Tag: Lenders

Risky SIC Codes in a Recession: The Ugly Truth of Risk and Skittish Lenders

Risky SIC Codes –Will Your Business Be Denied Funding?

All businesses can potentially have problems getting loans during a recession. This is the nature of an economic downturn – funding tends to dry up. Higher-risk businesses have problems even in the best of economic times. But when you put them both together, you get risky SIC codes in a recession.

If funding possible at all? While SIC codes may or may not matter for SBA Paycheck Protection Program funding, they do matter elsewhere.

Do you know which SIC codes get you denied? But before we go any further, just what is a SIC code, anyway?

Risky SIC Codes in a Recession: SIC Codes

The SIC Code (Standard Industrial Classification) is a part of a business classification system.

A Standard Industry Classification code, or SIC is a four digit numerical code which is assigned by the U.S. government to businesses, to make it easier to identify the primary activity of the business. It is an indicator of the kind of business a company is in.

The Securities and Exchange Commission developed this system. For example, if your company makes tires and/or inner tubes, then your SIC code would be 3011. The numbers are somewhat intelligent in that there are ranges of industry groups which correspond to the first of the four digits, such as manufacturing corresponds to four-digit SIC codes which start with either a 2 or a 3.

The combination of the first and second digits then defines the major industry group. In our example, 30 will designate ‘Rubber and Miscellaneous Plastic Products’.

The SIC code’s digits are grouped to identify the industry and industry group. The first two digits in the SIC code identify the major industry group, the third digit identifies the industry group and the fourth digit identifies the industry.

The IRS

In fact, the Internal Revenue Service will use the SIC code that you select. This is in order to determine if your business tax returns are comparable to the other businesses in your industry. Hence, if your tax deductions do not reasonably resemble the other businesses in your industry, your business could be audited.

Furthermore, some companies may be labeled high-risk when they do not select the right SIC codes to classify their company. However, if you understand how the business classification system works, then you can choose the correct code on your first try.

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Risky SIC Codes in a Recession: NAICS Codes

The North American Industry Classification System (NAICS) is another business classification code.

This code classifies business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. economy. NAICS industry codes define establishments based on the activities in which they are primarily engaged.

The NAICS puts out its own list of high-risk and high-cash industries. Higher risk industries on the list include casinos, pawn shops, and liquor stores, but also automotive dealers and restaurants.

OSHA requires injury and illness reports from certain high-risk industries.

Restricted industries (automatic decline) include:

  • Ammunition or Weapons Manufacturing; wholesale and retail.
  • Bail Bonds
  • Check Cashing Agencies
  • Energy, oil trading, or petroleum extraction or production
  • Finance: (Federal Reserve Banks, foreign banks, banks, bank holding companies,
    loan brokers, commodity brokers, security brokers, mortgage brokers, mortgage bankers, mortgage companies, bail bond companies, or mutual fund managers).
  • Gaming or Gambling Activities
  • Loans for the speculative purchases of securities or goods.
  • Pawn shops
  • Political campaigns, candidates, or committees
  • Public administration (e.g., city, county, state, and federal governmental agencies).
  • X-rated products or entertainment

High-Risk Industries (subject to stricter underwriting guidelines):

Risky Standard Industry Classification Codes in a Recession Credit Suite

  • Agriculture or forest products
  • Auto, recreational vehicle or boat sales.
  • Courier services
  • Computer and software related services.
  • Dry cleaners
  • Entertainment (adult entertainment is to be considered restricted).
  • General contractors
  • Gasoline stations or convenience stores (also known as c-stores)
  • Healthcare; specifically nursing homes, assisted living facilities, and continuing care retirement centers.

More High-Risk Industries

  • Special trade contractors
  • Hotels or motels
  • Jewelry, precious stones and metals; wholesale and retail.
  • Limousine services
  • Long distance or “over-the-road” trucking.
  • Mobile or manufactured home sales.
  • Phone sales and direct selling establishments
  • Real estate agents/brokers
  • Real estate developers or land sub-dividers
  • Restaurants or drinking establishments.
  • Software or programming companies
  • Taxi cabs (including the purchase of cab medallions) .
  • Travel agencies

Risky SIC Codes in a Recession: Which Code is in Use?

They both are. However, the SIC code system is phasing out and NAICS will replace it. But for the moment, assume they are both in play, as the transition has not yet finished. These coding systems are similar but not identical.

Lenders, banks, insurance companies and business credit reporting agencies use the two business classification systems to determine if your business is a high-risk industry classification. This means that you could get a denial for a loan or a business credit card based on your business classification. Some SIC codes can trigger automatic turn-downs, higher premiums, and reducing credit limits for your business.

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Risky SIC Codes in a Recession: Risks

When considering any aspects of a business, risk has to be a major factor. There are inherent issues in every single industry. Crops fail, lease terms go up too high so a company has to move, or tariffs or even a war make importing less reliable.

But some businesses are considered to be risky by their very nature. And this is the case even if everything else goes off like a hitch and the business is prospering. Risk is inherent within these business types. Therefore, even if your business doesn’t feel risky, it just might be anyway.

Why Risk Matters

The biggest reason why risk matters has to do with funding. There are several industries where lending institutions are hesitant to do business. In those particular cases, there are stricter underwriting guidelines. But at least a company can get funding.

Not so with other industries. In some industries, no funding is available at all. As a result, those businesses will need to find other solutions for financing. These solutions can include, potentially, crowdfunding, angel investors, venture capital, business credit building and more.

Still, a lot of businesses would rather work with lenders. But where are lenders’ ideas of the magnitude of risk coming from?

