December 26, 2013 By

Business Loans and Receivables Financing in Canada

Financial institutions in Canada offer different types of business loans to start-ups, franchises, and large and established businesses. The main sources of business financing are credit unions and banks. Small business grants, angel investors, and receivables financing are other options to gain access to funding.

Types of Financing

Businesses have access to different sources of funding such as leaseback and sale solutions, inventory financing, and confidential invoice discounting. Other sources include credit card receivable and purchase order financing and confidential invoice discounting. Micro loans are another option for businesses. There are different micro lending practices and loans available to start-ups, entrepreneurs, and small businesses. The funds can be used for different purposes, including machinery and equipment, working capital, fixtures and furniture, supplies and inventory, and others. The terms and repayment schedule vary based on different factors such as needs and requirements, the planned use of the funding, as well as the amount required. Microloans are offered by government agencies through financial institutions that serve as intermediary lenders.

Other Sources of Financing

Borrowers are offered other sources such as subordinated debt and mezzanine financing, asset based lending, operating lines, and working capital credit lines. Receivable financing is another option for businesses. This is a type of arrangement whereby the applicant uses its receivables as a form of collateral. It is done to guarantee repayment and obtain favorable terms. The financial institution offers a loan that is equal or smaller than the value of the receivables. It is not a good option for old receivables.

Factors to Consider

The type of loan to apply for depends on factors such as purpose, credit quality, and the company’s stage of life cycle. It can be distress, maturity, high growth, or start-up. Large, established companies have better chances of getting approved for a business loan. The options available also depend on your industry or sector. Companies in the hospitality, service, and retail sectors are at a disadvantage, especially new businesses and start-ups. They are considered high risk compared to companies in other sectors. Businesses with better chances include agricultural producers, wholesale companies, real estate agencies, insurance firms, and finance companies.

One factor that improves your chances of getting approved is a solid business plan. Other factors include your credit and payment history and whether there are late and missed payments, delinquencies, etc. While some companies are offered plenty of options, others are forced to look into rare and exotic types of financing. The most important thing is to consider your optimal debt level, especially if you already have debt.

Filed Under: Loans Tagged With: ,
December 18, 2013 By

Differences between Standard and Risky Loans

The main difference between standard and risky loans is that the latter come with unfavorable terms, high fees, and outrageous interest rates. This increases the risk of default and future financial problems. It is usually borrowers with tarnished credit who apply for risky loans.

Standard Solutions

Standard loans are offered by banks, credit unions, online banks, and other entities. They come with features such as fixed or variable interest rate, fixed term, pre-determined repayment schedule and periods, collateral, and others. Standard solutions include student, home equity, auto, consumer, and other personal loans. There are two main categories – secured and unsecured debt. With both types, the amortization period and the repayment schedule are pre-defined. For instance, it can be a $3,500-loan that is repaid within 3 years in installments at an interest rate of 6 percent. Some financial institutions also offer loans with no prepayment penalties. This feature allows borrowers to repay the outstanding balance faster. Likely candidates are applicants with a good credit score and those who offer collateral or apply together with a co-signer. Financial institutions usually run a credit check.

Risky Solutions

Unlike banks and credit unions, finance companies that offer risky loans do not run a credit check. Another difference is that lenders offer small amounts in the range of $100 to $1,500. In comparison brick-and-mortar banks offer larger loans. One example is payday lenders that provide loans to borrowers with poor credit. They feature instant approval regardless of the borrower’s credit history. Customers who need quick cash often choose this option, especially if their options are limited. For many people, this is a solution to their short-term needs.

This type of financing is considered risky because of the extremely high interest rates. Payments can be structured in different ways, either as interest-only payments or lump-sum amounts. The first option is riskier because it involves rollovers or renewals. Borrowers are allowed to roll over the balance, with lenders charging high fees for this.

Loan sharks also charge very high interest rates. They use illegal lending practices such as threats and blackmailing. Basically, these are persons or entities that charge above the established rates and are involved in other extra-legal activities. Loan sharks offer financing to individuals and businesses that are considered too risky by banks and credit unions. Hundreds of thousands of people around the world are indebted to predatory lenders.

Alternatives

If your application has been denied by your bank or credit union, you may want to look into alternative sources such as a credit card, line of credit, or peer to peer lending. Risky loans are a last resort for borrowers who need instant cash.

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December 14, 2010 By

Financial Articles

This is a site devoted to the world of finance. The world of finance is a mistery for most of the people, but we have tried to explain various financial words and phrases in plain English. Everybody has to learn about finance and how to make money in this world. Trying to avoid financial education is showing ignorance and will not help you. Educate yourself about the world of finance and you’ll be a better person, at least financially :).

Finance is the science of managing funds and the art of making well-informed financial decisions. On a personal level, finance may include finding sources of income, managing bill and debts payment, as well as establishing a monthly budget. On a business level, it entails assessment of the financial status of a company, setting up a payroll, investing money for the purpose of income generation, and making use of services offered by financial institutions. All these form part of a wise decision making process. Finance can also be public. Government entities collect taxes and allocate these funds to finance developmental projects, community enrichment projects, and the like.

The Need for Financial Literacy

Financial education is not only intended for business establishments and government entities. Everybody has to make well-informed choices when it comes to finance, especially with regard to financial management. At least in the developed world, people use cash on a daily or regular basis. This fact suggests that financial education should be taken seriously by everyone. In fact, developed countries such as the United Kingdom, United States, Japan, and Australia have developed their own state-sponsored programs in personal finance. In 2008, the Organization for Economic Co-operation and Development also launched its program International Gateway for Financial Education, serving as a clearinghouse for research, education programs, and information worldwide. The United Kingdom and Unites States have established their government bodies that deal with financial education: the Financial Services Authority and the Financial Literacy and Education Commission, respectively.

During the past few years, many people felt the impact of the financial recession. Businesses went bankrupt; workers were laid off, with some losing their homes and other valuable properties. At the same time, some individuals remained financially stable, and that is attributable to the fact that they managed finances well.

Financial education can be free or paid. Sometimes, financial counselors offer free consultations while other services are provided for a fee. Although serious financial management coaches offer their services for a certain cost, there are free sources of financial education (well, sometimes not totally free). Finance-related articles over the Internet are typically provided free-of-charge (except for the cost of the Internet connection). There are also free financial seminars offered by government entities, aiming to enhance the financial management awareness of individuals.

Managing your Finances

Good financial management is a skill to be mastered through proper education, practice, and experience. It is important to bear in mind that financial education comes first. Without knowledge of the correct techniques or methods at work, you will only end up losing money rather than making it.

One of the best ways to manage your money on a personal level is to come up with a budget and stick to it. In the majority of cases, people end up in lots of debt due to poor financial management skills or at least poor budgeting skills. To make sure your financial status is a sound one, make more money than what you spend.

Investment

Another aspect of finance to take into account is investment. This term refers to the purchase of financial instruments or products with the aim of gaining profit. To make money, you need to invest resources in a profitable market. Running a profitable small business, playing with stocks and bonds, and engaging in buy and sell schemes are all examples of investment. However, to make profit in any area of endeavor, you have to educate yourself and conduct a good amount of research.

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