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CREDIT ENHANCEMENT TECHNIQUES FOR SMALL AND MEDIUMN BUSINESSES

Guest post by: Jayson Curuso

Article Overview: Contemplating raising funds through a bank guarantee, Certificate of Deposit, Treasury Note, Corporate Promissory Note, debenture or other financial instrument but Not prepared to take the risk of spending time and effort and money without the assurance that the instrument will be accepted?

CREDIT ENHANCEMENT TECHNIQUES FOR SMALL AND MEDIUMN BUSINESSES

Contemplating raising funds through a bank guarantee, Certificate of Deposit, Treasury Note, Corporate Promissory Note, debenture or other financial instrument but Not prepared to take the risk of spending time and effort and money without the assurance that the instrument will be accepted? The process of raising capital can be very complex and time consuming. Too much time devoted to this process can cause executives to take their eyes off running the business. There are a diverse range of options to solve your finance problems. which as follows:

CREDIT ENHANGEMENT

Credit Enhancement (also known as Asset Enhancement or Collateral Enhancement)

Asset Enhancement

Asset Securitization

Credit Enhancement

Collateral Enhancement

(referred to hereinafter as Credit Enhancement)

Credit Enhancement is the provision of "assets" to secure your borrowings. The aim of Credit Enhancement is to add to the value of assets appearing on your audited Balance Sheet so you have greater borrowing capacity. The Large corporations have been using this technique for years.

You may have a shortfall in the Loan to Value Ratio (LVR) of an intending acquisition. An option would be to increase your asset base to ensure that you are in a position to secure the funds you need. Another situation might be where a corporation is close to or exceeds their LVR . This situation can be rectified by asset enhancement. The small cost of enhancing your assets in this manner far outweighs the potential difficulties you might face if you breached your LVR.

So how do you increase your asset base to the level required? You acquire a bank instrument in exchange for stock in your company. The value of this bank instrument can be added to your Balance Sheet. You can then present your “Audited or un-audited” Balance Sheet to your bank or lending institution in support of an application for a conventional business loan.

Upon granting the loan your bank or lending institution would take a Fixed and Floating Charge over the assets of your business (this is standard practice).

It should be noted that the bank instrument cannot be "pledged" to the bank nor can it be itemised on the Fixed and Floating Charge. Similarly the bank instrument cannot be borrowed against or hypothecated. The bank instrument will never represent the majority of the assets on the Balance Sheet.

The use of a bank instrument to enhance your asset base may be preferable to Proof of Funds because it obviates the question of why aren't the liquid funds being used to achieve your goal rather than a bank loan. The average transaction size range from five million up to one hundred million dollars and is done mostly in the European countries.

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Article Tags: creative, financial, funding



Related Forum Posts
Re: Interrealtionship between financial statements - Hi there, It is not necessary to post each transaction in all of the separate financial statements. In any given transaction, you will post an equal amount of debits and credits to the associated accounts. An example would be if you were to write a check for $500 to office depot for office supplies. The posted transaction would be: DEBIT Office Supplies $500.00 CREDIT Bank Account $500.00 Once the transaction is posted, it will automatically show up on the appropriate financial statement report. In the above example, you would find the Bank Account transaction on the balance sheet and the office supplies transaction on the profit and loss statement. I hope this is clear! Please let me know if you have any other bookkeeping questions. I would be happy to help, Stephanie Horne
Re: SEEKING PRIVATE OR ANGEL INVESTOR - Definitely have a thorough and accurate business plan. In the US, you can get help at SCORE - their website is full of great information and you can check for local chapters. If you would like a book that has all kinds of great information about financing options - this one is very good --- HOW TO GET THE FINANCING FOR YOUR NEW SMALL BUSINESS: INNOVATIVE SOLUTIONS FROM THE EXPERTS WHO DO IT EVERY DAY—WITH CD-ROM This new book will provide you with a road map to securing the financing. The book goes into traditional financing methods and assists the reader in setting up proper financial statements and a proper business plan. It details the differences between debt and equity financing and how and why to use each. Valuation techniques are explained for determining what your business is truly worth. However, the book’s real strength is in explaining alternative and creative methods of financing, such as SBA financing, investor angels, IPOs, limited public offerings and venture capital. Essential resources for finding the detailed information you need are included throughout. Item # 9780910627559 $39.95 Shri


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