Tax Refund vs. Eligible Income

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With Tax Time soon approaching, we feel obligated to remind you of our continued advice about the best methods to prepare your tax returns if you plan on applying for Business Financing in the future.

With Trevor’s 30 years as a Mortgage Loan Officer, he saw this time and time again. While the tax professionals and CPAs might do a marvelous job of getting a Self-Employed Business Owner a GIANT REFUND (or simply lowering the tax bill) these folks never seem to have a discussion with their clients about the long term ramifications of such deductions/lowered income.

The “look back” period to qualify for a mortgage is 2 years; for a business loan of any type, it’s 3 years. That means the Lender will take those “Bottom line” numbers and average them for the time period in question (2 or 3 years) and create a qualifying income. When Schedule C shows a loss or minimal income over the time period, well, do the math. It ain’t pretty.

For a Self-Employed Borrower with a Schedule C (including many LLCs), lowering the net income on Line 31 by deducting oodles of expenses lowers the potential loan. IRS does not “require” anyone to deduct expenses; this is an “option” which helps to lower tax liability. BUT it also reduces a Borrower loan qualification by lowering income.

Whenever you complete a tax return you don’t have to deduct expenses! This feature of a tax return allows you to lower your tax liability.

BUT IT ALSO LOWERS YOUR INCOME.

And for any Loan you may request in future (up to three years later) the Lender will use that bottom line income to calculate your qualifications.
Take extreme care and think long term strategically before making a final decision on a tax return.

Be sure to watch our YouTube video about the “LOOK BACK” period!

We are scheduling FREE 15 Minute Phone Consultations to review disaster financing eligibility and qualifications.

Submitting documents to SBA

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If you’re submitting documents to the SBA, you’ll  need to do it the RIGHT way to ensure a smooth process! Here’s our advice (based on Trevor processing loans for over 30 years) on the best way to submit documents:

1. PDF ONLY. No photos, no other file types. With the volume of documents and applications they’re working on, SBA Loan Officers simply do not have the time to convert your documents to PDF. They’ll probably set it aside until they have time.

2. Separate PDFs for separate documents. A PDF of a voided check should be separate from a PDF of a photo ID and etc. When SBA has to separate your documents from a single PDF it slows down your entire process.

3. Label the PDF on your end. For example of a labelled PDF: “COMPANY NAME YTD Income Statement JAN 1 to SEP 30 2020” or “COMPANY NAME Voided Check”

4. List the documents you’re submitting in the body of the email. For example, SUBJECT LINE: “Company Name: Documents submitted DATE”. Then, in the body of the email: “Attached to this email: YTD Income Statement JAN 1 to SEP 30 2020, Voided Check, Photo ID”

5. We recommend using the NOTES App on your iPhone to scan documents. Ridiculously easy.

6. BEST Scanning app of all: “ADOBE Scan” which you can download to your smartphone from your respective app store.

7. When scanning with your smartphone, keep the document within the scanning borders. Most often the scanning app will give you a highlighted “border” for the document.

8. Always scan documents on a flat surface and scan straight, not slightly tilted.

Watch our WTF Wednesday video where we discuss why these are important.

Schedule a FREE 15 minute call to review any complications you’re having with your disaster loans.

Frustrated with Calling the SBA

We know how frustrating it is to spend time and energy following up with the SBA on the status of Your EIDL loan or Reconsideration request!

We’re sharing our experiences from having worked on dozens of EIDL loans and our interactions with SBA Agents. We want to you to know you’re not alone in your frustration, but also to help you to understand how the system works.

1. WE LOVE SBA AGENTS! Every call we experience an SBA Agent who is very professional and eager to help business owners obtain the EIDL financing they need to survive this pandemic.

2. SBA Loan Officers are, to quote an SBA Agent, “Working 15 hour days” on loan requests and reconsideration requests.

3. Okay, once you understand the value of the intrepid SBA Agents and how enthusiastic and hard-working they are, let’s discuss the frustrations of follow up.

4. We did a video on “How To Speak With An SBA Agent” we recommend you watch that for tips on how to make your follow up call.

5. Next, know that SBA Agents don’t always have a complete picture on your loan status. Their system has notes about your file’s progress with “Codes.” We don’t know what those codes are, but let’s hypothesize that a typical code could be something like this: “9837: IRS Form received” or “9822: Email sent to Applicant”.

Trevor has seen coding like this in his previous career as a Mortgage Banker. It’s an efficient way for a system to track the progress of a file.We’ve spoken to a couple of Agents who told us they don’t know what some of the Codes mean when a file is in the Reconsideration system.

6. Apparently, the Reconsideration Team works like a “Black-Ops” enterprise. SBA Agents can’t speak with them and their Codes can’t be deciphered by the SBA Agent you call for a status.

7. Beware of general statements made by an SBA Agent such as “Reconsideration processing times are 5-6 weeks.” Another Agent told us that is not true; she’s seen Reconsiderations take substantially longer. She said the other Agent should never have made that statement. Moral of the story: Take anything an SBA Agent says on general matters with a grain of salt.

8. Don’t think you’re going to call and get very clear guidance. The SBA is STILL overwhelmed with the number of new and Reconsideration requests. There’s a lot of moving parts, a lot of confusion, and long waiting times.

9. Remain consistently vigilant, and always polite. Check in regularly on your file. You won’t always get a definitive answer, but once in a while you might discover the SBA sent you an email that you didn’t know they sent! We’ve seen that happen…the email was sitting in the client’s spam folder. Other times, no such email was received. Moving parts. Confusion. Not quite controlled chaos.

