Loan consolidation is an approach that lets borrowers take out a new loan with a low rate of interest to payoff high interest loans. Tightened lending criterion has made it difficult for many people to qualify for loans, so the first thing borrowers need to do is check their credit rating. Although loan consolidation can seem like a good idea, it is necessary to figure out the real costs involved with taking out a new financial loan. This is exceptionally crucial when attaining a home equity loan that requires putting real estate up as collateral.
Any time real estate is used to secure bank financing it is put at risk for foreclosure. It can be extremely risky to use a house and take out a loan to pay off unsecured debts. If homeowners fall behind with home equity loan installments, the loan company can begin taking steps to repossess the real estate. It doesn’t matter if homeowners are current on their first mortgage payment. Debt consolidation is often attractive to people struggling to make ends meet because it offers the promise of reduced monthly payments.
In actuality, the only thing that is happening is payment terms are prolonged. Although borrowers acquire reduced payments interest is assessed on the unpaid balance for a longer time period. Extending payment terms can potentially add hundreds of dollars in additional interest. The fact of the matter is loan consolidation can be expensive. When debtors add time to pay off debts they are actually escalating their debt level and removing cash from their own pockets. In lieu of applying for consolidation loans consider spending time researching debt reduction alternatives.
Reliable resources for taking control of money are Suze Orman and Dave Ramsey. Both have written numerous books and offer home study courses via their websites. Another alternative is to enter into credit counseling. Reputable credit counseling agencies offer a range of services to help people overcome debt problems. In some cases, counselors can help consumers negotiate with creditors and obtain reduced interest rates and removal of late fees and penalties. At minimum, credit counselors can help consumers create a debt reduction plan and learn ways to reduce expenses through budgeting.
Budgeting is one of the most efficient ways to conquer debt troubles, yet does call for fiscal responsibility. One of the biggest mistakes people make is using credit cards for basic expenses than only paying minimum installments. This strategy is certain to keep people held captive to debt for eternity. Achieving success with budgeting requires keeping tight reins on expenses and spending less than earned. When expenses exceed income it is imperative to find ways to decrease expenses or earn extra money. An easy way to find out where you stand is to make a list of household earnings and fixed expenses.
Most people can’t alter their mortgage or rent payment, but there are other areas where costs can be slashed. Consider signing up for utility budget plans to stabilize monthly payment amounts. Reduce cable or cell phone services to a basic package. Buy frequently consumed products in bulk or at the very least, use manufacturer coupons. If you need additional money consider taking a part-time job or engage in bartering techniques to reduce household expenses. With a bit of creative thinking, people can usually find opportunities to decrease expenses or increase cash flow.
Instead of putting yourself further in debt with loan consolidation, develop a plan to tackle debt head-on. Work toward paying off loans with the largest balance first and then focus on smaller loans. Always strive to pay loan installments on time to prevent further credit damage. Loan deferment is an option which allows borrowers to skip a loan payment without negative impact against their credit report. Lenders offer loan deferment on nearly every type of loan including secured and unsecured loans, as well as student loans. Borrowers must obtain approval from their lender and abide by deferment procedures.
The loan deferment process requires borrowers to contact their lender, submit a deferment application, and undergo the approval process. Much depends on lender policies, borrowers’ credit history, type of loan, and how many payments the borrower wants to defer. Approval may occur instantly or take several weeks. When applying for loan deferment it is important to retain a copy of loan documents and keep a record of phone or email correspondence. When tracking phone conversations, write down the date and time of the call, name of the person you spoke with, and a summary of the conversation.
When documents are sent via mail or delivery courier spend the extra money to obtain tracking records in case you need to verify the documents were received by the lender. Typically, deferred loan payments are placed at the end of the loan; extending payment terms. Depending on the circumstances and type of loan, lenders might defer three or more payments. When borrowers face temporary financial setbacks which require two or more months of deferred payments, lenders often request a letter of financial hardship. Hardship letters are usually required with real estate loans, such as loan modifications, and federal student loans.
Students can apply for in-school deferment which temporarily suspends payments while attending classes. College loan deferment is only available to students enrolled at least half time and is sometimes available to students who have entered into student loan consolidation. Additionally, student loan deferment is only available to students enrolled in accredited schools and does not include online or correspondence education programs. Another important consideration of loan deferment is the effect it has on your credit rating. Past due payments can temporarily reduce FICO scores.
Depending on your current credit score, a reduction of ten points can place you in a different credit category. Sometimes lenders report deferred loan payments to credit bureaus as delinquent payments, so it is important to inquire how your lender reports loan deferments. When possible, obtain a forbearance agreement when entering into loan deferment plans. Forbearance agreements are legal contracts which ensure lenders will not commence with collection action or repossess collateral assets as long as borrowers adhere to the agreement.
This is especially important for borrowers entering into real estate loan deferment plans to prevent foreclosure. Before entering into deferred loan agreements, read the fine print and thoroughly understand the terms. Borrowers should know how many loan payments will be deferred, repayment schedule, if fees are involved for deferring payments, and if the lender reports deferred payments to credit bureaus. Always obtain loan agreements in writing. One of the biggest mistakes borrowers can make is to enter into a verbal agreement. If things go wrong, borrowers will not have proper documentation to prove their case.
Loan deferment can provide temporary financial relief, but can present negative consequences. Take time to understand the pros and cons; obtain the agreement in writing; and adhere to the terms to ensure a successful outcome. What if I said that a business could borrow money without ever having to pay it back? What if I said that a business owner could borrow money for his business without giving his personal guarantee or a pledge of his or family assets? What if I said that he could borrow these funds at a low fixed rate of interest?
