This is likely because of the common misconception that any form of debt is bad. While it's true that debts have negative effects, they are also good for several reasons.
Financially responsible consumers take out personal loans to purchase their dream home, finance their car or fund their education. Debts have positive outcomes if you know how to manage them responsibly. But it should be noted that debts, such as personal loans, are not for everyone. They can be a smart move, but only depending on your situation.
Nevertheless, knowing how you can benefit from a personal loan is an excellent place to start to decide if a loan is right for you. Here, we discuss the potential advantages of getting one.
Use It For Multiple Purposes
One of the notable benefits of personal loans is their flexibility. Unlike other types of loans, there are no restrictions on how you will utilise a personal loan. You can use the fund for almost anything. However, it's worth noting that not all purposes are financially healthy for you.
If you want to make use of personal loans to your advantage, here are some of the sensible options:
Emergency Expenses
It's always good to have a fund set aside for emergencies. But that is not always the case for everyone. Many people don't have the cash to cover unforeseen expenses like a sudden car repair or medical bill, based on a report. If you find yourself in the same predicament, you can use online installment loans from a direct lender to take care of financial emergencies immediately.
Unlike other types of loans, there are no restrictions on how you will utilise a personal loan.
Finance A Large Purchase
There are also instances when you have to fund a major purchase, such as buying a necessary household appliance or installing a new furnace. Paying for such a large purchase on a higher interest credit card can be too expensive. Taking out a personal loan can be your cheapest option without having to put up any collateral unless you have spare cash.
Consolidate Existing Debts
If you're having a hard time paying off existing debts with high-interest rates, you can consolidate them through a personal loan. With a low-interest personal loan, you can save money and reduce financial stress. Because instead of paying different loans with different due dates, you will only be paying one debt every month.
Save On Lower Interest Rates
Interest rates on personal loans are usually reasonable. In fact, their rates are typically much lower than credit card rates. If you have a good credit score, you can get as low as single digit interest rates on a personal loan.
Remember that the interest you pay on loan is the cost you pay for borrowing. Thus, the lower the interest rate is, the more money you can save. What's good about personal loans is you have various options to pick on since many lenders offer them. By shopping around different lenders, you can easily find the best rate for you.
Easy To Manage In Your Budget
Taking on debts can be stressful. You have to make adjustments in your budget to ensure that you can make monthly repayments on time. Else, you can incur penalties and more interest on your debts. But you can minimise this emotional toll with a personal loan because it has a fixed interest rate and predetermined term.
It means that you know exactly how much interest you'll pay and when you will be done paying off your debts. With a set rate and payment schedule, you can easily manage personal loans in your budget and stay in control of your finances.
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Boost Your Credit Score
Like any other loans, personal loans may be able to help you boost your credit score if you use them responsibly. Consolidating your debts in a single personal loan is the most obvious way it can help you improve your credit score. But then again, only if you make your payments on time and pay the full amount required.
Another thing is that replacing your credit card debt with a personal loan can also boost your credit score. Note that lenders may consider you a higher risk if your credit utilisation is too high. But since a personal loan is an installment loan, it is not factored in your credit utilisation ratio.
Avail Of Tax Benefits
There is no particular rule that allows you to deduct personal loans automatically on your tax bill. However, there are possible cases where you gain tax benefits under a personal loan. If you use the loan to invest in a business, you can claim the interest paid as an expense, which you can deduct from your taxable income.
You can also claim a tax credit if you take out a personal loan to purchase a home because the mortgage interest is deductible, provided that it is your primary residence. The same applies when you use the loan to fund a college education.
Wrapping Up
Personal loans come with certain benefits. However, it is always important to remember that it depends on how you utilise the loan. To ensure that you're making a sound decision. It would be best to consider your purpose in taking out the loan. Doing so can help you maximise the advantages of personal loans.
The Fair Debt Collection Practices Act protects consumers from unfair debt collection practices. This law applies to third-party debt collectors for personal debts. It doesn’t involve creditors who are legally attempting to recover debts owed to them.
The laws in your state may also protect you beyond this act. In addition to certain practices for collecting being annoying, many are also illegal. As a result, it’s helpful to know about these five unlawful debt collection practices and how to spot them.
Attempting to Collect Debts Not Owed
One of the biggest complaints consumers have is being asked to pay debts they do not owe. By law, if you don’t owe the debt in question, you have a legal right to request, in writing, that you want verification of the debt. You can also request that the debt collector cease all contact with you. Doing this in writing is wise as it ensures that you have proof that you made the request.
In many cases, when collectors try to claim a debt that you don’t owe, you may be a victim of identity theft. Always check your credit report to see if there are any mistakes or unusual activity.
