With a little persistence and creativity, you can still find financing.
By CJ Prince
With banks still holding fast to their funds, credit remains scarce for businesses. But that shouldn't put you off the capital hunt. With a little persistence and creativity, you can still find financing. Here are five ways to get started:
1. Seek a microloan. Small businesses with reasonably good credit have a fair shot at getting a small line--usually up to $50,000--from a microlender, even if they've been rejected by a traditional bank. The Fox Valley Micro Loan Fund requires applicants to submit a turndown letter from a bank. While Fox Valley does consider credit history, it doesn't set a target credit score, focusing more on the circumstances affecting one's score.
2. Use your assets. As banks have pulled back on lines of credit, asset-based lending has leapt forward. At First Business Capital Corp., you can secure a line of credit against eligible receivables in which the lender fronts you 85 percent of the total, then forwards the remaining 15 percent after your customer pays in full. You'll pay about 1.5 points to 3 points over prime for the advance, but, says Michael Colloton of First Business, "that's how we can lend to companies that don't have the greatest creditworthiness."
3. Turn to the web. For a small amount of working capital, try peer-to-peer networks, which marry lenders and borrowers online. Though it's a relatively new concept, "over the next three to four years, peer-to-peer lending will take a significant leap in providing necessary capital to small-business owners," says Steve Bloom, an advisor and the former chair at SCORE's Atlanta chapter. Sites such as prosper.com, lendingclub.com and loanio.com allow entrepreneurs to search for lenders and borrow up to $25,000, with three-year terms and widely ranging rates.
4. Go around the big banks. If you have good credit and a profitable business, research local banks to find a business-friendly lender that hasn't been caught in the mortgage maelstrom. When Marco Giannini, 33, founder of pet food maker Dogswell, needed some flexible cash, he beelined for California United Bank, which lends mainly to manufacturers and distributors. He received a $3 million line of credit based on receivables and inventory. Before applying, he increased his chances by scrubbing his balance sheet and making sure his P&L statements were in line. "You need to make sure your numbers are realistic," he notes.
5. Sweet-talk your vendors. Often overlooked as a source of credit, vendors are uniquely motivated to keep their customers' business going and will often work out a payment structure to help clients survive a rocky period. When Giannini first started out, he received favorable terms from his manufacturers, easing the cash-flow burden for his company. If you can show a vendor your profitability, says Giannini, they'll take a chance on you.
Showing posts with label credit. Show all posts
Showing posts with label credit. Show all posts
Tuesday, November 10, 2009
Tuesday, October 27, 2009
Bank Fees You Don't Know You're Paying
By David K. Randall
Banks are cutting overdraft fees, but there are other hidden charges.
In the wake of the uproar over bank fees charged to debit card holders--and the looming threat of congressional action--banking giants Bank of America, JPMorgan Chase, and Wells Fargo have announced drastic changes to their overdraft policies.
What banking customers might be missing is that debit card overdraft fees are the tip of the iceberg. Banks nickel and dime their customers in numerous other ways that can easily cost the average person $100 or more per year. Adding insult, many of the fees are poorly disclosed and levied regardless of any action the customer does--or doesn't--take.
"There is a long list of fees that people pay that doesn't require any type of acknowledgment on the part of the consumer," said Greg McBride, a senior financial analyst at Bankrate.com. Here are five major areas of hidden bank revenues.
Balance Transfer Fees
Banks commonly mail out ads pitching low interest rates for customers willing to transfer credit card balances from another institution. What many don't advertise is that there is often a balance transfer fee of between 3% and 5% hidden in the fine print.
"If you're transferring a balance from a card with a rate of 15% to a card with a rate or 13%, but you're paying a 3% admission fee, you're not saving any money," McBride said. Moving a balance of $5,000 from one credit card to another with a slightly lower interest rate could result in a $150 charge being added to the balance that you owe and pay interest on.
If you're thinking about switching to a card with a lower interest rate, ask the bank what type of transfer fees it charges. These fees are separate from the annual interest rate that you pay.
Cash Advances
Consumers who take cash advances from their credit cards will also be hit with a transaction fee that they might not have been expecting. As with balance transfers, cash advances often come with a fee that ranges between 3% and 5%. That's not all.
"If cash advances weren't costly enough with interest rates in the high teens, there's no grace period, and the interest clock starts ticking right away," McBride said.
