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Archive for February, 2012

When you’re starting a business, there are so many stress factors. The first of which is always “how am I going to pay for this? Money is a serious factor in whether or not this is a viable option to begin with. If you don’t have the startup capital, it’s next to impossible to actually begin your business venture.

No matter your business, it’s probably that you will need some sort of business cash advance. If you’re looking to start a home baking business, you’ll need money to get your kitchen in order and inspected by the county. Depending on where you live, you will need to have separate refrigerators and possibly do some renovations to your home. Getting the permits you need for all of this can be very costly!

Even if you’re only looking to purchase or rent a store front, it requires a lot of capital. You’ll probably need a real estate broker, months of rent in advance, and of course you’ll need to be able to renovate it to look the way you want. Also a very costly venture.

If you look at getting a merchant cash advance, you need to know what you’re getting into. These are great short term loans that will help you on your way to the top, but be sure to read the fine print. The only way you can qualify for a cash advance for business is if you have over 50% of your sales come in by credit cards.

The way the cash advance works is that every day that you are open for business and make a sale with credit cards, the lender takes a percentage of those sales. This is actually a very attractive option for those who are looking to pay back their loans on terms that will not bankrupt them. Because the merchant cash advance is a fixed percentage and not a fixed amount, you can pay back your loan on basically your own time. Of course, you need to be very aware that like all monetary loans, these short term loan options come with varying interest rates. Be sure to find a reputable company that will not pull a bait and switch plan on you. The merchant cash advance is also attractive to business owners because if they make a great deal of money on credit cards, it is a shorter period of time that they need to pay back the loan and therefore a smaller amount of interest.

If you’re starting any type of business, like a home bakery or a storefront business, you might want to consider one of these cash advance options.

Article Source: http://EzineArticles.com/6786886

If you own a company, do you want the company to have a lot of debt or only a little? Of course, you’ll probably say you want as little company debt as possible, just like you’d want to have as little personal credit card debt as possible.

We’ve all been told since childhood that debt is bad and that it can make you poor. However, in (traditional) corporate finance, it is actually believed that more debt is “good”! Note that I say “traditional” because a more modern view by Modigliani and Miller says that it “doesn’t matter” whether a company has more debt or less debt. But it still doesn’t support your parents’ “no debt” advice!

How can more debt be good? First of all, let’s go back to an earlier concept of Rate of Return. If you invest $200 in a business and you get back $20 every year, what is your rate of return? 10% (Because $20 is 10% of your $200 investment).

What if, instead of investing the full $200 in the business, you invest $100 of your own money in the business and borrow the remaining other $100. And then, you still get back $20 after one year. How much is your rate of return now? Is it still 10%?

Nope, it’s now 20%! Why? Look… because you borrowed, you ended up investing only $100 of your own money this time (no longer the full $200), and then you got back $20. $20 is 20% of your own $100 investment.

So when comparing how much profit you get back compared to your own investment, you will find that you get back a much higher return when you borrow some or even all of the money needed for your business. The more you borrow (“more debt”), the higher your potential rate of return. The lower you borrow, the lower your potential rate of return.

Of course, having more debt also has risk. Risk of what? Risk of “insolvency,” in which your business’ debt is bigger than your business’ assets.

Let’s say you needed $200 worth of assets for your business ($80 worth of equipment and $120 worth of cash in the cash register). You invest your own $100 plus you borrow $100 from your friend… so you get your total of $200. And then let’s pretend that because of bad luck this month, your business loses $50. Therefore, the business’ new total assets become $150 (no longer the previous $200). Will your business still be alive? Yes. Your business has $150 in assets, but still only $100 in debt. It’s still “in the clear” by $50.

But what if you wanted to have lots of debt because it increases the potential rate of return? Let’s say you still needed $200 in assets. But this time, you invested only $40 of your own money, and then you borrowed the remaining $160… for a total of (still) $200 in assets. And then let’s say that suddenly, your business has bad luck this month and loses $50, just like in the earlier example above. How much are your company’s assets worth now? $200 originally, minus the $50 loss… you have $150 worth of assets (just like in the earlier example). However, how much is your debt; do you remember? It’s still $160. What does this mean? Your company has only $150 in assets, but it has $160 in debt! If your company were to pay back its debt today, it wouldn’t have enough assets to pay for the debt. This is called “insolvency” (more specifically, “balance sheet insolvency”). When a company has high debt, there’s a higher risk of insolvency.

Planning to purchase a home? There is usually more to a mortgage than just its type; you have to realize the added costs it involves. These added costs are the costs that have to be paid when a mortgage is closed.

What are purchase points? Purchase points, which are also sometimes referred to as “buy-down” or “discount points”, are an amount that is paid as a fee to the lender during the closure of the mortgage to bring about a decrease in the interest that needs to be paid during the interest payment period of the mortgage. Each point is usually equivalent to one percentage of the total loan amount. For example, on a loan of $200,000, one point would be equivalent to $2,000. Purchase points help decrease the amount of monthly interest that needs to be paid, but they increase the total amount that needs to be paid during closure of the mortgage.

It is only wise to purchase points if you decide to live in your house for a long time, such as six years. You may also find it necessary to purchase points if you cannot cope up with paying the rate of interest. Purchasing points incase you live in the house for long is particularly effective because then you have a lot of time to save up from the decreased interest of the loan.

What is interest rate? It is a fee that is charged by the lender to the one who is borrowing the money for letting him to use the money to buy a home for himself. Interest rate is paid monthly. The higher the interest rate is, the higher your monthly payment will be.

The interest rate on mortgages change constantly, hence, it is likely that you might have to pay variable amounts each month and you may not get the same rate when you close the loan. However, there is an option to lock the interest rate for fifteen, forty-five or sixty days. But, doing so is usually expensive as interest rates stay fixed and lenders face a loss if the actual interest has risen.

Fees – All mortgages obtained have fees involved. The fees usually are for managing and processing the loan and to make sure that the ownership of the home is clearly titled to the owner. The fees are also for preparing an overview of the land and to evaluate an estimated value of the property.

Different lenders charge different fees. Some charge less closing fee to attract borrowers but charge more monthly interest, as result, you are paying more, over time. Some charge less monthly interest, but charge a higher closing fee, which requires you to pay a greater deal at a time during the payment of the closing fee. Hence, choose a mortgage deal that suits your needs and one that you can afford. Before finalizing on a deal, ask the lender as many questions as you can, to make sure that there are no hidden fees and that you completely understand the terms and condition of the deal.

Hope this information will help you in getting a good deal.