Not Providing Written Notification of Debt
By law, a collector must provide you with written notice of the debt they are trying to collect from you within five days of the first contact. They must include the amount of that debt, the original creditor to whom the debt is owed, and a statement of your right to dispute the debt. If you do not receive this notification, you can file a complaint with the Federal Trade Commission. If you do receive written notice, it should include all the details of the debt.
Harassing Communication Methods
Collectors are prohibited from harassing you when they call or contact you by any other means. This is the law. At the same time, the FDCPA doesn’t specify a set number of calls debt collectors can make within any given time frame. Instead, the court can determine what is appropriate and what is considered harassment.
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You can take note of the days and times you receive calls and record messages as evidence. Collectors also cannot legally contact you before 8 AM or after 9 PM unless you’ve expressly allowed them to do so.
Threats of Legal Action
According to the law, debt collectors are not allowed to threaten legal action or wage garnishment even if you do owe a debt. Likewise, they aren’t allowed to threaten you with jail time or a poor credit rating unless they have the authority to do so. Such threats violate the FDCPA. Collectors must first sue in court and actually win their cases before they can take any legal action against you.
You can look up a list of debt collectors in the United States and read up on the actions they can legally take.
Making False Statements or Representations
Debt collectors are prohibited from using false statements or representations to force you into cooperating with them. This rule holds true even if you owe a debt. If they claim an affiliation with a government or state, tell you that you will face prison time, lose property, or have your wages garnished, or even imply that you committed a crime, it violates the FDCPA.
If you have been harassed by debt collectors who are violating the law, you need the assistance of a skilled attorney.
In that case, bankruptcy serves as a last resort that will allow you to make a fresh start.
While filing for bankruptcy is a solution for many people in bad financial situations, you must be able to qualify for either a Chapter 7 or Chapter 13 bankruptcy. This guide will help you determine which option is best for your situation and what to do with your fresh financial start.
Filing Chapter 7 Requires Passing a Means Test
A Chapter 7 bankruptcy is often the most desirable form of debt relief because it involves discharging or dismissing all of your unsecured debts. Typically, any assets you own will be seized by the court and liquidated to relieve some of your creditors. Anything else will be discharged.
In recent years, federal laws have been updated to ensure only those in severe financial distress can qualify for a Chapter 7 bankruptcy, so a means test has been initiated.
In order to pass the means test, your monthly income cannot equal or exceed the average income for families in your state. If you fail the means test, the court will assume you have enough money left over each month to pay your debts off, and that will disqualify you from declaring bankruptcy.
Can You Qualify for Chapter 13?
If you believe you will fail a means test, professional bankruptcy lawyers recommend their clients file for Chapter 13 bankruptcy. This is different from Chapter 7 because your debts are not discharged. Instead, you and your attorney will have to draw up a payment plan that consolidates your debts under the court's supervision.
There are a few requirements you'll have to meet in order for the court to allow a Chapter 13 filing. First, you'll have to show that you have a regular source of income that will enable you to meet the obligations of a repayment plan. Additionally, the plan must be structured to ensure your debts will be fully repaid in three to five years.
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The court also restricts the amount you can seek in debt relief. You can owe no more than $394,725 in unsecured debt and no more than $1,184,200 in secured debt. You are also not allowed to have filed for Chapter 7 over the last four years or a Chapter 13 within the past two years.
What to Do After Filing for Bankruptcy
Even though your debts have been discharged, you may still have some work to do in rebuilding a good financial profile. This will likely include attending a court-ordered credit counseling course. You should also make a habit of checking your credit reports with the three main credit bureaus to make sure your debts have been discharged.
Any remaining debts should be paid off as quickly as possible but be sure to make all the minimally required payments on time. Just one late payment can destroy your credit rating and sabotage any progress you have made so far.
Even though a Chapter 7 stays on your credit report for 10 years and a Chapter 13 stays on your credit report for seven years, you can start rebuilding your credit score immediately. In addition to paying debts on time, getting a secured credit card can help you establish good credit sooner.
You can also help your credit score by maintaining lower balances on any credit cards you still have. All of these methods can be combined to show lenders that you're a low risk client, while also boosting your credit score over time.
Conclusion
Following this guide can help you start a new life for yourself, but, if you don't learn financial responsibility, you'll end up right back where you started. Even if a bankruptcy judge doesn't order it, taking a personal finance course can give you a more thorough understanding of the concepts related to financial responsibility. When you complete the course, you'll know how to build and maintain good credit, which is one of the keys to obtaining a better financial flexibility.
Mat Megans, CEO at Hyperjar, examines current patterns of debt and spending and discusses how the status quo might be changed.
COVID-19 has impacted everyone in different ways. On an economic level, it was the tipping point that burst the bubble of expansion that started after the Great Recession ended in 2009. Now we are in a new recession caused by deliberate, but necessary, actions to try and prevent the rapid spread of the virus. Actions which have hammered the economy. Central banks around the world had to drop interest rates, often to as close to zero as makes no odds, to try and stimulate demand. The average UK consumer is facing this grim situation whilst sitting on a pile of debt even larger than the previous peak in 2008.
