Business loans-Business financing: 2009

Business Finance

Be the decision maker. There is nothing wrong with getting advise from advisors when trying to close a deal and arrange business acquisition financing. Just don't turn all the decision making authority over to the advisors. Take all the counsel as input and then decide for yourself what issues to bend on and which issues are sacred cows.

Select Deal Makers. Make sure that advisors you chose to work with (lawyers, accountants, business consultants) are deal makers not deal breakers. A working definition of a deal maker is simply someone who has a lengthy track record for closing the type of deal you are trying to consummate. These individuals have a combination of the right technical ability, relevant experience, and ego control necessary to truly add value for the money you're going to have to pay them if the deal closes or not.

Pre-Qualify the business acquisition financing requirements. Make sure that the buyer has the means to acquire financing. The buyer typically needs to have 1/3 to 1/2 the purchase price as a down payment, depending on the industry and the hard assets being acquired. Good credit and a solid net worth can also be requirements for suitable financing.

The seller needs to be prepared to work with different financing options before getting too deep into due diligence. Will a vendor take back be required? How long is the vendor willing to assist with the business after sale? How much working capital is the vendor draining out of the business?

Consult with a financing consultant. Whether you're the buyer or the seller, there is great value to talking the potential deal over with a financing consultant before your accountant and lawyer start running up their tab respective tabs.

From the seller's point of view, a financing consultant can be invaluable in providing insight as to how to get the business in a financial position. From the buyer's point of view, a financing consultant can provide guidelines as to lender requirements. In either case, there is no sense going through all the potential aggravation of closing a deal if its unlikely to attract the necessary business acquisition financing capital.

Become blood brothers (or sisters) with the other side. A close working relationship between the buyer and the seller can stop the deal from going down bunny trails and sitting unnecessarily on an advisor's desk. Always listen to your chosen advisors, but remember that as buyer and seller, its your collective deal, and you're the one's who will make or break it when the issues are cloudy and the timelines are dragging on.

Set a realistic time frame. Negotiating the deal, going through due diligence, getting advisor input, writing up the deal, and getting financing in place normally takes more time than first estimated.

If the change of control is time dependant due to the business sales cycle, year end, etc., then make sure you have sufficient time to get the deal done before you start, otherwise the only people that will be making any money will be the advisors when the deal can't get closed on time.

Business Financing

Business acquisition financing is right up there with your basic root canal. It may be necessary but it most certainly is not fun.

In fact the overall process for acquiring an ongoing business can be a mind sucking affair, very expensive,and in the end unfruitful.

Why is the process so frustrating?

The answer in many cases is the advisors involved.

That's right, the very people that are paid to complete the deal, are the same ones that kill it.

Let me explain.

All deals have two sides, a buyer and a seller. Both sides have to rely on their third party advisors for advise on such things as legal, valuation, taxation, finance, etc.

Unfortunately, the business acquisition financing issues do not tend to be dealt with in the construction of the purchase and sale agreement, creating sometimes unworkable issues for potential lenders.

When buyers and sellers rely heavily on advisors, there is automatically less chance for the deal to succeed. Why? Because it can be impossible for both sides to agree or reconcile issues between the advisors without great cost and time delays.

The advisors are commissioned by their clients to protect the client's best interest. But in this process of protection, it can be very difficult to get both sides to agree on all issues as both groups of advisors are coming at each issue from the opposite point of view. The result is a deal between buyer and seller in principal that can't get closed.

Even when the purchase and sale agreement does get finalized, there may be terms and conditions that are now not acceptable to your source or sources of business acquisition financing.

If the agreement has to be reworked for the lender, this can be the beginning of the end as it may have already taken the powers of heaven and earth to get everything agreed to and signed off the first time. Making revisions can be like opening Pandora's box with no hope of ever getting it closed again.

If this all sounds bleak and depressing, it certainly can be.

The stark reality is that if you're going to buy or sell a small business you need to self educate yourself to some degree before you get started.

Here are some points to consider:

Approach the deal on a Win - Win basis. Too often in deal making, one side is trying to pull a fast one on the other and try to come out better that they otherwise would have.

This is a dangerous strategy because no matter what you and the other party agree to in principle, the advisors will weigh in at some point and likely uncover any inequity that was created in the negotiations.

Not only does the deal now become more complicated as a new basis for agreement needs to be established, but there may also be distrust forming between the parties, either of which could end up killing the deal.

Working Capital Advances for Businesses

Working capital is essential for the running of any company. Merchants often require additional working capital in order to meet unplanned needs. One method of attaining this working capital is to approach a company like Capitallynk to raise the working capital as a loan.

The advantage for companies that seek small working capital loans is that merchant advance cash schemes often do not require any collateral from the borrower. There are no restrictions placed by the lender as to how the money should be utilized within the business. Such companies do not levy hidden fees or up-front costs on such transactions.

Companies seeking working capital loans opt for such funding schemes as they have a number of benefits. Companies that have otherwise been rejected from business loans can apply for a working capital loan on a credit card or debit card account. There are no fixed payments or predetermined time frame for this lending scheme.

The entire procedure is automated and hassles free. The loan is granted by the customer selling a dollar amount of future debit or credit card transaction sales at a discount to the loan provider. It is this guarantee that acts as a security and does away with the need for collateral.

There are two main requirements that lending companies impose on businesses applying for loans. The first is that the company should have been in business for a stipulated period. The company will also need to earn a certain percentage of its earnings through credit card based transactions every month to qualify for this scheme.

As each sale is settled, a percentage is automatically deducted and the issuing company is repaid. It is due to this reason that there is no fixed repayment schedule. Repayment is thus directly related to the earnings of the customer.

Business cash advance schemes allow companies to meet sudden demands for their products when working capital or ready materials may be in short supply. Such a loan ensures that the company has enough cash available to be operative and yet competitive at the same time.

CapitalLynk provides such working capital advances to companies that have been in business for four months with an average of $5000 in credit card transactions. Approval for loans is done within 24 hours and funding is provided within seven working days

Value Investing Still Work

The essence of technical analysis involves studying of past financial market data to forecast price trends and make an investment decision based on this.

Technical analysis only takes into consideration price behavior of the market. Unlike in value investing, technical analysis doesnt care about the value of a company.

What's the use of analyzing past market data when the market is random. There can be a 50% chance of going up and another 50% of going down, why do we still need to study Technical Analysis.