Risky SIC Codes in a Recession: Real Injury Risks According to the CDC

In 1999, the Centers for Disease Control published an article on risks in small businesses. This article contains information on SIC codes. And it gives information on injuries associated with the codes. While this is not the true means by which lending institutions decide on risk, it is still of interest. And it can demonstrate what may be behind some of the reasoning.

Part of the calculation of risk comes from occupational injuries.  These are such as those noted in the CDC report. But the other side of the risk coin is occupations which are high in cash transactions. After all, a pawn shop might not have much of a specific risk of injury at all. But the large amounts of cash normally associated with one mean that it can be a tempting target for thieves.

Risky SIC Codes in a Recession: Choosing Better SIC Codes

The choice of SIC code is yours. For automotive sales, for example, you would normally select 5511, ‘Motor Vehicle Dealers (New and Used)’. But most lenders will automatically turn your business down because of the high-risk factor within the business classification name. Of course you want to be honest with your SIC coding classification. But if more than one SIC code could apply, there is nothing wrong with choosing the SIC code which will not get you denied by lenders.

Therefore, if you want to have your automobile sales company, you need to develop a business code which has auto and home supply stores, motor vehicle parts and accessories, or car washes written in the actual business code. That way, you can still operate your real business of “automotive sales” without actually being considered a risk factor.

There is nothing deceptive or dishonest about doing this.

Check the SIC code database for more information on these codes.

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Risky SIC Codes in a Recession: Choosing Lower-Risk Business Names

Beyond coming up with the perfect memorable name which is easy to spell and say, and evokes your company’s mission statement, there’s also the matter of risk. Adding a risky business type into your business name will trigger financing denials.

For example, bail bonds are a restricted industry. So are many types of financing business types, and check cashing agencies. Hence naming your venture Chico’s Bail Bonds is a recipe for a delay if not an outright denial.

But it is the same as with choosing a lower-risk SIC code when two apply. There is nothing deceptive, illegal, or unethical in naming your company Chico’s.

Will this more generalized name guarantee funding for your business venture? Of course it won’t. But at least your business will not be automatically turned down before you can make your case for funding.

Risky SIC Codes in a Recession: Takeaways

Choosing the incorrect SIC codes could end up costing your business and get you labeled as high-risk. And this could directly impact your insurance premiums, your financing ability, and even your credit limit recommendations. This small error of choosing the wrong SIC codes could cost your business in the future. Therefore, be sure to do your research before you select any SIC codes for your business. Because you might just end up choosing risky SIC codes in a recession. And those could get you a denial. And it does not have to be that way.

 

 

 

The post Risky SIC Codes in a Recession: The Ugly Truth of Risk and Skittish Lenders appeared first on Credit Suite.

What Do Lenders Gain?

With the rising of the customers investing power and also with even more financial debts being taken to settle their old one … the inquiry should be what does the loan provider not get? With the rise in the acts and also guideline passed to hold the lending institution area in check as well as …

How Do Lenders Measure Business Fundability?

Have you ever wondered what exactly it is that lenders are looking for when it comes to approving a loan? Is it just your credit score, or is there more that comes into play? Why do you keep getting denied despite a strong, successful business with plenty of profit? How do they measure business fundability?

The answers to these questions can vary from lender to lender. 

What are Lenders Looking at to Determine Business Fundability? 

Honestly there is really no way to know for sure what exact information a lender is going to choose to use in their decision making.  What you can do, however, is learn everything you can about business fundability and what affects it. By doing that, you can begin to make changes where possible in an effort to ensure anything a lender sees is as positive as possible. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit. 

What is Business Fundability?

To do this, you first have to know exactly what business fundability is.  The easiest way to explain it is to say it is how worthy of credit your business is.  If a lender considers your business to be fundable, it means they see your business as a low credit risk. However, everything that goes into being fundable is much more complicated.  

It is easiest to start at the beginning. Believe it or not, business fundability actually starts with how your business is set up. 

Business Fundability: The Set Up

These are the things that lenders consider, either directly or indirectly, in relation to how your business is set up.  They all work together to build the credibility and legitimacy of your business. 

Contact Information

The first step in setting up a foundation on which to build business fundability is to get your business its own phone number, fax number, and address.   What is surprising to some, is that this doesn’t mean you have to get a separate phone line, or even a separate location. You can run your business from your home or on your computer, and you do not even have to have a fax machine.  Find out more about how this here and here. 

EIN

Your business needs and EIN.  This is an identifying number for your business that works the same way your SSN works for you personally.  It looks more credible to use this number rather than your SSN for business loan applications. Having an EIN is also important for building business credit, as it separates your business accounts from your personal accounts. You can get one for free from the IRS.

Incorporate

This is the most important step in fundability thus far.  Incorporating your business as an LLC, S-corp, or corporation is necessary to fundability.  It lends credence to your business as one that is legitimate. In addition, it also offers some protection from liability. 

Which option you choose has more to do with your budget and how much liability protection you need than it does for fundability.  The best thing to do is discuss the issue with your attorney or a tax professional.  

Incorporation has to happen as soon as possible.  Time in business counts toward fundability and for business credit.  This starts over at incorporation, regardless of how long your business has been in operation before incorporation.  Not only that, but any positive business credit history you have up until the point of incorporation will be lost as well.

Business Bank Account

You have to open a separate, dedicated business bank account.  There are a few reasons for this. First, it will help you keep track of business finances.  It will also help you keep them separate from personal finances for tax purposes. 

In addition, there are several types of funding you cannot get without a business bank account.  Some lenders and credit cards want to see one. Also, you cannot get a merchant account without a business account at a bank. That means, you cannot take credit cards payments.  Consumers tend to spend more when they can pay by credit card.

