Due Diligence

I can not say enough about the importance of due diligence. Many buyers and sellers (especially in small business sales) take each other's word regarding their backgrounds, resumes and even financial information. This is very short-sighted. Buyers need to know as much as they can about the business they are about to purchase and its owner before making their investment. Likewise, the seller needs to know that the proposed buyers are honest and are a good match for the business being sold to them. The seller is also granting credit to perfect strangers.

In the early stages of negotiation, the buyer and the seller should give each other the name of their respective banks and bankers that are most familiar with them. Each should have their own banker inquire of the other regarding satisfactory banking practices, account balances and the availability of funds to close on the part of the buyer. This procedure, when completed, will either establish a comfort level for each to proceed or it will cause an end to negotiations.

In addition to the above, the best way for a buyer and seller to perform due diligence is to hire a private investigation company. They are in the yellow pages. They are expert at providing civil and criminal background checks. This process should begin after the terms of sale of a business are agreed. There should be a contingency of the sale and it should be completed before closing. "Individual" background checks can be completed quickly in a cost range from $100 to $500 approximately. "Corporate" background checks can cost from $100 (sole owner) up to $2,000 approximately depending on the number of principals in the corporation. Buyer and seller should provide each other with a copy of their respective credit reports (if available), a copy of their driver's license and a signed, dated and social security number insertion on an "Authorization to Release Information" form shown herein (see figure A). The form is self-explanatory. The first meeting with any investigation company is usually free of charge. That is when you decide the extent of the investigation you wish.

Background check reports will give both the buyer and the seller the comfort level they need to consummate the sale of the business.

A great deal of "trust" on both sides is required in any transaction that involves providing cash and a "promise to pay" in exchange for an unknown future.

Source: Connection Magazine

Business is great, orders are pouring in, but you lack the cash to meet the demand and you can't get a loan because you haven't been in business long enough or don't have collateral. Your solution? Factoring.

One of the oldest forms of business financing, factoring - selling accounts receivable to a third-party funding source for cash - is the cash-management tool of choice for many companies.

In a typical factoring arrangement, the client (you) makes a sale, delivers the product or service and generates an invoice. The factor (the funding Source) buys the fight to collect on that invoice by agreeing to pay you the invoice's face value less a discount - typically 2 percent to 6 percent. The factor pays 75 percent to 80 percent of the face value immediately and forwards the remainder (less the discount) when your customer pays.

Because factors extend credit not to their clients but to their clients' customers, they are more concerned about the customers' ability to pay than the client's financial status. That means a company with creditworthy customers may be able to factor even if it can't qualify for a loan.

Once used mostly by large corporations, factoring is becoming more widespread. Still, plenty of misperceptions about factoring remain.

Factoring is not a loan; it does not create a liability on the balance sheet or encumber assets. It is the sale of an asset - in this case, the invoice. And while factoring is considered one of the most expensive forms of financing, that's not always true. Yes, when you compare the discount rate factors charge against the interest rate banks charge, factoring costs more. But if you can't qualify for a loan, it doesn't matter what the interest rate is. Factors also provide services banks do not: They typically take over a significant portion of the accounting work for their clients, help with credit checks, and generate financial reports to let you know where you stand.

The idea that factoring is a last-ditch effort by companies about to go under is another misperception. Wait Plant, regional manager with Altres Financial, a national factoring firm based in Salt Lake City, says the opposite is true: "Most of the businesses we deal with are very much in an upward cycle, going through extremely rapid growth."

Plant says you may be a candidate for factoring if your company regularly generates commercial invoices and you could benefit from reducing the time receivables are outstanding. Factoring may provide the cash you need to fund growth or to take advantage of early-payment discounts suppliers offer.

Factoring is a short-term solution; most companies factor for two years or less. Plant says the factor's role is to help clients make the transition to traditional financing.

Factors are listed in the telephone directory and often advertise in industry trade publications. Your banker may be able to refer you to a factor. Shop around for someone who understands your industry, can customize a service package for you, and has the financial resources you need.

Written for: Entrepreneur Magazine

Source: FindArticles

As a retired person or someone being faced with an expensive medical illness who is in need of a large sum of money, you have an option that may be better for you than seeking a personal loan. If you have a life insurance policy, you may want to consider selling it to a third party to receive the money you need.

As an elderly person, you may be faced with bills you cannot afford. You may be retired, to tired or unwilling to go back to work at your age, and not able to pay your living expenses. In other cases you may just not need your policy anymore, such as if you no longer have a beneficiary.

As a terminally ill individual, even if you don't want to treat the illness because the prognosis is poor, you still will want the rest of your days to be bearable and pain-free, which may require costly procedures or medications. Those in this position are often on a fixed income and unable to afford the portion of the bills that their insurance may not cover. On top of all this, you may come to a point where you are unable or too uncomfortable to care for yourself and live completely on your own.

What are viatical and life settlements?
A viatical is where someone who has been diagnosed with a terminal illness decides to sell their life insurance policy to a company who will take over the beneficiary status and payments on the policy in exchange for a lump sum payment. A life settlement is essentially the same thing, except that it involves an elderly person, who may be completely healthy.

If you would like to consider a viatical or life settlement, you may want to find out how much you will can receive for cashing in your policy. Many companies that purchase such policies will give close to the face value of the policy, but the exact percentage will vary.

What are the benefits of a viatical or life settlement?

There are many benefits that a viatical or life settlement can afford a retired person or someone that has been diagnosed with a terminal illness.

- You may need the money to pay for your current living expenses or on anything else of your choosing, such as a trip or vacation.

- You can use the payment you receive to pay off mounting medical bills and buy medication to help manage the pain of your illness. Hopefully, you will be able to claim a good amount of this on your Medicare or other insurance policy.

- You may also want to consider using the funds to pay the costs of living in a retirement or nursing home. It makes sense to want the time you have left to be as carefree as possible.

While you are still healthy enough, you can spend time joining in activities with your peers and you won't have to do other things, such as cook meals. As your condition progresses you may become less able to do many things on your own. When this time comes you will already be at a place where you can receive daily help and where you have already formed a relationship with the staff.

What are the drawbacks of a viatical or life settlement?

Although viatical and life settlements may seem like a dream come true, there are some drawbacks. For instance, there is a reason you decided to purchase life insurance in the first place - to pay for funeral and burial costs and to take care of your family after your passing. This may be the biggest factor that would keep one from cashing in their policy. The good news is that you can make arrangements that continue to keep your final expenses from
being a burden to your family.

First, you can look into using a portion of the money you receive to purchase a burial plot for yourself, as well as a casket, funeral home, and other related expenses. Also, you probably purchased your policy in your younger days - when you had minor children to be concerned about if the worst were to happen. Now that your children are grown, you can use the money to take care of your own needs.

How to make the decision that is right for you

When making your decision on whether or not to cash in your life insurance policy, you will want to take all of the above factors into consideration, as well as talk it over with your spouse, children, and doctors.

- You and your spouse should make the final decision together. After all, they are the ones who would receive the remainder of your policy if you were to keep it. You both need to consider the cost of comfortable living expenses for your spouse and if they would need the life insurance funds to achieve that.

- You should also discuss this with your children to get another perspective. Furthermore, you can use this opportunity to explain to them that all of your arrangements will be taken care of with a portion of the money.

- If you have been diagnosed with a terminal illness, your doctors can let you know how quickly they expect your condition to move and help you come up with a rough figure of what it may cost. You will want to be sure that, if you choose a viatical settlement, it will be enough to support you during your illness and pay for your arrangements after your passing.

A viatical or life settlement may be the best choice for a retired person who no longer needs their policy or someone with a terminal illness who has an overwhelming amount of expenses to pay. They may have little income as it is, insufficient healt insurance, or not want to burden their family. If this sounds like you or someone you love, find out the details about the policy in question, figure out if it will be enough, and talk it over with those involved. You may end up with a great solution for everyone.

Sovereign Funding Group is an experienced, reputable company that offers convenient, no-risk services to help you with the selling of your deferred payments, including
viaticals and life settlements.

If you haven't yet read the earlier article titled "Tips on Creating a Real Estate Note", you may want to do so. That article provides some background pertinent to this one, and can be found here.

Perhaps you've recently come across a great investment opportunity. Or, maybe you need some extra cash flow to pay down debt. Whatever the reason, you have heard that you can sell your real estate note (more often called a mortgage note), but you aren't quite sure how it works or how to ensure that you get a good deal.

In the previous article, we discussed how to structure a note to help you obtain the maximum value from it. Let's say that the note has now been completed, you have received at least one payment from the property buyer, and now you've called us about selling the note.

The first thing that most note sellers think about is selling the entire note. If that scenario fits your financial situation and the note is likely to fetch a high value, you may want to go down that path.

