How to Get a Small Business Loan

How to Get a Small Business Loan. 

Whether you’re planning to expand an existing business or just now getting one off the ground, a small business loan can give you the financial support you need. Not all businesses can get a small business loan, so you need to take special care when applying for one. Make sure your credit history is as strong as possible, and search for lenders. Lenders will want to see numerous financial documents, so gather them ahead of time. Although getting a small business loan takes a lot of work, it is possible.

Part 1 Improving Your Credit Profile.
1. Pull your personal credit score. Most lenders will look at your personal credit history, even when you apply for a business loan. For this reason, obtain your credit score and check whether it’s high enough to qualify for the best interest rates. Generally, you’ll need a score above 680. You can get your credit score in the following ways:
Check your credit card statement. Many credit card companies now give their customers their FICO score.
Buy your FICO score for $20 at myfico.com.
Use a free website, such as CreditKarma.com or Credit Sesame.com.
2. Obtain a copy of your personal credit report. Errors on your credit report can pull down your credit score. In the U.S., you can get a free copy of your credit report each year from the three major Credit Reporting Agencies (CRAs). Don’t contact the CRA’s individually. Instead, visit annualcreditreport.com or call 1-877-322-8228. All three credit reports will be sent to you.
3. Remove inaccurate information from your credit report. Highlight any errors and contact the CRA that has the wrong information. Common errors include accounts listed that don’t belong to you or accounts inaccurately listed as in default.
You can contact the CRA directly through its website. If the inaccurate information appears on more than one credit report, you only need to contact one CRA, which will alert the other two.
It can take up to 60 days to remove inaccurate information.
4. Improve your credit score. Paying down your balances is the fastest way to improve your credit score. Tackle high-interest debts first, such as credit card debts. Send every monthly payment on time and pay at least the minimum. You should see a slow but steady improvement in your credit score.
Avoid taking out a new credit card, which will temporarily hurt your score. Instead, you can ask for an increase in the credit limit on one or more cards.
Unfortunately, there’s no quick fix for improving your credit score, and you should avoid any company promising to improve your score fast. These companies are often scammers.
5. Build your business credit. Lenders will also look at your business credit profile. Start building your business credit history by obtaining a D-U-N-S number from Dun & Bradstreet. You can get it for free by registering at their website.
Your creditors should report your payment history to Dun & Bradstreet. If not, list them as trade references. Dun & Bradstreet will then follow up and collect payment information.
Your business credit report will contain information about court judgments or liens against your business. You can boost your business credit by paying off any liens and judgments.

Part 2 Identifying Loans and Potential Lenders.
1. Determine the type of loan you need. There are several types of business loans you can get. You should identify the type you need before talking to a lender. Consider the following options.
Line of credit. You can draw from a credit line whenever you’re short of cash. For example, you might need money to make payroll or pay a vendor. You then pay back what you drew on your credit line. A line of credit is a lot like a credit card.
Installment loan. You can get an installment loan to expand operations. You pay it back in equal monthly installments over one to seven years.
Equipment loan. You get a loan to buy equipment, and the lender takes a security interest in the equipment until the loan is paid back. If you default on your loan, the lender seizes the equipment.
2. Stop into banks. Some banks are hesitant to lend to small businesses, but you still should stop in and talk to a loan officer. Discuss your business and ask for the bank’s requirements. You should stop in at least a month before you intend to apply.
Visit banks you’ve done business with as well as banks with whom you have no prior relationship. However, local community banks are more likely to lend to a small business than a large national bank.
3. Check with credit unions. Credit unions have increased the number of business loans they make, so they are a good option for small business owners. You’ll need to become a member of the credit union before you can apply for a business loan, but setting up an account shouldn’t be too burdensome. Credit unions typically offer better rates and lower fees than traditional banks.
4. Research online lenders. Online lending has exploded over the past few years and is a good option if your credit isn’t perfect. You can find online lenders at different aggregator sites, such as LendingTree and Fundera.
There are many online scammers, so thoroughly research online lenders. Look up the business with the Better Business Bureau and Google the company to check for complaints. Only do business with an online lender that has a street address.
5. Research government-backed loans. In many jurisdictions, the government will guarantee loans. This means they agree to pay back a certain percentage of the loan if the borrower defaults. Because of this guarantee, you generally get more favorable interest rates and repayment terms.
In the U.S., the Small Business Administration (SBA) guarantees small business loans. It’s most popular loan program is the 7(a) program which guarantees up to $5 million in loans. 7(a) loans can be used to build a new business or expand an existing one.
Even though the SBA guarantees the loan, you still apply with a bank. Talk to the bank about whether it is experienced with SBA loans and ask if it is part of the SBA Preferred Lender Program (PLP).
6. Ask friends or family for a loan. The people who know you the best might be willing to loan your business money. Approach your friends and family in the same manner you would a bank. Provide them with a copy of your business plan and your financial documents.
You can agree to pay interest, which will show that you are serious about repaying the loan. In the U.S., the interest rate shouldn’t be higher than the maximum allowed in your state, but it should be at least the federal funds rate, which you can find at the IRS website.
Also draft a promissory note and sign it, which will make the loan official.

Part 3 Gathering Required Information.
1. Create a personal financial statement. Every owner who owns at least 20% of your business should create a personal financial statement. Financial statements contain information about your assets, such as cash, mutual funds, certificates of deposits, and real estate. They also identify all liabilities owed to lenders, creditors, and the government.
2. Pull together business financial documents. Lenders will want to see your business balance sheet, profit and loss statement, and cash flow statement. If you need help creating these documents, consult with an account.
Ideally, your financial statements should be audited by a certified public accountant. Ask another business owner if they would recommend their CPA, or contact your nearest accounting society to obtain a referral.
3. Collect other required information. Lenders want a complete picture of your business, so they will require plenty of paperwork. Gather this ahead of time so that the application process goes smoothly. Get the following.
Personal tax returns for the past three years.
Recent personal bank statements.
Business tax returns for the past three years.
Recent business bank statements.
Resumes for each owner and member of management.
Business leases.
Articles of Organization (if an LLC) or Incorporation (if a corporation).
Franchise agreement (if applicable).
4. Show you have the necessary down payment. Generally, you need a cash down payment of 20%. If you hope to borrow $100,000, then you should have $20,000 in cash. Make sure that you have bank records showing the necessary down payment.
5. Draft a business plan. Your business plan lays out where your business is headed in the next few years and how you plan to get there. Lenders want to see a solid business plan before they will make a loan. Your business plan should identify your target market, marketing plan, management, and financial projections.
Some lenders want your business plan to contain specific information. Stop into the bank before applying and ask about their specific requirements.
Business plans can be hard to write. In the U.S., you can get help at your nearest Small Business Development Center, which you can find at https://www.sba.gov/tools/local-assistance/sbdc.
6. Document any collateral. Some lenders won’t give you a loan unless you pledge assets as collateral. Collateral protects lenders since they can seize the assets if you default on your loan. Common forms of collateral include inventory, heavy equipment, accounts receivables, and your home.
You should document the location and condition of the collateral. If possible, hire an appraiser to value the collateral.

Part 4 Applying for Your Loan.
1. Fill out your application. Each lender’s application will be slightly different. However, most will ask your reasons for applying for the loan, as well as the identity of your management team. Also identify any suppliers you will be buying assets from.
Each lender will pull your credit report, which will ding your credit score. However, all credit pulls in a two-week window will count as a single pull, so plan accordingly.
2. Wait to hear back. You should hear back within two to four weeks. If you want, you can call once a week and ask for an update on your application status. The lender might need more documentation, so provide it as quickly as possible.
About 80% of applicants for small business loans are rejected, so don’t be surprised if you get turned down. Ask any lender who rejects you to explain why. For example, you might need to save a larger down payment or draft a better business plan.
If no lender will give you a loan, consider other forms of funding, such as getting a business credit card.
3. Review the loan terms. Any lender that approves you should provide a term sheet which contains the details of the loan—the loan period, the annual percentage rate, and fees. Make sure you are comfortable with the terms.
You probably will need to personally guarantee the loan. This means that if you stop making payments, the lender can come after your personal assets, such as your car or home.
4. Close on the loan. Sign the term sheet or commitment letter and return it to the lender. The lender will then schedule a closing, which usually happens 45-60 days later. If your loan is guaranteed by the SBA, you’ll work with the loan officer to gather the necessary documents to submit. At the closing, you will review and sign a variety of documents before receiving your loan proceeds.

FAQ.

Question : Where can I find investors for small business?
Answer : If you're in the U.S., contact your nearest Chamber of Commerce or Small Business Development Center. They might know of local investors who are interested in small businesses.
Question : Are there any charities the will help me start a business?
Answer : You should start looking into crowdfunding websites. If people like your product or service, they'll donate money. Sometimes you can give the donators your product/service at a discounted price as an incentive.

April 07, 2020

How to Finance a Business

How to Finance a Business.

When it's time to finance a business, there can be substantial work involved to facilitate this step. Every small business is different, and businesses in different industries and sectors have different ways of going about getting credit. There are various costs which widely range over the span of particular sectors. However, for the core process of securing the financial assistance that a business owner needs for a start up, some basic guidelines and principles will help create effective programs and a solvent business model. Estimate the costs of doing business, find out what you need to borrow money, and then research your financing options.





Estimating Costs of Your Business.