10. Patience is a virtue. We know you need this money to help you survive this pandemic. We know the SBA is working diligently. We also know that sometimes some folks in an organization (Bank, SBA, etc.) get a file and it sits there waiting its turn because that person in the organization is overwhelmed, confused, slow, or, maybe, just maybe, even lazy. Think of the real world and how folks work in your business; the SBA is no different.

Contact us with questions or maybe with some good news you’ve experience contrary to our unabashedly vocal disappointment.

Schedule a FREE 15 minute call to review any complications you’re having with your disaster loans.

Small Business Must Roll the Dice

This comment in an online forum about SBA EIDL loans says it all about two key concepts:

“…who knows what this winter is gonna be like here so I’m afraid to give it back yet.”

The business owner has EIDL monies left over and had considered (oh so briefly) prepaying the loan with the remainder of the monies. And then the new surge hit.

Concept #1: Utilization of EIDL monies as a way to replace lost revenue for working capital due to the COVID-19 pandemic. There is no finish line; no concrete timeline; complete uncertainty.

If you have not used all your EIDL monies, we recommend holding on to the funds through the coming months. You want to have a better understanding of a “diminishment” of the COVID-19 pandemic to such a level that there’s no fear of upcoming possible lockdowns where you have to close your business. Likewise, to know there’s no upcoming lockdowns to gauge if you will have customers coming through the door.

Concept #2: “who knows what this winter is gonna be like…” speaks to the SBA’s continuing failure to recognize the drastic difference of this disaster from all “traditional” natural disasters. The EIDL processing guidelines and the Loan Agreement and the lack of clear, unambiguous guidance on how to use the monies from and EIDL all need to be addressed by the Administrators of SBA.

We’re eight months into this pandemic; that’s more than enough time for this Federal Agency to have created at the very least some better guidance on how to use the monies beyond stating, “Working capital” in the Loan Agreement.

Business owners are terrified to use the funds incorrectly, many of them saying, “I don’t want to go to jail!” This is absurd.

SBA! Please, please, please, we are begging your Administration, recognize the unique features of the COVID-19 pandemic disaster and modify your guidance for EIDL funds so that business owners can use the money without fear of contravening the terms of their Loan Agreements!

We’re all holding on out here for this disaster to end. We’re all holding on out here, trying to survive and keep our business’ doors open. We’re all holding on for more detail from SBA and a resiliency to the fact this disaster is like no other disaster in American history.

Contact us with some good news if you are in a position to know what is going on in the background of this nonsense.

Can I Apply For Another EIDL LOAN?

We received this question on Twitter: I already received an EIDL loan. Am I eligible to apply for another?

The Economic Injury Disaster Loan (EIDL) PROGRAM was created for individual disasters. For example, this month it may be a tornado in Ohio county. Two weeks from now it could be a flood in the state of Mississippi.

COVID-19 created its own unique disaster. The Small Business Administration (SBA) responded by offering an EIDL loan for the pandemic. If you haven’t yet applied for an EIDL loan, the deadline for new application is December 31, 2020.

We make this distinction because we want to answer this question accurately. The fact is you can apply for  multiple EIDL loans according to the SBA as long as they are for different disasters that have affected you.

In other words, if you received a COVID-19 EIDL loan in April, but your county was affected by a tornado in September (and it’s declared a disaster area), then you can apply for another EIDL for the tornado disaster. We confirmed this last week with the SBA.

You cannot apply for more than one EIDL LOAN for the same disaster. However, the SBA has a provision for up to two years after the disaster, you can request additional funding above the amount of your original EIDL loan.

Leave a comment below and let us know if this is helpful and what other disaster financing questions you may have.

Summarize your Finance Package

Summarizing your finance package can help to prioritize how your banker reviews your financing request.

We recently submitted a client’s financing request to one of the Lenders on our lending matrix.  Our Lender Rep. said, “Holy cow, you guys are on top of it with your summary. Not many brokers make it this easy to review the package.”

We made it easy because the client provided us with their financials. The financials were comprehensive. It’s a multi-million dollar corporation and we’re at the early stage of presenting to the lender. We want to show something that’s easily digestible. We want to ease  the process for the lender to give us a prompt review and tell us their interest in offering the financing.

Summarizing your financials is easy to do.  When you have a lot of line items that lead up to one type of deduction or one type of income source, simply summarize it. Drop it down to as few lines as possible so the lender can do a quick review and say,  “Okay, I see the picture here.”

The Lender doesn’t need to know the granular line-by-line details at this early stage; you want the Lender to give a fast review to gauge their interest. If the Lender expresses interest and offers a Letter of Intent for the financing, you can present the more detailed financials with your full loan application package.

For each client financing request, we write a summary statement. We present a one or two page statement describing some background on the business, the reason for their financing request, and, in bold, large font, the amount of our financing request.

Our presentation package for the initial Lender review is compact, yet complete.  The “first glimpse” by a Lender is sufficient to tell us if that particular Lender is the right fit for our client’s request, or if we need to locate a different Lender.

If you’d like a copy of our Documents Checklist, click HERE.

If you have questions on the best way to present your financing request to a Lender, email us at Curious@AuroraConsulting.biz and we’ll be happy to provide advice.

