How to Finance Nursing Home Care

How to Finance Nursing Home Care.

As more and more Americans require nursing home care, their families are struggling to find ways to pay for, or at least reduce, the immense cost of care. In 2012, the average cost of a private room was over $90,000 a year and a semi-private room cost $81,000 a year. For most people, paying for a loved one’s nursing home care presents an almost insurmountable financial obstacle. However, there are ways to finance and reduce the cost of a nursing home so that a loved one can get the type of long-term care that they require.

Method 1 Reducing Costs and Using Personal Assets.

1. Consider in-home care. Long-term nursing home care costs between $6,000 and 9,000 a month and many people cannot afford this option. To save money, you may want to consider in-home care, which costs approximately $21 an hour for a care assistant. This option is not only less expensive but it allows your elderly or disabled family member to reside in his or her home for as long as possible.

2. Negotiate long-term care costs. If you are paying out-of-pocket for long-term nursing care, you should negotiate the overall cost with the nursing home. While some nursing homes may refuse to negotiate, others would prefer to take a lower private care rate because it still pays more than state-sponsored Medicaid programs.

3. Relocate your loved one. The cost of nursing home care varies greatly from state to state and even from locality to locality. If your loved one has family members who live in different states, you should determine which state has the lowest cost for nursing home care. Nursing home care in Texas, Utah and Alabama can cost less than half of nursing home care in states in the Northeast.

4. Qualify for a Reverse Mortgage. A reverse mortgage is a loan that a homeowner gets from a bank against the value of their home. The loan converts the home's equity into cash and the homeowner receives either a cash sum, regular payments, or a line of credit equal to the equity in the home. After the owner's death, the bank may foreclose on the home (get ownership without further liability to the home owner) or members of the estate may sell the home and pay off the loan.

In order to qualify for a reverse mortgage, each homeowner must be at least 62 years old and live in the home where the reverse mortgage was taken.

A reverse mortgage may be a good solution if you are in good health. You can use the proceeds from the reverse mortgage to pay for long-term care insurance or to make your home more accessible so that you can remain in the house as long as possible.

If you are in need of care but do not require nursing home care yet, you can use a reverse mortgage to pay for in-home caregiver services. This provides seniors with the ability to stay in their home for a fraction of the cost of a nursing home.

If you are a married couple and one of you need nursing home care, a reverse mortgage can pay for nursing home care and allow the healthy spouse to remain in the family home. If the spouse needing care dies, the surviving spouse can stay in the home so long as they can continue to pay for property taxes and insurance.

Method 2 Qualifying for Medicaid.

1. Determine whether you qualify for Medicaid. Medicaid is a state and federal government program that assists low-income individuals with a variety of medical care, including nursing home care. You can only qualify for Medicaid if you fall below the monthly income and asset limits set by your state.

You can determine whether you meet the eligibility requirements for your state at: https://www.healthcare.gov/medicaid-chip/getting-medicaid-chip/

If you qualify for Medicaid, you can apply online at https://www.healthcare.gov/medicaid-chip/getting-medicaid-chip/ or check the website for the address of your state Medicaid office and apply in person.

2. Qualify for Medicaid. If your assets are currently too high to qualify for Medicaid and you want to protect your personal assets from nursing home expenses, you can consider legally reducing your assets in order to qualify for Medicaid.

Before attempting to reduce or transfer your assets, you should speak with an elder law attorney. Medicaid has very strict rules about what assets can be transferred and what purchases are allowable to reduce your income. If you improperly reduce your assets, Medicaid can penalize you for months to years and prohibit your qualification for the program.

The National Association of Elder Law Attorneys has information about elder law specialists on its website at: https://www.naela.org. The American Bar Association also provides attorney referral information at: http://apps.americanbar.org/legalservices/findlegalhelp/home.cfm.

3. Reduce your assets. In order to qualify for Medicaid, you can reduce your assets by:

Paying off debt, such as a mortgage, student loans or credit cards.

Paying for in-home medical care.

Paying for necessary home repairs, such as a new roof or furnace.

Transfer funds to your spouse for his or her benefit.

Transfer funds or set up a trust for your blind or disabled child or for a disabled person under the age of 65.

4. Set up a Medicaid Asset Trust. With a Medicaid Asset Trust, you transfer all of your assets into a trust and give up control over those assets. Any funds placed in the trust do not count towards the Medicaid asset limits. However, if you transfer funds into the trust within 5 years of applying for Medicaid, you may be subject to Medicaid’s “lookback provision.” Under this provision, Medicaid may penalize any person that it determines conducted a non-exempt transfer under the Medicaid regulations. If you are penalized, you may not be able to qualify for Medicaid for months or even years.

