The SLS Business Finance Blog

WE HAVE MOVED!!!

2009-03-11T13:05:00.000-07:00

For all of our long time subscribers...we have moved to our own home on the web. We are no longer renting space, but have purchased a home.

PLEASE VISIT OUR NEW DOMAIN

http://slstechbiz.com/

Visa Ahead Of The Curve

2009-03-11T05:04:00.000-07:00

Strong Beginning To 2009

Just when you thought it was all doom and gloom in an ailing economy, a beacon of light. Defying economic trends, Visa reporting a net operating revenue of $1.74 billion in 2009. This is a 17% increase from its $1.49 billion at this point 2008. This figure is the result of positive growth in all categories. The largest sector being international transaction revenues, $500 million to be exact. The company anticipates positive net revenue growth for all of 2009. There is however, talk that 2010 could bring declining economic conditions in the credit card industry. Many analysts feel that the implosion that has wreaked havoc on the economic front will indeed spread to the credit card sector. As more and more people rely heavily on credit just to get by, this to could result in the house of cards tumbling. In the short term.....Visa stands strong in a turbulent market.

Todd
Southern Lending Solutions

New Program Announcement: Unsecured Business Lines of Credit

2009-03-09T08:50:00.000-07:00

Readers of this blog know that I believe in it being informational and rarely, if ever, do I talk specifically about our services and programs. Today I have to make an exception and talk about a program returning into the fold of our offerings at Southern Lending Solutions.

The reason for this exception is due to the fact that this program addresses the primary problem for small businesses today, access to credit and credit lines.

So I am pleased to announce:

The Southern Lending Solutions Unsecured Business Line of Credit Program

This program is a revolving line of credit and as we all know these days, credit is important to the growth and sustenance of small and middle market companies.

Who qualifies:

1) A Credits (generally 700 or higher FICO scores)
2) 2 Years Time in Business (from date of incorporation)
3) Clean D&B Report (if one is listed for the company)

What's it cost?

A range of Prime plus 5 to Prime plus 12, depending. Currently, Prime is @ 3.25% so this variable rate starts at 8.25%.

If all 3 apply, then an application is all that's required. No tax returns, No business financials, No personal financials and no pre-existing relationships with the funders or banks are required.

A great program where everyone who qualifies should jump on board regardless of need, since as we have seen to need credit and not have it can devastate a business.

Stu
Southern Lending Solutions

Even More on Collateral

2009-03-04T11:33:00.000-08:00

So Collateral affects pricing. How do we lend against it?

There are 2 circumstances where we lend against collateral. They are:

1) Use of additional collateral to back a lease for a new piece of equipment
2) Refinancing the collateral to generate cash (known as a Sale/Leaseback)

Clients can use existing collateral to back a new lease when they want to bring the risk to the funder down, and therefore the price or when the equipment is sitting there not being fully utilized. More often then not, existing collateral is used to back a new lease because the credit is weak and its the only way to get the deal done.

Refinancing existing collateral can occur when credit is weak or when its strong but in either case, usually it means there's a cash need in the business. A business that is equipment rich and cash poor. When credit is strong and there's extra collateral, then that's 2 strong C's and that equates to lower prices.

Stu
Southern Lending Solutions

More On Collateral

2009-02-26T06:44:00.001-08:00

Collateral can be a big factor in the approval process for an equipment lease.

Does collateral affect pricing? Absolutely

If collateral is strong (heavy asset or something with a large active secondary market), then a residual value can be more easily established and profit through the resale of the equipment more easily attained by the lessor. Those things mean better pricing, higher residual value and lower stream rate (interest rate payable on the monthly payment stream).

Why does a higher residual mean a lower stream rate?

Think of it this way, let's say the lessor's required return is 12%. With no residual, the 12% most come from the payment stream. With a good residual value, some of that 12% can come from the payment stream and some from the resale of the equipment (either to the lessee or in the secondary market if the equipment is returned. Here is an illustration with a $10,000 lease over 36 months:

Equip Value 10000 10000
Term 36 36
Residual 1000 1
Payment 329 329
Rate 6.26% 12.03%

Note the difference with the same monthly payment. The lessor only gets 6% of their return from the 36 month payment stream. The client (and lessee) also benefits because if the equipment is returned, then the $1000 residual value is saved since they aren't paying for that as well. A true win/win.

Stu
Southern Lending Solutions

Collateral Based Leases

2009-02-23T07:24:00.000-08:00

Collateral can be an important factor in both the approval and the pricing of a lease. How so?

There are many companies in the equipment leasing business that make their $$ off the residual values. Many leases, and all true leases, are structured with a residual value and purchase option. Often that purchase option is $1, 10% or Fair Market Value (FMV). So leasing companies can make $$ on the residual if they do a 10% option and their real cost is 5 or 6%. That spread becomes their profit. Since lease rates have to be affordable and competitive, as well as profitable, this means lessors have to be familiar with the equipment type and know how much they can resell the equipment for should the client (the lessee) return the equipment. If the residual value is way too high, then the payments are way too low (at the same lease rate) and the lease isn't profitable so its a balancing act.

There are other factors that influence collateral's affect on pricing as well for future entries.

Stu
Southern Lending Solutions

Cash Flow

2009-02-20T04:20:00.000-08:00

Everyone has heard that Cash is King and that's never been more true than it is today since companies have less access to credit than they used to. So what's important in analyzing a lease based on cash flow?

By cash flow, we mean cash flow circulating through the business. Cash Flow is one of the 3 primary business financial statements, along with the Income Statement (also known as P&L for profit and loss) and the Balance Sheet. The only exception to this is for startups where there is no cash flow and that cash flow has to come from another income source, other assets or from savings. One of the benefits of strong cash flow is often times, this equates to good business credit, as measured by Paydex, a service provided by Dun and Bradstreet.

In nearly every case we need the previous year's 3 financial statements and sometimes we need 2 years in order to look at trends. Remember, these companies often don't qualify on credit alone so more information is almost always required.

Debt Service Coverage Ratio is the ratio that defines the risk in this type of lease. How much cash flow runs through the business that can be used to service the debt? Most prefer to see a ratio of 2x or 2.0, meaning that the free cash flow covers twice the amount of the lease payment.

By analyzing cash flow of a company where cash flow is strong but credit is weak, we can often use the strength of the cash flow to answer the ultimate question, will they be able to pay this lease back.

Having poor credit makes it tougher but its by no means impossible especially if strong steady solid cash flow is a part of the picture.

Stu
Southern Lending Solutions

The 3 C's of Lending

2009-02-16T06:03:00.000-08:00

Bankers are taught these in credit training and everyone who is in any money lending business looks at the 3 C's. What are they? They are:

1) Credit
2) Cash Flow (as measured by Debt Coverage Ratio)
3) Collateral

What differs between lenders of all types (even successful ones in different areas) is how they analyze the C's, which they emphasize more and what risk they attach to each C.

Bankers often require having all 3 C's or at least 2 very strong (Credit and Cash Flow usually). What makes equipment leasing different is often strength in only one C can still mean getting a deal done to get a client the equipment they need.

For instance, I use a couple equipment leasing companies that care much more about the cash flow of the business OR the collateral (in this case the equipment being leased) than they care about the credit profile of the owners. This is especially helpful in an environment like we have now where nearly every one's credit profile looks a little worse now than it did a year or two ago.

One company I'm currently working with has a terrible credit history but has good cash flow in their business and their need is for manufacturing equipment that helps increase their output of product. This is an ideal case for us as a banker would never touch a credit profile like this but for us, they have 2 of the C's covered (Cash Flow and Collateral). Two C's means we can find a home for them to get this new equipment that they need.

Most everyone understands the idea of credit based lending and pricing since that's how mortgages are often priced so we'll focus the next couple entries on the other C's of Cash Flow and Collateral and how they play into approvals and pricing for equipment leases.

Stu
Southern Lending Solutions

Changes at Marlin Leasing

2009-02-09T07:31:00.000-08:00

Reprinted from Leasing News

January 6, 2008 SEC filing:
“On December 31, 2008, the Registrant’s wholly-owned subsidiary, Marlin Business Bank (“MBB”), received approval from the Federal Reserve Bank of San Francisco to become a member of the Federal Reserve System. In addition, on December 31, 2008, the Registrant received approval from the Federal Reserve Bank of San Francisco to become a bank holding company upon the conversion of MBB from an industrial bank to a commercial bank.

The Registrant has three months from the approval date to consummate the transaction unless such period is extended by the Federal Reserve System. Prior to consummating the transaction, the Registrant will seek to modify the Federal Deposit Insurance Corporation (“FDIC”) Orders issued when MBB became an industrial bank to eliminate any inconsistencies between the FDIC Orders and the Federal Reserve Bank’s approval.”http://www.snl.com/Cache/c7177044.htm

Editor's Note: Marlin had been a Utah Industrial Bank, but this filing allowed them to convert to a business bank and become part of the Federal Reserve system, allowing them to receive TARP funds.

This comes on the heels of them closing their broker division, which according to The Leasing News, is Marlin's most profitable division. These things together spell financial difficulty for the lessor and serve as a red flag to other lessors who have vendor divisions whose policies are too liberal.

Stu
Southern Lending Solutions

Can I still lease in this environment?

2009-01-31T06:08:00.000-08:00

This is a question I am getting asked more frequently as the financial system continues to lack in stability. The short answer is Yes you can.

What is different now?

1) Credit underwriting guidelines are tighter.
This is no big surprise but get the obvious one out of the way. When companies have less $$ to lend and fund, guidelines tighten

2) More due diligence and restrictions
Since tough times usually see increases in criminal and fraudulent activity, due diligence is on the rise for lessees and their vendors selling them the equipment they need. Also, more industries and other circumstances are becoming restricted.

For instance, 2 of my funder partners examined their portfolios and found an unreasonably high % of defaults from lessees in California. So a policy change was announced at both, in the form of a freeze on new business origination in CA. This kind of internal credit and portfolio examination is commonplace now.

3) Startups are more difficult and more restricted
Startup businesses are tougher generally and certain industries like restaurants, startups have been restricted almost entirely.

4) Funders going out of business
Some funders are going out of business entirely or are getting out of the broker originated so it means that there is less choice out there than there used to be for funding leases.

5) Lease rates are increasing
See # 4 above. Also, lease rates are increasing thanks to the market for Treasury rate swaps, an instrument where a rate of interest on Treasuries is traded (swapped out) for the monthly payment stream on the Treasury (more to come in a future entry on this topic). These swaps are not the cause of the financial market meltdown though, as those swaps are known as credit default swaps.

So these 5 things are the major changes but leases are still being approved and funded. So while some deals in some of these areas are more difficult to do than they used to be, there are still many places, sources and resources available for funding leases.

Equipment leasing remains one of the best and most widely available sources of capital for a business even in today's environment.

Stu
Southern Lending Solutions

Biggest Banks Lending Less After Getting TARP Funds

2009-01-29T06:33:00.000-08:00

The January 26th edition of the Wall Street Journal reported this story.

Despite its stated purpose to increase liquidity in the credit markets, the largest recipients of bailout money under the Troubled Asset Relief Program are actually lending less today than before they received government assistance, according to an article published today (1/26) in The Wall Street Journal.

A Journal analysis found that ten of the 13 large banks that have received funds so far saw their outstanding loan balances decrease $46 billion, or 1.4%, in the fourth quarter. Among those whose lending has declined are Bank of America Corp. and Citigroup Inc., each of which received $45 billion under TARP. Only three of the banks reported growth in their loan portfolios: U.S. Bancorp, SunTrust Banks Inc. and BB&T Corp.

The reluctance of banks to lend the money they have received under the government bailout package has prompted resounding criticism of the TARP program and led many to question its efficacy. Now the government says it wants an accounting of the money. In a January 16 letter to 20 banks receiving TARP funds, Neel Kashkari, the head of the program, asked the banks to provide monthly accounting statements detailing commercial and consumer lending activity. "The purpose of this snapshot is to provide insight into the lending and financial intermediation activities of the largest recipients of the CPP (Capital Purchase Program)," said Kashkari.

Editor's Note: Since the initial TARP $$ did not have covenants attached that included requirements to lend, banks have been using the $$ for other purposes, namely activity like acquiring weaker competition who did not get TARP funds but still hold valuable deposits worth buying. This kind of activity is what makes having a good banker and multiple sources for access to cash or credit so vitally important in this challenging environment.

Stu
Southern Lending Solutions

Georgia Banks' Problems 'Alarming'

2009-01-12T05:42:00.000-08:00

Reprinted from the Atlanta Journal Constitution

In ‘brutal’ third quarter, 26 banks had Texas ratios over 100%

By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Sunday, January 11, 2009

More Georgia banks faced deeper problems from souring loans and other challenges in the third quarter, based on a commonly used measure of their financial health.
The number of banks with high “Texas ratios” — a figure that attempts to gauge how likely institutions are to face insolvency — grew during the quarter ended in September. Most banks’ ratios also got worse.

“The third quarter was brutal,” said Walt Moeling, an Atlanta attorney who represents many of the state’s banks and the Georgia Bankers Association, a trade group.
Georgia once again had the largest number of troubled banks in the nation, with 26 banks with Texas ratios over 100 percent, said Brett Villaume, a research analyst at Atlanta bank consulting firm FIG Partners, which produced the quarterly update based on third-quarter data, the latest available.

“It’s just alarming,” he said. “No other state came close.” He said Florida had seven problem banks, the next largest concentration. Georgia and California tied for the biggest share of the nation’s 26 bank failures last year, with five each.

Moeling said 90 percent of local banks reported increases in problem loans or foreclosures during the quarter as the economy worsened and home sales and building activity remained virtually frozen. More home builders’ and developers’ loans went unpaid, and most local banks booked bigger charges for expected loan losses.

Previously, “there was a lot of denial” among some bankers who hoped home builders could catch up on late loan payments if the real estate market improved, said Moeling, with law firm Bryan Cave Powell Goldstein. “The third quarter ended the period of denial.”

The Texas ratio — developed during the savings and loan crisis in the 1980s, when far larger numbers of financial institutions failed — attempts to measure a financial institution’s health by comparing its total defaulted loans and foreclosed properties to total cash reserves and other funds it has available to absorb potential losses. A ratio over 100 percent suggests “you owe more than you have,” Villaume said.

Critics of the Texas ratio say it provides a one-time snapshot and doesn’t reflect the bankers’ ability to shore up cash reserves by raising capital, selling foreclosed houses, cutting expenses and generating additional revenue.

“A lot of things could have changed” since the third quarter ended in September, said David Oliver, spokesman for the Georgia Bankers Association. “We advise people to exercise caution when looking at those numbers.”

Georgia’s bumper crop of problem banks has its roots in the creation of more than 100 new banks since 2000, mostly in metro Atlanta. Those and older banks in turn bet heavily on metro Atlanta’s then-booming residential real estate market by bankrolling developers and home builders. Many of those loans imploded after the real estate market crashed.

“There was an oversupply of new banks. And needless to say, when times got tough, they were the first victims,” Villaume said. “Everyone on the street who was watching for bank failures was surprised there weren’t more [failures] in 2008,” he said.

Still, he and other industry players argue that there are glimmers of hope despite continued grim industry trends. A handful of Georgia’s banks recently have snagged federal bailout money, shoring up their capital reserves.

Outside investors also have injected money or shown interest in a few of the state’s banks. Some troubled banks said they have made some progress toward digging out of their holes by cutting expenses and selling foreclosed properties or other troubled assets.

Five Georgia banks have announced that they were getting federal bailout money from the Troubled Asset Relief Program, or TARP, including Atlanta’s SunTrust Banks and Fidelity Bank, Columbus-based Synovus, and United Community Banks in Blairsville.

None of those banks were on FIG Partners’ troubled bank list. However, industry insiders said some banks on the list have also applied for TARP money. They expect more that currently don’t qualify because of their legal structure — typically the smallest community banks — to apply as well if the U.S. Treasury Department broadens its program rules to cover them.

The parent company of Jackson-based McIntosh State Bank, which landed on the Texas ratio list for the first time in September with a ratio of 101 percent, announced late last month that it is raising up to $14 million from private investors, including Atlanta-based Redemptus Group. McIntosh also said it has applied for $10.7 million from the federal TARP program.

“We feel real good, even though we did creep onto the list,” said William “Pete” Malone, McIntosh’s chairman and CEO.
David D. Stovall, chief executive of Habersham Bancorp., said the Clarkesville bank holding company likewise is applying for roughly $11 million in TARP money after raising new capital at year-end from a private investor.

“We’ve already injected $3 million of private money. … That should bode well in our favor,” said Stovall, whose bank had a 115 percent Texas ratio in September. He said the bank has been “fairly aggressive about addressing issues” by also selling about three foreclosed homes per month.
“We have plenty of capital and plenty of liquidity to ride it out,” he said.
Dan Baker, president of First Security National Bank, with a Texas ratio of 273 percent, said the Norcross-based bank has been able to sell most of its foreclosed homes with modest losses. But the pace is slow because “the public wants to buy them for nothing,” he said.
The 25-employee bank has cut four employees and foreclosed on more than a dozen home builders in recent months.

