Easy Ways to Protect Your Personal Finances From Further Economic Contraction

While the economy has already certainly softened, there may be further economic contraction for American consumers to face. Increasing job losses, higher inflation rates, and the growing food and energy costs are making personal finance budgeting difficult for most American families to achieve. The variable interest rate of recent mortgages makes critical, and the prospects for personal finance do not look bright for the next several years.

However, an ounce of personal finance planning is certainly worth more than a pound of monetary cure. It is not too late to start preparing your personal finance budgeting efforts to brace yourself for further economic contraction – ensuring that when America does recover from its economic weakness, your personal finance will be intact and still healthy.

Debt management strategy: watch your interest rates

When economic uncertainty is on the horizon, interest rates are the first to react – making debt management critical. Powered by both the Federal Reserve rate and each banking institution’s tolerance, interest rates can either soar or plummet, depending upon several factors.

Whereas our interest rates were at historical lows, the Fed Chairman Bernanke made adjustments to the rate in order to curb inflation, while attempting to simultaneously stimulate economic investment. What does this mean for your debt management? In essence, banks will now offer you great interest rates if you have good credit, making your debt management easy. If you have bad credit, then banks will increase your interest rates, as the risk of a default grows greater during an economic contraction.

Therefore, for debt management that will prepare for further economic contraction, you want to lock in low interest rates, which will be easy for those who already have good credit. You can refinance your credit cards by consolidating your debts, or you can even renegotiate your interest rates with your existing credit card company.

For those who have less than stellar credit, you want to carefully watch your mortgages, loans, and credit cards to ensure that they are not raising your interest rates. You may be particular susceptible to interest rate hikes in further economic contraction.

Smart personal finance budgeting

Keep in mind that regardless of how much income you earn, the key to maintaining financial stability is through intelligent debt management and personal finance budgeting. Even if you earn millions, your spending habits and debt are what determine your financial stability. In preparing for a further economic contraction, it is important that you take several personal finance budgeting steps:

o Tally all of your required expenses including your mortgage or rent payment, car payment, health insurance, and utilities. There are the bills you must pay each month, and therefore, are part of your mandatory personal finance budgeting process.

o Allocate a set amount each month for groceries. Keep in mind that you should try to purchase everything “on sale” for smart personal finance budgeting. Research shows that simply by purchasing the brand that is on sale, you can save approximately 20% each time you go to the supermarket.

o Minimize your entertainment expenses. Smart personal finance budgeting means limiting how frequently you eat out, or spend money on entertainment. For example, if you have a four-person family and you typically watch a movie at the theater each week, cutting this expense out could save up nearly $200 each month. Or, brown bag your lunch instead of eating at the local sandwich shop. This small change in your personal finance budgeting can save you conservatively $150 per month. Just these two small changes alone in your entertainment expenses can give you an extra $350 per month for your personal finance budgeting.

o Set money aside for your savings. In a further economic contraction, the greatest, yet most probably fear, is losing your job. Therefore, by taking conservative approaches with your personal finance budgeting now, you can still set aside emergency funds that will help your family if times are difficult. Saving 10% of your income each month is a healthy, yet reasonable, amount to save in your personal finance budgeting.

The key to protecting your personal finance against any additional economic contraction is through smart debt management and intelligent personal finance budgeting. By taking several preventative measures now, you can ensure that your financial situation will remain healthy – regardless of what happens to the economy.

Seller Financing Gets Deals Done In Good Times And Bad Times

Yes, times are tough and everyone knows that conventional small business loans are exceedingly difficult to obtain. Moreover, small business loans will continue to be difficult to obtain for the foreseeable future. In reality, this isn’t anything new or specific to the state of the current economy. The fact is that conventional business loans have always been hard to get. Since the beginning of time (well almost), conventional lenders only made loans to the most bankable small businesses. In other words, conventional lenders always have and always will limit their small business loans to:

  1. businesses with several years of verifiable, positive cash flow
  2. businesses with a lot of collateral, and
  3. businesses with strong management.