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit. 

Licenses

For a business to be legitimate it has to have all of the necessary licenses it needs to run legally.  If it doesn’t, red flags are going to fly up all over the place. Do the research you need to do to ensure you have all of the licenses necessary to legitimately run your business at the federal, state, and local levels. 

Website

How does a business website affect fundability?  Here’s how. In today’s world, we all run to the internet first for virtually everything.  For most businesses, the website is the first impression you make on anyone, including lenders.  If it appears to be unprofessional, it will cause problems.

Spend the time and money necessary to ensure your website is professionally designed and works well.  Pay for hosting too. Don’t use a free hosting service. Also, your business needs a dedicated business email address.  Make sure it has the same URL as your Website. Don’t use a free service such as Yahoo or Gmail.

Business Fundability: Business Credit Reports

This is what most business owners think about when it comes to business fundability. That is the credit report, much like your consumer credit report, that details the credit history of your business.  It is a tool to help lenders determine how credit worthy your business is.  

Where do business credit reports come from?  There are a lot of different places, but the main ones are Dun & Bradstreet, Experian, Equifax, and FICO SBSS.  Since you have no way of knowing which one your lender will choose, you need to make sure all of these reports are up to date and accurate. 

Not only that, but you need to be sure you actually have business credit. It does not build passively as a result of credit transactions in the same way consumer credit does.  That set-up for fundability? It is necessary to begin building business credit as well. After you have that, you have to get accounts reporting, which is a whole other process.  Find out more about that here. 

Other Business Data Agencies 

In addition to the business credit reporting agencies that directly calculate and issue your credit reports, there are other business data agencies that affect those reports indirectly.  Two examples of this are LexisNexus and The Small Business Finance Exchange. These two agencies gather data from a variety of sources, including public records.  This means they could have access to information relating to automobile accidents, liens, and more. While you may not be able to access or change the data the agencies have, you can ensure that any new information they receive is positive.  Enough positive information can help counteract any negative information from the past. 

Identification Numbers 

In addition to the EIN, there are other identifying numbers related to business credit reports.  You need to be aware that these numbers exist. Some of them are simply assigned by the agency. One, however, you have to apply for.  It is pertinent that you do this. 

That number is a D-U-N-S number from Dun & Bradstreet.  D&B is the largest and most commonly used business credit reporting agency.  Every credit file in their database has a D-U-N-S number. To get a D-U-N-S number, you have to apply for one through the D&B website. 

Business Credit History

Your credit history has everything to do with everything related to your credit score, which is a huge factor in the fundability of your business.  

Your credit history consists of a number of things including: 

  • How many accounts are reporting payments?
  • How long have you had each account? 
  • What type of accounts are they?
  • How much credit are you using on each account versus how much is available?
  • Are you making your payments on these accounts consistently on-time?

The more accounts you have reporting on-time payments, the stronger your credit score will be. 

Business Information

On the surface, it seems obvious that all of your business information should be the same across the board everywhere you use it.  However, when you start changing things up like adding a business phone number and address and incorporating, you may find that some things slip through the cracks. 

This is a problem because a ton of loan applications are turned down each year due to fraud concerns simply because things do not match up.  Maybe your business licenses have your personal address but now you have a business address. Fix it. Do some of your credit accounts have a slightly different name or a different phone number listed than what is on your loan application? Make sure your insurances all have the correct information, too.  

The key to this piece of the business fundability is to monitor your reports frequently.   When it comes to business credit reports, you can monitor through the reporting agencies directly, or save money by going here. 

Financial Statements

This covers a broad spectrum.  First, there is the obvious. Both your personal and business tax returns need to be in order.  Not only that, but you need to be paying your taxes, both business and personal. But wait, there’s more.  

Business Financials

It is best to have an accounting professional prepare regular financial statements. Having an accountant’s name on financial statements lends to the legitimacy of your business. If you cannot afford them monthly or quarterly, at least have professional statements prepared annually. This way, they will be ready whenever you need them. 

Personal Financials

Often this is simply tax returns for the previous three years.  That is the bare minimum you will need. Other information lenders may ask for include check stubs and bank statements. 

Bureaus

There are several other agencies that hold information related to your personal finances that you need to know about as well.  One example is ChexSystems. It keeps up with bad check activity and makes a difference when it comes to your bank score. If you have too many bad checks, you will not be able to open a bank account.  That will cause serious fundability issues. 

For this point, everything comes into play.  Have you ever been convicted of a crime? Do you have a bankruptcy or short sell on your record?  How about liens or UCC filings? All of this can and will play into business fundability. 

Personal Credit History

Your personal credit score from Experian, Equifax, and Transunion all matter.  You have to have your personal credit in order because it will definitely affect business fundability.  If it isn’t the best, get to work on it now. The number one way to get a strong personal credit score or improve a weak one is to make payments regularly on-time.

Also, make sure you monitor your personal credit regularly to ensure mistakes are corrected and that there are no fraudulent accounts being reported. You can get one free copy of your personal credit report annually.

Business Fundability: Application Process

So much plays into this that you may not even think about. First, consider the timing of the application.  Is your business currently fundable? If not, do some work to change that. Next, make sure that your business name, business address, and ownership status are all verifiable.  Lastly, make sure you choose the right lending product for your business and your needs. Do you need a traditional loan or a line of credit? Would a working capital loan or expansion loan work best for your needs?  Choosing the right product to apply for can make all the difference. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit. 

Do Lenders Really Look at All of These Things for Business Fundability? biz funding Credit Suite2

Maybe not directly.  For traditional lenders, your personal credit and finances are going to directly affect your ability to get a business loan for sure.  Your business credit may be able to help you get a better rate, or push you over the approval line if personal credit isn’t as great as it needs to be.  Private lenders may lean more toward business credit.  