Determine the one-time costs of your business. These are costs that will only occur at the very beginning of opening your business. These include mileage (getting to a location), market research, advertising, and training. You will also need to look up any fees which will occur, such as a lawyer or consultant fee.



Calculate the recurring costs of your business. These are costs that you will have to pay over and over again, usually on a weekly, bi-weekly, or monthly basis. These include costs of utilities, insurance, wages, etc. Recurring costs are generally larger than one-time costs, and span a length of 10-30 years depending on your financing options. Calculate not only the total cost over the lifespan of your business, but also that on a yearly, and bi-yearly basis.



Ascertain whether costs are fixed, or variable. Fixed costs are those which will not change. The cost of your utilities, or your administrative costs are all fixed. Variable costs are those which will change over time. This includes wages, insurance, and shipping/packaging costs. The best way to keep all this information organized is to create a spreadsheet (use Excel). That way you can graph out this information, and view it multiple ways(bar graph, line chart, etc.).



Create a balance sheet. If you are just starting a small business, it is important that you write out balance sheets, which include: assets, liabilities, and equity. Each of these three categories will help you keep track of the finances of your business, and make it easier to pay your bills.

Assets = current assets(cash, accounts receivable, notes receivable, inventory) + fixed assets(land, building, machinery, furniture, improvements) + intangibles(research, patents, charity, organizational expense)

Liabilities = current liabilities(accounts payable, accrued expenses, notes payable, current long-term debt) + non-current liabilities(non-current long-term debt, notes payable to shareholders and owners, contingent liabilities)

Equity = Assets - Liabilities



Develop a cash flow analysis. This measures money which goes in and out of your business. This is then broken down into operational activities, investment activities, and financing activities. This analysis will help you determine when you break even, and can start reinvesting/expanding your business. Once more, the best way to do this is to create a spread sheet. Find all of your financial statements and gather them together before you start to analyze.

Operational = net income, loses of business, sales, and business expenditures.

Investment = purchases and sales of property, assets, securities, and equipment.

Financing = cash flows of all your loan borrowing and repayment.







Borrowing Money for Your Business.



Use equity financing to start your business. Equity financing usually comes from a primary investor, or other business. They will provide you a sum of money, in exchange for part-ownership of your company. This is a good option because investors look further down the road than a loan company, and you will have more money on hand. However, the investors will naturally want to interfere, and change aspects of your business model.

There are networks online which can set you up with a primary investor.

You can also check out private equity firms, which contain a vast array of specialized and experienced investors.

Remember, that small business owners generally use very little equity financing. It all depends on your business model, and the potential for growth.



Start your business using debt financing. Debt financing is when you take out a loan, usually from a bank or lending institution. This is a great option because the bank will have no say in how you run your business. The loan is tax deductible, and you can get short-term or long-term loans. However, you must have the loan repaid in a certain amount of time, and if you don't, you could have a hard time getting capital investment.

Talk to your local bank, or lending institution about the qualifications for specific loans. You will probably have to fill out some paperwork to determine whether or not you are qualified.

When using a local bank, you may be able to set up a personal relationship. This way, you can postpone a few payments if you fall on hard times.



Find out about credit scores and ratings. The higher your score is, the less risky you are to investors. In many cases, the initial business loan will be based on the borrower's own personal credit score. However, in some cases where a business is already operational, a business plan and other documents can provide for a different kind of credit specifically for the continued operations of that enterprise.

Use the online company TransUnion or EquiFax to determine your credit score. It is important to get an independent analysis, otherwise your own calculated score could be biased.

The main focus of the score is how long you have maintained a credit line, and how many monthly payments you have made on time.

If you have no prior experience taking out credit, it may be hard to get a loan. It is best to start using a credit card on small things like gas, or grocery store trips. Then gradually build up. Show the creditors you are a responsible client.[12]



Maintain an adequate debt to equity ratio. You want to make sure that the total debt and liabilities of your business is no more than four times the equity in the business. Equity simply means any retained earnings and cash injections by investors. In order to start out with equity, the owner of the business usually has to put in anywhere from 20-40%. This will maintain an adequate debt to equity ratio, and allow you to get a loan.



Put up collateral to start your business. Before you get a loan, the lending institution or bank will ask for collateral. This means you risk some of the items you own. In the case you cannot repay the loan, the bank can seize your property. Collateral usually includes homes, cars, furniture, equipment, stocks, bonds, etc. this is a scary proposition, so you need to be sure that your business will be financially successful beforehand.



Shop around for different lenders. There are a variety of lenders who may or may not be willing to issue new business loans, and all of these potential lenders have their own terms and conditions. Talk to various lenders and ask them about what kinds of loans are available. Evaluate loans by timeline. Lenders will offer various short-term, long-term or revolving-credit loans to business owners. Look at which ones suit the needs of a startup the best.

Look at secured and unsecured business loans. Secured loans actually use existing assets as collateral. For example, the person trying to start a business can use his or her home, or other property, as collateral and get lower interest rates for the loan. However, this leaves the assets vulnerable to seizure in cases of nonpayment. Unsecured loans rest solely on the borrower's credit score. See which of these types of loans best matches desired risk.

Select the best deals. You want a loan that has the lowest interest rates and most favorable terms for repayment.









Financing Your Business.



Get a bank loan. Small, local banks have received more strict standards after the financial crash of 2008. However, large investment banks such as JP Morgan Chase and Bank of America have received a set of moneys from the Federal Reserve to lend out to small businesses. This is your best option to go with, although it takes the long to pay off. Local banks will set you up with a contract, and a monthly payment. The other benefit is that you can get this loan postponed if you are having trouble paying it off.



Place your home up as collateral. Banks will generally allow you to borrow up to 75-80% of your home's worth, as long as you have at least 10-15% already down on your home. This is great because the loan will have a much lower interest rate than a credit card. Talk with your financier, or local mortgage company for more detailed information.



Use your credit card. This is a very dangerous game to be played. You need to stay on top of your monthly payments. If you fall behind, you get trapped in a death spiral. However, when carefully managed, credit cards can be great to get out of an emergency. Only use a credit card occasionally, when you are experiencing a hole you know that you can get out of.



Tap into your 401(k) plan. You will need a financial expert who can start up a C Corporation which you can then roll your retirement assets into. This is also a risky business, because you are tapping into your nest egg. This should only be done if you have more money put away in a savings account, or if you are independently wealthy.



Try loaning money from your friends and family. Ask who would be willing to make a contribution, or purchase a percentage of the company. Go about asking members of your church for donations. Let local businesses to partner with you. You might make some acquaintances, and make some deals (you make cheese, they make wine, a chance to exchange).



Pledge your future earnings. Some companies, or peoples, are willing to gamble and put money upfront, if you are willing to commit a certain percentage of future profits. This is a gamble because they, and you, are betting that you will be able to earn enough in the future. There is usually a contract involved, guaranteeing that they will at least get some money back, so keep that in mind.



Kickstart your business. Crowd funding, in the age of the internet, has become a very popular way to finance businesses. Write a description of your business idea online, at sites like Kickstarter, and convince people to donate to your business. You will want to be really descriptive, and excited in your word choice. The downside of this is that it could take months or years before you raise enough money.



Secure an SBA loan. SBA (Small Business Administration) is a branch of the Federal Government that supplies loans to businesses struggling to get off the ground. However, there are a number of qualifications. You had to have been denied a loan from another bank before. You have to meet the government's definition of a small business. You will also have to meet other restrictions, depending on the type of SBA loan. Go to the SBA's website, and fill out a form if you think you might meet these qualifications.



Attract an angel investor. These are wealthy individuals who like to bet on the financial success of start-up businesses. Angel investors are usually found at private-equity, and venture capital firms. You will want to bring someone older, who looks like he has had experience in business before. Be passionate about your idea when you present, and know all of the financial details before you walk in the room. Keep in contact with the investor days and weeks after your initial meeting.





Tips.

Talk to numerous lending institutions before you pick a loan. Some will have better interest rates, while others will have better repayments.

Consult with family members first. Getting a small loan from them can avoid dealing with greedy credit lenders.

Get some experience in the business before you start your own. If you want to start a restaurant, make sure you have worked in a restaurant before. If not, you will wind up purchasing outside help which will cost you astronomical amounts of money.



Warnings.

Talk to a lawyer and a financial advisor to avoid colossal mistakes. The biggest regret of many first-time small business owners is not consulting with a professional before they begin the process.

If you are a person living paycheck-to-paycheck, it is best to wait to start a small business. If the business goes down hill quickly, you could lose your assets, and your life savings.

Take a year to save up money and make a detailed plan. You do not want to go into small business owning head first.

November 13, 2019

how to finance a business well

How to Finance a Business.

When it's time to finance a business, there can be substantial work involved to facilitate this step. Every small business is different, and businesses in different industries and sectors have different ways of going about getting credit. There are various costs which widely range over the span of particular sectors. However, for the core process of securing the financial assistance that a business owner needs for a start up, some basic guidelines and principles will help create effective programs and a solvent business model. Estimate the costs of doing business, find out what you need to borrow money, and then research your financing options.





Estimating Costs of Your Business.



Determine the one-time costs of your business. These are costs that will only occur at the very beginning of opening your business. These include mileage (getting to a location), market research, advertising, and training. You will also need to look up any fees which will occur, such as a lawyer or consultant fee.



