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Running a home-based business can be a profitable and enjoyable way to make a living. Financing such a business can be challenging, however. Before you consider applying for financing for a home-based business, it’s important to have an ironclad idea, some form of collateral, investors (in some cases) and a long-term plan for success.

1

Pull a copy of your credit report. A lender will not grant a small business loan to any potential borrower with poor credit. You’ll want your credit to be in top shape — above a 720 FICO score is best — before filling out any applications for credit. See Resources for information on how to obtain a free copy of your report. Red flags that may disqualify you for a business loan include maxed-out credit lines, excessive trade lines (more than four revolving accounts), judgments, bankruptcies and charge-offs. Make sure to clear all of your negative credit before applying for financing.

2

Collect all of your documents and do a self-analysis. Put yourself in the lender’s shoes — decide how strong a credit risk you are. Positive attributes of a successful business loan borrower include strong assets (house, investments), existing investors (either angel investors or venture capitalists), strong cash-flow from an existing business or other career and a unique business idea with a clearly defined customer market.

3

Research lenders on the government’s Small Business Administration (SBA) website. See resources for more information on SBA guidelines. The government is not a direct lender but instead contracts with private lenders to provide government-approved small business loans to consumers. A prospective lender is required to abide by the government’s predetermined set of guidelines, but, in the end, the lender is looking for a profitable loan and will scrutinize your application quite carefully. Be sure to present personal bank statements, business bank statements and a clear one-page report on the thrust of your home-based business, its prospective customers and your ideas for long-term sustainability and growth.

4

Apply to two or three SBA-sponsored lenders for a small business loan. Before filling out the application, make sure you have copies of all documents, a clear idea as to a loan amount and an inordinate amount of patience — sometimes applications for small business loans can languish for weeks in underwriting. Be prepared to be flexible in your conditions for a loan. For example, while you may not initially want to secure the loan, a lender may require you to collateralize an asset — especially if it is your first business loan.

5

Make sure that all approved loan offers meet your original needs. Obtain copies of all approved small business loans and compare the final terms to your original idea. Make sure the capital is sufficient to fund your start-up home business, make sure you can make the monthly payments and make sure the business idea is still viable. For example, if another business owner has entered the market you had hoped to penetrate with a similar idea, you’d be wise to revisit your business plan before accepting any loan funds. If it seems as though your customer market is still there, proceed with the loan. However, if your plan is in jeopardy due to the new business, it’s best to refuse any loan and go back to the drawing board.

How to Ask a Lender for a Lower Interest Rate

How to Get a Loan to Start a Home-Based Business

ByDuncan Jenkins

Some businesses thrive from home.

Running a home-based business can be a profitable and enjoyable way to make a living. Financing such a business can be challenging, however. Before you consider applying for financing for a home-based business, it’s important to have an ironclad idea, some form of collateral, investors (in some cases) and a long-term plan for success.

1

Pull a copy of your credit report. A lender will not grant a small business loan to any potential borrower with poor credit. You’ll want your credit to be in top shape — above a 720 FICO score is best — before filling out any applications for credit. See Resources for information on how to obtain a free copy of your report. Red flags that may disqualify you for a business loan include maxed-out credit lines, excessive trade lines (more than four revolving accounts), judgments, bankruptcies and charge-offs. Make sure to clear all of your negative credit before applying for financing.

2

Collect all of your documents and do a self-analysis. Put yourself in the lender’s shoes — decide how strong a credit risk you are. Positive attributes of a successful business loan borrower include strong assets (house, investments), existing investors (either angel investors or venture capitalists), strong cash-flow from an existing business or other career and a unique business idea with a clearly defined customer market.

3

Research lenders on the government’s Small Business Administration (SBA) website. See resources for more information on SBA guidelines. The government is not a direct lender but instead contracts with private lenders to provide government-approved small business loans to consumers. A prospective lender is required to abide by the government’s predetermined set of guidelines, but, in the end, the lender is looking for a profitable loan and will scrutinize your application quite carefully. Be sure to present personal bank statements, business bank statements and a clear one-page report on the thrust of your home-based business, its prospective customers and your ideas for long-term sustainability and growth.

4

Apply to two or three SBA-sponsored lenders for a small business loan. Before filling out the application, make sure you have copies of all documents, a clear idea as to a loan amount and an inordinate amount of patience — sometimes applications for small business loans can languish for weeks in underwriting. Be prepared to be flexible in your conditions for a loan. For example, while you may not initially want to secure the loan, a lender may require you to collateralize an asset — especially if it is your first business loan.