As I explained in the earlier article about how psychology affects investment, investors move in a crowd approach (causing a trend) and this cause support (lowest price point of this trend) and resistance (highest price point of this trend) levels to be formed until something drives the stock higher or even lower.

Technical analysis is useful only if you want to 'predict' short term stock performance. Technical analysis is not so useful in predicting long term stock performance.

In a short run, stock prices are the effects of the actions of investors and , the prices are governed by intrinsic value of underlying business and past price movements and current or future news and rumours affects the decision of investors.

Eventhough technical analysis is not beneficial in a way to long term investors, i still believe its important to keep an open mind when it comes to investing and to read and learn as much as possible.

To summarise, value investors basically follows the below criterias when identifying potential stocks

1. Undervalued stocks
2. Low Price/Earnings ratio
3. Low Price/Cash flow ratio
4. Low Price/Book value ratio
5. Sound financial statements, low long term debt. The company must have enough cash flow to pay its long term debt with 3 financial years
6. Positive earnings in an upward trend
7. Strong management team and strategy
8. Competitive advantage of a company

How is technical analysis useful to value investors? Value investors can use technical analysis to identity investments who are over speculated. Over speculated stocks are hardly undervalued. They are usually overvalued due to the overcrowded speculation. Now, lets look back at rule number 1 of value investing, to identify stocks that are overvalued and have strong potential.

Now value investing is becoming too popular as its backed by Warren Buffett's success and everyone is learning and using the system of value investing. Do you still think value investing techniques will stick work since there are more people using value investing? I believe it will still work in some extend as we are dealing with long term investment as compared to short term investment. The criterias that we have identified for valued stocks for ways of identifying good companies. Good companies = strong financial potential and growth.

Home Equity Loan Or Line Of Credit

A home equity line of credit is very closely related to a home equity loan but the subtle differences can mean a lot. Determining which option is the best for you relies upon you knowing your current situation and having a clear plan for what you wish to accomplish with the money.

A home equity loan is a lot like a mortgage. With a home equity loan you are able to borrow the amount of your homes value that you have already paid off. The benefits of this type of loan is that it is almost always guaranteed since it is based upon the amount of your home that you already own, the terms are almost identical to a mortgage and you receive the entire amount of the loan up front after closing.

While a home equity loan is also based upon the amount of your home that you currently own, the terms of the loan are very different. A home equity loan is basically a credit card where the limit is the amount of equity that you have in our home. Instead of receiving one large lump sum of cash, you will receive an overdraft type of service on your account that will allow you to withdraw as much or as little of the equity that you wish to use.

Which choice is better for you? The answer depends upon what you need the money for. With a home equity loan the monthly repayment schedule is known and the interest on your loan will be lower than most other types of loans. However, with a home equity line of credit, you have instant access to cash and the payments will vary depending but the interest will vary. With this in mind the question really becomes do you need access to a varying amount of money or one known lump sum of cash?

A lump sum of cash with a set repayment schedule is great for specific things such as debt consolidation or the funding of specific projects with a predetermined cost. If you are considering debt consolidation for credit cards or any other high interest loans a home equity loan is most likely a very good idea. You will be able to repay all of your debt and will only have to make one monthly payment at a lower rate of interest that you are currently paying on your cards and other unsecured loans.

Home equity loans also make perfect sense if you know the exact amount that you need to borrow. While it is always nice to have cash on hand it is often better to have more credit available to you. The more of your credit limit that you use up the higher the interest rates will be for you and the tougher it will be to borrow more money in the event of an emergency. It is definitely to your advantage to only be in debt for a specific amount to complete one project.

A line of credit option may be better depending upon what you wish to do with your money. While you will still use up a portion of your credit limit, the payments and impacts on your available credit may be lower. With a line of credit you always have the same amount of money available to you. As you pay off the amount of credit used, you can reuse that portion if needed without having to apply for another loan. Also your payments may be considerably lower since you are only paying on the amount of money that you have actually used, not the total amount borrowed.

As you can see there are some big differences between a home equity loan and line of credit. If you are looking at a single project, such as a new car or adding a pool to your home, a home equity loan is the better choice for you. However, if you are looking at starting up a new business, wish to travel or can not settle on predetermined amount money, then a line of credit is the better option for you. With a line of credit you can use as much of your credit as you wish whenever you wish and, much like a credit card, you can reuse the amount of the line of credit that you have repaid with out having to re-apply for a loan.

The Bond Market

The bond market fluctuates on a daily basis and is a major determinant in the setting of interest rates. In fact, one can actually guess with an astonishing degree of accuracy as to any movement within a business day if there will be a rate adjustment, whether up or down, based on what the bond market is doing, specifically the 10 year bond. For clarity's sake, there a couple of different bonds that affect interest rates. They are:

The 2 Year Bond
The 5 Year Bond
The 10 Year Bond
The 30 Year Bond

The primary bonds that affect interest rates are the 10 year and the 5 year bond. To see actual, real time fluctuations in the bond market, go here at http://money.cnn.com/markets/bondcenter/ to see current prices for bonds. This is the one I view daily. The bond market is highly volatile. How do you read the graphs so as to know if interest rates will have a spike downward or upward?

While looking at the 10 year price graph (the farthest one on the right), if the 10 year price has a massive swing upward from say 99 28/32 to 103 28/32, rates most likely will have a decrease from current levels.

If the bond market fluctuation merits an increase or decrease in the loan broker's yield spread premium (their rebate), it will in turn affect the interest rate that is quoted to a client, which in this example would be a lower rate. If the bond price doesn't have much of a fluctuation during a normal business day, the rate will not move. Every day, in the morning, rates are received in the office. If a price adjustment is required, the primary lenders will immediately issue an adjustment rate sheet to their broker partners.

As I've said, interest rates are set based on the yield in the bond market at any given time. Let's show an example. If, for example, a $100,000.00 bond falls in value to $95,000.00, the corresponding yield (return) is significantly higher. Because the yield is higher, the prevailing interest rate that is set for the mortgage must offset the higher yield and provide a return on the mortgage for the lending institution. With all things being equal, the rates on fixed rate mortgages would tend to rise.

