2. Avoiding The Hard Work Up Front
Business insurance policies don’t come in pre-set sizes like sneakers, so there is no reason not to tailor your policy precisely to your needs. But doing that means knowing what your needs are, and that requires a hard look at the risks of your business, says Britton. After the policy is drawn up, scour it; make sure you’re clear on every exception specified in the footnotes. If there’s anything you don’t understand, have your insurance broker walk you through the finer points. (Note: Some exceptions are non-negotiable. For example, nearly all insurers won’t cover losses related to mold and terrorism.)

3. Not Minding The Attorney Fees
Some policies bake in fees paid to the insurance company’s attorneys, says Britton. Example: You might have an insurance policy that covers up to $1 million in claims, but the insurance company could spend $200,000 litigating the claim and use your payout to do it. Figure this out before you sign.

4. Cutting The Runway Short
Determine when your coverage starts and stops. The carrier might start the clock a month after the papers are signed; on the other end, you can be liable for several years after you stop doing business, so consider negotiating a “tail policy.” A reasonable policy should remain in effect for several years after your company shuts its doors, says Britton.

5. Being Dishonest
Underwriters will ask a series of questions to assess the level of risk. Answer fairly and accurately–if you don’t,and you file a claim related to a risk your carrier was not aware of, you may well be denied coverage. (That said, you don’t have to volunteer information beyond a carrier’s specific questions.) Also, disclose prior claims under previous companies. For example, if you used to own a trucking outfit and your drivers had several accidents, you must disclose this to an underwriter when drafting a policy for your new trucking company. Your rate will rise, but if you fail to disclose your insurance history, your claims could be denied later on.

How is your relationship with your lender?
Trust is a very important factor in the lender/client relationship.  It is essential that the lender get to know you on a more personal level before you complete the loan process.  The more they know you, your circumstances and your integrity, the more they will trust that you are a good credit risk.  The more they trust you, the more likely you will be able to obtain a loan from them.  Visit the lender on several occasions before applying for the loan to ask questions and explore the loan application process. Let him/her see that you are a serious customer who thoroughly investigates your options before making major decisions. You want that lender on your side fighting for you.

How do you plan to repay the loan?
One must put themselves in the position of a lender.  From their perspective, the main concern is that the lending institution must be able to get their money back in a timely manner.  They want to know your precise and detailed strategies for repaying the loan.  In addition, be prepared to tell them how you expect to repay the loan if your business falls short of hitting its projected revenue numbers.

How comprehensive is your business plan?
Some people make the mistake in thinking that a long business plan increases the chances of receiving a loan.  In the eyes of a lender, the length of a business plan is not as important as one that is comprehensive and technically sound.  How well does the plan articulate your business goals and projections?  Do you use deceptive language that attempts to disguise potential problems or risks?  Here are a few key elements that should be included within every business plan:

•    Make sure that your plan addresses all contingencies.
•    Be articulate and thorough about all plans for the future.
•    Make sure that you effectively communicate the capacity of the ENTIRE management team to implement the actions outlined within the plan.
•    Make sure the financial statements are prepared through sound research of your industry.

How much money do you want to borrow?
Many make the mistake of asking for extra money thereby, providing a “cushion” for times of uncertainty.  A loan should not serve as a cushion nor provide for the “extras” but should only provide for the real needs of your business.  Commit to doing enough research to determine a precise amount that will be required when starting or expanding your small business. Keep in mind that the lender must trust you and believe that you have thoroughly researched the exact amount of money required to meet the goals of your business plan.

Are you talking to the right lender?
Since there are a variety of lenders, make sure you talk to the lender who will address the needs of the business you are creating or attempting to expand.  If you are a small business, it might be more to your advantage to talk to a small business loan provider.  An extra perk is the lender who has some familiarity with the industry in which your company operates. Do your research and find the best suited lending institution for you and your company.