5

Make sure that all approved loan offers meet your original needs. Obtain copies of all approved small business loans and compare the final terms to your original idea. Make sure the capital is sufficient to fund your start-up home business, make sure you can make the monthly payments and make sure the business idea is still viable. For example, if another business owner has entered the market you had hoped to penetrate with a similar idea, you’d be wise to revisit your business plan before accepting any loan funds. If it seems as though your customer market is still there, proceed with the loan. However, if your plan is in jeopardy due to the new business, it’s best to refuse any loan and go back to the drawing board.

REFERENCES

RESOURCES

WRITER BIO

RELATED ARTICLES

Small Business Loan QualificationsHow to Get a Loan to Start a Small BusinessWhat Are the Responsibilities of a Mortgage Banker?Debt to Income Ratio for a Sole ProprietorHow to Finance a FranchiseWhat Is a CLS Accrual Loan?How Long Does It Take to Get an SBA Loan?The Best Small Business LendersHow to Set Up CollateralAbout Small Business Loans

How to Ask a Lender for a Lower Interest Rate

ByDuncan Jenkins

Giving sick leave to parents can save your business money in the long run.

Financial companies are out to make a profit. However, when it comes to financing, the consumer is often in the best bargaining position. Mortgage lenders, business lenders and consumer lenders alike all compete fiercely for business. Therefore, if you have solid credit scores and income, you should be able to successfully negotiate a lower rate on any of your loans. It is critically important to pull together the documents that will support your claims when you enter rate negotiations.

1

Pull your own credit report. This does not negatively affect your credit, as it is considered a “soft pull.” Access a free copy of your report at Annual Credit Report. However, you should pay for your FICO score, too. This is a three-digit number between 300 and 850 that represents your overall creditworthiness. Scores over 720 are excellent; scores below 600 are poor.

2

Note positive characteristics on your application. These include: a high FICO score, a low debt ratio (debt versus income), a large amount of assets (retirement accounts, savings, collectibles), a long credit history, a long employment history (especially with the same employer) and a long residence history at your home.

3

Research your options. One of the best strategies is to show a prospective lender his competitor’s lower-cost options. Do not over-apply, though, as too many applications will negatively affect your credit. Submit two or three other applications for the same loan with different lenders.

4

Schedule a meeting with the lender with whom you would like to work. Bring copies of documents that corroborate the positive characteristics on your application. Also bring copies of competing loan offers if they are more favorable.

5

Come prepared with a counteroffer. Do not simply “ask for a lower rate.” Instead make your case for a lower rate based on your application and offer a specific number. For example, if you are offered a 10 percent rate on a $15,000 loan, but you have deep credit history, a low debt ratio and a high FICO score, ask for a 7 percent rate.

6

Do not immediately accept another counteroffer from your lender. It’s best to haggle for a couple rounds. Do not be afraid to go into the decimal points. Any amount of interest you can shave from the loan will benefit you in the long run.

How to Get a Loan to Start a Business?

Business loans for new startup businesses are particularly risky because the bank doesn’t have any proof of your ability to successfully run a company and turn a profit. For this reason, the process of getting a loan to start a business starts well before you walk into a bank. You have to do some preparation before submitting an application to a lender.

1

Prepare a full business plan if you plan to apply for financing for your new business. Most lenders want to see your plan along with financial projections when making a decision about whether to fund a new company. The strength and thoroughness of your business plan is one of the most important factors of the business loan application. Be sure to include research on similar businesses or case studies.

2

Get your financial matters in order before you attempt to apply for a business loan. Check your personal credit report for negative information, because the lender checks your personal history when evaluating your business application.

3

Save up money–at least 10 percent of what you plan to borrow–to show the lender that you plan to contribute some of your own money to the business. Identify other collateral that you can list when applying for a business loan and gather personal financial statements to supply if requested.

4

Create a resume for you and all other key principals of your new business. Get references from respected community members and colleagues. The lender will check your background, experience and character when evaluating the loan.

5

Register your company with the state before attempting to get business financing. Most lenders want to see that you are an established business with a business registration, license (if required) and fictitious business name (“doing business as” name) filing with the state. See Resources to find your state’s business registration website.

6

Visit the bank of your choice, but make sure that the bank does commercial lending, to apply for the loan with your business plan, resume, financial statements and other data in hand. Fill out a credit application with information about your business including company name, tax ID number and your personal Social Security number. Give detailed information about your intended business activities and what you plan to use the funds for. Provide any additional documentation required promptly.

7

Wait for a decision from the lender, which could come within a few days or weeks depending on the bank.

Small Business Loan Qualifications

Credit is often a part of quick access to business capital.