So, what about The Great Recession?
The Great Recession was a crisis of our own making that almost took down the global financial system. It caused such a scare that governments around the world implemented various regulations to try and prevent a repeat ever happening again. In the UK, one such regulation was ring-fencing, the set of rules that apply only to UK banks with more than £25 billion of core deposits. The main objective is to separate essential banking services from riskier lending activities – to try and avoid key banks dabbling in esoteric products like CDO-squareds and sub-prime mortgage securitisations. These indirectly led to people lining up in the street outside Northern Rock asking for their deposits back. Ring-fencing has definitely succeeded in making these deposits safer, but has also made it more difficult for many banks to earn attractive returns on capital.
This creates two side effects:
- There is less desire for aggregation of consumer deposits by many large banks;
- The big banks have increased levels of unsecured consumer lending compared to less profitable secured products such as mortgages.
Ring-fencing has definitely succeeded in making these deposits safer, but has also made it more difficult for many banks to earn attractive returns on capital.
What does this mean for the UK consumer?
I believe these conditions contribute to a number of trends seen over the past decade. Unsecured consumer debt has risen to all-time highs. Consumers are bombarded with offers for credit to buy almost anything, in almost every way imaginable – on social media, at the checkout till or online basket, in the post, at the ATM, on television. Fintech has also participated in driving innovation to make accessing credit easier and more prevalent with a strong increase in Buy Now Pay Later services at checkout.
The net result of this mountain of unsecured debt? Many people find themselves in very difficult situations as the expansion ends and recession sets in, leading to higher unemployment and increased personal financial difficulty.
Good debt and bad debt
Yes, we have a heavily indebted consumer. But debt isn’t always bad. In fact, some debt is a tool that creates significant happiness and wealth, for example: mortgages. A small deposit can help buy a house, and even modest levels of price appreciation over the long term can net attractive returns, or allow for mortgage repayments which are lower than the rent for an equivalent property. I call this good debt, debt used to generate positive returns and outcomes. Then you have other forms of good debt which arise through unplanned necessity, for example debt used to buy a car that’s essential for work, or a broken boiler that needs to be repaired.
Bad debt is none of this. It’s debt used to buy depreciating assets such as a nice pair of shoes or the latest gadgets that do not generate real, absolute or relative financial returns. Problems can often arise as bad debt accumulates, sometimes on top of necessary good debt. What inevitably happens is those with the smallest financial buffer have the worst debt, and this means they suffer more in a recession.
What can we do?
It’s not all dark and gloomy. We can do a lot. It has become a cliché, but in this case, we really can build back better, and not just as a political slogan. Perhaps we can rewire society’s relationship with spending and debt:
- Lockdown has made many appreciate the simple things in life. A ‘gratitude attitude’. Time with family, friends, relationships and nature are increasingly valued personal ambitions – maybe this may make us a little less susceptible to buying material objects for instant gratification, and a little more cautious about taking on debt to buy things that we cannot really afford.
- Economic uncertainty has led many people, who have the ability to do so, paying down debt and increasing savings at unprecedented rates. To play on the infamous words of ex-Citibank CEO Chuck Prince, many people recognise the music has stopped playing and it’s time to stop dancing. They’re building buffers.
- A younger generation is growing up and joining the workforce in extremely difficult times and they have different attitudes to debt and excess conspicuous consumption. Sustainability is one of their driving forces and this applies not just to carbon footprint but also to their finances.
- Near 0% interest rates on current and savings accounts is becoming front page news and a topic people are thinking about and discussing. It offers the opportunity for other stakeholders besides banks to step in and help give savers attractive options. The topic of financial literacy is becoming more prominent and there now exist many popular Instagram influencers who talk about personal finance. Being responsible with your money is becoming cool.
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These factors set up an opportunity to reset and to think about fintech business models which are designed around savings, not around debt. At HyperJar we are working with a group of forward-thinking retailers to offer attractive rewards to consumers who can commit funds that will be spent with them in the future. The funds are safely held at the Bank of England until our customers are ready to spend it. On top of the rewards, which grow dynamically over time when money is allocated, you’re less tempted to spend on things you don’t need. A win-win between shoppers and the places where they shop. That’s a future we think is possible and worth trying to build.
Finance Monthly hears from Lynne Darcey-Quigley, founder and CEO of Know-It, on the problem of fraud plaguing UK firms and how they can protect themselves from it.
Throughout the 1960s, Frank Abagnale famously faked eight different identities, including a pilot, lawyer and a physician, to gain free flights and defraud banks. There was subsequently a film titled ‘Catch me if you can’, starring Leonardo DiCaprio, made about his life and how he conned people. Arguably his most ingenious (or in fact worrying) tactic was his ability to write personal cheques on his own overdrawn account. This, however, would work for only a limited time before the bank demanded payment, so he moved on to opening other accounts at different banks, eventually creating new identities to sustain this charade and continue to defraud financial institutions.
