Online Microlenders Offer Capital

In 2008 Chris Byrne opened The Gear Geeks, an eBay store that sells musical equipment, with $2,800 in cash. To purchase inventory, the Huntington Beach, Calif., 'trep relied on a business line of Ignore warning credit from his bank. When the recession caused his credit line to dry up, Byrne turned to Atlanta-based Kabbage, one of several online microlenders that offer short-term capital to young businesses.

The $5,000 credit line Byrne received from Kabbage in August 2011 soon grew to $38,500--nearly three times the amount of his former bank line of $13,500. With the ability to purchase more inventory, he saw his revenue quadruple from $10,000 to $15,000 a month to $40,000 to $60,000.
Kabbage, which launched in November 2010, serves online merchants who sell via Amazon, eBay, Etsy, Shopify and Yahoo. The company uses a merchant cash-advance model. "But it's nothing like your mother's MCA model," says Kabbage co-founder and COO Kathryn Petralia.

Credit lines range from $500 to $50,000, with fees running 2 to 7 percent over 30 days and 10 to 18 percent over six months. Besides the usual banking information, Kabbage's online application draws data from a borrower's e-commerce store and online payment service. Borrowers who also provide access to their UPS, QuickBooks and social media accounts can level up their credit lines.
We spoke with Byrne about the lifeline Kabbage threw him.

Why did you decide to secure funds this way?
My bank was acquired by a larger bank. I had an existing business line of credit, and they just shut it down. My FICO [score] was between 674 and 700 at the time. It made a huge difference in being able to acquire inventory, obviously. We sat frustrated for about a year and a half like that. It really was tough.

What did the application process entail?
I saw the banner on eBay. I clicked it just out of curiosity and went through the process. It was probably 12 minutes before I got approved for $5,000. They actually deposit the funds instantly into PayPal. They really look at the whole picture. It's not just all about the FICO score. They are looking at your [sales] flow, your volume of PayPal, etc.

When did your credit line increase?
I'd learned to rotate stock fairly quickly. We were able to knock out all of the $5,000 and return it in about a week and a half. After repeating that same cycle a couple more times, they raised my limit to about $15,000. After that, it was probably four months, five months before I topped out [at $38,500].
I'm sure we've cleared well over $200,000--probably approaching $250,000 to $300,000--from the time that I signed up with them.

How has access to this capital changed your business?
We're starting to have the headroom to buy whatever we want. We're getting estate liquidations and we're able to buy them out. So now we're turning into an eBay trading assistant more than just a musical-instrument dealer. It's pretty neat.

What are the downsides?
There are cheaper ways to get money if you have really good credit. We just practice a real disciplined thing of taking a draw out, buying only inventory with it and trying to return that draw within 28 days. You really need to be disciplined when you are working with those percentage parameters.

Do you have a personal limit on how much you're willing to draw at once?
Typically I take no more than about 50, maybe 55 or 60, percent of my total credit limit at a time. That's really important. If I'm [close to that], then I know sales are slow.

What advice can you offer others interested in this kind of financing?
Be disciplined with your turnaround times per advance and buy inventory only. Use it for something that's going to generate income for you.

Read more: http://www.entrepreneur.com/article/225252#ixzz2gCWBMgx9

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Basic Guide to Bank-Term Loans

What it is: Term loans are the standard commercial loan, often used to pay for a major investment in the business or an acquisition. The loans often have fixed interest rates, with monthly or quarterly repayment schedules and a set maturity date.
Bankers tend to classify term loans into two categories: intermediate- and long-term loans.
Intermediate-term loans usually run less than three years, and are generally repaid in monthly installments (sometimes with balloon payments) from a business's cash flow.

Long-term loans can run for as long as 10 or 20 years and include additional requirements such as collateral and limits on the amount of additional financial commitments the business may take on.

Upside: Term loans are often the best option for established small businesses. If your financial statements are sound and you're willing to make a substantial down payment, you can receive financing with minimal monthly payments and total loan costs. The loans are best used for construction, major capital improvements, large capital investments, such as machinery, working capital and purchases of existing businesses.
Downside: Term loans require collateral and a relatively rigorous approval process but can help reduce risk by minimizing costs. Before deciding to finance equipment, borrowers should be sure they can they make full use of ownership-related benefits, such as depreciation, and should compare the cost with that leasing.

Also note that when it comes to loans more than $100,000, you need a complete set of financial statements and must undergo a complete financial analysis by the lending institution.

How to get it: Large U.S. banks are active in business lending. But it is also worth checking out local community banks with a focus on business lending because they have more leeway when it comes approving loans. Their officers can also be a wellspring of useful advice about how to secure financing.

The degree of financial strength required to receive loan approval can vary tremendously between banks, depending on the level of risk the bank is willing to take on. Search for a prospective bank on the FDIC's website and then click on "latest financial information."

Find "performance and condition ratios" and zero in on the "total risk-based capital ratio," which regulators require to be above 10 percent if a bank is to be considered well-capitalized. The higher ratio, the more secure the bank is financially.
Additional guidelines to consider when selecting a business bank:

• Ask friends where they bank and if they are satisfied.
  
• Forge a relationship with a bank long before you will need a loan, it will help you find out how they will treat you. Believe it or not, banks want to talk to you even if they cannot lend you money.
  
• Scan local business news stories for evidence of who is making the kinds of loans you are seeking. Not all banks can be the best at everything. Some are better at business loans, while some are better with consumer deals.
  
• Visit two to four banks to find your fit. Be upfront, and tell them you are considering a loan and that you are talking with other banks. Then listen to their pitch.
  