Small business operators have many financial responsibilities. Co-mingling personal and business finances can have a negative impact on a business owner’s personal credit ratings. Small business loans allow business owners the opportunity to leverage capital to fund certain business practices including start-up costs, inventory and equipment. Qualifying for a business loan, however, requires preparation and planning to ensure the business meets certain approval criteria.

Credit History

Financial institutions will consider the credit history in making a loan determination. An applicant’s personal credit will be considered, depending on the lending institution, loan type and loan amount. It may be necessary for small business owners to obtain a copy of their personal credit report prior to applying for a business loan to ensure the report does not contain negative or incorrect information. A positive credit history is most favorable for loan approval.

Business credit history is often necessary for some loans. Business owners can build business credit by registering their company with business credit bureaus and building a credit profile. Established businesses with a positive business credit history are more likely to be approved for a small business loan without a personal guarantee.

Repayment Ability

In order for a small business owner to qualify for a loan, he must show the lending institution that he has the ability to repay the loan and at what capacity. The primary source of repayment is typically the business’s cash flow. A business must have solid financial statements and profits that can cover the debt payment as well as other monetary obligations. According to the Small Business Administration, businesses that only operate marginally, as well as start-ups, are usually required to “prepare a thorough loan package with a detailed explanation addressing how the business will be able to repay the loan.”

Personal Guarantee

Some financial institutions require a personal guarantee or some form of collateral for protection against loan default. When evaluating loan criteria, banks will often calculate a coverage ratio to determine the value of the loan applicant’s collateral. A personal guarantee is often requested, which requires the applicant to assume personal responsibility of the loan if the business is unable to fulfill its repayment obligations. Collateral such as financial investments, automobiles, homes and jewelry are often calculated when making a loan determination.

How to Get a Loan to Start a Small Business

Obtaining a small business loan to start a business can be difficult in that there is a great deal of preparation that goes into applying for the loan before you even choose a lender. Regardless of which type of small business loan you choose, ensure you have all of the needed materials for your loan approval before you ever fill out the application.

1

Write a business plan. One of the first items a lender requests for a start up small business is a written business plan. If needed, hire a business plan writer to assist you in putting the plan together. The business plan shows lenders that you have a solid idea of how you expect the business to earn money and to repay the loan.

2

Speak with your personal bank. Approach the bank where you have your personal accounts. Since you have an established relationship with the bank, you have a better chance of obtaining a business loan from it. Find out if the bank offers small business loans, and ask for an application and approval guidelines for small business start up loans.

3

Review the lender’s loan guidelines and work on fulfilling each one. Each lender has different criteria it expects small businesses and the small business owners to meet in order to qualify for a small business loan. Review the bank’s guidelines carefully, so you can prepare the documents, application and other information required to improve your chance for approval.

4

Once you have completed the application and met all of the requirements, submit your complete loan application to the bank. Include a copy of the business plan with your application package.

What Is a CLS Accrual Loan?

CLS, or Consumer Loan Services, is a loan servicing company that services credit unions and their members. Specializing in real estate, CLS provides comprehensive mortgage lending services to its affiliate credit union. It offers mortgage products and services for residential customers in several states throughout the U.S.

Accrual Loan

An accrual loan is the most common type of loan. This loan accrues interest on the outstanding balance throughout the life of the loan. The growing interest is added to the principal of the loan. Payments towards the loan are split between the principal and interest of the loan. The interest portion of the loan is always paid before the principal balance.

CLS Loans

All CLS loans are accrual loans. The lender’s mortgage products include fixed rates mortgages, adjustable rate mortgages and first-time home buyer loans. Similar to many mortgage lenders, CLS determines the applicable interest rate based on a collection of information, including the applicant’s credit history and selected loan product.

Applications

CLS does not accept direct applications for mortgage loans. The interested applicant must apply for a CLS accrual loan, or mortgage loan, through an affiliated credit union. CLS mortgage products are only available in Colorado, Illinois, Iowa, Michigan, Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin. Applicants must be a member of the affiliate credit union to apply.

Credit Unions

CLS works directly with its credit unions to market and service its products. Payment coupons and documents are branded with CLS information, as well as the information of the affiliate credit union. The credit union works with the customer as the direct servicer of the mortgage loan while CLS supports the credit union. CLS provides its credit unions with escrow services, collection efforts and credit reporting services to assist in maintaining active and accurate mortgage loans. CLS also provides the credit union with mailers, posters, statement stuffers and other marketing material, designed to capture potential mortgage customers.

How Long Does It Take to Get an SBA Loan?

How to Get a Loan to Start a Home-Based Business

ByDuncan Jenkins

Some businesses thrive from home.