Method 3 Using Insurance Options.

1. Purchase long-term health insurance. Unlike regular health insurance, long-term health insurance is designed to pay for long-term care, which may include nursing home care, in-home care or medical equipment. When evaluating long-term health insurance polices, you should carefully select a policy that covers nursing home care if you reasonably believe that you will not have someone to care for you at home should you fall ill and become unable to care for yourself.

It is best to acquire long-term health insurance when you are younger and in good health. As you get older, long-term health insurance becomes much more expensive and many seniors are either unable to afford or qualify for a policy.

2. Cash in your life insurance. Another way to pay for nursing home care is to cash in your whole life insurance policy. Certain policies allow policyholders to cash in their insurance policy for 50 to 75 percent of the face value of the policy.

Keep in mind that this is only an option for whole life policies, not term life policies where there is no cash value.

Depending on your individual life insurance policy, there are two ways that you can cash in your policy: accelerated benefit or life settlement.

If you qualify for an accelerated benefit, the insurance company will pay between 60 and 80 percent of the face value of the policy. Under certain policies, you may have to be suffering from a terminal illness in order to qualify for an accelerated benefit.

A life settlement is a policy payout that you negotiate with an outside company not the insurance company that issued the policy. These settlement companies look at the value of your policy, your age, and your health and pay you between 40 and 75 percent of the face value of the policy. Depending on the health and age of an individual, it may be possible to sell some term policies.

Before negotiating a life settlement, you should speak with an elder law attorney as there may be tax and Medicaid implications from receiving the proceeds of the policy through a settlement company.

3. Check Medicare benefits. While Medicare does not pay the cost of long-term nursing home care, you may qualify for a certain portion of the stay if you were transferred to a nursing home within several days of a hospital stay and you require skilled nursing or rehabilitative care. If you go to a Medicare-approved facility, your stay may be covered for up to 100 days.

Medicare will also pay for in-home care for a certain period as well. This coverage may help if you are trying to reduce assets or do not physically require full nursing-home care.

Question : Should I keep $200,000 available to get into a nicer nursing home before qualifying for Medicaid?
Answer : If you have that kind of money and that is something you are interested in doing, then yes, you can do it.

Tips.

Do not try to transfer or reduce assets before speaking with an experienced elder law attorney.

Be wary of advisers who are not attorneys. Throughout the country, there are people and companies who exploit the elderly and their caregivers by inducements of Medicaid qualification.

This article is not providing legal advice and should not be relied on as legal advice.

January 22, 2020

how to finance nursing home care

How to Finance Nursing Home Care.

As more and more Americans require nursing home care, their families are struggling to find ways to pay for, or at least reduce, the immense cost of care. In 2012, the average cost of a private room was over $90,000 a year and a semi-private room cost $81,000 a year. For most people, paying for a loved one’s nursing home care presents an almost insurmountable financial obstacle. However, there are ways to finance and reduce the cost of a nursing home so that a loved one can get the type of long-term care that they require.

Method 1 Reducing Costs and Using Personal Assets.

1. Consider in-home care. Long-term nursing home care costs between $6,000 and 9,000 a month and many people cannot afford this option. To save money, you may want to consider in-home care, which costs approximately $21 an hour for a care assistant. This option is not only less expensive but it allows your elderly or disabled family member to reside in his or her home for as long as possible.

2. Negotiate long-term care costs. If you are paying out-of-pocket for long-term nursing care, you should negotiate the overall cost with the nursing home. While some nursing homes may refuse to negotiate, others would prefer to take a lower private care rate because it still pays more than state-sponsored Medicaid programs.

3. Relocate your loved one. The cost of nursing home care varies greatly from state to state and even from locality to locality. If your loved one has family members who live in different states, you should determine which state has the lowest cost for nursing home care. Nursing home care in Texas, Utah and Alabama can cost less than half of nursing home care in states in the Northeast.

4. Qualify for a Reverse Mortgage. A reverse mortgage is a loan that a homeowner gets from a bank against the value of their home. The loan converts the home's equity into cash and the homeowner receives either a cash sum, regular payments, or a line of credit equal to the equity in the home. After the owner's death, the bank may foreclose on the home (get ownership without further liability to the home owner) or members of the estate may sell the home and pay off the loan.

In order to qualify for a reverse mortgage, each homeowner must be at least 62 years old and live in the home where the reverse mortgage was taken.

A reverse mortgage may be a good solution if you are in good health. You can use the proceeds from the reverse mortgage to pay for long-term care insurance or to make your home more accessible so that you can remain in the house as long as possible.

