Personal Finance, Loans & Insurance

There can be a lot of confusion surrounding Development Finance and what it implicates within the financial world. People tend to confuse Development Finance with Commercial mortgages, which is more than easily done as the two do tend to overlap one another. Development finance is where an individual or company/business is looking to develop property/properties and have some capital but need a short term loan to help complete the development. Depending upon the lender and the circumstance, such loans normally span between 12-24 months. Commercial Mortgages on the other hand, are usually only required once the development has been completed and additional funds are necessary. Hence, Development Finance and Commercial Mortgages do tend to overlap. Despite the “Credit Crunch”, Development Finance is rapidly becoming more main-stream and is a very specific type of finance. Development finance is an extremely active market, with businesses wanting to expand for survival during the economic downturn. There are many high street lenders out there and therefore there is a wide variety of development finance specialists available to the consumer. It is recommended that you seek professional advice in order to find the right deal for you.

Typically in the UK, Development Finance is used for various development plans such as; Property Refurbishment, New Build Projects, Property Conversions and initial land purchase and international projects. Additionally, there are various types of Development Finance which undoubtedly adds to the confusion and uncertainty surrounding the term. For example, a Senior Debt Loan usually covers the first 70% – 80% of loan to value although it can be arranged against gross development value. A Mezzanine Loan is a second charge loan on top of the senior debt loan, usually used to fund costs on one property while a developers financial resources are tied up elsewhere. Finally, Joint Venture 100% Finance contracts you with an experienced partner who underwrites the project and shares the profits upon completion.

Property development is about having a vision; it’s about understanding the market and turning that vision into a reality. However, developers often have problems getting the finance right and knowing what products are available and which lenders to use can be confusing. The forms of development finance are dependent upon personal circumstance, for example whether you are a company wishing to expand, a home owner hoping to develop, or a home owner looking to start anew. Funding is also available through this method for community projects which aim to provide; economic development, affordable housing and community development financial services. Therefore, Development Finance is determined entirely upon an individual assessment made by the lender. Lenders will look specifically at aspects of the development proposal, such as; land purchase, ground work/services, footings/base, first fix/second fix and final snagging/sign off. In the difficult current market, lenders have to be more careful when choosing which developers to back; they are much more likely to support a developer with experience in the field than someone new to the industry.

Development finance is somewhat a necessity to make your development vision a fruitful reality. No matter what particular development loan you have opted for, most can cover building costs, labour and architect/professional costs. Property development loans will be secured against the land or the property you wish to develop. Newer forms of Development Finance funds are available either for debt, mezzanines or equity in combination with primary lending sources. More traditional forms, like with Commercial Mortgages, normally require a deposit of at least 20-30%.

Loan to Value rates and interest rates vary depending upon experience and percentage of funds required for development. Benefits of this form of finance includes that each development case is assessed on its own merit and it’s a form of finance that can be raised quickly, putting your development project into fruition as soon as possible. Another advantage of this form of finance is that the lender will always be there to help manage the development programme and lend support. So, whether you intend to use your finished project as an investment or whether it’s used to help your business grow, Development finance is a fully supportive and flexible form of financial assistance to help you make that vision a reality.

There are two different categories of commercial financing from an accounting perspective: on-balance-sheet financing and off-balance-sheet financing. Understanding the difference can be critical to obtaining the right type of commercial financing for your company.

Put simply, on-balance-sheet financing is commercial financing in which capital expenditures appear as a liability on a company’s balance sheet. Commercial loans are the most common example: Typically, a company will leverage an asset (such as accounts receivable) in order to borrow money from a bank, thus creating a liability (i.e., the outstanding loan) that must be reported as such on the balance sheet.

With off-balance-sheet financing, however, liabilities do not have to be reported because no debt or equity is created. The most common form of off-balance-sheet financing is an operating lease, in which the company makes a small down payment upfront and then monthly lease payments. When the lease term is up, the company can usually buy the asset for a minimal amount (often just one dollar).