Although time has passed and technologies and systems have been put in place to weed out the Frank Abegnales, the issue of fraud and financial crime continues to linger. This has been made plainly obvious throughout the COVID-19 pandemic, where the Coronavirus Bounce Back Loan (BBLS) scheme has been plagued by fraudulent applications.
As a result, the National Audit Office (NAO) has estimated that taxpayers could lose as much as £26 billion from fraud, organised crime or default, as up to 60% of the loans may never be repaid.
An all too familiar story
For businesses across the UK, this may not be a surprise. Even before the pandemic, a study from PwC found that half of all UK companies had been the victim of fraud or economic crime between 2016 and 2018. The research found that for more than half of the organisations affected, criminal activity resulted in losses of around £72,000.
Fraud and financial crime, therefore, has clearly not been born as a result of the ongoing COVID-19 pandemic, nor will it diminish once the virus has passed. The case of COVID-19 loan fraud should, therefore, provide businesses, government and other stakeholders with a wake-up call and a chance to reflect on how they can reduce the risks of falling victim to financial fraud. But what lessons can these stakeholders learn and what needs to change?
Even before the pandemic, a study from PwC found that half of all UK companies had been the victim of fraud or economic crime between 2016 and 2018.
Always do your homework
We understand that the issuing of COVID-19 loan schemes was a unique situation. Lenders have been under huge amounts of pressure to approve loans quickly and help support struggling businesses. Unfortunately, this simply doesn’t give them the time they need to conduct the checks that are needed to protect themselves from fraud and financial crime. Yet this echoes similar findings from PwC’s research from a few years ago: UK organisations are generally not doing enough to prevent fraud, with only half carrying out a fraud risk assessment in the last two years.
Regardless of whether your organisation is an SME, a large enterprise or a national government, basic and thorough credit checks must be in place as part of the process of protecting your business. Through establishing the validity of a customer your business is looking to establish a working relationship with, you are immediately reducing the risk of exposing yourself to fraud or financial crime. But why stop there? Compiling credit reports and verifying a business’ status on Companies House before committing to a commercial arrangement are also effective measures that can help protect your business.
These checks go a long way for business owners, particularly SMEs, as late payments and of course, fraud, can cause disruptions to business cash flow. Cash flow issues can prove fatal for smaller business owners, which is why credit checking, building credit reports and validating other businesses and its financial status is key to survival.
Ensuring a smooth recovery
When it comes to government support loans, businesses do not have to begin paying back the money from May 2021 onwards. However, this time large time period isn’t a luxury when it comes to collecting payment from customers. Consequently, implementing a responsive and robust debt recovery process is essential to minimising the risk of non and late payment issues, helping business protect their cash flow and minimise risk.
Agreeing and making a record of credit terms in advance ensures that no business transactions can be disputed, which could later lead to businesses losing out on payment from customers Under the BBLS, the government provided lenders with a 100% guarantee for the loan. For SMEs in particular, this approach simply cannot be taken, especially if debt recovery steps, such as ensuring credit terms between businesses, are not agreed and recorded beforehand.
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Chasing owed payments is far easier after the checks to validate a business have been made. Businesses can take measures which include; credit holding, which involves pausing services to a client until they have paid. Issuing final notices is also essential to the debt recovery process, the final correspondence before taking up legal proceedings usually resolves any delayed payment issues. The problem facing the government is that fraudsters applying for support loans will do so illegitimately, therefore remaining anonymous and slipping through the debt recovery net. This reiterates the importance of verifying and checking recipients during the early stages of a business agreement, as this eases the rest of the debt recovery process.
A final word on SMEs
However, it is not just the initial checks before the first commercial transaction that must be invested in. To truly protect themselves, infrastructure must be put in place to continually monitor and chase customers. In larger businesses it is common to have a designated department or employee who will handle this process – usually this person will be known as a ‘credit controller’. Yet, we understand that many – particularly smaller businesses – do not have the resources readily available to continuously check the credit status of their customers and conduct due diligence.
Fortunately, this is where advancement in technology play a critical role. For example, by using technology to automate the credit control process, this can help businesses streamline this process so they can credit check and monitor and conduct due diligence, all from one place. Automating this process, firms can collate the information and identify areas of concern, without expending huge amounts of time and precious resources, ultimately helping them to limit risk and reduce fraud.
However, before signing up for a personal loan, you have to know its categories first and assess which one would best suit your financial needs.
Secured Personal Loans
If you have financial assets like stocks, bank deposits, mutual funds, and cash, you can certainly sign up for a secured personal loan right now. Moreover, tangible physical assets such as properties and expensive commodities can make you eligible for personal loans.