But wait, you should at least understand other options in order to choose the one that is the best fit. Sometimes, note sellers like the interest rate that they are receiving on the note, but just want to obtain some amount of cash now. Or, what can you do if your note doesn't meet some of the criteria needed to fetch a high value (i.e. good equity and strong buyer credit)? It is possible, and often to your advantage, to just sell some of the payments. This is called a partial, and it can often provide you with a much higher rate of return.

An example can help here. Assume that you sold a house for $120,000, the buyer gave you $20,000 as a down payment, and you have a $100,000 note at 7% for the next 15 years (180 months). You enjoy getting the income each month but need $30,000 for another investment or to pay off debt. We could give you that $30,000 in exchange for buying the next "x" number of payments, after which the note reverts back to you for the remainder of the term.

There are also other ways to structure the note to meet your needs, such as getting a lump sum of money now plus receiving a part of the payment each month thereafter. A knowledgeable note buyer will be able to explain these to you in more detail.

The items that are described above and in the previous article apply mainly to 1st liens. If you have a 2nd lien, where there is a bank or another investor with a more senior lien against the property, you may be able to sell the note, but the price that you receive won't be nearly as high. You generally won't be able to sell those types of notes at any sort of decent price unless the buyer has put in at least 30% of his own money as a down payment or in built-up equity.

So, now you've received quotes for a full buyout of the note and a partial purchase, and have selected the one that best fits your needs. Since the note purchasing business is lightly regulated, you do need to be careful to work with a reputable investor or broker. Here are some things of which to be aware:

Make sure that there are no upfront fees. A good note buyer isn't going to charge you just to provide quotes or check the buyer's credit.

There should be no points, closing costs, or other garbage fees at any point in the process. Any fees are already included in the pay price to you.

It is normal for the note buyer to require that you pay for the appraisal or the title policy ONLY if the property appraises for less than the sales price or there are problems with the title that prevent the purchase. However, these payments should cover just the buyer's actual costs.

Ensure that the seller gives you a written purchase agreement covering the purchase price, contingencies, etc., and be certain to ask questions about anything that is not clear.

Be certain that the note investor checks the credit of your property buyer upfront. There have been cases of unscrupulous buyers quoting one price and then lowering it toward the end of the process, often using the excuse that the "property buyer's credit was low". This "bait and switch" method is definitely not ethical.

So, what are the steps involved in selling your note? The process is simple and straightforward:

Contact us and provide basic information about the note and property (type of property, sale price, payment amounts, etc.).

If you approve the quote, we ask you to send copies of the Deed of Trust or Mortgage, the Note, Title Policy, and Closing/Settlement Statement in order to check the buyer's credit and conduct our due diligence. If there is no recent appraisal or title policy, we arrange for those, at our expense.

From the time that you approve the quote and provide the documents, it generally takes 2-3 weeks for you to get your money. You can choose to receive the cash via check or electronically.

Selling your note can be a great way to generate a lump sum of cash. If you have additional questions, feel free to contact us anytime.

Article written by Alan Noblitt of Seascape Capital Inc.

Over the past few years of low interest rates in real estate, there was not a lot of news about owner financing. Banks and credit unions have scrambled to find more customers by lowering their lending criteria and competing on rates, so that nearly anyone could find a loan for their house or business somewhere. That is still somewhat the case today, though it will become less so as interest rates continue to rise and foreclosures climb.

Even in these times, there are still a lot of sellers offering owner financing on properties. The reasons for offering owner financing vary, but include:

- Seller wanting to defer taxes on gains.

- Saving the high bank closing costs and fees.

- Creating more flexible terms and payment schedules.

- Weak buyer credit.

- Sales between family members, or divorce agreements.

Owner financing notes can vary, but always includes an agreed upon term, interest rate, payment amount, and payment date on which the buyer of the property must pay the seller. The conditions are formally written in a note, sometimes also called a promissory note or installment note.

Usually, the seller would have preferred to have received all of the cash upfront. Even if that wasn't the case at the beginning, circumstances may have changed or new investment opportunities have appeared that cause the seller to need cash quickly.

There are investors, both institutions and private, who will buy these notes. They will generally discount the note (pay the seller an amount below the note's current balance) to offset their risk and meet certain yield requirements. The amount of discount varies across notes, but the two biggest factors in determining the discount (besides the type of property) are the amount of equity in the property (cash down payment plus principal payments received) and the credit of the buyer. The more equity and the better the buyer credit, the more that the note is worth.

So, if you're creating a note, here are some tips to maximize the amount that you would receive if you later need to sell it, as well as help protect yourself if you don't:

- Obtain a good down payment. This means at least 10% for a standard house, and 20-30% for commercial properties, land, and mobile homes. These numbers cannot always be reached, so try to get as much as you can without putting the buyer into a financially precarious position.

- If you can, sell to a buyer with decent credit. A FICO (credit score) of at least 650 is preferable, though 625 is usually adequate. You'll often still be able to sell the note even if the buyer's credit is below 600, but be prepared to take a larger discount. Also, recognize that the FICO score does not always represent the buyer's ability and propensity to make timely payments, as they may have a low score due to having a lot of open credit but still be current on all payments.

- Ensure that the interest rate being charged is at least as high as comparable bank rates.

- Keep the term of the note as short as possible. Everything else being equal, a 10-year or 15-year note is worth more than a 30-year note.

Other items that we consider to be positive when deciding whether to buy a note and how much to pay include:

- Property is owner-occupied (for houses and mobile homes).

- Access to power, water, and roads (for land).

- In regard to commercial notes, multi-unit apartments or general purpose office buildings are easier to place than specialty businesses like restaurants. A note on a property that was previously a gas station or anything that could have adverse environmental consequences will be much harder to sell due to the potential liability.

- The property and surrounding area being in good condition.

You'll also want to be sure that the sales price is not far above the market value (if you might someday sell the note) and that the title to the property is clean. If you have questions about structuring your note, feel free to contact us anytime.

Article written by Alan Noblitt of Seascape Capital Inc.

The pace of change in today's business environment is inarguably staggering. Growth of e-commerce; changes to business structures; evolving relationships; changes to funding arrangements; access to capital and its sources. All occurring at increasingly exponential rates. Fast. The fact that there is more computing power in the average notebook computer today than it took to put a man on the moon should illustrate how fast things change, and whether in senior management or a business owner you need to keep pace.

In particular, you must stay abreast of changes in your competitive environment, and remain fully apprised of mechanisms that will enable a response fast enough to keep you in the game. This article will look at one of those mechanisms, access to capital and through that, free cash flow. In doing so we'll use an intuitive framework, peppered with some economics. Why? Intuitive analysis is ideal for answering specific questions; in this case 'What will best enable my firm to manage rapid changes to competitive economic conditions and stay in the game?' And I'll use economics because of Steven Levitt, America's most outstanding economist under-40, who along with Stephen Dubner considers that 'if morality represents how we would like the world to work, then economics represents how it actually does work.'

By speaking to specific anchor points, strategic issues affecting the access to capital problem can be explored and initiatives developed to allow a timely solution. In short, it's the fastest and most accurate way to answer the question you face, because it's easier to understand and doesn't get bogged down in extraneous, unnecessary analysis.

One of the anchor points in contemporary business is access to capital, especially when it helps maintain free cash-flow. In many respects they are one and the same thing, the difference merely being access to capital is a necessary precursor to free cash flow (you can't use it until you have it). And everyone needs it. Payroll, materials, overhead, and debtors taking anywhere from 45 to 120 days to settle their accounts, using your firm as a surrogate line of credit.

Access to capital becomes an even larger issue in the business environment described earlier, where speed to market and the ability to 'tool-up' (increase production) are crucial to meeting ever shrinking delivery timelines. Many of us have experienced the elation of being awarded a large tender, something that will fill the order book for the next six months, immediately followed by the hangover that comes with the realization that the firm will struggle to fund the project based on existing and forecast cash flow.

Small-to-medium enterprises encounter particular problems when it comes to cash flow and capital access to fund growing operations, to the point where lack of access is an issue that can threaten continuing operations, even in a rising market. Balance sheets take time to build, and it is against this security that banks will lend.

Developing initiatives to tackle this problem involves looking at some existing options and making a comparison, arriving at a decision that best enables a solution to the problem at hand. In this instance, a comparison of bank funding against invoice factoring provides insight into possible solutions for the capital access / cash flow problem.

Everyday economics can inform this comparison, particularly the study of incentives - how people get what they want, or need, especially when other people want or need the same thing. Let's start with banks.

