May 23
adminArticles Buying Stocks, Car Insurance, Cheap Money, Credit Cards, Credit Rating Agencies, Credit Score, Credit Scores, Debts, Family Budget, Finding The Money, Friends And Neighbors, Insurance Companies, Insurance Premium, Landlords, Midst, Recession, Responsible Person, Risky Investments, Sacrifices, Short Time
When you look around your neighborhoods, it’s hard to find any good news. Friends and neighbors may have lost their jobs or be on short-time. There are foreclosed properties on every street. Shops and businesses have been closing down with increasing frequency. These are the signs of a real recession where unemployment and poverty stalk the land. The cause of all this pain is not hard to find. We have all been living beyond our means. When the banks and credit card companies offered us more money to borrow, we just took it. Why bother to save when the value of our homes only goes up? Let’s plan for our retirement by borrowing cheap money and buying stocks and other more risky investments. No-one ever loses if they follow the advice of the credit rating agencies. Well, we know better now. What goes up can also come down. What is given a triple A rating can be junk tomorrow.
In the midst of all this chaos, the credit card operators have been cutting back on the borrowing limits. This has forced pain on us for two reasons. Firstly, finding the money to pay down our debts more quickly means redesigning the family budget. Sacrifices have to be made. Secondly, the way the credit score is calculated depends in part on the extent to which we use the credit cards we have. If the limits are reduced, we look like bad risks because the amount borrowed is closer to the limit. We have less money available to borrow and cut down on card usage so we can repay faster. Put the two together and the score falls. This is a direct criticism of the methods used to calculate the scores. It produces a fundamentally unfair result during a recession.
This would not be a problem if the credit score was only used by banks and credit card operators. But it’s also used by companies to help decide whether to employ you, by landlords deciding whether to rent to you and by insurance companies deciding whether you are a responsible person. National figures show more than half all insurance companies use credit scores as a key factor in deciding your premium rate. This is extraordinary. There is only one possible effect of being in debt when it comes to the way in which you drive. If you cannot afford to repair your vehicle, you drive defensively to reduce the risk of an accident.
Some states like California and Massachusetts have banned the use of credit score for this purpose, but they are a minority. They cite discrimination as a reason for the ban. The majority of the population without access to banking services and credit cards fall into minority racial groups. When they do not have a credit score, they are forced to pay a higher premium simply because of who they are, not how they drive. So, when you are looking for affordable cover, get the maximum possible number of car insurance quotes to find the best policies. If you live in a state which refuses the regulation of the car insurance market, contact your local government representatives and tell them how much pain you are suffering because of this unfair use of credit scores.
Mar 18
adminBusiness Loan All Sorts, Bank Loan, Business Plan, Debacle, Demise, Easy Money, External Factors, Financial Sector, Finding The Money, Funny Thing, Lenders, Loan Tips, Loc, Morgan Stanley, Mortgage Market, Newsletter Data, Sba, Second Mortgages, Small Business Funding, Wall Street
Already we are seeing the results of the demise of the mortgage market due to the sub prime debacle. Lending banks have severely tightened lending criteria as their asset bases erode and the financial sector comes under huge pressure. Wall street does not like to see 2.5 billion dollar write offs from Morgan Stanley and the like. John Maudlin said in his November 9th Newsletter “Data released in the past few months, and again this week, have shown that banks and other lenders are tightening their standards for all sorts of loans. And it is not just that they are becoming more like an old-fashioned banker who actually wanted to know that he could get his money back”. (John Maudlin, Frontline Thoughts)
Start up companies and smaller operations with limited assets are the ones who have benefited over the last five years of easy money. Some company’s were even funded through second mortgages because they were cheaper and easier to get than an SBA LOC. For all but a lucky few that option is now gone.
I recently completed a very solid business plan for a client that was denied funding. At first I was surprised. But given the external factors that now affect the lending market the response from the bank will be a common one. No more easy money.
So now everyone will have to get creative to get financed. Here are my top two creative ways of finding the money when you are a small business in need:
Friends and Family -
Sometimes people look at me and say “but my friends and family don’t have any money.” Well, neither did mine when I wanted any for my business. But a funny thing about friends and family – when I approached them with a solid plan and a sample product they could see, feel, and admire, suddenly they were open to the idea. But here’s the trick: I didn’t ask any ONE person for the whole amount. I took seven different loans to get $25,000 and paid them back according to need.
So my friend who lent me her last $5000 got hers paid back first, and my grandfather, who was retired and didn’t need his $5000 right away was willing to wait. Everyone knew the payment schedule and signed their acceptance of it. When I needed the last $5000 and no ONE person had it, I had two friends who even lent me $2500 each. That’s how you can put money together creatively.
Merchant Account Advance -
Almost every business now accepts credit cards. Not only have they proven in studies to raise individual ticket sales (people will charge more than they will pay with cash), merchant accounts allow for greater flexibility for the small merchant. You don’t have to be open at 2 am to make a sale-your website can do it for you.
So now you can get money in advance of future sales. Merchant account advances are a relatively new way for merchants to access cash. Business owners get the cash they need quickly. Instead of having to worry about large monthly payments, the loan is repaid from a small percentage of each credit card sale the business makes.
There are qualifications. But if you are open for business and have consistent credit card sales this is a great avenue to explore.
If you need to raise money for your business and you can’t get a conventional loan, just take the time to think outside the box. There are several other options open to you.
RSS