• Think about working through the SBA or other economic-development groups to secure better terms. They are not only for businesses that cannot get funding any other way.
  

Banks consider the following "five C's" when making decisions about term loans:

1. Character: How have you managed other loans (business and personal)? What is your business experience.
   
2. Credit capacity: The bank will conduct a full credit analysis, including a detailed review of financial statements and personal finances to assess your ability to repay.
   
3. Collateral: This is the primary source of repayment. Expect the bank to want this source to be larger than the amount you're borrowing.
   
4. Capital: The bank does not want to be left holding the bag. So what assets do you own that can be quickly turned into cash if necessary? The bank wants to know what you own outside of the business -- bonds, stocks or apartment buildings -- that might be an alternate repayment source.
   
5. Comfort/confidence with the business plan: How accurate are the revenue and expense projections? Expect the bank to make a detailed judgment.

Ref :  http://www.entrepreneur.com/article/52728#ixzz2fResw1p8

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How To Get Loan Application Approved

The following are question and answer about How to Get Your Loan Application Approved :

How Is The Lending Climate For Small Business Changing?
Credit is coming back to midsize and larger companies faster than small businesses. That's because small businesses are riskier. . .  Small businesses should benefit from general economic conditions improving and, as that happens, lenders should feel comfortable taking on more risk and making more small-business loans.

Can You Talk About Recent Legislation That Might Help Entrepreneurs To Find Loans?
The Small Business Jobs Act of 2010 expanded several Small Business Administration loan programs significantly in terms of the size of loans and the kinds of businesses that are eligible. For example, The SBA's 7(a) program had been capped at $2 million per loan, and now those loans can be made for up to $5 million. As entrepreneurs start to think about expansion and do their lease-versus-buy analysis, now is a good time to buy property. But $2 million often doesn't cut the mustard [to buy commercial space]. So $5 million gives some business owners the opportunity to borrow, not just for working capital or capital investments, but also for real estate.
Also the CDC/504 program used to be just for new business and real estate. Now you can refinance an existing loan, so they've expanded that program, too.
Separately, the Jobs Act also made $30 billion in funding available for qualifying banks to use to make small-business loans, and that money is starting to become available.

How Will The SBA-Backed Loan-Application Process Be Different Than It Was Three Years Ago?
You need to be prepared to have more skin in the game. You can't put 5% or 10% down and get a loan. Those days are gone. If you want someone to lend you money, you need to share the risk, and in a painful way. Depending on the lender, you should expect to put up 20% to 25%. With SBA-backed loans, the down-payment rates are lower, but even with these loans, some lenders were doing 100% financing a few years ago, and now that's no longer possible.

Any Advice For Winning The Loan You Want?
Stick to what you know. Entrepreneurs are innovative and love to do creative things, but now is not the time to go way outside of your box. Then it comes down to good financial planning. Make sure your financial records are well-organized. You need financial statements or three years of tax returns, and a business plan that explains what happened over the past two years. You need to know what you want to do and what it takes to do it, then figure out what it's going to cost. You have to have a good, realistic plan. Don't ask for less than you need. But don't over-leverage yourself.

What's The Biggest Mistake You See In Loan Applications?
For a startup or a business that wants an expansion, they can be overly optimistic about the timetable, how fast those cash flows are going to come. Lenders are focused on that. They want to make sure your business cash flows. They want to make sure your plan is realistic and will cover your debt service and leave money left over for the entrepreneur to live on

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Where to Get a Small Business Loan

Money still isn't falling off trees for small businesses, and the lending seas can be a challenge to navigate. Although you need funding, you want to make sure your deal is better than the one offered by the neighborhood loan shark.
If you want to expand your business, you're going to need some cash.

Money might be available thanks to stimulus spending, but that doesn't mean it's easy to get.

"The [banks] have tightened their lending policies, and it is more difficult for an entrepreneur to get financing,' says Velda Eugenias, a certified financial planner with Eugenias Advisory Group in Gadsden, Ala. "It is causing the small-business owner to have to get creative with finding sources of capital.'
Here are a few options:

• Traditional bank loans
  Your local bank can offer low interest rates and long repayment plans. Sounds good, but some entrepreneurs have found that stricter underwriting guidelines make it nearly impossible for these loans to be approved.
  
  "The negative to a bank is that the loan can often be very hard or next to impossible to obtain,' says Rick Kahler, a certified financial planner with Kahler Financial Group in Rapid City, S.D. "Also, most bank loans are 'recourse,' meaning if there is a default, the bank can go after your personal assets as well as any collateral secured by the loan.'
  
  Every bank's lending requirements are different, so shop around. Start with your personal bank. If a banker knows you, he or she may offer additional help when you apply.
   
• Government loans
  Like traditional bank loans, loans with a government guarantee can be tough to get, and the process can be painstakingly long. It's not uncommon for potential borrowers to bail before the loan is approved.
  
  If you can get a government loan, you'll find low interest rates and long repayment terms.  
• Loans from family and friends
  No one wants your business to succeed more than your loved ones or good friends, so your nearest and dearest may be a good funding source. In return for the loan and your gratitude, your new lender could receive a decent interest rate on the loan--better than a bank CD or money market fund.
  
  Make sure you do it right. Draw up a contract or promissory note for the loan with specific repayment terms so that you don't run afoul of the IRS. (If you're offered an interest-free loan, the IRS can actually attach a rate to it for you--or even decide that the loan was a gift, which will have tax consequences.)
  
  Anytime you mix business and personal, though, you risk hurting your relationship.
   