Calculate the recurring costs of your business. These are costs that you will have to pay over and over again, usually on a weekly, bi-weekly, or monthly basis. These include costs of utilities, insurance, wages, etc. Recurring costs are generally larger than one-time costs, and span a length of 10-30 years depending on your financing options. Calculate not only the total cost over the lifespan of your business, but also that on a yearly, and bi-yearly basis.



Ascertain whether costs are fixed, or variable. Fixed costs are those which will not change. The cost of your utilities, or your administrative costs are all fixed. Variable costs are those which will change over time. This includes wages, insurance, and shipping/packaging costs. The best way to keep all this information organized is to create a spreadsheet (use Excel). That way you can graph out this information, and view it multiple ways(bar graph, line chart, etc.).



Create a balance sheet. If you are just starting a small business, it is important that you write out balance sheets, which include: assets, liabilities, and equity. Each of these three categories will help you keep track of the finances of your business, and make it easier to pay your bills.

Assets = current assets(cash, accounts receivable, notes receivable, inventory) + fixed assets(land, building, machinery, furniture, improvements) + intangibles(research, patents, charity, organizational expense)

Liabilities = current liabilities(accounts payable, accrued expenses, notes payable, current long-term debt) + non-current liabilities(non-current long-term debt, notes payable to shareholders and owners, contingent liabilities)

Equity = Assets - Liabilities



Develop a cash flow analysis. This measures money which goes in and out of your business. This is then broken down into operational activities, investment activities, and financing activities. This analysis will help you determine when you break even, and can start reinvesting/expanding your business. Once more, the best way to do this is to create a spread sheet. Find all of your financial statements and gather them together before you start to analyze.

Operational = net income, loses of business, sales, and business expenditures.

Investment = purchases and sales of property, assets, securities, and equipment.

Financing = cash flows of all your loan borrowing and repayment.







Borrowing Money for Your Business.



Use equity financing to start your business. Equity financing usually comes from a primary investor, or other business. They will provide you a sum of money, in exchange for part-ownership of your company. This is a good option because investors look further down the road than a loan company, and you will have more money on hand. However, the investors will naturally want to interfere, and change aspects of your business model.

There are networks online which can set you up with a primary investor.

You can also check out private equity firms, which contain a vast array of specialized and experienced investors.

Remember, that small business owners generally use very little equity financing. It all depends on your business model, and the potential for growth.



Start your business using debt financing. Debt financing is when you take out a loan, usually from a bank or lending institution. This is a great option because the bank will have no say in how you run your business. The loan is tax deductible, and you can get short-term or long-term loans. However, you must have the loan repaid in a certain amount of time, and if you don't, you could have a hard time getting capital investment.

Talk to your local bank, or lending institution about the qualifications for specific loans. You will probably have to fill out some paperwork to determine whether or not you are qualified.

When using a local bank, you may be able to set up a personal relationship. This way, you can postpone a few payments if you fall on hard times.



Find out about credit scores and ratings. The higher your score is, the less risky you are to investors. In many cases, the initial business loan will be based on the borrower's own personal credit score. However, in some cases where a business is already operational, a business plan and other documents can provide for a different kind of credit specifically for the continued operations of that enterprise.

Use the online company TransUnion or EquiFax to determine your credit score. It is important to get an independent analysis, otherwise your own calculated score could be biased.

The main focus of the score is how long you have maintained a credit line, and how many monthly payments you have made on time.

If you have no prior experience taking out credit, it may be hard to get a loan. It is best to start using a credit card on small things like gas, or grocery store trips. Then gradually build up. Show the creditors you are a responsible client.[12]



Maintain an adequate debt to equity ratio. You want to make sure that the total debt and liabilities of your business is no more than four times the equity in the business. Equity simply means any retained earnings and cash injections by investors. In order to start out with equity, the owner of the business usually has to put in anywhere from 20-40%. This will maintain an adequate debt to equity ratio, and allow you to get a loan.



Put up collateral to start your business. Before you get a loan, the lending institution or bank will ask for collateral. This means you risk some of the items you own. In the case you cannot repay the loan, the bank can seize your property. Collateral usually includes homes, cars, furniture, equipment, stocks, bonds, etc. this is a scary proposition, so you need to be sure that your business will be financially successful beforehand.



Shop around for different lenders. There are a variety of lenders who may or may not be willing to issue new business loans, and all of these potential lenders have their own terms and conditions. Talk to various lenders and ask them about what kinds of loans are available. Evaluate loans by timeline. Lenders will offer various short-term, long-term or revolving-credit loans to business owners. Look at which ones suit the needs of a startup the best.

Look at secured and unsecured business loans. Secured loans actually use existing assets as collateral. For example, the person trying to start a business can use his or her home, or other property, as collateral and get lower interest rates for the loan. However, this leaves the assets vulnerable to seizure in cases of nonpayment. Unsecured loans rest solely on the borrower's credit score. See which of these types of loans best matches desired risk.

Select the best deals. You want a loan that has the lowest interest rates and most favorable terms for repayment.









Financing Your Business.



Get a bank loan. Small, local banks have received more strict standards after the financial crash of 2008. However, large investment banks such as JP Morgan Chase and Bank of America have received a set of moneys from the Federal Reserve to lend out to small businesses. This is your best option to go with, although it takes the long to pay off. Local banks will set you up with a contract, and a monthly payment. The other benefit is that you can get this loan postponed if you are having trouble paying it off.



Place your home up as collateral. Banks will generally allow you to borrow up to 75-80% of your home's worth, as long as you have at least 10-15% already down on your home. This is great because the loan will have a much lower interest rate than a credit card. Talk with your financier, or local mortgage company for more detailed information.



Use your credit card. This is a very dangerous game to be played. You need to stay on top of your monthly payments. If you fall behind, you get trapped in a death spiral. However, when carefully managed, credit cards can be great to get out of an emergency. Only use a credit card occasionally, when you are experiencing a hole you know that you can get out of.



Tap into your 401(k) plan. You will need a financial expert who can start up a C Corporation which you can then roll your retirement assets into. This is also a risky business, because you are tapping into your nest egg. This should only be done if you have more money put away in a savings account, or if you are independently wealthy.



Try loaning money from your friends and family. Ask who would be willing to make a contribution, or purchase a percentage of the company. Go about asking members of your church for donations. Let local businesses to partner with you. You might make some acquaintances, and make some deals (you make cheese, they make wine, a chance to exchange).



Pledge your future earnings. Some companies, or peoples, are willing to gamble and put money upfront, if you are willing to commit a certain percentage of future profits. This is a gamble because they, and you, are betting that you will be able to earn enough in the future. There is usually a contract involved, guaranteeing that they will at least get some money back, so keep that in mind.



Kickstart your business. Crowd funding, in the age of the internet, has become a very popular way to finance businesses. Write a description of your business idea online, at sites like Kickstarter, and convince people to donate to your business. You will want to be really descriptive, and excited in your word choice. The downside of this is that it could take months or years before you raise enough money.



Secure an SBA loan. SBA (Small Business Administration) is a branch of the Federal Government that supplies loans to businesses struggling to get off the ground. However, there are a number of qualifications. You had to have been denied a loan from another bank before. You have to meet the government's definition of a small business. You will also have to meet other restrictions, depending on the type of SBA loan. Go to the SBA's website, and fill out a form if you think you might meet these qualifications.



Attract an angel investor. These are wealthy individuals who like to bet on the financial success of start-up businesses. Angel investors are usually found at private-equity, and venture capital firms. You will want to bring someone older, who looks like he has had experience in business before. Be passionate about your idea when you present, and know all of the financial details before you walk in the room. Keep in contact with the investor days and weeks after your initial meeting.





Tips.

Talk to numerous lending institutions before you pick a loan. Some will have better interest rates, while others will have better repayments.

Consult with family members first. Getting a small loan from them can avoid dealing with greedy credit lenders.

Get some experience in the business before you start your own. If you want to start a restaurant, make sure you have worked in a restaurant before. If not, you will wind up purchasing outside help which will cost you astronomical amounts of money.



Warnings.

Talk to a lawyer and a financial advisor to avoid colossal mistakes. The biggest regret of many first-time small business owners is not consulting with a professional before they begin the process.

If you are a person living paycheck-to-paycheck, it is best to wait to start a small business. If the business goes down hill quickly, you could lose your assets, and your life savings.

Take a year to save up money and make a detailed plan. You do not want to go into small business owning head first.

November 12, 2019

How to Write a Proposal Letter

How to Write a Proposal Letter.

A proposal letter is a professional letter that states, in an abbreviated form, why an organization, institution, or company should support a professional venture of yours. You might write a proposal letter for a number of reasons—for example, to request a grant, a business loan, or that a publisher accept your book idea. There are general formats, details, and arguments you should make in each instance, although the specifics will vary based on the recipient’s requirements. In all cases, however, you must be succinct, informative, and persuasive.