Today, conventional lenders have a hard time working with even the best qualified small businesses. So – what’s a buyer/seller/broker to do? Rely heavily on seller financing.

I know, seller financing has always been around as an optional piece of the deal making puzzle. Seller financing isn’t optional anymore. Buyers, sellers and brokers should either use seller financing right now or they should plan to do zero deals until the credit situation settles down. In other words, plan to stay out of the game for two, three or four years.

SELLER FINANCING HELPS EVERYONE

Simply stated – seller financing can get deals done. This is true for a lot of reasons. For instance, nobody has to go through the massive paperwork production required by conventional lenders. Of course, sellers and buyers need to perform some due diligence on one another. However, a seller financed loan is no where near as demanding as is a conventionally financed loan. So the deal gets done, the buyer gets financing and the seller gets cash flow from the loan.

HOW SELLER FINANCING WORKS

Sellers ordinarily do not want to hold on to a loan for a long time. This means that the seller financed loan should be designed with the goal of having the buyer refinance the loan with another lender (for purposes of this article, a conventional lender) two or three years after the seller financed loan is originated.

Before I get into refinancing, you still need to consider the basics of a seller financed loan. A typical seller financed loan involves the loan being paid pursuant to the terms of a confessed judgment promissory note backed by a security agreement. Confessed judgment simply means that if the buyer defaults on the note, then seller can promptly obtain a judgment in court without resorting to formal litigation. The security agreement is just a written agreement which lists the loan’s collateral. The collateral is usually the business as well as any other assets of the buyer such as the buyer’s house. The security agreement is then made a public record so that the world is put on notice that the seller has some rights in the collateral if the buyer tries to do something with the collateral during the life of the loan.

The exact terms of the note will change from deal to deal. However, it is safe to assume that the note should have realistic payments based on the business’ revenue history. Even though a seller usually has no intention of holding a loan for a long time, the loan has to be structured such that it has at least a ten year repayment schedule with a balloon payment required some time earlier, such as three years. In other words, the notes are usually amortized over a long period of time but are due in a relatively short time. For example, a $200,000.00 note amortized over ten years at nine percent interest with a balloon payment in three years results in $2,533.52 monthly payments of principal and interest. Then on the note’s third anniversary a balloon payment of $139,072.08 is due. In a nutshell, the buyer has thirty six months to find another lender.

Once the terms of the loan are negotiated then the buyer signs the note and gives it to the seller. Meanwhile, the buyer must be doing everything in anticipation of refinancing the note.

ADVANTAGES AND DISADVANTAGES

Like everything else in life, seller financing has advantages and disadvantages for all parties.

Some pros for the buyer: 

  1. relatively easy to obtain credit
  2. repayment terms can get very creative
  3. seller is kept in the game and still has an interest in seeing the business thrive
  4. depending on the terms of the loan, buyer can withhold re-payment if there is something wrong with the business

Some cons for the buyer: 

  1. interest rates will probably be relatively high
  2. loans tend to be short term with an emphasis on refinancing as soon as possible
  3. seller might be constantly looking over your shoulder

Some pros for the seller: 

  1. recurring monthly revenue for as long as seller holds the note
  2. will most likely obtain interest at a higher rate than anything else in your portfolio
  3. if the buyer defaults, seller can take the business back
  4. taxes can be spread out over the life of the note (don’t take my word for it, please consult your accountant for expert tax advice)

Some cons for the seller: 

  1. seller is still closely connected to the businesses
  2. buyer could default
  3. seller has to wait to get all of the money

CLOSING

Small business finance is challenging in good economies and bad economies. OK, so things are a little difficult right now. People still want to buy and sell small businesses. Banks and other conventional lenders flatly do not have the ability to finance many small business deals these days. A good way to get around this is to do some significant seller financing, or else you will probably have to stay on the sidelines until who knows when.

