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

Read more »

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

Read more »