The key difference is that with an operating lease, the asset stays on the lessor’s balance sheet. The lessee only reports the expense associated with the use of the asset (i.e., the rental payments), not the cost of the asset itself.

Why Does It Matter?

This might sound like technical accounting-speak that only a CPA could appreciate. In the continuing tight credit environment, however, off-balance-sheet financing can offer significant benefits to any size company, from large multi-nationals to mom-and-pops.

These benefits arise from the fact that off-balance-sheet financing creates liquidity for a business while avoiding leverage, thus improving the overall financial picture of the company. This can help companies keep their debt-to-equity ratio low: If a company is already leveraged, additional debt might trip a covenant to an existing loan.

The trade-off is that off-balance-sheet financing is usually more expensive than traditional on-balance-sheet loans. Business owners should work closely with their CPAs to determine whether the benefits of off-balance-sheet financing outweigh the costs in their specific situation.

Other Types of Off-Balance-Sheet Financing

An increasingly popular type of off-balance-sheet financing today is what’s known as a sale/leaseback. Here, a business sells property it owns and then immediately leases it back from the new owner. It can be used with virtually any type of fixed asset, including commercial real estate, equipment and commercial vehicles and aircraft, to name a few.

A sale/leaseback can increase a company’s financial flexibility and may provide a large lump sum of cash by freeing up the equity in the asset. This cash can then be poured back into the business to support growth, pay down debt, acquire another business, or meet working capital needs.

Factoring is another type of off-balance-sheet financing. Here, a business sells its outstanding accounts receivable to a commercial finance company, or “factor.” Typically, the factor will advance the business between 70 and 90 percent of the value of the receivable at the time of purchase; the balance, less the factoring fee, is released when the invoice is collected.

Like with an operating lease, no debt is created with factoring, thus enabling companies to create liquidity while avoiding additional leverage. The same kinds of off-balance-sheet benefits occur in both factoring arrangements and operating leases.

Keep in mind that strict accounting rules must be followed when it comes to properly distinguishing between on-balance-sheet and off-balance-sheet financing, so you should work closely with your CPA in this regard. But with the continued uncertainty surrounding the economy and credit markets, it’s worth looking into the potential benefits of off-balance-sheet financing for your company.

A complicated business finance process can occur when an investor previously familiar only with residential real estate begins investing in commercial real estate investment property and business opportunity situations. Before a borrower attempts to buy a business, it is important to develop a business loan and commercial mortgage strategy.

There are many key differences between financing for commercial property investing and residential real estate investments. Because more residential property investors are exploring commercial real estate and business finance opportunities, this business opportunity financing and business loan report is designed to help educate new commercial investors about key commercial mortgage and commercial loan issues.

Rather than specifically focusing on issues that differentiate business financing from residential financing (which we have thoroughly analyzed in separate reports), this report will offer a few key observations regarding business finance elements that are often overlooked in new business investment considerations. These factors include credit card processing, business cash advance options and working capital management.

Coordinating Credit Card Processing and Business Cash Advance Programs -

Many business investments will involve the use of credit card processing decisions. These business activities should be analyzed simultaneously with business cash advance programs for several reasons. If done properly, a business should reduce their costs and improve their cash flow.

Reducing Credit Card Processing Costs in Business Investing -

One of the biggest benefits of coordinating credit card processing with a business cash advance program is the real potential that overall costs can be reduced. Such an advantage is likely to be available in conjunction with the most progressive programs by linking a low cost credit card processor with the best merchant cash advance program. Many of the best credit card processors will not be available for businesses other than through a high-quality credit card financing arrangement.

Improve Cash Flow for Business Investments -

Credit card factoring strategies can produce a business cash advance up to several hundred thousand dollars. For most businesses, this level of financing is not routinely available via other business finance programs. The decision to choose credit card financing to secure a merchant cash advance is an increasingly practical business financing response to business lenders eliminating line of credit programs.