“It’s a shame, because they’re good people,” he said.

The bank’s federal regulators, who want the institution to raise additional capital, “have been working very closely with us,” Baker said. “I think we’re probably in for a slow 2009. I think we’ve got a ways to go to work through this real estate.”

State banking regulators “obviously want us to raise capital,” said Vincent Cater, chief executive of Freedom Bank of Georgia. The state Department of Banking and Finance hit the Commerce-based bank with a cease-and-desist order last month requiring several improvements. Cater said the bank, which had a Texas ratio of 175 percent, is “talking to several potential investors.” Meanwhile, it has been able to sell foreclosed homes relatively quickly and deposits “remain very stable,” he said.

“I think we’re seeing some leveling off. The problems don’t seem to be getting worse. They’re not getting any better,” he added. “I think we would obviously not like to be on the next [Texas ratio] list.”

Stephen Klein, chief executive of Omni National Bank, said its recent Texas ratio, 219 percent, “doesn’t do justice” to the Atlanta bank. “We do not have a liquidity problem,” he said, noting that the bank has “$105 million of cash in the bank” and rent coming in from about 70 percent of the roughly 500 foreclosed homes in its portfolio.

Unlike most banks, he said, Omni isn’t rushing to sell those homes because prices fell too far. Following an unusual strategy, the bank made most loans to home builders who were rehabilitating homes in inner-city Atlanta neighborhoods populated primarily by low-income black families.

But those neighborhoods were especially hard-hit, he said, after the market for subprime home loans froze up, sidelining many would-be buyers. Omni foreclosed on the builders and now rents the houses out until it can work through its problems, Klein said.
“If something happens to the bank, there’s going to be a … void in inner-city Atlanta,” he said.

PROBLEMS GROWING FOR GEORGIA BANKS

More Georgia banks have landed on a list of troubled institutions, as measured by a statistic known as the “Texas ratio.” The formula, used with some modifications by Atlanta-based FIG Partners, attempts to gauge risk levels at banks — the higher the number, the bigger the potential problems.

Bankers want to avoid a score above 100 percent, which indicates that a bank’s problem loans exceed the capital it has to absorb losses.

Editor's Note: While the Texas ratio is only a snapshot, it is indicative of the banking environment in the state of GA, that is so heavily real estate and construction based. The ones healthy enough to make it through this will likely expand into other forms of asset based lending once their books allow them to start lending $$ again.

Stu
Southern Lending Solutions

Benefits Of Payment Processing For Emerging Markets

2009-01-07T09:31:00.000-08:00

Credit Card Acceptance For Emerging Markets

Anytime that I get into a lengthy conversation regarding rates and fees for credit card acceptance, it ultimately leads to a discussion on Interchange. A discussion on Interchange is something I try to avoid unless it is absolutely necessary because most people get bored out of their minds. Interchange being the information highway that credit card transactions travel on and the fees associated with them.

A rare secret that most people don't know and rarely talk about is the exceptional pricing for emerging markets. Visa/MasterCard considers an emerging market to be any industry that is new, ground breaking, controversial, etc... You get the picture. Some of those markets include: multi-ethnic, non-profit, government, and defense(to name a few). Visa/MasterCard rewards those industries with a lower rate because they see these markets as untapped, and often containing higher volume and/or dollar amounts. In an earlier post I referred to the government office that pays by way of a purchase card for a helicopter. Price....$4 million dollars!
I think you're getting it now. In conclusion emerging markets are where it's at, and the credit card industry endorses them.

Todd
Southern Lending Solutions

GMAC Gets $5 Billion in TARP Funds

2008-12-30T09:53:00.000-08:00

Reprinted from The Monitor

GMAC said it has sold $5.0 billion of GMAC's preferred membership interests and warrants to the U.S. Department of the Treasury as a participant in the Troubled Assets Relief Program (TARP) established under the Emergency Economic Stabilization Act of 2008. In return, GMAC will be subject to additional regulation and must be in compliance with the executive compensation and corporate governance requirements of Section 111 of the Emergency Economic Stabilization Act.

Separately, the Treasury Department said it has agreed to lend up to $1 billion to General Motors so that General Motors (GM) can participate in the rights offering at GMAC in support of GMAC's reorganization as a bank holding company. In its announcement, GMAC said, "As a bank holding company, GMAC has improved access to funding to provide financing to consumers and businesses. In particular, the company intends to act quickly to resume automotive lending to a broader spectrum of customers to support the availability of credit to consumers and businesses for the purchase of automobiles."

GMAC also announced that GM and an affiliate of Cerberus Capital Management contributed to GMAC the $750 million subordinated participations in the $3.5 billion senior secured credit facility, as amended, between GMAC and Residential Capital, LLC in exchange for new common equity of GMAC.

In addition, GMAC announced that GM and an affiliate of Cerberus Capital Management entered into agreements to purchase $1.25 billion of new common equity. The U.S. Treasury and GM intend to enter into an agreement for the Treasury to fund GM's share of the new common equity. GMAC also announced that the conditions to its previously announced separate private exchange offers and cash tender offers have been satisfied and that GMAC has accepted all of the validly tendered GMAC old notes and ResCap old notes.

Editor's Note: GMAC was one of the largest originators of mortgages for many years. This statement and action is a clear indication they intend to get back to their original purpose, which was to provide access to credit for people buying GM cars and trucks.

Stu
Southern Lending Solutions

GMAC To Become A Bank

2008-12-26T12:21:00.000-08:00

The Feds have allowed the General Motors Corporation to become a banking institution in order to take advantage of the bail out dollars. Yet another company to make such a request. This is in addition to the over 17 Million approved in previous weeks to both GM and Chrysler. As a stipulation the Feds are requiring GM to reduce the amount of stake that they have in the company. The Federal Reserve Board granted GMAC's application on an emergency basis, shortening its normal review process. Emergency approval has become the Fed's routine practice this fall as it offers shelter to companies including investment banks Goldman Sachs and Morgan Stanley and credit card lenders American Express and Discover Financial Services.

Todd
Southern Lending Solutions

Best CD Rates

2008-12-26T07:29:00.000-08:00

Monitorbankrates.com offers a home on the web to find information and suggestions about your personal financing future. The company provides in depth articles and reviews on the latest trends in the market. Feel free to subscribe to their online news feed or use the mortgage calculator to find out payments on a home loan. Find out where to go and what information you will need to get the best cd rates on the market. You can review detailed information on the current state of the economy and what lending sources are offering the most competitive programs that suit your needs. If your interested in where to shelter your money, Monitorbankrates.com provides suggestions and the latest news regarding online savings accounts so that you can be sure that you are capable of making educated decisions with your money. Learn more about bank cd rates and which bank is providing the best return for your money.
Monitorbankrates.com reviews and details everything that you will need to know to prepare for your financial future and security. Don’t make decisions on your own. Use a resource that makes you capable of making the best choices with your money. With a variety of services offered and reviews to back them, monitorbankrates.com insures your ready for the challenges of today’s market.

What Is PCI Compliance?

2008-12-23T07:07:00.000-08:00

Payment Card Industry Compliance is a critical and ever changing standard that affects millions of businesses in the US. Most importantly it was created to help with the rising issues surrounding identity theft. The Identity Theft Resource Center, a non-profit organization in San Diego states that not only is identity theft no going away anytime soon, it’s out of control! Today’s economic climate provides the perfect catalyst for identity fraud. The PCI Data Security Standard (PCI DSS) originally began as five different programs from the five credit card schemes. Each company’s intentions were roughly similar: to create an additional level of protection for consumers by ensuring that merchants meet minimum levels of security when they store, process and transmit cardholder data.

Who has to comply you might ask?
Any business accepting credit cards must comply annually. There is no way around it. It is especially critical for those businesses that feel the need to store credit card info after an initial transaction is complete such as those doing recurring transactions.

Todd
Southern Lending Solutions

Perfect Cash Advance

2008-12-23T06:24:00.000-08:00

These days we all find ourselves in the situation of coming up short by the end of the month. It’s hard to know where to turn to when finances are tight. Perfect Cash Advance offers quick and easy solution to short term cash crunches. The company offers one of the quickest cash advance services on the market. You can fill out a quick on-line form that is 100% secure and often receive cash delivered to your account by the next business day. Payday loans are yet another service that Perfect Cash Advance offers. They work with many different lenders and will be able to provide you with a service that’s right for you. Why deal with the hassle of going out to a retail location when you can apply for a loan right from their website. The whole process is automatic and funds are wired directly to your account. Fees are deducted electronically as well so there is no need for reminders or statements. Many of the lenders will also work with you to meet your needs should you not be able to pay back the loan in the required time period. That’s one of the greatest benefits of working with a company that has an established reputation with many lenders. Fill out the simple on line application and find out why Perfect Cash Advance is a great fit for your short term cash needs.

Professional And Reliable Supply Chain Solutions

2008-12-23T05:49:00.000-08:00

Intermec Inc. is one of the leading supply chain technology companies, which not only offers unique and customizable products, but also the support necessary to keep your business running. Intermec acts a consultant as well as equipment provider to your company. They have a business model that supports and understands that the needs of businesses are different and will work to cater a solution that’s appropriate. Intermec provides supply chain solutions for a variety of industries including retail, healthcare, and transportation. From barcode printers to rfid readers, Intermec has a solution for you. You can review the companies website and see complete transparency of all their services. They offer education and training on all products and work to complete a seamless implementation in to your business. You can review case studies and white papers right from the company website and be sure that if you have questions regarding a fixed printer or one of the many other services and products offered, that they will provide a timely resolution to your requests.

Intermec has a worldwide network of distributors convenient to your location that represent the company and its products. Contact Intermec today and find out how they can offer technology as well as solutions for your business.

Visa Covers Lawsuit Charges

2008-12-22T06:45:00.000-08:00

Visa Inc. just deposited $1.1 billion into its litigation account to cover legal charges. Visa recently became a publicly held company, the giant set aside $3 billion to cover lawsuits, but the company has already spent $2.1 billion in a settlement with American Express Co for anti-competence practices. In addition, the credit card network agreed in October to pay $1.89 billion to Discover Financial Services over the next year for a similar settlement, surpassing the funds initially separated to cover legal charges.

Todd
Southern Lending Solutions

Visa Covers Lawsuit Charges

2008-12-22T06:40:00.000-08:00

Cutting Back On Unnecessary Spending

2008-12-22T06:25:00.000-08:00

The holiday season is upon us, so is the temptation for frivolous spending.
It may be necessary to spend on gifts for family and friends but to often we waste money on things we really don’t need for ourselves. In the back of our minds we know that we should be saving but can’t seem to resist the urge to spend on things that make us look or feel better.

A few questions that one should consider before purchasing. Is this item necessary for my family and I to survive? Is this item crucial for my family and I to get back and forth to work every day? Don’t laugh its important! A few items to look at that just aren’t necessary for survival these days. It is true that the $5 dollar cup of coffee at Starbucks is delicious, I love it myself, but we can certainly get the same result every morning by brewing a pot at the house. It’s great to spend money on manicures, new hairdos etc., but the family will appreciate you just as much if you do it yourself at home. Bottled water serves a good purpose and looks great in the package, but a $14 water filter can do the same at a greatly reduced cost. It’s truly is amazing that in spite of the economic conditions we all face, that people will some how find the money to spend on some of these ridiculous items.

We are all guilty of unnecessary spending but now is the time to take a hard look at how you and your family spend money. By making a few of the simple changes listed above, you might find yourself in a better position to weather the economic storm. As the new year approaches, take a good hard look at the family balance sheet and consider where cut backs can be made. There are free resources on the web that can also help with this task.

Small Ticket Funder Goes Down

2008-12-19T07:06:00.000-08:00

Reprinted from The Leasing News

Readers called Leasing News that they were informed Pentech was closing down.

Looks like Ben Millerbis, CLP, President & CEO of Pentech Financial, did not return with good news from the East Coast. He met with the “powers that may be” at Wachovia and Wells Fargo. His problem,his main bank Wachovia went under and was purchased by Wells Fargo, who looked at the what they acquired and evidently Pentech did not fit in, just as Ira Romoff experienced and others, too. Talk was the loss ratio was too high.

Millerbis did not return numerous telephone calls and Ron Wagner, CLP, head of the Navigator program wanted to defer all comments to Millerbis. Brad Brisbin, his high school friend and vice-president Brad Brisbin was on jury duty, the foreman. Cell telephone messages were made, which he always returned in the past can only mean it did not go together. They don’t know what to do.

Salesmen were automatically sent notices on their payday of December 16th with information if any changes, they certainly would be back. There has been no funding now for almost a month of leasing transactions.

It appears the company of 85 employees will be cut back to a winding down operation. Doesn’t look like a Merry Christmas. The Navigator program basically accepts the “rejects” of US Bank Manifest, so they could not get involved. Navigator status is unknown.

Wagner has personally been through many “close down” of leasing companies, the last being Commerce Security Bank Leasing in Sacramento, California. Millerbis who was been with Bob Jacobson, III, at Tri-Continental Financial, Mountain View, California (now selling time shares in Hawaii), in 1978 formed Pentek Financial, San Jose, California, which he sold in Alaska Pacific Bancorporation in 1982. He was also founding director of Silicon Valley Bank, Santa Clara, California. With the backing of John Otto of Heritage Leasing fame, he started Pentech Financial. Later Otto bowed out for Cambridge Partners backing (who reportedly are having their problems, too. Leasing News working on this story. editor)

Editor's Note: Pentech was a very good funder in the B/C paper space and a partner of US Bank Manifest Equipment Leasing (US Bank's Small Ticket Equipment Leasing Subsidiary). This sign is telling of some of things that are happening in the small ticket market even though many in the A-D space are still doing ok and actively seeking deals.

Stu
Southern Lending Solutions

Revisiting The Payment Portal

2008-12-19T06:45:00.000-08:00

In earlier posts we discussed the benefits of e-commerce and internet processing. As a reminder, businesses that accept credit cards are often unfamiliar with "the payment gateway". A payment gateway is a web based solution for credit card acceptance. Logging into a secure website allows the business to enter a credit card transaction and get instant approval all from the pc or laptop. It is an exceptional opportunity specifically for those industries that bill on invoice or have reoccurring business. Simple parameters can be set to automatically handle specific customers differently, an option that certainly is not available with the standard credit card terminal. The ability to access a merchant account remotely at anytime, adds a great value to an already popular service.

Todd
Southern Lending Solutions

Credit Card Education

2008-12-19T06:37:00.000-08:00

How many times have you received phone calls from companies offering credit cards with a great interest rate? You probably receive just as many pieces of mail offering the same service if not more. The ads portray a very convincing message but it’s certainly hard to know what to believe. Yourcreditnetwork.com has a home on the web were consumers can go to get advice on all of the spin on credit. They don’t charge any upfront fees to the consumer and are proud to say that their service truly is offered with the customer in mind. From consumer cards for poor credit, to cash back credit cards, Yourcreditnetwork.com provides understanding in this market. Review the question and answer section and get answers to the most commonly asked questions in the industry. They provide very detailed information on all of the major card offers including detailed reviews along with company history. The company offers very powerful search features that include searches by consumer or business needs, to searches of the banks themselves. You’ll know what you are qualified for and where to get it after reviewing their website. Fill out a simple questionnaire right on the website, and receive quotes and pricing from all of the big companies. From consumer to cash back credit cards, Yourcreditnetwork.com offers the right information to navigate the credit card industry.

Being Informed About Auto Insurance

2008-12-19T06:02:00.000-08:00

If you are interested in reviewing information and receiving quotes on car insurance rates, than CarInsuranceRates.Com has your needs covered. Since 1997 the company has been providing tips and tools on how to navigate the auto insurance industry. They offer many educational articles discussing everything that you will need to make an informed decision when purchasing auto insurance. Use the advanced search feature to find specific information indexed in their archives. After reviewing the wealth of resources on the website, you can take that information and make an informed decision when purchasing insurance. Answer a few quick questions on their website and receive car insurance rates from multiple lenders. The company provides the consumer with a very detailed state by state insurance guide so that you can be sure that you are well informed of all the hurdles you might face in your state. CarInsuranceRates.com has a question and answer section that outlines and answers all of the most commonly asked questions regarding car insurance rates. You can also review the glossary of terms on the website so you will be familiar with the language of the industry. Being informed when purchasing car insurance is a necessity. CarInsuranceRates.com offers everything you’ll need to make the best decision possible.

What Determines Lease Rates??

2008-12-18T12:12:00.000-08:00

Lease rates are often determined by two things that most people are not aware of. Those two things are 3 and 5 Year Treasury Rates and 3 and 5 Year Treasury Interest Rate Swaps.