Four Metrics to Monitor for Profit

To monitor your bottom line profit you need to put some fundamentals in place.  Once those foundational elements are implemented, you next need to create a monitoring schedule to check in on your profits.

Again, we’re not suggesting anything that is revolutionary in the world of running a business.  But we’re presenting these suggestions based on our real world conversations with business owners as we interview them to begin searching for credit financing solutions for their businesses.

In other words, as obvious as this advice might seem, we’ve encountered many business owners who don’t have these fundamentals in place for their business. If they do have these building blocks established, we discover their systems for implementing and monitoring are only one step removed from “back of the envelope” calculations.

We want you to do incredibly well with your business!  We’re presenting this obvious advice to help you organize these basics in a way that you can almost say to yourself, “Set it and forget it!” This leaves the system in place and removes so much anxiety and impatience from the day to day operations of your business so you can dig in to the two things that count most: loving what you do and building your business to even bigger scale!

The 4 fundamentals to measure profitability.

Timeline.  What is the sales/production cycle for your business?  Create a realistic expectation of when the cash hits your bottom line by reviewing your past three years performance.  Look at your previous cycles.  Calculate the turn times on when you delivered your product/service, and when you realized the cash injection to your bottom line.

Production Costs. While your production timeline might be, for example, three weeks, you must ask yourself if any production costs linger after the production cycle.  Are there delayed payroll expenses?  Are there residual expenses for cost of deliveries (freight costs, internet marketing costs, re-tooling expenses for next production run, Accounts payables to outside vendors necessary for the production cycle)?

Receivables.  Review your Accounts Receivables aging reports for the past three years. What is the true timeline when you receive better than 90% of the cash income from your receivables after you’ve sold your product or service?

Delays.  With each of the above three fundamental criteria, add a percentage variable to account for delays. What happens if there’s a slowdown in your ability to deliver your product/service? Add that into your calculation. Same for cost overruns that could lead to extended time periods of production costs

(What if your current freight delivery provider can’t manage the extra volume of a large order and you need to bring in another provider? What if you needed to add three more freelancers to complete video/content/production or implement design elements?) 

Same with your receivables. Assume the worst for your slower paying receivables and add delayed payments to your calculations.

Time To Check Your Profits.

Once you implement the above four fundamental monitoring elements, now create a schedule to check in on your profits.  Get it in your calendar!  Lock the door!  Give yourself (and your management team) time to focus solely on this aspect of your business.  No interruptions, and answer the question: where do we stand with profit?  If you’re profitable, what’s your bottom line number and does that match your expectations from your Business Plan?

Throw in the additional calculation: margin. Compare profit to expense. On a per product/service delivery price, what is the exact percentage in your profit column?

In the final analysis, literally, you’ll have a clear understanding of your profit.  When you comprehend in clear terms how you derive profit for your business you can then think about how to improve profit.  You may find yourself discovering new opportunities for profit centers and thus new products/services.

You may be pleasantly surprised that you’re more profitable than you thought you were.  Then you can decide what to do with that extra income, to plow it back into the business, to create cash reserves, maybe make bonus payouts to ownership, make charitable contributions, or take a vacation!

Again, what we’ve found is that many business owners lack a clear picture of their profitability in terms of hard numbers, metrics that you can see on your computer screen.

These fundamental systems may seem daunting in terms of the investment of time and money to implement, but, like any other feature of your business, once you’ve put them in place, not only will they help you with clarity of your profitability, but you’ll only need to tweak these existing systems in years to come as you grow your business by leaps and bounds!

Email us with any feedback, especially any solid “fly by the seat of your pants” stories.

3 Metrics to Watch

We find business credit financing solutions for business owners.  We also find that many business owners hold anxious trepidations about the concept of borrowing money.

Yet, the need does arise for working capital to continue to grow your business success story.

Whether the working capital need is unexpected–due to an unusually large order from a customer, a seasonal downturn in revenues, or a sudden opportunity for growth such as purchasing a competitor–or a planned requirement such as equipment purchase or investing in a new marketing plan, your business will need capital to grow.  Unless your profit margins or cashflow planning have created a massive pile of cash for just such a capital expenditure, you’ll need to go outside your company to find that money.

The alternate choice to credit financing is to bring in capital from other equity sources.

Refinance your personal home or leverage your retirement accounts and bring in the required capital.  Sell off valuable equipment, ideas, collectibles.  Bring in an equity partner.   We’ve pontificated at length about the last option…do you really want a partner who may wind up telling you “how to make the pizza?

There are many reasons why choosing equity sources for capital infusions are bad for you personally and professionally.

Yet, too often this is the path chosen: equity sources.   Business owners go down this path for several reasons: time-constraints to obtain the capital; anxiety around the idea of borrowing.

Credit financing to obtain working capital doesn’t have to frighten the heck out of you.  At Aurora Consulting, we understand the worries that come along with borrowing money: “What if there’s a downturn in my business and I cannot repay this loan?”

Especially after the global meltdown and subsequent recession of a dozen years ago, lingering fears and doubts remain laced through our economy and our economic thinking like clogged drainpipes during a sudden torrential downpour.  The water has to move, and move quickly, but the remnants of various and miscellaneous flotsam and jetsam are jamming up the pipes and the rainwater backs up causing all kinds of other problems.

The same is true of these lingering doubts about borrowing money.  Credit can be a good thing and nothing to be fearful of when approached sensibly and when the credit terms are incorporated into your business planning.

Still, these worries hang on.

