• 01Feb
    Categories: Lending Comments: 0
    payday loans

    When you need a quick loan, the easiest way to get it if you have less than perfect credit, is to take out a payday or car title loan. In order to obtain a payday loan, you show the lender your most recent pay stub. Based on how much you make per week or per month and how much you need to borrow, is calculated to give you a loan amount with interest. Similarly, car title loans allow you to receive a loan, by giving the lender the title to your vehicle, assuming you own the car. Because these types of lenders do not tend to look at credit and focus more on current income and property, it is a popular choice for those who might need some quick cash. Many believe it is a trap for low income individuals and  for this reason, the Arlington City Council in Texas has voted to restrict where payday and car title lenders can do business.

     

    Vote in Arlington

    Arlington City Council officials will have to take a second vote to finalize the new restriction. The measure would create a land-use designation, in which new lender businesses would have to stay a certain distance from residents, highways, and other lenders. In doing this, lenders who are involved in shady business practices and offer clients high-cost refinancing options will not be as widely available to the lower income populations. These new zoning requirements would completely separate payday and car title loan lenders from more reputable loan sources, such as banks, credit unions, and other financial institutions. New restrictions would also only apply to new businesses being opened in the Arlington area. Existing lenders would be considered grandfathered in, except in certain situations. For example, if a fire were to cause more than 50% damage to a lender’s location, they would be unable to rebuild in that exact location if it does not meet the specific zoning requirements.

     

    Recent changes to how lenders do business

    Arlington City Council members met on November 18th of last year to develop new ways in which payday lenders can do business. These new laws went into effect on January 1st, and are very similar to how car title loans work in San Antonio, Texas. Now in both Arlington and San Antonio, payday loans are limited to 20% of a borrower’s gross monthly income, loans are limited to no more than four equal installments during the payback of the loans, and it is forbidden to either renew or refinance installment loans. Auto title loans are limited to whichever is lesser, 3 percent of the borrower’s gross annual income or 70 percent of the vehicle value. Payday lenders are also required to keep loan records saved for three years minimum, and provide any customer who receives a loan a list of nonprofit, credit counseling providers.

     

    How new zoning helps borrowers

    Council member Jimmy Bennett said that he believes payday and car title lenders were dealt with fairly. People in the area would take out a loan without thinking about the amount they would need to pay back, including interest, and fail to pay back their loans on time. This helps regulate loan amounts and locations, which can be a benefit for poorer communities.

  • 29Dec
    Categories: Lending Comments: 0
    Handshake with the transfer of money

    Is peer lending the right thing for you? Many consumers are choosing peer lending as a viable solution to handle their borrowing needs. This is as a direct relation to the decisions being made by the credit card and banking procedures. Many consumers are being faced with the ongoing challenges of tough lending practices.

     

    Saving Money

    Some consumers are not able to get a personal loan or when they can get a personal loan, it is only those with high interest rates. There are many peer lending services that offer lower rates (as low as 7%) and so that is why consumers are switching to save money on lower interest rates compared to what the credit card and banks would charge. For that reason, peer lending companies have the ability to compete with financial institutions and credit card companies. With no overhead costs or operating costs, peer lending companies can offer lower interest rates.

     

    Specific Requirements

    For consumers with better credit scores, peer lending services offer the ability to borrow larger amounts at a fairly low interest rate. However, despite this, not all consumers will get one of these loans. There are still specific requirements that have to be met by borrows prior to receiving one of these loans. There are a wide range of different requirements as it relates to the different companies. It could be the borrower’s credit score. It could be a threshold of debt to income ratio. It could be the number of delinquencies, credit inquiries and how credit has been utilized by the borrower on other credit cards. Most lenders still prefer to have a screening process to limit the borrowing risks.

     

    The Process

    You may be wondering how the peer lending process works. It is similar to the business model where the lender and the borrower directly work out an agreement without having a third party lender involved. Peer lending uses an online platform where the borrower lists their loan requests, which includes the amount, the terms of the loan and the interest rate. A number of lenders bid for the loan listing that fit their criteria. The lender also looks at the borrower’s profile, which should include the borrower’s monthly expenses, income, creditworthiness, credit scores and any other necessary information. These parameters are used to calculate the borrower’s debt to income ratio in order to determine qualification.