Multiple Forces in The Economy
There are many factors influencing interest rates for home loan in the US economy. Higher interest rates can cause fluctuations in the stock market which in turn affects the bond market. In fact, the bond market and the stock market are opposite sides of the same coin. One can't move without the other.

If the US Dollar rallies, bonds dip; when oil prices dip, bonds can as well. Generally speaking, when the bond market is up, the stock market is down. In addition, if economic news is worse or better than expected, it will cause a fluctuation in the US dollar currency pairs in the spot Foreign Exchange market (the FOREX), which can affect the bond market and in turn rates.

A quick example. A couple of weeks ago from this writing, the US New Jobs report was projected at 350,000 -- it only came in at 10% of that or 35,000. Once the report was announced, literally IMMEDIATELY the GBP/USD currency pair (Great British Pound and US Dollar) spiked upward. The GBP dramatically increased in strength with the US Dollar becoming weaker. One FOREX trader I know literally made $3,500 in five minutes as he projected the claims to be much less than expected.

Also, interest rates dropped that day due to the lackluster jobs report. Coming into the office that day, a wise loan agent would have locked some loans or at the least knew interest rates would had gone down that day. Truly, the US economy is a highly interdependent organism that is very fluid and dynamic -- it is never static or motionless. Some of the key economic indicators that affect the economy, and in turn interest rates, are:

Durable Goods Orders
New Home Sales
US Trade Balance
Jobless Rate
Weekly Initial Jobless Claims
Fed Chairman Speech Before Congress

The key economic indicators that can affect the bond market with corresponding fluctuations are:

Consumer Confidence
Retail Sales
Manufacturing Activity
Industrial Production
Jobs Growth
Inflation

Interest Rates Set

How are interest rates set -- a common refrain for those who broker loans. The first thing most clients or prospective clients will ask is "how are rates doing?" Or, "what rate can I get?"

It's understandable as the rate determines in large part as to what your monthly payment will be. Fundamentally, the interest rate is what you pay the lender in exchange for their lending you the money for your home loan.

How Are Rates Set?
So, how are rates set? Generally speaking, the longer the loan the more the risk to the lender and consequently the higher the rate. Of course, it's not as simple as that for there are a number of factors that determine how rates are set. There are three fundamental forces that determine interest rates.

The Federal Reserve
The Bond Market
Multiple Forces in The Economy

The Federal Reserve

The "Fed" as it is commonly called determines US monetary policy for the entire country. There was no central federal banking system in the US from 1783 to 1913 but that all changed with the Federal Reserve Act of 1913. Ostensibly, it is the central bank of the US. Don't let the term "Federal Reserve" throw you -- it is NOT a federal US government institution or department.

It is a privately-held organization. There are 12 regional Federal Reserve System banks throughout the US. In addition, the Federal Reserve seeks to constantly adapt its various monetary policies in a concerted effort to combat inflationary and deflationary pressures brought about due to changes in the domestic or global economy.

The Federal Reserve Board members meet eight times a year and generally only changes rates during a meeting. The 12-member Federal Reserve Board can control interest rates by changing the rates it charges banks to borrow money.

Here's how it can influence rates.

The Federal Reserve loans banks funds from their district Federal Reserve bank who pledge their commercial paper as collateral. The Fed essentially charges the borrowing bank interest on the loan. This is called the discount rate.

Banks or lenders then lend the consumer or borrower money charging their primary interest rate. The implications are self-evident. The higher the discount rate the Fed charges the bank, the higher the primary interest rate will be to the borrower as the bank wants to meet the minimum requirements as well as make a profit.

Many people think that when they hear current Federal Reserve Chairman Alan Greenspan make a monetary policy change with the Prime rate, it automatically affects interest rates. Not so.

The Prime rate increase or decrease may affect a Home Equity Line of Credit (HELOC), but it wouldn't affect interest rates. Interest rates also fluctuate with the various loan programs available to the borrower.

Leasing Benefits

Alternative to financing - Leasing is essentially an alternative to traditional financing and can be great for companies not able to obtain business loans.

100-percent "financing" – In many cases, leasing requires no down payment. This allows you to "finance" an entire purchase, including software, hardware, consulting, maintenance, freight, installation, and training costs.

Ease and convenience - Applying for a lease is easy, and lease arrangements can be structured to meet your individual requirements. Equipment leases can range from $ 2,000 to $ 2 million. For smaller amounts, you can complete a brief application and receive a final decision within days—often with no financial reports or tax returns needed.

Leases for more than $100,000 generally require detailed financial information from the business, and the leasing company conducts a more thorough credit analysis than it would for a smaller.

Flexibility - Lease terms range from 12 to 60 months, depending on the equipment type. Most leases can be structured so that payments are made with operating rather than capital funds. This can eliminate or reduce capital budget delays.

Leased equipment can be purchased later if capital becomes available. Plus, a percentage of the lease payments can be credited toward the purchase of the equipment.

Fixed, predictable payments - Having fixed lease payments enables you to accurately predict the impact of equipment expenses on your cash flow.

Conserves working capital - Leasing conserves your working capital by requiring only a minimum initial outlay of cash.

Tax Advantages - Operating leases are generally treated as a 100-percent, tax-deductible business expense paid from pre-tax earnings instead of after-tax profits.

Protection against inflation - Lease payments are based on the dollar's current value. And unlike bank lines of credit with fluctuating rates, your payments are fixed regardless of what happens to the market tomorrow, making it easier to budget, forecast and grow.

Working with a Leasing Companies When leasing equipment, keep in mind that the company selling the equipment simply makes a direct referral to a leasing company with which it does business.

And, usually, the company selling the equipment works with more than one leasing company. So be sure to get quotes from a number of leasing firms. It’s also a good idea to ask for referrals from friends and business associates.

Additionally, make sure you understand with whom you’re dealing. Are you talking to a broker—the person who simply structures deals, then gets them financed through any of the leasing companies he or she works with. Or are you dealing with a leasing company that is actually putting its own funds on the line?

Brokers can be beneficial because they have valuable insight about the leasing market and can help you find the best leasing solution for your needs. But as when dealing with any type of salesperson, you are responsible for handling the due diligence. Do your own homework to ensure you negotiate the most favorable lease agreement for your company.

Leasing to Buying

Short on cash, but need equipment? Consider leasing what you need. Leasing equipment may be a better alternative to buying, depending on your situation and needs.