• Your home
  Home equity is one of the quickest and easiest ways to obtain cash, but that's what got so many homeowners in trouble during the past few years. Since then, banks have cut home equity lines of credit and have imposed stricter loan-to-value ratios.
  
  If you have home equity available, use caution before putting your home on the line.
  
  "If things go wrong with the business, you could end up losing your home, as well as being held personally responsible for the repayment of any shortfall,' Kahler says.
   
• Credit cards
  Personal and business credit cards can seem to be an easy solution to your borrowing needs, but they can be costly, with interest rates exceeding 20 percent--a huge spread over a bank loan. Also, business credit cards are not subject to the new CARD Act rules that apply to personal credit cards.
  
  Use credit cards sparingly and not for long-term financing.
  
  "If you have a short-term need for a purchase that you are 99.9 percent sure you will have the money to pay off the credit card when it comes in, then it is a good use of your resources,' Eugenias says.
• A partner
  If you're willing to share your future successes, consider a partner who can pour some money into your business.
  
  "Select a partner as you would a spouse, only more carefully,' says Kahler.
  
  While a partner could bring cash, she could also bring her own ideas about how to run your business. You'll have to be willing to share, and you'll need to draw up some specific legal agreements outlining the partner's role in the company.
   
• Less-traditional funding
  Websites are popping up that allow consumers to offer loans. For example, Prosper.com sets up potential borrowers and lenders who agree to three-year unsecured loans with fixed interest rates. Borrowers post how much they'd like to borrow and the maximum interest rate they'd pay, and potential lenders bid on loans.
  
• Your retirement accounts
  This should be the funding source of last resort. You've set money aside for your future and although you hope your business venture will add to your future, it's an enormous risk. If the business goes under, you can kiss your nest egg goodbye.
  
  Some 401(k) plans offer loans against your plan's value, and through payroll decusions you make payments on the principal and interest. But if you lose or leave your job, most plans require that the entire loan be repaid immediately.
  
  If you choose to withdraw funds from an IRA or 401(k) before age 59 1/2, you'll be subject to taxes and penalties, making this source of cash very expensive indeed.

Read more: http://www.entrepreneur.com/article/205646#ixzz2fG2thjAK

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Loan Market Remains Weak

Small-business credit quality weakened in the third quarter, as the health of the loan market remains weak, and a speedy recovery isn't likely. Findings from the Experian/Moody's Analytics Small Business Credit Index released today showed many small businesses continue to have trouble paying off their loans and that demand for new loans remains weak.

While 30- and 60-day past-due balances have improved, those loans that are considered severely delinquent -- more than 90 days past due -- are increasing. What's more, the delinquency rate for these balances is the highest it has been since the firms began monitoring the data several years ago.

The Index slipped 1.6 points in the third quarter to 104.1, down from a revised 105.7 in the second quarter. "Appreciable improvements in small business credit quality are unlikely until mid-to late 2013," according to the report.
It's encouraging that shorter term balances are improving, according to Mark Zandi, chief economist at Moody's Analytics. But the data also shows that troubled businesses are still stuck in a rut. A slowdown in consumer spending makes it more difficult for small businesses to get ahead in their loan payments.
"Their problems aren't getting solved," Zandi says.

The dollar value of severely delinquent loans has stayed about the same for more than a year, but the total credit outstanding continues to decline due to fewer loans being made.
Loan volume is down for a host of factors, including tighter lending standards and less willingness by small businesses to pile on additional debt. It's unclear from the data how much of the loan volume decrease has to do with lower demand versus tighter lending standards.
However, lower demand for loans seems to be more of a factor, according to Zandi. Businesses are still nervous about taking on debt and many have enough cash on hand, reducing the need for loans, he says.

Uncertainty over the fiscal cliff, the Treasury debt ceiling, deficit reduction and taxes will likely continue to weigh on credit quality over the next several quarters. There is hope, however, that credit conditions will improve if President Obama and Congress address the various fiscal problems in a reasonable and timely fashion.

Ref : http://www.entrepreneur.com/blog/225050#ixzz2f8d72VNi

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Why Business Loans Are Very Interesting

After years of being beaten up and blamed for every ailment besetting the economy, banks may be able to start defending themselves a bit. For several years now, many small-business owners reported having trouble securing loans for their enterprises. That certainly sounded consistent with what we know about the economic downturn -- small companies and their balance sheets were hit hard during the recession, and increased bank regulation made it increasingly challenging for some businesses to qualify for a loan.

But that situation has changed.
To put our finger on the pulse of small-business lending for the first half of 2013, we spoke to several experts. What they revealed is surprising: Lending opportunities are available, but small-business owners don't seem to want or need them. To find out more, read what lending experts had to say to Business on Main about the state of small-business lending:

William C. Dunkelberg, chief economist of the National Federation of Independent Business (NFIB):
"The banks have plenty of money to lend. In fact, the excess reserves at the Fed are at an astounding all-time high. With a capital reserves requirement of 10 percent, banks look to invest the other 90 percent. The problem is, no one is coming and asking for loans.

"In NFIB's December survey of nearly 600 people, an estimated 65 percent of those surveyed said they didn't want a loan, and 29 percent responded that their credit needs were met. The truth is interest in borrowing remains historically weak, and the outlook for business conditions for mid-2013 remained at the second-lowest reading in 38 years of the survey.

"What's more, small businesses aren't that optimistic, with 45 percent of those surveyed [thinking] that business conditions will be worse six months from now. With consumer spending down, companies aren't growing. So what would small companies want a loan for? Many of them aren't planning on expanding in the coming months ahead. Capital spending remained in ‘maintenance' mode -- historically low -- and plans to make capital outlays remained at recession levels."