Running a home-based business can be a profitable and enjoyable way to make a living. Financing such a business can be challenging, however. Before you consider applying for financing for a home-based business, it’s important to have an ironclad idea, some form of collateral, investors (in some cases) and a long-term plan for success.

1

Pull a copy of your credit report. A lender will not grant a small business loan to any potential borrower with poor credit. You’ll want your credit to be in top shape — above a 720 FICO score is best — before filling out any applications for credit. See Resources for information on how to obtain a free copy of your report. Red flags that may disqualify you for a business loan include maxed-out credit lines, excessive trade lines (more than four revolving accounts), judgments, bankruptcies and charge-offs. Make sure to clear all of your negative credit before applying for financing.

2

Collect all of your documents and do a self-analysis. Put yourself in the lender’s shoes — decide how strong a credit risk you are. Positive attributes of a successful business loan borrower include strong assets (house, investments), existing investors (either angel investors or venture capitalists), strong cash-flow from an existing business or other career and a unique business idea with a clearly defined customer market.

3

Research lenders on the government’s Small Business Administration (SBA) website. See resources for more information on SBA guidelines. The government is not a direct lender but instead contracts with private lenders to provide government-approved small business loans to consumers. A prospective lender is required to abide by the government’s predetermined set of guidelines, but, in the end, the lender is looking for a profitable loan and will scrutinize your application quite carefully. Be sure to present personal bank statements, business bank statements and a clear one-page report on the thrust of your home-based business, its prospective customers and your ideas for long-term sustainability and growth.

4

Apply to two or three SBA-sponsored lenders for a small business loan. Before filling out the application, make sure you have copies of all documents, a clear idea as to a loan amount and an inordinate amount of patience — sometimes applications for small business loans can languish for weeks in underwriting. Be prepared to be flexible in your conditions for a loan. For example, while you may not initially want to secure the loan, a lender may require you to collateralize an asset — especially if it is your first business loan.

5

Make sure that all approved loan offers meet your original needs. Obtain copies of all approved small business loans and compare the final terms to your original idea. Make sure the capital is sufficient to fund your start-up home business, make sure you can make the monthly payments and make sure the business idea is still viable. For example, if another business owner has entered the market you had hoped to penetrate with a similar idea, you’d be wise to revisit your business plan before accepting any loan funds. If it seems as though your customer market is still there, proceed with the loan. However, if your plan is in jeopardy due to the new business, it’s best to refuse any loan and go back to the drawing board.

REFERENCES

RESOURCES

WRITER BIO

RELATED ARTICLES

Small Business Loan QualificationsHow to Get a Loan to Start a Small BusinessWhat Are the Responsibilities of a Mortgage Banker?Debt to Income Ratio for a Sole ProprietorHow to Finance a FranchiseWhat Is a CLS Accrual Loan?How Long Does It Take to Get an SBA Loan?The Best Small Business LendersHow to Set Up CollateralAbout Small Business Loans

How to Ask a Lender for a Lower Interest Rate

ByDuncan Jenkins

Giving sick leave to parents can save your business money in the long run.

Financial companies are out to make a profit. However, when it comes to financing, the consumer is often in the best bargaining position. Mortgage lenders, business lenders and consumer lenders alike all compete fiercely for business. Therefore, if you have solid credit scores and income, you should be able to successfully negotiate a lower rate on any of your loans. It is critically important to pull together the documents that will support your claims when you enter rate negotiations.

1

Pull your own credit report. This does not negatively affect your credit, as it is considered a “soft pull.” Access a free copy of your report at Annual Credit Report. However, you should pay for your FICO score, too. This is a three-digit number between 300 and 850 that represents your overall creditworthiness. Scores over 720 are excellent; scores below 600 are poor.

2

Note positive characteristics on your application. These include: a high FICO score, a low debt ratio (debt versus income), a large amount of assets (retirement accounts, savings, collectibles), a long credit history, a long employment history (especially with the same employer) and a long residence history at your home.

3

Research your options. One of the best strategies is to show a prospective lender his competitor’s lower-cost options. Do not over-apply, though, as too many applications will negatively affect your credit. Submit two or three other applications for the same loan with different lenders.

4

Schedule a meeting with the lender with whom you would like to work. Bring copies of documents that corroborate the positive characteristics on your application. Also bring copies of competing loan offers if they are more favorable.

5

Come prepared with a counteroffer. Do not simply “ask for a lower rate.” Instead make your case for a lower rate based on your application and offer a specific number. For example, if you are offered a 10 percent rate on a $15,000 loan, but you have deep credit history, a low debt ratio and a high FICO score, ask for a 7 percent rate.

