Setabay Private Hard Money Lender: commercial hard money lenders

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Tuesday, September 19, 2017

Commercial Lending Texas: Getting Help from the SBA in Harvey’s aftermath

The Small Business Administration is issuing millions in emergency loans to small businesses impacted by Hurricane Harvey. What are the restrictions and how do you apply for this type of commercial loan?

The SBA is approving loans at an unprecedented rate in the aftermath of Hurricane Harvey. As part of the recent aid package passed by Congress, the SBA has received 450 million dollars to distribute as loans to those impacted by the storm. As of September 10^th, the agency has approved 100 million dollars in loans. 8.5 million of those dollars are directed to small businesses. An SBA disaster loan may be the best option to cover uninsured damage in the aftermath of Hurricane Harvey. Learn the restrictions of an SBA disaster loan and how to apply for one.

The SBA only approves emergency loans in areas considered directly impacted by a natural disaster. Ensure that your community is listed on the SBA website. These loans are issued directly by the SBA, so the fastest way to get approved is to apply directly on the website. Be expected to provide documentation including legal records relating to your business, detailed documentation of specific damages, tax records, profit and loss statements and lists of your current assets. The SBA may request further documentation throughout the process. After submitting the necessary documents, the agency will review your insurance coverage and determine whether you qualify for a disaster loan. In general the approval process takes 2 to 3 weeks. The SBA will may review both your personal and business credit scores. You may be required to offer principle in your business in order to guarantee the loan.

SBA disaster loans are meant to cover uninsured damages related to natural disasters including economic and physical damage. How the proceeds of the loan can be applied depends on the type of loan you apply for. The SBA issues both Physical Disaster Loans and Economic Injury Disaster Loans. Physical Disaster Loans can be applied to repairing or replacing real-estate, machinery, equipment, fixtures, inventory or to make leasehold improvements. SBA disaster loans are intended specifically for uninsured damages. However, if your property is covered by insurance an SBA loan may be applied to cover your mortgage obligations. Economic Injury Disaster Loans (EIDL) are intended as a stop gap for interruptions in cash-flow. An EIDL is meant to help businesses meet normal financial obligations which they no longer able to meet due to a disaster.

SBA disaster loans cannot exceed two million dollars. You may need to seek other types of commercial loans to repair damage to your property

The SBA can only give small businesses two million dollars in the form of disaster loans. This amount may not fully cover the damage to your business. If you suspect your damages exceed 2 million dollars, seek out additional options to help you recover.

Remember an SBA Disaster Loan is still a commercial loan.

An SBA disaster loan is an excellent option to rebuild and repair your business. But it is a loan, not a hand out. The agency considers your credit score prior to approving any disaster loan. If you suffer from poor credit, you may be denied. Another factor to consider is that you may not have the documentation needed by the SBA. You may have lost your business records as a result of the disaster. Consider whether you have a good credit profile and the necessary documentation before applying for an SBA disaster loan.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Friday, September 8, 2017

Making Money on Peer to Peer Lending Platforms

Peer to peer lending offers an exciting investment opportunity. However it is important to be aware of the risks involved and some tools that may help you succeed.

Just how do you make money in Peer to Peer (P2P) lending? The concept is simple. You invest in specific loans and earn interest as the loan is paid back. P2P sites measure the risk of specific borrowers defaulting and assign interest rates to loans depending on the risk involved. As with any investment, the higher the risk, the higher the return (or the higher the interest rate charged to the borrower). Two popular P2P platforms are Lending Club and Prosper. Both of these platforms will charge you a percentage of the interest you earn as the loan is paid back. Usually this fee is one percent of the amount that the borrower repays. Opening an account on P2P sites is easy and requires a minimal investment, often only around 25 dollars. Lending Club claims that the average return for investors during the first three quarters of 2016 was roughly 6 percent. Given these returns, P2P lending can demonstrate yields much higher than an ordinary bank account.