Neither is likely to pull, or to even be able to pull, a report directly from another agency however.  Furthermore, most will not seek out public records. However, those things can show up on and affect your credit reports.  Not only that, but if in the process a lender sees a discrepancy in name or address, it will throw up red flags.  

Even something minor like a poorly put together website, when coupled with a few other seemingly minor issues, can be enough to put you out of the running for a business loan all together.  It’s best to have a thorough understanding of what business fundability is and what affects it, so you can keep any issues, either minor or major, from causing problems. 

Business Fundability: How it All Ties Together

Truly, few business owners understand how important business fundability really is.  Even if they do, they are not sure what to do about it. However, if you set up things right, pay attention to what’s out there, and ensure all the information is as correct as possible, you have a good start.  The only way to do this is to consistently monitor credit reports. If your business credit isn’t the best, or if you do not yet have business credit, find out how to start and build strong business credit here.   

The post How Do Lenders Measure Business Fundability? appeared first on Credit Suite.

Exclusive Student Loan Lenders – A Way to Get Finances For Your Education

Exclusive Student Loan Lenders – A Way to Get Finances For Your Education

Exclusive Student Loan Lenders – A Way to Get Finances For Your Education
In instance you are not able to pay them on your own, or you have not been able to prepare for a government finance, you can choose for the numerous exclusive trainee financings. There are a number of personal trainee financing lending institutions all throughout the United States that can give you with these trainee car loans.
The personal pupil finance lending institutions offer various kinds of car loans. They consist of the undergraduate exclusive education and learning finances as well as graduate exclusive trainee fundings.
The loan providers additionally supply proceeding education and learning car loans. These financings offer you with adaptable car loan quantities that vary from $1,000 to $40,000. The optimum lending quantity that you can obtain under such a lending is $150,000.
The funding quantity supplied by the personal loan providers is implied to take treatment of the tuition charges and also the living costs. The ideal point concerning obtaining the financings from any of the personal lending institutions is that you have to begin the repayments just after you finish your researches.
In order to make use any one of the above discussed financings, the personal lending institutions require you to accomplish particular qualification needs.
If you get a grad or under graduate financing program, you need to be an undergraduate/graduate pupil, 18 years old or older. You must be registered at the very least half-time in a specific certification or level program if you are an undergraduate trainee. Occasionally the loan providers just think about the certification or level program given by an organization accepted by the loan provider.
You ought to be signed up at the very least half-time in a graduate or expert program if you are using for a graduate pupil lending or a proceeding education and learning trainee financing. Once again the lending institution might take into consideration whether you are researching in an establishment accepted by the loan provider.
You require to be a U.S. Citizen to be qualified for the car loans. Also if you are a non United States person, you require to have a legitimate unexpired Alien Registration Receipt Card or INS develop I-151 or I-551.
In instance you do not have a credit rating, or your credit report is unsatisfactory, you will certainly require a co-signer. You can ask among your moms and dads or any kind of various other individual to be your carbon monoxide endorser. The only point is that the carbon monoxide endorser needs to be debt worthwhile.
Several of the most significant exclusive trainee funding lending institutions that you can get in touch with are Chase Private Student Loans, Act personal trainee fundings, National City Direct Student Loans. Take a look at the different finance programs supplied by them as well as pick one of the most appropriate one on your own. Louis Zhang, Ezprivatestudentloans dot com

In situation you are not able to pay them on your own, or you have not been able to set up for a government finance, you can choose for the different exclusive pupil finances. There are a number of personal trainee financing lending institutions all throughout the United States that can supply you with these trainee lendings. The exclusive trainee financing lending institutions give various kinds of fundings. They consist of the undergraduate personal education and learning lendings as well as graduate exclusive trainee lendings. Some of the most significant exclusive pupil finance lending institutions that you can speak to are Chase Private Student Loans, Act personal pupil financings, National City Direct Student Loans.

The post Exclusive Student Loan Lenders – A Way to Get Finances For Your Education appeared first on ROI Credit Builders.

Exclusive Student Loan Lenders – A Way to Get Finances For Your Education

Exclusive Student Loan Lenders – A Way to Get Finances For Your Education

Exclusive Student Loan Lenders – A Way to Get Finances For Your Education
In instance you are not able to pay them on your own, or you have not been able to prepare for a government finance, you can choose for the numerous exclusive trainee financings. There are a number of personal trainee financing lending institutions all throughout the United States that can give you with these trainee car loans.
The personal pupil finance lending institutions offer various kinds of car loans. They consist of the undergraduate exclusive education and learning finances as well as graduate exclusive trainee fundings.
The loan providers additionally supply proceeding education and learning car loans. These financings offer you with adaptable car loan quantities that vary from $1,000 to $40,000. The optimum lending quantity that you can obtain under such a lending is $150,000.
The funding quantity supplied by the personal loan providers is implied to take treatment of the tuition charges and also the living costs. The ideal point concerning obtaining the financings from any of the personal lending institutions is that you have to begin the repayments just after you finish your researches.
In order to make use any one of the above discussed financings, the personal lending institutions require you to accomplish particular qualification needs.
If you get a grad or under graduate financing program, you need to be an undergraduate/graduate pupil, 18 years old or older. You must be registered at the very least half-time in a specific certification or level program if you are an undergraduate trainee. Occasionally the loan providers just think about the certification or level program given by an organization accepted by the loan provider.
You ought to be signed up at the very least half-time in a graduate or expert program if you are using for a graduate pupil lending or a proceeding education and learning trainee financing. Once again the lending institution might take into consideration whether you are researching in an establishment accepted by the loan provider.
You require to be a U.S. Citizen to be qualified for the car loans. Also if you are a non United States person, you require to have a legitimate unexpired Alien Registration Receipt Card or INS develop I-151 or I-551.
In instance you do not have a credit rating, or your credit report is unsatisfactory, you will certainly require a co-signer. You can ask among your moms and dads or any kind of various other individual to be your carbon monoxide endorser. The only point is that the carbon monoxide endorser needs to be debt worthwhile.
Several of the most significant exclusive trainee funding lending institutions that you can get in touch with are Chase Private Student Loans, Act personal trainee fundings, National City Direct Student Loans. Take a look at the different finance programs supplied by them as well as pick one of the most appropriate one on your own. Louis Zhang, Ezprivatestudentloans dot com