Changes For Business Finance and Working Capital Loan Programs

As business owners develop their small business loan plans for future financing and refinancing throughout the United States, there is an increasing awareness that there have been significant business finance changes that cannot be ignored. Some of these measures are likely to end up being permanent, and even the temporary commercial mortgage loan and working capital loan changes are expected to be in place for an extended time due to the severity of the current financial climate.

A reduction in commercial lenders as well as stricter standards for acquiring commercial loans and commercial mortgages has been the net result from business finance changes. Unfortunately there has also been no shortage of misinformation about the availability of commercial funding.

A significant reduction in business lending activity overall is perhaps the most dramatic change. This has been due to several events occurring almost simultaneously. Several major commercial lenders have gone out of business altogether. Many banks have stopped commercial finance lending while continuing consumer lending. Numerous business lenders have enacted stricter standards for the commercial financing transactions they are still willing to consider.

It remains to be seen how many changes will be permanent or temporary. But from a practical perspective, commercial borrowers are left with no choice but to adapt to the changing business finance environment. Business owners must be prepared to operate within a more complicated climate for commercial mortgage loans and small business loans regardless of how long the changes might be kept in place.

What should borrowers do about this? A primary option that business owners should explore involves looking beyond their local market area for help with commercial loans. To accomplish this, it should be helpful to contact a commercial financing expert operating throughout the United States.

In addition to fewer business lenders to choose from, there are two other significant changes which must be anticipated by business owners before seeking new commercial loans. First, more collateral for virtually all business finance funding is being demanded by many commercial lenders. Second, most lenders have cancelled or are about to eliminate unsecured lines of credit (usually called working capital loans) for many businesses.

One effective commercial financing strategy for overcoming the combined obstacles of more collateral, fewer lenders and reduced unsecured credit lines is to consider business cash advance programs based on future credit card processing transactions. This is proving to be one of the few sources of business funding that has not been adversely impacted by recent events. To learn more, it will be advisable to discuss the potential with a business finance expert who can provide advice about business cash advances as well as other small business financing solutions.

It is increasingly obvious that many banks will continue to modify their business lending programs in response to changing conditions. This means that another key change issue for working capital financing and commercial mortgages is the likelihood that more changes will be forthcoming in the near future.

To adequately prepare for future commercial finance changes that might (or might not) occur is a daunting task for a business owner. A commercial financing expert familiar with Plan B contingency financing for small business loans will prove to be a valuable resource for any borrower wanting to seriously deal with both current and future changes impacting the financial health of their business. By having a candid conversation with a commercial loan expert, business owners should be more capable of implementing an appropriate strategy for the vast changes which have recently occurred or are about to become effective for most business financing and working capital finance funding.

Personal Finance Newsletter – The Best Solution’s Source For Personal Finance Matter

When you have problem relates to your finance, you may need to have personal finance newsletter for help. There should be necessary information that can be used to run and handle your financial matter. Personal finance newsletter can also give you valuable information to sustain your financial strength and stability. Let’s have more comprehensive overview about such newsletter. Check it out!

Putting Your Money to Best Use

A number of teenagers that have just had the first job may need to learn how to manage their financial condition appropriately. This is very significant to avoid squandering the money. Additionally, this is not the time for teenager to make use of money from parent or using up money useless. Instead, there are many valuable information teenage can learn how to grow their finance correctly by reading the newsletter.

In general, the majority people don’t have an excellent idea on how to manage their finance. In addition, they also do not recognize the best useful guidelines on how finances should be handled. Subscribing for a finance newsletter will help them learn all of these essential things that in turn will assist them handle their finances in a more effective and profitable manner.

As a matter of fact, it is significant for everyone and teenagers to recognize how to deal with one’s finances. It will be always significant though the latter have their kinds of problems that are best understood by subscribing to a teenager centric personal finance newsletter.