Bank lending requirements are invasive and restrictive. They often engender a feeling that you have to 'bare all' to borrow a nickel. They would naturally dispute this claim, but let's return to the incentives - what is their incentive for lending you money? To earn a return off your efforts. Certainly nothing short of this, and these days they also use lending as a lever to win the biggest 'share of your wallet' from their rivals, trying to have you as a customer for life, 'growing with you and your business.' When you add the fact that a surplus of people requiring credit exist in the market, they can afford to be choosy and do the economically rational thing - be risk averse. Risk aversion drives the mortgage a bank puts on your house to ensure they get paid, and is what drives them to lend against strong balance sheets. They look at balance sheets in an accounting fashion, weighing up tangible, realizable, liquid assets like cash and real property, apply a formula and lend in accordance with how the result stack up against their risk matrix. Your continuing success is of interest to them only to the extent that it enables you to service (and ultimately repay) your debt, generating an ongoing margin on their investment.

An overly simplistic description, the point being to illustrate that all of this takes time, and is structured around heavy regulation and evaluation constraints. Lots of time, and lots of influential rules. First, for you to build your balance sheet, and second, to get it appraised to a point where your banker might open or extend your credit facility. During that time, the window of opportunity to fund that large project, manufacturing expansion, or operations in a rising market quickly passes, leaving you out of pocket your application fee and if successful, servicing an even larger debt you might not need.

Turning to invoice factors, the incentives might seem the same, but how they view obtaining their return is slightly different. While banks rely on their acumen in accurately predicting your ability to repay a debt, invoice factors rely on their skills in accurately assessing the ability of your customer base to pay you. A lower perceived risk aversion with invoice factors plays a small part, but it is how the factor views the overall situation that is different from traditional lending. To begin with, factors recognize your accounts receivables as assets, just like the bank. The difference is that an invoice factor considers your receivables a quickly realizable asset, and is prepared to purchase the rights (and risks) of collecting your outstanding invoices.

Put another way, in economic terms the invoice factor recognizes your receivables as assets with a future value in cash flow terms, and provided their assessment of your customers is favorable, they are prepared to effectively 'provide a market' for those assets. This 'market' closes with your transaction selling them the invoice however; there is no secondary market like junk bonds or other derivatives.

Access to capital through factors is more expensive than traditional lending, and this is due to the risk premium attached not to you, but your customer base. This is not surprising, and you and I would probably do the same. Returning again to economics and our study of incentives, a rational person requires a premium for every extra unit of risk they take on. A bigger incentive for a perceived higher risk. In the case of factoring, the premium is higher than equivalent bank lending rates, as the risks are considered slightly higher when the security is not real property, rather a first position claim over all of your receivables. Your risk exposure is lower than collecting the receivables yourself (invoice factors are very good at mercantile operations) - the higher fee charged by the factor compared to the bank is simply the premium you must pay to lower that exposure.

The difference that factors provide is speed of access to capital, and what happens when you default. Default on the bank loan, you can lose your business, even the family home. Factoring is not quite as drastic, although the sums of money involved are invariably smaller. There are two types of factoring products available, recourse and non-recourse, and again, the difference comes down to assumption of risk, and the premium asked to assume the risk of non-payment on an invoice. With recourse factoring, you remain liable for non-payment by your customer, and with non-recourse, the factor assumes the risk up to a point, and at a higher premium.

In summary, there are merits and pitfalls in both traditional lending and factoring. These are volatile economic times, and having been burnt a number of times during boom times of the previous two decades, banks are far more risk averse, holding tight reign on their credit standards. So in light of this information, we return to our problem, looking to answer the question: 'Which of these approaches best delivers the flexibility I require to allow me the opportunity to prosper in a fast-changing business environment?'

For many businesses, the answer lies with invoice factoring, which delivers in excess of $1 trillion in credit across the continental United States. As with all business situations there are caveats, or described another way, arrangements that if not continually monitored can become a comfortable security blanket that might actually be slowly suffocating you.

It is easy to become accustomed to continuing access to cash flow through factoring. It is also easy to feel at ease knowing you are backed by a massive publicly traded institution like your bank. Management and owners of Small and Medium-Sized Enterprises should continually remind themselves that the study of incentives works for them too. Constant review of your capital funding and cash flow arrangements is essential to ensure that the deal you end up with is the best for your firm, and not others. It's all about getting what you want, or need, especially when other people want or need the same thing.

Sovereign Funding Group is an experienced, reputable company that offers nationwide accounts receivable factoring services. Sovereign Funding Group can be contacted by phone at 877-836-4661, info@sovereignfunding.com or by visiting the website at www.sovereignfunding.com and filling out the online submission.

Factoring is one of the oldest business practices known. We know that it was used at least as long ago as the time of the Ancient Roman Empire, when merchants would enlist the help of collectors in order to settle trade debts. The primary reason for factoring's long history is that it addresses a very fundamental problem in business itself: cash flow.

Let's say you run a small company that's developing a unique idea. Everyone works hard in designing the product, and your sales department hits pay dirt: a large manufacturing contract. This is exactly what you wanted, but you now have a problem: you need to hire more people and invest in some machinery to fulfill the contract, but you won't see any money until the goods are delivered. In this situation, a lot of your options aren't too appealing - a large loan (assuming your business has the credit,) or convincing your employees to accept a deferred payroll. In many cases the best solution is to strike a deal with an invoice factoring company. What the factoring company will do is effectively buy your invoices at a discount - the 'factor,' which are typically 3 - 4% - and provide you with the up front cash that you need. When they come due, the factoring company will then collect your invoices in full. Although the invoice factoring company will collect the receivables, this is usually done in a transparent way to the customer: as far as the customer is concerned, they are simply paying an invoice to a company as they normally would.

Even if it's not out of a need for capital, many smaller businesses also turn to factoring companies to alleviate cash flow issues. When selling to large corporations, some businesses find themselves dealing with long gaps between invoicing and payment and with little leverage to narrow it. By turning to an invoice factoring company they can create a steadier cash flow.

The Beginnings: Invoice Factoring in Early America

Factoring made its way to America almost as soon as the pilgrims did. Many early American merchants made use of factors in order to sell tobacco and cotton abroad: they would ship their goods to England where a factor would take a percentage for selling and collecting money owed, and English merchants would do the same using American factors. In this way factoring played a pivotal role in rapid growth of American industry - without factors it would have been much more difficult for merchants to maintain a steady cash flow and trade of goods overseas.

As the American economy grew, American factors were able to concentrate more and more on domestic business. From the early colonial factors, and group of around 40 large factoring companies descended, based mostly on the east coast, that played a major role in financing the textile and transportation industries until the early 1950s. In the early part of the 20th century these factoring companies began to establish percentages of receivables that they would advance companies upon the purchasing the invoices, usually around 70%-80%. This provided much of the large amounts of capital needed in these industries.

The mid 1950s saw the emergence of smaller businesses using factoring to address cash flow issues, moving the factoring industry away from the exclusive realm of large industry. As smaller businesses began to make use of factoring, the industry grew rapidly and became more competitive. The result was a trend towards mergers beginning in the 1970s that saw the number of large factoring companies reduced to around 10 by the end of the decade. At the same time, banks and other large financial institutions began to offer factoring services, and the business of factoring became the domain of large, institutional organizations.

The Impact of Invoice Factoring on Today’s Small Business Trends

The factoring industry more or less remained this way until fairly recently. The last 10 to 15 years has seen the re-emergence of small, independent factoring companies catering to a much wider range of businesses and needs. This trend has created a split market with a few mammoth factors targeting traditional factoring industries, and many small factoring companies that are continually creating new markets.

This trend towards newer, smaller invoice factoring companies is a reflection of contemporary business trends. The pace with which smaller companies develop and operate, particularly in the competitive technology and service sectors, requires a steady cash flow that can't always be provided by receivables. An example of this can be seen in the emergence of temporary staffing agencies. These companies have large payrolls and depend heavily on cash flow. The competitive nature of this industry puts many temp agencies in a position where their payroll is due before their invoices are, and many smaller factoring companies have come about to provide solutions for this gap between payables and receivables.

The factoring industry has been growing rapidly in America, and in 1998 over $50 billion worth of accounts receivable was sold to invoice factoring companies. As banks and traditional finance companies continue to lose market share, it's likely that this number will increase.

The nature of business continues to change ever more rapidly. While in the past many companies considered a safe amount of assets and cash on hand a necessity, many industries today require that companies operate without this luxury. In many cases it's necessary for a new company to be able to deliver on-demand goods and services right from the get-go, and it's inevitable that this will create cash flow problems. The factoring industry's effectiveness at solving these cash flow issues ensures that it will continue to serve as the fuel for rapid businesses growth, much as it has for hundreds of years.

