Credit Finance Loans Info

Archive for August, 2009

Some1 said people in “Politics” no a lot. Can someone explain what a “merchant” is regarding credit cards?

I tried for two days to find answer in two other forums. No go. SO I ask here where I hear people are smart.

Ok people use their credit cards to buy stuff from stores. The stores are the merchants. The credit card companies are banks that are making short term loans to the merchants on behalf of the customers with the agreement that the customer is going to pay them back. Often people charge more than they can afford and can’t repay all that they borrowed. That is when they need credit repair services to help manage their accounts and negotiate payments they can afford.
A chargeback is when a customer returns something and the value of it is credited back to the credit card used to purchase the item. This could create a complication for a third or fourth party credit repair company as it would comnpletely change the math of the loans they are trying to make and the balances they are working with. It basically takes them out of the equation when customers merchants and credit card companies solve the problems without them. So any time a chargeback happens, the credit repair service loses an opportunity to make money. And a lot of credit repair comanies are just taking advantage of people . So many merchants don’t want to deal with them if they suspect they are trying to do something unethical. This may be why the accounts were frozen.

5 tips for a successful SBA loan

There are five critical areas an SBA lender considers in detail when deciding whether to underwrite an SBA loan.  These five areas are Cash-flow, collateral, credit, management experience and liquidity.  If you plan to apply for an SBA loan make sure you consider each of these areas.  You don’t need to be perfect in all these areas but if you are weak in one area you will need to be so much stronger in another.

Let’s have a look at each of these in a little more detail.

1. Cash-Flow

This is one of the most important areas.  The lender is using a concept called Debt Service Coverage (DSC.)  In simple terms, the lender wants to know that the business is producing enough positive cash flow to service the costs to run the business, provide an adequate income to the buyer so they can pay their personal bills and feed the family etc plus service the debt that will be incurred if a loan is approved.   To use some numbers to provide a specific example, if the buyer of the business wanted to make an SBA loan that required an annual loan payment of $100,000 for the loan only, the bank would want to see the business generate a positive cash flow over and above all expenses to run the business of at least $120,000 per annum or at a Debt Service Coverage ratio of 1.2.

When deciding whether to lender money to the buyer of a business, the SBA lender analyzes the tax returns for all the businesses in which the borrower(s) owns 20% or more and the living expenses of each borrower and any sources of income.  

All this information is considered within the time frame of at least the last three years so the SBA lender will need the buyer to provide 3 years of tax returns plus interim financial statements that are less than 90 days old.

2. Collateral

As the banks are primarily concerned with risk management, to protect the loan they may extend to the buyer, they look for collateral to take to support the loan.  Collateral is simply an asset on standby the bank can take and seller if the borrower defaults on the loan.

When determining how much collateral is available, banks discount the property because they rarely get 100% of its value if the property is foreclosed upon.  These reasons include that payments are usually in arrears, they will incur costs to sell the property such as agents and attorney’s etc.  Typical discounts are 20% for residential properties and 20% for commercial real estate.    Additionally, banks view properties ranging from easy-to-sell to difficult-to-sell.  For example, factors that make properties harder to sell are: a) location, such as the property being in an outlying area, b) condition, might be old or not kept up, c) type, might be single purpose or raw land.    

3. Credit

The credit of the borrower is important to the SBA lender.  However, other areas of the business loan application need to be strong if the buyer’s credit report is poor.  For example, if the business cash flow and collateral are strong, poor credit can often be overcome.   If either of these areas are weak, however, the credit history becomes increasingly important. 

Some banks focus on FICO scores, while others want to focus on the explanations to determine how much weight to give to credit issues.  If you are thinking of applying for a loan to finance the purchase of a business, before you start looking for a business to buy, check your credit report and history are in order in case there are errors and you can therefore correct them.

4. Management Experience

In recent years, this area has become more and more important to the SBA lenders.  Recent analysis of why business buyers failed showed that a lack of management experience in an industry was contributing factors.  If the business buyer has not previously owned or managed a business in a particular industry may lead to a quick loan decline.   Conversely, a buyer with the requisite management experience has shown the lenders that the owner has a greater chance to maintain revenues/profits at historical levels. 

5. Liquidity

A business buyer needs to have a certain amount of money in cash to buy a business.  The bank doesn’t want a hard asset used that needs to be sold so it’s critical that initial down payments be in cash.   A borrower can borrow their down payment but this new loan payment must be factored into the analysis.  Also keep in mind that different if you borrowing for a construction project, it may require even more liquidity to ensure the project’s completion.   Finally, start-up businesses require significant savings to fall back upon and in the current economy are very difficult to finance.   

Successfully applying for an SBA loan requires planning, attention detail, perseverance and follow up.  

If you are looking to sell or purchase a business, you need the right professional advice for your situation and from someone that’s done it before.  If you have questions or need more information, visit my website at http://www.Andrew-Rogerson.com or send me an email at andrew@andrew-rogerson.com

About the Author

Andrew is a 5-time business owner that loves helping entrepreneurs exit or enter business ownership. His services include business brokerage; helping owners sell and/or buyers purchase a business. He also provides consulting on purchasing a franchise, certified machinery and equipment appraisals and business valuations. To ensure this is done to the highest standards, Andrew carries the CBI designation from the International Business Brokers Association and the CBB from the California Association of Business Brokers. Appraisals for Machinery & Equipment are certified with the CMEA designation from the NEBB Institute. Andrew carries a Brokers License from the California Dept. of Real Estate, is a member of the Sacramento Metro Chamber of Commerce and the Sacramento Chair of the California Association of Business Brokers. Andrew is available for speaking engagements.

Getting into a good grad school?

Hello,

Are you trying to get a PhD in English literature or what exactly?

You’re going to need a great statement of purpose and writing sample. Those are arguably more important than the rest. Admission to undergrad is 80% numbers–test scores and grades–and is done by a committee that may know nothing about your subject. Not true in grad school. It’s an English department you have to impress, and in particular, the person who would be your advisor. You’ll impress them by showing that you have good ideas, some understanding of the field you’re getting into and an inkling of how to do research.

Is that GRE subject test in English lit? If so, you might want to take it again. Not all departments care about GRE, but if they do, a tier 1 school will probably want to see higher than 60th percentile.

It will help to go where you have a connection. Talk to your profs for advice on where to go. They’ll probably recommend places where they have friends. This will give their recommendation a little more weight. Sounds unfair, I know, but it’s true (and not just of academia, but of most professions).

You will probably do better to start by choosing potential advisors and go from there. Look up people whose work is related to your interests and whose ideas you like–bonus if they’re friends with one of your profs–then see where they are, read about their program, and decide whether each one’s department as a whole would be a good fit for you. The name of the school is important, but so is the name of your advisor as well as your working relationship with him/her. Make a well-informed decision, and show in your statement that you’ve given it some thought and know why you want to go to that school to study with that professor.