In situation you are not able to pay them on your own, or you have not been able to set up for a government finance, you can choose for the different exclusive pupil finances. There are a number of personal trainee financing lending institutions all throughout the United States that can supply you with these trainee lendings. The exclusive trainee financing lending institutions give various kinds of fundings. They consist of the undergraduate personal education and learning lendings as well as graduate exclusive trainee lendings. Some of the most significant exclusive pupil finance lending institutions that you can speak to are Chase Private Student Loans, Act personal pupil financings, National City Direct Student Loans.

The post Exclusive Student Loan Lenders – A Way to Get Finances For Your Education appeared first on ROI Credit Builders.

Just Funded… $30,500 when Denied at 4 Other Lenders

We just funded $30,500 for one of our transport company clients who had been denied at 4 other sources, before they came to us.

They had tried other sources, but due to there being too many NSF charges on their bank account, they were denied each time they applied.

Even though they were hoping for $20,000 they planned on using for tax purposes and working capital, so far they have secured $30,500, and we’re working on getting them even more.

Click Here to see how much funding you can get for your business.

The post Just Funded… $30,500 when Denied at 4 Other Lenders appeared first on ROI Credit Builders.

Creditors and Predators: 10 Ways to Avoid Falling Prey to Predatory Lenders, and 6 Questions to Ask Before You Jump In

How to Tell the Difference Between Legit Creditors and Predators Out to Eat You Alive

Watch any animal reality show and you will see what happens between predators and prey.  In a similarly menacing way, some lenders actually prey on unsuspecting borrowers.  Not only do they leave finances in ruins, but often the trail of destruction trails across their entire lives.  They basically eat their prey alive.  How can you avoid falling victim to these devilish creatures?  We are going to show you how to tell the difference between legit creditors and predators, so that you can survive in the credit wilderness.

Know Thy Enemy: What is Predatory Lending

According to Investopedia: “Predatory lending benefits the lender and ignores or hinders the borrower’s ability to repay a debt. These lending tactics often try to take advantage of a borrower’s lack of understanding concerning loans, terms, or financial literacy.”

Basically, just like predators in the wild, predatory lenders take advantage of the weak.  They look for those that are unassuming, easily tricked into coming closer, and without suitable defenses.  Then they pounce.

In the wild, predators often disguise themselves as something else.  Consider the venus fly trap.  To the fly, it looks like a flower.  The fly saunters over to enjoy the beauty, and snap!  It’s gone before it even knows what hit it.  That is the peril of a predatory lender.  It looks great, inviting even. Before you know it, however, they trap you.  The best protection you can have is to know the difference between creditors and predators.  Don’t be fooled.  Learn the signs and build your defenses.  Know thy enemy.

Common Signs that a Creditor is Actually a Predator

The only way to tell the difference between creditors and predators is to know the signs of a predator.  They are not that hard to spot if you know what tricks to look for.

Hit the jackpot with our best webinar and its trustworthy list of seven vendors who can help you build business credit.

Payment is King

If you are trying to get a loan and the “creditor” continues to emphasize what your payment will be, while downplaying how much the actual loan is, that creditor might be a predator.  While a monthly payment is obviously important for budgeting purposes, you need to know all the terms of the loan.

A lender can use many tactics to ensure your monthly payment is where you need it to be to fit your budget.  They can increase the loan period, adjust terms, and add balloons to make things look much better than they really are.  The result is that you get a really bad loan in exchange for a temporary lower payment.

Burst the Balloon

Speaking of balloon loans, those are also a common predatory lending practice.  They use them to provide unsuspecting borrowers with a low monthly payment for most of the loan.  Most borrowers do not realize that they are typically only covering the interest for each month.

In fact, usually the principle isn’t reduced at all by payments until the very end of the loan.  The final payment ends up being a large “balloon” payment that should pay off the entire principal of the loan all at once.  Most of the time borrowers are not prepared for this, and they end up either refinancing or defaulting.

Unpack the Packing:  Unnecessary Baggage

Packing is another practice that predatory lenders seem to lean towards.  It involves them adding extras onto the loan.  You do not need these extras, and they add them without your knowledge.  The most common culprits are insurance products that are not necessary for your situation.  You pay for them without realizing it, and they offer you no benefit.

Excessive Points and Fees

It’s not uncommon for lenders to charge points and fees on a loan.  It is a practice that some use to increase profits.  As a general rule, one point is worth one percent of the loan balance.

Asking for more points and higher fees than is normal for the type of loan you are getting can be a sign of predatory lending.  If you feel that is what is going on, dig deeper.

How do you know what is “normal” and what is excessive? As a general rule, three points, or 3% of the loan amount or less, is a decent deal.  This includes appraisals and title insurance, which are necessary.  Research to see what is normal for your area, but know this is a good rule of thumb.