Sovereign Funding Group is an experienced, reputable company that offers nationwide accounts receivable factoring services. Sovereign Funding Group can be contacted by phone at 877-836-4661, info@sovereignfunding.com or by visiting the website at www.sovereignfunding.com and filling out the online submission.

A structured settlement often follows a life changing incident, whether it be positive or negative. Due to these circumstances, you may be faced with the need for a large lump sum payment rather than small monthly payments over a number of years. So, where do you turn? To a company that can buy your structured settlement from you and turn it into an immediate payment that you may use on whatever you see fit.

Each individual has different reasons for wanting to sell their structured settlement, however, first you must decide if it is the right decision for you.

The Benefits of Selling Your Structured Settlement

- A large portion of those who receive a structured settlement can benefit from selling it for a lump sum payment. The situations listed in this section represent possible circumstances of individuals that may get the most rewards from selling their structured settlement.

- If you cannot wait to receive small, spread-out payments over a long period of time due to a dire financial situation or hefty medical bills and/or lawyer fees. Many of the situations that can bring about a structured settlement can also stick the individual with such obligations.

- If you and your family decide that this is the time to finally make that large purchase that you have had your eye on. For example, if you have previously been denied mortgages or loans and would like to take this opportunity to buy that dream home you have always wanted. Or if you have a child or children who are preparing to go off to college and you fear you may not have the financial means to support that dream otherwise.

- If you have talked with a financial advisor and both of you feel that you could profit more by investing a lump sum payment, rather than waiting on monthly payments. If the money is invested properly, there is a chance that you could end up with more money in the end than your settlement was ever worth. However, this should not be a plan that is entered into lightly. You should work closely with a financial specialist and feel confident that you have found a great opportunity to invest in.

- If you are of older age and feel that you may not be around long enough to receive a fair amount of your structured settlement. You may want to the chance to enjoy the benefits of your settlement or may want to secure part of it for your family after your passing. This way you can distribute the funds as you see fit instead of relying on lawyers or courts.

- If you don't plan to use the money right away, but would rather put it into a savings or money market account to draw interest. This would be best suited for someone who has a very hefty settlement, can find an account with large payoff terms, and plans to keep the majority of the money in the account for many years.

No matter what your reason for wanting to sell your structured settlement, choosing this option puts you back in control of money that is rightly yours. The problem that many individuals have with their structured settlements is that the control over their money is left to lawyers, courts, and the company or persons paying out the settlement. You are now able to say where, how, and - most importantly - when you spend your money.

The Drawbacks of Selling Your Structured Settlement

For a few individuals, selling their structured settlement and receiving a lump sum payment may not be in their best interest. One must also evaluate these situations and determine if they outweigh the reasons you are considering selling your settlement.

- First and foremost, selling you structured settlement means that you will receive less money than you would if you were to keep it. However, for many people considering this option, this seems like a win-win situation - they will get one large lump sum payment and the company they sold it to will make a profit in the end. The good news is that since you have several companies competing for your settlement, you can choose the one that will give you the a portion of the full settlement that you can live with.

- Because you may lose out on a substantial portion of your settlement by selling it, if you are in a financial situation where regular monthly payments will only be a bonus on top of what you already make, waiting out your settlement may be in your best interest. However, if you’re a senior, then you should also take your age and the length of your structured settlement into consideration. This would be the ideal situation for someone who is young enough that they have a great chance of living out the life of their settlement.

- If you are a person who is poor at managing large sums of money, then selling your structured settlement may not be right for you. For example, if you are the kind of person who gets a large paycheck every two weeks and finds themselves running low on available cash at the end of those two weeks, then that may be an indication that needs to be closely looked at. In this type of circumstance, having your settlement portioned out to you on a monthly basis may keep you from spending it too quickly. Once your settlement is gone, you will be back at square one.

- For those reasons, you should also not consider selling your structured settlement if you have an addiction to gambling, shopping, or drugs.

- If your settlement was due to an accident that has put you out of work and the funds from it will replace your monthly income, then keeping the payments on a monthly basis may help your family keep your finances in order. However, even in this situation selling your settlement may be best for you if you would like to renegotiate your payments into a larger sum each month to shorten the life of the settlement.

Most individuals receiving a structured settlement can benefit from selling it to a company that can give them a large lump sum payment or shorten the life of the settlement, especially if they are older persons, an individual who has enormous expenses due to an accident or court case, someone in a critical financial position, or one who wishes to make a large purchase for themselves and their family. Finding the right company with terms that fit your needs is a key component of making your experience with selling your structured settlement a positive one.

Sovereign Funding Group is an experienced, reputable company that offers convenient, no-risk services to help you with the selling of your deferred payments, including those from structured settlements. Sovereign Funding Group can be contacted by phone at 877-836-4661, info@sovereignfunding.com or by visiting the website at www.sovereignfunding.com and filling out the online submission.

If you're a real estate investor needing quick cash, selling your notes could offer a fast, easy solution.

It can happen to anyone. You find yourself in a situation where you need a chunk of cash-instantly. Maybe you have to handle an emergency or simply want to free up funds to invest elsewhere. Whatever the case, selling mortgage notes can put money at your disposal within a matter of weeks.

Selling mortgage notes allows you to convert small monthly payments into an almost immediate lump-sum of cash. You won't have to wait to recoup the bulk of your investment. Plus, you can avoid the risk associated with owner financing. And you can spend the money however you want; it's yours and there are no strings attached.

Mortgage note buyers purchase a wide variety of privately-held mortgage notes, including promissory notes, land sale contracts, deeds of trust, contract for deeds and other debt instruments secured by virtually every type of property.

They can work with you if you're receiving payments on residential, commercial and other types of property.

Some examples of the type of notes you can sell, include:

- Residential Notes - For houses, townhouses, condominiums, apartment buildings, and mobile homes

- Commercial Notes - For office, retail and industrial

- Vacant Land Notes - For developed land, undeveloped land and land not designated as a specific-use property (such as farm land or waste storage)

How It Works

Selling mortgage notes simply allows you to receive cash now for your future payments. You may be eligible to take advantage if you've sold your home or an investment property via owner carry-back financing or seller financing and are now receiving payments on that note. You could be cashed out in two to three weeks, receiving the funds by check or electronically.

Most note buyers prefer to buy real estate secured notes that are in the first lien position or wrap around the first lien position. If you have a second lien-where there's a bank or another investor with a more senior lien against the property-you may be able to sell the note. However, the price that you get won't be nearly as high-unless the buyer has at least 30 percent of his own money as a down payment or in built-up equity.

Here's how the process of selling notes works: You need to contact several mortgage note buyers and request a quote. They will probably ask you to submit copies of the deed of trust or mortgage, the note, title policy, and closing/settlement statement. If there is no recent appraisal or title policy available, they may be ordered at the note buyer's expense.

Each of your notes will be evaluated on a case-by case-basis, with a number of aspects considered. These factors include the purchaser's equity, payment history, seasoning of the note, credit rating of the buyer, term of the note and the remaining balance due on the note.

A Variety of Ways to Sell Notes

If you're like most note sellers, you may automatically think of selling the entire note. That could be the best route if the note represents a high value and this is the best fit for your financial situation.

However, you also have the option of selling only part of the note. This could be ideal if you like the interest rate you're earning on the note, but just want to receive part of the cash now. Over the long run, a partial payment may be able to provide you with a much higher rate of return.

For example, let's say you sold a house for $120,000, the buyer gave you $20,000 as a down payment, and you have a $100,000 note at 7 percent for the next 15 years. You enjoy getting the income each month, but need $30,000 for another investment or to pay off debt.
You could opt to receive that $30,000 in exchange for buying the next 'x' number of payments, after which the note would go back to you for the balance of the term.

Or as another option, you could take a lump sum of money now, plus receive part of the payment each month thereafter. If you’re not sure which option would be better, don’t worry. A note buyer can work with you to determine the best solution for your needs.

Tips for Selling Your Notes

Most mortgage note buyers focus on making the process relatively simple, easy and fair. They offer competitive pricing, complete confidentiality and hassle-free closings. However, the note purchasing business isn't highly regulated, so be sure to locate and work with a reputable company. Here are some things you should keep in mind about purchasing notes:

- Up-front fees: There should be no up-front fees. A good note buyer
isn't going to charge you just to provide quotes or check the buyer's credit.

- Closing and other costs: There should be no points, closing costs, or other garbage fees at any point in the process. Any fees are already included in the pay price to you.

- Appraisals: Note buyers normally require you to pay for the appraisal or the title policy ONLY if the property appraises for less than the sales price or there are problems with the title that prevent the purchase. However, these payments should cover just the buyer's actual costs.