If you are in need of care but do not require nursing home care yet, you can use a reverse mortgage to pay for in-home caregiver services. This provides seniors with the ability to stay in their home for a fraction of the cost of a nursing home.

If you are a married couple and one of you need nursing home care, a reverse mortgage can pay for nursing home care and allow the healthy spouse to remain in the family home. If the spouse needing care dies, the surviving spouse can stay in the home so long as they can continue to pay for property taxes and insurance.

Method 2 Qualifying for Medicaid.

1. Determine whether you qualify for Medicaid. Medicaid is a state and federal government program that assists low-income individuals with a variety of medical care, including nursing home care. You can only qualify for Medicaid if you fall below the monthly income and asset limits set by your state.

You can determine whether you meet the eligibility requirements for your state at: https://www.healthcare.gov/medicaid-chip/getting-medicaid-chip/

If you qualify for Medicaid, you can apply online at https://www.healthcare.gov/medicaid-chip/getting-medicaid-chip/ or check the website for the address of your state Medicaid office and apply in person.

2. Qualify for Medicaid. If your assets are currently too high to qualify for Medicaid and you want to protect your personal assets from nursing home expenses, you can consider legally reducing your assets in order to qualify for Medicaid.

Before attempting to reduce or transfer your assets, you should speak with an elder law attorney. Medicaid has very strict rules about what assets can be transferred and what purchases are allowable to reduce your income. If you improperly reduce your assets, Medicaid can penalize you for months to years and prohibit your qualification for the program.

The National Association of Elder Law Attorneys has information about elder law specialists on its website at: https://www.naela.org. The American Bar Association also provides attorney referral information at: http://apps.americanbar.org/legalservices/findlegalhelp/home.cfm.

3. Reduce your assets. In order to qualify for Medicaid, you can reduce your assets by:

Paying off debt, such as a mortgage, student loans or credit cards.

Paying for in-home medical care.

Paying for necessary home repairs, such as a new roof or furnace.

Transfer funds to your spouse for his or her benefit.

Transfer funds or set up a trust for your blind or disabled child or for a disabled person under the age of 65.

4. Set up a Medicaid Asset Trust. With a Medicaid Asset Trust, you transfer all of your assets into a trust and give up control over those assets. Any funds placed in the trust do not count towards the Medicaid asset limits. However, if you transfer funds into the trust within 5 years of applying for Medicaid, you may be subject to Medicaid’s “lookback provision.” Under this provision, Medicaid may penalize any person that it determines conducted a non-exempt transfer under the Medicaid regulations. If you are penalized, you may not be able to qualify for Medicaid for months or even years.

Method 3 Using Insurance Options.

1. Purchase long-term health insurance. Unlike regular health insurance, long-term health insurance is designed to pay for long-term care, which may include nursing home care, in-home care or medical equipment. When evaluating long-term health insurance polices, you should carefully select a policy that covers nursing home care if you reasonably believe that you will not have someone to care for you at home should you fall ill and become unable to care for yourself.

It is best to acquire long-term health insurance when you are younger and in good health. As you get older, long-term health insurance becomes much more expensive and many seniors are either unable to afford or qualify for a policy.

2. Cash in your life insurance. Another way to pay for nursing home care is to cash in your whole life insurance policy. Certain policies allow policyholders to cash in their insurance policy for 50 to 75 percent of the face value of the policy.

Keep in mind that this is only an option for whole life policies, not term life policies where there is no cash value.

Depending on your individual life insurance policy, there are two ways that you can cash in your policy: accelerated benefit or life settlement.

If you qualify for an accelerated benefit, the insurance company will pay between 60 and 80 percent of the face value of the policy. Under certain policies, you may have to be suffering from a terminal illness in order to qualify for an accelerated benefit.

A life settlement is a policy payout that you negotiate with an outside company not the insurance company that issued the policy. These settlement companies look at the value of your policy, your age, and your health and pay you between 40 and 75 percent of the face value of the policy. Depending on the health and age of an individual, it may be possible to sell some term policies.

Before negotiating a life settlement, you should speak with an elder law attorney as there may be tax and Medicaid implications from receiving the proceeds of the policy through a settlement company.

3. Check Medicare benefits. While Medicare does not pay the cost of long-term nursing home care, you may qualify for a certain portion of the stay if you were transferred to a nursing home within several days of a hospital stay and you require skilled nursing or rehabilitative care. If you go to a Medicare-approved facility, your stay may be covered for up to 100 days.