6

Do not immediately accept another counteroffer from your lender. It’s best to haggle for a couple rounds. Do not be afraid to go into the decimal points. Any amount of interest you can shave from the loan will benefit you in the long run.

REFERENCES

RESOURCES

WARNINGS

WRITER BIO

RELATED ARTICLES

How to Rebuild Credit with an Unsecured Credit CardHow to Settle Your Unsecured DebtDebt to Income Ratio for a Sole ProprietorRequirements for Underwriting RefinancingDo Banks Look at Adjusted Income or Gross Income?The Risks With Different Types of Small Business LoanHow to Make a Loan to a Sole ProprietorshipDifference Between a Hard & Soft Background CheckThe Advantages and Disadvantages of an Unsecured Business LoanHow to Apply for a Small Business Loan After Filing for Bankruptcy

How to Get a Loan to Start a Business?

ByLouise Balle

Have a firm idea of your financial needs before applying for a loan.

Business loans for new startup businesses are particularly risky because the bank doesn’t have any proof of your ability to successfully run a company and turn a profit. For this reason, the process of getting a loan to start a business starts well before you walk into a bank. You have to do some preparation before submitting an application to a lender.

1

Prepare a full business plan if you plan to apply for financing for your new business. Most lenders want to see your plan along with financial projections when making a decision about whether to fund a new company. The strength and thoroughness of your business plan is one of the most important factors of the business loan application. Be sure to include research on similar businesses or case studies.

2

Get your financial matters in order before you attempt to apply for a business loan. Check your personal credit report for negative information, because the lender checks your personal history when evaluating your business application.

3

Save up money–at least 10 percent of what you plan to borrow–to show the lender that you plan to contribute some of your own money to the business. Identify other collateral that you can list when applying for a business loan and gather personal financial statements to supply if requested.

4

Create a resume for you and all other key principals of your new business. Get references from respected community members and colleagues. The lender will check your background, experience and character when evaluating the loan.

5

Register your company with the state before attempting to get business financing. Most lenders want to see that you are an established business with a business registration, license (if required) and fictitious business name (“doing business as” name) filing with the state. See Resources to find your state’s business registration website.

6

Visit the bank of your choice, but make sure that the bank does commercial lending, to apply for the loan with your business plan, resume, financial statements and other data in hand. Fill out a credit application with information about your business including company name, tax ID number and your personal Social Security number. Give detailed information about your intended business activities and what you plan to use the funds for. Provide any additional documentation required promptly.

7

Wait for a decision from the lender, which could come within a few days or weeks depending on the bank.

REFERENCES

RESOURCES

TIPS

WRITER BIO

RELATED ARTICLES

How to Get a Loan to Start a Home-Based BusinessHow to Get Money for a New BusinessSmall Business Loan QualificationsWhat Is the Difference Between a Commercial Business Loan and a Residential Owner Loan?How to Borrow Money From a Financial InstitutionHow to Solicit BanksHow to Get a Loan to Start a Small BusinessHow to Draw Up a Legal Contract for a Business InvestmentHow to Apply for a Small Business Loan After Filing for BankruptcyHow to Secure a Business Loan

Small Business Loan Qualifications

BySherrie Scott

Credit is often a part of quick access to business capital.

Small business operators have many financial responsibilities. Co-mingling personal and business finances can have a negative impact on a business owner’s personal credit ratings. Small business loans allow business owners the opportunity to leverage capital to fund certain business practices including start-up costs, inventory and equipment. Qualifying for a business loan, however, requires preparation and planning to ensure the business meets certain approval criteria.

Credit History

Financial institutions will consider the credit history in making a loan determination. An applicant’s personal credit will be considered, depending on the lending institution, loan type and loan amount. It may be necessary for small business owners to obtain a copy of their personal credit report prior to applying for a business loan to ensure the report does not contain negative or incorrect information. A positive credit history is most favorable for loan approval.

Business credit history is often necessary for some loans. Business owners can build business credit by registering their company with business credit bureaus and building a credit profile. Established businesses with a positive business credit history are more likely to be approved for a small business loan without a personal guarantee.

Repayment Ability

In order for a small business owner to qualify for a loan, he must show the lending institution that he has the ability to repay the loan and at what capacity. The primary source of repayment is typically the business’s cash flow. A business must have solid financial statements and profits that can cover the debt payment as well as other monetary obligations. According to the Small Business Administration, businesses that only operate marginally, as well as start-ups, are usually required to “prepare a thorough loan package with a detailed explanation addressing how the business will be able to repay the loan.”