Today, leasing is common practice in business. Over the past two years, equipment leasing has risen approximately 20 percent, according to recent research by the U.S. Small Business Administration (SBA). And 8 out of 10 U.S. businesses lease all or part of their equipment, reports the Equipment Leasing Association.

Leasing is appropriate for just about any business at any stage of development. For start-up businesses with no revenues, smaller leases—those of $100,000 or less—may be better managed on the personal credit of the owners—if they are willing to make the monthly payments.

Comparing Leasing to Buying When you buy a piece of equipment or vehicle, you usually have to pay for it in full either by using cash or by financing the balance. After you finish paying for it, you own it.

Equipment leasing, on the other hand, is essentially a loan. The lender buys and owns the equipment and then "rents" it to a business at a flat monthly rate for a set number of months. At the end of the lease, the business has several options. It can purchase the equipment for its fair market value (or a fixed or predetermined amount), continue leasing, return it or lease new equipment.

With a lease, you actually only pay for using the equipment. But at the end of the lease period, you could end up owning nothing. So why lease? The answer is simple: By leasing equipment, you leave money in the bank that can be used for other purchases. Since lease payments are usually smaller than regular loan payments, you don't have to pay out as much each month.

However, keep in mind that a lease is not cancelable like a bank loan or other debt. If you need to get out a standard loan you can sell the equipment and pay off the loan, or even refinance it. With a lease, you generally have to pay off the lease in full. So you have to be sure you make the payments when you enter into a lease.

So what kinds of equipment make the most sense for a small business to lease? According to research by the SBA, the most common items leased are office equipment, computers, and trucks and vehicles.

Benefits of leasing equipment offers a wide range of benefits, from consistency with expenses to increased cash flow. But perhaps the most significant advantage of leasing is the ability to maintain up-to-date equipment. Leasing allows you to easily and affordably add equipment or upgrade to a complete new piece of machinery to meet future needs. This lets you transfer the risk of being caught with obsolete equipment to the leasing company.

Debt Solutions

With the ever-rising costs of living, debts are something that piles up in our lives that are a major cause of stress.

We often find ourselves in a quagmire of financial crisis when we try to extend our credit for the next month just to find out that we are again facing the same problem and the over-extended credit just keeps adding up to present debts. In worse cases, people are known to declare bankruptcy to save them from impending doom.

Debt Reduction Solutions
In the case that you are unable to pay off your pending bills or find yourself trapped with increasing debts, there are some debt reduction solutions you can use in order to control your finances better.

It is important to look up the similarities and differences between the two debt reduction solutions in order to understand which of these solutions is better for you before making a choice.

1. Debt Consolidation
Debt consolidation programs are excellent alternatives to bankruptcy and offer consultation to manage and reduce debts. They also provide you with options to handle credit card debts.

a. Debt consolidation programs can plan your finances and give you a debt consolidation loan to pay off all your debts.
b. They offer specialized debts consolidation too in the case of credit card debt consolidation.
c. They have a very low interest rate and you are required to make only one monthly payment that is very small and is planned keeping in mind your financial situation.
d. You can use these programs with all kinds of debts – secured and unsecured.

2. Debt Settlement/Negotiation
This is different from debt consolidation. A debt settlement consultant will reach a settlement with your creditors to drastically lower your interest rates up to 50 percent of reduction is possible.

This system works because most creditors are reasonable and are interested in obtaining their money so they will be willing to reduce their rates as they know that they stand a better chance of getting their money in this fashion rather than from a person who declares himself bankrupt and can no longer pay the money.

a. You can choose the debts you wish to include in the debt settlement program.
b. There is no guarantee that all creditors will accept debt settlement though most will.
c. You will still be responsible for all secured debts incurred.
d. This system is most suited for people who are employed and working hard to clear their debts.

Credit Card Debts Solutions
Control the urge to flash that plastic. Each time you swipe your credit card; you are further pushing your credit limits and adding to expenditure. The start to saving can be done if you change your spending habits and reduce or eliminate the use of credit cards.

Credit card companies offer attractive benefits and schemes to lure the user into making a lot of non-essential spending as they stand to make a profit from pending balances. People end up ensnared in debt and then most of their money can just flow in the direction of clearance of credit card debts.

Lenders also tend to avoid lending any money to people with a bad credit card history or a high amount of balances. Bad credit is an extremely bad partner to have when you are in need of a loan for making a huge purchase such as a home or car. It is possible that bad credit does not go against you in obtaining a mortgage or finance but the terms of finance may be very narrow and binding as in a higher rate of interest or a bigger down payment which basically adds up to yet more losses and possibly more debts.

Tips for credit card debt reduction:
1. The best way to cope with credit card debt is to stop the problem at its source that is to stop using the card. Cutting down on those expenses could help you save money which you can use to pay off your debt.
2. The minimum payment you need to make is just about equal to the sum required for the finance charges. For quick debt reduction, keep track of this and make a higher payment than the minimum payment. The more you pay the sooner the debts clear off.
3. Make sure that you use a zero percent interest credit card. That way you will not be paying interest and transfer all your existing credit card debts to that card too.

These are a few of the debt reduction solutions you can use to eliminate debt from your lives. The best thing of course, is not to incur debts at all but if that is inevitable it is equally important to take charge of your finances and keep your debts under control, in order to lead a stress free life

Your Credit Report

Conscientious consumers are sometimes startled to learn they've been turned down for a loan or credit card, not because they're unemployed or lack savings, but because they lack a credit history.

These people are:

Teens College students are showered with credit card offers because lenders know that their earning potential will soar after graduation. But those who bypass college may find it difficult to get such offers or build a credit history.

Retirees, widows, divorcees Retirees may have sterling credit, but if the mortgage was paid off years ago or a deceased spouse managed household finances, the widow(er) may find that an inactive or nonexistent credit history can keep them from buying a new car, for example.

Immigrants Regardless of their bill-paying history in their native countries, immigrants must start to establish credit history from scratch when they arrive in the United States.

"Conscientious objectors" Some people prefer paying only in cash because of personal beliefs or an anti-consumerism philosophy. But they risk a cash crunch if unanticipated expenses arise. The wealthy Highly affluent people may not often need good credit because they usually pay cash. In an emergency, though, their money could be tied up in illiquid investments and not readily available.

There are many options for young people and others who recognize the importance of establishing a solid credit history based on responsible borrowing, on-time bill payments and disciplined spending habits.