Method 1 Writing a Grant Proposal Letter.
1. Review the eligibility guidelines so you can offer proof throughout the letter. Most public and private organizations that issue grants for research or other projects have a detailed list of eligibility requirements. You must meet these requirements to be eligible, and you must confirm to the organization that you meet these requirements.
Check the organization’s website or call or email them to get complete and up-to-date eligibility guidelines.
Instead of dedicating an entire paragraph to explaining how you meet each requirement, weave this information into the body of your letter as you write it. For instance, if the organization has certain requirements concerning the types of projects the money can be used for and separate requirements for how that money will be allotted, describe these issues in separate paragraphs instead of trying to cram all the information into one.
2. Introduce your organization to an appropriate degree in the first paragraph. If you are not in regular contact with the grant organization, you should introduce your organization in fairly substantial detail in the first body paragraph of your letter. For instance, provide the name of your organization, what it does, why it does it, and who benefits from your organization's work.
If you have had previous contact with the grant agency or organization, don’t rehash basic information the recipient already knows. Instead, mention any changes or developments your organization has made since you were last in contact.
3. Explain your need for the grant and its importance to your organization. Make this the central focus of the second body paragraph. Tell the recipient what your organization hopes to accomplish and what group or groups in society are the focus for your efforts. Also explain why your research, charitable effort, or venture is important and what sort of outcome you are expecting to have.
Balance optimism and realism in this section and throughout the letter. Don’t make outlandish claims like “ending poverty” with this grant. Instead, explain how the grant will help “alleviate food insecurity for at-risk children both before and after school hours.”
4. Provide a timeline and other practical details on how the grant will be used. In the third paragraph, include realistic content about the timeline your project will require, the locations you will operate in and/or impact, and similar information.
State when the project will begin and how long you expect it to run. Be as precise as possible: “If the grant is approved, we intend to operate the program from August 25, 2020 through August 24, 2021.”
Some grants are location-specific. If this is true of the grant you apply for, you will need to indicate where your organization is based, the geographic area that will be studied during your project, or the geographic area that will benefit from the project.
5. Mention how much the project will cost and how much grant money you are requesting. Be as specific as possible so that the grant organization can get an idea of how crucial its funding is. Provide this information in its own paragraph or integrated into the prior paragraph on grant use details.
Particularly if you are applying for a grant without a pre-determined funding amount, be sure to state precisely how much money you are requesting.
Be precise in your cost estimates and provide supporting documentation as enclosures in your application packet, as per the organization’s application instructions.
6. Include any additional information requested in the application instructions. The grant agency or organization may require additional information that should be included in your proposal letter, or it may require separate documents as enclosures in your packet. Refer to the application instructions carefully and frequently, and contact the organization whenever you have questions or need clarification.
Additional documents may include financial budgets, past financial records, and past records indicating the success of similar projects performed by your organization in the past.
Make sure your grant request isn’t delayed or even rejected because you failed to provide a required piece of information.

Method 2 Writing a Business Financing Proposal Letter.
1. Refer to any prior contact at the beginning of the letter. If your business is already established and has a previous relationship with the lender or funder you are contacting, be sure to mention that prior contact. This doesn’t guarantee success for your current request, of course, but it may strengthen your status as a “good bet.”
If you interacted with a specific contact at the company, mention that individual by name. For example: “Nearly seven years ago, I worked with Jane Goodson at your company to help secure the funding that got my business off the ground.”
2. Discuss the size, scope, and focus of your company. Include your mission statement and a short description of the products or services your company provides. To make your case for funding more convincing, also include details like the number of customers served, the number of employees, and information about any administrative boards.
Providing a brief summary of your business helps the funder get a better understanding of who you are, what you do, and why you are a good choice for funding.
Aim to spend 1 paragraph on this content, in most cases.
3. Pinpoint the amount of funding you need and why you need it. Take a paragraph to both identify precisely how much funding you are requesting and explain why you need financial help from the funder. Describe what, specifically, the funding will be used for.
For example: “The $50,000 loan we are requesting will enable us to expand production in our highest-profit product range and grow sales by an estimated 20% within 2 years.”
You may need to include budget data that spells out how funds have been used in the past and projections on how the funds will be used this time around. This additional data may need to be included as a separate attachment.
Regardless of how much information you include in the body of the letter itself, you should always state the total cost of the project and how much of that cost will be covered by the funder's support.
4. Explain how you will use the funding, specifically but succinctly. You need to provide enough information about how the provided funds will be used to make the prospective funder curious and excited by the prospect. Provide key highlights in a paragraph, mentioning specifics but not going into excessive detail.
This should only be a summary. With a full-scale proposal, this information can take pages. This information should take no more than a half page when writing a shorter proposal letter, however. Provide separate enclosures as needed.
5. Offer to provide additional details at the close of your letter. Since a proposal letter is shorter than a full proposal, make it clear that you are willing and able to provide additional details as requested. Do this instead of sending excessive amounts of information that has not been requested with your proposal letter.
For instance, you last sentences might read: “Should you need any further information, please feel free to contact me directly by phone or email. I would also be happy to meet with you at your offices.”
6. Include any necessary enclosures with your packet. Check over the application requirements again. If the prospective funder requires additional documentation along with your proposal letter, include it in the envelope as an enclosure. Note the enclosures in your proposal letter.
Possible documentation might include a list of board members, copies of your tax documents and financial documents, and resumes of key staff members.

Method 3 Writing a Book Proposal Letter.
1. Check the submission guidelines before starting the letter. Every publishing agency and publisher has its own set of submission guidelines. These can usually be found on the publisher's website—if not, call, email, or write to the company and request a copy of their guidelines before proceeding.
Submission guidelines outline the types of books a publisher or agent will accept, as well as the required format and content for the proposal letter.
2. Spend the first few paragraphs describing your book. Right from the start, you need to convince the agent or publisher that the book you want to submit will be successful in the marketplace. In the first paragraph, use around 300 words to write a brief but intriguing summary of your book. Write a second paragraph that describes the essentials of the book, such as genre, word count, and likely market.
If you’re writing fiction or creative non-fiction, outline your narrative and describe your main characters in the first or second paragraph.
State whether or not the book is finished at some point in these opening paragraphs. Note, however, that some publishers will not accept proposals for unfinished works.
3. Identify your expected target market and competitors. Use a paragraph to thoroughly describe the demographic your book is aimed at. If possible, provide provide statistics and make sure they address your target demographic in specific, rather than general, terms.
Perform a competitive analysis in this section. List a few main competitors to your book, explain how well these competitors do in the market, and describe why your book will offer something its competitors do not.
4. Provide biographical information, especially in relation to the book’s subject matter. Describe yourself and explain why you are the perfect person to write this book. Don’t fabricate or exaggerate details, but do put a positive spin on your personal bio.
Mention any writing experience and publishing experience you have.
Mention any experience you have with your book’s subject matter. For instance, if you’ve written a book about fashion and have experience as a fashion designer, include that in your letter.
5. Summarize your intended role in the marketing plan. Provide specific information about what your plans are concerning the promotion of your book once it gets published. Be specific, not general. Do not state what you are willing to do, but rather what you will do.
Instead of writing “I would be willing,” for example, go with “I will.”
Possible forms of marketing include professional blogs, book signings, and professional conferences.
6. Include a more detailed synopsis as a separate enclosure. You will usually need to include a 1-2 page synopsis that describes your book in fuller detail than your 300-word summary at the start of the proposal letter. Unless otherwise directed, include this as an enclosure, not as part of the main body of the letter.
Provide a full summary of the entire plot and purpose of your book. Include all the major details about the plot and significant sub-plots.
7. Enclose a sample table of contents and an extract, if requested. Some publishers expect you to send along a table of contents, an extract from the work, or both. Follow the specific submission guidelines provided by the publisher, and get clarification if needed.
If you do not yet have a table of contents, you may instead need to provide a brief summary of each chapter.
Some publishers and agents will request the first few pages or chapters of your book. Others may not specify which part of the book the extract needs to be pulled from. Regardless, the extract should be an example of your strongest writing.

Method 4 Formatting the Letter.
1. Start by placing your address at the top left of the letter. In the upper left corner of the letter, write your street address on the first line, then the remainder of your address (such as city, state, and ZIP code in the U.S.) on the second line. Left align the text (here and throughout the letter) and single space between lines.
You do not need to include your name or title in the return address, since this information is provided in the closing section.
Do not type out the return address at the top of the letter if you are using paper with a formal letterhead that already includes the address.
2. Include the current date below your address. Double-space after the return address and type the current date in "month-day-year" format in the U.S., or “day-month-year” in nations that typically use that format. The month should be spelled out, but the day and year should be represented by numerical values.[
For instance, write “October 8, 2019” (month-day-year) or “8 October 2019” (day-month-year).
If you are not using a return address because your paper has a formal letterhead, the date should be the first piece of information you add at the top left.
3. Type in the recipient's name, title, and address. Double-space after the date, then use a single-spaced line for each of the following: recipient name; recipient title (if applicable); recipient street address; recipient city, state, etc.
Alternatively, you can put the person’s name and title together on one line—for instance: “Mr. Thomas Jones, Director of Operations.”
Use the person’s personal title—Mr., Ms., Mrs., Dr., etc.—if you know their preference. It’s generally acceptable to assume “Mr.” for a male and “Ms.” for a female. However, you can instead choose to exclude the personal title and write “Thomas Jones” instead of “Mr. Thomas Jones.”
The entire block should be left-aligned and single-spaced.
It’s preferable to write to a specific individual at a company instead of writing a general letter to anyone who may read it.
4. Include an appropriate salutation to the recipient. Double-space after the recipient's address and type the salutation "Dear" followed by the recipient's personal title and last name. End the salutation with a colon, not a comma: “Dear Ms. Amy Watson:”
If you do not know the recipient's preferred personal title and prefer not to assume either “Mr.” or “Ms.”, skip the personal title and use the recipient's full name: “Dear Amy Watson:”
Double space after the salutation as well.
5. Write the body of your letter using single-spaced block paragraphs. The exact content and length of your proposal letter will of course vary depending on the type of proposal you’re writing. The format of the letter should remain the same for each type, though.
Single space and left justify each paragraph.
Do not indent the first line of your paragraphs.
Double space between paragraphs.
6. Use an appropriate closing and signature. Double-space after the final body paragraph and include a formal closing, followed by a comma. Hit the "Enter" key four times before typing your full name and personal title—this blank space is for your signature.
Capitalize only the first word of your formal closing—That is, “Thank you” instead of “Thank You.”
Common closing options include “Thank you,” “Sincerely,” “Regards,” “Best regards,” and “Best wishes.”
Add a comma after the formal closing.
7. Mention any enclosures below your signature and name and title line. If you send any enclosures with your proposal letter, like a resume with an employment proposal or financial information with a business proposal, indicate this by double-spacing after your typed name and title and typing "Enclosure” or “Enclosures.”
You also have the option of listing each document you are enclosing. Use the following format: “Enclosures: resume, writing sample, 3 letters of reference.”
8. Review the letter for spelling, grammar, and formatting errors. Run your finished letter through a spell-check program, but don't stop there. Read it out loud to check for any awkward phrasing or grammar errors. If possible, have someone else read through it as well, since they may spot errors that you've missed.
Don't let a silly spelling error or misplaced comma reduce the impact of an otherwise carefully-crafted letter. Proofreading is important!