We’ve come up with the concept of 3 important business metrics you can keep an eye on after you’ve borrowed that needed working capital.

Remaining vigilant on these metrics can help you avoid a sudden negative revenue issue which could lead to default on credit obligations.  While it may seem obvious to you that these are the metrics ANY business should constantly monitor for maintaining profitability and continuing growth, as with all advice and observations we provide from Aurora Consulting, our real-world experiences demonstrate these ideas are not so obvious to every business owner.

What is obvious is worry and anxiety.  Thus, our presentation of these not-so-revolutionary-ideas.

  1. Profit margins: pricing and expenses
  2. ROI: products/marketing plans/infrastructure/product development
  3. Customer Retention/Construction

Monitor these important metrics by maintaining your financial reporting to the most current and efficient methods.   We often see businesses with financial statements such as P&Ls and cashflow statements that are not up to date.

A balance sheet isn’t just for your CPA to use when you’re filing your tax return!

And the ever important marketing and business plans?  Wow, we are constantly shocked when we request these vital documents from our clients to include in a financing request package only to be told they don’t have one!

Creating and maintaining these financial reporting documents is incredibly easy with the sophisticated computer applications available, even for your smartphone!

Making the time to check  in with them is another thing altogether.  We sometimes feel as if our clients present us with financial statements and they haven’t reviewed them, recently, or ever.

That’s why we suggest you at the very least monitor these three important metrics on a constant and vigilant basis. WHY?

First, it’s good for the overall health of your business.
Second, you will find you can anticipate challenges and successes before they arise.
Third, you can plan for those challenges and successes well in advance and avoid nasty surprises and cashflow chokeholds.

Finally, and best of all, you can lower or maybe even eliminate altogether your anxiety and fears of credit financing capital to grow your business.

REACH OUT to us and ask us anything whether you agree or disagree. We would love to hear of the “fly by the seat of your pants” stories too!

The Truth About Credit “Repair”

The most fundamental truth and reality check is this: a consumer cannot “remove” an account that is legitimately your account that is showing on your credit report.

While the account may appear to removed during the dispute process on the report provided by the credit bureau, the reality is that account is most likely to return to a credit report at some time in the future because it’s your account.  This is true whether it’s a positive or negative account.

In other words, if that account was truly yours to begin with, it’s going to reappear at some point on the credit report.  The confusion arises from the dispute process. During the dispute, the credit bureau is required by law to remove the disputed account from the credit report while they investigate the validity of the information with the original creditor.

Often, the bureau provides an updated report showing the removal.  And the investigation process, required to be only 30 days by law, often takes longer. Thus, the credit bureau “extends” the 30 day investigation period, and representing to the consumer that the information has been removed during the investigation.

This is the part where you need to pay attention.

This is one of the major frauds of the entire credit repair concept.  Once the credit bureau receives the accurate information from the original creditor, that account goes back onto the credit report.

A credit report can only be “repaired” to the extent that incorrect information can be amended to accurately reflect:

  • Correct status of an account (such as paid)
  • Removal of a duplicate account (often happens when a minor discrepancy in account balance or account number is reported by the creditor)
  • Removal of an account from a family member with the same name that appears on your credit report (John Jones Sr. mortgage appears on John Jones Jr. report)
  • Correct name misspellings or home addresses, and other personal identifying information of that nature.

Closed accounts aren’t necessarily the problem with improving a credit score.  That’s only one component of the overall scoring algorithm. What most consumers with decent credit misunderstand is their use of their current accounts. Such as, the more legacy accounts you have open and active today, with 50% or less utilization (relative to credit limit) and an on-time payment histories, will generate a better score.

Even with a higher utilization of 50% or more on several revolving accounts, assuming 3-5 active accounts with two years or longer histories and active use, scores can be very good and even excellent.

Please reach out for any further clarification. This is where we see most consumers flail with thinking through the process of “repair” and/or hiring someone to manage the minutia, which will only result in frustration and regret.

When we work with our business financing clients, we include a merged credit report with Classic FICO scores from Experian and Equifax as part of our qualification process from the very beginning.

Most Lenders won’t run a credit report until late stages of the loan application process. Our method helps us to understand and advise the business owner of any challenges on the credit report that may impinge on our ability to secure financing from a Lender.

Trevor, our Chief Financing Rock Star, was a Mortgage Banker for 30 years; credit is one of his areas of special expertise.

Reach out to discuss what you may be experiencing that is contrary to this or perhaps inhibiting you from moving forward in a financing request you’re currently pursuing.

Download our E-Book, “Rebuilding Your Credit After Bankruptcy”. Maybe you haven’t filed for bankruptcy; you will still pick up some tips in this ebook.

Small Business Surviving COVID

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Some Lenders are beginning to open their doors, and their coffers, to businesses in need of working capital. However, the COVID-19 impact on lending guidelines has been brutal.

Lenders’ guidelines for these types of loans are typically tighter than pre-COVID, and every Lender requires a business applicant to provide a COVID Impact Statement.

Underwriters are taking a close look at how businesses plan to survive the continuing pandemic, especially diligent on management experience, cash reserves, equity, and business planning for pandemic-response.

Today, let’s look at some industries and businesses we expect to thrive and survive the COVID-19 crisis.

Logistics.  The pandemic panic in March and April exposed the weaknesses in supply chains, especially for groceries.  But the resiliency of the industry became quickly apparent with the exponential growth in demand for home delivery of goods from online shopping excursions as so many people found themselves locked-down at home.