- Credit checks: Be sure that the note buyer checks the credit of your property buyer up front. Unscrupulous buyers have been known to quote one price and then lowering it toward the end of the process.
They often use the excuse that the 'property buyer's credit was low'. This is a twist on the old "bait and switch"
scam, and it's completely unethical.

- Written Agreement: Ensure that the seller gives you a written purchase agreement covering the purchase price, contingencies, etc.

Also, don't hesitate to ask questions about anything that is not clear. Any items that are not spelled out in black and white are part of the agreement. It's that simple.

Selling real estate notes is easy, and it can be a great way to generate a lump sum of cash for other uses. For more information about this topic, contact David Springer at Sovereign Funding Group at 877-836-4661 or info@sovereignfunding.com.

Knowing the ends and outs of purchase order financing is an asset to almost any small or medium sized business owner. In the sections below you will learn just exactly what purchase order financing is, the benefits, drawbacks, who can benefit the most from it, and would be likely to qualify for it.

What is purchase order financing?

purchase order financing is another way to get a loan for the capital you need to finance the supplies, production, and shipping of a product after you have received a purchase order from a buyer. Once you produce the finished goods and are paid, you can then pay off your invoice to the company who provided you with funding.

This is a perfect solution for small start-up businesses who have orders coming in but don't have the finances required to order supplies, pay their workers, and ship the finished goods. This would also be a great
opportunity for a small to medium sized businesses who have found themselves with a sudden large customer jump or are graced with a very large order.

Who can benefit from purchase order financing?

- Purchase order financing is great for small to medium sized businesses who usually do not have the funds for large orders that could sky rocket their sales and turn their product into a household name. Image pitching your product to a major retailer, receiving an order from them, and then not being able to produce the goods needed because you are short on funds. purchase order financing could save you from this heart-breaking, and business-breaking, blow.

- A company who has received an order so large that they would need a six-digit loan. A purchase order financing company is not there to finance every single order so that a business does not have to spend any money up-front, it is merely a means for businesses to get the funds they need for an order that would otherwise be out of their reach financially.

- Only those who are reselling an already made product that they have to purchase in order to send to the buyer, such as drop shippers, or are
producing a product to sell may be eligible to receive purchase order financing.

For example, if you are selling a service, you would not qualify to receive purchase order financing. Although it may take capital you do not have to hire employees to perform the service, it would still not qualify under most company
guidelines.

What are the drawbacks of purchase order financing?

There are few drawbacks to receiving purchase order financing, however, there is one major qualification that could potentially stand in your way. When a company grants you funding, they assume they will be paid after your
customer receives the finished product and pays you. Because of this, many funding companies will check the credit of your buyer(s) to be sure that you will not get ripped off and be left without the money to pay your invoice. Purchase order financing companies are not only taking a chance on you, they are taking a chance on your customers as well. They are the ones with the real risk if the deal goes sour. Knowing that your customer is credit worthy gives the company the peace of mind to lend to you.

What to look for in a purchase order financing company

You should find a company that is right for you. These guidelines may help you better understand what type of company you should apply with:

- Find out what their minimum and maximum funding guidelines are to ensure that they meet your financial need. If a company only funds loans that are in excess of what you are looking for or has restrictions that are less than what you need then you are best moving on to another company.

- Find out what other eligibility requirements they have to
ensure that you do qualify under their guidelines before you waste any time applying for their loan.

- Find out what length of time you have to repay the loan and
check to see if it meets with you production and billing schedules to ensure that you will have the funds in time.

- Once you have found a company that works for you, make sure
that they have a fee or interest rate that your company can both afford and be comfortable with.

In the world of loans and financing, purchase order financing may be a small business's best ally. They will usually have repayment terms that allow time for production of a product and it is the fastest way to receive financing without losing any investment in your business. Also, since they will check into the credit worthiness of your buyers, they may save you from producing a product for a deadbeat buyer. All in all, purchase order financing is a way to finance a large order that may get your product into the hands of a top notch retailer.

For more information about this topic contact Sovereign Funding Group at 877-836-4661 or info@sovereignfunding.com.

If you are a new business and you get a request for a huge order, it's exciting, isn't it? You start mentally adding up all the money you will make, all the supplies you can buy, all the business you can get after that.

Then when you talk to the manufacturer of the product, and discover they need partial payment before shipping, perhaps even some when you place the order and the rest on delivery, you realize you'll have to refuse the order. Since you are a new business, you don't have the credit history that will allow you to have payment terms and you don't have a bank line of credit.

If you are an established business and you get a huge order, you also might have to refuse it. You might not have a good credit history or might not have a large enough line of credit with your bank.

There is a solution, called Purchase Order Financing. If your customer is established and has good credit, you can get a Letter of Credit or an advance of funds on the purchase order. This advance will pay for the raw materials, parts, finished goods, packaging, shipping, inspections, etc.

This is especially important for wholesalers, distributors, importers and exporters and is suitable for many different types of consumer goods.

Obviously, if your company management has a history in the industry, it will help the investor feel more comfortable with your company. Your supplier has to have a good record of producing the goods and delivering on time, too.

P.O. Financing pays for the actual costs of filling the order, it doesn't give you any extra money, it is not for operating costs, etc., so it might be 40%-70% of the invoice amount (depending on your profit margin). The P.O. financier usually has to be paid when the product is delivered to your customer. There is a small fee for this service, it varies with each job and the time frame involved, but is usually 1%-5%.

Once the product is delivered to your customer and you issue an invoice, you will want to factor that invoice so the P.O. financier is paid back by the factoring company. Since factoring gives you around 80%-90% advance, the supplier will be paid in full and you will get the rest of the advance. Then when the bill is paid, you'll get the rest of it minus a small fee of 1%-5%.

When you work with a good broker, that broker will find the best P.O. financier for you and then get you set up with the best factor so everything will flow smoothly for you. This will allow you to grow your business, accept more orders, build up a good reputation with suppliers, customers and banks, and fill all your dreams of being a business owner.

You will eventually get to the point where you will be able to keep your business growing by using a factor for all or most of your invoices and will be able to fill all small and medium size orders with the capital you have. You will probably need P.O. financing only when you get another huge order.

The last thing you want to think of when you get a call for a big order is that you can't accept it.

Donna Poisl is President of Creative Funding Solutions. CFS works closely with several of the best factors and P.O. financiers in the country, each with different rates, fees and requirements and is able to find the best one for each client. Contact Donna at PO Financing & Factoring.

Source: EzineArticles

lWith the countless web sites, advertisements, legal jargon and complex issues surrounding structured settlements, it is easy to become overwhelmed and frustrated when you are simply searching for answers and straightforward information. Whether you’ve received a structured settlement already, or if you are just trying to better understand them, you’ve come to the right place for sifting through the messy details.

What is a structured settlement?

A structured settlement is a series of guaranteed payments (annuities) made over a certain period of time and is usually the result of an injury settlement or another situation in which you are awarded access to a substantial amount of money. It is the alternative to accepting an upfront lump sum.

Structured settlements are individualized plans meant to help you cover present and future expenses. Working closely with an experienced attorney can help you to determine an effective structured settlement to give you the security of a fixed income over a set period of time.

Example – how it might work: Melissa is injured in a serious car accident and is now unable to work for the next year. As a single parent, she has two young children to care for, not to mention her mounting medical expenses. She knows that she has to pay $25,000 in medical bills at the present time, and she knows that she will need surgery in a few months that will cost an additional $20,000. Her structured settlement can be set up to give her a lump sum to pay the present medical expenses right now, and be structured to give her an additional lump sum at the time of her surgery. It can also give her additional monthly payments equal to her salary for the year that she is unable to work, including an additional monthly payment to hire someone to help her care for her children while she is recovering from her injuries and medical procedures. Once Melissa goes back to work, monthly payments might cease or be reduced.

Types of Structured Settlements

- Designated Period / Period Certain Annuities: Annuities with a designated period of time for the payments to be paid out. They can be made monthly, quarterly, semi-annually, annually, etc. Upon your death, all remaining payments are made to you beneficiary.

- Life Annuity: Periodic payments for a guaranteed number of years (based on your life expectancy) or for life, whichever is up first. Again, the beneficiary receives any remaining payments should you die before the full amount is paid.

- Temporary Life Annuity: Pay you for a designated number of years if you are still living, so your annuity ends when you die. There’s no provision for a beneficiary to collect remaining payments.

- Life Contingent Lump Sum: You’ll receive a lump sum, provided you are alive on the due date. If you die before this date, your beneficiary is not entitled to the amount.

- Lump sum: You can set it up to receive the lump sum on a particular date, say, fifteen years from now. Your beneficiary will receive the lump sum on the future date if you have died before then.