The majority teenagers will experience the general problem on how they spend their personal finances. Generally, they use up their money on spontaneity of buying whatever they set their hearts. In this case, a personal newsletter is the right tool to assist them learn better sense.

Giving teenagers a personal finance newsletter would no doubt be the best course of action rather than having them realize the error of their ways after they have blown up their money. With the newsletter, they can learn about how to handle their finances in a proper way.

For parents, this is essential to advise children to subscribe personal finance newsletter. There are lots of gains that children could obtain from personal finance newsletter. Children can learn more how to spend, handle and sustain their money. Furthermore, children will learn to use up their money in a proper manners.

The 4 Types of Real Estate Investor Financing

Throughout my real estate investing career, I’ve spent many dozens of hours speaking with lenders and potential financiers of my deals. With all the different types of loans and equity financing products available to investors these days, it’s important to have a good understanding of the benefits and the drawbacks of each, so you can choose the most appropriate financing option for your particular need(s).

Of course, given today’s credit situation, options are not only more limited than they were a couple years ago, but the definition of a “good deal” from a lender has changed as well. When I first started looking at financing for single family houses, I passed on a couple potential options that in hindsight were pretty good given today’s tight credit market; so it’s important to not only understand the types of financing that’s out there, but also which types are most prevalent and most easy to come by.

The point of this article is to define the four most common types of financing available to real estate investors; while there are, of course, more than four ways of financing real estate investments, most are a derivative — or combination — of the four we will discuss here.

1. Traditional Financing

This type of loan is generally done through a mortgage broker or bank, and the lender may be a large banking institution or a quasi-government institution (Freddie Mac, Fannie Mae, etc). The requirements to qualify for a loan are based strictly on the borrower’s current financial situation — credit score, income, assets, and debt. If you don’t have good credit, reasonable income, and a low debt-to-income ratio (i.e., you earn a lot compared to your monthly obligations), you likely won’t qualify for traditional financing.

Benefits: The benefits of traditional financing are low-interest rates (generally), low loan costs (or points), and long loan durations (generally at least 30 years). If you can qualify for traditional financing, it’s a great choice.

Drawbacks: There are a few drawbacks to traditional financing for investors, some major:

  • The biggest drawback to tradition financing is what I stated above — it’s difficult to qualify these days. Just a year or two ago, you could have qualified under a “sub-prime” variation of traditional lending, where income and credit were less of an issue; but given the sub-prime meltdown (many of these borrowers defaulting on their loans), these sub-prime options have gone away. So, unless you have good credit, income, and small debt, you’re better off not even bothering with trying to get traditional financing these days.
  • Traditional lenders generally require that at least 20% be put down as a down payment. While this isn’t always true, investor loans with less than 20% down can be tough to find via traditional lending these days.
  • As an investor, it can be difficult to deal with traditional lenders who don’t necessarily understand your business. For example, a house I closed on last week with traditional financing almost fell-through because the lender wouldn’t provide the funds until the hot water heater in the investment property was working. As an investor, it’s common that I’ll buy houses with broken hot water heaters (among other things), and I can’t generally expect the seller to fix this for me, especially when my seller’s are usually banks. In this case, I had to fix the hot water heater before I even owned the house, which is not something I want to do on a regular basis.
  • Traditional lenders take their time when it comes to appraisals and pushing loans through their process. It’s best to allow for at least 21 days between contract acceptance and close. As an investor, you often want to incent the seller to accept your offer by offering to close quickly; with traditional lending, that can often be impossible.
  • If the lender will be financing through Freddie Mac or Fannie Mae (and most will), there will be a limit to the number of loans you can have at one time. Currently, that limit is either 4 or 10 loans (depending on whether it’s Freddie or Fannie), so if you plan to be an active investor going after more than 5 or 10 properties simultaneously, you’ll run into this problem with traditional lending at some point.
  • There are no traditional loans that will cover the cost of rehab in the loan. If you plan to buy a $100K property and spend $30K in rehab costs, that $30K will have to come out of your pocket; the lender won’t put that money into the loan.