The assets mentioned above will function as collateral that will qualify you for the loan amount according to your financial capability. These will often serve as the alternative payment to the financial institution if you fail to settle your debt on the agreed loan term.
High-priced collateral would grant you a favourable loan amount. Since collateral is at stake, a secured personal loan will most likely be claiming fewer risks. Therefore, this will be quite fair for borrowers with low credit scores.
Unsecured Personal Loans
Apparently, this one is the total opposite of a secured personal loan. One example is the pre-approved personal loans, where creditors would look to see if the borrower’s credit is worthy, instead of requiring the financial assets as collateral. The credit rating will serve as the grounds if the application is approved or declined.
This type of loan poses a higher risk for the lenders. Secured personal loans allow lenders to take over the collateral if the borrower has neglected the loan terms that were agreed upon during the application period. In unsecured personal loans, lenders would only bank on the borrower's word and the credit scores they boast so much about.
This type of loan poses a higher risk for the lenders.
Fixed-Rate Loans
If you want a stable interest rate over the agreed payment term, a fixed-rate loan is the best option you can go for. If you’re on monthly repayments, you’ll never suffer from fluctuations in the interest rate every month. If you do it this way, then you can sustain consistent financial control since you’ll be allocating the same monthly payment amount for your personal loan.
Variable-Rate Loans
In this type of personal loan, your economic circumstances would determine your personal loan’s interest rate. For this reason, you aren’t entitled to the power to manage your finances as the interest rate fluctuates every month, depending on the market interest rates.
Unlike fixed-rate loans, the high risk is now charged to you. However, most variable-rate loans offer low-interest rates at the beginning of the payment term. The interest rate would change gradually as the term progresses.
How to Become Eligible for Every Loan
Here’s what you should do to become eligible for different types of loan:
Settle Your Current Loans Before Applying for Another
An existing loan doesn’t directly turn down your application for another lender. However, lenders would prefer potential borrowers with a clean credit history upon application. If you have signed in with multiple lenders, then you should consider reconciling all of these debts before applying for another.
A borrower with ongoing financial obligations will raise the risk for both the lender and the borrower. On the lender’s part, the assurance that the borrower could still put up with another loan is disputable. Of course, for the borrower, conflicts of interest could emerge amongst multiple lenders that they signed in with.
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Apply for a Fair Loan Amount
The lenders will definitely rely on your credit history. Therefore, you should secure a copy of your credit record before your loan application. You should assess and verify the figures in your credit history so that you’ll still have time to correct any errors that you see.
The loan amount will be heavily based on your financial capacity. If you think you have a clean credit score, then you can expect an agreeable loan amount. However, if you have a stained credit history, you should assume a lower loan grant.
Maintain a Good Credit Score
To sustain an outstanding credit score, you should be prompt when the time comes to pay your bills and other financial obligations. All of your financial transactions will be registered in credit bureaus.
Your payment history can tell whether you’re creditworthy or not. Hence, being branded as a delinquent payer would hinder you from applying for another loan in the future. Whether or not you plan to get a personal loan, building a good credit score must be taken seriously.
Choose the Right Lender
You should look into the rates offered by your prospective lenders. Comparing the proposals from multiple lenders could help you decide on where to apply. The loan document should be appraised. As a borrower, it is your responsibility to figure out whether a lender is legitimate or not.
Get the Requested Documents Ready
The lender would need the borrower to supply proof of identification, address proof, and bank statements issued by a valid financial institution. You have to prep all of the documents so that the lender will have a positive initial impression of you. You have to begin by presenting yourself as an accountable person.
Takeaway
Personal loans aren’t only about picking a lender and accepting the loan. There’s a lot of preparation on your part so that your loan will be approved. Hence, you need to have a good credit score sufficient to secure a personal loan without a hitch.
Multinational cinema chain Cineworld saw the value of its shares surge on Monday following an announcement that it had secured new loans worth $450 million and waivers for its debt covenants until January 2022.
In addition, Cineworld announced that it will issue equity warrants worth around 11% of its share capital, and that its new debt measures have given it over $750 million in extra liquidity and allowed its monthly cash spend to be reduced to around $60 million.
The company also extended the maturity of its $111 million incremental revolving credit facility from December 2020 to May 2024.
“Over the long term, the operational improvements we have put in place since the start of the pandemic will further enhance Cineworld's profitability and resilience,” said Mooky Greidinger, CEO of Cineworld Group.
“The group continues to monitor developments in the relevant markets in which we operate and our entire team is focused on managing our cost base.”
Cineworld has been struck hard by the COVID-19 pandemic, with government-imposed restrictions on public gatherings forcing it to close its theatres and make heavy layoffs.
The news of its new debt relief elevated Cineworld shares by 19.5% in early trading, reaching 55.08 pence per share. Last year saw a high of £2.27 per share, having since fallen by 77% since the onset of the COVID-19 pandemic.