The Details

Though structured settlements contain a great degree of flexibility during the decision-making process (how much money do I need now, how much money will I need in the future, what are my present needs?), once you agree to the terms and sign the agreement, you can NOT alter the provisions. It is highly recommended that you have an attorney and trusted broker help you to determine the best payment methods for your situation. You might want to ask the broker to come up with several different scenarios and payment schedules so you can get a comprehensive look at your options.

So, even if your situation changes down the road, your payments will not. That’s why it is extremely important to be thorough and careful when creating your payment schedule.

Inadequate Payments

Unfortunately, life has a way of throwing off our well-thought-out and well-intentioned plans. Even if you’ve done all your homework, shopped around for the best broker, interviewed many attorneys and carefully planned an effective payment schedule, you may still incur a large unexpected expense.

Should this kind of situation arise, and you are strapped for cash, you would love to be able to make some adjustments to your settlement plan. Of course, this is prohibited. But you do have another option. You might consider selling a portion or all of your remaining structured settlement payments to an interested third party.

Deciding to sell

Before you decide to sell, think about what you want/need the money for. An immediate medical expense, buying a home or the decision to go back to school are usually considered good reasons. Examine your needs and the needs of your family as well. Perhaps you want a new home. Do you have children approaching college age? If so, you’ll not only incur significant tuition expenses, you’ll also have less of a need for a larger home.

Selling your payments will result in a loss from the full amount. Consider whether or not it is important for you to sacrifice the security and future total amount before you make a decision. You will have to understand the implications, benefits and pitfalls so you can feel comfortable making an informed decision.

Will I get the full amount that I would receive over a period of time?

No. The amount you would receive over a period of time is calculated by adding interest to the principal amount. Instead, you may receive the present-day value of the amount. This present-day value may have to be further discounted to cover the costs to do the deal. The rest will be sent to you in one lump sum. You might want to shop around to find out where you can get the best deal.

Court Order

To ensure that you will not be taken advantage of in this delicate process, the government introduced a new federal law in 2002 that requires you to seek court approval when you sell your structured settlement. This law works in conjunction with state laws to direct how the transaction will be completed.

Not only does this law protect you, the seller, it also helps the insurance companies who fear that they will face tax consequences as a result of the sale. The law states very clearly that annuity owners and providers do not and will not owe taxes as a result of this transaction. This breaks down the barrier that you might normally face from a reluctant insurance company.

Selling Options

You do not have to sell the entire remaining amount, or any particular amount, if you so wish. Here are your selling options:

- Full amount: The purchaser calculates the present-day value of the payments and offers a lump sum

- Part of the payments: Only a specific number of the future payments are sold at their present-day value

- Percentages: You may sell a percentage of each payment and keep the remaining balance for yourself

Pitfalls of Selling

Shady brokers. Selling your payments will require you to contact a broker who can help take care of the proceedings. This means that you might run into some game-playing and/or manipulation tactics if you happen to be dealing with a shady broker. They may promise you a high quote, only to come back and say that they can’t do the deal as is unless they get more money from you. Other brokers may claim to be “qualified” when they have only completed a week-long course. Make sure you’re dealing with a broker who has a couple of years experience in structured settlements and is a member of the Better Business Bureau.

It takes time. Though the federal law requiring court oversight in these proceedings helps protect you, it also delays you from receiving the money as soon as you might have hoped. If you need the money right away, this could frustrate you and hinder your plans for prompt payment. Normally once you decide to sell your payments the process can take as little as 4 weeks and as long as 12 weeks to obtain the court order and for you to receive your lump sum.

You end up losing money. As mentioned earlier, you will not receive the total amount you’d receive over time if you opt for selling your payments. Therefore you lose some money and the security of future payments.

Benefits of Selling

The main benefit of selling your structured settlement payments is, obviously, that you will receive a lump sum of cash for which you can utilize in any way you choose. This gives you increased flexibility in using your money, and can provide peace of mind if you have an immediate expense that couldn’t be paid any other way.

Sovereign Funding Group is an experienced, reputable company that offers convenient, no-risk services to help you with the selling of your deferred payments, including those from structured settlements. Sovereign Funding Group can be contacted by phone at 877-836-4661, email at info@sovereignfunding.com or by visiting the website at www.sovereignfunding.com and filling out the online submission.

While many people buy life insurance to ensure against dying too soon, annuities are a tax-qualified means to ensure against living too long. With their many features and various costs, annuities may seem confusing at first. They do, however, have a place in many wealth management plans and can help individuals provide for their retirement years. So taking a few minutes to understand annuities is time well spent.

Annuities are designed to offer investors tax-deferred growth and a lifetime stream of income. There are two phases involved in an annuity:

Accumulation period -- when you're making annuity contributions
Annuitization period -- when you're receiving annuity payments from your annuity account

The main features of annuities to keep in mind are:

- Tax-deferred accumulation of earnings(1)
- Various pay-out options upon annuitization
- Fixed or variable accumulation and payout rates
- Unlimited contributions
- Professional money management
- Variety of protection features

The main features of annuities to keep in mind are:

Fixed or Variable
A fixed annuity provides a guaranteed return(1), often in the form of a monthly payment. Investors do not choose among investment subaccounts. Some fixed annuities offer interest rate guarantees that may go up and down depending on market performance but will never fall below the rate specified in the annuity contract.(1)

With variable annuities, investors allocate their money within subaccounts that suit their investment styles and objectives, with ability to make tax-free transfers among accounts. Phoenix, for instance, offers more than 40 subaccounts managed by nationally and internationally known professional money managers.

There is risk involved in a variable annuity since the subaccounts are closely tied to market fluctuations. While some subaccounts offer guaranteed rates, most do not offer any guarantees.

Single Premium or Flexible Premium
Investors can make a single, lump-sum premium payment (subject to individual products' provisions), or set up a schedule to allow contributions in varying amounts. Unscheduled payments are accepted as well.

Immediate or Deferred
These terms refer to the annuity's payout phase. In an immediate annuity, investors put in a lump sum and begin receiving annuity payments right away. With a deferred annuity, payouts begin after the accumulation period during which contributions are being made.

Benefits of Annuities
Unlike other retirement plans, such as IRAs, 401(k), or 403(b) plans, there is no limitation on the amount you may contribute to a nonqualified annuity. You can have these types of investments inside of an annuity and, depending on the situation, it may make sense to do so. However, variable annuities shouldn't be purchased in qualified plans just because of the tax-deferral feature, but rather when other benefits, such as lifetime income payments, protection through death benefits and guaranteed fees support the recommendation. Additionally, there are no required distributions at age 70 1/2. Annuities offer you the option of receiving a guaranteed income(1) for your lifetime. In a fixed annuity payout, your monthly payment remains the same. In a variable annuity, your payment will go up or down depending on the performance of the underlying investment subaccounts.

Annuities also offer a death benefit so your beneficiaries will receive the balance in your account should you die before your contract matures. Phoenix offers you the option to buy a "step up" death benefit. This protects investment gains for your beneficiary because each year, on its anniversary, your contract value is noted. Then, upon death, your beneficiaries receive the greater of premiums that you paid in, your current contract value, or the highest value noted on any anniversary.

In a variable annuity, you may make tax-free transfers between your investment subaccounts, allowing you to rebalance your assets to maintain a diversified portfolio.

Types of Settlement Options
If you decide to begin taking money out of your annuity, you can annuitize by receiving regular payments or take unscheduled or systematic withdrawals. There are several payout choices. You should work with your advisor to choose the option that best suits your retirement lifestyle. Phoenix, for instance, offers the following types of settlement options:

Straight life: Guarantees income for life.(1)

Life with period certain: Guarantees income (for you as the annuitant or your designated beneficiaries, in the event of your death) for a certain period of time, generally from five to 30 years, or your lifetime, whichever is greater. Phoenix offers 10-, 15- or 20-year settlement options.(1)

Joint and survivor income: Provides an income payable to you over your lifetime and your joint annuitant's lifetime, whichever is greater.

Joint survivor life with period certain: This option combines some of the provisions listed above. It offers annuity payments for the greater of your lifetime, your joint annuitant's lifetime, or a certain period of time (for example, 10, 15 or 20 years). Phoenix offers joint survivor life with 10 years certain.

Annuity for a specified period of time: Choose to receive payments for a set number of years, from five to 30. Phoenix allows you to change your specified period at your contract anniversary.

Unit refund life annuity: Similar to a straight life annuity payout, this income-for-life option pays your beneficiary a lump sum upon your death.

Some annuities allow you to take systematic withdrawals. This distribution option is subject to taxes and penalties* but isn't subject to surrender fees.

Tax Treatment of Annuities
Any growth in your annuity accumulates on a tax-deferred basis. At payout, earnings are treated as ordinary income, not as capital gains.