2. Portfolio/Investor Lending

Some smaller banks will lend their own money (as opposed to getting the money from Freddie, Fannie, or some other large institution). These banks generally have the ability to make their own lending criteria, and don’t necessarily have to go just on the borrower’s financial situation. For example, a couple of the portfolio lenders I’ve spoken with will use a combination of the borrower’s financial situation and the actual investment being pursued.

Because some portfolio lenders (also called “investment lenders”) have the expertise to actually evaluate investment deals, if they are confident that the investment is solid, they will be a bit less concerned about the borrower defaulting on the loan, because they have already verified that the property value will cover the balance of the loan. That said, portfolio lenders aren’t in the business of investing in real estate, so they aren’t hoping for the borrower to default; given that, they do care that the borrower has at least decent credit, good income and/or cash reserves. While I haven’t been able to qualify for traditional financing on my own due to my lack of income, portfolio lenders tend to be very excited about working with me because of my good credit and cash reserves.

Benefits: As mentioned, the major benefit of portfolio lending is that (sometimes) the financial requirements on the borrower can be relaxed a bit, allowing borrowers with less than stellar credit or low income to qualify for loans. Here are some other benefits:

  • Some portfolio lenders will offer “rehab loans” that will roll the rehab costs into the loan, essentially allowing the investor to cover the entire cost of the rehab through the loan (with a down-payment based on the full amount).
  • Portfolio loans often require less than 20% down payment, and 90% LTV is not uncommon.
  • Portfolio lenders will verify that the investment the borrower wants to make is a sound one. This provides an extra layer of checks and balances to the investor about whether the deal they are pursuing is a good one. For new investors, this can be a very good thing!
  • Portfolio lenders are often used to dealing with investors, and can many times close loans in 7-10 days, especially with investors who they are familiar with and trust.

Drawbacks: Of course, there are drawbacks to portfolio loans as well:

  • Some portfolio loans are short-term — even as low as 6-12 months. If you get short-term financing, you need to either be confident that you can turn around and sell the property in that amount of time, or you need to be confident that you can refinance to get out of the loan prior to its expiration.
  • Portfolio loans generally have higher interest rates and “points” (loan costs) associated with them. It’s not uncommon for portfolio loans to run from 9-14% interest and 2-5% of the total loan in up-front fees (2-5 points).
  • Portfolio lenders may seriously scrutinize your deals, and if you are trying to make a deal where the value is obvious to you but not your lender, you may find yourself in a situation where they won’t give you the money.
  • Because portfolio lenders often care about the deal as much as the borrower, they often want to see that the borrower has real estate experience. If you go to a lender with no experience, you might find yourself paying higher rates, more points, or having to provide additional personal guarantees. That said, once you prove yourself to the lender by selling a couple houses and repaying a couple loans, things will get a lot easier.

3. Hard Money

Hard money is so-called because the loan is provided more against the hard asset (in this case Real Estate) than it is against the borrower. Hard money lenders are often wealthy business people (either investors themselves, or professionals such as doctors and lawyers who are looking for a good return on their saved cash).

Hard money lenders often don’t care about the financial situation of the borrower, as long as they are confident that the loan is being used to finance a great deal. If the deal is great — and the borrower has the experience to execute — hard money lenders will often lend to those with poor credit, no income, and even high debt. That said, the worse the financial situation of the borrower, the better the deal needs to be.

Benefits: The obvious benefit of hard money is that even if you have a very poor financial situation, you may be able to a loan. Again, the loan is more against the deal than it is against the deal-maker. And, hard money lenders can often make quick lending decisions, providing turn-around times of just a couple days on loans when necessary. Also, hard money lenders — because they are lending their own money — have the option to finance up to 100% of the deal, if they think it makes sense.