Michael Alter, president and CEO of SurePayroll:
"Small businesses are remaining in neutral. We have a challenge in the economy: The demand for business services isn't growing fast enough for the majority of them to need extra capital. Even though we had some uncertainty cleared up with the fiscal cliff decision, there is a lot of long-term uncertainty. That means that small businesses are sitting on the sidelines rather than investing aggressively; there just isn't as much demand for lending.

"Our Small Business Scorecard survey reported 82 percent of small-business owners said they didn't need money in 2012. Of those that did, only 32 percent couldn't get the loan they wanted.
"During the recession in 2009-2010, small businesses needed money -- not to grow -- but to survive. Banks were hit aggressively and regulators required increases in capital. In 2011-2012, banks were better positioned financially and even though regulators said, ‘Don't make risky loans,' the banks' balance sheets could handle them.

"Once we get some clarity around taxation, it will drive more demand into businesses and drive more need for loans. So we don't have a doomsday scenario -- we are no worse off, but we are no better off either."

Jordan Peterson, senior vice president of Business Banking Credit Strategy at PNC Bank:
"PNC is actively lending to businesses of all sizes. Last year, we committed more than $4 billion in small-business loans. However, due to the slow pace of economic recovery and continued uncertainty in Washington, we expect small-business owners to remain cautious moving into 2013. Banks are eager to lend to qualified applicants, but demand continues to be down as businesses struggle to regain confidence that was lost during the recession.

"The recent recession took a big toll on small businesses and their appetite for financing. Small-business owners were the first to get hit by the slumping economy, and were often the hardest hit due to their size and ability to withstand losses. As the economy recovered, owners regained confidence and started to invest more in their businesses. If the recovery continues to build steam, loan demand and access to financing should continue to increase as a result.

"The takeaway? If your business is stable and seriously looking for lending as a way to grow, now is a good time to get in touch with your banker. But be sure to shop around -- banks often specialize in different industries. Also, community banks may be willing to take on a small-business loan, even though it's deemed riskier, because they have a longstanding relationship with you, the business owner."

Ref: http://www.entrepreneur.com/article/225996#ixzz2efXmWVcK

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Choosing a Bank to Get a Loan

Consolidation has cut the number of chartered U.S. banks roughly in half over the past 20 years, but a reduction in the number of banks has not translated into a reduction in the availability of loans for growing businesses.

The application process might be daunting, but the money is there. That's partially because the number of branches has not fallen off even though the names on the doors have changed. It has more to do with the industry's economics, which have forced surviving banks to compete harder for the right to lend to small- and midsize-business customers.

Jonathan Scott, a finance professor at Philadelphia's Temple University who studies small-business financing, says the trend is friendly to entrepreneurs and business owners. In recent decades, Fortune 500 customers have increasingly moved their business away from banks and have opted to finance through their own retained earnings or with the low-risk investment option of commercial paper. At the other end of the spectrum, home mortgages have migrated to the secondary market. Credit cards have also lost some of their fizz recently, as consumers have taken advantage of home equity loans and lines of credit to pay down plastic. What is left? Almost by default, Scott says, small and midsize businesses have become a focal point for the nation's biggest banks.

That's good, but it doesn't mean comparison shopping among banks is simple. It's relatively easy to peruse a bank's website to see what it offers in terms of the types of accounts available, the extensiveness of the branch network or the availability of customer support, for example. But comparing and contrasting the products, services and fees that matter most to you is hardly simple. For one thing, the big, national banks often tweak their products and rates by region, so the most relevant information might not be easy to tease out. For another thing, the banks don't all emphasize the same aspects of their businesses in their marketing efforts. In some cases, they take great pains to hide the details that matter most, such as fees for exceeding a certain number of monthly transactions. And the half-dozen or more types of checking accounts each bank offers make easy apples-to-apples comparisons nearly impossible. The bottom line: It could take some serious searching to figure out which big bank--or whether a big bank--is right for your company's situation.

Zen Makonnen, founder and CEO of TechFolio LLC, an IT consulting firm in Tysons Corner, Virginia, found that banks' ads and fliers didn't help her distinguish much between her choices. So she created a spreadsheet with categories for account types, fees (upfront and hidden), minimum balance requirements, payroll and merchant service options, retirement plan help, loan flexibility, online banking options and access to decision-makers. Then, she interviewed the banks in her area to see where they stacked up. She found that their products, services, rates and fees didn't vary much--after all, competitors watch each other closely. Ultimately, she went with Bank of America because of a budding relationship with a vice president who helped her line up financing, consider whether to bring investors onboard and deal with other key issues. "I lucked out by finding that person," Makonnen says.

Scott says that personal touch is what entrepreneurs and business owners often seek out. So, like Makonnen, check the products, services, interest rates and branch networks in your area. But be prepared to find minimal differences. The real search begins after this initial investigation. "Make an appointment; go see the lending officers," Scott suggests. "And rely on your social network for advice.

Ref : http://www.entrepreneur.com/article/165830#ixzz2eTMKzWen

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Find the Loan Behind the Loans

Online lenders who charge borrowers stratospheric interest rates are coming under pressure from state regulators — and it’s about time. But to get at the root of the problem, the regulators may need to dig much deeper.

For example, the New York attorney general followed other states’ regulators in suing Western Sky Financial and its affiliate Cash Call Inc. The lawsuit contended that rates charged to borrowers by the companies — from 89 to 343 percent, depending on loan size — far exceed the caps determined by the state’s civil and criminal usury laws. A borrower receiving $1,000 could wind up owing almost $5,000 in finance charges, fees and principal over two years, the complaint said.