Foreign Currency Surcharges
Using a debit or credit card while traveling overseas is wonderfully convenient. Perhaps too convenient. Over the past few years, banks have commonly started charging a 3% fee for any purchases made in foreign currencies. That means if you go to Paris on vacation and buy presents in euros, the charges will show up on your statement in dollars--with the 3% fees built in.
If you plan to use a debit or credit card abroad, consider opening an account with Capital One or Charles Schwab, whose foreign currency exchange fees run as low as 1%. If you are going to be taking money out of an ATM in another country (another place where banks ring up additional charges), Wells Fargo and PNC offer some of the lowest fees.
Balance Requirements
Many banks offer to waive monthly service fees on checking or savings accounts if customers maintain a collective balance above a set minimum. Dip below it, and you could be hit with a charge of $8 or more every time your balance falls below the minimum.
"These requirements are really a lose-lose proposition," McBride says. "If you don't maintain the balance, you get socked with a fee. If you do maintain it, you have the opportunity costs of stranding money in a low-yielding account when you could be earning a more competitive return in an online savings account."
ATM Fees
Bank of America and other banks now charge customers from other banks $3 to withdraw money from its ATMs. But at least you have to agree to pay the fee at the terminal. What some customers may not realize that is that their own bank often levies a $2 fee every time they use a competitor's ATM as well. Adding up all the bank fees, it may cost $5 to take out $20 of your own money. That's a 25% commission, and the bank didn't have to do a thing.
Banks are cutting overdraft fees, but there are other hidden charges.
In the wake of the uproar over bank fees charged to debit card holders--and the looming threat of congressional action--banking giants Bank of America, JPMorgan Chase, and Wells Fargo have announced drastic changes to their overdraft policies.
What banking customers might be missing is that debit card overdraft fees are the tip of the iceberg. Banks nickel and dime their customers in numerous other ways that can easily cost the average person $100 or more per year. Adding insult, many of the fees are poorly disclosed and levied regardless of any action the customer does--or doesn't--take.
"There is a long list of fees that people pay that doesn't require any type of acknowledgment on the part of the consumer," said Greg McBride, a senior financial analyst at Bankrate.com. Here are five major areas of hidden bank revenues.
Balance Transfer Fees
Banks commonly mail out ads pitching low interest rates for customers willing to transfer credit card balances from another institution. What many don't advertise is that there is often a balance transfer fee of between 3% and 5% hidden in the fine print.
"If you're transferring a balance from a card with a rate of 15% to a card with a rate or 13%, but you're paying a 3% admission fee, you're not saving any money," McBride said. Moving a balance of $5,000 from one credit card to another with a slightly lower interest rate could result in a $150 charge being added to the balance that you owe and pay interest on.
If you're thinking about switching to a card with a lower interest rate, ask the bank what type of transfer fees it charges. These fees are separate from the annual interest rate that you pay.
Cash Advances
Consumers who take cash advances from their credit cards will also be hit with a transaction fee that they might not have been expecting. As with balance transfers, cash advances often come with a fee that ranges between 3% and 5%. That's not all.
"If cash advances weren't costly enough with interest rates in the high teens, there's no grace period, and the interest clock starts ticking right away," McBride said.
Foreign Currency Surcharges
Using a debit or credit card while traveling overseas is wonderfully convenient. Perhaps too convenient. Over the past few years, banks have commonly started charging a 3% fee for any purchases made in foreign currencies. That means if you go to Paris on vacation and buy presents in euros, the charges will show up on your statement in dollars--with the 3% fees built in.
If you plan to use a debit or credit card abroad, consider opening an account with Capital One or Charles Schwab, whose foreign currency exchange fees run as low as 1%. If you are going to be taking money out of an ATM in another country (another place where banks ring up additional charges), Wells Fargo and PNC offer some of the lowest fees.
Balance Requirements
Many banks offer to waive monthly service fees on checking or savings accounts if customers maintain a collective balance above a set minimum. Dip below it, and you could be hit with a charge of $8 or more every time your balance falls below the minimum.
"These requirements are really a lose-lose proposition," McBride says. "If you don't maintain the balance, you get socked with a fee. If you do maintain it, you have the opportunity costs of stranding money in a low-yielding account when you could be earning a more competitive return in an online savings account."
ATM Fees
Bank of America and other banks now charge customers from other banks $3 to withdraw money from its ATMs. But at least you have to agree to pay the fee at the terminal. What some customers may not realize that is that their own bank often levies a $2 fee every time they use a competitor's ATM as well. Adding up all the bank fees, it may cost $5 to take out $20 of your own money. That's a 25% commission, and the bank didn't have to do a thing.
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