Options include: - Secured credit cards - Student credit cards - Debit cards - Prepaid cards - Joint credit cards - Authorized user cards - Co-signer loans Remember, lenders purchase borrowers' credit reports from credit reporting bureaus to help decide if they should extend credit, whether it's credit cards, mortgages, car loans, or student loans.

Landlords and employers may also run credit checks to determine what kind of risk you are. Familiarize yourself with what lenders are looking at by reviewing a free credit report annually. So, what does a credit report contain?

1) Personal information This includes basic details like your Social Security number, current and past addresses, and date of birth.

2) Your credit history This contains detailed information about credit accounts in your name or accounts that list you as an authorized user. This information, reported by creditors, may include the date accounts were opened, loan balances, credit limits, and payment history. Closed and inactive accounts may also appear.

Inquiries:
Whenever third parties (anyone other than you) pull your credit report, the credit bureau makes a notation here. Public Records: Government agencies will report bankruptcies, overdue child support payments, and liens.

3) Personal payment history This section summarizes your payment history for credit accounts. You'll see mortgages, installment debt, revolving accounts (such as credit cards), and accounts in collection.

4) Public information This section provides details on matters of public record, such as bankruptcies, tax liens, foreclosures, or judgments.

5) Inquiries This area lists businesses that have inquired about your credit during the last two years. Typically, this happens whenever you apply for credit.

6) Creditor contacts Here you'll find contact information for current creditors. As you can see, credit reports contain a wealth of personal data that can have a lasting impact on your financial household, dictating the interest rate you'll pay for loans. In fact, there's so much history there, dating back to the time you borrowed your first $3,000 for a second-hand Mustang, that you might start thinking your credit report contains everything but the kitchen sink.

To set your mind at ease, here's what's not revealed in your credit report. - Your gender - Your race or national origin - Your salary history (although the names of previous employers may show up) - Your religious affiliation - Whether you're up to date on your dog's vaccinations - Information on your savings or investment accounts - Your medical history (although a medical credit score is currently in development) - Any criminal record you may have - Your family background - Whether you're a stingy tipper - Your voting record or voter registration - Any purchases for which you paid with cash or check - Your jury duty records - The $50 you owe to a bad bet on the Red Sox - Chapter 7 bankruptcies that are more than 10 years old - Speeding tickets (as long as you paid them) - Your credit score (which you'll have to purchase separately to see) While the items above are legally restricted from appearing in your credit report, someone reading between the lines could still deduce some personal details.

Medical conditions, for example, while not reported directly, could be guessed at based on the name of a medical creditor, like the Greater Milwaukee Substance Abuse Medical Center, when the debt shows up on your report.

For many negative marks in your credit past, the magic number is "7," meaning that these items disappear from your credit report after seven years: - Charge-offs or debts placed in collection - Lawsuits and judgments (unless the statute of limitations hasn't yet expired) - Chapter 13 bankruptcies, provided they were paid in full (10 years if not paid as agreed) - Foreclosures - Paid tax liens If you have unpaid tax liens, you'

re on the hook forever. The same holds true for unpaid federal student loans.

Fed extends consumer lending program

The U.S. Federal Reserve has extended a program intended to spur lending to consumers and small businesses at lower rates, but the central bank will not expand the types of loans made.

The Fed on Monday said extended its Term Asset-Backed Securities Loan Facility through March 31 for most of the types of loans it makes. The program was scheduled to end on Dec. 31.

The TALF started in March and figures prominently in efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and help end the recession. Under the program, investors use the funds to buy securities backed by auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration.

The program for commercial mortgage-backed securities was extended through June 30 because issuing new securities in that area "can take a significant amount of time to arrange," according to a joint news release from the Fed and the Treasury Department.

The broader TALF program had gotten off to a lethargic start, hobbled by rule changes, investor worries about financial privacy and fears that participants might become ensnared in an anti-bailout backlash from the public and Congress.

The program has the potential to generate up to US$1 trillion in lending for households and businesses, according to the government. Spurring such lending is vital to turning around the economy.

The Fed and Treasury on Monday said they were prepared to reconsider this decision if financial or economic developments conditions indicate that such an expansion would still be warranted. However, the government believes the financial system is beginning to stabilize after being hit last fall by the worst financial crisis since the Great Depression.

"Conditions in financial markets have improved considerably in recent months," the Fed and Treasury said in their statement. "Nonetheless, the markets for asset-backed securities backed by consumer and business loans and for commercial mortgage-backed securities are still impaired and seem likely to remain so for some time."

The Fed last week delivered a vote of confidence in the economy, saying the downturn appeared to be "levelling out." Fed officials also said they would slow the pace of a program to buy $300 billion worth of Treasury securities, an effort aimed at keeping mortgage rates affordable. The central bank said it planned to shut down the program at the end of October.

How Much My House Cost

With the real estate market still in flux after the subprime mortgage crisis, many potential home buyers are confused over which listings they should be scouting. That's because the math that once guided their decisions about what buyers can afford has been through the ringer and back again.

There are more than 1.5 million cautionary tales for getting in too deep. That's how many U.S. properties received a foreclosure filing during the first half of 2009, according to RealtyTrac. And as of December, one in every five American mortgage holders owed more on their mortgage than the value of their home, according to First American Core Logic. With the market still fluctuating, real estate is far from a sure bet as an investment.

Of course, for those with an appetite for risk, there are plenty of opportunities. Interest rates are low, and so are prices. The S&P Case-Shiller 20-city index of home prices suggests they are roughly at 2003 levels. Although the decline has started to slow, in an uncertain market, the question of how much house you can afford may be more important than ever before.

The old guidelines were fairly loose and straightforward. Spend roughly three and a half times your annual salary on the house, and make monthly payments somewhere between 25% and 33% of your monthly salary. In the years leading up to the bust, easy credit left a lot of wiggle room here.

Now, after all of the ups and downs, those basic guidelines are the same, but the gatekeepers have grown stricter about making you stick to them. Lenders have tightened mortgage criteria in the new, post-bubble housing market. Even if your own financial situation hasn't changed, you may find you're not able to access as much credit as you might have a couple of years ago at the height of the boom.