Last Tuesday, Western Sky suspended operations, saying it was a victim of regulatory overreach, though its affiliate, Cash Call, was still functioning. Katya Jestin, a lawyer at Jenner & Block who represents the companies, said that because Western Sky operated on the Cheyenne River Indian Reservation in Eagle Butte, S.D., New York officials had no jurisdiction over it.

“We will be moving to dismiss the suit against Cash Call and the other parties,” Ms. Jestin said in an interview on Thursday. “Consumers voluntarily entered into the loans and agreed when they signed the loan agreements to be bound by the laws and the courts of the Cheyenne River tribe. The A.G.’s lawsuit is an attempt to sidestep these agreements and is an infringement on the tribe’s inherent sovereign rights and the rights of its members.”

It is unclear what more might happen with the New York attorney general’s case. But here’s a suggestion: When prosecutors pursue payday lenders, why not go further? Investigators should track down — and disclose — the institutions and individuals who make these operations possible by providing the capital that such companies need to conduct their business.

The capital needs of companies like Western Sky are crucial because, unlike banks, they don’t take in deposits that they can turn around and lend. They have to rely on financing from other sources. According to the attorney general’s complaint, Western Sky makes loans for which Cash Call, based in Anaheim, Calif., provides funding. Cash Call also acts as the servicer on Western Sky’s loans, collecting interest and principal payments from borrowers.

The question that the complaint doesn’t answer is this: Who is willing to provide the capital that enables Cash Call to finance what regulators say are predatory loans?

When asked if the office was investigating who was financing the company, Damien LaVera, a spokesman for the New York attorney general, declined to comment. He said the investigation was continuing. I’ve found a preliminary answer. Documents from a 2007 lawsuit show who was providing financing assistance to Cash Call in previous years. The institutions included Deutsche Bank Securities and a unit of Citigroup, known as the CIGPF 1 Corporation.

That lawsuit was brought by Cash Call against CIGPF in Federal District Court in New York. It related to a dispute over the bank’s financing arrangement with Cash Call. The suit was subsequently dismissed, but the court documents remain — and they provide a glimpse of the relationships between Cash Call and its bankers, Deutsche Bank and Citigroup.

Cash Call, the lawsuit said, obtained financing for its lending business from two credit facilities. The so-called senior facility, totaling as much as $1 billion, provided capital for about 90 percent of Cash Call’s consumer loans, the lawsuit said; a junior facility covered the rest.

Deutsche Bank Securities led the senior facility, or line of credit, which was backed by a variety of lenders, including CIGPF. The lawsuit said that this Citigroup unit had $20 million invested in this lending facility.

The smaller line of credit also involved both Deutsche Bank and the Citigroup unit. According to the suit, CIGPF invested $30 million in this facility.

Under these credit agreements, money repaid to Cash Call by its consumer borrowers first went to Deutsche Bank, which deducted “its interest and other earned fees.” It is unclear what Deutsche Bank earned from this arrangement.

After the bank deducted what it was owed, the lawsuit said, the remaining money was divvied up among other investors in the credit facility, including CIGPF.

I asked representatives of Citigroup and Deutsche Bank why the banks would want to provide backing for companies making high-cost and possibly predatory loans. Renee Calabro at Deutsche Bank said only that the bank ended the relationship with Cash Call in 2007. That was before the Cash Call unit began operating on the Indian Reservation.

Danielle Romero-Apsilos, a Citibank spokeswoman, said the bank no longer lent to Cash Call. She declined to say why Citibank did business with the lender, noting that the bank does not comment on clients.

Adam J. Levitin, a professor of law at the Georgetown University Law School, said the fact that banks like Deutsche and Citi did any business with Cash Call highlights the problem of large financial institutions enabling questionable practices by smaller outfits.

“It looks as if the New York banks were using online payday lenders to circumvent New York’s usury laws,” Mr. Levitin said in an interview last week. “The banks provide the financing for payday lenders to make loans the banks think are too unseemly or risky — or illegal — to make themselves.” The funding arrangements used by Western Sky and Cash Call are reminiscent of what occurred in the recent mortgage mania. The most egregious predatory lending wasn’t done, for the most part, by big national banks. It was done by smaller subprime mortgage companies like New Century, NovaStar and Fremont General, which made thousands upon thousands of loans.

But these companies wouldn’t have been able to make even 100 loans had they not gotten the money they needed from the big Wall Street banks. The warehouse lines of credit provided by those banks, therefore, enabled the underwriting of billions of dollars in dubious mortgages. Without access to that money, most of the worst loans would not have been written. When Wall Street cut off the credit spigot, these companies folded almost overnight.

Another Wall Street-as-enabler example involved Bear Stearns, which financed boiler-room stockbrokers such as A. R. Baron, Stratton Oakmont and Sterling Foster in the 1990s. A case brought against Bear Stearns by the Securities and Exchange Commission and the Manhattan district attorney in 1996 said the bank helped A. R. Baron commit securities fraud by providing financing. Bear Stearns, which collapsed in the mortgage meltdown, settled the A. R. Baron suit without admitting or denying the accusations. It paid $38.5 million in fines and restitution.

Regulatory cases that crack down on questionable lenders are surely welcome. But dubious actors can’t operate without the help of their financiers. Investigators should follow the money.

Src : http://www.nytimes.com/2013/09/08/business/find-the-loan-behind-the-loans.html?pagewanted=1&_r=1&ref=business

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I like Microloans, How With You ?