3 and 5 year Treasuries are something many people are aware of. They are bonds issued by the Federal Government with a 3 or 5 year period until maturity, when the repayment of principal occurs. Interest payments are made in the interim on a quarterly or annual basis. They are the basis for some lease rates because the average lease period is 3-5 years.

An Interest Rate Swap is An exchange of interest payments on a specific principal amount. This is a counterparty agreement, and so can be standardized to the requirements of the parties involved. An interest rate swap usually involves just two parties, but occasionally involves more. Often, an interest rate swap involves exchanging a fixed amount per payment period for a payment that is not fixed (the floating side of the swap would usually be linked to another interest rate, often the LIBOR). In an interest rate swap, the principal amount is never exchanged, it is just a notional principal amount. Also, on a payment date, it is normally the case that only the difference between the two payment amounts is turned over to the party that is entitled to it, as opposed to exchanging the full interest amounts. Thus, an interest rate swap usually involves very little cash outlay.

Stu
Southern Lending Solutions

Auto Loan

2008-12-18T12:06:00.000-08:00

With increasing pressure on the credit industry comes the tightening of underwriting guidelines to get approved for auto financing. Consumers are forced to hold on to their vehicles long past their prime. Get The Best Auto Loan is a resource that consumers can turn to when dealing with auto loans for bad credit. The company provides an on-line blog discussing issues and facts about financing in today’s market. The site helps you get prepared and become more educated in facing the hurdles you might face in obtaining an auto loan. Shopping around for the best pricing can be pain staking and time consuming. Why shop for auto loans one at a time? The company provides a simple questionnaire on the web so that you can receive auto loan quotes from multiple lenders. Answering a few simple questions such as interest rate preferred, payment schedule as well as other features. You can compare rates against each other and find out who has the best package to suit your needs. Your information is safe and secure and is not outsourced accept to provide the best rates and pricing. Get The Best Auto Loan also offers car refinancing as well. A complete one-stop shop for all of your auto financing needs. When shopping for auto loans for bad credit, Get The Best Auto Loan offers a safe and secure environment to get the best lender for your needs.

Survey Shows Small Business Owner Optimism Lowest in Five Years

2008-12-17T10:40:00.000-08:00

Reprinted from The Monitor

According to the recent Wells Fargo/Gallup Small Business Index surveyed in November, small business owners’ optimism fell to its lowest level since the survey’s inception in 2003. The score now stands at 10, a 35-point drop since last quarter. The Index has been declining since mid-2007.

“The Index hit a record low last month, which appears to be the result of a sharp decline in consumer and business spending,” said Dr. Scott Anderson, senior economist at Wells Fargo. “Despite the significant decrease in overall optimism, four of every five small business owners said they did not perceive credit as difficult to obtain. It appears that the Fed’s injections of capital and liquidity in the banking system may be having some effect on maintaining credit flow.”

The Index dropped a total of 104 points from its highest score of 114, recorded in December 2006, and 73 points since January of this year. The Index is the sum of “current situation” and “future expectations” of small business owners for six key measures, including financial situation, cash flow, revenues, capital allocation, job hiring, and credit availability. The “present situation” score fell to three this quarter — down 16 points from the last survey conducted in July — and “future expectations” dropped to seven, down 19 points from July. Five out of the six measures contributed to the Index’s overall drop, with “cash flow” showing little change (both for present situation and future expectations).

Stu
Southern Lending Solutions

Understanding Debt Consolidation

2008-12-17T08:36:00.000-08:00

The growing debt problem in this country is exceeding the billion-dollar mark. Reaching a credit card settlement with your creditor is becoming increasingly difficult. It often requires intensive negotiating, coupled with a lot of patience. It’s important to consider all options when going with a debt settlement service. There are many options out there for the consumer. It just requires a little time and effort in doing research on your part.

Increasing credit card debt has resulted in more and more borrowers falling behind on their payments. The consumer debt bomb is already beginning to wreak havoc throughout the financial markets, further weakening the U.S. economy. Some banks and credit card companies are adding fuel to the fire by hiking interest rates ahead of upcoming regulation changes. It’s important that consumers be aware of the balances they owe and at what rate.

So what is the consumer to do? Becoming debt free is no easy task and is often an uphill battle. There are services out there that can help. Understanding your options such as credit counseling and debt consolidation are available and waiting. Knowing you’re available choices and choosing the appropriate debt settlement services assures protection in this weakening economy. Asking questions will result in making wise choices with your financial independence.

Examining The Merchant Cash Advance

2008-12-17T07:52:00.000-08:00

The economy is continuing to sour and credit is becoming increasingly more difficult for businesses to attain. The merchant that accepts Visa/MasterCard Payments has a viable option on the table and often a hidden treasure. A business can be advanced money based on its projected electronic payment transactions. This maybe the solution for the law office in need of new furniture, or the medical practice in need of an upgrade to outdated medical equipment.

The merchant cash advance is therefore a way for businesses to receive funding without having to fork over huge down payments or jump through hoops at their local banks to secure a loan. Merchant cash advance is receiving serious airtime in market badly in need of solutions.

Todd
Southern Lending Solutions

No Debt Today

2008-12-17T07:33:00.000-08:00

Growing debt is an unfortunate byproduct of today’s economy. Increasing costs and rising interest rates have caused many people to go into debt resulting in unwanted calls from collectors and fewer opportunities to gain more credit. No Debt Today is a company that provides help to people all over the US to deal with their financial strains. They specialize in debt consolidation loans, credit repair, and other services that will help you get back your financial independence. No Debt Today never turns away a client regardless of their unique credit history. They are interested in working with you on an individual basis to find a program that suits your needs. Other creditors often charge exorbitant monthly fees to use their service. No Debt Today works with many of the countries lenders to reduce your balances owed, and is only paid if an agreement can be made. The company has a very specific technique of organizing and structuring your monthly bills thus reducing the amount of time it takes for you to get out of debt. Contact No Debt Today for a free debt consultation. A professional will contact you to find out what your needs are and if credit repair, debt consolidation loans, or one of their other programs may be a fit for you.

InsuranceRate.com

2008-12-17T06:53:00.000-08:00

Has the rising cost of insurance got you down? It’s hard to know when you’ve been paying too much. Often people remain with their current provider because they don’t know where to look to get affordable rates. Insurancerate.com provides a solution to this ongoing problem. The company was established so that consumers would have a place to go on the web to learn about general insurance rates. They are not an insurance company, which creates a different experience that you would get from going directly to an insurance provider. Insurancerate.com covers the spectrum from auto to renters insurance. Their approach is unique. Other on-line companies providing similar services receive a kickback if a sale is complete. Insurancerate.com offers unbiased reviews of companies with the lowest rates so that you can be sure that you are getting the best quote on the market. Don’t like a particular rate? Feel free to shop the competitors listed on the site. The company does not obligate you to purchase, and shoppers have the ability to cross compare rates throughout the entire US. Fill out a simple form today and receive quotes from at least 5 of the top insurance providers. Your information is secure, and your business is valued. Go to Insurancerate.com for all of your general insurance needs.

More on The Small Ticket Market

2008-12-16T07:55:00.000-08:00

Most funders who work with the small ticket market specialize in it and prefer to work with these smaller firms who still have equipment needs. Since only 3 things are required: the credit app, the credit check and the purchase order from the vendor of their choice for the equipment they need; the strength of the owner is the biggest requirement.

The owner's personal credit is important and in many cases, the owner is the business so a personal guarantee is always required except for those companies with a long operating histories or willing to back the lease in some other form like with a bank letter of credit.

Stu
Southern Lending Solutions

Optical4less

2008-12-16T07:08:00.000-08:00

For those of you who wear glasses it comes as no surprise how expensive purchasing new ones cost. Unless you have been ignoring the rising costs of everything, you’ll know that necessities such as eyeglasses have become extremely expensive. Let me suggest a place to go that has quality eyeglasses at a price everyone can afford. Optical4Less has a home on the web where everyone can go to get a great deal on prescription eyeglasses. Some of them as low as $15 usd. Wearing a different style of eyeglasses everyday of the week becomes a reality. They also offer a variety of tinted and bifocal glasses as well. Traditional eyeglass stores can’t compete with the selection and price that Optical4less offers. Optical4less provides a Virtual try-on system, a feature unique to their company. Upload a picture of yourself to their website and you can actually view what particular eyeglasses would look like on you. You can adjust the tint, size, etc… Just one more may that Optical4less sets them selves apart from the competition. Order more than one pair of eyeglasses and receive free complimentary shipping worldwide. Optical4less makes it possible to get through these tough economic times. Take advantage of this great service.

The Small Ticket Market

2008-12-14T09:40:00.000-08:00

The small ticket equipment leasing market is generally 2 years Time in Business and a need of $100,000 in equipment or less. With the exception of serious credit issues, the bulk of these applicants fall under Application Only guidelines with our 2/3's of our funder partners that have Application Only programs. This means all we use is:

1) Credit Application
2) Credit Check of owners who own at least 20% of the company
3) Purchase Order from Equipment Vendor/Dealer of choice for the equipment they want

These are all that are required and the lack of personal financials, business financials or tax returns means a simpler more streamlined process and allows for a quicker turn from start to finish. A win/win for everyone involved.

Stu
Southern Lending Solutions

Acobay

2008-12-13T13:43:00.000-08:00

Acobay has recently launched a home on the web where you can quite simply discuss and review “Stuff”. Acobay provides a great opportunity for you to give and receive input on just about any product under the sun including restaurants, hotels and destinations. How many times have you bought something only to show it off to an uninterested audience at work or the gym? You now have a captive audience of subscribers just like yourself interested in hearing reviews and ratings. The site provides easy drop down categories for anyone to browse at their leisure. There is also a top and hot list section to find out where all the hype is on all sorts of stuff. Reviews will not only have ratings but will often have pictures as well so that you can be sure that you are looking at the right thing for you and your family. Since Acobay is a consumer network, you will find out about other people who have the same likes and wants as you and your family creating a niche for you to call upon whenever you have stuff to share or when making a tough decision on a purchase. Acobay is a fluid and constantly expanding network of products and people. If you happen to login one day and you don’t see a product or category listed, feel free to contact Acobay and they will consider your request to add it. Be a part of a growing movement and discuss your stuff with Acobay.

Auto Bailout Fails; Bank-Rescue Fund Seen as Last Resort

2008-12-12T09:41:00.000-08:00

Reprinted from The Monitor

The Senate rejected the $14 billion bailout for General Motors and Chrysler after a 52-35 procedural vote, well short of the 60 votes required to break a Republican filibuster threat. Both General Motors and Chrysler have said they could run out of cash within weeks and have few options left.

The Wall Street Journal reports today (12/12) that GM has tapped a team of bankruptcy and restructuring professionals in an apparent signal the company is preparing for the worst. GM reportedly hired bankruptcy veteran Harvey Miller of Weil Gotshal & Manges as well as restructuring veterans Jay Alix of Alex Partners, William Repko at Evercore Partners, Blackstone Group's Arthur Newman and attorney Martin Bienenstock at the firm of Dewey & LeBoeuf.

Ford has said it does not need federal help now, but could face collateral damage if one of its domestic rivals fell. With the economy in recession, the auto industry has struggled under the weight of lackluster sales and choked credit markets. GM's shares dropped as much as 39% in early trading as talks failed in a dispute with Republicans over how quickly union wages should be cut.

The United Auto Workers union refused demands for aggressive wage reductions. The Bill's demise late Thursday prompted immediate calls from lawmakers in both parties for the Bush administration to tap into the $700 billion bank-rescue fund. Bloomberg, citing data from the Center for Automotive Research, noted in a related story the job losses would total 2.5 million to 3.5 million from an automaker failure in 2009, including 1.4 million people in industries not directly tied to manufacturing GM in a statement said it is "deeply disappointed that agreement could not be reached despite the best bipartisan efforts. We will continue to pursue a workable solution to help ensure the future viability of the company", the automaker said.

Editor's Note: The only source of funds available to help the automakers now if a revised version of the bill does not pass is some of the $700MM under the TARP program that was targeted for Wall Street firms.

Stu
Southern Lending Solutions

Ripple Effect of the Auto and Mortgage Industries: GMAC

2008-12-11T05:43:00.000-08:00

Reprinted from The Monitor, this article shows how GMAC, GM's financing arm, is having trouble adjusting its business so it can be eligible for funds under the gov't bailout plan known as TARP (Troubled Asset Relief Program).

GMAC Struggling to Satisfy Capital Requirements to Become a Bank

GMAC Financial Services (GMAC) said it has extended the early delivery time with respect to its separate private exchange offers and cash tender offers to purchase and/or exchange certain of its and its subsidiaries' by three days to 5 p.m., New York City time, on Friday, December 12, 2008, in order to provide investors with a final opportunity to consider the GMAC and ResCap offers.

The Federal Reserve has required GMAC to, among other things, achieve a minimum amount of total regulatory capital of $30 billion in connection with its application. In order for such condition to be satisfied, among other things, the estimated overall participation in the offers would be required to be approximately 75% on a pro rata basis. The Federal Reserve has informed GMAC that if GMAC is unable to meet these capital requirements, it will not approve GMAC's application to become a bank holding company. To date, approximately $6.3 billion in aggregate principal amount (or 22%) of the outstanding GMAC old notes have been tendered in the GMAC offers and approximately $2.0 billion in aggregate principal amount (or 21%) of the outstanding ResCap old notes have been tendered in the ResCap offers.

The company said if its unable to successfully convert to a bank holding company and complete the GMAC and ResCap offers by December 31, 2008, "it would have a near-term material adverse effect on GMAC's business, results of operations, and financial position."

Editor's Note: GMAC's exposure to the auto and mortgage industries have severely weakened the company such that it had to consider going into a more regulatory environment (Banking) in order to get some of the bailout funds. This is a sure sign of trouble for GMAC.

Stu
Southern Lending Solutions

More on Use v Ownership

2008-12-09T04:01:00.000-08:00

To continue the argument of Use v Ownership and why Leasing benefits the small business owner, I have gotten down to some raw numbers based on yesterday's example. We have a 50k piece of equipment financed through a loan v leased for 36 months. The other assumptions are use of MACRS accelerated depreciation and a sales tax of 7%. This tells the story better than I can but please feel free to email me @ Stu@southernlendingsolutions.com with any questions or for the more detailed chart outlining this study.

	Loan	Lease
Equipment Value	50000	50000
Down Payment	5000	3000
Sales Tax 7%	3150	0
Amt Financed	48150	47000
Rate	8%	11%
Monthly Payment	1629	1665

Depreciation 3 Yrs	35500	0
Using MACRS
Tax Deductibility	35500	59940

Stu
Southern Lending Solutions

The Basis of Equipment Leasing: Use v Ownership

2008-12-08T07:53:00.000-08:00

I often get asked 'Why should I lease equipment that I need in the course of my business'?

Here is an example I often use to explain to people why:

Imagine yourself as a business owner that makes and sells widgets. This year the big widget making machine is the Widget Pro 1000 and it costs $50,000. You need this machine (or one like it) to make the widgets that you will then sell. You have 2 options:

A) You buy the equipment either with your own cash or through a loan with a bank
B) You lease the equipment instead over 3 years with a 10% Purchase Option at the end of the period

Each has advantages and disadvantages. With Option A, the overall cost is less over that same 3 year period and you get to depreciate the 50k cost over 5 yrs with one of the 3 depreciation methods previously discussed. Those are the advantages.

With Option B, you are paying a little more than a loan and thats the big disadvantage. The advantages? One advantage is every dollar of every lease payment is tax deductible, so we are not limited to the 50k purchase price. Let's see the biggest advantage though:

2 Years From Now, the Widget Pro 2000 comes out and provides 15% more output for the same cost or saves 15% for the same level of production, a significant technological upgrade. What can we do about it?

Human nature dictates that when we pay for something and own it, we want to get maximum use out of it so since there is likely 5-6 years use in the WP 1000, it means we are likely to keep it another 3 yrs even though we know better is out there? Why? Because we feel like we are throwing our $$ away if we don't. The biggest hidden disadvantage of ownership is right here, feeling like we are locked into outdated, obsolete equipment because we bought it. If you think you would make the smarter business choice of the immediate upgrade, then think about how many break/fix computer guys there are to help extend the life of computers and you know its just not true.

With a lease, we are locked into one more yr, use the purchase option to RETURN the equipment that is now outdated, and upgrade to the WP 2000 right away so we can increase output, lower our costs, or both.

So which way is really cheaper in the end?

Stu
Southern Lending Solutions

More on Black Friday

2008-12-05T06:22:00.000-08:00

So IRS Section 179 lets you depreciate the entire cost of the equipment even when written in a certain lease structure known as a Capital lease. So how does it work??

Let's say you had a better year than expected and since expenses stayed the same, you now have a taxable profit to the Feds of $50,000 instead of Zero like you had last year. If you are in the 28% tax bracket, then you owe the gov't and extra $14,000.

