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The cash flow industry has evolved, rather than emerged, through the natural business cycles of change and evolution. The industry has its roots in two seemingly unrelated methods of finance - owner financing and factoring. |
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| Owner Financing | |
The first method of finance that led to the emergence of the cash flow industry was owner financing. In an owner-financed sale, a real estate seller accepts a promissory note as a portion of the purchase price. The note is then secured by placing a mortgage on the real estate being sold.
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Homeowneres and commercial real estate investors in this country have used owner financing as a method of buying property since the early 1900's. However, it wasn't until much later that it became popular.
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During the high-interest-rate periods of the seventies and eighties, home buyers found it difficult to obtain affordable financing from banks. Interest rates and inflation had skyrocketed to double digits, making it almost impossible for people to sell their real estate. If a real estate seller was willing to take a down payment from the buyer and hold a mortgage note for the remaining balance, the transaction was much more feasable for the buyer - and certainly more convenient.
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For example, you could sell your home to your daughter and provide the financing yourself. Now your daughter writes a monthly check for her mortgage payment directly to you, rather than to a bank. | |
In that case, your daughter's payment creates an income stream for you. That income stream is privately held, because you are a private individual, not a bank or mortgage company.
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By the time inflation drifted back down, thousands of individuals were holding private mortgage notes. Individual investors and investment companies recognized a tremendous profit opportunity in those notes, and they began to buy them directly from sellers. These privately held mortgage notes have turned into a commonplace investment nationwide. Today, privately held mortgage notes are even securitized and traded on Wall Street. |
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Factoring
The second method of finance that impacted the development of the cash flow industry is factoring, also called accounts receivable purchasing. Factoring dates back thousands of years, but it has evolved into a very modern financing technique.
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When a business sells a product or service to another business, it sends the second business an invoice in order to collect the money due. The first business can either wait for the invoice to be paid (eventually), or it can sell the invoice to a third party for a reduced amount. The latter transaction is called factoring. Businesses can use factoring to stimulate cash flow.
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Selling your $20,000 invoice for $19,000 cash is an example of a factoring transaction. As a business owner, you have the opportunity to sell for cash today amounts that are owed to you at a future date.
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Prior to the 1980's, factoring was used primarily in the garment, textile, and furniture industries and was available only to large companies. That all changed with the rise of the independent broker. |
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| Clearly, the concept of selling an income stream has been a part of the financial services industry for many years. However, until the eighties cash flow transactions were essentially limited to private mortgages and invoices. Today we are constantly adding new income streams for funding consideration.
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Contact the Professionals at TruGo Funding Specialists without risk or obligation to find out if YOUR income stream qualifies. Call us, write us, fax us, and we will be happy to provide you with a free consultation. |
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