Personal finance matters!
When applying for a loan, your personal financial situation most certainly matters.  If your personal financial situation is in disarray, the lender is less likely to trust that you will be able to responsibly handle any additional funds required for your business.  Before you begin planning for your business, take the time to get your personal financial situation in order.  Some things you should have in place are as follows:

•    Adequate insurance coverage for your family and loved ones.
•    Up-to-date estate planning documents.
•    An emergency fund worth 12 months of living expenses. (I generally state that three to six months of living expenses are sufficient; however, because starting a business is extremely risky, it is best save as much liquidity as possible before pursuing your venture.)
•    A solid FICO score of at least 720.

Take the time to make sure these items are in place before you start your business and apply for a business loan.  I understand that you are excited about starting your business, but proper planning and preparation will ensure that your company will be around for the long term and not falter because of a weak personal financial foundation.

I hope this helps.  As always, if you have questions about starting a small business or any personal financial matter, feel free to give me a call at 877-75-TEACH (83224).

Start your tomorrow today!

If you are a current business owner, or perhaps have the vision that you would like to become a business owner, then you must recognize that having sufficient capital is a prerequisite to accomplishing your business goals. Debt (borrowed money) is one form of capital, and many business owners obtain debt by applying for a loan at a local bank or lending institution.

Obtaining a line of credit for your business may initially appear to be a daunting task. What do banks look for when extending a line of credit to a prospective business owner? How should you present your request to the bank? How do you negotiate the best terms for your loan? How much should you ask for and how do you plan to repay the debt?

Banks or any lending institution will consider many factors before extending a line of credit to a company. One of the primary considerations is collateral. Collateral is security (assets) pledged for the payment of a loan. In the event that a company defaults (cannot repay) on the line of credit, the bank must be assured that there are sufficient assets to cover the debt. The quality of your assets will be instrumental in the loan approval process and will also have a significant impact on the terms (interest rate, fees, covenants) of the loan.

Below is a brief list of common assets that may be used as collateral, as well as questions that might be answered before applying for a business loan.
• Inventory: How quickly are you selling through your inventory? Does your inventory have obsolesce (becoming outdated or outmoded)?
• Account Receivables: What percentage of total sales does/(will) each of your customers represent? How many days does it take to collect on your receivables? What is your dilution rate (Returns, allowances, credit losses, discounts and other offsets against accounts receivable)? Description of major customers?
• Property, Plant & Equipment: What is the market price of your fixed assets? What depreciation method are you using to assess your fixed assets?
• Investments: What is the value of your portfolio? What types of investments are included in your portfolio?
• Life Insurance (i.e. key person-Business owners insurance): What is the amount of the cash value portion of your life insurance?
• Trademark: What is the appraised value of the trademark?

If you are in the market for a loan for your business, we at Optimum can provide you with the valuable advice needed in order to get the loan with the most competitive terms. We’ll start by reviewing all the factors which will be reviewed by the bank and help you decide on the total amount of the requested loan. We can also assist you in developing the most appropriate format to present to the lending institution and coach you on how to negotiate for the best terms. Let Optimum direct you to a representative at one of the banks in our support network of partners who have been carefully screened for their willingness to work with small business owners.

Written By: Lloyd Cambridge, CFO of Optimum Capital Management
For questions call 718-623-3423 or email Lloyd@optimumcapitalmanagement.com

The number one question that most entrepreneurs ask when embarking on a new business venture or expanding their existing business is “How do I raise money for my business?”

Locating money for your startup business can be challenging, especially when you have limited resources in your personal bank account and are terrified of even thinking about walking into a bank to ask for a loan. Don’t fret or be discouraged because where there is a will there is a way. Within this article we hope to add a glimmer of hope in your search for obtaining capital for your startup business by outlining the eight and great sources of startup capital.

1. Bootstrapping
Bootstrapping is typically a business owner’s first source of capital because it is normally the least expensive and the easiest source of capital to obtain.

Bootstrapping means using the resources you currently have in the most efficient way to finance your business.

When bootstrapping, Business owners:

1. Take an inventory of their personal assets that can be used to finance their business operations such as saving accounts, credit cards, and seeking the help of family and friends.