Owner of natural pet-products store : Lisa McGrath said  I didn't need much money to start my   store, but the $3,000 she had doggedly saved just wasn't going to cut it. So in April 2011, the San Antonio-based entrepreneur applied for a microloan from Accion Texas, a nonprofit that provides qualifying startups with loans of $500 to $50,000.

By July, McGrath had dug up $12,000, courtesy of Accion's green loan fund for environmentally responsible businesses. In September, she left her job as a KLRN Public Television executive, and the following month she held the grand opening of her 965-square-foot store, Tails Natural Pet Market. We sat and spoke about the process.

Why did you pursue a microloan?
I did a little research and determined that it would be very difficult to get a small-business loan through a bank. I knew they were probably looking to offer larger loans to businesses that had been in existence for three to five years. And I didn't want to put something on a credit card. I knew Accion Texas worked specifically to get small businesses up and running, and that they were more willing to help fund startups and women-owned businesses.

Did you have a loan amount in mind?
I was hoping to get anywhere from $10,000 to $15,000. I knew that would be the amount needed to stock my store and get the existing costs covered, things like deposits for utilities and internet.

What are your loan repayment terms?
It's a 36-month payoff at $441.15 per month. It's 10.5 percent fixed simple interest--their lowest rate--and I can pay it off early without penalty.

How are you using the loan?
I paid a security deposit equal to one month's rent and used the rest of the money to build my initial inventory. To keep my costs down, I didn't buy brand-new fixtures and merchandising displays for my shop; I bought things at flea markets and thrift shops, which is the look I was going for anyway.

What was the application process like?
I applied online in late April. That first step was a very nonthreatening one.
One of Accion's loan officers got back to me, and we did a lot of talking by phone. The process was actually not easy. They want you to work for it. I had to put together my loan package, including my business plan, and they requested 100 percent collateral. My father, who's elderly and lives with me, had paid off the home we all grew up in, so I ended up using that as collateral.

How long was it from loan application to approval?
Once I got my paperwork together, it was a fairly quick process. I had to provide copies of previous income tax returns, and they wanted to see the lease agreement I had signed, so I put all the paperwork together and submitted it in June. Then it was within four weeks that they had a decision. They were also there to answer any questions. I really felt like I had someone in my corner. I can't see a regular bank doing this, but the people I worked with are staying in touch, which is kind of that community feel. You really feel like they want to see you succeed.

What tips can you offer others seeking a microloan?
Talking with other local businesspeople and doing your homework and being very realistic about your expectations is key. You also need to make sure you're aware of your own credit, so get your credit report. It's true what everyone says about how important a business plan is. It helped me build a foundation for everything else that I put together.

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How to Avoid Mistakes When Applying For a Loan

KeyBank is being honored as the large bank that supported the most jobs with its SBA lending, making the most loans and loaning the most dollars to underserved markets and utilizing the most SBA programs. Meanwhile, Open Bank is receiving the accolade as the small bank that approved the most loans and dollars. It also was recognized for approving the second highest number of loans to underserved markets.
As part of National Small Business Week, Cleveland, Ohio-based KeyBank and Los Angeles-based Open Bank will each receive a 2012 7(a) Lender of the Year Award by the Small Business Administration on Monday in Washington. (The SBA's flagship lending program is known as 7(a).)
Of course, getting a loan from a bank is no cakewalk these days, particularly for small businesses. So, we asked those banks, which make it their business to lend to small business, how entrepreneurs can increase their chances of securing loan dollars.

Here,  top 4 mistakes business owners make when applying for a loan -- and how to avoid them.

Mistake #1: Underestimating the value of personal credit. 
Bankers look at your personal credit history (credit cards, mortgage payments and personal bills) to get a sense of your track record with financial responsibilities, says Michael Toth, Senior Vice President of Business Banking at KeyBank. “If a business owner hasn’t shown the diligence in managing their personal credit, there is potentially a stronger likelihood that they will take the same approach to their business credit,” he says.

Mistake #2: Applying for the wrong type of loan.
One of the most notable pitfalls Toth sees is small business owners using credit intended for a short period of time for a long-term purchase, or vice versa. “They will use the wrong type of credit product for the wrong type of purpose,” says Toth. For example, if you buy a piece of machinery with a loan that was intended to fill a short-term need like employee payroll, then you risk being saddled with a loan that you can’t get out from under.

Mistake #3: Expecting a loan without collateral or a plan to pay it back. 
A banker won’t approve a loan that he doesn’t think has a chance of getting paid back. So be sure to detail in your business plan how you are going to make the revenue to pay the loan back or any collateral you have to back it up. Also, be sure to explain why the loan is critical for your business. “Make sure there is a solid business plan as to what they are planning to do with their business and how the financing will support the mission for the company,” says Toth.

Mistake #4: Waiting too long to approach a banker.
Small business banking is about relationships. Toth says there's a much better chance bankers will lend you money when you need it, if they already know who you are and what your business is. Not only will you develop that face-to-face relationship, but you will also have the opportunity go get your business financials organized and in shape with a banker’s eye in mind.

That's all article about How to Avoid Mistakes When Applying For a Loan, may be useful for you!

Src : http://www.entrepreneur.com/blog/223585#ixzz2du1Aqk2Y

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Students Now Pay for College Themselves

Now, most student pay for college themselves, Just as the Great Depression left a lasting mark on the generation who lived through it, the children of the Great Recession may already be shifting their world view about money, judging by a new survey that says about 80 percent of them are shouldering some or all of their college costs.