FAQ.

Question : How do I write a proposal for a musical tour?
Answer : dentify the potential donors and outline your plans for the tour, including the bands involved, the venues where you will be playing, and an estimate of the upfront costs and potential profit. If this will be for charity, clearly identify the cause.
Question : How do I write a proposal letter to the ministry of safety, wanting to supply them with stop signs and police gear?
Answer : A proposal is generally understood to mean something the receiver has not yet thought of. "Dear city council, after reading your urban planning blueprints, I propose to plant more trees" rather than "I see you're looking for trees and I want to sell you some." Governments are typically bound by public tenders when they buy equipment, so if you want to sell signs and gear, you have to submit your offer when they issue a tender and hope yours is the best of all offers received.

Tips.
If someone else typed the letter for you, double space after the enclosures line and include their initials. For example, add “HU” if Hilary Underwood typed the letter for you.

April 07, 2020

how to analyze your current finances

How to Analyze Your Current Finances.

Before you can improve your financial health, you need to analyze your current finances. Keep track of your expenses for a month and look at where you are spending the most. Use extra money to pay down debts, build an emergency fund, and save for your retirement. Although saving might seem difficult, it’s actually quite easy once you find out where your money is going.

Part 1 Tracking Your Spending.

1. Record your spending. Record all purchases that you make in a month. Write down the amount spent, the day, and the time. Some of the more popular methods include:

Create a spreadsheet. Remember to enter every purchase or expense. You should probably hold onto receipts so that you don’t forget how much you spent during the day.

Keep a notebook. This is a lower-tech option, but it is convenient. Carry your notebook around with you and record purchases as soon as you make them.

Use checks. This is an old-fashioned option, but you can easily track your expenses when your monthly bank statement arrives.

Use an app. Many apps are on the market that help track your spending on your smartphone. The most popular include Mint.com and Wesabe.com.

2. Add up your fixed expenses. Your fixed expenses don’t change month to month. Common fixed expenses include the following: Rent or mortgage, Insurance, Car payment, Utilities, Debt repayment.

3. Look closer at your discretionary spending. Your discretionary spending is any spending that isn’t fixed. Instead, it goes up and down each month. Pay attention to what you are spending money on. Break out the amounts spent on the following: Groceries, Eating out, Gas, Clothes, Hobbies/entertainment.

4. Pay attention to when you spend the most. Look at the days and times when you make most of your discretionary purchases. Do you buy impulsively immediately after work? Do you spend too much money on the weekends?

You might need to change your routine, depending on when you spend. For example, instead of pulling into the mall on your way home from work, you can change your route so that you don’t pass the mall.

If you’re a weekend spender, you can try to fill your time with other hobbies, such as exercise or visiting friends.

5. Compare your spending to the 50-20-30 rule. According to this rule, your monthly expenses should shake out this way: 50% should go to essentials, such as food, rent, and transportation. 20% should go to saving and debt reduction, and 30% should go for discretionary spending.

The 50-20-30 rule probably won’t work for many people. For example, your fixed expenses like rent might eat up more than 50% of your budget. If you have debts, then you might need to spend more than 20% to pay them down. Nevertheless, the 50-20-30 rule can help you identify where you are falling short. It also gives you something to work towards. If necessary, reduce your debt load by refinancing or paying down debts.

Part 2 Looking Closer at Your Debts.

1. Draw up a list of your debts. Go through your paperwork and find information on your debts, then draw up a list including the following: Name of the account, Total current balance, Monthly payment, Interest rate.

2. Pull a copy of your credit report. You might not remember all of your debts, so you should go through your credit report to make sure you haven’t forgotten anything. In the U.S., you are entitled to one free credit report annually from each of the three national credit reporting agencies. Don’t order the report from each agency. Instead, order them all by calling 1-877-322-8228.

You can also visit annualcreditreport.com. Provide your name, date of birth, address, and Social Security Number.

3. Check if you can reduce your debt load. Depending on your situation, you might be able to lower the overall amount you pay on your debts. Although this might not lower your monthly payments, you will ultimately save money in the long-term. Consider your options:

You might be able to refinance a 30-year mortgage into a 15-year mortgage. This will probably increase your monthly payments, but you can save big on interest.

Call up your credit card companies and ask for a better interest rate. This will lower your monthly payment and your overall debt.

Consolidate debt. For example, you can transfer credit card debts to a balance transfer credit card, or you can take out a lower-interest personal loan to pay off debts.

4. Find ways to reduce your monthly debt payment. In a cash crunch, you’ll need to reduce how much you pay each month, even if you end up paying more over the long-term. You can lower your monthly debt payments in the following ways:

You might be able to stretch out the length of the loan. For example, you might refinance a car loan and stretch out the repayment period to six years.

If you have student loans, you can ask for deferment or forbearance. These options temporarily suspend your payments, though interest will continue to accrue with forbearance. When you get back on your feet, you can begin making payments.

Debt consolidation can also reduce your monthly payments, depending on the interest rate and repayment period.

5. Pay off your debts. You need to pay back your debts, preferably sooner rather than later. Some of the more popular approaches to debt reduction include the following:

Debt avalanche. You pay the minimum on all debts except the one with the highest interest rate, to which you dedicate all extra money. Once that debt is paid off, you commit all resources to the debt with the next highest interest rate.

Debt snowball. With this method, you pay the minimum on all debts except the smallest one. You devote all available money to this debt until it is paid off, then you focus on the remaining debt that is the smallest. This method can give you momentum as you see your smallest debts disappear.

Debt snowflake. You look for ways to save money every day and make multiple payments each month to your debts. You can combine the debt snowflake method with either the avalanche or snowball method.

Part 3 Reducing Your Expenses.

1. Set a savings goal. Ideally, you should save 15-25% of your monthly paycheck. This means that if you bring home $2,000 a month, you should save between $300 and $500. That might not be a realistic goal right now, depending on your expenses.

If you can’t save 15%, then work on ways to reduce your discretionary spending. Every little bit helps, and there are many ways to save every day.

2. Reduce your spending on food. Stop eating out and instead cook at home. Buy a cheap cook book and have fun making new recipes. Remember to buy groceries in bulk for extra savings.

Clipping coupons will help reduce the amount you spend each week. Find coupons in your local newspaper or in the circular at the grocery store.

Use popular apps such as Checkout 51, Grocery IQ, and Coupons.com.

3. Find cheap entertainment substitutes. Everyone needs to unwind a little bit. However, you can usually find a cheaper substitute for your favorite activity:

Instead of paying for a gym membership, exercise outdoors. Join a jogging or walking group, or do pushups or sit-ups in the park.

Get your library card and check out books and DVDs instead of paying for them.

Instead of joining friends for happy hour, host a potluck at your house. Ask all guests to bring a dish or a bottle of wine.

4. Cut your electricity use. Install LED lightbulbs, which are four times as energy efficient as regular lightbulbs, and remember to unplug electrical devices when you aren’t using them.

You might also weatherize and insulate your home for increased savings. Obtain a home energy audit and apply for any local government programs. An energy audit can reduce your energy expenses by 5-30%.

5. Reduce your fixed expenses. These can be the hardest to reduce because they often require that you make big lifestyle changes. However, consider whether you can make any of the following changes, especially if you are living beyond your means:

Move in with friends or family. If you can’t afford your rent or home, then you might need to crash at someone’s place, at least temporarily. This can save a lot of money.

Take public transportation. Sell your car and pocket the money. You’ll also save on insurance and gas.

Get cheaper insurance. You can lower your auto or homeowners insurance by shopping around using an online aggregator. When you find a cheaper option, call up your current insurer and ask them to match it. If they won’t, you can switch.

6. Freeze your credit cards. Reduce the temptation to spend by freezing your cards in ice and carrying only cash on you. If you’re afraid of carrying cash, get a secured credit card or reloadable debit card.