Given the current low prices, these tighter standards may represent an overcorrection from the excesses of the subprime boom, says Ryan Tomazin, COO of Integrated Asset Services, a privately held default real estate and mortgage-service provider. "Affordability is almost as high as it's ever been, but what the banks are allowing people to purchase is still far more conservative than what people could afford," Tomazin says.

Others maintain that lenders' tighter standards represent a return to more traditional ideas about home buying that bypass the boom-time assumption that incomes and real estate values rise without bound. Once again, lenders are requiring a down payment, documentation of income and assets, and good credit scores, says Keith Gumbinger, the vice president of HSH.com, a mortgage market analysis firm based in Pompton Plains, N.J.

"The world is very largely a fixed-rate world," Gumbinger says, but in an uncertain economy, with some economists predicting that unemployment could go as high as 25%, the certainty of a fixed monthly payment is a good idea anyway.

Online calculators will offer you a ballpark figure of how much house you can buy based on your income and other debts. However, buyers should use that estimate as a starting point for a careful examination of their budget and overall financial goals, particularly in today's economy.

"For a person that likes to spend, if you give them a rule of thumb, they will always take it to the max," says David Hefty, a certified financial planner and chief executive at Cornerstone Wealth Management in Auburn, Ind. He recommends going through a quantitative assessment of your real expenses and a qualitative assessment of your priorities to come up with a number that represents the house you can really afford.

Even in a market where low housing prices mean you can get a bigger house for your buck, "sticking to that number is key, so you can get a bigger house, but you're not overextending yourself financially," Hefty says.

Don't just take a lender's word for it when they tell you how much of a monthly payment you can afford. If you're now renting, use your rent as a starting point and be wary of lenders that assume you can suddenly start paying much more in housing costs, says Liz Freeman, a mortgage expert for ShopRate.com, and a former loan officer.

Consider questions like, "Am I starting a family? Would I like to take a trip around the world? Do I spend my weekends jumping horses?" Freeman says. Make sure the house you're planning to buy fits in with your overall financial plan.

Real estate isn't a get-rich-quick scheme, but that doesn't mean that buying a home can't be a good investment for those willing to look at it in the long term. "You'll be building equity slowly and over time," Gumbinger says, "just like your parents did."

Some credit union loans are not a good deal

Short-term loans offered by some credit unions as alternatives to high-cost payday loans are as risky and deceptive as those they're supposed to replace, some consumer groups say.

Payday loans allow cash-strapped consumers to take out small loans against their next paycheck. The loans often carry annual interest rates of 400% or more. Because they typically have to be repaid in two weeks or less, many borrowers roll the balance into a new loan, which mires them deeper in debt.

In recent years, hundreds of credit unions have introduced short-term loans for members who face a temporary cash crunch. But some of the loans "are only marginally cheaper than traditional payday loans," says Lauren Saunders, an attorney with the National Consumer Law Center.

The National Credit Union Administration, which regulates federal credit unions, last week issued guidance to its members, alerting them to the "risks, compliance issues and responsibilities" associated with a short-term loan program.

The agency issued the letter in response to the rapid growth of these programs in recent months, says John McKechnie, spokesman for the agency.

Federally chartered credit unions are prohibited by law from charging more than 18% on loans, but some charge excessive fees that drive up the effective rate, Saunders says.

For example, Nevada Federal Credit Union says it offers a 0% annual percentage rate. Brad Beal, president of the credit union, says it charges an application fee of $70 for a 14-day loan of up to $700, or $60 for members with direct deposit. That's half the fee charged by the average payday lender, he says. But the National Consumer Law Center points out that a $70 application fee for a $400, 14-day loan is the equivalent of a 455% APR.

Saunders' consumer group has recommended capping the annual interest rate for payday loan alternatives at 36%, including fees. But Beal says that works out to less than $10 per loan and wouldn't cover his credit union's costs.

"We're not out to take advantage of our members," Beal says. "We're just trying to find a way that's economical for them and economical for us."

Lois Kitsch of the National Credit Union Foundation, the charitable arm of the credit union industry, acknowledges loans offered by a handful of credit unions resemble traditional payday loans.

But, she says, "there are a huge number of others that don't look like them at all."

Many short-term loan programs offered by credit unions require members to deposit a small percentage of their loan payments in a savings account, Kitsch says.

"Eventually, they'll have enough money so they can borrow against their own savings at a very low cost," she says.

And unlike payday lenders, Kitsch says, many credit unions give members 30, 60 or even 90 days to repay their loans.

Fix Bad Credit

Before your loan application is processed, it is usual for the lending institution or bank where you have applied to run a check on your credit report and get your FICO score.

If your FICO score is high that means that you are a low risk customer, you can be counted upon to make your premium and interest payments regularly and on time, and you will face no hassles in getting prequalified for your loan.

Having a history of bad credit can reflect very poorly on your chances of getting a mortgage or a refinancing loan. If you have bad credit, it is important that you take the proper steps to mitigate the debt. Your credit rating will improve as you pay off your pending debts and you can work towards becoming financially secure.

Here are some of the many ways in which you can go about fixing a bad credit.

Don't let the scammers mislead you

In the first place, do not under any circumstances fall for the tall claims made by the sundry companies hawking their Credit Repair Services through aggressive advertisements by way of fliers, newspapers, T.V., Radio, and Internet. There is no legitimate way they can 'erase' your credit problems '100%' or remove bad credit reports from your credit file.

And if you go along with their offer of giving you a new credit identity, you could find yourself arrested and charged for fraud. Misrepresenting your personal details and falsifying your financial and work details for the purpose of securing a loan application is a federal offense, a crime you can go to jail for.

So, understand this, there is no magic wand that anyone can wave to cure your financial woes. You have to salvage the situation yourself by a good deal of patience, common sense, self-discipline, and determination.

Get a copy of your credit report

The credit report can be obtained from the central bureau of the three main consumer reporting companies – Equifax, Experian, and Trans Union. Remember that you can directly contact the credit report bureau. There is absolutely no need to go through a credit service company that will charge you a good amount in fees for something you can access for free.

You should apply for your credit report every year actually, whether you have bad credit or whether your financial situation is sound. It is possible that certain glaring errors may have crept into the report and, if you neglect to get these errors correct, they may spoil your credit rating. Another thing to watch out for is Identity Theft.

There are enough stories around about scammers appropriating legitimate identities for fraudulent purposes. It is better to keep an eye on your credit report and avoid such problems.