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Cineworld has also emerged as the UK’s most shorted stock, with around 9.51% of its shares held short by 10 investment firms, according to analysis from GraniteShares.
These tips can help you get the funding you need even if your credit is not the best.
Self-Funding
The best way to fund your business is using your own money, a process known as bootstrapping. You can turn to family and friends or tap into savings. You can even borrow against a 401k to get the funding you need. In fact, more than half of all business owners say that they received financing help from friends and family.
This type of financing is not based on your credit score and, in some cases, borrowing from family may help you increase your credit score if you use the funds to catch up late payments as well as funding your business.
Venture Capital
Another method for funding your business is seeking venture capital from investors. This type of investment is normally provided with a share of ownership in the company. The investor may also want to take an active role in your business. There are differences between traditional financing and venture capital which include:
- Focuses on companies with high growth
- Investments have longer terms
- Investments are in return for equity and are not considered debt
- Higher risk for investor but potential for higher return
- Loss of some control and ownership
There are many venture capital firms who offer funding to business owners. You will need a solid business plan, and there will be a due diligence review. If the investors are interested, you will agree on terms and the funding is provided.
Normally, venture capital is provided as you meet milestones which means you may not get the full amount up front. You will have to meet certain goals included in the terms to receive percentages of the investment over time.
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Crowdfunding
Websites like Kickstarter and GoFundMe allow you to seek investments from a large number of people. The process, known as crowdfunding, lets people donate small amounts to your business to see you succeed. In some cases, you may have to give them a gift or reward as a thanks for the donation, usually a free product, acknowledgement of their contribution or other benefit.
This type of funding is best for companies that produce creative works like art or film as well as those who have created a unique product, such as a high-tech vacuum. There is very little risk to your business and, if your business fails, you are not required to repay the investors. The crowdfunding sites do take a percentage of anything you raise, however.
Traditional Financing
Loans are another popular method for funding a business. However, if there are obstacles to getting a traditional business loan, the Small Business Administration partners with banks to offer loans that are guaranteed by the organisation.
This type of loan is especially designed for those who may have difficulty obtaining a traditional loan, like those with poor credit. There are special requirements and stipulations you must meet in order to qualify, but your lender should have information about the Small Business Loans that will work for your company.
Grants and Gifts
There are many grants and gifts available to help small businesses, but it is important to be careful. Companies that offer to locate a government grant for a fee are often fraudulent and can lead to excessive costs that you will not be able to recover.
There are grants available for specific types of industries, such as technology or retail, but you will need to search in order to find one that works for you. Also keep in mind that grants are very competitive, so you may need to fill out quite a few applications before you are successful.
Gift financing may also be non-cash benefits such as free office space or free services from businesses who want you to succeed.
Further information on business loans is available if you would like to learn more about your options.
If you have been injured in an auto accident, your injuries may prevent you from working, which means you may be struggling to manage your finances. A legal settlement can take months, and sometimes years, before you ever receive any money. While you wait, you must still pay your mortgage, your car payment, and all your other bills. In many cases, you will be doing this while you are missing work due to an injury.
If you’re drowning in debt and struggling to make ends meet after an accident, one option you could take advantage of in your situation is a loan designed specifically for someone in your position. There are some disadvantages to legal funding, such as the fact that you’ll need to pay the loan back with interest if you win, but in many cases it can be a real life saver.
What is Legal Funding?
Legal funding is sometimes known as a pre-settlement loan. You are provided money as a cash advance on money you will receive as part of your settlement or lawsuit outcome. This means you don’t need to wait until the case is over to receive a portion of your settlement and some companies can provide you with funding within a few days. You will benefit from learning all you can about what legal funding is and how it works.
What if You Lose?
No matter how ironclad you think your case may be, there is always a chance you could lose. When you apply for legal funding, the company will research your case and determine what your chance of winning may be. If you lose your lawsuit, you will not be required to pay the money back.
One thing people appreciate about this type of funding is the fact that there are no monthly payments while you wait for your case to wind through the court system. There are no credit checks, as the loan is based on the merits of the case. If the legal funding company doesn’t think you can win the case, they will not lend you the money.
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How Much Will the Loan Cost?
There are companies that charge an application or origination fee, and some of those can be fairly high. Most companies, however, review your case for free. Interest can range between 1.99% to 3.99% per month, but some loans have a cap of 30% to 60% annually. Other companies simply charge a percentage of the settlement amount while still others charge a percentage of the amount of the loan.
Each company is different, and it is important to research in order to find the best rates. Keep in mind the company lending the money is taking a risk that your lawsuit will be successful. Be sure that the actual payback amount is in the contract, as some companies may include escalating compound interest that could have you owing more than your settlement amount.
Does My Attorney Need to Know?