"I think kids are stepping up and it requires a degree of financial responsibility," said Linda Descano, the president and CEO of Citi's Women & Co.

"I think it's a huge financial wake-up call," she said. "I think they're really seeing, they really have to own themselves. They don't have the security their parents did.They see their grandparents struggling to cover health care. I think they're realizing those safety nets are no longer there. How are you going to stay relevant? You can't just go to one place and stay there forever."

Four out of five college students are now working while going to school, typically 19 hours a week while classes are in session, according to the 2013 College Student Pulse survey conducted by YouGov for Citi and Seventeen Magazine. The survey, released this week, was conducted online in July and considered the views of more than 1,000 college students and high school seniors. The YouGov findings are in line with a recent study released by SallieMae financial services company that found that parents now pay for about 27 percent of college costs, compared with 37 percent in 2010.

"The whole job outlook has been nothing short of bleak. That sort of had an effect on my outlook," said 20-year-old Zachary Lomas, who attends Colgate University.

Lomas, who hails from Buffalo, N.Y., gets a mix of grants and loans, including some in his name which he figures will amount to $5,000 to $10,000 by the time he finishes his undergraduate degrees in history and English literature. His parents help with costs, especially his mother, he said.
The university's full financial aid package brings down the cost from the top-level sticker price. "What it actually costs is so far out of my range it would be laughable," Lomas said.

During the school year, he works up to 10 hours a week as a research assistant, a job that started out at minimum wage his freshman year. This summer, he's working 25 hours a week for $9 an hour at a bathtub refinishing company. His first summer was spent working 40-hour weeks at an unpaid internship at a law firm. He has since changed his career goals and now plans to attend grad school for journalism.

Indeed, 60 percent of the students in the YouGov survey said they plan to pursue a graduate or professional degree. And fully 94 percent said they believe college will end up being a good investment.

About 62 percent of the students said they have set a budget for their expenses and 67 percent have a savings account. When it comes to college choice, 77 percent said money played an important role in where they applied, and one-third said that money was the single most important deciding factor in enrollment.

In line with the findings of a recent Pew report, the YouGov study found that of the college students surveyed, 35 percent live with their parents; 32 percent live in campus housing; 18 percent live off campus with friends and 4 percent live off campus by themselves.
The one expense parents are most likely to still pay is the students' monthly cell phone bills, according to the survey.

Despite the jobs outlook and the college costs, Lomas is certain his hard work will pay off even if the jobs front remains tough. "If I go in and work hard and prove that I'm one of the best at what I do, it's not going to matter," he said.

Src : http://www.entrepreneur.com/article/227802#ixzz2dcg43n26

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How to Start a Business With Student Loans

Is there a way to shrink my loan payments while we are trying to get off the ground?  I want to quit my job to pursue a startup, but have $35,000 of student loan debt 

Today student loans represent the single largest debt burden for people under 40. In fact, from 2004 to 2009, only 37 percent of federal borrowers managed to make timely payments without postponing or becoming delinquent. Those most likely to default are unemployed or underemployed. Startup life, where income is anything but certain, qualifies you for the high risk camp, so it's important to know your options.

There are a handful of alternatives to help you reduce your debt burden in the short term. The first step is to identify whether your student loans are federal, private or a combination of the two.
Federal loans can be consolidated to reduce monthly payments.

While you won't be able to lower your rate, extending your term from 10 to 25 years will reduce the amount you owe each month by 40 percent, from $402 to $267 per month. Selecting a graduated pay option can further minimize upfront payments. Borrowers start with a reduced monthly payment, which gradually increases after year two and four, settling into a higher standard monthly payment in year six for the duration of the loan.

Federal borrowers facing periods of low or no income can also file for Income Based Repayment (IBR) or Pay As You Earn (PAYE), which cap your monthly payments to a percentage of what you earn, not what you owe, according to Gary Carpenter, CPA and Executive Director of National College Advocacy Group, which supplies information regarding student loans. This means that if your income suddenly drops or stops altogether, you may have a zero monthly balance.

Monthly payments under IBR and PAYE repayment plans are capped at 15 or 10 percent of your discretionary income, based on federal guidelines. Borrowers must qualify and file an application annually with the Department of Education. And under new law, any balance remaining after 20 to 25 years of consistent payment will be forgiven.
As of 2012, only 700,000 borrowers were enrolled in IBR. The Obama Administration estimates that IBR could reduce payments for 1.6 million borrowers.

Options to defer private student loans are more limited. Few private lenders consolidate loans, and even those that do won't reduce your rate or extend repayment terms. Most will offer need-based forbearance, or a 12-month break from making payments. Some offer up to three 12-month grace periods to defer payments.

It's important to note that short-term debt relief is not without long-term pitfalls. Reducing your monthly payments does not make the debt go away. Simply stretching the term of a $35,000 federal loan from 10 to 25 years triples the interest due over the lifetime of the loan, from $13,000 to $39,000. And when the amount you pay each month doesn't cover interest, negative amortization can cause your loan balance to grow exponentially.

Taking the easy road today may set you up for a tough climb later. "Young people often focus on today's cash flow, ignoring they have the work of their life ahead of them," says Eleanor Blayney consumer advocate for the CFP Board, a non-profit that qualifies investment professional to become certified financial planners. "Electing for a long repayment cycle can set you up for debt drag that eclipses other important milestones in life such as buying a home, preparing for retirement and saving for marriage and children."