I would expect you to say that I must be crazy or certainly living in a dream world: well,perhaps, but I don’t think that either is quite the case. A typical scenario, particularly in today’s economic climate, is that the business owner approaches his bank for an expansion loan. The banker asks for the appropriate amount of acceptable collateral, personal guarantees, past three years financial statements, both business & personal, along with, perhaps, a business plan and cash flow projections for the proposed life of the loan. The probability of having the loan granted is next to zero.
No one is lending today for a plethora of economic reasons. Being persistent and actually applying for a loan, and missing any of these aforementioned components, assures that the banker is off the hook and can readily say no. Furthermore, should reliance of repayment be based upon the projections and the success of the new expanded entity, makes the chance of the loan being booked even less likely. Bankers in the past were conservative, risk averse, protecting their shareholders interests and their own careers, that is of course prior to the sub prime market bust.
Going the next step in this very common scenario, the bank rejects the loan request by imposing unmanageable covenants upon any perspective deal. These may include 100% cash or equivalent collateral, additional collateral in the form of the owners’ personal residence, restrictions as to the amount of officer salaries / bonus that may be paid, other restrictions to insure that the bank repayment comes first before any long term or officer loans are paid back.
For the small to mid-market business owner, the only method of financing business expansion that may work would be in the form of mezzanine financing ( private financing ) available usually by offering some incremental piece of the business. Who first can find such an angel, given today’s climate and furthermore who wants a stranger intimately i nvolved in their business dealings? After years in the business, I have come to consider and explore alternatives to the preceding and have discovered a gem in the process in the form of a non-recourse loan.
The proposal that I am putting forth is somewhat revolutionary, is a win-win for those participants and clearly is ready to hit the general market. Here’s the scoop ! Using numbers, the business owner has an opportunity to expand his/ her business by buying out a competitor or partner, or product or almost any reason and needs $1,000,000. 00 to comfortably accomplish this purchase. The owner has tried the usual route described previously and has experienced the same results. Not eager to take on partners, the deal seems to be dead. Not so! With the proposed non recourse loan , this deal has life.
The lender, in this case, will ask for three years financial statements / tax returns of both the business and the principals, projections detailing the cash flow use for the new company and nothing more! Providing that the business and principal have clear records, the business shows a profit and most importantly, the business can demonstrate the ability to repay interest only on a loan of twice the borrowing needed, a deal can be had.
In plain English, you need $1000,000. 00 you borrow $2,000,000. 00! You receive $1,000,000. 00 and the lender applies the remaining $1,000,000. 0 towards the purchase of the collateral, escrowing funds for servicing the collateral and purchasing a guarantee that the collateral will be liquidated at 100% of it’s face amount at maturity. The collateral purchased will be Senior Life Settlement Life Insurance policies equal to a face amount of $2,000,000. 00. Simply, the business owner pays the interest and fees and the collateral pays the loan – – – thus a non recourse – interest only loan ! The usual term of the loan will be seven years with reductions in principal and correspondingly interest, should any of the collateral be retired before the scheduled maturity.
An interest rate at or slightly below the market for term loans will provide the borrower with a manageable payment and the bank with a steady income stream above the average loan portfolio earnings rate. Risk to the borrower, none; to the bank, the business fails and interest payments are not made; principal is guaranteed at 100%. The bank / lender is in a much better position with this deal rather than any other collateralized deal where the collateral may depreciate in value. We all know what has happened to home and commercial mortgages issued at 85-110% of market value on a seven to ten year interest only repayment term.
This cannot happened with the propose non recourse loan. Bankers should be chomping at the bit to get their clients in a loan program like this. So the bank has a loan of seven year maturity, fully collateralized, a new or growing business client , zero risk , maintenance fess paid by the borrower up front seems perfect. There are no losers in this proposal. The purchase of the collateral is ,in fact ,providing a service ,as Senior Life Settlement Insurance policies when sold by the insured ,provide the individual with funds well above the cash value of the policy.
The only one to frown on this practice are the insurance companies whose percentage of actual payouts will increase but so will the collection of premiums, as the policies will remain in force for a greater number of years. =0 A In a nutshell, this product proposal has enormous potential particularly in today’s economic environment, and is a way for the banks to utilize so of the tax payer funds that they just received, safely ! Judge for yourself, the proposal works! In most instances, it is imperative for businesses to borrow money to start their company, expand, or even sell their companies.
It is almost imperative for people to approach a bank and some people are hesitant due to the preparation and need to organize a great business proposal. If a business owner has a good outline and direction for the company they may be in the position to successfully ask a bank for a loan. Preparation is the key. You may want to visit the bank and see what the qualifications and expectations are for the lender. It would be best to visit your own personal bank. You also may want to thoroughly fill out the loan application.
You may want to seek advice from other people who have already done it. Visiting your local SBA (Small Business Association) office may be beneficial. The idea is to build partnerships with as many organizations as possible. You should also make sure you have a clear plan on how you will repay the loan even if your business goes sour. You will also have to discuss and share your credit history with the bank. It is best to be in good credit shape. You should also try to muster up a great deal of your own money to almost match or stand against the amount you are asking for.
This will give the bank the impression that you are serious about your commitment and have already saved money for your business. If the bank you choose declines you, that’s alright, just keep trying. One slammed door may equate one opened door. In the business world you will always run into obstacles and dry seasons but preparation and the willingness to never give up will help you achieve your goals. The good part about working with a bank is the fact that they will help you determine what is good for your company.
Make sure you take the time to work with a bank who takes time to understand your business and your unique credit needs. 1. Develop a written business plan 2. Show you have a personal investment and a financial stake in the business 3. Prove you have management experience and have a great knowledge of the field of business you are venturing into 4. Show that you have a record of maintaining adequate retained earnings 5. Prepare a contingency plan in case things go bad. 6. Develop a plan that can protect you if a key person leaves