If you know you will need $40,000 of additional equipment for 2009, and you get that equipment delivered before Dec 31, then that $40,000 can be immediately deducted from your taxable income, reducing your taxable income to $10,000 and your tax liability down to $2800, a tax savings of $11, 200. That's real $$ that can be used for other purposes.

The last important thing to remember is thanks to the Economic Stimulus Act of 2008, passed in the spring, this year only, the limit of how much can be deducted this way goes from 128k up to 250k.

Stu
Southern Lending Solutions

Black Friday for Equipment Leasing

2008-12-04T10:04:00.000-08:00

We all have heard how last Friday, as in the day after Thanksgiving is known as Black Friday. Its a huge shopping day for retailers and is the kickoff of the holiday buying season. Well we have a Black Friday period in the Leasing business and its here now.

This week, the first week of December, is the time to assess how good a year your business has had. Many businesses across many industries are struggling, however lots of businesses are thriving as well. A number of business owners that I talk to, and not just collections companies, foreclosure auctioneers or locksmiths, are having their best year ever since they were able to take advantage of the opportunities that come with an economic shakeup.

This week is Black Friday because for those businesses that did unexpectedly well, they can start their holiday buying for equipment they will need in 09 and going forward, yet deduct the entire equipment cost this year, in 2008, despite not getting the equipment until December. Timing is key though as the equipment has to be received and 'put into service' by Dec 31.

So why buy now? Thanks to IRS Section 179 and the Economic Stimulus Package passed by Congress in the spring, businesses can deduct up to $250,000 of equipment for this year only. Last year, the limit was $128,000 and the increase is for this year only.

Some of our most common lease structures, the capital lease (also known as a finance lease) is treated by the IRS like a purchase. This means this lease type is eligible for Section 179 deductions.

Now is the time to assess what new equipment needs are forthcoming and be able to lower tax liability all at the same time thanks to this program and the IRS code.

Stu
Southern Lending Solutions

Business Credit Scores

2008-12-02T02:47:00.000-08:00

Businesses can develop a credit score independent of their personal FICO score. Dun and Bradstreet is largest collector of business credit data in the nation. Their credit scoring system is known as Paydex and scores from 0-100. I was recently quoted in an article about this topic on CreditCards.com, one of the largest personal and small business websites on the web.

More information on this topic and my contribution to the informative article can be found HERE.

Stu
Southern Lending Solutions

5 Questions of Todd Rome

2008-12-01T10:14:00.000-08:00

The driving force behind our merchant processing business is our director of BankCard Services, Todd Rome. Todd is an industry veteran who has seen lots of changes in the industry and unlike many in the field, has gone about his business honestly and ethically. Let's check in with him and see how he answered my 5 Questions.

1. How has CC processing changed in recent years?

There has been so much change its hard to know where to begin. The Federal Trade Commission has really cracked down on which businesses are able to accept credit cards creating stricter guidelines for merchant approval.

The technology itself has really come a long way as well. Businesses use to run transactions on the old Zon Jr. terminal (a dinosaur). It was a huge box that sat on a counter or desk and made lots of loud noises. Not only were they extremely overpriced due to their novelty, they often lost lots of crucial data during the transaction creating many charge back type situations. Today, the equipment is not only affordable but lightning fast as well. Some of the new newer terminals are the size of credit cards. Often credit transactions take place today on the internet via a web portal.

2. What do you offer in your program thats unique and different?

Although I can set the typical retail shop up for processing as I certainly don't discourage any type of business, my core clients are more on B2B. They include attorneys, CPA's, Medical Practices etc... Those types of business are little bit more tricky to understand since they historically have not accepted electronic payments. Often these types of businesses require a different pricing structure as well as specialized equipment to complete transactions.

3. How can a merchant protect themselves from the pirates and other shady characters in the industry?

One thing that the industry is considering doing is registering all agents similar to stock brokers. Making them pass a stringent test etc....

As far as the merchant or business owner is concerned....ask lots of questions. Although my business model is unique to certain businesses, the bankcard industry as a whole is still a commodity. What I mean is, if you don't like any of the answers that you are getting from your agent or rep., go elsewhere. You should do business with a person not only because they are reputable, but because you like them.

4. How do professional firms benefit from CC processing?

This is a great question and one that I love to answer. To this day there seems to be a stigma that credit card acceptance is for the local pizza or flower shop. In today's market, this couldn't be further from the truth. In fact one of my biggest advocates is the US Government. They will often complete a 5 to 10 million dollar transaction with nothing more than a card. The reason being is that it makes the whole process so much more simple. Simple in terms of tracking and paperwork, simple in terms of funds being approved and delivered within a timely manner. I take this model and I move it into the professional firm. Wouldn't it be great to receive payment for services or products in less than 4 business days? The whole process is no less than astounding.

5.)How can we contact you?

I can always be reached on my office line which is 770.309.0979 or by email which is todd@southernlendingsolutions.com

Welcome To Bank Of Amex

2008-11-30T07:46:00.000-08:00

On Nov. 11, 2008, American Express Co. won approval from Federal Reserve banking regulators to become a commercial bank. The fourth largest U.S. credit card issuer said it is taking steps to cut borrowing costs and give it access to government funds. Regulators said they approved its application because of the "unusual and exigent circumstances" currently shaking up financial markets. The Fed's approval for AmEx was similar to the decision it made in September to transform the country's two biggest investment banks, Goldman Sachs Group Inc. and Morgan Stanley, into bank holding companies. AmEx can now issue bonds that are government guaranteed through the end of June 2012.

Industry analysts said the primary concern about AmEx is not funding, but consumer credit losses. The funding pressures are adding to the credit pressures the company is facing. Default rates among its credit card clients in the United States almost doubled in the third quarter of 2008.

Todd
Southern Lending Solutions

Gift Ideas

2008-11-29T18:38:00.000-08:00

The holidays are once again upon us and families all over will be looking harder than ever for the perfect toys to give their children. Nothing means more to a child than opening up a gift on Christmas day. More and more parents are searching for gift ideas on-line. The Internet makes searching for gifts more economical and saves time. Over the years name brand toys purchased at the mall have become more and more expensive for the average family. Between the cost of gas traveling to and from, as well as the high retail price make it difficult for anyone to shop. Online shopping makes the search for cheap toys possible and practical. Consider shopping online for the coming holiday season.

Some of the toys young teens are looking for are the latest gaming systems. Nintendo Wii has become of the of the hottest gift items over the year and makes a great gift that all teens love. The Nintendo ds also ranks as one of the more popular gaming systems younger children and teens enjoy playing. As the holiday season approaches consider on-line shopping for your purchases.

Consulting Projects and ACH

2008-11-28T07:05:00.000-08:00

Consultants, like other professionals, benefit from ACH too. Most consultants have the business model in their businesses to try to attract long term projects or ongoing monthly work with their clients. There is no easier way that we've seen to track ongoing monthly billing and collection than through ACH. The web based browser allows for secured login from any computer with web access so consultants can immediately check and verify funds so they can continue or halt the ongoing projects they have with their non-paying clients. This allows consultants to use their most valuable asset, their time, to the fullest in helping clients and generating revenue.

Stu
Southern Lending Solutions

Professional Firms and ACH

2008-11-26T11:56:00.000-08:00

ACH is a growing trend overall but especially so with professional services firms. These firms are the most likely to have regular customers on an ongoing basis and are likely accepting checks from them as payment for services rendered. Since ACH is an automatic draft out of a business or personal checking account, its like the automation of the check payment process.

In fact, its biggest benefit is often hidden. That benefit being the immediacy of knowing if the funds are in the account. This is so vitally important to the professional firm as they are selling 2 things: their expertise and their time. ACH helps with the lessening of wasted time on clients who aren't paying. They can immediately shift their efforts and expertise to the clients who are in good standing and keep those billable hours high.

So while merchant accounts are a good fit for those working with the public, those working on an ongoing basis with their clients may want to consider ACH instead.

Stu
Southern Lending Solutions

ACH Could Become A Growing Trend

2008-11-25T03:11:00.001-08:00

Interchange has taken fire from all sides in recent years. Merchants, retail organizations, as well federal and state regulatory agencies have all questioned the ethics of interchange. Just as a reminder, interchange is the cost that Visa and MasterCard assesses for using their information highway to complete a credit card transaction. The days of Visa & MC’s “This is how we do it!” thought process might be nearing an end. Both mega giants have employed fear tactics in believing that electronic fraud is on the rise, therefore justifying the ever-increasing cost of using their infrastructure. Legislators and the merchant public at large are receiving highly conflicting reports as to whether there is truth to these statements. In my opinion, the only reason that the 2 mega giants charge interchange to merchants is because they can.

ACH (Automated Clearing House) as a whole is a substantially cheaper cost per transaction. Like checks, ACH is processed at a fixed cost. What’s the hurdle you ask? Getting cardholders and merchants to switch over to this mindset. The bankcard industry is deeply entrenched and will take time and deep advertising pockets to get it dethroned. It’s still many years down the road before ACH can compete with the brand popularity of the super giants, but I have high hopes.

Todd
Southern lending Solutions

2008 MasterCard Worldwide Emerging Markets

2008-11-24T04:58:00.000-08:00

With global economic growth being driven by emerging markets at a rate of 12 to 1 compared to mature economies, new markets are expected to become increasingly important investment and business centers.

MasterCard just completed evaluations based on: business climate, political environment, economic growth, commercial connectivity, and quality of life. Based on these factors MasterCard has determined the following countries to posses the greatest potential in the payments industry. China, Eastern Europe, South Africa, and Latin America. South East Asia is predicted to have over 400 million subscribers purchase goods and services via mobile phones. The leading growth sectors include: transport, followed by entertainment and sporting events. Sports teams worldwide are now offering ticket purchases via mobile phone technology.

Todd
Southern Lending Solutions

S&P: Defaults Rise as Credit Quality Erodes

2008-11-21T06:49:00.000-08:00

Reprinted from The Monitor, The Authority on the Commercial Finance Industry

Eighty-five companies defaulted through Nov. 11, 2008, affecting debt worth $284 billion, according to Standard & Poor's. The rise in defaults in 2008 is in sharp contrast with trends in prior years, when only 22 defaults were recorded in all of 2007 and 30 in 2006.

Of the 85 defaults, 70 are domiciled in the U.S., five are from Europe, four are from Asia, three are from Canada, two are from Mexico, and one is from Russia, according to S&P in an article titled "Global Bond Markets' Weakest Links And Monthly Default Rates."

"In 2008, defaults have increased significantly, particularly in the U.S.," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "The U.S. speculative-grade default rate increased for the 10th consecutive month, reaching 2.86% in October, up from 2.68% in September and a 25-year low of 0.97% at the end of 2007."

The default rate in Europe increased marginally to 1.01% from 1.00%, while the emerging markets default rate rose to 0.82% in October from 0.17% in September.

The U.S. also leads in the number of weakest links, with 156 of the 207 entities, or 75%. Weakest links are defined as issuers rated 'B-' or lower with either a negative outlook or with ratings on CreditWatch with negative implications, and they are at greater risk of default.

Editor's Note: When the largest companies, the ones S&P measures, are having default issues, this then has a ripple effect across the economy to affect supplies, middle market and smaller businesses as well.

Stu
Southern Lending Solutions

First Personal Injury

2008-11-20T10:03:00.000-08:00

Personal injury claims require a vast knowledge of the legal system. The average person navigating these waters would be lost in a myriad of legal terms and bureaucratic red tape. A high proficiency in personal injury law is required in order to make sense of anything that may come your way.

Expertise in bicycle accident claims is second to none with First Personal Injury. They understand the dangerous conditions the open roads often throw at bike riders. Bicyclist present a unique obstacle in the legal industry due to circumstances involved with other parties. Some accidents occur due to poor driving conditions on the road. Attorneys at First Personal Injury will carefully advice you as to the strength of your case, and than offer clear and concise options to win compensation that is owed you.

Whiplash injuries present yet another challenge in the legal industry. Pain and duress from such injuries are often severe with rehabilitation that is extensive. First Personal Injury will handle the myriad of paperwork involved with whiplash injury claims so that you can spend your time recovering. Everyone has the right to file a claim when involved in these types of accidents. Having the right attorney can be the difference between getting back to your life and being bogged down in legal red tape.

Contact a team that will fight for your rights and give you peace of mind. Attorneys at First Personal Injury have the experience and compassion to see you through these difficult times.

How to Improve Your Credit Score

2008-11-19T07:55:00.000-08:00

All 3 credit bureaus generate a FICO score. FICO is a proprietary formula calculated by Fair Isaac to determine the credit risk of the borrower. Due to the fact that they all don't get the same information, the scores tend to vary, sometimes in a small tight window and sometimes as much as 50 or 60 points.

Generally speaking, 700 and higher is considered to be a good score. Often this credit score will get A or B+ paper pricing for a lease.

So how do we raise our credit score? One of the easiest ways is to tackle the Revolving Debt. Revolving Debt is all the non-mortgage debt listed in a credit report. All revolving debt (usually credit cards and store cards) have the common trait of once a bill is paid, then that amount of credit becomes available for borrowing again. Think of a CC where when you pay $500, then your credit limit increases by $500 allowing you to use that $500 for another purchase. So one of the first things we look at (as well as our funders and anywhere else where you borrow) is the % of Revolving Debt available.

Why? Because people believe (rightly) that the first thing to happen when someone is struggling financially is more is put on their CC and that % goes down. So the technique for reducing your revolving debt and increasing your FICO score is to take the minimum payment showing on your bill and add 20% to it (multiply by 1.20). Make this payment for 3 straight months and your Revolving goes down and your FICO goes up. 3 months are required as credit reports only update every 90 days so they need to see at least 3 months of doing this. Its not uncommon to see scores increase as much as 40 or 50 points in 90 days, which translates into a significant savings on lease payments.

Stu
Southern Lending Solutions

What Letter Are You?

2008-11-18T07:12:00.000-08:00

If you don't know what letter you are (A, B, C, or D) in terms of your credit then you have no idea how much a lease/finance agreement would cost you.

The first step is that in most states you are allowed at least 1 free look at your credit report from the big 3 bureaus: Experian, Equifax, and TransUnion. When companies, especially mortgage companies say they take the middle score, what they mean is that they take the FICO credit score (an assessment of your credit risk) that is the middle one of the 3 bureaus since all 3 bureaus don't necessarily have the same information in them but they all calculate a FICO score. For a privately owned small business less than 10 yrs old, this is the factor that most determines your credit profile when being evaluated for approval and pricing on a lease and knowing gives you an opportunity to get the best pricing possible for your credit profile

Stu
Southern Lending Solutions

NAELB Eastern Regional Conference

2008-11-17T06:56:00.000-08:00

The NAELB, the National Assn of Equipment Leasing Brokers, is the largest organization in Equipment Leasing or Asset Based Lending that supports the small, independent leasing/financing co like myself.

The 2nd biggest conference of the year was held in Atlanta, GA and I was happy to learn that not only are fellow brokers like myself still in business and actively seeking deals, of the 52 funders who were there, only 2 had a freeze on of accepting new deals. All the remaining funders are actively seeking business and a couple of them announced new credit facilities or other money raises that are a signal that business is being done.

So the answer to the question of "Can I get a lease for my small to mid sized business?", the answer is clearly Yes.

Stu
Southern Lending Solutions

Other Equipment Types for TRACs

2008-11-13T13:28:00.000-08:00

The TRAC lease is most common for transportation. However, any lease that has a residual value purchase option that is other than 10%, $1 or Fair Market Value (FMV) can also qualify as a TRAC lease. These 3 are the most common lease structures but what about a piece of equipment like a PC. After 36 months its not worth very much. If the negotiated price is 5% of the value new then its both a FMV lease and a TRAC lease. All TRAC leases are FMV but not all FMV leases are TRACs. Why? Because FMV leases have no adjustments to them during or at the end of the term like a TRAC can. What's important to remember is that both qualify as Operating Leases for maximum tax deductibility.

Stu
Southern Lending Solutions

On the Right TRAC

2008-11-12T11:11:00.000-08:00

TRAC leases have an adjustment clause that can be enforced in an Open ended TRAC lease. We advise our clients to only use an open ended TRAC for transportation since they can influence the purchase price through maintenance, wear and tear and usage. The residual buyout price adjusts, however, the purchase option remains so regardless of price, you can return the car.

The rate for a TRAC is almost always lower than the rate for a Finance(Capital) Lease since the residual becomes an area where the leasing company can make $$. Think of the car where it can be purchased for $15k after 36 months or returned. Well if sold, they profit and if returned and remarketed and sold for any amount over their adjusted price they profit. In return for that opportunity to profit, the lease rates and payments go down so its a win/win situation.

Stu
Southern Lending Solutions

Tech Geek? Check our sister blog

TRACs Issues

2008-11-11T07:04:00.000-08:00

So we have a TRAC lease and we know whether or not its an open ended or closed ended TRAC lease . So what issues do we have to contend with? Since there is a residual and a buyout price with purchase option in this lease, most of the main issues are about the residual.

