black horse finance

Creative financing is an interesting concept that has many business owners wondering how it could work for them. Many business owners are still not aware of the non-traditional financing methods that are taking the place of traditional bank loans or are working in conjunction with banking institutions. Some of these creative financing methodologies are not loans. They cannot be accessed through traditional financing sources based on their conceptual makeup. The conceptual makeup of some of these options could include the use of your creditworthy clients, government contracting capabilities, current paper or tangible assets, or even the use of your future expected payments.

When small business owners can look “outside the box” to get the financial assistance that they need, this creates a win-win-win situation. A lot of creative options require a banking institution be involved but do not necessary require them to be a part of the process. When these financing options are used effectively, many small business owners, and even large corporations, usually see the benefit.

Banking Risk Tolerance

It is often said that “Banks are not lending”. This is not true. Banks are in the business of lending. Without completed loan transactions, banks would go out of business. The issue you face, as a business owner, is the banks’ tight lending practices, especially in today’s tight lending market. When this affects you negatively, the simple truth is that you and your business do not fit that particular bank’s lending model or their level of “Risk Tolerance”. Banks are averse to risking their capital.

Conservative lending institutions such as banks will not risk their money to support your venture. Your venture or business must show sustainability in advance. This will make that lender happy to loan you money.

Creative Financing Solutions

This financing model varies across a number of sectors and is not contained in its lending practices like traditional institutions. Creative financing solutions develop based on a demand or the need to solve a financial issue for a large group. When business owners are denied access to capital through the banking sector, not everyone will give up on their dream of moving their business forward or be satisfied simply surviving through economic hardship.

Creative financing sources address the demand for access to capital in a variety of ways. These options are usual provided and operated by private companies. Many have private investors who prefer these types of investment avenues. These solutions go across all types of business sectors including medical, construction, food, manufacturing, government, and more. When a business owner seeks out this kind of financing, the success factor is dependent on the industry, payment sources, customer or client’s credit report and score, current contracts and much more.

Types of Creative Financing

Factoring – Most companies that must produce an invoice after the delivery of goods or services can use this option. This model facilitates the sale of your invoices (assets) in exchange for cash. This option is not a loan.

Equipment Lease Financing – is a loan. You are able to purchase the necessary equipment for your business and pay in installment payments instead of having to pay the full price of the product upfront. There are tax incentives, so talk with your CPA.

Micro-Loans – are available both through traditional financing and creative financing sources. The difference between the two is in the terms offered. This option can fill a gap if you need a larger loan. Use it appropriately and you can always reapply.

Peer-to-Peer Lending – This is a loan program that is available online. Through many online peer-to-peer lending sites, you can obtain up to $25,000 depending on your need. This concept takes a crowd of people lending you small amounts equaling the amount you need. The important thing to note is that the risk to the individual lenders is minimal as many choose to lend in small amounts as low as $25.

Crowd Funding – has gotten a lot of attention in the last few months. Two year ago, this option was nowhere on the radar of financing options. Today, between sites such as IndieGoGo and Kickstarter, you can now raise funds for your project or business and do not have to pay it back. Now, this does not mean you do or give nothing in return. It simply means that you will repay the crowd or group of individuals that believed in you enough to give you a set amount with non-monetary items.

This concept simply uses a crowd of individuals to finance you. This is not a loan. It is similar to the “Barter trade” system. A good case in point – you want to publish your book but don’t have enough marketing capital. When you announce this project to your audience, they will support you based on your pledge to give something in return. An example of this would be someone pledges $25 and once the book is published they get a copy of the book or an eBook version.

Finally, business financing is no longer tied to just the banks. Individuals and other organizations realize that we must find solutions where there are problems, and that is exactly what these creative financing sources have done.

Life Insurance Premium finance is the safer way of purchasing life insurance, especially for high net worth individuals. It allows a company to borrow the cost of life insurance premiums. It usually occurs when the company has a very high premium that makes it necessary to borrow the amount in part or in whole to prevent reducing the company’s liquidity.

More often than not, traditional lenders don’t provide premium financing, and business owners need to look for specific premium financing providers to secure the loan.

Benefits of Premium Finance

When a company releases a large amount of payment, its owner must first consider whether the funds are needed for the daily operation of the company or for the expansion of the business. And in order to prevent liquidating some of the company’s assets or using key funds, financing is required.

More often than not, businesses depend on some type of loan to be sustainable. Premium financing is often a part of the debt cycle for company with high corporate owned life insurance costs.

A business owner can finance multiple policies via a single agreement that allows the owner to make a single insurance premium payment a month. In most cases, insurance companies accept premium financing and accept payment straight from the finance provider. When that is the case, the premium finance company will bill the business owner instead of the insurer.

Premium Financing of Non-Qualified Executive Bonus Plans

Premium financing can be used on non-qualified executive bonus plans, which are available for vital employees of any type of corporation. The employer has the discretion to select the workers to cover and the amount of the bonus. The business owner pays for the premiums on the policy, and the employee has to pay tax that’s equal to the premium amount.

Financing of 770 Accounts

A 770 account is a permanent life insurance policy that has been structured to maximize its cash value. By maximizing the total death benefit and cash value, you can maximize the cash value of the life insurance policy. More often than not, the cash value is tax-free and can be accessed at anytime.

770 accounts have a very competitive rate of return and can be used as collateral. But the premiums can be high. High net individuals or business owners can resort to financing in order to keep up with the premium payments without the need to liquefy assets.

As you can see, financing life insurance premiums can help individuals and companies that need to pay large amounts of premium. It allows them to stay liquid while providing insurance coverage to oneself or one’s employees. This is ideal for corporate owned life insurance programs as well as private banked owned life insurance policies.