But as with any investment your success depends upon your ability to diversify and to understand the risks involved before you begin the process. Above all manage risk by investing in many different types of loans. Prosper claims that portfolios on its site exceeding 100 notes (i.e. Loans) demonstrate consistently positive returns. The low investment threshold on many of these sites, means you can potentially fund hundreds of loans, each with different grades of risk. However even with diversification, success is not guaranteed. An obvious risk is that the P2P platform could default or even fall prey to hacking, threatening your investment. This method of investing is also relatively new and untested during periods of prolonged recession. Various economic conditions could result in unpredictable defaults among borrowers.

However third party tools can make it easier to diversify and spread risk

Tools like NSRInvest and Lending Robot automate the investment process. This makes it easier to diversify and invest in the best loans. Often attractive loans are full-funded within in minutes on P2P sites. These tools can help you avoid complicated process of analyzing each loan you may want to invest in. They link to your P2P investment account, select loans based on the criteria you set and automatically invest your funds in loans matching those criteria.

However considering the risks involved in this type of investment you may want to limit its impact on your portfolio.

Even with third party tools that help you diversify and spread risk, it is important to remember that this industry is new. It hasn't yet demonstrated consistent returns over a long period time. There is also the more immediate risk that P2P sites could crash, resulting in irreparable loses. Considering these factors it is probably best to avoid putting too much stake in P2P lending as a major investment. Nevertheless peer to peer lending offers a novel way for you to make money, by acting as a commercial lender. If you choose to invest this way, make efforts to diversify, consider the risks and use third party tools to automate the investment process.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

The Financial CHOICE Act and Dodd Frank Repeal: Will fewer regulations result in more commercial lending?

The Financial CHOICE Act recently passed the House of Representatives. The bills passage reflects the broader trend of undoing many provisions of Dodd Frank. But what impact will these changes have on commercial lending?

The Trump administration and Republicans in general argue that the Dodd-Frank Act, passed in 2010, has stifled the growth of small businesses. The Financial CHOICE Act (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs), takes aim at what Republicans claim are the onerous provisions of Dodd-Frank. Whether or not the Financial CHOICE Act becomes law, these developments represent a broader trend to undo financial regulations implemented in the wake of the great recession.

The Bill allows banks to opt out of Dodd Frank regulations if they have enough cash on hand. It eliminates restrictions on proprietary trading ( i.e. banks trading on their own investments). The bill limits the purview and reach of the Consumer Financial Protection Bureau by putting it under the authority of the executive branch. It changes the terms of bank stress tests and according the author of the bill it eliminates the possibility of future government bail-outs to banks that are deemed “to big to fail.” It would be easy to discuss the nuances of each of these provisions, but it is more worthwhile to consider what the broader trend of undoing Dodd-Frank and other financial regulations will mean for small business lending.

The impact of regulations has more to do with individual bank examiners than regulations themselves

An article on Forbes, points out that it is the overall culture of bank examiners and not specific regulations which has the greatest impact on banks willingness to lend to smaller businesses. Bank examiners may deem a loan risky, even if it is performing well. This results in an immediate cost to banks by forcing them to increase their cash reserves. This additional expense forces the bank to increase its lending standards to prevent similar costs in the future. Many small business owners cannot meet these higher standards, leading to a decline in small business lending. Repealing specific regulations wont change the fact that regulators themselves are not incentivized to increase the number of loans issued to small businesses.

The provisions of the Financial CHOICE Act and further efforts to repeal Dodd-Frank will likely only minimally impact commercial lending. It is important to note that the decline in lending to smaller businesses has more to do with the shock of the recession than any specific regulations. The decline in small business lending was observed prior to the passage of Dodd-Frank. Conditions in the economy, rather than specific regulations, seem to be greater factors in determining the of banks to lend to smaller businesses.

It is difficult to tell whether the lighter regulatory burden imposed by the Financial CHOICE Act will have any discernible effect on commercial lending.