So if you wanted to know why US based automakers got out of the consumer leasing business, here is why:

ABC Auto Company leases a gas guzzling SUV to client XYZ for 36 months. The value of the car new is $35,000 and the agreed upon price in advance, even with potential for adjustment when in an open ended TRAC lease, is $20,000. So this means the car can be purchased by the client for $20,000 at the end of the 36 month term or given back to the dealer since its a purchase option and not a purchase requirement.

Fast forward 36 months to now, gas prices have come down but everyone knows there's a chance its only temporary so who wants to own an SUV under those circumstances?? No one of course so client XYZ gives the car back. Now ABC has its value on its books of $20,000+/- room for a profit at that sale price of 10-20%. However, now no one wants this car and the best they can get for it is $12,000. What happened to the remaining 8000? Not only did they not make a profit, they took a loss and their books show a loss of 8k on the sale of the car. Enough of these make ABC's books look very weak and they decide to get out of leasing.

That has happened to the big 3 US automakers and now they don't do consumer leases.

Stu
Southern Lending Solutions

P.S. If you like this info and want to learn more about how Technology affects small businesses, please check out my new blog. I hope you like it as much as you like this one.

TRAC Leases for Cars and Other Transportation

2008-11-09T07:44:00.000-08:00

The most common lease type for the company car or other transportation is known as a TRAC lease. TRAC stands for Terminal Rental Adjustment Clause. What it means is that the Price can (but does not have to be) be adjusted at the end of the lease term. For instance, a car is leased for 36 months and the pre-negotiated residual value/buyout price is $15,000. Well one type of TRAC lease allows for re-negotiation at the end of term based on factors like usage and miles so the buyout price can rise for fall. This is similar to how most consumer
carleases work and its known as an Open Ended TRAC lease.

The other main type is a Closed Ended TRAC lease. This is when there is no renegotiation at the end of the term. It's used in transportation as well but is more common for other equipment types. The most common type for cars and other transportation is the Open Ended TRAC lease. All the benefits of leasing still remain like full tax deductibility, purchase option at the end so you can choose to buy the car or return it, and reasonable monthly payments.

Stu
Southern Lending Solutions

Inspiron Logistics Corporation

2008-11-06T06:13:00.000-08:00

According to the National School Safety and Security Services, 15 school shootings took place on US compasses in the 2005-2006 school year resulting in 27 deaths. In response to this tragedy Inspiron Logisitcs Corporation created the Wireless Emergency Notification System (WENS). In case of emergencies on school campuses the system immediately sends out wireless text messages to all of its students alerting them to the news.

Inspiron Logistics, based out of Ohio leveraged this system to create a new form of advertisement for customers. The Short Message Service (SMS), as it has been come to know is a replica of the original WENS system, yet altered for a business application. Inspiron teamed with SparkBase, a credit card processor with a vast portfolio of card loyalty merchants. The new system was designed to alert customers of last minute promotions, sales, and reward programs. Scott Dettling, president of Inspiron stated the business model was created based on the need to get information out to a base quickly and efficiently. The Short Message Service may be suitable for any business looking to relay information in this fashion.

Todd Rome
Director Of Bankcard Services
Southern Lending Solutions

RevolutionCard

2008-11-05T05:17:00.000-08:00

Steve Case, former AOL CEO who runs his own investment firm, Revolution LLC, unveiled RevolutionCard earlier this year.

RevolutionCard is a cutting edge program to benefit both merchants and consumers.RevolutionCard eliminates costly interchange fees for merchants while simultaneously providing consumers with enhanced PIN-based security, identity protection, and periodic merchant discounts and incentives. The card has no picture or signature of the consumer creating a safer environment in which to perform credit based transactions. With PIN-based authentication and functionality, your 4 digit Personal Identification Number (PIN) is required to complete all purchases, which helps protect you from fraudulent purchases.
RevolutionCard allows you to create temporary PINs, adding an extra layer of security. The RevolutionCard can be used as both a credit card and store valued card.

RevolutionCard was launched in February of 2008 in conjunction with Fifth Third Processing solutions to handle the backend transactions. They are currently negotiating with several other processors to expand their footprint. Keep a look out for these guys in the future.

Todd Rome
Director Of Bankcard Services
Southern Lending Solutions

When Lower Payments are More Expensive than Higher Ones

2008-11-03T11:40:00.000-08:00

When financing a car, the # 1 question to ask is this: Do I need to finance/lease in order to get the car I want or can I pay cash? If the answer is the former and they have a business, then leasing the car through the business is the best value. I copied these #'s from one of my sources for leasing versus buying with a car note with a standard 3k down and financing $16.66 per thousand, as is standard for car financing.

The advantages of a lease include: 1) 100% financing or little to no down payment and 2) Most importantly, maximum tax deductibility. As you can see, the value of the car and interest on it are no deductible under the consumer financing but are under the commercial lease through a business. Financing looks cheaper until you get to tax time and the dollar for dollar expensing of the commercial lease wins out every time.

So if you can't pay cash for the car you want and you have a business, then a lease is the answer. For questions about my calculations, please feel free to email me directly at Stu@southernlendingsolutions.com

	Buy w Note	Lease
Value of the Car	25000	25000
Down Payment	3000	0
Buyout Price at End of Term	0	5000
Amt Financed	22000	20000
Months	60	36
Monthly Payment	416.5	659.5
	1	1

Monthly Rate	0.443%	1.017%	Rate on 36 Month
Rate on Car Note	5.31%	12.20%	Payment Stream

Tax Deductibility	0	23742
Net Cost	24990	0

Commercial v Consumer Leases for the Car

2008-10-27T05:59:00.001-07:00

If you use your car primarily for your business, then you have a choice to make if you want to drive a non-American car (US auto makers don't offer consumer leases anymore) on whether to lease through the business or personally through a consumer lease. Some things the 2 leases have in common:

1) Reasonable monthly payments that allow you to get maximum car for your $$.
2) Purchase Option at the end of the lease period, usually 36 to 48 months
3) You can write off the miles on your personal tax return.

So if both types of leases have these 3 major factors in common, then whats the difference??

The biggest single difference is every $$ of every payment under a commercial lease is tax deductible as an operating expense for the business. This means the lease payment is expensed (shows on income statement as an expense but not on the balance sheet) and taken dollar for dollar off the revenue it generates for the business. So think of it this way, if you are going to lease a car anyway, you might as well maximize its effect on both your personal and business tax returns. There are only so many loopholes for the avg American that we can take advantage of and this is one of them.

Leasing the Company Car

2008-10-22T07:24:00.000-07:00

Lately, companies are doing whatever they can to bring in clients. This often means driving more or even dedicating a car (or one of a fleet) just to going out to bring in new business.

Cars, specifically, and trucks and transportation more generally are one of the most common and best types of commercial equipment to finance/lease. Sole props, S Corps, C Corps, LLC, LPs and LLPs all qualify for leasing a vehicle through the business.

The US Auto makers have gotten out of consumer leasing entirely, however, many independents and other companies have a leasing program almost exactly the same as what they used to offer for clients that want to/are able to run the vehicle through their business. So the make and model of car of choice, as well as the dealer, become irrelevant and the client can choose whomever they wish.

Leases for transportation always include a purchase option, often qualifying them as an Operating Lease. This means among other things, maximum tax deductibility thus making it a great deal even for one person businesses.

Sources of Funds for Leases

2008-10-13T08:56:00.000-07:00

My 23 sources of funds for leases have their own sources of funds which include:

1) Bank Lines
2) Warehouse Lines
3) Internal Funds
4) Investment $$ (from capital markets)
5) Investment $$ (from private individuals)
6) Other Finance Companies
7) Securitization and Syndication

The sources of funds are many and varied so while banks are a part of the first 2, they are not much of a factor in the other 5 and that's why these companies are staying relatively healthy in this marketplace so leases are still be written and in fact, more A paper leases are being written than ever before since banks are not lending to these customers the way they used to.

Equipment Lessors/Brokers Still In Business

2008-10-07T04:27:00.000-07:00

I'd like to make an announcement this morning that nearly every equipment lessor and broker I know, including myself and my 23 funding source partners are still here and still in business and doing business. Sounds rudimentary I know, but considering what the marketplace is doing and the failures of seemingly strong financial institutions, I thought I'd just let everyone know.

An independent financing company like mine (Southern Lending Solutions, LLC) uses funding source partners. The 23 I currently use all fall under one of 3 categories:

1) Companies that started as brokers and lessors and became Funders
2) Independent subsidiaries of a bank (standard commercial or Utah Industrial Bank)
3) Publicly traded companies

All are doing just fine as none of my bank subsidiary funders are the large banks whose failures have been the big news of the last couple weeks.

All 3 types of sources use banks and bank lines for between 10-25% of their funds that fund our deals so as things have tightened on them, they have tightened on us. So it is a little more difficult to do business than it used to be. However, due to working with wide varieties of credits and the use of structuring, we can still get many deals done and while defaults are up across the board, the industry is still going strong.

Anatomy of a Bank Failure: Washington Mutual

2008-09-26T04:14:00.000-07:00

So how does a bank like Washington Mutual fail and then need to be acquired by the Feds or another co like JPMorganChase ??

Banker A lends $100,000 to Borrower B in the form of a mortgage so Borrower B can buy a house valued at $100,000. The bank has the property to back the loan and the borrower gets the house thanks to the mortgage to pay off the seller. Borrower B can no longer pay his mortgage and the house goes into Foreclosure. So what happens to the bank?

The Bank now has 3 things they have to account for:

1) Loan loss provisions and Reserve Requirements
2) Tax and Financial Statement implications
3) The Property

As stated before, banks have loan loss provisions, which means that now this loan for $100,000 has gone bad, the bank must set aside $90,000 in cash. This means that $90,000 is taken out of lending circulation reducing the bank's liquidity and lending capacity. Why $90,000? The Federal Reserve has a reserve requirement on transactional loans of 10%. This means 10% of the value of the loan must be kept on deposit either at the bank or at the Fed. When a loan goes bad, this $$ has to still be set aside. but now, they have to set aside all 100% not just the 10% set aside when the loan was made. So problem # 1 for the bank is less $$ to lend to good credit customers.

Financial Statement implications seem like they wouldn't affect those of us not in the banking world that much but it does and certainly did in this case. Bad loans are 'marked to market', which means they are adjusted every year to their market value. A foreclosed loan is a loan with zero value since its non-performing and as a result, they now have a liability of a $100,000 loan that foreclosed and now immediately have $100,000 less in assets than they had when the loan was performing. The bank does have the property but needs to get rid of it in order to get this bad loan off their books. Is this loan really worth zero? No, its not but the problem for the bank is that no one wants to buy this loan even at a deep discount so on its books, it now looks immediately $100,000 less solvent than it was. So problem # 2 for the bank, is having to get rid of the property when property values are declining and a clear market value cannot be established.

This implication on financials seems only theoretical in that the loan has some value to someone but until the marketplace stabilizes and the loan can be sold, even at a loss, then this implication is very real and shows why a bank as large as WaMu can fail when they have the double whammy of $$ set aside against bad loans and loans marked down to a value of zero, even if temporarily.

The property is supposed to be the security against the loan but property values are declining. If the best offer the bank gets for the home with the $100,000 mortgage on it is only $60,000, does the bank accept? Problem # 3 for banks is a market of declining property values where the value of their security is unknown.

So does the bank really have $100,000 fewer assets because its value was marked to market at zero? No it doesn't but because the loan loss provisions have to be set aside and such an unstable marketplace exists for selling the underlying home, its impossible to assess the value of this loan and the underlying property and its for these reasons why a bank as large as WaMu can and did fail.

The Death of Investment Banks

2008-09-22T08:08:00.000-07:00

At the beginning of 2008, there were 5 major investment banks: Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs, and Morgan Stanley. What set these 5 banks apart from conventional banks was that they did not accept or solicit bank deposits, the kinds of deposits insured by the Feds through the FDIC insurance program. These banks raised capital for other companies, made markets in stocks and bought and sold securities of all types. In return for not accepting deposits as commercial banks do, for their entire history they have been subject to significantly less regulation than the banking sector. This is primarily due to the fact that the banking sector has had more of a responsibility to the public trust. That was until Sun night 9/21/08.

Things have changed. All 5 banks are different now than the investment banking entities they used to be.

1) Bear Stearns, acquired by JP Morgan Chase and subject to stiffer merchant and commercial banking regulations.
2) Merrill Lynch, acquired by Bank of America and subject to stiffer commercial banking regulations.
3) Lehman Brothers, filed for bankruptcy protection and liquidation
4) Goldman Sachs, allowed by the Federal Government to accept deposits and convert into a commercial bank in order to stay alive and be subject to stiffer commercial banking regulations.
5) Morgan Stanley, allowed by the Federal Government to accept deposits and convert into a commercial bank in order to stay alive and be subject to stiffer commercial banking regulations.

Yesterday, the decision on Goldman and Morgan, the last 2 remaining investment banks made it official that no independent and lesser regulated investment banks are going to remain on Wall Street.

How this will affect companies trying to use the public markets to raise capital through the issuance of stocks or bonds remains to be seen but suffice it to say, it will be different.

Wall Street Awakes to 2 Storied Firms Failing

2008-09-15T07:21:00.000-07:00

Reprinted from Yahoo News from the Associated Press

By JOE BEL BRUNO, CHRISTOPHER S. RUGABER and MARTIN CRUTSINGER, AP Business Writers

When Wall Street woke up Monday morning, two more of its storied firms had fallen.
Lehman Brothers, burdened by $60 billion in soured real-estate holdings, filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court after attempts to rescue the 158-year-old firm failed. Bank of America Corp. said it is snapping up Merrill Lynch & Co. Inc. in a $50 billion all-stock transaction.

The demise of the independent Wall Street institutions came as shock waves from the 14-month-old credit crisis roiled the U.S. financial system six months after the collapse of Bear Stearns.

The world's largest insurance company, American International Group Inc., also was forced into a restructuring. And a global consortium of banks, working with government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.
U.S. stocks were headed for a sharply lower open and Treasury bond prices soared as the market reacted to the news.

The aim of the bank consortium, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.
Ten banks — Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS — each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."

The Federal Reserve also chipped in with more largesse in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed.

Federal Reserve Chairman Ben Bernanke said the discussions had been aimed at identifying "potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses."

The European Central Bank, the Bank of England, and the Swiss central bank also made more short-term credit available to banks. European stocks fell sharply, with the FTSE 100 Index off 3.42 percent in London, the CAC-40 down 4.27 percent in Paris, and Germany's blue-chip DAX 30 falling 3.38 percent. Asian stock markets also tumbled, with India's Sensex sinking more than 3 percent. Japan and Hong Kong were closed for holidays.

Financial stocks were hard hit and the dollar fell against the pound and the euro.
Futures pegged to the Dow Jones industrial average fell more than 250 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index Monday morning. The stunning weekend developments took place as voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. It likely will spur a much greater focus by presidential candidates — Republican John McCain and Democrat Barack Obama — and members of Congress on the need for stricter financial regulation.
Samuel Hayes, finance professor emeritus at Harvard Business School, said the Bush administration may get a lot of blame for the situation, which could benefit Obama.
"Just the psychological impact of this kind of failure is going to be significant," he said. "It will color people's feelings about their well-being and the integrity of the financial system."

Lehman Brothers' announcement that it is filing for bankruptcy came after all potential buyers walked away. Potential suitors were spooked by the U.S. Treasury's refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac.

In an effort to calm the markets, Lehman pre-announced third-quarter results on Wednesday. In an affidavit filed with the bankruptcy court, Lehman Chief Financial Officer Ian Lowitt said that action "did little to quell the rumors in the markets and the concerns about the viability of the company." He said the uncertainty made it impossible for Lehman to continue.
Employees emerging from Lehman's headquarters near the heart of Times Square Sunday night carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name.

TV trucks lined Seventh Avenue opposite the building, while barricades at the building's main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square.

Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews.
People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: "Are you enjoying watching this? You think this is funny?"

Its businesses in Britain were placed in administration Monday, said the administrator, accounting firm PricewaterhouseCoopers, and employees carrying boxes and bags were walking out of Lehman's London offices.

Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., agreed to be acquired by Bank of America for 0.8595 shares of Bank of America common stock for each Merrill Lynch common share.

That values Merrill at $29 a share, a 70 percent premium over the brokerage's Friday closing price of $17.05, but well below what Merrill was worth at its peak in early 2007, when its shares traded above $98.

Charlotte, N.C.,-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world's largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets.

Strategically, most industry analysts say it's a good fit. If the deal goes according to plan, Bank of America will be able to offer Merrill's retail brokerage services to its huge customer base. There is not a great deal of overlap between the two companies — Bank of America does have an investment bank already, but it has never been terribly strong.

