is, the cost of money from banks is very inexpensive however, it is many more time more difficult to fit within their credit box, which is why vision is not financed.

There are options but you need to be prepared to divorce your bank and find other financial products. Here are some very solid suggestions:

  1. Factor your receivables – It costs more but it is boundless. As fast as you can turn your A/R is as fast as you can have cash in hand to cease all the opportunity in your market. Even if you qualify for a business line of credit, that may not be enough to finance your growth and if you commit to this, refer to rule number 1. Always treat this as a method to find a new plateau for your business and once you have capitalized on the increase market share and growth rate is between 2-5% return to the bank.
  2. Finance your building with a non-bank SBA Lender – Non-bank SBA lenders are transactional lenders. They will generally subordinate soft assets like A/R and Inventory, which will allow the business owner to fully utilize all credit instruments to their maximum potential.

AIG – Their Corporate Silver Spoon and Tax Payer Dollars

AIG – Their Corporate Silver Spoon and Tax Payer Dollars

AIG, too big to fail, propped up with another infusion of cash from the coffers of the U.S. Treasury. $170 billion of tax payer dollars that is suppose to prevent a catastrophic disaster. Instead of being grateful and humble, AIG executives prove once again the disconnect between the high powered business world and the working world. No “we really appreciate your help”. Just more excuses to justify millions of dollars in bonuses for them. Perhaps it’s time to call their bluff and let them fail. By handing out bonuses, AIG and other companies who find nothing wrong with it, are creating an atmosphere that makes it harder for congress to justify and approve more money down the road that would be intended to help them. Why should they get more?

The inner workings of business and finance are being exposed as window dressings made out of money deteriorates. Companies left too long with no one watching the store. A domino effect that has left our economy shattered and hanging by a thread. High stakes greed created a whirl wind with the force of an F5 tornado that has swept down from the corporate headquarters wiping out 401Ks, leaving small business and regular consumers out in the cold and essentially shutting down our economy. All the while, the people who sent this economic mudslide roaring down the mountain arrogantly and greedily cash their bonus checks with a smug satisfaction of business as usual. So what if it’s tax payers dollars. They have contracts and the company dare not break said contracts over fears those who don’t pocket bonuses may leave. Where are they going to go? You can bet they won’t be flipping burgers at McDonald’s or scanning your cans of Spam at the grocery store.

We, the American tax payer, get it. We do understand what’s at stake, but that doesn’t mean we have to be happy about it. The companies we have been bailing out obviously don’t. We have been told the only way to save ourselves requires handing out our hard earned money to save the likes of AIG. Big businesses and financial companies who have lived high on the hog for so many years, they can’t see their toes for their inflated waistlines. Executives who think nothing of holding out a hand and expecting tax payers to ante up so they can continue their arrogant, extravagant lifestyles and business practices. All the while smacking the American people along side the head with the other hand. Instead of receiving bonuses, everyone who contributed to our declining economy should be fired. End of story.

AIG plans to award executives another round of bonuses. $165 million. For what? A job well done? If you are confused as to what constitutes a job well done; you aren’t alone. In the real working world, if you played a part in running the company you work for into the ground, you don’t receive a bonus. You receive a pretty little pink slip on your way out the door.

Where was AIG when the people of New Orleans attempted to collect on insurance policies underwritten by AIG after Katrina pounded the city with Gulf Coast waters? The people who dutifully paid their monthly premiums with a guarantee their property would be protected. We have gotten use to hearing how insurance companies aren’t there for policy holders after a natural disaster (hurricanes, tornadoes, forest fires). Every trick in the book is dug up in their attempt to break their contract to policy holders. Yes, it is a contract. We pay you each month for protection. You take our money agreeing to provide said protection. That’s a contract. AIG, among others, didn’t seem to have a problem trying to scheme their way out of paying on claims after a storm of the century. Yet, they can’t figure out how to break a contract to reward bad decisions that brought their company to their knees. That’s because they don’t want to.

AIG justifies the intended bonus payments by assuring the government they will scale back 2009 bonuses by 30%. We are told these bonuses have to be paid because of legal obligations of the company. What about moral obligations to the country and their shareholders? Rewarding failed leadership demonstrates AIG’s lack of understanding and only accentuates what appears to be fat cat greed regardless of job performance. One of several companies, who are now considered to be too big to let fail. Companies who rejected and lobbied against oversight from outside sources. Some of the very people who helped create this pot of boiling goo now expect their contracts to be full filled come hell or high water.