Dodd-Frank may have compounded the preexisting decline in small business lending by traditional banks, but repealing it will likely to do little to reverse this trend. The risk averse culture at banks and regulatory agencies is probably the main reason for the decline in small business lending.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

The Future of Regulations in the Alternative Lending Industry

The proliferation of online commercial lending has lead to a debate as to how this new and vital industry should be regulated.

The online alternative lending industry, known collectively as Fin-Tech, has exploded since the end of the great recession. According to a report by Harvard Business School there is a noticeable decline in loans by traditional lending institutions for less than 250,000. FinTech lenders have emerged to meet the ever-growing demand for small business financing.T hese groups leverage technological advances to make the lending process more convenient for small businesses. Many use algorithms to speed up the approval process and can approve loans within a few days. This is in stark contrast to traditional banks, who often only approve commercial loans after many months. The convenience and speed of FinTech lenders means that this industry is only likely to grow. PriceWaterhouseCooper projects that FinTech lenders could capture up to 25 percent of the revenue earned by traditional banks within a few years. But there is a stark regulatory void when it comes to online small business lending.

There is no standard for what online lenders need to disclose to small business borrowers. The Truth in Lending Act, which protects many consumers from predatory loans, simply doesn't apply to commercial borrowers. This lack of transparency enables some predatory online lenders to conceal high interest rates. These lenders can offer loans with 300 percent interest rates, which the borrower may not be aware of. Online lenders can conceal hidden fees throughout the process, by charging borrowers exorbitant pre-payment penalties and charging full interest even if the loan is paid off early. There is also no standard of reporting by alternative lenders to regulatory agencies, potentially allowing borrowers to take out many loans from a variety of sources. When it comes to commercial loans, brokers don't have to disclose any potential conflict of interest. This leaves room for bad actors to promote the most expensive loans in order to earn the highest fees. The potentially devastating combination of expensive loans, loan stacking and a lack of transparency on the part of lenders and brokers, puts the entire Fintech industry at risk.

What would a successful regulatory framework look like for the Fintech Industry?

What is needed in the Fintech industry is a regulatory framework that is coherent, consistent and supports innovation. The Harvard Business School Report, mentioned above, makes many suggestions but it touches on a few broad themes. There needs to be a legally enforceable standard of disclosure in the commercial lending industry. Small business borrowers should be aware of the APR, default rates and overall borrower satisfaction for any loan they may take out. There needs to be a national regulatory framework to replace the patch work of agencies that exist now. As it stands consistent monitoring and reporting within the Fintech industry is difficult considering the many regulatory agencies that exist. There needs to be a standard of conduct for both lenders and brokers. Brokers and lending organizations should be obliged to disclose any conflict of interest they may have to potential borrowers.

These basic regulatory standards are vital for protecting the Fintech industry

Encouraging innovation is crucial and online alternative lenders are a vital source of credit for small businesses. But encouraging innovation shouldn't come at the expense of basic protections for both borrowers and lenders. If the FinTech is to serve small businesses in the future these ideas should be implemented so that the industry remains viable in the years to come.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Thursday, September 7, 2017

Equity Crowd-Funding: Things to Consider

Equity crowd-funding developed fairly recently and gives new businesses the opportunity to sell shares of ownership in their business in exchange for funding. But there is considerable risk involved with this type of commercial lending.

What is equity crowd funding? It is similar to rewards based crowd funding, but differs in that borrowers offer shares, rather than rewards, as incentives to potential investors in order to fund their business. Investors buy a stake in startup companies on accredited online platforms. This type of commercial lending was legalized by the JOBS Act in 2012. Since the law was implemented 1.27 billion dollars has gone to over 6,000 companies. Startups can raise up to one million dollars per equity crowdfunding campaign. Investors are more likely to consider the borrowers idea rather than the borrowers credit score. Making equity crowd funding ideal for businesses with a clear growth potential or for entrepreneurs with a well thought out and realistic idea.

One benefit of equity crowd funding is that there is no debt involved. You are selling shares in your future business so there is no need to plan for any loan repayments. Throughout the process your ability to market your idea may be more important than your credit score. This allows those without good credit or sufficient collateral to raise the funds they need to start their businesses. Another benefit is that a successful crowd funding campaign translates into future marketability for your business. If you can convince investors to fund your start-up you’ll likely be able to convince potential customers as well.