Warehouses, sorting equipment, storage accessories, forklifts, robots, long haul trucks and delivery vehicles all have multiple sources of financing available to maintain and grow during the pandemic.

Professional Writers. Yes, writing for business, whether it’s email newsletters, website content, or White Papers, writers can thrive during COVID-19, especially with the trend towards remote working.

The downside to being a professional writer during this time is the influx of amateurs hustling for a work-at-home gig overwhelming the ranks of people you’re competing against.  If you’re a professional writer with Accounts Receivable from reputable business clients, there’s financing available to you to help you grow your business.  And, if you haven’t already applied, the SBA Economic Injury Disaster Loan (EIDL) is still available, even if you’re Self-Employed and you file a Schedule C as a Sole Proprietor.

Manufacturing.  Manufacturers can thrive during COVID-19 with three fundamentals in place:

  • Pivot-Planning
  • COVID safety protocols for employees
  • Supply surety

We know of one manufacturer who promptly converted his business to a COVID pandemic perspective by manufacturing components of PPE for health care frontline workers, notably plastic face shields.  He later enhanced his planning to create the decals for grocery stores that direct customers with one-way arrows and six foot social distancing location markers.

A manufacturing firm that can demonstrate its resiliency during the crisis, its ability to protect workers, and the confidence in obtaining necessary supplies for manufacturing processes is sure to find Lenders willing to provide financing, including for Accounts Receivable, Business Lines Of Credit, and Equipment financing.

Online-Motion.  We created this category at Aurora Consulting to define any kind of business demonstrating incredible pandemic-related-resiliency by either moving its business online where it didn’t exist before, or bolstering an existing online presence.  70% of Small Businesses have NO or minimal online presence.

The COVID-19 pandemic clearly demonstrates the need for your business to move online, to create product/service opportunities for consumers to engage with you remotely, and to integrate product deliveries with successful delivery systems.  The Small Business demonstrating sincere “Online-Motion” will find Lenders willing to provide financing providing a recently revised business plan demonstrates the strategies for success to survive.  Our firm Bridge Street Business Plans assists Small Businesses with this vital aspect.

Key Points of Financing Your “COVID-SURVIVING” Small Business:

  1. Management experience: substantial heft with more than three years’ experience.
  2. Equity: Whether it’s cash liquidity, real estate collateral, or other convertible equity, expect a Lender to want at least 30% equity.
  3. Credit. High credit scores, in excess of 700 for principals of the business.
  4. Cash Flow. Demonstrate how your business is cashflow positive during and through the pandemic.
  5. ROCK SOLID Pandemic Business Plan.  State the case for how your business is surviving now, how you will succeed through the crisis with a focus on strategies, profit centers, and an expanded vista that takes into account the new paradigm of limited customers in-store, remote work, online shopping, employee protections, supply-chain strength, and utilization of delivery options.

At Aurora Consulting we’re doing our part to help your Small Business survive COVID-19 with the following services:

  • Flat Fee Financing Consultation.  $750 gets your business a thorough review of your existing business plan, financial statements, and credit report.  We’ll then advise on the viability of finding Lender financing, whether that’s today, or in the future with our suggested strategies.
  • Bridge Street Business Plans.  We created Bridge Street Business Plans to assist our financing clients with a necessary component of a successful business credit application. We understand how to update your business plan to respond to the COVID-19 pandemic “pivot.”
  • Innovative Financing Products.  We know the Lenders who will lend and we know how they will lend.
  • SBA Economic Injury Disaster Loans. These loans are still available and we’ve become experts in this loan process.

Email us anytime to find out more about what financing products can help you become resilient to thrive beyond COVID.

 

Tough Questions from Lenders

The good news is that Banks and Lenders are opening up their coffers to provide business credit financing. The other news, that’s more anticipated than “bad,” is these Banks want business owners to answer some tough questions about preparedness for further pandemic-related challenges.

If you are applying for business financing—a loan or line of credit—that’s not Disaster Relief-related, here’s a sample from one of our Bankers on what to expect:

  • How has your business been impacted throughout the crisis?
  • How have you and your employees been affected? Your suppliers? Your customers?
  • What are your key priorities over the next 30/60/90 days?
  • How do you anticipate accomplishing these goals? What hurdles do you anticipate?

To achieve a successful response to your application, you should answer these questions with all appropriate gravitas and extreme detail.

  • The Bank wants to know that, should the pandemic-related lockdowns get tighter:
  • How have you planned to get through that?
  • Do you have cash reserves?
  • An employee-furlough action plan?
  • Do you have the ability to provide your services or products with a serious downturn in customer traffic (think early days of lockdown)?

Banks make loan decisions by assessing the risk on the credit profile of the Borrower. As with any aspect of a loan application, the COVID-19 pandemic has created another layer of risk for Banks. Your successful loan application will take that risk assessment into account as you prepare your application for submission by anticipating how to make a Bank/Lender get into a “comfort zone” about your ability to make payments on the loan as other challenges from the pandemic arise.

Reach out to discuss if your answers to these aforementioned questions would suffice. We are your advocate in the process.

Email us at Curious@AuroraConsulting.biz.

Quick Access to Working Capital

If you are aware of factor financing, you may know that you can leverage your Accounts Receivables with a Factoring Lender to get quick access to working capital. However, you may be concerned what your Customers will think when they have to send their payments to a different address.