It is recommended that you tell your attorney that you are applying for legal funding. Most attorneys are familiar with the process and, even if your attorney recommends against the loan, it is still your decision. In some instances, attorneys find legal funding beneficial.
If you may receive a large settlement, the other side may try to drag the case out hoping that financial difficulties could lead you to accept a lower settlement offer. With legal funding, you will have the financial ability to wait for the settlement you deserve. Because your lawyer wants you to get the largest settlement you can get, they may support legal funding.
If you are a small business owner, you may know how difficult it is to get a business loan from banks and other financial institutions. The number of small business loans by traditional lenders has been on a decline since the 2008 financial crisis. This is not exciting news for small business owners who require financing to keep their small businesses moving.
However, this doesn't necessarily mean you can't acquire a business loan when you need one. You can always get a loan from a direct lender. You don't have to only rely on traditional lenders; direct lenders are a great option for short-term loans. Here are five benefits of working with direct lenders.
1. Easier loan approval
Have you ever wondered why big banks and financial institutions are not interested in giving out loans to small businesses? It's because the returns associated with small business loans are not worth the risk to them. Direct lenders don't think this way, which makes it easier for small business owners to get financial assistance from direct lenders.
2. Flexible loan terms
Unlike strict bank loan terms, direct lenders offer flexible loan terms that are favourable to small business owners. They are more accommodating when it comes to their interest rates. If you have a good credit score, you have a good chance of securing favourable terms with a direct lender. If your credit score is not good, direct lenders can still find an option on how to work with you.
3. Quick cash release
Time is of the essence for small business owners looking to keep their businesses afloat. Traditional lenders do not realise this, and most of them take a while to approve loans and release the cash. This is not the case with direct lenders, most of whom operate their businesses online. This means they approve loans and release loan cash quickly.
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4. No large down payments
Normally, banks and bigger financial institutions require a huge down payment before they agree on repayment terms. This is unfavourable to small businesses, most of which do not have the ability to make a big down payment. Generally, direct businesses don't require big down payments. However, there will be times when down payments will be unavoidable, but be sure they will be reasonable for small business owners.
5. You can acquire working capital
Working capital is the money required to fund a business's daily activities. Most banks and financial institutions are unlikely to give working capital loans to small businesses. Fortunately, you can get a working capital loan from a direct business lender.
Endnote
Many people can get a loan as long as they have the ability to repay it. However, it is a struggle for many small business owners as most banks and other traditional lenders fail to approve their applications, take forever to approve and release loan cash, and when they do, they give unfavorable loan terms. Fortunately, direct lenders approve and release loan cash quickly, and their loan repayment terms are flexible.
Nic Redfern, Finance Director at Know Your Money, offers Finance Monthly his advice for businesses ensure stable debt repayments.
It has been a hugely volatile year for UK businesses. The coronavirus pandemic has caused unprecedented economic turbulence, which continues to threaten many companies, as well as the job security of millions of employees.
Despite the Government putting in place substantial support packages to help businesses weather the storm, employers are still plagued with uncertainty. Indeed, 46% of businesses have seen demand for their services fall due to COVID-19, according to a recent survey of over 530 businesses conducted by KnowYourMoney.co.uk.
The research also showed that, with sales declining and cashflow issues rife, over a third (38%) of UK companies have taken on more debt in 2020. Of course, taking on debt can be beneficial to businesses – it can support growth or ensure survival – but failure to effectively plan for repayments can pose some serious problems in the future.
Unfortunately, planning for the future is hard at times like these. In fact, according to KnowYourMoney.co.uk’s study, over half (56%) of British businesses are struggling to make any long-term financial plans due to the uncertainty surrounding the pandemic. The fact a second lockdown has been announced since this survey was conducted will likely have made matters worse.
However, even amidst such disruption and uncertainty, there are steps that can be taken to help businesses get to grips with their debt repayments.
Take an inventory of the debt
Firstly, business leaders should make a note of all their debts. These will range from large repayments such as business loans and lines of credit, to smaller expenses, like business credit cards. This process will help employers understand which debts to confront first and where cuts can be (or need to be) made, thereby simplifying the repayment process.
Of course, taking on debt can be beneficial to businesses – it can support growth or ensure survival – but failure to effectively plan for repayments can pose some serious problems in the future.
In most cases, it is beneficial for businesses to prioritise repaying debts with the highest interest rates. This is because the longer it takes to pay off high-interest debts, the more a company will end up paying in the long term; tackling this debt early on will help to reduce long-term expenditure.
This exercise is particularly important for small and medium enterprise (SME) businesses, as they tend to face higher interest rates and shorter repayment timeframes. This is largely because UK SMEs' cash-to-debt ratio has been declining over recent years, meaning they find it harder to keep up with debt repayments. So, organising debts as early as possible will certainly help such smaller firms to avoid late payments, which could jeopardise their survival.