Edward Liddy, AIG Chairman and CEO, saysthat if the company doesn’t honor their agreement to top executives, they will have trouble attracting and keeping the best people in the business. If these executives are the best, why did the company fail? Why are they asking us for our money? Liddy complains his employees would be concerned the government will interfere with and limit bonuses. He contends this could be detrimental in retaining qualified executives. If AIG had failed and the executives had lost their jobs, would they still have walked away with millions of dollars in bonuses? Would AIG have honored those contracts then? Contracts are broken all the time. The auto workers were forced to renegotiated their contracts in order to receive bailout money. Why not AIG executives?

The American people know how to sacrifice. When money is tight, the last thing you do is buy expensive furniture while remodeling or go on a fancy retreat or vacation. We don’t have a cash cow that will bail us out and our only option is to hunker down, cut costs and wait for the storm to pass. We now have companies and banks who are in an elite class where the common wisdom is, these mega corps are too big to fail. Perhaps we should take our lumps, let them fail and come out on the other side with smaller, more manageable companies once the dust settles.

Bad Money Habits We All Need to Break

Bad Money Habits We All Need to Break

We all know the news. We are in a recession. Times are tough. We need to buckle up our wallets and learn new money and finance habits. But it can be hard to break the normal spending cycle.

Here is a listing of all money habits we all need to break, starting today and some tips on how to do just that.

Living without a budget.

You have heard all about budgets for years now, probably. But have you ever wrote up one for yourself?

It really isn’t that hard to do. You just gather your bills, estimate how much you need a month or week for things like food, gas, clothing, misc items and get to work. Of course, if you are self employed or have an unsteady job, this can be harder to work out than the person with the normal weekly pay check.

Learn to buy without plastic

Credit cards are bad. Well, actually it is those interest payments on those credit cards that are bad. How can we break the habit of not using them? It is simple. Leave them at home.

Yet, do remember if you can, it is nice to have an open credit card account in case of an emergency. Just don’t carry the card around with you or you may talk yourself into thinking that cool pair of spring jeans is an emergency, a fashion emergency.

Saving only at a set time

Some people will tell themselves that they will set a budget and spend only what is listed. Then whatever amount is left over is what they will save for that month. What happens? Most months nothing is left over and nothing is saved.

A cute trick some people have been using is by saving their change or even their one dollar bills (if their budget will allow) and keeping it in a jar. Weekly, they will take this amount to the bank. How do they acquire change? If a purchase is $3.12, they will give the clerk a $5.00 and put the remainder in their pocket. That night the change goes into their savings jar. The next tip is to leave the jar alone, as well as the savings account and allow the amount to grow.

Skip the ATM visit

Okay, you say but I am doing it smart. I am going to the ATM’s where I don’t have to pay a fee. Yet, are you really playing it smart? You are taking money from your savings or checking account, not allowing it grow.

Skip those trips as much as you can. You may be able to do this if you planned that budget, stick to it and no emergencies occur.

Read your credit reports

Make this a habit that you do three times a year. Go to and get your reports for free. Each credit bureau will allow you to see your report once a year for free. Every three months, check one. Three months later check another one. This way you are continually monitoring your credit and it is free.

Pay those bills on time

Those late fees can really add up.

Buy yourself a notebook and a calendar. Now write down when each bill needs to be paid. Each week check your list and mark off the ones you pay.

Of course, the little things such as: watching for sales, looking at the sales ads, never go to the grocery store hungry, clip coupons, watch for rebates and all of these types of tips can help as well. You may even learn some money saving tips from a friend or relative. Don’t be afraid to ask if you think you know someone who is financially secure, how they do it.


A Secure Financial Future Starts in Your 20s

A Secure Financial Future Starts in Your 20s

The importance of adapting a habit of budgeting and saving in your 20s can not be emphasized enough. Some of you are preparing for life after college. Others of you have already embarked on that journey and have begun to realize the importance of managing your money.

First, you will need to establish a budget. Become familiar with your monthly expenses. Write them down. Subtract your expenses from your income. What’s left over, assuming you are not over spending, is the only money you have for entertainment, date night, shopping, etc. With this being said, take a second look at your list of expenses. Any expense that can be classified as an entertainment or luxury expense does not belong on your list of monthly expenses. Monthly expenses are those that you can not live without. Ladies, hair and nails are not life or death necessities. And guys, be creative, she will like you the same.