A qualified annuity is purchased with before-tax dollars; a non-qualified annuity is purchased with after-tax dollars. Exceptions to this include Roth IRAs and non-deductible IRAs. Qualified annuities can be used in IRAs, 403(b) and 401(k) retirement plans, but shouldn't be used solely for the annuities' tax-deferral features but for the other benefits of annuities: lifetime income payments, protection through death benefits and guaranteed fees.

Death Proceeds
Because an annuity is an insurance contract, it pays a death benefit to your beneficiaries. It is subject to income tax for your beneficiary, and may be included in your estate for estate tax purposes.

Once in the payout phase, additional contributions cannot be made into your annuity contract and there is no death benefit per se - payments would then be subject to the provisions of the settlement option you chose when you began receiving payouts.

(1) Guaranteed returns are based on the claims-paying rating of your insurer. Fixed annuities are not insured or guaranteed by the FDIC.

*Early withdrawals may be subject to surrender charges. Withdrawals of income will be subject to tax, and, if taken prior to age 59-1/2, will also be subject to a 10% IRS penalty except as provided for under IRC Sec. 72. In addition, an interest adjustment, either positive or negative, may be applied to amounts taken as withdrawals or a full surrender prior to the end of an interest rate guarantee period, except if the withdrawal is made within the 30-day window period, is part of the annual 10% free withdrawal, or is for the terminal illness or nursing home waivers.

Source: Phoenix Wealth Management

One of the most valuable tools an agent or broker can use is seller financing. You can either know about seller financing, do it right and close more deals or you can watch potential commissions go down the tubes. In most cases, agents participate in setting up seller financing without structuring things properly or protecting their clients.

Pleasure and Pain

There are basically two types of human motivation. One is to gain pleasure and the other is to avoid pain. Would you agree with me that making more money would fit under the category of pleasure? Would avoiding a lawsuit or a loss of money be a way to avoid pain? If you agree, then you should have some good motivation to read this article, because we will talk about ways to do both.

It's your neck on the line!

Whether you are an agent or private investor, there is a great deal of liability in the field of real estate. In particular, right now agents all over the country are being sued for the results of their negligence. A large number of these lawsuits have to do with the "paper" involved in the transaction. The courts are saying effectively, an agent has a liability to structure any carry-back financing to avoid problems and to best fit the needs of both buyer and seller. Many lawsuits have to do with the agent not disclosing dangers and risks with certain types of financing.

Ignorance in Action

In the case of investors, they are paying prices now for the decisions they have made in the past few years. The use of seller financing sounds easy and wonderful as it is preached over the podium, yet there are risks - AVOIDABLE ONES! I am in no way saying that there is anything wrong with seller financing. What I am saying is that for it to be used responsibly there are certain areas, options and alternatives that need to be known. In particular, there are six areas that can be of vital concern:

* TERMS * CONTENT * STRUCTURE

* FUTURE USES * FORM * NEGOTIATION

If you like Profit

If you like to make money, then you should be very interested. A while ago I was giving a lecture and a young man asked to say something. He had attended my lecture the previous week and had made himself $17,000 from one idea that I had shared with the group. In another case a man back East wrote to me and thanked me because he had made $15,000 from an idea in one of my articles.

Knowing about what I term "NOTE KNOWLEDGE" can make a big difference in the size of the smile on your banker's face when he sees you walk in. Now let's look at these six areas in some more detail:

Terms

How the terms of a note are structured can make a big difference in the value of the note, the salability of the property and the ability of the buyer to meet his obligations. A good example to look at would be the "balloon payment". Is an agent being responsible to the client by putting the buyer of a property at the mercy of future money market conditions? Many of the foreclosures the last few years were due to buyers being unable to meet their balloon payment obligations. Why not explore other alternatives? A good option to a balloon payment note is to structure a gradual yearly increase in the amount of the monthly payment. (Understand that this could complicate the note and make it a little less saleable ). This could totally eliminate the need for a balloon payment. Other options might be a shorter amortization on the loan or various clauses to provide flexibility if there is a balloon payment.

Graduated Payment as a "Balloon" Alternative

By a gradual yearly increase in the payment on a note, the amortization length can be greatly reduced and can eliminate the need for a balloon payment. This structure can be a very attractive opportunity whether a person is paying on the note or receiving payments. If a person is paying on a note, the security and peace of mind of not having to worry about the balloon payment is well worth the gradual payment increase and may make a property more saleable. If a person is receiving payments on a note, eliminating the balloon payment may make the note more valuable and more saleable.

Let's use as an example, a $10,000.00 note bearing interest at 10% with a 30 year amortization. The payment would be $87.76 per month. If this note had a five year balloon, the amount would be $9,657.21. If the payment graduated just $30.00 each year, the note would be completely paid at the end of six years.

This would also raise the present value of the note from $6,344.84 to $6,909.91, based on a 24% yield. If the payment graduated just $40.00 per year, the note would amortize in just over five years and would be worth $7,198.79, (for a complete breakdown see the chart). The increase in the payment in the first year is a 34% increase. This may not look too attractive, but it may look much more attractive than a $9,657.21 balloon.

The concept does not need to have equal or even steady increases to work. Unless you program a computer to do the work, you will just have to experiment and play around with the numbers to find out what will work The example below shows how to determine how long a $30.00 per year increase in payment will take to amortize the loan. The first step is to figure the amount of the principle balance after the first year of payments. The new balance is brought down to the next line, the interest rate stays the same, the payment is increased and the calculator solves for how long the loan would now take to amortize. The balance after one year's worth of payments is then calculated and brought down to the next line, the payment increased and etc.

$30/YEAR GRADUATION TO POP A 5 YEAR BALLOON

BALLOON ROLLOVER CLAUSE

This clause provides for the extension of a balloon payment for another year if financing is not available. It may include the payment of part of the balloon--such as 10% of the remaining balances. Another version of this also requires that the holder of the note helps to look for the financing.

Structure

A carry back note can be structured a variety of different ways. Thought should be taken as to the exact structure and the needs of buyer and seller. An example might be when a seller is carrying back a large amount of equity, such as $150,000. Many agents would create one $150,000 note and run to cash their commission check. Never mind the seller that might have a need to sell or hypothecate that note at some point in the future. Don't give any thought to the fact that there are fewer buyers for notes that large - causing the note to be harder to sell and discounts consequently higher.

A better idea may be to create several notes secured by one trust deed. This would be just as safe, yet provides smaller notes in case the seller needs all or part cash at a later time and needs to sell the notes. Several other times for splitting notes would be in the cases of split-ups of partnerships, divorces, gifting smaller notes to others or pre-division of interests of heirs in estates. For example, a couple taking back a $150,000 note might take back ten $15,000 notes that could be gifted to their children over a period of time. I call this a "Horizontal Split".

Form

In most states there are different forms that you can use and different times and situations to use each. For example, in Utah there are definite advantages to buy using an AITD (All Inclusive Trust Deed) and selling on a UREC (Uniform Real Estate Contract). It is important to know the needs of both buyer and seller as well as the laws and forms in your state. They change constantly, as in Utah where a few years ago some people hated the sight of the Uniform Real Estate Contract (now totally revised). In addition, there are circumstances in buying or selling when a wrap-around is a better idea than a second trust deed. There are also situations where the opposite is true. An example might be a seller with a tax liability when selling on a wrap may be considered an installment sale and using a second trust deed could trigger large taxes.

Content

The clauses and wording of contracts can make a substantial difference in the future happiness of buyers, sellers and their real estate agents. One clause that would have made a large difference in my past would have been an "EXCULPATORY CLAUSE". I became liable for payment on a note on a property I hadn't even seen, let alone owned in over two years. That is an expensive way to learn. In other cases you may want clauses included for the protection of buyer or seller. Sometimes clauses are left out or even changed before the closing. Two years later is not a good time to find out. Exculpatory Clause - This clause states "The property is the sole security for this note." This means that there is no personal recourse on a note.

When representing a buyer, there could be some circumstances where you would encourage this clause. When representing a seller, you would be wary of this clause and should know that it may affect the salability of the note.

Substitution of Collateral - This type of clause is used to provide for the replacement of the existing collateral with some other collateral. A sample clause that can be used in an earnest money receipt and offer to purchase (an offer) is "collateral for this note may be substituted at any time before or after closing with sellers approval." After closing refers to being able to replace the collateral at a future date. Before closing gives an out so that the same contracts may be offered on more than one property at one time. A similar clause should be included in the note.

Pre-payment Penalty - This clause provides for a penalty for the early payment on a note. You would generally not want this clause in a note, unless it is a wrap-around note that you don't want paid off early. Most holders of seller financing would love to be paid off early. A clause providing a penalty could discourage a potential early payoff.