  • Lending aspect aside, it is not unusual for Businesses to create a different location to receive payments on Invoices, whether a physical location or an electronic ACH location.
  • The Factoring Lender works hand in hand with you to ease the transition for payment destination on your Invoices.
  • Many of your Customers are already sending their Invoice payments for other B2B purchases to Factor Lenders whether they know it or not.
  • Factor Lending, while a niche financing solution, has been utilized by businesses in need of quick capital for 30 years.
  • Businesses frequently leverage Assets, Property, Income and other collateral to obtain working capital whether it’s a traditional Bank loan or other financing solution; leveraging your Invoices is no different.
  • The fact your business is borrowing money demonstrates strength, not weakness.  You’re demonstrating your faith in your business by borrowing money to continue to grow your business.

Factor Financing is an affordable, fast, financing solution to help you leverage important aspects of your business–in this case your Accounts Receivable–to obtain the working capital you need.  It’s easier to qualify for Factor Financing than traditional Bank Loans, especially during the pandemic paradigm when Banks are making loans difficult to obtain.

Factor Financing Qualifying Criteria:

  • You must sell your Product/Service B2B
  • Your Customers must pass muster for basic creditworthiness on their ability to pay Invoices
  • Non-Progressive Billing
  • Startups Acceptable
  • Consistent Accounts Receivable practice

Let us ease your worry about what your customers will think. Learn more to see how this could be a solution to keep your business going during this pandemic. Email us at Curious@AuroraConsulting.biz.

Optimize Cashflow During This Pandemic

In this difficult time, normal Bank lending criteria has tightened up.  Banks, always risk-averse, have become even more so during the pandemic. If a Bank is lending at all to businesses, they are only doing so to their existing business customers, and those customers must have demonstrated ridiculously healthy financials before the pandemic and more so now.

In other words: for businesses that are booming during the pandemic paradigm, in need of working capital to keep up with demand, the purse-strings at traditional Banks are pulled super tight.

Let’s discuss the fortunate scenario that your products are flying out the door or your services are in high demand right now due to the new pandemic paradigm. However, you find yourself in need of working capital, here’s a unique solution for your business:

Convert your Accounts Receivables to instant cash.

If your Customers have a good history of on-time payments within 40-60 days of Invoice issuance, and you’re selling B2B products or services, then you’re positioned to take advantage of this quick, affordable, working capital solution.  Lean into your Receivables and get the cash you need today to better service the orders for your Products and Services with Accounts Receivables Factor Financing.

Criteria:

  • You must sell your Product/Service B2B
  • Your Customers must pass muster for basic creditworthiness on their ability to pay Invoices
  • Non-Progressive Billing
  • Startups Acceptable
  • Consistent Accounts Receivable practice

Contact us to learn more about how Factor Financing could be an incredibly efficient and cost-effective way for you to have capital flowing to your business. Email us at Curious@AuroraConsulting.biz.

Short-Term Solutions for Long-Term Goals

There are two scenarios that some business owners take when starting and maintaining their business.

First, no debt.  These businesses were started with savings and/or investments from the business owners.  These businesses fund daily and annual operations costs with money generated from the profits of the business.  These business owners most often do not like the concept of credit debt, or, worse, have a severe anxiety about the idea of borrowing money to run their business.

Second, belief in debt.  Using debt in the form of credit financing is a reliable source of capital for starting and running a business when the concept is applied with smart planning. These business owners understand that obtaining capital to start or grow a business from a bank loan or other financing source can be a great way to preserve existing profits and working capital, and also a viable option to find the money needed on a larger scale.

Pandemic Panic financing such as disaster relief loans, SBA economic injury disaster loans (EIDL) and paycheck protection program (PPP) loans due to the COVID-19 crisis is a type of credit financing that, in most all cases, could be a band-aid on a gaping wound.

Longer term financial considerations, as your business strives to come through the crisis and survive on the other side, it’s important to consider other types of credit financing to help you obtain the working capital you need.  We’re exploring many different options for our clients.  One of those options is Asset-Based Lending, specifically, .

This is an excellent option for a business with valuable and well-performing Accounts Receivable to obtain quick sources of working capital to assist through this crisis.  The Factor Financing Lender works hand in hand with you and your business team to create a system where your customers invoices are assigned to the Lender.

For a very reasonable cost, you can obtain immediate access to the cash value of that invoice practically as soon as you send it out to your customer.  This quick access to capital dramatically improves your Cash Flow situation, helping to make you stronger on a daily basis to survive and thrive through this crisis.

Factor Financing Lenders vary in their criteria for the types of businesses and types of receivables they prefer.  We’ve assembled a healthy matrix of different types of Factor Financing Lenders to provide you with an array of financing options for your business to help you through the COVID-19 pandemic.

Curious? We are here to answer your questions about this type of financing. Email us at Curious@AuroraConsulting.biz.

 

Who’s Not Afraid to Say “I Don’t Know”?

Who else is an avid fan of Warren Buffett? The “Oracle of Utah” presided this weekend over the annual—virtual—Shareholders meeting for Berkshire Hathaway. Mr. Buffett was a stout, granite-like, believer in the recovery of the American economy after the crash of 2008. This time, not so much.

Much of his ideas, though overall optimistic, were tempered with uncertainty for the future of the American economy in particular and the Global economy as a whole. “Nothing can basically stop America” and “You can bet on America” are two optimistic quotes in an article about the Berkshire Hathaway meeting and Mr. Buffett in today’s NYTimes.com. But he tempered much of his positivity with more than a few “I don’t knows” when queried by the audience and journalists on the uncertain future of a continuing COVID-19 world.