     

    The Borrower and Investor Relationship

    For borrowers, the goal is to get a higher loan amount than traditional banks offer. For the lender, there are risks associated with lending a higher amount, but they are willing to take that chance. In fact, most of these investors have calculated their risks and found ways to minimize those risks. On the other hand, some peer lending companies also have investor requirements of a specific net worth and yearly gross income. With these requirements, investors then prove that they can tolerate the financial risks that may be involved with the process.

     

    Closing

    The peer lending trend is one that is going nowhere as borrowers are tired of being turned down by financial institutions and credit card companies. Before you seek peer lending service, it is best to be aware of what is involved and understand your responsibility.

  • 14Dec

    Usually, a company will seek financing help in order to grow and maintain their business. These business owners will usually try to find financing from traditional sources such as unsecured bank loans. Why? This type of financing is thought to be less costly when it comes to borrowing a loan.

    Financing Issues

    However, for a lot of small business owners, financing is an issue because they may:

    •       Not have a long business track record
    •       Not have the credit rating required

    For this reason, many small business owners’ loan application from a traditional bank may be rejected. This has been the case in the most recent years after the economic crisis in the United States. Lenders were and still are cautious about approving these types of loans.

    Lines of Credit

    Oftentimes, there are some small businesses with lines of credit from traditional financial institutions, but still are unable to acquire additional funds since the extension of funds beyond the credit limit is a concern. For that reason and in such situations, the future growth of the business could not be based on a traditional bank loan.

    Based on Assets

    In this case, what should a business owner do when there are outstanding account receivables and because of this, the business is at a shortfall as it relates to working capital? In a situation like this, the business can look at a different form of financing such as asset-based lending. Now, what are some of the differences with traditional financing and asset-based financing? What are the advantages one has over the other? Let’s explore.

     

    1. The Differences

    Asset based lending allows the business owners additional flexibility for financing the existing operations and the business needs for further growth. In comparison, traditional lending from a bank requires the financial institution to lend on the premise that the business will have to be first assessed. It also involves a projection of the business’s future cash flow. Asset based lending is based on the company’s collateral and not on the success of the company’s operation.

     

    1. Accounts Receivables

    The typical asset based loan is made against the accounts receivables. In this case, the lender will advance a specific amount of money to the business in lieu of how much value is placed on the receivables provided to the lender. The rate of advance is usually between seventy percent and ninety percent. Instead of sending accounts receivable payments to the borrowing company, the creditors will send payment directly to the lender. The lender, in turn, will provide the appropriate balance to the borrowing business, subtracting any fees charged on the loan and any potential fee for the management of the collection process.

     

    1. Revolving Credit

    Asset based loans are considered revolving lines of credit, which means that when the accounts receivable balance goes down, it provides additional source of funds for the business owner. Even though lenders of asset based loans also consider other assets such as equipment, inventory and real estate, accounts receivables are usually the most frequently used collateral and this is largely due to the fact that it carries a significant amount of liquidity.

     

    1. The Loan Process

    Lenders of asset based loans place more emphasis on the quality of the business’s collateral and not necessarily on the credit rating or cash flow of the borrowing business. The borrowing business’s ability to repay the loan is what is evaluated. The business’s track record of how previous payments have been made will establish their worthiness in being considered for additional credit. In the case of a traditional bank, the internal lending standards leave the lender to be more restrictive in the loan process.

     

    1. The Restrictions

    For instance, traditional financial institutions like banks won’t approve a loan for a company that has a debt-to-capital ratio of more than 4:1 or 5:1. In comparison, an independent lender of asset based loans will not be subject to these restrictions. For that reason asset based lenders are free to finance small businesses with low capital or those that have not met the internal lending standards of a traditional bank. Instead, the asset based lender looks at the long term prospect of the business.

    Conclusion

    Because the asset-based lender does not use the borrowing company’s performance as it relates to operation, but looks more at the quality of the accounts receivables, the business does not require as much financial covenants as a traditional loan requires.