Clear your debts

Start paying off all your outstanding debts. Try to clear up your debts as soon as you can. First repay all the debts that have the higher interest rates and then work your way through the others.

Don't lag behind on current bills

Be prompt and regular about paying off your current bills. Late payments will not reflect well on your credit report.

Reduce the credit cards

Cut down the number of credit cards you have or close down the accounts altogether. Don't apply for a new credit card until you have paid off all your debts.

Do not file for bankruptcy

And do try to keep away from tax liens and collection accounts as well. If you file for Bankruptcy, tax liens, and collections, it will figure prominently and not to your advantage on your credit report for ten, seven, and seven years respectively. Which means that for the next ten years you will have little or next to no chance of getting your new loan applications approved.

Polish up your act

If you lead a lavish life-style, well, do consider sobering up a bit – at least until your debts are cleared out of the way. Cut down on all unnecessary expenditure and sell some of your assets if it becomes absolutely crucial.

And after you have cleared up your bad credit, you may return to square one and start all over again.

Protect Your Credit Rating

Your credit rating is basically your personal finance history, whatever accounts and forms of credit you'd had in the past and any missed payments, defaults or notices on those accounts are marked on your credit rating. Finance companies use credit reports to see how individuals manage or fail to manage their :

bank accounts,
credit cards,
personal loans,
mortgage payments,
mobile phones.

This helps the lenders to gain a profile of the kind of customers they're more likely and less likely to lend money to in the future. But can you really protect or make your credit rating better?

Well, yes, there are certain things you can do to make sure your credit rating is the best it can be. First off you should always tell the truth whenever you're applying for credit. In the end it will only be you that suffers if you cannot afford to make the repayments on your debt.

This is the first basic rule of lending, don't fool yourself - can you really, honestly afford to make the repayments? If you lie on an application form lenders can easily find out and it could be deemed as a fraudulent application which will cause problems for you in the future.

Don't apply over and over again with different lenders, this will only leave a trail of rejected applications behind you. Each time you make a new application the lender will see on your credit rating how many times you've already applied and which lenders you've applied to. If you feel that you might be able to get a more competitive quote from another finance company then ask for just that - a quote. Then you can go on to make a formal application. If the finance company say they need to run a credit check to give you a quote then ask them to make sure it will only show up on your credit rating as a quotation search, rather than a credit application search.

Your credit report will also show other people with whom you have joint accounts or any form of joint credit. Obviously these people could be ex-partners that you no longer share a relationship with. Make sure you keep you credit report up to date by telling the credit agencies to remove the people who are not financially connected to you. Lenders may look at the credit ratings of financially connected people on your credit rating and if they have a bad credit rating you could be affected.

You should always check your ID, if there is anything suspicious looking like applications you can't recall then let the agency know. Infact if you find anything in your credit report that you think should not be there then write to the credit agency and ask them to amend it or let you know exactly what it means. For example if you have settled a CCJ then make sure this is showing. You need to ensure the corrections you have made your efforts to clean up your rating are being shown.

The easiest way to keep your credit rating clean is to make your payments every time, on time. Even if the payment is just a few pounds it shows that you are responsible with your finances and can budget correctly. If you think that you might miss a payment in the future then contact the lender immediately, burying your head in the sand will not help the problem and things will only get worse.

Improve Credit Rating

Every individual and business entity earns a certain level of credit worthiness in a lifetime or phase of function. The credit rating is either evaluated as a credit score or as entries in a credit report. Credit ratings are awarded to individuals, business corporations and even countries. The calculations of the debit-credit facets are made at government-supported credit bureaus.

Calculations include averages summed up from the financial history of the individual or entity, and the available current assets and liabilities. A credit rating is a very important evaluation that tells an investor or lender whether or not a fiscal avenue being explored or the borrower is financially healthy enough to pay back the desired line of credit. Credit ratings are also sought to calculate and adjust insurance premiums and interest rates.

The readings, and sometimes the final score, help to determine employment eligibility. A poor credit rating simply attracts high interest rates and/or loan refusal. The factors that commonly influence credit rating include the amount of credit availed of, saving and spending patterns, incurred debt and current ability to repair the impaired history.

How to Improve Credit Rating:

Credit rating is usually compiled and maintained by the Experian, Equifax, and TransUnion credit bureaus. A person or business entity's credit worthiness is usually determined via statistical analysis of the evaluated credit data. The records reveal a 3-digit credit score, also referred to as the FICO or Fair Isaac Corporation score.

The credit rating agencies calculate debt obligations and debt instruments that can be traded within a secondary market. Credit ratings are commonly accessed by investors, banks, issuers, broker-dealers and the government. The rating helps evaluate the current credit risk associated with the person or business.

The steps to improve credit rating involve:

Paying bills on time and minimizing debt.
Clearing incurred debt as soon as possible, and refrain from acquiring fresh debt.
Avoidance to transferring debt balances.Keeping low or no balances on credit cards.
Keeping old bank accounts operative.
Interceding for an immediate intervention of a payment plan and outside help, if the debt incurred is more than you can handle.

It is very important to assess the situation from a third person perspective and work in tandem with a lender. It helps to earn goodwill via regular payments, to improve your credit rating. The credit rating vouches for your credibility. You should focus on ironing out your previous history of borrowing and repayment and repair the liabilities-assets ratio, to feature more assets than debts. It is critical to tally facts within the credit report and take remedial action to eliminate errors and omissions.

You can use factors such as transparency in the stock market and public investment enhancement patterns to your advantage. You need to apply all your energy to meet impromptu expenses and train yourself to optimize credit-in-hand. Monitoring and reviewing past credits and identifying wanton expenses also help to maintain a good credit rating. The regularity with which you address repayment of incurred debt greatly reflects your financial stability. A credit rating addressed and repaired in time attracts smaller rates of interest and easily manageable credit balances.

Designing your own finance management strategy will help you to enjoy a stronger credit rating in the near future. Paying back high interest rate credit card debt and not spending more than 30% of your total credit limit are both highly beneficial to a sore credit rating.

Credit Rating

Credit rating is the means of assessing the credit worthiness of individuals, companies, states and countries. It indicates the ability of the debtor (individual, company, state or country) to fulfill his financial commitments. Credit rating can refer to personal, corporate or sovereign credit rating.