The New York Connection: Of Creditors and Predators and Judgements and Confessions

New York plays a unique role in the predatory lending drama.  Knowing this can provide a pivotal clue when trying to determine if you are about to become prey. In New York, state law is friendly to confessions of judgement. Cash -advance companies, which are a huge faction of the predatory lending family, almost always make borrowers sign one of these as a loan condition.

If a borrower signs a confession of judgment, they are basically agreeing to lose in a court battle if a dispute arises about repayment. Regardless of where these types of loans take place, almost all of them contain a New York confession of judgement.  If you see one of these in your loan documents, run.

Punishment for Paying Early

If they are going to charge a prepayment penalty, you should be wary.  Early payment is a good thing, even though the lender loses some interest.  It isn’t a deal breaker, but it should definitely cause you to look for other red flags and proceed with caution.

Obviously Seeking the Weak

Senior citizens, those with no credit or bad credit, minorities, those considered low income are all easy targets.  They are more likely that others to get tangled up with predatory lenders, according to a 2015 Center for Responsible Lending report. Stay away from lenders that advertise in a way that targets these populations.

Language such as “bad credit doesn’t matter” is a definite sign.  In addition, lenders that initiate contact unprovoked and those that try to rush your decision are bad news.

It’s a Bad Deal Now, but They’ll Fix It

Lenders that are searching for prey may try to get borrowers to sign on to a bad deal by promising to make it better in a future refinance.  Do not fall for this.  A bad deal is a bad deal.  Just walk away.

Loan “Flipping” is NOT the Same a House “Flipping”

Flipping a house in real estate terms can actually be very profitable.  However, loan flipping is something else altogether, and predatory lenders are great at it.  When they see you struggling, they offer a refinance.  While it may lower your payments, you end up paying points and fees again.  Eventually you end up owing more than ever on your house, car, or whatever it is you used as collateral.

It is a vicious cycle that can bury you quickly.

Hit the jackpot with our best webinar and its trustworthy list of seven vendors who can help you build business credit.

The Payment Isn’t “All In”

This is typically and issue with predatory lending in mortgages.  Inquire from the beginning as to whether there will be an escrow account set up for your required tax and insurance payments.  Lenders that are not on the up and up will often make payments look super low because they do not include all the costs a borrower is responsible for.

What Are Some Questions I Can Ask to Help Discern Between Good Creditors and Predators?

Protecting yourself means recognizing these signs, they will not always be obvious.  Sometimes you need to look a little closer.  Asking these questions, whether to yourself or to the lender, can help you get to the root of the issue.

  • Is the offer too good to be true?

As with almost anything in life, if it seems too good to be true, it probably is.

  • What does the product truly cost?

If the lender doesn’t spell it out for you, do the math yourself.  If you need help understanding it all, find someone you trust that can walk you through it.  You need to know exactly what this loan is going to cost you.  That means all fees, points, insurance, and taxes need to be clear before you can make an educated decision.

  • Does the lender check my ability to repay?

It is ridiculous to think you will get a loan without the lender ensuring you can repay.  It doesn’t have be a credit check. If they do not at least verify income or employment however, there is almost certainly a problem.

  • Does the lender help me build credit?

Not all lenders do this, but if they do help you build your credit score, it is a point in their favor.

  • Does the lender require electronic payments?

While there is nothing wrong with paying electronically, the requirement that electronic payments are the only way you can pay should throw up a red flag.

  • Have others complained about the lender?

Check out reviews online.  Look them up on the Better Business Bureau’s website at BBB.org.  Find out if others have had a good experience with the lender, or not.

Is Anyone Doing Anything to Separate Creditors and Predators?

In recent years there has be a push by legislators to put an end to predatory lending practices.  There have been safety nets in place for far longer however.  What is being done?  Does anyone care?  Actually, yes, they do.

The Truth in Lending Act

It really started way before now with the Truth in Lending Act of 1968.  This Act requires that lenders clearly communicate the sum of all payments, APR, and amount to be paid in interest and fees.  In addition, the total credit that is being extended must be made clear.  All of this has to be disclosed before a loan contract is signed.

Another component of the Truth in Lending Act is that a borrower has the right of rescission.  This means that with certain loans, borrowers have three days to cancel after signing.

The Consumer Financial Protection Bureau

After the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Consumer Financial Protection Bureau was born.  The goal of the CFPB is to help oversee federal laws that protect consumers financially.  They have resources that can help borrowers learn to decipher loan terms and risks, and also help them report and resolve any complaints they may have against lenders.

Hit the jackpot with our best webinar and its trustworthy list of seven vendors who can help you build business credit.

Signs of a Good Lender

Telling the difference between good creditors and predators means more than just knowing how to spot the bad guys.  There are things to look for that can clue you in as to whether a lender is actually good, or if they are just not a predator.  There is a gray area, and even reputable lenders can fall into poor practices.

Knowing that, keep in mind that legitimate lenders will always check your ability to pay.  They may rely on a credit check or some other means.  In addition, they will not pressure you.  The best will actually offer tools to help educate you financially so that you can better understand the details of the loan.

Also, a good lender will have few complaints.  Consumers will almost always complain liberally if they feel like they were ripped off.  In addition to BBB.org, check out the CFPB Complaint Database and the Federal Trade Commission’s scam alerts.  While even good lenders get complaints occasionally, a long history of dissatisfied customers is a huge warning sign.

Other Ways to Protect Yourself

Like I said, the best way to know the difference between creditors and predators, and avoid becoming a predator’s prey, is to educate yourself.  Here are some additional sources for doing just that:

  • The Money & Credit page on the Federal Trade Commission’s website has tons of educational articles on a broad variety of topics including debt, credit and loans.
  • The Ask CFPB pageincludes answers to hundreds of questions related to personal finance, many of which you can apply to business finance as well.
  • The attorney general’s officein your specific state will be able to help if you need to submit complaints.  They can also help you understand consumer protections in your own area.

