What To Consider Before Approaching Lenders – Real Estate
What To Consider Before Approaching Lenders
Jeff Schein
Dealing with a bank doesnt have to be like walking through a maze in the dark. Keeping the following points in mind when you approach a bank should help you through the process.
Lenders are looking to satisfy themselves of the following:
1. That the business can make the regular interest and principal payments
2. That the lender can get its money back if something goes wrong
When approaching a financial institution, you are effectively selling the merits of your business and your proposal. Consider the needs of the lender, if you were lending money to someone what would you ask for
Be prepared to answer questions about your industry, your company, your management, the principals of the company and the financial statements.
If you are looking to finance property or used equipment, you will most likely need an appraisal.
In todays environment, an environmental study may be required on commercial real estate.
Lenders will look at the ability to service debt. You will need to show an ability to service the debt plus a sufficient surplus to cover any contingencies, such as unexpected costs or a drop in sales. Use 1.4 times coverage as a guide; both historical financial statements and a cash flow forecast and projected income statement will show this.
The bank will want to make sure that existing debt, or the addition of new debt, will not bring the Debt/Tangible Net Worth ratio of the company too high. What figure is used depends on the industry you are in and what stage of growth you are at. Dont be surprised if the bank asks for hard security to help support the lending request.
The bank in almost all cases will want a complete personal statement of affairs, and a personal credit history will be reviewed to ensure you are responsible with credit.
Your level of commitment to the company will be reviewed; for example, how much equity have you put into the company
If your company cannot repay its debt, the bank will evaluate what the secondary source of payment is; this can include security such as businesses assets that can be liquidated, personal guarantees and/or other sources of income.
Give the lender sufficient lead time to review the request, particularly if you are new to the financial institution. It can take some time to review all the information, often clarification is needed and the business may need to be visited before any financing is approved. As well, most often the request needs to be referred to the institutions risk management for review.
A good business plan is important, but keep it concise and dont overdo it on the documentation. The cash flow and balance sheet are of particular importance. Before preparing the final draft of the plan you may want to set up a preliminary appointment with a financial institution, be prepared to answer questions such as: how much money is being requested, why, what terms are you looking for, what are your alternative sources of repayment
The reality is that banks are conservative lenders and will try to mitigate most or all of the risk away. At the very least you will probably have to provide a personal guarantee to some percentage of the total outstanding amount borrowed.
Fees are a fact of business financing, you can negotiate and may get some reduction in fact you should always try, but lenders are not in the business of losing money. Interest rates are based on the type of loan, the perceived risk of the business and financing and the security being held in support of the loan.
About The Author
Jeff Schein is a CGA and offers advisory services in the areas of business planning, loan proposals, business modeling, strategic planning, business analysis and financial management for new ventures and growing small businesses. Visit www.companyworkshop.com or mailto:jeff@companyworkshop.com
jeff@companyworkshop.com
Deadlines Approaching For Filing 1099s For Independent Contractors – Tax Deduction
Deadlines Approaching For Filing 1099s For Independent Contractors
Richard A. Chapo
While the middle of January may seem a bit early to begin thinking about taxes, 1099-MISC filing deadlines are looming for businesses. Generally speaking, IRS 1099-MISC is the form used to report miscellaneous income that you paid to persons during 2004 in the course of your trade or business.
Does This Apply To My Business
The 1099-MISC forms must be issued to any person that you have paid at least $600 in rents, services or other income payments. Typically, you should issue the form to any independent contractor that you paid $600 to during 2004. For example, if you paid a designer $1,500 to build and maintain a website in 2004 for your business, a 1099-MISC filing would be required. As with practically any IRS filing, there are additional situations that require a 1099 filing [ex: any fishing boat proceeds], so make sure you cover your bases by looking at the relevant instructions. Generally, you are not required to report payments to a corporation.
When and What Must Be Filed
The 1099-MISC form is a multi-layered carbon form, so make sure the information you provide appears clearly on all of the copies. Once you have filled out the form, you must provide Copy B to the person that you are reporting to the IRS by January 31, 2005. Using our previous example, you would mail Copy B to your website designer before the end of January.
Copy A of the 1099-MISC form is intended for the IRS. You are required to file it by February 28, 2005 if you are sending the form by mail. If you prefer to file electronically, you have until March 31, 2005 to file the form.
Revealing a particular flair for red tape, the IRS requires you to file an additional form if you are filing Copy A of the 1099-MISC by mail. In such a situation, you must file an "Annual Summary and Transmittal of U.S. Information Returns" form. This summary is better known as Form 1096 and you should have already received a copy of it in the mail from the IRS.
Where To Find These Forms
To the surprise of many people, the IRS has an excellent website containing information and tax forms. Unfortunately, the site is fairly useless when it comes to obtaining tax forms that you can actually file. You cannot download and use any 1099 form from the website. If you try to print forms from the site and use them, you run into two problems. First, the IRS computers will not be able to read the forms and will reject them. Second, it is doubtful that you will be printing on multi-layered carbon paper, which means you will have no Copy B of the 1099. Obviously, either situation can attract unwanted attention from the IRS.
You can order forms from the IRS by calling 1-800-tax-form or ordering them off of the IRS website [do not download]. The IRS suggests it typically takes at least two weeks for the forms to be delivered, but keep in mind that it may take longer. If you need the forms sooner, you usually can find them at libraries and post offices.
About The Author
Richard Chapo is CEO of http://www.businesstaxrecovery.com -
Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review. He can be reached at richard@businesstaxrecovery.com.