Not that he was necessarily espousing “doom and gloom” as much as he was following a traditional line of thinking for himself and his company: Cautious optimism. Warren Buffett would rather lose out on an opportunity for an investment than to have acted to quickly, without the due consideration such a decision deserves. You can clearly see this as a bedrock concept of his success as a stock investor. He’s not sure which way the economy is headed, but he’s hoping for the best.

Warren Buffett is a student of economic history, and he presented his analysis at the meeting of the American economy from 1789, up to and past The Great Depression. He pointed out that the stock market took 22 years to recover to its highs between 1929 and 1951. His realistic assessments are important for us at Aurora Consulting as we determine ways to continue our Brokerage and find working capital for businesses.

We’ve spent the past six weeks working feverishly—including more than a few all-nighters—to help our clients obtain SBA Disaster Relief financing, in particular the EIDL program and PPP loans. We’re happy to report we’ve been quite successful with that project. But now we find ourselves casting about to see what our horizon looks like, and how to continue helping our clients.

To take two of Mr. Buffett’s phrases into our context seems appropriate today. “I don’t know” is the first. We have some good ideas and you will see those concepts unfolding in the coming days and weeks. Already this week we’ve scheduled conferences with different types of Lenders as part of our deep-dive into lending availability for our clients. We’ve also created basic strategies for Aurora Consulting on the best ways to move forward and help Small Business during the ongoing pandemic and its attendant economic challenges.

The second of Mr. Buffett’s quotes, and the inspiration for this blog, seems most appropriate to what we do here at Aurora Consulting, we find working capital from Banks and Lenders for our Small Business clients. Warren Buffett, as quoted in today’s NYTimes.com: “This is a very good time to borrow money, which means it may not be such a great time to lend money.” Realistic words, a realistic assessment from The Oracle of Utah.

Here at Aurora Consulting, we’re going to embed the Oracle’s words into our strategic thinking so as to best serve our Small Business Clients. If you want to know more about how we help business owners, please email Curious@AuroraConsulting.biz.

 

Cobble-Together Business Loan Strategies

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When Linda Rey was building her Independent Insurance Agency, she had a mantra that goes back 20 years ago. We think it still applies: “There’s no immediate gratification in a long term Strategy.“

Different Solutions Cobbled Together.

When confronted with challenging circumstances for our clients to find a business loan, one of the creative solutions we lean towards is to bring together different financing solutions. What do we mean?

We cobble together financing solutions to come up with a higher number. 

Maybe that number meets their original request, or maybe it only comes close, but maybe it gives the client sufficient capital to get started on a short term, “cobbled together” solution for our longer term financing strategy. 

Our thinking is that it is better to start somewhere. Follow the yellow brick road.

What it is about us that allows us to cobble financing solutions together? No, we’re not talking about shoe repair! We’re Brokers and we work for the client, not the bank. That’s first and foremost.

Secondly, as a Broker, we have access to multiple products with different lenders.

An important consideration we’re mindful of when cobbling together the financing is to be mindful of the client’s longer term horizon. Depending on what’s on that horizon, there may be risks and challenges with certain types of short term solutions today, especially with something like seasoning.

When we talk about seasoning with cobbled-together-financing, we mean if you have a short term solution today that gets you over the hump and gets you started with your financing strategy, that short term solution may have to be seasoned for at least a year and showing on tax returns and other financial documents if you want to come in with a certain type of financing product on the other end of it. 

So this is an important consideration because what solution we find today could affect your ability to access other finance products tomorrow.

We’ve discussed previously about how you should be preparing your financials with the thinking ahead of time that you may be securing financing. We think of ourselves as brokers but with a very long-term focus for our clients because we love business success stories.

Sometimes you have think short-term to achieve long-term goals. ~ Linda Rey

For example, we have a client who just purchased a commercial property recently with our assistance and our advice based upon cobbling together a short term solution on a long-term strategy. 

This client did not have sufficient down payment to qualify for a commercial mortgage to purchase the commercial property. We referred that client to a colleague of ours who does residential mortgages. That colleague refinanced the client’s house and the client paid cash for the commercial property. Now we’re working on a smaller financing package to provide some working capital to decorate the new office space and do some much needed improvements and renovations on the property including a new roof. This is a good example of a successful cobble-together-financing solution.

In the longer-term, we’re going to to find a way to finance their commercial property to take out the short-term financing, and return the client’s primary residence back to a zero mortgage replacing everything with financing on the commercial property because tax wise, it’s a smarter move for the client’s business.

When you think something isn’t possible, call us or email us and make sure because you don’t want to wait too long for something that can be done RIGHT NOW.

Email us at Solutions@AuroraConsulting.biz.

5 Mistakes Business Owners Make

5 Mistakes Biz Owners Make with Linda Rey & Trevor standing and looking perplexed

5 Mistakes Biz Owners Make with Linda Rey & Trevor standing and looking perplexedLet’s get it out of the way right now. We say 5 mistakes, but there are more. Don’t shoot the messenger. Part of the reason we post our blogs & vlogs is to raise awareness that financing doesn’t have to be as difficult. Don’t get us wrong, it can be a long process, but you have more control than you think.

These are the top 5 mistakes we’ve experienced with business owners when they are seeking financing.