It is important to realize that there are certain key limitations and potential difficulties with business cash advance strategies. New business owners will occasionally eliminate using a merchant cash advance without adequately considering the overall benefits because they are confused by this business finance approach. Although credit card factoring is frequently considered to be a short-term commercial financing strategy, there are also effective longer-term variations which should not be overlooked.

Working Capital Management Strategies -

Obtaining a working capital loan is usually more effective when arranged in conjunction with buying a business. However many lenders do not adequately address this issue in the early business finance stages. Before completing a purchase offer to buy a business, all business loan issues should be discussed in order to fully understand overall commercial financing choices and limitations.

After acquiring a business, it is more likely that business or personal collateral will be a necessity in getting working capital financing. One major exception to this common collateral requirement will be the use of a business cash advance and credit card factoring as mentioned above.

Additional Key Investment Business Finance and Real Estate Mortgage Issues -

As previously noted, commercial mortgage and commercial loan requirements are very different from residential financing requirements in the United States. Additional business finance reports include a discussion of many other significant financing factors. Other reports address important subjects such as business opportunity loans, business appraisals, stated income business loan options and SBA loan programs.

Most of the additional articles will provide further detail about topics discussed in this report as well as offering business financing solutions for numerous other complex business loan situations. For example, some SBA loan processes can include working capital as part of the total initial financing. For those interested in learning more about both potential advantages and problems associated with coordinating credit card processing and business cash advance services, there are several additional resources (such as The Working Capital Journal) which will facilitate a better understanding of these complex business finance issues.

Finance and lease options for work and commerical trucks, such as semi trucks, dump trucks, construction trucks, boom trucks, car carriers, box trucks, concrete and cement trucks, day cabs, heavy duty trucks, logging trucks etc can be a acquisition and financing, leasing opportunity.

Today’s economy is all over the place and conventional work truck financing and leasing has dried up at many banks and/or lending institutions. Work and commercial  truck owners can seek and find special finance and lease opportunities in the secondary markets where there are repos and off lease trucks to be secured for acquisition.

These acquisition deals and related finance deals are spread out from California to the East Coast and enables start up and seasoned owner operators an unique opportunity to acquire a work trucks, trailers and related items for little or possible no money down… Some dealerships are tied to local or regional banks for built financing on these trucks. The clearance of these work trucks and related trailers are paramount for these dealerships and banks to continue operations.

 Some lenders offering repos and off work trucks in the repo market offer these trucks with a minimum credit score of 550. This gives the startup and/or seasoned business an opportunity to start and/or expand their fleet with bad credit. This opportunity would have never existed in the past. Other lenders offer no credit check but are reference and income driven to make sure they have qualified a good candidate to take over one of their over the work trucks.

The work truck financing and leasing doesn’t stop here, others lenders with good credit and time in business offer no down payments and up to 60 months to repay. This obviously gives the over the work truck owner operator an unique opportunity to acquire work truck financing.  Other work truck financing. leasing programs start at 575 and the down payments can be anywhere from 6-10% down based upon the applicant and the specific work truck. In addition, if you are a cash buyer, there is large opportunity to acquire a work truck at a substantial discount…

.In today’s economy, we have even found reference driven lenders, credit reports aren’t considered as the main criteria for financing and leasing. Prior Bankruptcies can be a roadblock for many finance deals, however these lenders will look at them on a deal by deal basis and in most instances will not be a deal buster…All trucks are reconditioned and subject to your inspection prior to release….

The residual buyout clauses in these lenders can range from a .00 buyout to 15% residual buyout( Trac lease) So it is important to understand your buyout Clauses and the effect on your particular deal..

The types of work trucks we are talking for financing and leasing are built by:

Peterbilt, Kenworth, Freightliner, Mack, International, Volvo. Sterling, Ford, GMC etc

 In conclusion, this is a buyers market for owner operator trucks, and  trailers,   . Check out all the deals in the market and make sure that you have a stable income base to assume whatever finance and lease arrangement that you may occur.

 Happy hunting for your acquisition and related work truck finance and lease opportunity.