But this method of financing is both risky and potentially very expensive. If you are seeking over half a million dollars you are required to provide detailed documentation to financial authorities. This means you will likely have to hire an experienced account to prepare the documentation required. The crowd funding campaign itself presents an additional expense. If you don't have the skills or knowledge to promote your idea to potential investors you may have to hire an outside marketing agency. There is also the expense of fees charged by equity crowdfunding platforms. Many of these sites can charge up to 12 percent of the total amount raised.

Equity crowdfunding presents a real benefit, but only in specific situations

If you have a strong idea, have confidence in its potential, believe in your ability to convince potential investors and are willing to give up some ownership in your future business then equity crowd-funding may be right for you. If this is not the case it probably best to consider other financing options.

There is always the potential that your crowd funding campaign will fail. Ask yourself if it is worth the risk.

You must make a significant investment up-front in order to pursue equity crowdfunding .The financial documentation, the platforms fees and the expense of any equity crowd funding campaign must always be considered against the backdrop of potential failure. Even after all the expenses involved, an equity crowd funding campaign can still fail. Meaning all the money you spend on a your campaign could wasted. It is important to consider whether you are willing to risk these expenses before pursuing equity crowd funding.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Peer to peer lenders: The right source for your Commercial Loan?

Peer to peer lending is an innovative type of commercial lending that connects borrowers and lenders directly. It is important to understand how the Peer to Peer lending process works and to ask yourself the right questions.

First, what is Peer to Peer (P2P) lending? Sometimes referred to as “social lending”, P2P lending occurs on online platforms that link borrowers with potential investors. These websites act as intermediaries between both parties. They perform the underwriting process and facilitate transactions between borrowers and lenders. This removes the middleman (i.e. the bank) from the lending process. Because of the savings and convenience involved, P2P financing is growing rapidly and is expected to be a 150 billion dollar industry by 2025. Considering this rapid growth, P2P lending may seem like an attractive option but you should be aware of the process and the advantages and disadvantages involved.

What does the P2P lending process entail? You the borrower sign up on a P2P lending site such as Lending Club or Prosper. After joining you submit a loan application, describing the amount you want to borrow and what you intend to use it for. The site then reviews this information, reviews your financial records and credit score and assigns your loan a certain risk factor. Once your application is approved by the site it is then posted. Potential investors then decide whether or not they are willing to fund your loan, how much they want to invest and what the terms the loan should be. Your proposal then remains on the site until it is fully funded or you withdraw your application.

What are the main benefits of P2P lending? Processing is much faster than traditional commercial lending. Because the process occurs online there is a minimal amount of paperwork involved. P2P platforms act as facilitators between individuals, both borrowers and investors and the lending process can potentially be more personal. Individual lenders may be willing to overlook a poor credit score if your application is compelling and well thought out. This may result in better terms and lower interest rates than you would receive through traditional financing.

But there are drawbacks in Peer-to-Peer lending that you should take into account.

Even though loan processing may be faster on P2P sites, it may take a considerable amount of time before your loan is fully financed. This mainly depends on the P2P platform and whether your application is auctioned. In certain circumstances you may be required to present additional documentation or take further steps to secure the funding you need. These additional steps can be time consuming and potentially complicate the process.

Considering Peer-to-Peer commercial lending is about asking yourself the right questions

Considering how the P2P lending process works you should first ask yourself how quickly do you need the money? Depending on your situation it can take a long time before your loan is fully financed. If you need your funding within a specific time frame, you may want to evaluate other financing options. Consider your financial standing as well. See the various loans your credit score qualifies you for on a variety of P2P lending sites. Compare this to other sources of financing and find the one that offers the best terms. However knowing how the peer-to-peer lending process works, as well as the benefits and risks will help you decide if it is the right financing option for you.