Where there is duplication, however, the combination of the two companies could result in more layoffs. Both Merrill and Bank of America have already cut thousands of investment banking jobs over the past year.

The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses.
Bank of America's own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January.

Insurer AIG, hit hard by deterioration in the credit markets, said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company's financial underpinnings.

The Wall Street Journal and The New York Times both reported early Monday on their Web sites that the American International Group is seeking an additional $40 billion in emergency funds — possibly from the Federal Reserve — to help it avoid a credit rating downgrade, which would make it more expensive for AIG to raise money. The insurer has already raised $20 billion in fresh capital this year.

AIG was working with New York Insurance Superintendent Eric Dinallo and a representative of the governor's office through the weekend to craft a solution that protects policyholders, according to Dinallo's spokesman David Neustadt.
"It's clear we're one step away from a financial meltdown," said Nouriel Roubini, chairman of the consulting firm RGE Monitor.

The meetings that began Friday night were a who's who of financial heavyweights: Treasury Secretary Hank Paulson, Timothy Geithner, president of the New York Fed, Securities and Exchange Commission Chairman Christopher Cox, and a host of CEOs, including Vikram Pandit of Citigroup Inc., Jamie Dimon of JPMorgan Chase & Co., John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs Group Inc., and Merrill Lynch & Co.'s John Thain.
For all their efforts, Lehman had to file for bankruptcy.

The end of Lehman may not stop the financial crisis that has gripped Wall Street for months, analysts said. More investment banks could disappear soon.
The independent broker-dealers "are going the way of the dodo bird," said Bert Ely, an Alexandria, Va.,-based banking consultant.
That's partly because some of the firms, particularly Merrill, made bad bets on real estate. But several analysts said that investment companies will need the deep pockets of commercial banks to survive the next few years.
On Sunday, there was also an emergency trading session being held at the International Swaps and Derivatives Association to "reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy." The ISDA, which arranges trades for derivatives, said it was allowing customers to make trades and unwind positions linked to Lehman.
Roubini said it's difficult to accurately gauge the health of companies like Merrill because their financial health depends on how they value complex securities. As a result, their finances aren't very transparent, he said.
That can lead to a loss of confidence in the financial markets, he said, which can overwhelm an investment bank even if it is financially healthy by some measures.
"Once you lose confidence, the fundamentals matter less," he said.
The common denominator of the financial crisis, analysts said, is the bursting of the housing bubble. Home prices have dropped on average 25 percent so far. Roubini predicted they could drop another 15 percent.
The crisis has begun to slow the broader economy as banks make fewer loans and consumers have begun cutting spending. Many economists are now forecasting that the economy could slip into recession by the end of this year and early next year.
That, in turn, could cause additional losses for commercial banks on credit cards, auto loans and student loans.
The Fed is widely expected to keep interest rates steady at 2 percent, below inflation, when it meets Tuesday. It was possible, however, that the central bank might decide in coming weeks to cut rates if such a move is seen as needed to calm turbulent financial markets.
The International Monetary Fund predicted earlier this year that total losses from the credit crisis could reach almost $1 trillion. So far, banks have only taken about $350 billion in losses.
Commercial banks are also starting to feel the pinch. Eleven have closed so far this year, including Pasadena, Calif.-based IndyMac Bank, which had $32 billion in assets and $19 billion in deposits.
Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850 billion in assets could close by next July. That's out of 8,400 federally insured institutions, he said, which together hold $13 trillion in assets.
Individual customers are starting to get nervous about the financial health of their banks for the first time in generations, he said. Whalen's firm analyzes the safety and soundness of banks for business clients, but began receiving inquiries from individuals in the past two months for the first time, he said.
"If we don't get ahead of this, we are going to face a run on the retail banks by election day," he said.
___

Editor's Note: While the losses are immense, the true issue across the board of the financial industry is liquidity, the access to capital/funds to lend. Loan loss provisions have some $$ on the sidelines already and no new growth in funds/deposits/cash means no additional liquidity in the marketplace. This is a sign its likely to get worse before it gets better, at least for the financial sector.

Banks to See Rising Costs of Funds in the Months Ahead

2008-09-02T08:13:00.001-07:00

Reprinted from The Monitor Daily Online

The Wall Street Journal noted yesterday that with about $800 billion in floating rate notes and other medium-term obligation coming due over the next 12-18 months, banks will likely be less willing to make new loans to borrowers as investors will be demanding higher interest rates for new bank borrowings.

And for some of the larger banks that have agreed to buy back some $42 billion in auction rate securities, the problem is exacerbated even further. To provide a glimpse of what may be in store, we checked out recent prices for 5-year obligations on JB Hanauer & Co.’s website for a mix of banks and finance companies. And even though many of these companies are currently holding investment grade ratings, the price-to-yield data was indicative of investor sentiment with regard to the real or perceived risk of lending to some of these banks. For example, KeyCorp’s 5-year maturities with a coupon of 6.5% were priced to yield almost 10.5% or something close to a 750 basis point spread over like-term Treasuries. National City’s notes maturing in February 2011 were priced to yield 14.4%, which would translate into a spread of 1170 basis points over similar term Treasuries.

As a contrast, GE Capital’s 5-year notes with a coupon of 5.40% were trading at prices to yield about 4.6%, a spread of about 150 basis points over like-term Treasuries. Similarly Cat Financial’s 5-year notes with a coupon of 4.9% were priced to yield about 4.2%. However, beleaguered CIT showed several 5-year obligations with coupon rates ranging from 4.65% to 5.50%, which were selling at prices to yield about 12.4%, a spread of over 900 basis points. It would also indicate what may be at the root of why CIT’s vendor finance business showed substantially reduced profits of 17.6 million for the first half of 2008 versus 146.5 million, for the same period in 2007.

What this picture would suggest is a significant market advantage or disadvantage, depending on where you sit, when pricing on a match-funded basis in a competitive situation. It occurs to us that sustaining a vendor program, for example, would become increasingly more difficult to expect returns that were anticipated at program inception. And unless subsidized for the long-term, this phenomenon would seemingly preclude an aggressive run at a new vendor prospect.

Editor's Note: As bank costs of funds rise, that affects not just bank lending but equipment finance companies who are reliant on bank loans and lines in order to fund their deals with GE, CIT and KeyCorp listed among them. This is an example of why commercial finance rates are tied to costs of funds and not tied to Prime, as many expect that it is.

Disclosure

2008-09-01T11:39:00.000-07:00

Site Disclosure Policy
Monday, October 27, 2008
This policy is valid from 27 October 2008.This blog is a personal blog written and edited by me. This blog accepts forms of cash advertising, sponsorship, paid insertions or other forms of compensation.The compensation received may influence the advertising content, topics or posts made in this blog. That content, advertising space or post may not always be identified as paid or sponsored content.The owner(s) of this blog is compensated to provide opinion on products, services, websites and various other topics. Even though the owner(s) of this blog receives compensation for our posts or advertisements, we always give our honest opinions, findings, beliefs, or experiences on those topics or products. The views and opinions expressed on this blog are purely the bloggers' own. Any product claim, statistic, quote or other representation about a product or service should be verified with the manufacturer, provider or party in question.This blog does not contain any content that might present a conflict of interest

Structured Finance

2008-08-29T06:41:00.000-07:00

What is Structured Finance?

The most common lease structures have a residual and final payment of Fair Market Value (FMV), 10% of Value new or $1. Anything that falls outside those structures is considered structured finance. This occurs most often when there is a 'story' about the company or the equipment it wants.

For example, if a company has excellent cash flow but poor credit of the owners then a structured deal might look something like this:

Instead of zero, 1 or 2 payments down, 15% down with a 36 month lease with a residual value of 15% of value new.

Structured finance allows for more deals to be done by lessors and for more customization of programs for the lessee. It's a real win/win/win

Fed Survey Shows Continued Tightening of Bank Lending Standards

2008-08-14T06:13:00.000-07:00

Reprinted from The Monitor

More banks are tightening lending standards on home mortgages and other consumer and business loans as a deepening credit crisis exerts a heavier toll on the economy, according to new survey data from the Federal Reserve. As reported in the Fed's July 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices, which is released every three months, about 60% of domestic banks - a slightly larger fraction than in the April survey - reported having tightened lending standards on commercial and industrial (C&I) loans to large and middle-market firms over the past three months. About 65% of those institutions - up notably from roughly 50% in the April survey - also indicated that they had tightened their lending standards on C&I loans to small firms over the same period.

Significant majorities of domestic respondents indicated that they had tightened selected price terms on C&I loans to firms of all sizes: About 80% of banks, up from roughly 70% in the April survey, noted that they had increased spreads of loan rates over their cost of funds on C&I loans to large and middle-market firms, and about 70% of respondents, a somewhat higher fraction than in the April survey, reported having widened spreads on loans to small firms. In addition, considerable fractions of domestic respondents reported having boosted non-price-related lending terms on C&I loans to firms of all sizes over the survey period, and the fraction of banks that tightened such terms on loans to small firms increased significantly relative to the April survey.

Meanwhile, the July survey indicates a drop in demand for business loans over the past three months. On net, about 15% of small domestic and 25% of foreign banks reported weaker demand for C&I loans from firms of all sizes over the survey period. About 15% of large domestic banks, on net, experienced weaker demand from small firms, although about 5% of these banks, on balance, reported that demand for C&I loans from large and middle-market firms had increased over the past three months. The Fed survey found that only seven of the 50 banks said they were still participating in subprime mortgages, loans made to borrowers with weak credit histories. Of those seven, six said they had tightened lending standards on subprime loans with only one saying it had left standards basically unchanged for subprime loans.

For all the Fed Data, please click here.

Editor's Note: Bank lending rates are going higher, while both the supply of $$ to lend and the demand for business loans is softening, with smaller businesses being affected the most.

Depreciation: Part 3

2008-07-24T06:41:00.000-07:00

The third primary method of depreciating new equipment purchases is MACRS. MACRS stands for Modified Accelerated Cost Recovery System. Publication 946 from the IRS goes through this and all the other types of depreciation.

MACRS uses a predetermined useful life of the equipment in question. For instance, software is 3 years and computers are 5 years. So for computers, MACRS allows for depreciating a 5 year asset over 6 years using the following percentages according to the IRS:

Year 1: 20%
Year 2: 32%
Year 3: 19%
Year 4: 11.5%
Year 5: 11.5%
Year 6: 6%

All these charts are available at the above link to Publication 946. As to whether this method is best, please consult your CPA, CFO or tax professional.

So this is more front loaded than book value, where the computers would be deducted an equal 20% each year but depreciates less in years 4 and 5. It's much less front loaded than the 179 deduction where all 100% is taken in the first year. As you can see there are lots of options and no one size fits all. These factors can be affected by leasing structures so the desire to take advantage of one of these deductions needs to be known by your leasing professional in advance.

Depreciation Part 2: Section 179

2008-07-21T06:19:00.000-07:00

The IRS section 179 states that businesses can deduct the value of mission critical equipment directly from their income taxes in the year they put the equipment into service. This includes equipment financed through EFAs or Capital leases, as well as those paid for with cash or by bank loan. The 2008 Economic Stimulus Package increased this deduction from 128,000 up to 250,000 for the year 2008.

For instance, a business replaces $10,000 worth of computers and if they choose, the business can take advantage of the 179 deduction and deduct all 10,000 off of the current year's tax return.

The plus: if the business had an unexpectedly good year and has a taxable profit of at least 10,000 (the cost of the equipment), then its fully deductible.

The minus: if the business did tax planning all year long and didn't generate a taxable profit of 10k then they can only deduct an amount equivalent to their taxable profit, so their deduction can be limited. Also, the deduction all happens in that first year even if financed over a 3 or 5 year period.

Section 179 is a great tool for some businesses but as with most things, one size doesn't fit all. For some its a great fit and others are better off with one of the other 2 methods.

What do We Finance?

2008-07-14T06:31:00.000-07:00

The study released in December 2007 using 2006 numbers for equipment financing shows us who finances (previous post). The study was conducted by Global Insight and entitled 'The US Equipment Finance Market Study' and the results were published in the Jan/Feb 08 issue of The Monitor.

Besides showing us who finances in the 600 billion dollar equipment finance market, the study teaches us some other things too.

What equipment types relied most heavily on financing? The # 1 type is trucks and trailers. The order:

1) Trucks and Trailers
2) Construction Equipment
3) Industrial Equipment
4) Office Equipment

While the equipment types financed are very broad, who finances is more concentrated than we thought. The top 5 states (California, Texas, NY, FL and Illinois) represented 37% of the entire US market.

The other groundbreaking piece in this study was evidence that financing is used all up and down industries and markets including being used by manufacturers in the creation of a product, distributors of that product, dealers of that product and end use customers of the product. Therefore, its use is much more accepted and mainstream than we may have thought.

Depreciation: Part 1

2008-07-07T08:22:00.000-07:00

Depreciation is an important tax writeoff used when acquiring new equipment. For our example in this series, we are going to use a lease written for $100,000 worth of computers and software for 5 years.

The first way to depreciate is the book value method. This method allows for equal depreciation each year, in this case 1/5 of the value new, or $20,000. This means a 20k writeoff each year for the 5 years of the lease. This is the simplest method but not the most common.

Next we will look at 179 and then the MACRS.

Who Finances??

2008-07-03T05:54:00.000-07:00

The last entry was about helping community bankers retain their business clients who they cannot approve for loans. So are the only ones that finance those that aren't 'bankable'?? In a word, No. In fact, the average financed deal is in the B to B+ paper range, the range that just borders on what banks will finance for some of their better customers. Many deals are also in the A paper range for firms that prefer to lease or just dont want the hassle that goes with providing all the financials a bank will require, since most of our deals require a credit app and credit check only.

An extensive study was done with 2006 numbers and reported in The Monitor , the equipment finance industry's top trade mag and some interesting things came out aside from the credit range info above. By company size, the most likely companies to finance, in order, are:

1) 100-1000 employees
2) 50-100 employees
3) 1-50 employees
4) >1000 employees

The surprising piece in here to me was that 1-50 employees wasn't higher. Why not? Turns out that those in this range either believe they cannot get financing or are too new (meaning at the startup stage) that think or know they cannot get financed. Financing a startup is possible, although it is more difficult to do for us than if the business is past the 2 year mark. The end result is that companies in this range often will scrounge up the funds to buy their equipment outright, a severe waste of their operating capital.

The most common equipment types to be financed are : construction and related equipment, farm equipment, transportation and industrial equipment. The fastest growing sector year over year though is technology, specifically computers and software, which are now being financed more than ever before.

The Real Problem for Community Banks

2008-06-18T06:18:00.000-07:00

Many of us are aware that the RE problem we are facing is really a banking/mortgage problem. The problem is especially acute for community banks. When a bank writes a bad loan, they have to set $$ aside, known as loan loss provisions, to cover the losses. This is $$ that is now out of circulation and cannot be lent out. So banks and especially community banks have even less $$ to lend to their business clients than they had a year ago.

Why does this hurt community bankers more? It hurts them more because they have a higher touch, more personal service, and typically care more about their business clients than a large mega commercial bank. All banks have to say No but if that no is a threat to their deposit relationship with the client (the most important relationship a bank has) then that's really problematic for the community banker. Community bankers are greatly affected because they don't have a leasing division like Bank of America does. Large banks will target community banker client deposits by promising an approval for a loan (usually a lease) to bring them in. Community bankers need their own leasing resources to help them retain their existing clients. If nothing else, a leasing partner helps them retain their deposit relationships, which in the end create the upper limit of how much $$ the bank can lend due to Federal Reserve requirements.

Issues at Big Blue

2008-06-17T07:53:00.000-07:00

IBM is the talk of the technology side of the commercial finance world. IBM has its own internal finance division known as IBM Global Finance. It is typically the # 1 choice for its thousands of partners, large and small, who have clients who need to finance their hardware, software, storage or networking gear purchases. Issues are coming out regarding their financing/lease contracts, confusing language in end of lease buyout options, lots of hidden fees and evergreening. Financial evergreening is when a client misses the window to determine whether or not they want to purchase the equipment or give it back at the end of the term and rather than convert to a month to month (which is the standard until the decision is made) they get charged for a whole additional year's worth of payments and have to hit the window the same time in the following year.

All these issues are at best sloppy and deceptive, and at worst, fraudulent and illegal. Dell got caught with their hand in the cookie jar and IBM may be as well despite their excellent reputation in the marketplace for products and services.

Dell Financial Services GUILTY

2008-06-03T06:59:00.000-07:00

Reprinted from Channel Web http://www.crn.com

N.Y. Judge Rules Dell Engaged In Fraud, Deceptive Business Practices

By Scott Campbell, ChannelWeb

A New York State Supreme Court judge ruled Tuesday that Dell (NSDQ:Dell) engaged in fraud, false advertising, deceptive business practices and abusive debt collection in the state.
Judge Joseph Teresi said Dell lured consumers to purchase its products with advertisements that offered attractive "no interest" and/or "no payment" financing promotions. However, many consumers were denied those deals. The judge called it a "bait-and-switch" scheme in which consumers instead often received interest rates that exceeded 20 percent.