Choosing a debt reduction strategy
Once the debt inventory has been completed, employers can look to develop a sustainable debt reduction strategy. The most basic form of debt reduction is the spartan approach. This involves the business limiting their spending to the bare necessities until the debt is repaid. However, this hard-line strategy might not give businesses the flexibility they require to run effectively.
Another popular option for businesses is to refinance debt. This typically means taking on a new loan in order to pay off existing debt. It can be a way of consolidating multiple debts into one manageable repayment, or to secure a lower interest rate. This is a particularly useful strategy for business owners with a good or excellent credit score. However, consolidating debt, even at a lower interest rate, can cost you more in the long term if you extend the term of your loan(s).
That said, refinancing a loan can come with complications; for example, some lenders may impose penalties on businesses who fully repay their debts earlier than agreed. Thus, employers should read the terms of existing loan agreements, before committing to this strategy.
Cutting costs
Employers must also develop a sustainable budget and identify where savings can be made to finance repayments. This may seem like an obvious step, but some businesses may be unsure where to begin.
A good starting point would be to review which office equipment is not used as often as it could be; for example, laser printers or seldomly used office furniture. Employers could look to sell-off such expensive items. Additionally, they may consider purchasing second hand items in the future or shopping around for cheaper suppliers; it may not seem like a big step, but employers may be surprised by the savings they could make in their operational costs.
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Alternatively, businesses owners might consider moving to smaller premises where rent and utility costs would likely be cheaper. Indeed, moving to co-working spaces, or even making the move to permanent remote working could present scope to make further savings.
Of course, no two businesses are the same and certain cost-cutting measures will suit some more than others. So, employers should take their time when assessing their outgoings to understand which cuts, they can make without endangering the business.
Seek advice when needed
These are trying times for businesses everywhere – even for some of the largest and best-prepared of corporations – and, at times, getting the organisation’s finances in order might seem like an insurmountable challenge. In many cases, therefore, I would recommend that business owners seek further advice.
Depending on the needs of the particular organisation, owners might look to business consultants, accountants, specialised credit counsellors or financial planners for some more focused assistance. These experts are able to assess all elements of an organisation and develop a tailored strategy to suit the businesses specific needs. Especially during difficult economic periods when businesses might seek to pool their resources, this can be a great source of help when navigating debt.
All in all, business owners should remember that they do not have to weather the storm alone. With sound advice and perseverance, companies should be able to lessen their financial burdens, and find a workable and personalised repayment strategy.
Invoice factoring companies offer significant assistance to businesses that handle a large volume of outstanding invoices. These entities help ensure continuous cash flow, thereby making the business more easily sustainable. They do this by taking care of the debt collection function for you. They get direct payments from your customers and forward the money to your account after deducting their fees.
Not all factoring companies can respond effectively to your business’s unique needs, however. In this article, we present the factors that you should look into before you pick the factoring company that you are going to partner with.
Float Period
Almost every factoring agreement has provisions regarding the float period. The float period is the amount of time that you have to wait before a customer’s payment gets posted on your account. Usually, float periods last up to the three days since the payment is made.
The waiting is going to be an issue if it is stipulated in your contract that the factoring fee increases as the outstanding invoice ages. We shall talk more about this when we discuss pricing below.
To illustrate, suppose the contract states that the factoring company can charge 1.5% of the invoice amount for invoices that had been outstanding for 16 to 30 days, and 2.5% for invoices that are 31 to 45 days old. A payment that has been made on the 29th day will only be posted on the 31st day, which puts that particular invoice in a more expensive bracket. This can lead to a significant increase in your financing expenses.
If possible, negotiate with the factoring company to reduce their float period. If you can find one, it will be much better to deal with a company that does not make you wait before they post payments that they received.
Pricing
Generally, the price of a factoring service depends on three major factors: the total amount of the invoices, how long the invoices have been outstanding, and the credit quality of the customers. As much as possible, avoid companies that have lots of ancillary fees.
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Economies of scale still work in factoring deals. Since many of the expenses associated with the maintenance of the factoring relationship are somewhat fixed, you get more value for money as the invoice value gets bigger and bigger.
The age (in days) of the outstanding invoices matters because this is also the length of time that the factoring company’s money is out. Clearly, the risk of an outstanding invoice not being paid rises with time.
Finally, the credit quality of the customers matter because this represents the likelihood of the money being returned. If your company’s customers have generally bad credit ratings, then you should be ready to pay more to compensate for the risk that the factoring company is going to take.
Customer Service
Factoring relationships clearly involve money, and things can easily go wrong when money is at stake. Due to this, it’s important that you choose a factoring company that is represented by people who are approachable and easy to talk to, making it easier for you to communicate and make requests whenever necessary.
Choosing the right factoring company isn’t overly difficult, but it’s still something that you need to do systematically. Presented here are just three generally more important aspects. There might be others that are unique to your niche or industry.