2. Explore creative methods to finance their business such as bartering services with other businesses and borrowing money from their 401K’s.

3. Look for ways to become more efficient at managing their current resources and finances such as stretching their payment deadlines with suppliers and collecting payments owed by customers more quickly.

2. Banks and Credit Unions
Banks and credit unions are in the business of providing loans to small business owners so don’t be afraid of them because that is their job. They provide loans for a variety of reasons including working capital (finance day-to-day operations), mergers and acquisitions, real estate development, leasehold improvements and many others.

The challenge that most small business owners run into when looking to banks and credit unions for financing is that most banks and credit unions only consider financing businesses that have a minimum of two years under their belt and that have some form of collateral or guarantee to support a loan.

Small business owners also have the option of applying for an SBA loan guarantee at banks and credit unions. The SBA loan guarantee reduces the banks and credit unions risk from taking on small business loans and makes it easier for the small business owner to get approval for funding.

3. SBA Guarantee Programs
The Small Business Association (SBA) is a government sponsored agency that provides loan programs that assist small business owners who typically are unable to secure financing from traditional lenders.

The SBA does not directly lend money to small businesses, but they do provide a guarantee for loans that are made to small businesses by lenders (Banks, Credit Unions).

The guarantee that the SBA provides reduces the lenders risk, which gives them more comfort when reviewing and approving loan requests from small business owners.

4. Factoring
Factors are financial institutions that purchase account receivables (Invoices) from companies. In exchange, the factor pays the company a percentage (up to 85%) of the receivable (Invoice) upfront. When the company’s customer pays the receivable (invoice) to the factor, the factor then gives the remaining balance owed to the company, less a fee for themselves. Fees normally range from 1-5%.

Factoring is beneficial for small business owners because it provides quick liquidity to small businesses for growth and their on-going operations. By small businesses selling their receivables to factors they are able to speed up their cash flow cycle by not having to wait 30-120 days or longer to collect cash from their customers.

Factoring is also beneficial for small businesses because factors act as a bill collector for the small business, allowing the business owner to focus on more critical business tasks.

5. Micro Lenders
Micro lenders extend small loans to small business owners who typically do not qualify for traditional loans due to their less then adequate collateral coverage and /or credit history. Micro loans typically range from $500-$35K in size and typically have more flexible terms then loans from traditional financial institutions.

6. Angle Investors
Angle investors are individuals who invest their own money in early stage companies in exchange for equity. Most angle investors have prior experience in starting and managing companies and bring to the table critical resources and contacts that help small businesses move to the next level.

Angle investors typically provide second round financing after entrepreneurs have exhausted their own personal resources and have sought and utilized the resources of family and friends. Angle investors typically invest a few hundred thousand dollars in a company with an average investment size of $450K. They seek high returns and look to cash out of their investment within 3-7 years when the company’s exit strategy (i.e. Initial Public Offering, acquisition) is executed.

7. Venture Capitalists
Venture capitalists are investment funds or partnerships that invest cash into promising start-up and emerging companies in exchange for equity. Venture capitalists also take on a great deal of responsibility in managing the company by bringing to the table a host of its own resources, contacts and experience.

Venture capital is typically the second or third stage of financing, which starts with the entrepreneur using their own available resources to finance the company, and then looking to angle investors to provide further financing. Venture capital investments typically range in size between $500K-$5MM.

Most venture capitalist firms seek high returns and look to cash out of their investment within 3-7 years through an IPO or the sell of the company.

8. Grants
Grant programs provide money for small businesses that typically fall within a specific category of business or people, such as businesses within the field of medicine, technology, and education or businesses that are owned by veterans, women and minorities.

Grant programs are provided by both private organizations and the government, and are typically competitive in nature. All grants require the submission of an application in order to be considered. The grant writing process is an art form within itself and it is normally recommended for small business owners interested in obtaining grant money to hire an experienced grant writer to assist in locating and completing grant applications.

Written By: Lloyd Cambridge, CFO & Partner of Optimum Capital Management
For questions call 917-562-5494 or email Lloyd@optimumcapitalmanagement.com