In his decision, the judge wrote, "Dell has engaged in repeated misleading, deceptive and unlawful business conduct, including false and deceptive advertising of financing promotions and the terms of warranties, fraudulent, misleading and deceptive practices in credit financing, and failure to provide warranty service and rebates."

Teresi also found that Dell deprived consumers of technical support to which they were entitled under their warranty or service contract by:
- Repeatedly failing to provide timely on-site repair to consumers who purchased service contracts that promised on-site and expedited service.
- Pressuring consumers, including those who purchased service contracts that promised "on-site" repair, to remove the external cover of their computer and remove, reinstall and manipulate hardware components.
- Discouraging consumers from seeking technical support. The judge found customers who called Dell's toll-free number were subjected to long wait times, repeated transfers and frequent disconnections.
- Failing to provide rebates that were promised to consumers.

New York Attorney General Andrew Cuomo's office filed a lawsuit against Dell in May 2007.

Dell issued the following statement regarding the judge's findings:
"We don't agree with the decision and will be defending our position vigorously. Our goal has been, and continues to be, to provide the best customer experience possible. We're confident that when the proceedings are completed, the court will determine that only a relatively small number of customers have been affected."

The Attorney General's office said consumers were often misled by Dell's practices. "Dell and [Dell Financial Services] frequently failed to clearly inform these consumers that they had not qualified for the promotional terms, leaving many to unwittingly finance their purchase at high interest rates," the Attorney General's office said in a statement.
"For too long at Dell the promise of customer service was a bait-and-switch that left thousands of people paying for essentially no service at all," Cuomo said in the statement. "We have won an important victory that will force Dell to live up to its responsibilities and pay back its customers for profits that were pocketed but not deserved. This decision sends an important message that all corporations will be held accountable for the promises they make to consumers."
In addition, Dell Financial Services (DFS), a joint venture between Dell and CIT Bank, incorrectly billed consumers on canceled orders, returned merchandise, or accounts it did not authorize Dell to open, according to Cuomo's office.

Dell also "continually harassed these consumers with illegal billing and collection activity. Although many consumers repeatedly contacted Dell and/or DFS to advise them of the errors, DFS did not suspend its collection activity and Dell failed to expeditiously credit consumers' accounts, even after assuring consumers it would do so. As a result, many consumers have been subjected to harassing collection calls for months on end and have had their credit ratings harmed," according to the statement.

The ruling by the court prohibits Dell and its DFS arm from engaging in the practices cited in the suit. Teresi also ruled the court will hold future hearings to determine restitution Dell would have to pay customers for profits "unlawfully earned," according to a release from the state Attorney General's office.

Editor's comment: Dell learned a harsh lesson about the financing business by thinking they could do this piece of the transaction themselves rather than hiring out expertise. This is the reason why most vendors use small independent financing companies rather than keeping a 'captive' in house financing company, such as the joint venture was in this case. It's too easy for the captive to engage in deceptive practices if they get to much 'in bed' with their vendor as CIT did here with Dell.

SITM

2008-05-05T07:32:00.000-07:00

SITM stands for the dreaded but vitally important Services, Installation, Maintenance, and Training. The SITM is often the difference between properly configured hardware (or software) or positioning the hardware or software purchase to get maximum use out of it.

One of my software resellers, Sales Diagonal, says that more than 4 out of 5 purchases of CRM (customer relationship management) software are considered failures by and large due to poor or no training on how to use and configure for the business's specific needs.

Can SITM be financed?? Yes and No. Certain special instances all of it can be financed but that is typically the exception and not the rule. The rule is that a cap of 20% (sometimes 30%) of equipment or technology cost can be rolled into the financing for 'soft' costs of SITM. So for every 10k in equipment or tech, another 2k can be included for SITM and financed as well. This is a great thing for the small business that may be cash strapped but needs the equipment and the training on how to maximize its usage.

On the hardware side, with sales cycles getting longer, rolling these additional costs into the financing can mean the difference of whether a deal gets done or not.

The other big pitfall with SITM is to be sure that the service/maintenance contract for the technology is as long or longer than the financing period to insure properly maintained technology, especially for programs like our rotation program where the expectation is that the hardware will be returned. This is a good opportunity for both the client and the MSP to lock in a good rate for a long term contract. A true win/win.

HAAS and the Small Business Part 2

2008-04-21T08:08:00.000-07:00

In Part 1 on HAAS (hardware as a service), we discussed how an ongoing monthly fee for hardware as well as maintenance/support through a managed service provider (MSP) benefits both parties, the provider and the client.

The primary objection to a service like this from both parties is 'what happens if the computer is supposed to last 2 or 3 years and craps out in 6 months?' There are 2 answers to this question, immediate (or short term) and long term. The immediate answer is that the MSP needs to have a couple PCs on hand for immediate use that allow for a near immediate replacement so as to reduce disruptions. Part of the service the client is paying for is this peace of mind. Can the MSP charge a couple bucks more a month as a 'loss provision' to ensure they have extras on hand. You bet they can and as long as the client is well (and quickly) served, no one will object.

Since the financing period is so short, a 2-3 year maximum, all the PCs will still be under warranty. In fact, our hardware refreshing resources require it. So the long term answer is that a like kind exchange (or complete fix) will take place and as long as the specs are the same then it doesnt matter when the client swaps out whether or not there is a new model # from a replacement of a broken down unit.

These are typically the biggest objections we see to implementing a program such as this but after seeing how the problem is handled and how the overall cost of ownership is so low due to the inexpensive rate per month for the hardware, its a true win/win for everyone. In fact, the MSP usually gets to play the role of hero by stepping in and showing their true added value in their preparation and knowledge of the client's business.

5 Questions of Andy Greider of QAlias

2008-04-07T06:16:00.000-07:00

Andy Greider ( Google him) is a web marketing guru. His techniques are practical, effective, and make $$ for his small business customers. Among other things, he is the brand manager for QAlias, a business and personal branding company that allows businesses and individuals create a more professional image on the web. He is also the co-host of the internet radio show, Uniqueness is Power. Here are my questions for Andy:

1) What is the # 1 mistake small businesses make when trying to market over the web or generally increase their web presence??

If I were picking one very common mistake, it would have to be either putting all the eggs in one virtual basket or going to the other extreme and diluting so much nothing has any real effect. When you begin marketing, it is very easy to buy into the silver bullet (one basket) theory - or the "I'll be everywhere, all at once" idea. Both spend money fruitlessly and unless the one basket happens to be a home run, neither are effective in the long run.

2) How do web marketing techniques differ from B2B to B2C businesses?

First of all, the B2C business has a much larger segment of the population they are going after - so they can afford to spread messaging around a little bit. They can try more avenues and have better chances for return - there is greater margin for slight error and more success. B2B businesses need to hit the target, and hitting the bullseye is important, as well. Finding the niche driven sites and information portals where you can reach and communicate with the most likely prospects is very important.

3) Is there one technique for web based marketing (and if so which) that gets the most marketing bang for the buck if you had to choose one? (or if the business only has the time and resources for one)

I'd suggest making sure whatever you do, it isn't simply down one avenue. If you are strapped timewise or financially, you need to examine what one vehicle or tool reaches your potential customers most effectively. This will vary from business to business - and there is no silver bullet. I would recommend, since we all do business with people, and not businesses - and the people at those businesses - that each of your readers examine qAlias (signup here) to best optimize themselves and their personal brand online, taking page 1 positioning with Google. At less than $10 a month, everyone can afford it, and it is an easy tool to use.

4) What is the difference (if any) in results and web presence generated between free hosting services and paid hosting services?

The hosting services themselves aren't the key point for the results produced in web search optimization - the amount of traffic they host and the amount of cross linking they do internally can make a difference, though. For instance, if you work with a larger, known portal such as GoDaddy, and there is a link back to GoDaddy - just due to the amount of site traffic they get, you gain. If you are with a smaller carrier, read free, then that may not be the case.

5) What are the dangers of over-optimization?

If you begin to show up in places you don't belong, or are literally just speaking to speak, and without care for what you are saying, over-optimization can hurt - because the web makes us all far more transparent than anything real life can produce. You need to be able to be accountable for each thing you post - and each answer you give. Remember, the internet forgets less than an elephant...and if you are over-optimized, besides potentially spending too much money, you can place yourself well, but with info that is not flattering or complimentary.

6) How do we contact you?

Google me - Andy Greider - or reach me at andy@qalias.com 404 516 4204

Thanks Andy for your great insights. To hear my latest radio interview from Andy's terrific radio show, Uniqueness is Power, please go to the bottom of the page at our website and download and listen from there.

CIT's Subprime Woes May Impact Dell, Others

2008-04-02T08:37:00.000-07:00

From Friday March 28th, reprinted from The Monitor , the publication for the Equipment Leasing Professional.........With Commentary at the end.

The subprime crisis has indirectly caught up with Dell, Avaya and Microsoft based on CIT's vendor finance relationships with these top tech companies.

Dell has contracted with CIT since 1997 to provide its customers with the financing of Dell product purchases. About a tenth of Dell's sales last year involved CIT in some way.

Given CIT's recent woes, Dell could be on the hook for all of the $455 million in outstanding loans CIT facilitated for Dell customers, should CIT go the way of other financial services companies felled by their subprime investments.

CIT currently offers finance programs for Dell's customers in Canada and in more than 40 other countries throughout Europe, Asia, Latin America and the South Pacific. CIT continues to have the option to provide funding to Dell's financial services division through January 2010.

The relationship between Dell and CIT dates back to 1997, when the two created a joint venture so Dell could offer business-customer financing. Two years into operations, the joint venture also began lending money to consumers.

Avaya's agreement with CIT was recently extended through September 2009, pursuant to a renewal provision in the agreement. Microsoft’s vendor financing relationship began in July 2006, when CIT began financing deals for Microsoft products sold in France and Switzerland. Last year, their relationship was expanded to include work with Microsoft customers in Germany, Italy, South Korea and the UK.

Commentary: Conventional vendor finance arrangements by Dell would have CIT or another company finance their customers and pay them their invoice price in cash. Had Dell done this conventional arrangement, they'd get their full price, just like a cash deal, with NO credit risk. No potential 'on the hook' for $455 million and no risk to them should a client not pay.

HAAS and the Small Business Part 1

2008-04-01T05:47:00.000-07:00

HAAS is not the well known and tasty avocado, its one of those techie acronyms. HAAS stands for Hardware as a Service. The 'as a service' part implies that the ownership and maintenance shifts from the client to the provider (or their hosting company).

For instance, in the Software as a Service model, or SAAS, the undisputed leader is salesforce.com, the online web based CRM (customer relationship management) tool. Instead of the standard license fee per user, the client gets the software as a service, meaning they pay monthly (say $12 per desktop per month) for access to the software only through the web based portal. Salesforce hosts the software and maintains it with upgrades for the client, including preferences like which depts get access to which customer info.

So how does this apply to Hardware?? Hardware is a necessary evil for all businesses today. The value of hardware declines so quickly (practically out of the box) that there is no benefit of ownership versus financing through a lease, the financing tool of HAAS.

So the first step to HAAS is an ongoing monthly fee to their Managed Services Provider (the company that maintains and supports their network and may even host some services for them like a server off site). This fee is tied into a lease with 2 major exceptions: 1) the lease period is shorter 18 months to 3 years and 2) the client is encouraged to swap out for new to keep the most updated, well maintained computers in their network at all times. In return for these factors, the client sees a minimum 2% lower rate than conventional leasing/financing programs. That typically equates to about $100-150 per month for every $10,000 in hardware.

More to come on the other factors of HAAS.

100% Software Financing

2008-03-29T07:44:00.000-07:00

One of my vendors was surprised to find out that we can finance 100% of software license fees.

Why would anyone finance something that has so little residual value? Residual value is the buyout value at the end of the lease period. Software leases/financings always have a $1 buyout value at the end of the period. Software is such a great product to lease for exactly this reason. Think of the opposite effect for a moment. We are all encouraged to buy our home as early as is possible and affordable because real estate always rises in value over the long term. For an asset like a piece of software, it declines in value so rapidly there are no intrinsic benefits of ownership versus leasing. That makes it a great deal for the client. An excellent additional resource on the benefits of leasing a declined valued asset can be found here : http://en.wikipedia.org/wiki/Equipment_leasing.

My most recent interview on financing technology purchases for the small business can be found and heard on your favorite computer or MP3 player here: http://cdn3.libsyn.com/uip/UiP_March_27_2008.MP3

Financing Technology Part 1: Software Licenses

2008-01-09T09:40:00.000-08:00

Can you really finance software??

That's a question I was asked recently and the answer is YES. However, in order to do so, it pays to understand how software is sold. Most of us don't think about it cause when we need Microsoft Office for our computers, we either go to a store that sells it and buy the little box with disc enclosed or we get it loaded into our computers when purchased (or custom built). The reality is that software is sold in 2 forms:

1) License
2) Software as a Service (known as SAAS)

When software is sold as a service, that means we pay monthly for use of the software. One of the best known companies for this is Salesforce.com. Clients pay a monthly usage fee to use their software to manage data in various parts of the sales process. The plus side is no big up front cost. The downside is having to pay every month and some companies feel uncomfortable about not ever owning the software they use to manage such vitally important data for their business. As of this writing, software created and sold in this format cannot be financed even though it helps us to better understand what we can finance.

The other major form of software sales is by license. This is otherwise known as "Off the Shelf" or "Prepackaged" software. This means we pay a one time fee per user in order to license (get approved use) of proprietary technology. So we need to pay Microsoft a fee per user to have the right to create spreadsheets on whatever topics we feel like on Excel. However, once we pay, we own it. Licenses are sold per user/per desktop where the software will be required. For most software, that means every computer in use by a business so even at a cost of $100 per license, this can run into big money. Microsoft, Sage, and Adobe are 3 of the largest software companies whose software is licensed. Licensed software CAN be financed.

100% of the license fees for software can be financed over typically a 1-4 year period with 3 years being the average. Each of these financings is structured as a $1 Residual (buyout at end of term) whether its a Capital Lease or an EFA (Equipment Finance Agreement). This allows for every interested party in the software to help expand (or make more efficient) their business by acquiring the software when they need it and pay for it over time and own it.

ACH (Electronic Check Acceptance) Part 2

2007-10-01T10:12:00.000-07:00

As a follow up to the first part of the Automated Clearing House service, this discussion will identify more benefits as well as the best candidates for its use. ACH not only verifies availability of funds, but it does so in a timely manner and then some. Any business that is check or invoice driven will find ACH a fit. The legal industry benefits greatly from this service, particularly attorneys that work on retainer. Rather than invoicing, a mutual agreement can be set up between attorney and client allowing replenishment of fees one time, or on a recurring date. The funds are verified and money is transferred.

Suppliers, Vendors, and Manufacturers will also benefit greatly. In recent discussions, I discussed how accepting Visa/MasterCard is suitable in some cases for these industries. However, due to the large dollar amounts associated for these businesses, check is the only form of payment acceptable. Merchants will receive confirmation of the transaction when it is completed, and can expect payment within 7-14 days in most instances. ACH’s benefits include: improved cash flow management, reduction of administrative fees, reduction of bank processing fees, and expansion of customer base. ACH is convenient and easily accessible by web or phone.

Todd Rome

Director, BankCard Services

Southern Lending Solutions, LLC

5 Questions of a Business Broker, Sandra Dohn of Corporate Investment International

2007-09-24T14:05:00.000-07:00

Sandra Dohn is a Business Broker with Corporate Investment International. She helps potential buyers and sellers of businesses. Sandra's firm, CII, works with no upfront costs and provides a complimentary business valuation to all potential sellers. That's just one of the great services Sandra provides. So let's see whats happening in the small business sale and acquisition market.

1) What is the # 1 issue facing sellers of businesses in the current marketplace today??

How do I sell my business for the best price while maintaining confidentiality?

The answer is to work with a Business Intermediary. When a client engages our firm, he can focus on running his business. Smooth operations and sound numbers count when you are selling. We screen and financially qualify buyer prospects.

2) What advantages do you have over other companies being under the CII umbrella??

Over 400 years of combined industry experience along with over 1 billion dollars closed transactions. Another benefit is our proprietary software valuation method which has been developed over the firms 20 year history. The #1 benefit for me is the working relationships-we truly partner to serve clients.

3) Why is valuing a business so difficult?? And why don't you charge for your great valuation service??

The valuation process is science and art. It involves combining several weighted methods using industry comps from actual completed transactions. We are a success fee company and do not charge a seller up front fees. We are compensated at closing.

4) What businesses do you specialize in and what types are selling well in the current environment??

Our sweet spot is businesses that sell for 500k to 3 million. We like manufacturing, service and distribution companies. Also, we have many qualified buyers looking for a business in a medical field because of a listing we are marketing in a niche medical area.