Learn the Difference Between Legit Creditors and Predators to Avoid Problems with Personal and Business Finance

Predatory lending is prevalent in the realm of personal finance, but that does not mean that business finances are unaffected.  Many business loans are dependent on personal credit scores, which a bad loan from a predatory lender can devastate.  This is one reason building business credit is so important.

The fact is, however, a bad loan is like a predatory parasite. It seeks out the weak, and once it attacks, it attaches itself to your finances and plagues every aspect of them, even slipping to the business realm if left unattended.  It can cause devastation that could last for years. Don’t let it happen to you.  Learn the signs, and make sure you can tell the difference between creditors and predators.

 

 

 

 

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Creditors and Predators: 10 Ways to Avoid Falling Prey to Predatory Lenders, and 6 Questions to Ask Before You Jump In

How to Tell the Difference Between Legit Creditors and Predators Out to Eat You Alive

Watch any animal reality show and you will see what happens between predators and prey.  In a similarly menacing way, some lenders actually prey on unsuspecting borrowers.  Not only do they leave finances in ruins, but often the trail of destruction trails across their entire lives.  They basically eat their prey alive.  How can you avoid falling victim to these devilish creatures?  We are going to show you how to tell the difference between legit creditors and predators, so that you can survive in the credit wilderness.

Know Thy Enemy: What is Predatory Lending

According to Investopedia: “Predatory lending benefits the lender and ignores or hinders the borrower’s ability to repay a debt. These lending tactics often try to take advantage of a borrower’s lack of understanding concerning loans, terms, or financial literacy.”

Basically, just like predators in the wild, predatory lenders take advantage of the weak.  They look for those that are unassuming, easily tricked into coming closer, and without suitable defenses.  Then they pounce.

In the wild, predators often disguise themselves as something else.  Consider the venus fly trap.  To the fly, it looks like a flower.  The fly saunters over to enjoy the beauty, and snap!  It’s gone before it even knows what hit it.  That is the peril of a predatory lender.  It looks great, inviting even. Before you know it, however, they trap you.  The best protection you can have is to know the difference between creditors and predators.  Don’t be fooled.  Learn the signs and build your defenses.  Know thy enemy.

Common Signs that a Creditor is Actually a Predator

The only way to tell the difference between creditors and predators is to know the signs of a predator.  They are not that hard to spot if you know what tricks to look for.

Hit the jackpot with our best webinar and its trustworthy list of seven vendors who can help you build business credit.

Payment is King

If you are trying to get a loan and the “creditor” continues to emphasize what your payment will be, while downplaying how much the actual loan is, that creditor might be a predator.  While a monthly payment is obviously important for budgeting purposes, you need to know all the terms of the loan.

A lender can use many tactics to ensure your monthly payment is where you need it to be to fit your budget.  They can increase the loan period, adjust terms, and add balloons to make things look much better than they really are.  The result is that you get a really bad loan in exchange for a temporary lower payment.

Burst the Balloon

Speaking of balloon loans, those are also a common predatory lending practice.  They use them to provide unsuspecting borrowers with a low monthly payment for most of the loan.  Most borrowers do not realize that they are typically only covering the interest for each month.

In fact, usually the principle isn’t reduced at all by payments until the very end of the loan.  The final payment ends up being a large “balloon” payment that should pay off the entire principal of the loan all at once.  Most of the time borrowers are not prepared for this, and they end up either refinancing or defaulting.

Unpack the Packing:  Unnecessary Baggage

Packing is another practice that predatory lenders seem to lean towards.  It involves them adding extras onto the loan.  You do not need these extras, and they add them without your knowledge.  The most common culprits are insurance products that are not necessary for your situation.  You pay for them without realizing it, and they offer you no benefit.

Excessive Points and Fees

Predatory Lenders Credit Suite

It’s not uncommon for lenders to charge points and fees on a loan.  It is a practice that some use to increase profits.  As a general rule, one point is worth one percent of the loan balance.

Asking for more points and higher fees than is normal for the type of loan you are getting can be a sign of predatory lending.  If you feel that is what is going on, dig deeper.

How do you know what is “normal” and what is excessive? As a general rule, three points, or 3% of the loan amount or less, is a decent deal.  This includes appraisals and title insurance, which are necessary.  Research to see what is normal for your area, but know this is a good rule of thumb.

The New York Connection: Of Creditors and Predators and Judgements and Confessions

New York plays a unique role in the predatory lending drama.  Knowing this can provide a pivotal clue when trying to determine if you are about to become prey. In New York, state law is friendly to confessions of judgement. Cash -advance companies, which are a huge faction of the predatory lending family, almost always make borrowers sign one of these as a loan condition.

If a borrower signs a confession of judgment, they are basically agreeing to lose in a court battle if a dispute arises about repayment. Regardless of where these types of loans take place, almost all of them contain a New York confession of judgement.  If you see one of these in your loan documents, run.

Punishment for Paying Early

If they are going to charge a prepayment penalty, you should be wary.  Early payment is a good thing, even though the lender loses some interest.  It isn’t a deal breaker, but it should definitely cause you to look for other red flags and proceed with caution.

Obviously Seeking the Weak

Senior citizens, those with no credit or bad credit, minorities, those considered low income are all easy targets.  They are more likely that others to get tangled up with predatory lenders, according to a 2015 Center for Responsible Lending report. Stay away from lenders that advertise in a way that targets these populations.