Part 4 Saving for the Future.

1. Build a cash cushion. If your car broke down or you lost your job, could you continue to pay the bills? Build a cash cushion by saving six months’ worth of expenses. Start small, by putting aside whatever extra money you can spare.

Don’t let debt repayment get in the way. Most financial experts recommend that you build up at least a small emergency fund at first—say, three months. Then you can tackle your credit card debt.

Ideally, you can do both at the same time—contribute some money to your emergency fund and some extra to paying debts down quickly.

2. Contact Human Resources about retirement plans. You might be surprised that your employer offers a retirement plan. Call up HR and ask. Also check whether or not they will match any of your contributions.

For example, some employers might match up to 4% of your base salary. This means you contribute 4% and they contribute 4%. If you only contribute 3%, then they will match that.

3. Research IRAs. If your employer doesn’t offer a retirement plan, don’t worry! You have plenty of options to choose from. The two most common are Individual Retirement Accounts (IRAs) and Roth IRAs. You can open an account with many online brokers. Choose which IRA works for you:

IRA. With a traditional IRA, your contributions are tax-free. This is a good choice if you anticipate being in a lower income tax bracket when you retire.

Roth IRA. The big advantage of a Roth IRA is that your withdrawals will be tax free. However, you pay taxes on your contributions. This is a good option if you anticipate being in a higher income tax bracket when you retire.

January 27, 2020

How to Analyze Your Current Finances

How to Analyze Your Current Finances.

Before you can improve your financial health, you need to analyze your current finances. Keep track of your expenses for a month and look at where you are spending the most. Use extra money to pay down debts, build an emergency fund, and save for your retirement. Although saving might seem difficult, it’s actually quite easy once you find out where your money is going.

Part 1 Tracking Your Spending.

1. Record your spending. Record all purchases that you make in a month. Write down the amount spent, the day, and the time. Some of the more popular methods include:

Create a spreadsheet. Remember to enter every purchase or expense. You should probably hold onto receipts so that you don’t forget how much you spent during the day.

Keep a notebook. This is a lower-tech option, but it is convenient. Carry your notebook around with you and record purchases as soon as you make them.

Use checks. This is an old-fashioned option, but you can easily track your expenses when your monthly bank statement arrives.

Use an app. Many apps are on the market that help track your spending on your smartphone. The most popular include Mint.com and Wesabe.com.

2. Add up your fixed expenses. Your fixed expenses don’t change month to month. Common fixed expenses include the following: Rent or mortgage, Insurance, Car payment, Utilities, Debt repayment.

3. Look closer at your discretionary spending. Your discretionary spending is any spending that isn’t fixed. Instead, it goes up and down each month. Pay attention to what you are spending money on. Break out the amounts spent on the following: Groceries, Eating out, Gas, Clothes, Hobbies/entertainment.

4. Pay attention to when you spend the most. Look at the days and times when you make most of your discretionary purchases. Do you buy impulsively immediately after work? Do you spend too much money on the weekends?

You might need to change your routine, depending on when you spend. For example, instead of pulling into the mall on your way home from work, you can change your route so that you don’t pass the mall.

If you’re a weekend spender, you can try to fill your time with other hobbies, such as exercise or visiting friends.

5. Compare your spending to the 50-20-30 rule. According to this rule, your monthly expenses should shake out this way: 50% should go to essentials, such as food, rent, and transportation. 20% should go to saving and debt reduction, and 30% should go for discretionary spending.

The 50-20-30 rule probably won’t work for many people. For example, your fixed expenses like rent might eat up more than 50% of your budget. If you have debts, then you might need to spend more than 20% to pay them down. Nevertheless, the 50-20-30 rule can help you identify where you are falling short. It also gives you something to work towards. If necessary, reduce your debt load by refinancing or paying down debts.

Part 2 Looking Closer at Your Debts.

1. Draw up a list of your debts. Go through your paperwork and find information on your debts, then draw up a list including the following: Name of the account, Total current balance, Monthly payment, Interest rate.

2. Pull a copy of your credit report. You might not remember all of your debts, so you should go through your credit report to make sure you haven’t forgotten anything. In the U.S., you are entitled to one free credit report annually from each of the three national credit reporting agencies. Don’t order the report from each agency. Instead, order them all by calling 1-877-322-8228.

You can also visit annualcreditreport.com. Provide your name, date of birth, address, and Social Security Number.

3. Check if you can reduce your debt load. Depending on your situation, you might be able to lower the overall amount you pay on your debts. Although this might not lower your monthly payments, you will ultimately save money in the long-term. Consider your options:

You might be able to refinance a 30-year mortgage into a 15-year mortgage. This will probably increase your monthly payments, but you can save big on interest.

Call up your credit card companies and ask for a better interest rate. This will lower your monthly payment and your overall debt.

Consolidate debt. For example, you can transfer credit card debts to a balance transfer credit card, or you can take out a lower-interest personal loan to pay off debts.

4. Find ways to reduce your monthly debt payment. In a cash crunch, you’ll need to reduce how much you pay each month, even if you end up paying more over the long-term. You can lower your monthly debt payments in the following ways:

You might be able to stretch out the length of the loan. For example, you might refinance a car loan and stretch out the repayment period to six years.

If you have student loans, you can ask for deferment or forbearance. These options temporarily suspend your payments, though interest will continue to accrue with forbearance. When you get back on your feet, you can begin making payments.

Debt consolidation can also reduce your monthly payments, depending on the interest rate and repayment period.

5. Pay off your debts. You need to pay back your debts, preferably sooner rather than later. Some of the more popular approaches to debt reduction include the following:

Debt avalanche. You pay the minimum on all debts except the one with the highest interest rate, to which you dedicate all extra money. Once that debt is paid off, you commit all resources to the debt with the next highest interest rate.

Debt snowball. With this method, you pay the minimum on all debts except the smallest one. You devote all available money to this debt until it is paid off, then you focus on the remaining debt that is the smallest. This method can give you momentum as you see your smallest debts disappear.

Debt snowflake. You look for ways to save money every day and make multiple payments each month to your debts. You can combine the debt snowflake method with either the avalanche or snowball method.

Part 3 Reducing Your Expenses.

1. Set a savings goal. Ideally, you should save 15-25% of your monthly paycheck. This means that if you bring home $2,000 a month, you should save between $300 and $500. That might not be a realistic goal right now, depending on your expenses.

If you can’t save 15%, then work on ways to reduce your discretionary spending. Every little bit helps, and there are many ways to save every day.

2. Reduce your spending on food. Stop eating out and instead cook at home. Buy a cheap cook book and have fun making new recipes. Remember to buy groceries in bulk for extra savings.

Clipping coupons will help reduce the amount you spend each week. Find coupons in your local newspaper or in the circular at the grocery store.

Use popular apps such as Checkout 51, Grocery IQ, and Coupons.com.

3. Find cheap entertainment substitutes. Everyone needs to unwind a little bit. However, you can usually find a cheaper substitute for your favorite activity:

Instead of paying for a gym membership, exercise outdoors. Join a jogging or walking group, or do pushups or sit-ups in the park.

Get your library card and check out books and DVDs instead of paying for them.

Instead of joining friends for happy hour, host a potluck at your house. Ask all guests to bring a dish or a bottle of wine.

4. Cut your electricity use. Install LED lightbulbs, which are four times as energy efficient as regular lightbulbs, and remember to unplug electrical devices when you aren’t using them.

You might also weatherize and insulate your home for increased savings. Obtain a home energy audit and apply for any local government programs. An energy audit can reduce your energy expenses by 5-30%.

5. Reduce your fixed expenses. These can be the hardest to reduce because they often require that you make big lifestyle changes. However, consider whether you can make any of the following changes, especially if you are living beyond your means:

Move in with friends or family. If you can’t afford your rent or home, then you might need to crash at someone’s place, at least temporarily. This can save a lot of money.

Take public transportation. Sell your car and pocket the money. You’ll also save on insurance and gas.

Get cheaper insurance. You can lower your auto or homeowners insurance by shopping around using an online aggregator. When you find a cheaper option, call up your current insurer and ask them to match it. If they won’t, you can switch.

6. Freeze your credit cards. Reduce the temptation to spend by freezing your cards in ice and carrying only cash on you. If you’re afraid of carrying cash, get a secured credit card or reloadable debit card.

Part 4 Saving for the Future.

1. Build a cash cushion. If your car broke down or you lost your job, could you continue to pay the bills? Build a cash cushion by saving six months’ worth of expenses. Start small, by putting aside whatever extra money you can spare.

Don’t let debt repayment get in the way. Most financial experts recommend that you build up at least a small emergency fund at first—say, three months. Then you can tackle your credit card debt.

Ideally, you can do both at the same time—contribute some money to your emergency fund and some extra to paying debts down quickly.

2. Contact Human Resources about retirement plans. You might be surprised that your employer offers a retirement plan. Call up HR and ask. Also check whether or not they will match any of your contributions.

For example, some employers might match up to 4% of your base salary. This means you contribute 4% and they contribute 4%. If you only contribute 3%, then they will match that.

3. Research IRAs. If your employer doesn’t offer a retirement plan, don’t worry! You have plenty of options to choose from. The two most common are Individual Retirement Accounts (IRAs) and Roth IRAs. You can open an account with many online brokers. Choose which IRA works for you:

IRA. With a traditional IRA, your contributions are tax-free. This is a good choice if you anticipate being in a lower income tax bracket when you retire.

