Collateral – Financial Fitness for Small Business Tips

The purpose of the  Financial Fitness for Small Business Tips is to provide information that will help aspiring and existing small business owners be better prepared to finance the start-up and growth of their businesses in today’s economic environment.  The following tip was provided by Emerson Hall, Community Affairs Specialist for the Federal Deposit Insurance Corporation Dallas Regional Office.  For more information on the financial literacy resources provided by FDIC go to http://www.fdic.gov/consumers/education/.

Collateral are assets that have value and can be liquidated in the event of loan default;  and in most cases provides tangible security for the lender and investor upon extending funds to a business. Collateral provides the business owner the ability to pledge it’s assets as a secondary source of repayment in the event cash flow is unable to satisfy debt payments. Lenders and investors take some comfort in having collateral securing their funds in the event of non-payment. The collateral can be liquidated to cover some or all of the outstanding debt.

Collateral is normally a requirement to obtain financing for a business. If collateral is not available it does not automatically indicate lenders or investors will decline a request for funds, but having collateral does provide an enhancement for funding to be extended.

Cash Flow – Financial Fitness for Small Business Tips

The purpose of the  Financial Fitness for Small Business Tips is to provide information that will help aspiring and existing small business owners be better prepared to finance the start-up and growth of their businesses in today’s economic environment.  The following tip was provided by Emerson Hall, Community Affairs Specialist for the Federal Deposit Insurance Corporation Dallas Regional Office.  For more information on the financial literacy resources provided by FDIC go to http://www.fdic.gov/consumers/education/.

Cash flow is defined as the movement of cash into and out of a business enterprise and is described by many as the life blood of any business. Positive cash flow is an essential element of a successful business. In order to establish and maintain a viable business, a business owner must understand and properly manage the business cash flow.

Proper management of cash flow reflects the owner’s ability to operate the business, whereby, all expenses are paid timely and having sufficient funds remaining to make debt payments. Lenders and Investors consider cash flow as a critical aspect of the business operations when evaluating a business for potential funding. Cash flow management requires attention to all the details of the business enterprise.

Most inflows from a small business are derived from operations: cash sales and collections of receivables. Other possible sources of cash inflow would include investment income from interest of dividend income, and financing income form sales of assets (not in the ordinary course of doing business) borrowed funds, lawsuit and insurance payments.

Equity – Financial Fitness for Small Business Tips

The purpose of the  Financial Fitness for Small Business Tips is to provide information that will help aspiring and existing small business owners be better prepared to finance the start-up and growth of their businesses in today’s economic environment.  The following tip was provided by Emerson Hall, Community Affairs Specialist for the Federal Deposit Insurance Corporation Dallas Regional Office.  For more information on the financial literacy resources provided by FDIC go to http://www.fdic.gov/consumers/education/.

Simply explained equity is total assets minus total liabilities; to start or obtain financing to expand a business requires the business owner to invest and maintain equity in their business enterprise. It is often said “If I had the money to start a business or expand my business I would not have the need to request financing”. It is also frequently said “You can only obtain financing when you have money with no real need for financing”. Although on the surface these statements appear to be true. They are not accurate.

Starting a business requires commitment, knowledge, experience, tenacity and money. Potential investors and lenders will always inquire about the amount of money the business owner has injected into their business. Money translates into commitment; the more money invested by the owner (risk) the more investors and lenders are willing to seriously to consider providing additional funds to support the business owner.

Moreover, if a potential business owner has not committed to save and invest their funds into their new business; or an existing business owner has neglected to maintain equity in their operating enterprise. It is unlikely that a prudent lender or investor is going to provide funding.

Lenders and Investors must believe that a business owner has complete confidence in their ability to successfully operate their business. And nothing expresses confidence more than a business owner injecting their hard earned cash into their own business concern.

Without owner’s equity there is no viable business concern. This may not be a concept most potential and existing business owners want to embrace, but this is the reality, great ideas are just that, great ideas. Ideas remain ideas until equity is injected to assist in developing and realizing the idea.

Consumer Alert: E-mail Claiming to Be From the FDIC

The Federal Deposit Insurance Corporation (FDIC) has received numerous reports of a fraudulent e-mail that has the appearance of being sent from the FDIC.

The subject line of the e-mails state: “Just for your time.” The e-mail tells recipients that, “The Federal Deposit Insurance Corporation Online department kindly asks you to take part in our quick and easy 5 questions survey.” It attempts to entice recipients to take the “survey” by telling them “In return we will credit $50.00 to your account – Just for your time!” The e-mail then directs recipients to click on a link to take the survey (a fraudulent link is provided).

This e-mail and associated Web site are fraudulent. Recipients should consider the intent of this e-mail as an attempt to collect personal or confidential information, or to load malicious software onto end users’ computers.

The FDIC does not issue unsolicited e-mails to consumers. Financial institutions and consumers should NOT follow the link in the fraudulent e-mail.

FDIC Money Smart Financial Education Link

To learn more about the training materials available from the Federal Deposit Insurance Corporation to enhance your money management skills click here.