Business Financing For Companies with Negative Equity
Most businesses are still feeling the effects of the past recession in one way or another. The most affected businesses are finding themselves with more liabilities that assets, leaving them with a negative equity situation. Unless handled correctly, this situation can easily spiral into a vicious cycle that ends with the company declaring bankruptcy or shutting down.
Most companies with negative equity also have cash flow problems. Most commonly, these appear when the customers start demanding longer payment terms. Instead of paying invoices in net 30 days, they start paying them in net 60 days. This creates a liquidity problem that forces the company to start juggling vendor payments and other expenses while waiting to be paid. It also limits the ability of the company to take new orders. Before long, the company goes into a tail spin.
Many times, this cash flow problem can be corrected with business financing, enabling management to turn the company around. And here lies the problem. Getting business funding while having negative equity is nearly impossible. You won’t be able to find a line of credit or business loan. And if you already have financing, it’s unlikely that your institution will increase the line. After all, if you have negative equity, your company has no collateral. And institutions don’t lend without collateral.
There is an alternative however. If you biggest problem is that you have cash flow problems due to slow paying clients, factoring financing may be the right solution to help you turn your company around. Invoice factoring accelerates your client payments by using a financial intermediary between your company and your customer. The factoring company, as the intermediary is called, advances you funds for your invoices as hold them until your customer pays. This increases your liquidity, improving your ability to pay vendors and take new orders.
One of the advantages of invoice factoring is that it’s easier to obtain than conventional financing. The collateral that factoring companies are most interested on are your invoices from credit worthy customers. Most factoring companies are comfortable holding only that as collateral. Aside from that, your company will need to show how it plans to turn around its current situation.
If you currently have another business financing solution in place (e.g a business loan), you will probably need your lenders cooperation to add and integrate factoring into your company. Turning around a company that has negative equity is very challenging. You should consider hiring a qualified financial professional to help you with this situation.
As there are prerequisites for this kind of loan, it is important to be aware of them so that you do not face difficulty in obtaining the loan. These include your credit history, how long you have lived in the house, and other requirements that vary from loan office to loan office. It is important to educate yourself on this process before you start.Basically a home equity loan means that you are taking out a loan based on the value of your home minus any remaining mortgage payments that are still due. For example, if your home is valued at $100,000, and your credit limit is set at 75%, then you can borrow up to $75,000 of the home value. Of course, if you have a mortgage, then the balance due on the mortgage will be subtracted first. Say this amount is -$40,000. That means your total home equity loan will be $35,000. A home equity loan without equity allows you to borrow above that $35,000 amount.Prerequisites for the LoanNaturally, there are definite prerequisites that must be met so that you qualify for home equity loans. These generally have to do with your history of credit. More specific prerequisites will vary from loan office to loan office and it is a good idea to get familiar with these. One thing for sure is that your credit history will be closely scrutinized so it is important that all of your payment history and paperwork are in tiptop shape before applying.Not only will your credit history decide whether you qualify for the loan but it will also determine how much you can borrow and your payment plan. Usually, the loan money will not be released to you in one lump sum. Instead it will usually come to you in a number of smaller deposits.As mentioned, the prerequisites will vary and some loan offices may expect you to have lived a certain length of time in your home before being eligible for a home equity loan. This, of course, depends on the loan office as well as your credit history. The length of time required will also vary between loan offices; generally, the usual length of residence required is two months.One thing to consider when making your home loan application is the appraisal process. However, if you have recently purchased your property or have gotten a mortgage on it, loan offices will usually go with that appraisal as real estate values are generally pretty stable in the short term. This is especially true if you purchased your home or gotten a mortgage in the last year.Ideal Way to Cover Remodeling CostsHome equity loans without equity are ideal for covering remodeling costs. It is possible to get all the funds you need to cover remodeling costs with a home loan that is known as a 125% home equity loan. Another advantage is that these types of loans are available without high interest rates.Now that you know whether or not you can obtain a home equity loan without actual equity, you can be more aware of your financial options where loans are concerned.
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ABOUT THE AUTHOR
Lara Sawyer is the author of this article. She works successfully as a financial advisor with years of expertise on Bad Credit Loans Guaranteed Approval. She publishes informative articles about Guaranteed Bad Credit Loans, home loans, credit cards, auto loans, business loans and others at http://www.fastguaranteedloans.com
Virtual Library 1- Diversity and Inclusion
As teachers & educators we have an important role to play in ensuring the texts we use in our instruction and learning experiences, reflect diversity and inclusion. This video walks you through our first Virtual Library containing picturebooks, novels and non-fiction texts promoting diversity and inclusion. Within the image of each recommended text you will find links to useful read alouds or online resources to extend the learning from the text! Share, circulate & enjoy.
Download the full virtual library for your classroom, featured in the video:
-Virtual Library: https://drive.google.com/file/d/1WsHfKj1NAaNY4eff2ekrn66uh-uGLnDH/view?usp=sharing
Visit the G-Book website: https://g-book.eu/