1. Thinking the Bank knows everything about you.  You have all, or most, of your accounts with your local bank, including your operating account, savings, personal account, maybe even merchant services & payroll. It’s easier to bank in one place.  You think the bank maintains a detailed file on your financials, that they know how much revenue passes through your accounts every month.  This would be an incorrect assumption. The bank will still ask you for your full set of financial statements and much, much more.

2. Old Financials.  A business plan that’s five years old won’t fly. If you’re updating your Accounts Receivable aging report or your Profit and Loss statement on an infrequent basis, you will have some work to do and this most certainly will delay the process. You control the timeline when you apply for credit financing. Having updated documents at the ready lets you submit them with all speed and alacrity to move your financing request along.

3. Incomplete Financials.  No business plan? Many businesses don’t have one whether it’s a new business or an existing business. There are many, MANY financial forms that a lender will require. It will be your responsibility to provide complete, comprehensive information that many businesses, unfortunately, do not have easily accessible. Lender’s will have a debt schedule form and if this is inaccurate, it will slow down the process and delay your approval.

4. Too Busy, Too Rushed, Too Overwhelmed…Too Late. Bad decision-making often arises from lack of time and a local preparation. However, it happens that then you’re faced with a sudden, unexpected need for working capital. This sounds like opportunity, but if you’ve not been minding the store in the meantime, you will be faced with a high probability that you could be without options or very few options if any at all.

Bad decision-making begets more bad decisions by way of choosing financing options that is super expensive and over priced such as Merchant Account Financing (Merchant Cash Advance – MCA), hard money, equity investors, refinancing a personal residence and/or hitting the credit cards. This leaves you vulnerable to a lack of income & profit taking away any joy in running your business. We bet that you didn’t get into business to be broke and stressed out.

5. Failure to Fight.  Your Banker wants to make the loan work for you, because they truly value your relationship with the Bank.  When you get bad news, don’t take it lying down.  Dig in with your Banker—in person whenever possible—and get to the solution-seeking.  What do you need to do to flip this decision from a negative to a positive?

We have seen good people who own good businesses make bad decisions. We are truly fortunate and grateful that we have forged many valuable relationships with Bankers & Lenders. They know that sometimes they can’t do the deal, but they value the relationship with their client. If the Bank doesn’t make a decision favorable to your business, that doesn’t mean you should make a subsequent bad decision.

Call us for a free consultation on what options you may have available to you.

The more proactive and prepared you are, the more options you will have.

The Deal Closes When It Closes

Video Thumbnail with YouTube Logo that says "Have Patience with the Process"
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Trevor worked many years ago with a top producing loan officer at a mortgage Bank. This top-producer brought in a lot of business and Trevor was the new kid on the block climbing the ladder, building his business.

In his travels, Trevor met a local real estate attorney who could potentially refer business. Trevor had been working with that attorney on a home purchase transaction. The attorney said, “Oh, no, that’s where you work? I’ll never do business with your company because so-and-so is a nightmare and your company is a nightmare.”

That other top-producing loan officer had a terrible reputation. This loan officer had a bad habit of not responding to anybody’s phone calls inquiring asking, “What’s going on with the deal? When is it closing?”  He simply did not answer phone calls.

This was in the days before email, the days of beepers and telephones and he simply did not respond to anyone. The attorney told Trevor, “I beep this guy all the time, he never calls me back. I guess your company is just slow to get things done that’s why he doesn’t respond. Why should I expect you’d be any different?”

So when Trevor confronted his fellow loan officer about this complaint, his response was very laid back.  He said, “I have one philosophy. The deal closes when it closes.”

WOW. He made Trevor and the entire company look bad.

On the positive side of the story, he kind of wasn’t wrong because there is a process to getting a loan approved and closed. The fact that he was a terrible communicator is a different issue entirely; he never spent any time communicating to manage expectations.

We did a video on managing expectations, emphasizing follow up. Sometimes the timeline to close can really be a bit much, and especially with how many people are involved in the loan process.

We’re working now on a business acquisition deal, and the sellers were involved. They just could not get their head around what was needed, even after the loan was approved, and they knew the Lender was going to do this deal.

Their responses to requests for documents through the entire process were, “Why this? Why that?”  Week after week, all they did was push back. The Seller’s  attitude was constantly to fight the process.  Then, when they’d actually submit a document at 10 a.m. in the morning, they’d follow up by sending an email at 1:30 in the afternoon, “So when are we closing?”

This is not really understanding the loan process either.

So, to take that “top-producer-bad-communicator’s” phrase and reconfigure it,  “The deal closes when it closes.”

There is a real process to achieving the loan approval and getting to the closing. As  long as all parties are communicating and cooperating, it will close in a reasonable time, but it doesn’t mean it’s closing in 10 minutes.  Communication and cooperation, those are key elements.

For our part, we maintain clear communications. As often as this particular seller was impatient, we still kept a clear head and kept our communications positive, responded accordingly.  Ultimately, we got what we wanted from the seller in the way of documents we needed.

We did another video describing how the lender reviews everything. If you spend so much time asking, “Why?” And spending so

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much energy fighting the process when you could have gotten what was needed to expedite the process.

With this particular seller it was constantly “When are we closing?” and, “Where’s my money?”

We understand how financial professionals can get jaded. Someone like the former colleague in the industry can say to themselves, “Okay, I’m kind of exhausted with these calls.”  And they shut down because they know the deal will close when it closes.

People can get upset about the process, but when all is said and done, if there’s clear communication, you have to understand the process and you have to be patient.