Personal Guarantee

Some financial institutions require a personal guarantee or some form of collateral for protection against loan default. When evaluating loan criteria, banks will often calculate a coverage ratio to determine the value of the loan applicant’s collateral. A personal guarantee is often requested, which requires the applicant to assume personal responsibility of the loan if the business is unable to fulfill its repayment obligations. Collateral such as financial investments, automobiles, homes and jewelry are often calculated when making a loan determination.

REFERENCES

WRITER BIO

RELATED ARTICLES

How to Calculate a Revolving Line of Credit for a CompanyDebt to Income Ratio for a Sole ProprietorWhat Will the Bank Require for a Commercial Loan With an SBA Second?The Advantages of Borrowing Money to Start a BusinessWhat Is a Credit Risk Analyst?How to Get a Loan to Start a Business?How to Open a .P7s FileHow to Get a Loan to Start a Home-Based BusinessHow to Set Up CollateralHow to Apply for a Small Business Administration Business Loan

How to Get a Loan to Start a Small Business

ByKristie Lorette

Apply for a business loan to launch your business.

Obtaining a small business loan to start a business can be difficult in that there is a great deal of preparation that goes into applying for the loan before you even choose a lender. Regardless of which type of small business loan you choose, ensure you have all of the needed materials for your loan approval before you ever fill out the application.

1

Write a business plan. One of the first items a lender requests for a start up small business is a written business plan. If needed, hire a business plan writer to assist you in putting the plan together. The business plan shows lenders that you have a solid idea of how you expect the business to earn money and to repay the loan.

2

Speak with your personal bank. Approach the bank where you have your personal accounts. Since you have an established relationship with the bank, you have a better chance of obtaining a business loan from it. Find out if the bank offers small business loans, and ask for an application and approval guidelines for small business start up loans.

3

Review the lender’s loan guidelines and work on fulfilling each one. Each lender has different criteria it expects small businesses and the small business owners to meet in order to qualify for a small business loan. Review the bank’s guidelines carefully, so you can prepare the documents, application and other information required to improve your chance for approval.

4

Once you have completed the application and met all of the requirements, submit your complete loan application to the bank. Include a copy of the business plan with your application package.

REFERENCES

TIPS

WARNINGS

WRITER BIO

RELATED ARTICLES

How to Borrow Money From a Financial InstitutionHow to Negotiate a Line of Credit for New Business VenturesHow to Apply for an Operating Line of CreditHow to Obtain a Business Line of CreditHow to Obtain a Business LoanAlternative Collateral Sources for Business Loan StartupsHow to Apply for a Small Business Administration Business LoanHow to Get a Government Funded Small Business LoanHow to Write a Letter From the Staff of a Company to a Bank Requesting a LoanHow to Apply for a Small Business Loan After Filing for Bankruptcy

What Are the Responsibilities of a Mortgage Banker?

ByFrances Burks

Mortgage lenders usually require proof of financial hardship before approving short sales.

More than 280,000 people in the United States work in the real estate finance industry, according to the Mortgage Bankers Association, including mortgage bankers, who help consumers complete the mortgage application process. They also protect the interests of their bank by looking for borrowers who present the least amount of financial risk when they decide which home loans to approve.

Function

Mortgage bankers essentially are loan officers who specialize in offering financing to buy homes or refinance previous mortgages. Loan officers often take on sales roles, so they attend real estate meetings, home-buying seminars and other events to find new borrowers. The federal government regulates some parts of the lending process, but banks set their own standards in determining whether an applicant qualifies for a mortgage. For example, a banker can reject a mortgage application if a potential borrower doesn’t meet the bank’s credit criteria. It’s against federal law for a lender to reject a loan application based on a person’s marital status.

Loan Evaluation

It’s a mortgage banker’s responsibility to verify applicants’ employment status, salary, credit history and other financial information to determine their creditworthiness and ability to repay a mortgage loan. Bankers ensure that applicants fill out all required loan documents, and they answer any questions applicants have about the mortgage process. Mortgage loan officers usually need to be adept at using underwriting software, because it’s widely used in the industry to simplify and speed up the loan evaluation process.

Good Faith Estimates

Mortgage lenders must abide by the Federal Real Estate Settlement Procedures Act and provide applicants with a good-faith estimate, which discloses the fees charged throughout the mortgage process. That includes fees associated with obtaining credit reports and home appraisals. Lenders should send applicants a GFE within three days of accepting their mortgage application. The law doesn’t require lenders to supply a GFE when they decline an application.

Declined Mortgages

Mortgage bankers must explain to applicants in writing why they declined their mortgage application. Lenders may reject an application if a home appraisal is lower than the amount an applicant needs to borrow to finance a mortgage. Bankers also reject applications if applicants carry more debt than their bank’s qualifying guidelines allow. Federal law prohibits bankers from rejecting mortgage applications because they have concerns about the racial makeup of the neighborhood where a home is located.