As an alternative to dragging out your loans, consider crafting a pre-emptive savings strategy to help you stay current while income is influx. In Eric's case, that means you'd aim to save two years worth of payments or $10,000 for an outstanding balance of $35,000. To build your nest egg, consider working in your present job a little longer or take on a consulting gig to throw off extra income.
Budget six to eight months to earn more and make lifestyle sacrifices such as taking on a roommate, cutting down meals out and extraneous expenses to help you save. An easy to use monthly payment calculator can help you determine your budget.

Despite the inability to shake student loan debt, more than 14 percent of borrowers have loans that are overdue. "If down the road you get into trouble, don't ignore your student loans. They can't be discharged in bankruptcy. They will be around no matter what," says Carpenter. "Contact your lender to create an alternative payment plan They don't want to see your loan go into collection either."
The bottom line is that getting a pass today means you're electing to double-down on your future success. Adding $26,000 to your interest burden won't seem like a lot if your business is successful but there's no escaping the fact that you are digging the hole deeper and reducing your financial flexibility.

The preferred solution would be to find a way to save as much money as you can during the startup phase and leave the structure of your debt unchanged. Think about how you can really rein in personal expenses in the near term. You'll be better positioned to pursue the startup route and will maintain some of your financial freedom.

Src: http://www.entrepreneur.com/article/227715#ixzz2cxy1nDC7

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Student Loan Explanation

What Is Student Loan ?

A loan offered to students which is used to pay off education-related expenses, such as college tuition, room and board at the university, or textbooks. Many of these loans are offered to students at a lower interest rate, such as the Perkins loan or Stafford loan. In general, students are not required to pay back these loans until the end of a grace period, which usually begins after they have completed their education.

A student loan is designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education. It also differs in many countries in the strict laws regulating renegotiating and bankruptcy.

Student Loan In United States

In the United States, there are two types of student loans: federal loans sponsored by the federal government and private student loans, which broadly includes state-affiliated nonprofits and institutional loans provided by schools. The overwhelming majority of student loans are federal loans. Federal loans can be "subsidized" or "unsubsidized". Interest does not accrue on subsidized loans while the students are in school. Student loans may be offered as part of a total financial aid package that may also include grants, scholarships, and/or work study opportunities.
Prior to 2010, federal loans were also divided between direct loans (which are originated and funded by the federal government) and guaranteed loans, originated and held by private lenders but guaranteed by the government. The guaranteed lending program was eliminated in 2010 because of a widespread perception that the government guarantees boosted student lending companies' profits but did not benefit students by reducing student loan costs.

Federal Student loans are generally less expensive than private student loans. However, the federal student lending program still generates billions of dollars in profit for the government each year, because the interest payments exceed the government's own borrowing costs, loan losses, and administrative costs. Losses on student loans are extremely low, even when students default, in part because these loans cannot be discharged in bankruptcy unless repaying the loan would create an "undue hardship" for the student borrower and his or her dependents. In 2005, the bankruptcy laws were changed so that private educational loans also could not be readily discharged. Supporters of this change claimed that it would reduce student loan interest rates.

Student Loan In United Kingdom

Student loans in the United Kingdom are primarily provided by the state-owned Student Loans Company. Interest begins to accumulate on each loan payment as soon as the student receives it, but repayment is not required until the start of the next tax year after the student completes (or abandons) their education.
Since 1998, repayments have been collected by HMRC via the tax system, and are calculated based on the borrower's current level of income. If the borrower's income is below a certain threshold (£15,000 per tax year for 2011/2012, £21,000 per tax year for 2012/2013), no repayments are required, though interest continues to accumulate.
Loans are cancelled if the borrower dies or becomes permanently unable to work. Depending on when the loan was taken out and which part of the UK the borrower is from, they may also be cancelled after a certain period of time usually after 30 years, or when the borrower reaches a certain age.


Ref : http://en.wikipedia.org/wiki/Student_loan

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LOAN explanation

In finance, a loan is a debt evidenced by a note which specifies, among other things, the principal amount, interest rate, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower.

In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount.

The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.
Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

Types of loans

1. Secured

   A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral.
   A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.
   In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.
   

2. Unsecured

   Unsecured loans are monetary loans that are not secured against the borrower's assets. These may be available from financial institutions under many different guises or marketing packages:
   
   • credit card debt
   • personal loans
   • bank overdrafts
   • credit facilities or lines of credit
   • corporate bonds (may be secured or unsecured)
   The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974.
   Interest rates on unsecured loans are nearly always higher than for secured loans, because an unsecured lender's options for recourse against the borrower in the event of default are severely limited. An unsecured lender must sue the borrower, obtain a money judgment for breach of contract, and then pursue execution of the judgment against the borrower's unencumbered assets (that is, the ones not already pledged to secured lenders). In insolvency proceedings, secured lenders traditionally have priority over unsecured lenders when a court divides up the borrower's assets. Thus, a higher interest rate reflects the additional risk that in the event of insolvency, the debt may be uncollectible.

3. Demand

   Demand loans are short term loans  that are atypical in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime rate. They can be "called" for repayment by the lending institution at any time. Demand loans may be unsecured or secured.

4. Subsidized

   A subsidized loan is a loan on which the interest is reduced by an explicit or hidden subsidy. In the context of college loans in the United States, it refers to a loan on which no interest is accrued while a student remains enrolled in education.

5. Concessional

   A concessional loan, sometimes called a "soft loan," is granted on terms substantially more generous than market loans either through below-market interest rates, by grace periods or a combination of both. Such loans may be made by foreign governments to poor countries or may be offered to employees of lending institutions as an employee benefit.

That's all explanation about loan, hopefully useful for you! Ref : http://en.wikipedia.org/wiki/Loan

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