Language such as “bad credit doesn’t matter” is a definite sign.  In addition, lenders that initiate contact unprovoked and those that try to rush your decision are bad news.

It’s a Bad Deal Now, but They’ll Fix It

Lenders that are searching for prey may try to get borrowers to sign on to a bad deal by promising to make it better in a future refinance.  Do not fall for this.  A bad deal is a bad deal.  Just walk away.

Loan “Flipping” is NOT the Same a House “Flipping”

Flipping a house in real estate terms can actually be very profitable.  However, loan flipping is something else altogether, and predatory lenders are great at it.  When they see you struggling, they offer a refinance.  While it may lower your payments, you end up paying points and fees again.  Eventually you end up owing more than ever on your house, car, or whatever it is you used as collateral.

It is a vicious cycle that can bury you quickly.

Hit the jackpot with our best webinar and its trustworthy list of seven vendors who can help you build business credit.

The Payment Isn’t “All In”

This is typically and issue with predatory lending in mortgages.  Inquire from the beginning as to whether there will be an escrow account set up for your required tax and insurance payments.  Lenders that are not on the up and up will often make payments look super low because they do not include all the costs a borrower is responsible for.

What Are Some Questions I Can Ask to Help Discern Between Good Creditors and Predators?

Protecting yourself means recognizing these signs, they will not always be obvious.  Sometimes you need to look a little closer.  Asking these questions, whether to yourself or to the lender, can help you get to the root of the issue.

  • Is the offer too good to be true?

As with almost anything in life, if it seems too good to be true, it probably is.

  • What does the product truly cost?

If the lender doesn’t spell it out for you, do the math yourself.  If you need help understanding it all, find someone you trust that can walk you through it.  You need to know exactly what this loan is going to cost you.  That means all fees, points, insurance, and taxes need to be clear before you can make an educated decision.

  • Does the lender check my ability to repay?

It is ridiculous to think you will get a loan without the lender ensuring you can repay.  It doesn’t have be a credit check. If they do not at least verify income or employment however, there is almost certainly a problem.

  • Does the lender help me build credit?

Not all lenders do this, but if they do help you build your credit score, it is a point in their favor.

  • Does the lender require electronic payments?

While there is nothing wrong with paying electronically, the requirement that electronic payments are the only way you can pay should throw up a red flag.

  • Have others complained about the lender?

Check out reviews online.  Look them up on the Better Business Bureau’s website at BBB.org.  Find out if others have had a good experience with the lender, or not.

Is Anyone Doing Anything to Separate Creditors and Predators?

In recent years there has be a push by legislators to put an end to predatory lending practices.  There have been safety nets in place for far longer however.  What is being done?  Does anyone care?  Actually, yes, they do.

The Truth in Lending Act

It really started way before now with the Truth in Lending Act of 1968.  This Act requires that lenders clearly communicate the sum of all payments, APR, and amount to be paid in interest and fees.  In addition, the total credit that is being extended must be made clear.  All of this has to be disclosed before a loan contract is signed.

Another component of the Truth in Lending Act is that a borrower has the right of rescission.  This means that with certain loans, borrowers have three days to cancel after signing.

The Consumer Financial Protection Bureau

After the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Consumer Financial Protection Bureau was born.  The goal of the CFPB is to help oversee federal laws that protect consumers financially.  They have resources that can help borrowers learn to decipher loan terms and risks, and also help them report and resolve any complaints they may have against lenders.

Hit the jackpot with our best webinar and its trustworthy list of seven vendors who can help you build business credit.

Signs of a Good Lender

Telling the difference between good creditors and predators means more than just knowing how to spot the bad guys.  There are things to look for that can clue you in as to whether a lender is actually good, or if they are just not a predator.  There is a gray area, and even reputable lenders can fall into poor practices.

Knowing that, keep in mind that legitimate lenders will always check your ability to pay.  They may rely on a credit check or some other means.  In addition, they will not pressure you.  The best will actually offer tools to help educate you financially so that you can better understand the details of the loan.

Also, a good lender will have few complaints.  Consumers will almost always complain liberally if they feel like they were ripped off.  In addition to BBB.org, check out the CFPB Complaint Database and the Federal Trade Commission’s scam alerts.  While even good lenders get complaints occasionally, a long history of dissatisfied customers is a huge warning sign.

Other Ways to Protect Yourself

Like I said, the best way to know the difference between creditors and predators, and avoid becoming a predator’s prey, is to educate yourself.  Here are some additional sources for doing just that:

  • The Money & Credit page on the Federal Trade Commission’s website has tons of educational articles on a broad variety of topics including debt, credit and loans.
  • The Ask CFPB pageincludes answers to hundreds of questions related to personal finance, many of which you can apply to business finance as well.
  • The attorney general’s officein your specific state will be able to help if you need to submit complaints.  They can also help you understand consumer protections in your own area.

Learn the Difference Between Legit Creditors and Predators to Avoid Problems with Personal and Business Finance

Predatory lending is prevalent in the realm of personal finance, but that does not mean that business finances are unaffected.  Many business loans are dependent on personal credit scores, which a bad loan from a predatory lender can devastate.  This is one reason building business credit is so important.

The fact is, however, a bad loan is like a predatory parasite. It seeks out the weak, and once it attacks, it attaches itself to your finances and plagues every aspect of them, even slipping to the business realm if left unattended.  It can cause devastation that could last for years. Don’t let it happen to you.  Learn the signs, and make sure you can tell the difference between creditors and predators.

 

 

 

 

The post Creditors and Predators: 10 Ways to Avoid Falling Prey to Predatory Lenders, and 6 Questions to Ask Before You Jump In appeared first on Credit Suite.