2016 Salary Information for Loan Officers

Loan officers earned a median annual salary of $63,640 in 2016, according to the U.S. Bureau of Labor Statistics. On the low end, loan officers earned a 25th percentile salary of $45,100, meaning 75 percent earned more than this amount. The 75th percentile salary is $92,610, meaning 25 percent earn more. In 2016, 318,600 people were employed in the U.S. as loan officers.

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Debt to Income Ratio for a Sole Proprietor

Your debt-to-income ratio is measured when you apply for a mortgage.

Financing at good rates at the right time can be the difference between success and failure for a small business — and your debt-to-income ratio is a key metric in qualifying for good rates in a timely manner. As a sole proprietor, calculating your debt-to-income ratio may be slightly more complex due to the blurry line between yourself and your business.

Debt to Income

When a lender considers giving you financing, he analyzes the risk of collecting on that loan. Debt-to-income ratio helps assess that risk by determining whether or not you are likely to be able to make the estimated payments associated with the loan. The ratio is expressed as a percentage, specifically what percentage of your income goes toward payment of debt — including both loans you’ve already taken out and the loan for which you are applying.

Personal and Business Accounts

As a sole proprietor, you are your business. In some cases, this means the bank will want you to personally guarantee the loan, especially if your business is not a corporation, or has been incorporated for less than two years. If a potential lender wants your personal guarantee, your debt-to-income ratio will be calculated based on personal loans and income, as well as your business loans and income.

Time Period

In most cases, a lender is most interested in your cash flow. They calculate your debt-to-income ratio based on monthly income and monthly payments on debt. In some few cases, potential lenders may want to look at your overall financial position, and look at your debt-to-income ratio in terms of total assets and total liabilities.

Calculating Debt-to-Income Ratio

To calculate debt-to-income ratio, first total all your monthly income that you can prove. Next total all your monthly minimum payments on debt — this should be your expected payments, not what you’ve actually paid. Add the anticipated payment for the loan you want to the total debt payments. Divide the payments on debt by your monthly income and multiply by 100. The result is the percentage of your income that goes toward debt.

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How to Finance a Franchise

ByCharles Green

You will need plenty of money to fund your franchise.

Securing a franchise can be one way for you to move down the road of entrepreneurship, as a well traveled path has been established before you. Instead of having to rely chiefly on your own talents and business style, a franchise allows entrepreneurs to buy into a proven business strategy and enjoy the support of similar franchisees and corporate headquarters. But a franchise can require the investment of tremendous amounts of capital, funds you may not have at your disposal. There are some ways you can finance your franchise, relying on third parties to help you launch your enterprise.

1

Write a business plan. No lender will offer you a loan if you do not have a business plan in place. SCORE, the retired executives counseling group for small businesses, has a template to help you put your plan together. You will need to include your executive summary, product and services offered, marketing strategy and comprehensive management information, including your management team, competition, operations and financial data.

2

Obtain copies of your credit reports. Before you apply for a loan, make sure that your credit history is clean. Obtain copies of your credit reports from the three credit reporting bureaus, Equifax, Experian and TransUnion. Examine your reports closely, correcting errors as per the instructions given by each credit bureau. Obtain copies of your credit scores too. The higher your scores, the better your credit and the more likely you will be approved for a business loan.

3

Review your own finances for sources of collateral. You will be required to have some “skin” in the game when it comes to setting up your franchise business, which means a down payment, a percentage that can vary depending on your credit strength and the amount of money to be borrowed. This is also a time to ask yourself a very important question: do you want to put your personal property forward as collateral, risking same if your business fails?

4

Contact the Small Business Administration (SBA) to inquire about their guaranteed loan program. The SBA does not loan money to small businesses directly, but they do offer a guarantee to banks that do. The SBA’s 7(a) loan program is designed for startup or existing businesses, and is delivered through commercial banks. This program includes express loans offering a quick turnaround, loans for exporters, rural lending and special purpose loans.

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What Is a CLS Accrual Loan?

ByCharmayne Smith

A loan originator creates mortgages.

CLS, or Consumer Loan Services, is a loan servicing company that services credit unions and their members. Specializing in real estate, CLS provides comprehensive mortgage lending services to its affiliate credit union. It offers mortgage products and services for residential customers in several states throughout the U.S.

Accrual Loan

An accrual loan is the most common type of loan. This loan accrues interest on the outstanding balance throughout the life of the loan. The growing interest is added to the principal of the loan. Payments towards the loan are split between the principal and interest of the loan. The interest portion of the loan is always paid before the principal balance.

