Assignment of Leases

The assigned lease as security is similar to the guarantee. It is used, for example, in some franchise situations.

The bank lends the money on a building and takes a mortgage. Then the lease, which the dealer and the parent franchise company work out, is assigned so that the bank automatically receives the rent payments. In this manner, the bank is guaranteed repayment of the loan.

Warehouse Receipts

Banks also take commodities as security by lending money on a warehouse receipt. Such a receipt is usually delivered directly to the bank and shows that the merchandise used as security either has been placed in a public warehouse or has been left on your premises under the control of one of your employees who is bonded (as in field warehousing). Such loans are generally made on staple or standard merchandise which can be readily marketed. The typical warehouse receipt loan is for a percentage of the estimated value of the goods used as security.

Trust Receipts and Floor Planning

Merchandise, such as automobiles, appliances, and boats, has to be displayed to be sold. The only way many small marketers can afford such displays is by borrowing money. Such loans are often secured by a note and a trust receipt.

This trust receipt is the legal paper for floor planning. It is used for serial-numbered merchandise. When you sign one, you (1) acknowledge receipt of the merchandise, (2) agree to keep the merchandise in trust for the bank, and (3) promise to pay the bank as you sell the goods.

Chattel Mortgages

If you buy equipment such as a cash register or a delivery truck, you may want to get a chattel mortgage loan. You give the bank a lien on the equipment you are buying.

The bank also evaluates the present and future market value of the equipment being used to secure the loan. How rapidly will it depreciate? Does the borrower have the necessary fire, theft, property damage, and public liability insurance on the equipment? The banker has to be sure that the borrower protects the equipment.

Real Estate

Real estate is another form of collateral for long-term loans. When taking a real estate mortgage, the bank finds out: (1) the location of the real estate, (2) its physical condition, (3) its foreclosure value, and (4) the amount of insurance carried on the property.

Accounts Receivable

Many banks lend money on accounts receivable. In effect, you are counting on your customers to pay your note.

The bank may take accounts receivable on a notification or a non-notification plan. Under the notification plan, the purchaser of the goods is informed by the bank that his or her account has been assigned to it and he or she is asked to pay the bank. Under the non-notification plan, the borrower's customers continue to pay you the sums due on their accounts and you pay the bank.

Savings Accounts

Sometimes, you might get a loan by assigning to the bank a savings account. In such cases, the bank gets an assignment from you and keeps your passbook. If you assign an account in another bank as collateral, the lending bank asks the other bank to mark its records to show that the account is held as collateral.

Life Insurance

Another kind of collateral is life insurance. Banks will lend up to the cash value of a life insurance policy. You have to assign the policy to the bank.

If the policy is on the life of an executive of a small corporation, corporate resolutions must be made authorizing the assignment. Most insurance companies allow you to sign the policy back to the original beneficiary when the assignment to the bank ends.

Some people like to use life insurance as collateral rather than borrow directly from insurance companies. One reason is that a bank loan is often more convenient to obtain and usually may be obtained at a lower interest rate.

Stocks and Bonds

If you use stocks and bonds as collateral, they must be marketable. As a protection against market declines and possible expenses of liquidation, banks usually lend no more than 75 percent of the market value of high grade stock. On Federal Government or municipal bonds, they may be willing to lend 90 percent or more of their market value.

The bank may ask the borrower for additional security or payment whenever the market value of the stocks or bonds drops below the bank's required margin.

What Are the Lender's Rules?

Lending institutions are not interested in loan repayments. They are interested in borrowers with healthy profit-making businesses. Therefore, whether or not collateral is required for a loan, they set loan limitation and restrictions to protect themselves against unnecessary risks and at the same time against poor management practices by their borrowers. Often some owner-managers consider loan limitations a burden.

Yet others feel that such limitation also offer an opportunity for improving their management techniques.

Especially in making long-term loans, the borrower as well as the lender should be thinking of: (1) the net earning power of the borrowing company, (2) the capability of its management, (3) the long range prospects of the company, and (4) the long range prospects of the industry of which the company is a part. Such factors often mean that limitation increase as the duration of the loan increases.

What Kinds of Limitation?

The kinds of limitations, which an owner-manager finds set upon the company depends, to a great extent, on the company. If the company is a good risk, only minimum limitations need be set. A poor risk, of course, is different. Its limitation should be greater than those of a stronger company.

Look now for a few moments at the kinds of limitations and restrictions which the lender may set. Knowing what they are can help you see how they affect your operations.

The limitations which you will usually run into when you borrow money are:

(1) Repayment terms.

(2) Pledging or the use of security.

(3) Periodic reporting.

A loan agreement, as you may already know, is a tailor-made document covering, or referring to, all the terms and conditions of the loan. With it, the lender does two things: (1) protects position as a creditor (keeps that position in as protected a state as it was on the date the loan was made) and (2) assures repayment according to the terms.