Now that you know what your expenses are, let’s identify ways to scale-back on those expenses to find extra cash. Look at in one of two ways. One, if you cut-back on your monthly expenses you’ll have more money each month for entertainment and luxury expenses. Two, you can cut-back on your expenses and contribute to a savings plan, which we will discuss later. Either way, you are proactively managing your money and in charge of your financial house.

Practical ways to start saving:

  1. Save on textbook costs:

– Buy used textbooks (visit

– Rent textbook

– Sell textbooks back to vendors when the semester ends

  1. Find a roommate or two

– Rent out your apartment for the summer while you are away on vacation and make a profit, or stay in town at a friend’s or with a relative (search online for trusted companies, e.g.

  1. Stop shopping for a while

  2. Lower cable expenses:

– Cancel premium channels

– Switch to basic cable

– Shop other providers for the best deal

– Switch to Netflix for $7.99 a month and watch unlimited movies with your game console or other devices

  1. Stop eating out:

– Grocery shop at discount stores (Walmart, Dollar General, etc.)

– Join Costco or Sam’s Club and buy in bulk (with a friend if necessary)

– Use coupons (www.

  1. Cut cell phone rates:

– Lower monthly rates by switching to a different plan

– Get rid of the iPhone and save $30 a month on data package

РSwitch carriers (T-Mobile, Boost, and Virgin Mobile all offer low unlimited text  amp; talk)

– Cancel home phone service

  1. Cancel gym memberships:

– Join a local team

– Borrow a friend’s or neighbor’s bike, rackets, etc.

– Try local yoga, dance, and karate centers. They allow you to pay only for the time you use the facility and offer discount packages

– Check out the YMCA

  1. Take public transportation:

– Save on gas

– Eliminate cab fare

– Get rid of parking expenses

  1. Lower car insurance premiums:

– Shop for the best rate

– Pay up front and save 10-15%

– Car owners can downgrade to liability coverage and keep the car parked and take public transportation (you will save on gas, insurance and parking)

If you have identified two or three ways to cut-back on your monthly spending, you have the potential to save hundreds each month. The general rule of thumb is NOT to spend more than 65-70% of your income on living expenses, 15% on entertainment and extra expenses, and put 15% towards saving and retirement. Divide your income into these three categories. Later, we will discuss opening bank accounts to reserve your money, but for now, you can use envelopes. Write “expenses”, “savings” and “entertainment” on the fronts of these envelopes and set them aside. When you receive income, decide what percentage of that income goes into each of these envelopes. The money in each envelope is the money you have to support your lifestyle. If there is not enough money in “living expenses” to cover your rent, utilities, food, transportation, etc., you are living above your means and will need to consider adjusting your lifestyle.

Assuming you have established a budget, identified ways to scale-back, are allocating your income to categories, and are living within your means, it’s time to establish accounts where you can safely put your money aside. It is a good idea to use your checking account for reoccurring monthly expenses and a separate savings account for short-term savings. Open a brokerage account for long-term savings. Link your checking and savings accounts to avoid overdraft penalties. Set-up automated bill pay to avoid late fees and mobile alerts to let you know when balances are low. Set-up an automatic savings transfer from your checking account. And avoid ATM fees. By taking these steps you can shift your focus to ensuring you have regular income and are consistently making deposits into your checking account.

The wheels of financial security are turning, but the buck does not stop there. Save at least 3 months living expenses and keep this money in your short-term savings account. Schedule a weekly, bi-weekly, monthly, or quarterly automatic transfer from your savings account to your brokerage account. Let these funds accumulate while you do your homework. Research Certificates of Deposit (CDs), Individual Retirement Accounts (IRA), and Money Market accounts. Speak to a representative at your financial institution for advice on which type(s) of account(s) is right for you and start investing in your retirement.

In order to achieve financial security, you must first learn to live by a budget. It is important to establish the categories referenced above and allocate percentages of your income (daily, weekly, bi-weekly, or monthly) each time you are paid. It is equally important that you do not co-mingle funds or exceed the amounts allocated to each category. It does not matter who you are or what your current situation is, it is important to establish a habit of planning for expenses and saving. These are the first steps to a promising financial future.