5) What are things that a seller can do now to prepare the business to sell before contacting you??

A dialog is the best way to get things started. I will be happy to discuss the business transfer process with any business owner. The earlier I can be involved in the process, the easier it is to position the business to sell for the best price and terms.

6) How can we contact you??

Sandra Dohn

Business Intermediary

Corporate Investment International of Greater Atlanta

1995 North Park Place, Suite 100

Atlanta, Georgia 30339

Phone: (770) 984-8989 Fax: (770) 984-8818

sdohn@ciibrokers.com

web: www.ga.ciibrokers.com

Federal Reserve Lowers Rates Today

2007-09-18T20:12:00.000-07:00

The Federal Reserve sets fiscal and monetary policy for our government and our banking system. The Fed Funds rate was lowered by 50 basis points (0.50%) today to 4.75% from 5.25%. This rate is the rate banks lend money to other banks overnight within the Federal Reserve system. When this rate is changed, the Prime Lending rate changes as well.

Prime is the rate banks charge their very best commercial customers. Very best in this case means either Fortune 1000 type companies or companies with at least 5 years of solid profitability and an existing banking relationship with that bank that covers that same 5 year period. Prime dropped today from 8.25% to 7.75%.

Does this affect lease rates?? Yes and No

It seems like lease rates should be based on Prime but in fact they are not, they are based on 5 year Government Treasury Bill rates since most leases are around 5 years long. So can Prime (a commercial rate) drop while T(reasury) Bill rates dont?? Yes they can. However, usually when Prime drops, other bond rates drop and then Government T Bill and T Bonds react in kind and drop as well. So will lease rates decline?? Maybe, but they didn't drop today just because Prime dropped today.

5 Questions of a Banker: Courtney Barbito, Washington Mutual Bank

2007-09-10T01:58:00.000-07:00

Washington Mutual Bank (known affectionately as WaMu) started as a west coast based mortgage company and community bank. They have expanded into a nationwide presence yet still keep the community bank feel when someone goes into the branch. Courtney Barbito is the Financial Center Manager (branch manager that means) of the Buckhead Atlanta, GA branch of WaMu.

1. What is the most common banking related issue facing small businesses today?

The most common banking issue is related to check clearing times. Small Business owners typically need checks deposited to be made available immediately, even if the bank does make the check available at the time of deposit there is still a chance the check could return causing a snowball effect of bank charges and returned checks. Banking technology is improving however we are not yet at the point where checks clear instantly. I suggest an electronic ACH service to ensure that funds are good when accepting checks for payment.

2.What does WaMu offer in terms of programs or other offerings that makes it unique and different in the banking environment?

The biggest difference that WaMu has is our branch design and customer service levels. WaMu tries to keep it simple! All of our branches have the exact same hours and the exact same lay out. We do not have a cut off time for transactions which means that small business customers can make deposits at any hour and the deposit will credit same day (pending any check holds). Our branch managers and business banking specialists have the ability to help customers without making 18 phone calls to other departments for approvals. Talk about saving time!!

3. Since every business owner knows they need a business checking/operating account, what is your most valuable service WaMu offers to a business that most businesses don't know about or think about right away?

Every business will have different needs but one piece of advice is to stick with what you do best. WaMu offers payroll services through PayChex and a variety of Treasury Management and Cash Management Services that match the needs of our business customers. We can even recommend a CPA in your area if you do not yet have that relationship. My advice is let the experts handle the parts of your business that you are not an expert at!

4. Which loan program is your most popular?

Our Business Line of Credit is a favorite among customers. It can be used to get you cash when you need it most. Loan amounts $100,000 or more can be linked to your checking for Overdraft Protection free of charge.

5. What does a business need to do to help improve their chances of being improved for a bank loan?

Contrary to popular belief, you do not necessarily have to have credit established in the business name. On the other hand, banks do require personal guarantees from the business owners. A business owner's personal credit and assets can be used to determine credit worthiness. The number one thing a bank looks at is if the business has enough income to repay the debt. Stating all of your income and revenues on your tax returns is essential. If the tax returns show the business took a loss then the bank will not give you a loan.

6. How can we contact you?
Courtney Barbito
Financial Center Manager
Buckhead Financial Center
3330 Piedmont Road
Atlanta, GA 30305
(404) 869-0199

You can find a location and business specialist near you at www.wamu.com or (800)788-7000

Thanks for the great info Courtney. That point about the tax returns is especially helpful to our clients.

Operating Leases Versus Capital Leases

2007-08-22T12:46:00.000-07:00

There are 2 kinds of leases: Operating and Capital. Do the differences really matter to a company choosing to lease equipment (the lessee)?? Yes they do.

Operating leases are considered the more favorable of the two. An operating lease is defined as paying for the use of the equipment only. This means none of the costs or obligations or tax treatment of ownership applies to an operating lease. The lease is treated as an operating expense in the income statement and has no affect on the balance sheet. Its true 'off balance sheet' financing. This is favorable as most firms prefer to keep leases off the books so as to allow them to try to get conventional financing more easily the next time around.

In a capital lease, the lessee assumes some of the risks of ownership and enjoys some of the benefits. Consequently, the lease, when signed, is recognized both as an asset and as a liability (for the lease payments) on the balance sheet. The firm gets to claim depreciation each year on the asset and also deducts the interest expense component of the lease payment each year. In general, capital leases recognize expenses sooner than equivalent operating leases. There is an advantage and a disadvantage to this. If the firm (the lessee) is having a good year this year, then it's an advantage to recognize the expense sooner. However, if the business grows over the next few years as the firm hopes and expects it will, then it becomes more and more of a disadvantage. The operating lease has the same tax deductibility every year and it's every dollar of every lease payment tracked as an expense.

Thats the accounting and tax part. Now we have the real world differences. Primarily, the difference is in the residual value and buyout potential at the end of the lease. If a lease is structured with a $1 buyout at the end of the period, then automatically, we have a capital lease. The other two most common residual value buyouts of 10% and Fair Market Value can be either but usually lean towards operating leases for the tax reasons stated above.

ACH (Electronic Check Acceptance) Part 1

2007-08-22T12:41:00.000-07:00

Automated Clearing House is a means of electronic funds transfer initiated by the banking industry and governed by the National Automated Clearing House Association (NACHA). ACH converts a check into an electronic stream which is transmitted from one source to another. A contract is created between the merchant or owner of a business and its clients. The contract is a mutual agreement authorizing use of this electronic stream for quickly moving money back and forth from client to business owner. The originator or business owner initiates the transaction by requesting a credit or debit of funds from the originating bank. The originating bank, in turn, requests a debit or credit from the receiver or client’s bank. The receivers’ funds are then debited or credited accordingly. The process is simple and user friendly. Strict regulations enforced by NACHA create a secure environment for the electronic check industry.

Checks typically clear in 7-14 business days. For businesses that work strictly on invoicing, this system of networks greatly reduces payment time and receivables on the books. ACH eliminates the need for collections, and instantly informs the user if client funds are available. Recurring billing is available and integrates easily into small business accounting systems. ACH is efficient, reliable, and secure.

Todd Rome
todd@southernlendingsolutions.com

Why Equipment Dealers/Vendors Love Leasing

2007-08-07T09:38:00.000-07:00

Many dealers/vendors of various types of equipment run into a problem when small businesses are their primary clientele. The problem is that those that need and use their equipment most often can't afford the 5k, 10k, 25k price tag up front to buy it. Financing the equipment themselves isn't an option for most dealers because they have to pay their suppliers for inventory and this would then put the dealer in the financing business, not the equipment business. They know equipment, they don't necessarily know financing.

Enter Equipment Leasing through a Commercial Finance Broker.

A dealer can work with an equipment leasing company (or multiple ones) to create a workable solution for everyone. Let's see how the 4 major players in this deal make out by way of a lease:

1) The Dealer: Gets full cash price with no discount. They don't have to worry about collections as they are paid and out of the deal. Its just like a cash deal to them. There is also potential for upselling as a nicer piece of equipment might only cost another 10 bucks a month. A win for the dealer.

2) The Client: Gets the equipment when they need it now with a favorable financing agreement to pay the equipment off over a 3-5 year period, much smaller more manageable payments. They make their payments to the Equipment Leasing Company and maintain a good relationship with the dealer for potential future purchases later. A win for the client.

3) The Equipment Leasing Company: Gets a new deal in their portfolio and collects the payments from the client. This is what they are in business to do and the client fits their portfolio requirements. A win for the equipment leasing company that funds the deal.

4) The Broker: Closes a deal that makes everyone happy and gets paid. A win for the broker.

A true win/win/win/win situation all the way around.

Way Out With WAY SYSTEMS: Visa/MasterCard Made Mobile

2007-07-27T04:12:00.000-07:00

Technology affects every field including the merchant processing industry. Everything is getting smaller and more powerful just like computers, blackberries and that other good stuff.

Imagine looking down at your cell phone and being able to swipe a credit card through it!

What would that be technology worth? The Way Systems-Mobile Transaction Terminal or MTT as it is referred to in the industry, provides such an innovation. Just 4 inches tall and a little more than 2 ½ inches wide, the WAY Systems MTT combines low-cost mobile phone technologies with the capabilities of a Point of Sale terminal. It incorporates a built-in magnetic along with a mini stand alone printer (if needed).

A big additional benefit of the WAY System is that pricing for credit card transactions for the merchant is based on one big factor, whether the card is present or not present. Card present transactions pay less because there's a lesser risk of fraud than when the card is not present like when the order is phoned in, taken over the web or otherwise not personally signed for. So a business can be out in the field but still pay the lowest industry rates possible through card present transactions since the merchant can swipe the card on site with this system. This technology answers the question, "How will I take a credit card out in the field?" Markets that commonly use the Way System include: art studios, business coaches, field sales, towing/wrecker companies and electricians(to name a few). Any mobile business that has been forced to deal with the issue of NSF's (that's the good old bounced check) and returned checks will benefit greatly from this technology.

Todd Rome
Director BankCard Services
Southern Lending Solutions

Check out our website at http://www.southernlendingsolutions.com

Franchises and Leasing

2007-07-24T13:07:00.000-07:00

We are often asked which industries are best fits for leasing and there are lots of answers to this question. One of the best fits for equipment leasing for both the startup and the established business is the franchise business, both franchisor and franchisee.

The franchisee has purchased the franchise location in the particular area/territory. Every retail franchise has what is known as the 'required equipment list'. This would include things like certain kitchen items like ovens and icemakers for a full service restaurant or certain types of refrigerated cases for pastries for a coffee shop, or certain equipment types for typical repairs for a repair shop.

The required equipment list is a perfect fit for equipment leasing. The main reason for this is that good quality franchisors evaluate their potential franchisee rigorously especially in the areas of personal credit, personal net worth and liquidity. These are important factors for that rocky first 2 years so the business can keep going long enough to eventually generate a profit. The last thing the franchisor wants is to grant a territory and invest time and $$ in them and in 18 months they have to close up shop and start over again. So it stands to reason, since equipment leases are easier to qualify for than bank loans, that if the franchisee has good enough credit and liquidity to qualify for the franchise in the first place, then there's every reason to believe that qualifying for a lease for the required equipment should be easy. It helps to further ensure the franchisee's success by keeping more of his startup $$ in his pocket since 5-10% down is the maximum they'd have to pay up front so cash can be preserved for the unexpected. Its that unexpected cash need that usually kills a business in the first 2 years.

5 Questions of a Business Coach, Kirk Bogue of Action Coach International

2007-07-16T13:10:00.000-07:00

This week's feature is Kirk Bogue, business coach with ActionCoach International. Business coaches provide an important service to small businesses helping provide independent advice and counsel.

What is the # 1 issue facing small businesses/small business owners today that you come across in the coaching business?

The answer to this question is a matter of perspective. If you are an immediate family member of a business owner, you would likely say the top issue is that the business doesn’t produce enough income or that it takes too much of the business owner’s time. If you are the business owner, you would likely select your top issue as one of the following: competition, getting more customers, getting reliable employees or lack of time. As a Business Coach and a business owner, I would say the key issue facing most business owners is something about their selves; most business owners would significantly improve their results if they would demonstrate increased accountability regarding their own desires and actions. This translates to the establishment of company vision and mission as well as long and short term goals. It also translates to the adoption of habits that are commensurate with and congruent to having the kind of business and results they truly dream of having (i.e. the owner of a business that makes $1M in profits thinks and acts differently than an owner of a business that makes $100K in profits).

Can you describe for us some of the benefits that come with hiring a business coach?

The tangible benefits for business owners that result from a successful relationship with a business coach include improved profits, more time to pursue other business or personal interests and more of the lifestyle they deserve. Owners produce those kinds of results as outcomes of the education, accountability and mentorship they receive from the coaching process. The coaching process helps them develop the skills, beliefs, principles and mindset they use to take them and their businesses to the next level.

There are benefits for the owner that emanate from building trusting relationships with their customers, their team, their suppliers and their coach, although these may be more intangible in value than those mentioned above. The reputation a coached person can develop as part of or as a result of their enhanced success can also be extremely meaningful to a business owner or those close to them. More important than any other benefit, however, are the feelings a business owner’s success breeds within. As a coach, it is truly an honor to witness the moment that a client’s confidence soars, that the smile on their face beams with pride or that they experience real peace of mind.

What industries benefit the most from coaching?

There is no one industry that benefits more than another from business coaching. The people (in any industry) who benefit most from coaching are those who want to achieve more of their potential, who realize they do not have all the answers themselves and who are willing to demonstrate the leadership necessary to increase personal and business effectiveness.

What does being under the Action umbrella allow you to provide that’s different from other coaches??

Being an owner of an ActionCOACH Business Coaching franchise, the largest coaching organization in the world, means that I have the support of a global network of licensed business coaches, access to mass amounts of material / information that our clients might need for their development and the mentorship of Brad Sugars – ActionCOACH’s founder, CEO, author and one of the world’s most successful entrepreneurs.

A key point of uniqueness is that ActionCOACH helps its clients through the toughest parts of personal transformation, which is when the most powerful learning and personal development takes place. Learning new skills is usually the easy part of coaching for a business owner, but often it is not enough. Frequently business owners need to develop new beliefs, new principles, a new mindset or new elements of their core identity to achieve the success they desire. We are trained, experienced and successful at helping clients get to and through those most challenging parts of personal change.

Can you recount one of your client success stories for us??

I have a client who is now on his way to building a business that is 5-10 times its current size. He is well respected as an expert in his trade and has earned national recognition for his contributions to his field and the people his field serves. He started coaching because he wanted to get his business beyond where it was and he didn’t know how to motivate his team to do that.

If my client could name only one area of development that is contributing to his success, he would say that his commitment to personal leadership development is responsible for his progress. With the support of coaching, he has come to understand the responsibilities of good leadership and to demonstrate those in his business and personal relationships.

He has learned the importance of vision and mission and how those form the basis of a common external focus that his team can rally to serve in every task they perform. He has learned that leaders go first in establishing new habits and that demonstrating the vulnerability of not getting something right to his team is powerful in motivating them to overcome their fear of failure when they try something new. He has learned about accountability, including how to set goals, how to measure performance against them and how to have conversations with team members regarding their positive or negative performance - an activity he aggressively used to avoid.

Net, this client used to blame his team for his business’ lackluster results. Now he routinely considers what he can do through leadership to influence better outcomes. While financial results have shown some variability since he started coaching, he has built the foundation for consistent and sustainable growth. His team is more solid and aligned with his goals, he developed a long term plan he and his team are executing against, he is hiring more people of the right caliber and his team is implementing systems to improve customer satisfaction and operational efficiency.

This client has overcame many obstacles to his success and is now moving forward with predictable and desirable results in his grasp.

How can we contact you??

Please contact me at 678-444-4160, at kirkbogue@actioncoach.com or via the web at www.actioncoach.com/kirkbogue (and soon at our new website at www.actioncoachvaiapark.com)

Semi-Partially-Maybe-SortaKinda Restricted Equipment Types

2007-07-02T11:20:00.000-07:00

With good information and advice, Leasing can be a pretty painless and fulfilling way of preserving the company's all important cash while still financing equipment that is necessary for the business to grow.

So why would equipment leasing companies want to restrict the types of equipment they will write leases on??

Leasing companies (in our case these are our funding sources) need to control and manage their risk since they are not in the equipment business, they are really in the financing business. They hold the paper, so they carry the risk. Some equipment types lose value so quickly that if a client company defaults on their lease in the first 6-12 months, then the leasing company would be 'upside down', meaning they would be owed more than the equipment itself is worth. Some equipment types that fall into this category include:

Computers
Other Electronics
Furniture
Titled Equipment (cars, trucks, tractors)
Trailers
Software

All these types fall into what is known as semi-restricted. This means some companies will do them, some won't and some will up to a certain $ figure. These equipment types are why an independent broker with numerous choices for sources is the best bet when dealing with one of these challenging equipment types.