About Financial and Investment tips

Archive for March 4th, 2010

Now is actually the best time to start a business. The recession is ending and that means that more banks are willing to lend, although with stringent guidelines. The government is focused on stimulating business endeavors with special funding and tax incentives, and the competition from more established businesses has eased due to bankruptcies and business closings. All you need now is a business loan to get your idea off the ground and running.

Think Like A Business Owner

If you haven’t created a business plan, that’s really your first stop. You might be itching to actually build the business live, but building it on paper first can save you tons of money later. A good business plan will also help you sell your idea to your lender, who will see whether you have a viable business idea or a pie-in-sky fantasy. You will want to figure exactly how much money you need to open the doors, for equipment, office space, and inventory, and for working capital.

Once you have that, start looking for financing. Here are a few places to look:

• Banks – Your bank may actually be lending now. It doesn’t hurt to ask. If you find one that is associated with Small Business Administration (SBA) they can direct you to loans available for people starting their own company. You might have to secure the loan with your home equity or some other asset, but that’s part of taking risks with a business.

• Credit Unions – They offer better terms, but will also want to see your business plan. They will probably want collateral too.

• Small Business Administration – While not an official lender to private individuals, they do supply funds to banks for lending. Thus, you can find out what types of loans and how to qualify. Some might be available for minority or women business owners and by checking with the SBA, you’ll know how and where to get that type of loan.

• Private Investors – Angel investors, friends, and families are also a source of funds when starting a business. You should make these loans formal, and have a written agreement, so there’s no misunderstanding later down the line as to how much you owe and what your repayment terms were. Virginmoneyus.com can help with documenting private lending.

Your credit score or more importantly your FICO scores are highly important to your financial life. These scores will tell a company whether you are a high risk to them. If you show up as a high risk they could turn you down for a loan. People who need money quickly and get turned away for a loan often try desperate measures like cash advances, which causes even more debt problems in the end. Cash advances are short term loans that have to be paid back within 16 days or less of the deposit being made. There are also hefty fees associated with these loans. Your financial future is so dependent on your scores that you need to understand what debt to credit limit ratio means. If you are unaware of this term you could be affecting your financial health for the worse.

The debt to credit limit ratio or debt utilization is what is used to help formulate your credit score. This ratio is calculated by dividing what you have spent versus your total credit limit. Credit cards are the best examples we can give you for the debt to credit limit ratio. On your credit card you are given a credit limit. This limit, for an example, can be $5000. If you have used $4000 of this credit limit you have left only $1000 unused or 20 percent of the credit limit is unused. Alternately this means you have used 80 percent of your credit limit offering you a debt to credit limit of 80 percent. This signals to a lender that you are a high risk borrower.

If this is the case your APR may be increased or you could be denied a loan to pay off your credit card debt. For instance, if you want a personal loan to pay off your credit card debt they may refuse this. About 14 percent of Americans have a ratio of 50 percent for their debt to credit limit ratio.

If you want to effectively strengthen your debt to credit limit ratio and thus your credit scores you need to be below 30 percent on that ratio. If at all possible you should never be more than 10 percent in a debt to credit limit ratio. For a limit of $5000 you would want no more than $500 a month on your credit card or any debt.

If you want to keep a good credit limit you have a couple of options. You can pay off the debts you have. This would reduce your credit limit offering you a good ratio. You could also ask the credit card company to raise your limit. If they raise your limit you will instantly have a better ratio. Unfortunately, this second option is a little tougher right now as credit card companies are lowering limits. If you do get your limit raised you still have to work on lowering your debts. Most of all remember that your actions will directly affect your debt to credit limit ratio, even if you have very little credit.