The lender reasons that the borrower's business should generate enough funds to repay the loan while taking care of other needs. The lender considers that cash inflow should be great enough to do this without hurting the working capital of the borrower.

TIf you manage a factory, wholesale outlet, retail store, Service shop, or are a contractor, you'll have to sell. However good your
product is, regardless of what customers think of this, you must sell to survive.

Direct selling approaches are through private sales efforts, Advertising and, for most companies, exhibit - including the
packaging and styling of the item - in kitchens, at the institution, or even both. Establishing a fantastic reputation with the
general public through anyhow and distinctive services is an indirect method of selling. While the latter shouldn't be neglected,
this short discussion will be restricted to direct selling methods.

To establish Your Company on a business footing requires a Whole Lot Of aggressive personal selling. You may have established
competition to overcome. Or, if your thought is fresh with minimal or no competition, you have the extra difficulty of convincing
people of the value of this new idea. Private selling work is nearly always essential to achieve this. If you aren't a fantastic
salesperson, seek a worker or asociate who is.

A second way to create sales is by marketing. This may be achieved Through newspapers, shopping newspapers, the yellow pages
section of the phone directory, and other printed periodicals; radio and television; handbills, and direct mail. The media you
select, as well as the message and kind of presentation, will depend upon the particular customers you would like to attain. Plan
and prepare advertisements with care or it'll be unsuccessful. Most media are going to be able to describe the characteristics of
their viewers (readers, listeners, etc.). Since your first planning described the characteristics of your potential clients, you
need to match these features with the media crowd. If you are selling expensive jewelry, then do not advertise in high school
papers. Should you fix bicycles, you probably should.

Advertising can be quite expensive. It Is a Good Idea to place a limitation upon An amount to spend, then stay within that limit.
To assist you in determining how much to spend, study the working ratios of similar companies. Media advertising salespeople will
help you plan and even prepare advertisements for you. Be sure to tell them your budget limits.

A third method of sparking sales is effective displays both in Your place of company and out it. If you have had no prior
experience in display work, you are going to want to study the subject or turn the task over to someone else. Watch screens of
different businesses and read novels, trade magazines, and the literature provided by equipment manufacturers. It could be smart
to employ a display expert for your opening display and unique events, or you may obtain the services of one on a part time
foundation. Much is dependent upon your kind of business and what it takes.

The proper number and types of marketing campaign to use vary from business to business and from owner to owner. Some businesses
prosper with low-key revenue efforts. Others, such as the used-car lots, thrive on competitive, hoop-la promotions. In any event,
the significance of successful selling cannot be over-emphasized.

On the other hand, don't Eliminate sight of your Key objective - to Earn a profit. Everyone can generate a large sales volume
selling dollar bills for ninety cents. But that won't last long. So keep control of your own expenses, and price your product
carefully.

Record Keeping. 1 essential element of company management is the keeping of adequate records. Study after study shows that many
supervisor failures can be attributed to insufficient records or the owner's failure to use what information was accessible .
Without documents, the businessperson cannot see in advance which way the business is going. Up-to-date records may predict
impending disaster, forewarning you to take steps to avoid it. While additional work is required to maintain an adequate set of
records, you'll be more than repaid for the effort and expense.

If you are not prepared to keep adequate records - or have somebody Keep them - you shouldn't attempt to operate a small business.
At a minimum, records are needed to substantiate:

1. Your yields under tax laws, such as income tax and social Security laws;

2. Your request for credit from equipment makers or even a loan From a lender;

3. Your claims about the business, should you would like to sell it.

But most important, you need them to run your business successfully And to raise your profits. Having an adequate. Yet easy,
bookkeeping system you may answer these questions as:

How much company I doing? What are my costs? Which seem to be too large? What's my gross Profit margin? My net profit? How much am
I collecting on my charge enterprise? What is the state of my operating capital? How much cash do I have available? Just how much
in the bank? Just how much do I owe my Providers? What is my net worth? That is, what is the worth of my possession of The
business? What are the trends in my Receipts, expenses, profits, and net value? Is my financial situation improving Or growing
worse? How do my assets compare with what I owe? What is the Percent of return on my investment? How many cents from every dollar
of Earnings are net gain? Answer these and other questions by planning and studying balance sheets and profit-and-loss statements.
To do this, it is Important to record information regarding trades as they happen. Keep This information in a detailed and orderly
manner and you will have the ability to answer the above questions. You'll Also have the answers to these other vital questions
About your business as: What products or services do my customers enjoy best? Next best? Not at all? Can I take the product most
often requested? Am I Qualified to render the professional services they need most? Just how a Lot of my charge Clients are slow
payers? Shall I change to cash only, or use a credit card Charge plan?

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