As published in Scotsman Guide's Commercial Edition, March 2009.
Even with the pullback in commercial lending, there still are several ways that borrowers can create capital to meet lenders' tightened underwriting standards.
Mortgage brokers can help their clients raise money in a variety ways, some of which may appear unconventional. Sharing space, using barter credits and selling seemingly outdated receivables are just some of the methods commercial mortgage borrowers can use to raise money.
Uncovering hidden capital
Your clients could find hidden capital within their current property or within their business.
Some lenders may allow your clients to presell certain property rights. If a property has excess unimproved land, for instance, your client may pawn it off to a local developer. Or if a neighboring business has a potential future need, your client could get a fee for giving that business an option to purchase the subject property in 10 years. Option fees are not taxable for most parties and remain so until the option is concluded or executed.
In addition, find out if someone else may have a need for your client's property's noncritical portion. Perhaps a small transportation firm can use space on your client's property to park some of its vehicles. Or maybe a noncompetitive ancillary user can share the space with your client.
If your client's business needs to recapitalize, can it liquidate extra vehicles or excess equipment? Will your clients' clients pay for services or items upfront if they expect to continue use?
Another option is finding a new service-provider to put up some capital in return for a guaranteed term contract. This type of arrangement has worked in apartment buildings where a laundry-management company pays an upfront fee toward rent or as an advance on future revenue.
Bartering is another way to create capital via credits. Your clients could barter their services with other companies to earn barter credits. They may also be able to convert those barter credits into cash.
There are hundreds of barter firms nationwide. A barter company can help your clients create credits that they can convert into cash savings or use to expand marketing with fewer out-of-pocket dollars. They also can use these credits to acquire items to be sold to raise cash. For example, your clients could use barter credits to pay for a hotel room at a convention where they make new contacts and develop new business.
A good accountant can explain why bartering is often a break-even situation in the long term. You must, however, follow normal accounting procedures and formalities and properly document the business expenses for which the credits are used. The Internal Revenue Service has specific guidelines for claiming bartered income at irs.gov/taxtopics/tc420.html.
Receivables financing also can be a source of capital that can make the difference between success and failure in today's tight credit environment.
Consider whether clients have old receivables that they can convert to ready cash by working out a payment plan from a past customer. Almost all businesses have money owed to them. It might be wise to find out if there is a way to convert that old debt into something of value.
Many barter firms begin relationships with clients by taking on the old receivables and converting those debts into barter credits. In addition, people who owe your client money might be willing to pay off the entire debt at a discount rather than enter into a repayment plan.
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In these trying economic times, finding capital can be a challenge for many of your clients. By helping them uncover new ways to do so, however, brokers can help clients meet their business and financing goals.
G. Alex Morfesis is the
owner of Trusted Capital Solutions LLC. The company is based in the Tampa Bay area of Florida and provides financial solutions to nonconforming, noncredit-tenant and noninstitutional-type properties. For more information, reach Morfesis at (727) 485-3130 or visit www.TheTotalMoneyMan.com.