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Considerations before you get a Commercial Loan

Judging whether or not your business can afford a commercial loan comes down to three questions. Can you pay the loan; will you pay the loan and what will happen if you can’t pay the loan?

There is some math involved in answering these questions but knowing a few figures can help you evaluate your financial performance and judge whether taking out a commercial loan is worth it.

To answer the first question, can you pay the loan, you need to calculate your Debt Service Coverage Ratio (DSCR). This figure tells you the amount of money you have on hand each year to pay your debts. Your DSCR is calculated by subtracting your monthly income from your monthly expenses and multiplying the result by twelve. This gives you the amount of money you have available each year. Then you estimate what the cost of the potential loan is and divide that into the first number. Potential lenders consider a DSCR of 1.25 to be reasonable. If your DSCR is lower than 1.25, you probably cant afford to take out a loan. Knowing your DSCR helps you evaluate if you can afford any potential loan on a yearly basis.

To answer the second question, you need to know the ratio of your income vs. your outstanding debt obligations is (Debt to Income ratio or DTI). Knowing this figure will help you judge if you will be able to pay back any loan in the long run. To calculate your DTI add up all your outstanding personal and business debts, divide it by your monthly income and multiple the result by 100. This number clarifies whether your income exceeds your debts or whether your debts exceed your income. A DCI greater than 36 indicates you should avoid additional borrowing. This number gives you a sense of your financial performance on a monthly basis and indicates whether you will be able to keep up with your loan payments.

But even knowing your DSCR and DTI doesn't answer the fundamental question. Is taking out a commercial loan worth it?

You may need to consult an accountant or business advisor in order to answer this question. The answer involves a nuanced process known as Loan Performance Analysis. In layman's terms this process gives you a sense of the risks of borrowing versus the rewards of additional investment. Look at your current profitability and compare it to the revenue any new investment might produce. It is important that you are realistic during this process. Optimistic projections about potential revenue wont clarify the risks of additional borrowing. Consider multiple scenarios throughout this process as well in order to get a better understanding of your situation. Loan Performance Analysis may be more subjective than calculating your DSCR or DTI but it will further clarify whether getting a loan is actually worth it.

Plan ahead and understand the impact defaulting may have on your business

Life happens and things could change rapidly in your business. Even the most conservative projections during loan-performance analysis may not reflect the reality of a potential disaster. You should always be aware of the risks involved in defaulting on any potential loan. Do you have enough collateral to cover the loan? If not you may be personally responsible for paying off the remaining balance. Carefully consider whether you are willing to risk your personal property before taking out any loan. However knowing these figures, your DSCR, DTI and performing Loan Performance Analysis will give you a good sense of whether taking out a loan is worth it.

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Evaluating where to get commercial loans online

The bewildering array of options for commercial financing online can make it difficult to tell who you can trust. A good lender will be interested in your business, be up-front about fees and will offer good customer service.

A good lender will want to know about your business and the reasons you need financing. Be sure the lender isn't trying to offer you money too quickly. Few loans can clear within three days. If a lender is offering you fast-money, without thoroughly consulting you it is probably best to reevaluate your options. Additionally ensure a lender isn't merely offering you the maximum loan amount. Compare your options and see the types of loans your credit score qualifies you to receive and compare this to what the lender is actually offering. If it seems like a potential lender is offering you more money than you would otherwise qualify for, it may be a warning sign that the lender is giving you a loan which you couldn't possibly pay off.

Ensure potential lenders are transparent about the cost of the loan and that you understand the process. Is the lender up front about the terms and conditions of the loan? How willing is the lender to discuss the total cost of the loan in terms of APR? If they are vague about these details you may want to look elsewhere. Ask about pre-payment penalties and understand the lien structure of the loan. Heavy pre-payment penalties and blanket liens may be an indication that the lender does not want you to move onto more traditional financing. Look out for inflated fees, anything above twenty percent of the total loan amount is considered unreasonable and always know what you are signing throughout the process. Some predatory lenders may persuade you to sign multiple forms. You may be agreeing to pay higher fees. Read any documents carefully throughout process and ask the lender to explain each one. If the lender is vague about the process or unwilling to explain what you are signing, consider other options.