Roth IRA. The big advantage of a Roth IRA is that your withdrawals will be tax free. However, you pay taxes on your contributions. This is a good option if you anticipate being in a higher income tax bracket when you retire.

January 27, 2020

how to protect your finances against market crashes

How to Protect Your Finances Against Market Crashes.

Economic expansions don't last forever, and eventually, the country will enter another recession. When it does, you need to protect your investments so that you can weather the storm. Assess how exposed you are to stocks and decide whether to diversify your portfolio with safer investments. Also clean up your balance sheet by reducing your debts, which will allow you to survive the recession that accompanies a stock market crash.

Method 1 Changing Your Investments.

1. Check your current investment allocation. You might have no idea what your retirement fund is currently invested in. If not, log into your account and print out the current allocation of investments, which should include the following:

stocks or stock mutual funds, bonds,real estate,money market accounts.

2. Identify why you fear a market crash. The economy goes up and down with some regularity, and when the market crashes stocks suddenly become cheaper to buy. For this reason, you might not want to diversify your portfolio. Instead, you can leave your investments as they are.

However, you might want to reduce your exposure to risk if you are nearing your retirement age or have just entered retirement. A major stock market crash could seriously cut the amount of money you have to live on.

Your tolerance for risk might also have changed. If so, then you can diversify your portfolio so that you are comfortable with your investment mix.

It’s impossible to predict exactly when the next recession will hit, so you shouldn’t move money in and out of the stock market hoping to get out just before things turn south. For example, it looked like the U.S. stock market was about to crash in late 2015. Since then, the Dow Jones Industrial Average has increased more than 20%.

3. Consider holding money in a savings account. The easiest way to protect your investments is to get out of stocks and move the money to savings accounts. Consider the following options:

High-yield online savings accounts. These accounts will only earn about 1-2% annually, but this amount is higher than most banks offer. Your cash is liquid, so you can access it if needed. Furthermore, your deposit will be protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 USD.

Money market accounts. These accounts are like bank accounts but with potentially higher returns. You can write checks against the money market account. Open with your bank or with a company like Scottrade or TD Ameritrade.

Certificates of Deposit. Banks and credit unions sell "CDs," which you can buy for a set sum. You are prohibited from accessing the money until the CD matures, but you will earn interest on the investment.

4. Invest in bonds. Bonds are debt. Companies, as well as governments, issue bonds to raise money, and bonds are a safer investment than stock. Consider putting more of your investment into bonds, such as the following:

Municipal bonds. State and local governments issue bonds to raise money, and in return the bonds are exempted from income taxes. You can typically earn 3% annually on bonds. They are a low-risk investment, unless the city government is on the verge of bankruptcy.

U.S. savings bonds. These bonds are very safe. With a Series I bond, you get a fixed interest rate, and your return is linked to inflation. With the Series EE bond, you earn an automatic rate of return each month.

Treasury Inflation Protected Securities (TIPS). The U.S. government offers a fixed interest rate as well as inflation protection that’s triggered every time inflation increases.

Image titled Protect Your Finances Against Market Crashes Step 5

5. Consider annuities. An annuity is a contract with an insurer or financial services company. You make a lump sum payment, and in return you are provided with a fixed sum of money for a specific amount of time. There are several varieties of annuities, which can protect your investments in case of a market crash. For example, fixed-indexed annuities can protect your principal.

Annuities are safer than stocks, but they do have some risks. For example, the company you bought the annuity from could go bankrupt. In that situation, you will no longer be paid. You can protect yourself by doing thorough research and only buying an annuity from a company with the highest rating.

The value of an annuity can also erode with inflation, though you can buy annuities that will protect against inflation.

6. Find safer stocks. Not all companies are the same, and some are safer investments in a down economy than others. For example, you might want to get rid of low-grade stock, such as companies with a lot of debt or businesses in speculative fields like biotech that have not yet produced strong profits. In a market crash, the value of these companies will decline.

Instead, look to high-quality stocks which tend to hold up better. These companies have stable earnings and low debt.

Also consider stocks that pay dividends. Check if you can invest in a dividend exchange-traded fund.

7. Change your contributions. If you’re not yet in retirement, you should consider changing the allocation of your retirement contributions for the last few years before you stop working. Direct your contributions toward safer investments, such as those discussed above.

Changing your contributions will not change the allocation of investments already in your portfolio, so consider diversifying it.

8. Diversify your portfolio. When the market is good, riskier investments such as stocks perform well. But when the market crashes, you can expect stocks to perform poorly. Accordingly, you might want to diversity your portfolio and move some money out of stocks.

How much to move is up to you. However, you don’t have to get out of stocks entirely. Instead, you could reduce stocks to 30% of your portfolio, and have the other 70% in bonds or another safe investment. In a market crash, your losses will remain in the single digits, and you can move back into stocks after the market improves.

If you don’t know what to do, meet with a financial planner who can help you assess your risk tolerance and come up with a plan suited to your needs.

Method 2 Reducing Your Debt.

1. Identify all of your debts. In a market crash, you’ll need as much cash as possible to pay for living expenses. Accordingly, you want to decrease your debt load as much as possible now. Begin by identifying every debt you have, including any of the following:

student loan debt, credit card debt, home mortgage,car loan,personal loans.

2. Prioritize your debts. You need to make the minimum monthly payments on all debts. However, you should direct extra money to the debts you want to pay off the most. Accordingly, sit down and prioritize your debts.

For example, if you lose your job, then you can often delay payments on student loans, using either forbearance or deferment. Accordingly, you might not want to pay down your student loans first but instead focus on credit cards, which probably have a higher interest rate.

However, some debts are tied to an asset. For example, you can lose your car or home if you don’t make payment. Paying these debts off early could be a wise choice.

3. Create a budget. To free up money to contribute to debt payments, you’ll need to budget. Identify the following:

Your fixed expenses. These are bills that don’t change much month to month. Generally, fixed expenses are also for necessities, such as your rent or mortgage, health insurance premiums, car payments, and other debts.

Your discretionary spending. You can track your discretionary spending over the course of one or two months. Write down what you buy every day and note the price. Alternately, you can buy everything with a debit or credit card and then look at your monthly statement.

Reduce discretionary spending. You need your income to exceed your discretionary spending. To free up as much money as possible, reduce discretionary spending to the bare minimum by giving up gym memberships and cable TV. You can also cut out vacations, entertainment expenses, and meals in restaurants.

4. Refinance your mortgage. Mortgage rates are still low. If you have a high APR, then consider refinancing into a loan with a lower one. Avoid spending the money that you save and instead funnel it toward debt repayment.

To investigate a mortgage refinance, contact your current lender to check what rate they can offer you. Then compare their rates to others on the market.

5. Tackle credit card debt. You want a stable balance sheet when the market crashes, so you should reduce your debts as much as possible. In particular, you should pay down high-interest credit card debt. Identify a method of repayment so that you can wipe out these debts as soon as possible:

Debt avalanche. You pay the minimum monthly payment on all credit cards. Then you contribute extra money to the debt with the highest interest rate. Once you pay off that card, focus on the debt with the second highest interest rate.

Debt snowball. Another method is to pay the minimum on your monthly debts but then use extra to pay off the card with the smallest balance first. The debt snowball method is more expensive than the debt avalanche, but it can give you momentum.

Debt snowflake. This method is ideal for people who can’t budget extra money to pay down debt. Instead, you try to save a little bit of money every day and make multiple monthly payments to slowly chip away at your debt.

Method 3 Preparing for Emergencies.

1. Build an emergency fund. You’ll need money in case you lose your job or if any kind of emergency springs up. Generally, you should save at least six months of expenses. If possible, save up to twelve months of expenses.

Put money toward your emergency fund every month, even if that means you pay off debts more slowly.

If you are a retiree, then you should try to have two years of expenses saved. When the market declines, you should live off your savings instead of drawing income from your investments.

2. Buy insurance. Insurance protects you from any unforeseen accidents that will hammer you financially. In an economic downturn, you’ll need all the money you can get, and insurance will provided valuable protection in case an accident strikes. Consider the following types of insurance:

Health insurance. If your employer doesn’t offer it, you can buy it on the government exchanges. Depending on your income, you might quality for a premium subsidy and/or help with out-of-pocket expenses.

Automobile insurance. Your insurance will pay if you injure someone in an accident. Depending on the insurance, you might also be covered if someone without coverage injures you.

Disability insurance. If you are disabled before you reach retirement, you’ll need income to support you. Your employer probably offers disability insurance. If not, you can shop on your own.

Life Insurance. You can replace the income of a working spouse with a life insurance policy. Life insurance is particularly important if you have young children. Calculate how much life insurance you need at lifehappens.org.

Homeowner’s insurance. Your homeowner’s policy covers injuries that occur on your property, as well as any structural damage caused by natural disasters and other accidents.

3. Assess the stability of your job. In a market crash, many jobs will be wiped out as employers are forced to lay off workers. You need to assess whether your job is stable enough to survive a recession, or whether you should plan on getting a different job.

Look at how many people your employer laid off during the last recession. Were only a few let go? If so, your job might be secure. However, if your employer engaged in mass layoffs, then there’s no reason to assume it won’t happen again.

You can also pick up some freelance or part-time work now. That way, if the market crashes, you’ll still have some income coming in.