Personal Credit Rating

Credit Rating:
In the US, creditors use a scale of 0-9 in order to rank a debtor. The numbers can be preceded by the alphabets R or I. I refers to credit that is repaid in installments (like mortgage on a house), while R refers to a system of revolving credit (credit cards), whereby the debtor is only required to make minimum monthly payments.

R1/I1 means that the debtor repays his debt in one month, while
R2/I2 means that he repays within 2 months.
R7/I7 indicates a situation wherein debts are paid by consolidation.
R8/I8 implies that debts are recovered by repossession.
R9/I9 is the worst rating and indicates the inability to repay debts.

Credit Report and Credit Score:
Information about credit inquiries, bankruptcies, liens, judgments or collections is sent to the credit bureaus, which prepare an individual's credit report, and assign credit scores. A person has 3 credit scores assigned to him by the following bureaus: Equifax, Experian and TransUnion. While these scores may differ, the underlying principal is the same.

The credit bureaus calculate scores based on the credit scoring system created by Fair Isaac Corporation (FICO) in the year 1958. Credit scores computed by Experian are called 'FICO or FICO II', scores calculated by TransUnion are called 'Empirica', and credit rating computed by Equifax are called 'Beacon'. Fair Isaac Corp. has also developed the next generation FICO scores, which are meant to be user friendly. The FICO advanced risk score is used by Experian, while TransUnion uses Precision, and Equifax uses Pinnacle, to calculate credit scores.

Credit bureaus also assigns weightage to the following factors while calculating credit scores: 30% to previous credit performance, 30% to current indebtedness, 15% to the use of time of credit, 15% to the types of credit available, and 5% to new credit.

FICO scores are fast gaining popularity over the R/I multiple rating system. Hence, we can discuss the importance of good personal credit rating from the perspective of maintaining good FICO scores.

What is a Good Credit Rating for an Individual?

Credit ratings for an individual range between R0/I0 and R9/I9. 9 is the worst rating while 0 would mean that a person has no credit history. Credit scores for an individual are generally in the range of 360 and 850. A score below 620 is considered unhealthy. The worst score, of course, is 360 and the best is 850. Higher the credit score, lower the risk of a person defaulting.

A poor credit score/credit rating would result in lenders charging a premium for providing loans. If the credit score/credit rating is very poor, lenders may refuse to provide credit. A credit score between 650 and 690 is considered good, while a score above 700 is considered optimal, by the lenders.

Bridge Loan

Commercial bridge loans act as a conduit by helping the business bridge the gap between meeting current financial obligations and securing a permanent source of financing, at a later date.

Bridge loans are generally meant for short periods of time, since their intention is to help the company fulfill its financial obligations before another viable source of commercial financing becomes available. These loans are also known as swing loans or interim loans.

The lender of a commercial bridge loan generally insists on clarity as far as 'exit strategy' is concerned. Exit strategy is the means by which a lender can hope to recover the amount of money lent. The absence of an exit strategy will disqualify a borrower from obtaining a loan. Bridge loans also carry a higher rate of interest than permanent loans. Generally the borrower would need to pay 3 to 4% more as interest on a bridge loan as compared to a permanent loan. Commercial bridge loans typically carry no prepayment penalty.

Eligibility for a Commercial Bridge Loan

The borrower needs to provide the lender with a clear exit strategy.
In case the borrower needs the money for a new venture, he has to convince the lender about the viability and the profitability of the proposed business, by providing details of the expected revenue and cost structure.
If the money is for an already established business, the borrower would need to present detailed financial statements indicating the profitability and the cash flow situation of the business.
A loan to value ratio of 70 to 90% would also be required.
For bridge loans that are secured by the assets of a business, the repayment period is generally 5 years.
Unsecured commercial bridge loans have a repayment period of 6 months.
A good debt service ratio (net operating income to total debt service) is also desirable.

Depending on the needs of the business the following types of commercial bridge loans are available:

Types of Commercial Bridge Loans

Commercial Property Bridge Loans/Mortgage Bridge Business Loans: These loans are typically borrowed for the purpose of buying a new property. Many a times, a businessman may be interested in new property and would like to close the deal at the earliest. The new purchase would be financed by selling off the old property. However, the latter deal would take a few months to finalize.

Bridge loans became popular because most lenders were unwilling to provide a loan in order to finance a new purchase when the old property was up for sale. Commercial bridge loan providers may not expect interest payments for a few months. Bridge loans are provided for a period of 6 months to 1 year, although most lenders may allow the borrower to extend the period of the loan for up to 1 year by paying an additional fee.

Commercial Construction Bridge Loans: This is a type of construction loan meant for the purpose of providing temporary finance for a new construction, or for making improvements on an already existing structure, in order to enhance the available cash flow from the property.

Fractured Condo Scenario: Some bridge loan providers may be willing to provide loans in case of fractured condos. Generally, a builder constructs an apartment complex with an intention to sell the apartments. Sometimes, due to the unavailability of buyers, the builder is forced to rent out most of the apartments. Such a condominium complex is known as a 'fractured condo'.

Since the builder's ultimate intention is to sell the condos, he might approach a lender in order to obtain temporary financing in the form of bridge loans. Of course, the lender charges a very high rate of interest due to the extent of risk involved.

America’s Recovery Capital Loans (ARC Loans): Since 16th June 2009, the US Small Business Administration (SBA) has started accepting applications from small business enterprises for bridge loans. These loans are meant for well established companies, which were profitable before the start of the recession.

Recession might have resulted in reducing their customer base, working capital, and employees. Loss of ability to restructure existing debts, increase in costs, and reduction in suppliers, will also qualify the firms for bridge loans, since the aforesaid issues would negatively impact the ability of a business to tide over difficult times.

Commercial bridge loans are generally paid off by opting for a permanent source of financing. In case of commercial property bridge loans, the sale of the old property may help repay the bridge loans. Bridge loans are only available for firms which have a good operating history, or new firms engaged in highly profitable projects. Delinquencies will definitely disqualify firms from obtaining commercial loans.

This is especially true for companies desiring commercial bridge loans. Such firms might be forced to opt for 'hard money financing' which carries a very high rate of interest. The credit worthiness of a borrower is inconsequential in case of such loans. These 'last resort' loans, which are secured by the value of the property, have a loan to value ratio of 50%.

Working Capital

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