Above all trust your instincts when reviewing potential lenders.

Perform your due diligence, review the lenders website and seek out customer reviews. If their website seems wrong or if the reviews are mainly negative obviously you should look elsewhere. A good lender will have helpful advice and will communicate clearly with you. They will want to understand your needs and ensure you understand the terms of the loan you are applying for. If a lenders customer service is impersonal or unhelpful take it as a sign that they don't have your best interests at heart.

Above all a good commercial lender is a good communicator

Knowing who to trust when you get financing online may be difficult. But a good lender consults you about your needs, explains the process clearly and is willing to offer you sound advice. Following these guiding principles and trusting your instincts will help you avoid falling prey to predatory lenders.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Invoice Factoring: A win-win?

Invoice factoring, depending on your situation could be a great way to plug gaps in your revenue stream. It is low risk, easy to qualify for and can even smooth out your business operations.

First how does invoice factoring work? Invoice factoring involves selling your outstanding invoices to a factoring company or a “factor.” The factor buys your outstanding invoices and gives you a percentage on the amount owed to you in advance. The percentage given is usually 70 to 90 percent of the outstanding invoice. After the customer pays the invoice, the business receives the payment minus a fee charged by the factor. Essentially invoice factoring is debt free, as you are borrowing against money already owed to you. This makes invoice factoring a great way for certain types of businesses to raise money.

How do you qualify? First most factors are more concerned with the credit rating of your customers. You as a business owner only need outstanding invoices to qualify. But there are some basic terms and conditions many “factors” consider before you can be approved. You must have customers with outstanding invoices. The invoice your borrowing against must be due within 90 days. Obviously you cannot sell a single invoice to multiple factors and you should have a relatively clean business record. Depending on the factor your credit score may also be an issue. But if you as a business can meet these basic conditions you can likely borrow against your outstanding invoices. This can help you take advantage of immediate opportunities or plug gaps in your revenue stream.

Invoice factoring is helpful for particular businesses that need cash quickly or that have lags in payments by customers.

If you need funding quickly to take advantage of immediate opportunities or to pay for an unexpected expense then invoice factoring is a great way to raise the necessary funds. The traditional financing process can take awhile and depending on your situation you may not even qualify. Additionally if your business is seasonal, invoice factoring can smooth gaps in your revenue stream. This advantage also applies If your customers don't pay their bills quickly. Invoice factoring can shorten the payment cycle and help you get the money you are owed faster. Some factors can even manage outstanding accounts, thereby easing your business operations and saving you the difficulty of collecting payments from your customers. In short, invoice factoring is a low-risk way to raise money quickly, in specific situations and for specific types of businesses.

Potentially all parties involved could benefit from invoice factoring.

The borrower, the lender and the customer could all potentially reap the benefits of invoice factoring. You the borrower get the money your already owed. Additionally if you outsource your collections to your factor, your customer could find it easier to pay their bills. The factor also benefits collecting a fee at the end of the process. Invoice factoring may not work for every business. Evaluate your situation carefully. But if you have many outstanding invoices, need money quickly or have slow paying customers then invoice factoring may be right for you.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Is There a Danger of an Alternative Lending Bubble?

Online “alternative lenders” have emerged as a vital source of capital for small businesses. But some of these lenders may be predatory and rising defaults may put the entire industry at risk.

Following the Great Recession small businesses have faced increased difficulty getting loans from traditional banks. According to the Federal Deposit Insurance Corporation, loans under one million dollars have been declining every year and are twenty percent below pre-recession levels. A plethora of alternative lenders have emerged online, in order to meet the demands of small businesses that need financing. The loans such lenders offer are easy to qualify for but oftentimes can be very expensive. Furthermore this online marketplace is in essence completely unregulated. A lack of regulation and transparency puts many small business owners at risk of taking out loans from predatory lenders.