Pre-payment Discount - A clause like this is one that you would want in a note you are paying on. It could provide for a discount of a certain amount or percentage if you pay off the note early. This clause could make a note less saleable for the note holder.

First Right of Refusal - This provides for the payor on a note to have the first right to buy the note if it is offered for sale. It usually provides that the payor has the right to buy the note for the same price that someone else provides a written offer for it.

Subordination Clause - This clause provides that a note can be subordinated to another loan. This means that another note takes priority to the one that is subordinated. An example might be when a seller takes a note and agrees that at a later date he will allow the buyer to put on a new first loan. The seller then ends up with a second instead of a first that he had. This clause would be used on a property where there is remodeling or some other major cash outlay and a new first or second loan may be needed at a later date.

Principle/Payment Reduction - If an extra payment is applied to reduce the principle of the loan, this provides that the payment may be reduced by the amount needed to amortize the loan in the same period of time that was originally scheduled. This results in the ability to lower the payment on the loan when extra principle payments are made.

Assignment of Rents - This clause provides for the ability to take over the management and income of a property (within state laws and practices) during the foreclosure process.

K.I.S.S. - The old adage applies with notes as to keep it simple stupid. The more complicated a note is the harder it may be to sell.

SPECIAL NOTE - Some sample wording and uses of clauses are given here as an example only. You should verify wording and practices with your legal counsel. In many areas, getting heavily involved in the wording of clauses could be stepping outside the domain of a real estate license.

Future Uses

What is the seller going to do with the note he takes back? Will he need to sell it at some time? Do you know what it is worth? Does the seller? Seemingly minor differences in terms can make a large difference in the value of the note. Details like whether a buyer has personal liability, what position the note is in or the loan to value ratio can drastically change the salability of a note and its value.

Let's say you have a seller that has a $100,000 property that is free and clear. They receive an offer that they consider acceptable for $6,000 down and a first trust deed and note for the balance of $94,000. Note buyers look for loan to value ratios of 80% or less. This could end up being an un-saleable note for your seller because the LTV ratio would be 94%.

Save your seller and everyone else some problems and suggest they structure two notes. A first loan of $80,000 and a second of $14,000. The first would now be saleable to a note buyer if the seller ever needed or wanted cash. I call this a "Vertical Split."

Servicing - Many note holders sell their notes because they hate having to collect or have done a poor job of it. The payors fall behind and take advantage of the fact that the note holder sticks his head in the sand and tries to hide from the problem. Every note should be serviced properly. Either a professional company should do it or the note holder should have some instruction. A good payment history can help the salability of a note. When poor servicing is done, the payor can many times slip so far behind that they cannot catch up easily. Precious time is wasted and a note holder could end up having to foreclose needlessly.

Insurance - In a private note transaction, you should be sure that the seller is named as an additional insured on the "Hazard Insurance Policy," in case of fire or other covered disaster.

Taxes - Thousands of note holders out there are unaware of their legal responsibility to provide tax information as to the interest received. A 1098 form needs to be filled out each year.

Negotiation

The terms of a note can be adjusted in ways to help with negotiations on the purchase or sale of real estate. An example might be when a buyer and seller are separated on the price. Let's say that a buyer has offered $85,000 for a property and will assume a $40,000 first loan. The down payment will be $15,000 and the seller would receive a $30,000.00 second loan at 13% payable $331.86 per month. The seller wants $11,000 more for the property.

What do you do? Would you walk away? Would you beat on the buyer and seller trying to get them to agree on price? In many cases when the seller is hung up on price, he may not be as hung up on terms. Do you know you can please both the buyer and seller at the same time?

If the buyer offered a $41,244.16 note at 9%, the payments would be $331.86 per month for the same period of time as the first note. Does the buyer pay any more? No! Does the seller receive his price? Yes! (even a little more) Both notes, if discounted, are worth exactly the same amount. The real difference is how it looks. You just have the negotiating advantage of understanding the correlation between interest rate and price.

Knowledge is Power

Whether you are a paper buyer or real estate investor (hopefully both), "Note knowledge" can be very valuable to you. I used to say that there are two types of people that need to know about paper - real estate investors and paper buyers. I have revised that now. The two types of people that need to know about paper are male and female. Real estate agents need to know how to protect themselves and their clients. Investors need to know how to be able to protect themselves and to make greater profits. Homeowners need to know how to be able to negotiate the best transaction and save themselves money. Anyone that ever puts a key in a door would benefit from this knowledge.

About the Author . . .

John D. Behle is one of the foremost educators and practitioners in the field of discounted paper investment. His innovative strategies and techniques have shaped the industry. With over two decades in the industry and an extensive background in real estate and finance, John Behle adds a wealth of knowledge and experience to his creative money-making techniques.
John holds an National Council of Exchangors "Gold Card" and an EMS designation. He is also listed in Who's Who In Creative Real Estate. John Behle is the author of several hundred articles published in national magazines and newsletters and of several ground-breaking real estate paper books, including:

* The Paper Game Trilogy
* The Paper Game 5-Day Video Training
* Millions Of Mortgages In Minutes

Whenever you buy a discounted note, you should be thinking about how you can work with the payor to "fix up" the note. I have written several times about restructuring notes to increase their present value. This article will explore the procedure on a more general level.

The following discussion suggests ways to get your payor to pay-off his note or increase his payments, all with the idea of helping you get your money back more quickly. But this is to no avail if you have no place to put the extra money.

For example, if you own a note paying 16% interest for the next fifteen years, it may not be wise to restructure it, so you receive 35% yield for the next five years unless you have some place to put that extra money, such as another note.

If you are only going to put that money into a bank account at 4% interest, don't bother restructuring the note. Keep it for fifteen years at 16% interest. But, as a note investor you always want to increase your cash flow, so you can buy more notes.

First month: Early payoff

The first thing you should do when you buy a discounted note is to get the payor to pay it off immediately, usually by refinancing the property. You can do this by offering to pay the payor's points if he gets a new loan, or even to pay for the appraisal, or even pay for all closing costs, or even to give him cash, or even include a trip to Hawaii.

How can you afford this? Here's how: Let's say you bought a 10%, $40,000, 240-month note for a 16% yield--or $27,745 cash. How much would the note payor have to pay you if he paid off the note tomorrow? The answer is, obviously, $40,000.

So, clearly, you have $12,254 profit to play with. If you made that much in one day, your yield on that investment on my calculator, is "Error 5." That's my favorite yield!

Second month: Increase payments

If you do not feel that refinancing is a possibility for this payor, then the next month you can try to get them to increase their payments. You can show them that they can pay off their loan in a much shorter time by only increasing their payment by $25 per month.

For example, in the above note a $25 increase in payments will reduce the 240-month loan to only 200 months. A $50 increase will reduce the time to 174 months; and a $100 increase will reduce the time to 117 months. They will also save several thousand dollars in interest.

Third month: Increase note amount

If that doesn't work, the next month you could offer to loan them some money on a wrap around loan. For example, you could offer to loan them an extra $10,000 on top of the $40,000 but increase their interest rate from 10% to 12% on the entire note. Your effective yield is now almost 17% on the entire $50,000, and it's 19.32% on the extra $10,000.

Fourth month: Discount the note

If none of this works in future months you could offer to give the payor a 10% or 20% discount on the note if he would pay it off.

Fifth and sixth months: Principal reduction payments

Finally, by the fifth or sixth month you could tell the payor that you will discount the amount he owes on the note for every extra $100 he pays toward principal. He only needs to make extra payments when he has the money, and he can always go back to the old payment schedule.

Over $3,000 in profit from a simple letter

The point of all this is that you are missing a great opportunity if you are not constantly trying to get your payor to do something to increase your cash flow. Any time you can get more money from him, you are increasing your yield and the note's present value.

If you can get the payor to agree to a new contract with increased payments, you have increased the present value of the note and can now sell it for more money than you could have before the payor increased his payments.

For example, you could buy the above $40,000 note for $27,745 to give you a 16% yield. If you got the payor to increase his payments to $500 per month, he would pay off his note 107 months sooner. But you can now sell this note for the same 16% yield to another investor for $31,007. A profit of $3,262 for simply writing a letter to the payor.

A final caveat

Make sure you do not change the terms so substantially that you create a new note which now becomes a second note behind someone else's previous second note. Contact a title company when changing the terms of a note and trust deed, mortgage, or contract. They can assure you that your new note will maintain its priority.

About the author...

Jon Richards was the founder of NoteWorthy Newsletter, the major newsletter for buyers and brokers of cash flows on the secondary market. It has been published monthly since October 1989 and is the largest paid subscription newsletter in the industry. Jon was the publisher of the NoteWorthy Newsletter until his death in 2003.

Source: creonline.com