CLS Loans

All CLS loans are accrual loans. The lender’s mortgage products include fixed rates mortgages, adjustable rate mortgages and first-time home buyer loans. Similar to many mortgage lenders, CLS determines the applicable interest rate based on a collection of information, including the applicant’s credit history and selected loan product.

Applications

CLS does not accept direct applications for mortgage loans. The interested applicant must apply for a CLS accrual loan, or mortgage loan, through an affiliated credit union. CLS mortgage products are only available in Colorado, Illinois, Iowa, Michigan, Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin. Applicants must be a member of the affiliate credit union to apply.

Credit Unions

CLS works directly with its credit unions to market and service its products. Payment coupons and documents are branded with CLS information, as well as the information of the affiliate credit union. The credit union works with the customer as the direct servicer of the mortgage loan while CLS supports the credit union. CLS provides its credit unions with escrow services, collection efforts and credit reporting services to assist in maintaining active and accurate mortgage loans. CLS also provides the credit union with mailers, posters, statement stuffers and other marketing material, designed to capture potential mortgage customers.

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How Long Does It Take to Get an SBA Loan?

ByLouise Balle

Have a firm idea of your financial needs before applying for a loan.

When other avenues to getting new business funding are closed, a Small Business Administration (SBA) loan could be the way to securing the funds you need. However, just as is the case with any other element of your business-planning process, you should have an idea of how long it might take to complete the process of securing this type of loan.

What Is an SBA Loan?

Applying for an SBA loan is a common course of action for an applicant who has been denied by a bank for a business loan. The Small Business Administration provides a guarantee for qualified business owners (both startups and existing companies). The guarantee improves the business owner’s chance of approval with a bank. The SBA offers three main loan options to help owners pay for various business needs — the 7(a), Microloan and CDC/504 loan programs.

Application Process

To apply for an SBA loan you must fill out an application, write a full business plan, generate financial statements proving a sufficient estimated cash flow and submit to a thorough credit check. You must also gather a long list of paperwork regarding the owners, including resumes, business licenses and a personal background statement. The SBA and lender also evaluate the application based on your character, management abilities, collateral and amount you can contribute to the business.

How Long?

The exact time it will take to close an SBA loan varies by case. For instance, one factor is how long it will take you to complete your well-researched business plan or financials — that could take several weeks or even months. Another factor is how long it takes you to gather all of the paperwork proving your financial status. Beyond that, the amount of time it takes to finalize an SBA loan largely depends on the lender’s timeline. Expect the process to take a minimum of 60 to 90 days. Applications for larger amounts may take longer for the lender to evaluate.

Can You Expedite the Process?

You can take steps to expedite the process. First, learn all about the particular SBA loan program you want to apply so that you can prepare for each required step in advance. Have all of your paperwork ready to go in a file before you even apply. Follow the SBA’s suggested business plan outline to the letter to avoid additional questions down the line. Consult with the various SBA lenders to find out their estimated timeline before choosing a bank. Finally, return requests for information or inquiries from the lender promptly.

How to Set Up Collateral

A new company typically must apply for a business loan to begin its operations. Established companies also may seek out business loans to finance a new project or improve an existing venture. However, a business may not be able to obtain a loan unless it pledges collateral to secure it.

About Collateral

Collateral is a valuable asset or combination of assets that you pledge to a lender to secure a loan. If you aren’t able to repay your loan, the lender may take possession of the collateral and sell it to recover the debt. In most cases, the collateral you use to secure a loan must have a fair market value that equals or exceeds the amount of money you borrow.

Setting Up Collateral

To set up collateral for a business loan, you can offer the lender tangible property or liquid assets. Typical forms of collateral include real property, vehicles, savings accounts and business inventory. It is possible to pledge an asset that already is securing another loan, such as a mortgaged home. However, the lender will consider only the value of the asset’s equity as collateral since the first lien has priority over all new loans.

Use of Personal Assets

If a business doesn’t have enough assets to secure the loan it needs, business owners may pledge their personal property to obtain financing. While it is legal to use your personal assets to secure a loan for business purposes, it may not be advisable in some cases. If the business files bankruptcy and the company’s assets can’t cover the full amount owed on the loan, the lender will seize the personal property you pledged to recover the remainder.

Considerations

If your business doesn’t have sufficient collateral to secure the loan you need, you may be able to obtain an unsecured loan with a higher interest rate. Some lenders may agree to an unsecured loan with a low interest rate if your business has a good credit history. You also may be able to obtain peer-to-peer financing, which is lending that takes place outside of financial institutions and typically involves receiving smaller loans from several individuals.

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