Unscrupulous lenders can avoid regulation simply by packaging their loans as advances. Because of this usury protections do not apply to these “advances” and there is no ceiling for what can be charged in interest. Triple digit APR is not uncommon in these cases. Many borrowers may be unaware of the total coast of the loan they are being offered. This is because there is no legal standard of disclosure when it comes to commercial lending. This enables predatory lenders to disguise the amount they charge in interest rates and fees. For example a lender may quote a ten percent interest rate, in reality this is only the monthly rate for the loan. The total interest on this loan amounts to one hundred and twenty percent annually. The lack of clear legal standards in the alternative lending industry could lead to a dangerous trend.

The explosion in online lending to small businesses could be following a familiar pattern, with alternative lenders issuing loans to unqualified borrowers in the pursuit of rapid growth.

Some liken the online commercial lending industry to the Wild West The fact that such loans are easy to qualify for ensures consistent demand from small business owners. Securitization of these loans and merchant cash advances in particular ( generally the riskiest and most expensive type of business loan available), could result in a pattern where online lenders issue loans to unqualified borrowers in the pursuit of rapid growth. In addition there is speculation that many online alternative lenders are overvalued, potentially forcing some organizations to justify their value by issuing new loans at all costs

Online alternative lenders are an invaluable resource for small businesses. However more needs to be done to protect both lenders and borrowers.

To begin with the rates on commercial loans issued online need to be competitive and fall within a reasonable standard. There needs to be a minimum amount of disclosure on the part of lenders to inform borrowers what the total cost of the loan will be. This will help borrowers avoid taking out loans they cannot afford. These basic protections will help protect borrowers from default, help lenders manage risk and protect the industry as a whole.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Micro-loans: The Help You Need?

Micro-loans are small loans often issued by non-profit community development organizations. Micro-loans are an excellent option for new business owners who are passionate about their idea, but who may not qualify for financing elsewhere.

The Small Business Administration defines a micro-loan as a commercial loan for less than 50,000 dollars. They are often issued SBA backed organizations, however not all micro-lenders are sponsored by the SBA.

Micro-loans usually have less stringent qualifications than traditional loans. They can be an excellent source of financing for business owners without good credit or collateral. Micro-lenders are generally not for profit organizations, seeking to develop businesses within their communities. Often these organizations are looking for a good idea instead of a good credit score. These organizations invest time and energy in supporting borrowers in order to help them develop their businesses. They may even go so far as to contact a borrowers personal references in order to help them qualify. This personal touch means micro-loans may be easier to qualify for than traditional financing.

Micro-loans are also relatively inexpensive compared to other types of start-up financing. Interest rates are generally between 5 and 18 percent. Micro-lenders also offer educational resources. SBA backed micro-lenders must offer training for borrowers in subjects like money management and business planning. These educational resources can translate into long term success for new businesses.

Micro-loans present the opportunity to new business owners to secure the financing they need, learn strategies for long term success and improve their business credit score.

As borrowers pay down the balance of their micro-loan they build up their businesses credit score. This improvement can help new businesses qualify for more traditional financing in the future. This coupled with the education micro-lenders offer helps ensure new businesses succeed. All these factors translate into micro-loans being an excellent type of commercial loan for new business owners.

Micro-lenders offer a personalized approach not often found at traditional banks. The loans themselves are inexpensive compared to other types of financing available to new businesses . Education helps new businesses plan for future success. Above all micro-loans present the opportunity for new business owners to build their business credit score.

Micro-loans may be the safest type of commercial loan available to new business owners.

If your uncertain about the nuances of starting or running a business, but a have a great idea, a micro loan may be right for you. The education offered by micro-lenders will potentially equip you with knowledge and strategies for long term success. The borrower-focused approach of these organizations means micro-loans may be easier to qualify for than other types of financing. Above all getting a micro-loan gives you the opportunity to build credit and can help you avoid pursuing more expensive methods of start-up financing.

Technorati Tags: commercial loans,commercial lending,commercial mortgage