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Monthly Archives: March 2018

Bridge Loans

A case in point: A company has been sanctioned a loan for USD 1 million from a bank. Now, the loan will be provided to this company in a period of six months. Meantime, suppose the company needs cash. Then, what will I do? It’s simple-the company should head to bridge loan lenders.

Being a short-term financing option, a bridge loan will be given to a company with a repayment period of six months to two years. Now, that’s exactly how a bridge loan works. If you’re more concerned on exploring the way such a financial solution benefits you, you should head toward a bridge loan financing expert.

Why short term loans matter and have grown in popularity in today’s conservative markets?

Now, you’re part of a hyper-competitive business environment where you’ll have to make a lot of critical decisions. Some of these decisions, doubtlessly, have to be financial in nature. For example, you have to buy a parcel of commercial real estate immediately; you have gone to a trusted commercial real-estate consulting player, and even the land looks pretty good, but you lack the cash.

Now, what has to be done? The answer lies in you securing loans. This financing format will let you access high-quality, much-needed funds in a short span of time with minimal due-diligence. These funds will be necessary while you’re arranging for a conventional commercial loan or waiting for a loan to be processed with a more traditional financial institution which typically takes an excess of 120 days in most markets due to the several third party inspections and internal quality assurance reviews.

A few key points to remember while applying for a bridge loan

Here are a few points that you should remember while you apply for a loan.

Eligibility criteria

Just like any other financing format, lenders will have to look at a borrower’s payment history and credit worthiness. In this case, you’ll have to pledge collateral that can be a commercial, multifamily, development land or any other valuable real estate asset. A business that’s applying for this specific fund can even pledge intangible ones such as an intellectual property. A few financial institutions may even require you to reduce your operating expenses while the repayment is made.

Exit options

While exiting this financing option, you may pick from any of these three options:

  • The first option is to repay the full amount.
  • The second one includes applying for other financing options or loans.
  • The last one will include you to sell your collateral.

Reduce Debt With Proper Budget

CREATING A BUDGET

This process takes time and honesty with yourself. The more you can accurately determine what you are spending and where it is going, the better you can commit to active changes.

BUDGETING LIST

The first step is to determine how much money you spent the previous month and where that money went. Do your best to gather a detailed list of all expenses from your bank statements, credit card bills, household bills, mortgage payments, etc.

BUDGETING: BASIC EXPENSES

You need to now separate your basic expenditures which are necessities, such as your mortgage, groceries, utilities, insurance, etc. Be honest with yourself in determining what is “required” and what is “desired”. We will look into this list later in time to help with this determination and suggest further trimming or advice on how to further reduce payments/interest rates, etc.

BUDGETING: EXTRA EXPENSES

You now need to look at all the other expenses that you are left with after eliminating basic expenses. Many consumers are surprised to discover that this can be as high as 30% or more of total expenses. This is the first list that needs to be addressed once our plan is utilized.

BUDGETING: LISTING CREDIT CARDS/CONSUMER DEBTS

Prepare a list of all your current credit card, high interest loans and merchant accounts. List your current balances, monthly payments, available limits, and your interest rates in descending order. We will then address these debts according to interest rate, payment and balance, in that order, and so should the client.

BUDGETING: SAVING

A progressive financial debt solution should not only be focused on debt. Saving money should be a primary concern and you should pay yourself first(it’s easier to do once you have reduced your out of pocket monthly expenses to debt repayment). A realistic debt management plan should see 10% of your after tax earnings being dedicated to a combination of short and long term savings. This will provide for unexpected expenses as well as long term security. This is best accomplished with a fixed amount being withdrawn from your account monthly to a savings vehicle.

Repair Damaged Business Credit

You might have already heard of the FCRA. The Fair Credit Reporting Act outlines consumer’s rights to dispute inaccurate information on their credit reports. But it’s essential to know that this law does NOT apply to credit repair. There are currently no laws which outline business owner’s rights regarding credit disputing. The FCRA also requires credit issuers to notify you of what bureaus they pulled your credit data from to determine your denial for financing. In the business credit world this is not the case, you rarely ever know the source that pulled your business credit or the reporting agencies they pulled it with.

If you see accounts or details you don’t recognize or you feel are inaccurate, request a debt validation for that account using a debt validation letter. A debt validation is where you solicit the creditor for verification of the account details they are reporting. They will typically send you back details of your account that they are reporting. The FCRA and the fair debt collections practices act apply to consumer debts, not business debts. So you can send a debt validation letter, but the creditor is not required by law to respond to your dispute.

When sending a debt validation request, your request must be sent to the creditor in writing. Also insure you dispute the debt with the credit agencies if the creditor doesn’t respond to your request. If no response is received within 30 days of mailing the letter directly to the creditor, then you should then dispute the account with the business reporting agencies.

Based on how you pay your bills. If you pay the majority of reported accounts on time or early, you will have a good score. Most business owners have little to no credit reporting. So, even one negative account can have a BIG impact on their business score. It is essential that you continuously build your credit profile just as you do with your consumer credit. One of the best ways to battle negative information on your report is to offset it with LOTS of positive information. So continuously build your business profile just as you do with your consumer credit.

Credit Spreads

In loose terms, Z spreads is a compensation for credit risk of the issuer. Because of the credit risk, the Z-spread to Treasuries for a corporate bond tends to be positive. This reflects the fact that corporate bonds are worth less than treasuries with similar maturity and coupon. The higher the credit risk the higher the Z spread to Treasuries. A positive Z spread indicates that the security has an investment value and a negative Z spread indicates that the security is rich compared with treasuries.

Option Adjusted Spread is a measure of the credit risk for callable or putable bonds. For bonds with embedded options, the Z spread is often not meaningful. This is because it is usually not appropriate to value a these bonds simply by discounting its scheduled payments. To value bonds with options, one must take into account volatility in interest rates so that the risk of the bond being called can be considered.

Asset Swap Spread compares the present value of the series of fixed payments from the bond and the present value of the floating payments. It is the spread that investors receive for swapping a fixed annual coupon against a floating payment. The floating rate received from such swap is generally considered as less sensitive to interest rate movements, as the payment flows are reset every quarter according to market conditions. Investors receive a higher coupon if rates increase or a lower coupon if rates decline.