Tips.

Consult with a personal financial counselor to help plan, protect, and control how your finances and money in the future.

January 18, 2020

How to Protect Your Finances Against Market Crashes

How to Protect Your Finances Against Market Crashes.

Economic expansions don't last forever, and eventually, the country will enter another recession. When it does, you need to protect your investments so that you can weather the storm. Assess how exposed you are to stocks and decide whether to diversify your portfolio with safer investments. Also clean up your balance sheet by reducing your debts, which will allow you to survive the recession that accompanies a stock market crash.

Method 1 Changing Your Investments.

1. Check your current investment allocation. You might have no idea what your retirement fund is currently invested in. If not, log into your account and print out the current allocation of investments, which should include the following:

stocks or stock mutual funds, bonds,real estate,money market accounts.

2. Identify why you fear a market crash. The economy goes up and down with some regularity, and when the market crashes stocks suddenly become cheaper to buy. For this reason, you might not want to diversify your portfolio. Instead, you can leave your investments as they are.

However, you might want to reduce your exposure to risk if you are nearing your retirement age or have just entered retirement. A major stock market crash could seriously cut the amount of money you have to live on.

Your tolerance for risk might also have changed. If so, then you can diversify your portfolio so that you are comfortable with your investment mix.

It’s impossible to predict exactly when the next recession will hit, so you shouldn’t move money in and out of the stock market hoping to get out just before things turn south. For example, it looked like the U.S. stock market was about to crash in late 2015. Since then, the Dow Jones Industrial Average has increased more than 20%.

3. Consider holding money in a savings account. The easiest way to protect your investments is to get out of stocks and move the money to savings accounts. Consider the following options:

High-yield online savings accounts. These accounts will only earn about 1-2% annually, but this amount is higher than most banks offer. Your cash is liquid, so you can access it if needed. Furthermore, your deposit will be protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 USD.

Money market accounts. These accounts are like bank accounts but with potentially higher returns. You can write checks against the money market account. Open with your bank or with a company like Scottrade or TD Ameritrade.

Certificates of Deposit. Banks and credit unions sell "CDs," which you can buy for a set sum. You are prohibited from accessing the money until the CD matures, but you will earn interest on the investment.

4. Invest in bonds. Bonds are debt. Companies, as well as governments, issue bonds to raise money, and bonds are a safer investment than stock. Consider putting more of your investment into bonds, such as the following:

Municipal bonds. State and local governments issue bonds to raise money, and in return the bonds are exempted from income taxes. You can typically earn 3% annually on bonds. They are a low-risk investment, unless the city government is on the verge of bankruptcy.

U.S. savings bonds. These bonds are very safe. With a Series I bond, you get a fixed interest rate, and your return is linked to inflation. With the Series EE bond, you earn an automatic rate of return each month.

Treasury Inflation Protected Securities (TIPS). The U.S. government offers a fixed interest rate as well as inflation protection that’s triggered every time inflation increases.

Image titled Protect Your Finances Against Market Crashes Step 5

5. Consider annuities. An annuity is a contract with an insurer or financial services company. You make a lump sum payment, and in return you are provided with a fixed sum of money for a specific amount of time. There are several varieties of annuities, which can protect your investments in case of a market crash. For example, fixed-indexed annuities can protect your principal.

Annuities are safer than stocks, but they do have some risks. For example, the company you bought the annuity from could go bankrupt. In that situation, you will no longer be paid. You can protect yourself by doing thorough research and only buying an annuity from a company with the highest rating.

The value of an annuity can also erode with inflation, though you can buy annuities that will protect against inflation.

6. Find safer stocks. Not all companies are the same, and some are safer investments in a down economy than others. For example, you might want to get rid of low-grade stock, such as companies with a lot of debt or businesses in speculative fields like biotech that have not yet produced strong profits. In a market crash, the value of these companies will decline.

Instead, look to high-quality stocks which tend to hold up better. These companies have stable earnings and low debt.

Also consider stocks that pay dividends. Check if you can invest in a dividend exchange-traded fund.

7. Change your contributions. If you’re not yet in retirement, you should consider changing the allocation of your retirement contributions for the last few years before you stop working. Direct your contributions toward safer investments, such as those discussed above.

Changing your contributions will not change the allocation of investments already in your portfolio, so consider diversifying it.

8. Diversify your portfolio. When the market is good, riskier investments such as stocks perform well. But when the market crashes, you can expect stocks to perform poorly. Accordingly, you might want to diversity your portfolio and move some money out of stocks.

How much to move is up to you. However, you don’t have to get out of stocks entirely. Instead, you could reduce stocks to 30% of your portfolio, and have the other 70% in bonds or another safe investment. In a market crash, your losses will remain in the single digits, and you can move back into stocks after the market improves.

If you don’t know what to do, meet with a financial planner who can help you assess your risk tolerance and come up with a plan suited to your needs.

Method 2 Reducing Your Debt.

1. Identify all of your debts. In a market crash, you’ll need as much cash as possible to pay for living expenses. Accordingly, you want to decrease your debt load as much as possible now. Begin by identifying every debt you have, including any of the following:

student loan debt, credit card debt, home mortgage,car loan,personal loans.

2. Prioritize your debts. You need to make the minimum monthly payments on all debts. However, you should direct extra money to the debts you want to pay off the most. Accordingly, sit down and prioritize your debts.

For example, if you lose your job, then you can often delay payments on student loans, using either forbearance or deferment. Accordingly, you might not want to pay down your student loans first but instead focus on credit cards, which probably have a higher interest rate.

However, some debts are tied to an asset. For example, you can lose your car or home if you don’t make payment. Paying these debts off early could be a wise choice.

3. Create a budget. To free up money to contribute to debt payments, you’ll need to budget. Identify the following:

Your fixed expenses. These are bills that don’t change much month to month. Generally, fixed expenses are also for necessities, such as your rent or mortgage, health insurance premiums, car payments, and other debts.

Your discretionary spending. You can track your discretionary spending over the course of one or two months. Write down what you buy every day and note the price. Alternately, you can buy everything with a debit or credit card and then look at your monthly statement.

Reduce discretionary spending. You need your income to exceed your discretionary spending. To free up as much money as possible, reduce discretionary spending to the bare minimum by giving up gym memberships and cable TV. You can also cut out vacations, entertainment expenses, and meals in restaurants.

4. Refinance your mortgage. Mortgage rates are still low. If you have a high APR, then consider refinancing into a loan with a lower one. Avoid spending the money that you save and instead funnel it toward debt repayment.

To investigate a mortgage refinance, contact your current lender to check what rate they can offer you. Then compare their rates to others on the market.

5. Tackle credit card debt. You want a stable balance sheet when the market crashes, so you should reduce your debts as much as possible. In particular, you should pay down high-interest credit card debt. Identify a method of repayment so that you can wipe out these debts as soon as possible:

Debt avalanche. You pay the minimum monthly payment on all credit cards. Then you contribute extra money to the debt with the highest interest rate. Once you pay off that card, focus on the debt with the second highest interest rate.

Debt snowball. Another method is to pay the minimum on your monthly debts but then use extra to pay off the card with the smallest balance first. The debt snowball method is more expensive than the debt avalanche, but it can give you momentum.

Debt snowflake. This method is ideal for people who can’t budget extra money to pay down debt. Instead, you try to save a little bit of money every day and make multiple monthly payments to slowly chip away at your debt.

Method 3 Preparing for Emergencies.

1. Build an emergency fund. You’ll need money in case you lose your job or if any kind of emergency springs up. Generally, you should save at least six months of expenses. If possible, save up to twelve months of expenses.

Put money toward your emergency fund every month, even if that means you pay off debts more slowly.

If you are a retiree, then you should try to have two years of expenses saved. When the market declines, you should live off your savings instead of drawing income from your investments.

2. Buy insurance. Insurance protects you from any unforeseen accidents that will hammer you financially. In an economic downturn, you’ll need all the money you can get, and insurance will provided valuable protection in case an accident strikes. Consider the following types of insurance:

Health insurance. If your employer doesn’t offer it, you can buy it on the government exchanges. Depending on your income, you might quality for a premium subsidy and/or help with out-of-pocket expenses.

Automobile insurance. Your insurance will pay if you injure someone in an accident. Depending on the insurance, you might also be covered if someone without coverage injures you.

Disability insurance. If you are disabled before you reach retirement, you’ll need income to support you. Your employer probably offers disability insurance. If not, you can shop on your own.

Life Insurance. You can replace the income of a working spouse with a life insurance policy. Life insurance is particularly important if you have young children. Calculate how much life insurance you need at lifehappens.org.

Homeowner’s insurance. Your homeowner’s policy covers injuries that occur on your property, as well as any structural damage caused by natural disasters and other accidents.

3. Assess the stability of your job. In a market crash, many jobs will be wiped out as employers are forced to lay off workers. You need to assess whether your job is stable enough to survive a recession, or whether you should plan on getting a different job.

Look at how many people your employer laid off during the last recession. Were only a few let go? If so, your job might be secure. However, if your employer engaged in mass layoffs, then there’s no reason to assume it won’t happen again.

You can also pick up some freelance or part-time work now. That way, if the market crashes, you’ll still have some income coming in.

Tips.

Consult with a personal financial counselor to help plan, protect, and control how your finances and money in the future.

January 18, 2020