Drawbacks: As you can imagine, hard money isn’t always the magic bullet for investors with bad finances. Because hard money is often a last resort for borrowers who can’t qualify for other types of loans, hard money lenders will often impose very high costs on their loans. Interest rates upwards of 15% are not uncommon, and the upfront fees can often total 7-10% of the entire loan amount (7-10 points). This makes hard money very expensive, and unless the deal is fantastic, hard money can easily eat much of your profit before the deal is even made.

4. Equity Investments

Equity Investment is just a fancy name for “partner.” An equity investor will lend you money in return for some fixed percentage of the investment and profit. A common scenario is that an equity investor will front all the money for a deal, but do none of the work. The borrower will do 100% of the work, and then at the end, the lender and the borrower will split the profit 50/50. Sometimes the equity investor will be involved in the actual deal, and oftentimes the split isn’t 50/50, but the gist of the equity investment is the same — a partner injects money to get a portion of the profits.

Benefits: The biggest benefit to an equity partner is that there are no “requirements” that the borrower needs to fulfill to get the loan. If the partner chooses to invest and take (generally) equal or greater risk than the borrower, they can do so. Oftentimes, the equity investor is a friend or family member, and the deal is more a partnership in the eyes of both parties, as opposed to a lender/borrower relationship.

Drawbacks: There are two drawbacks to equity partnership:

  • Equity partners are generally entitled to a piece of the profits, maybe even 50% or more. While the investor doesn’t generally need to pay anything upfront (or even any interest on the money), they will have to fork over a large percentage of the profits to the partner. This can mean even smaller profit than if the investor went with hard money or some other type of high-interest loan.
  • Equity partners may want to play an active role in the investment. While this can be a good thing if the partner is experienced and has the same vision as the investor, when that’s not the case, this can be a recipe for disaster.

Semi Truck Financing – Some Alternatives For People With Bad Credit

In the past financing a commercial vehicle required decent credit and a CDL. As many people in the industry are finding out these days are long gone. With the economy in it’s current condition credit has tightened up considerably. And in the trucking markets it has tightened up even more. Captive financing companies who’s purpose is to finance the trucks their parent companies manufacture are having a hard time these days. So what’s a semi truck driver to do? Here are some ideas that might help you out if your in the market to finance a commercial truck (semi trucks and dump trucks primarily).

First thing to consider is contacting smaller dealers that offer in house financing. These dealers will carry their own paper, meaning they decide for themselves whether they want to approve a customer or not. Typically a dealer submits their customer to their financing source who than in turn approves or declines them. Be sure you ask the dealer whether they fund in house or submit to an outside underwriter. If they do fund the transaction themselves be upfront about your current credit situation. Common reasons for bad credit is divorce, illness, loss of truck or contract, etc. These are normal and do not necessary reflect bad “credit character”. It’s also important to sell you good points. Having strong contacts in your area of expertise gives confidence to the dealer that you have the ability to pay. If the dealer can become comfortable that you will make the payments despite what has happened in the past you stand a good possibility of getting financed.

Second on the list is looking for dealers that advertise for customers that are credit challenged. You can find these dealers in publications such as Truck Paper or online. The most important thing about this approach is that you call the prospective dealer and ask to speak to a sales manager. Again, be up front about your situation. Tell him about your credit. A sales or finance manager will be able to determine whether you a candidate or not.The salesman might be too eager to get you in the door to give you an honest answer.

The third option is to contact independent financing companies to see if your a fit. Once again, honesty pays. Be up front about your credit but also sell your good points. Like working with the smaller dealers who offer financing, independent financing companies make the decisions themselves and can be swayed if there are strong factors in your favor. As the owner of one of these financing companies we look at the ability to pay on the part of the customer as well as any additional collateral that the customer has. With this information we can get around almost any credit issue. Another finance company might look at years in the business or upcoming contracts to make their decision.