Medicare will also pay for in-home care for a certain period as well. This coverage may help if you are trying to reduce assets or do not physically require full nursing-home care.

Question : Should I keep $200,000 available to get into a nicer nursing home before qualifying for Medicaid?
Answer : If you have that kind of money and that is something you are interested in doing, then yes, you can do it.

Tips.

Do not try to transfer or reduce assets before speaking with an experienced elder law attorney.

Be wary of advisers who are not attorneys. Throughout the country, there are people and companies who exploit the elderly and their caregivers by inducements of Medicaid qualification.

This article is not providing legal advice and should not be relied on as legal advice.

January 20, 2020

How to Finance Nursing Home Care

How to Finance Nursing Home Care.

As more and more Americans require nursing home care, their families are struggling to find ways to pay for, or at least reduce, the immense cost of care. In 2012, the average cost of a private room was over $90,000 a year and a semi-private room cost $81,000 a year. For most people, paying for a loved one’s nursing home care presents an almost insurmountable financial obstacle. However, there are ways to finance and reduce the cost of a nursing home so that a loved one can get the type of long-term care that they require.

Method 1 Reducing Costs and Using Personal Assets.

1. Consider in-home care. Long-term nursing home care costs between $6,000 and 9,000 a month and many people cannot afford this option. To save money, you may want to consider in-home care, which costs approximately $21 an hour for a care assistant. This option is not only less expensive but it allows your elderly or disabled family member to reside in his or her home for as long as possible.

2. Negotiate long-term care costs. If you are paying out-of-pocket for long-term nursing care, you should negotiate the overall cost with the nursing home. While some nursing homes may refuse to negotiate, others would prefer to take a lower private care rate because it still pays more than state-sponsored Medicaid programs.

3. Relocate your loved one. The cost of nursing home care varies greatly from state to state and even from locality to locality. If your loved one has family members who live in different states, you should determine which state has the lowest cost for nursing home care. Nursing home care in Texas, Utah and Alabama can cost less than half of nursing home care in states in the Northeast.

4. Qualify for a Reverse Mortgage. A reverse mortgage is a loan that a homeowner gets from a bank against the value of their home. The loan converts the home's equity into cash and the homeowner receives either a cash sum, regular payments, or a line of credit equal to the equity in the home. After the owner's death, the bank may foreclose on the home (get ownership without further liability to the home owner) or members of the estate may sell the home and pay off the loan.

In order to qualify for a reverse mortgage, each homeowner must be at least 62 years old and live in the home where the reverse mortgage was taken.

A reverse mortgage may be a good solution if you are in good health. You can use the proceeds from the reverse mortgage to pay for long-term care insurance or to make your home more accessible so that you can remain in the house as long as possible.

If you are in need of care but do not require nursing home care yet, you can use a reverse mortgage to pay for in-home caregiver services. This provides seniors with the ability to stay in their home for a fraction of the cost of a nursing home.

If you are a married couple and one of you need nursing home care, a reverse mortgage can pay for nursing home care and allow the healthy spouse to remain in the family home. If the spouse needing care dies, the surviving spouse can stay in the home so long as they can continue to pay for property taxes and insurance.

Method 2 Qualifying for Medicaid.

1. Determine whether you qualify for Medicaid. Medicaid is a state and federal government program that assists low-income individuals with a variety of medical care, including nursing home care. You can only qualify for Medicaid if you fall below the monthly income and asset limits set by your state.

You can determine whether you meet the eligibility requirements for your state at: https://www.healthcare.gov/medicaid-chip/getting-medicaid-chip/

If you qualify for Medicaid, you can apply online at https://www.healthcare.gov/medicaid-chip/getting-medicaid-chip/ or check the website for the address of your state Medicaid office and apply in person.

2. Qualify for Medicaid. If your assets are currently too high to qualify for Medicaid and you want to protect your personal assets from nursing home expenses, you can consider legally reducing your assets in order to qualify for Medicaid.

Before attempting to reduce or transfer your assets, you should speak with an elder law attorney. Medicaid has very strict rules about what assets can be transferred and what purchases are allowable to reduce your income. If you improperly reduce your assets, Medicaid can penalize you for months to years and prohibit your qualification for the program.

The National Association of Elder Law Attorneys has information about elder law specialists on its website at: https://www.naela.org. The American Bar Association also provides attorney referral information at: http://apps.americanbar.org/legalservices/findlegalhelp/home.cfm.

3. Reduce your assets. In order to qualify for Medicaid, you can reduce your assets by.

Paying off debt, such as a mortgage, student loans or credit cards.

Paying for in-home medical care, Paying for necessary home repairs, such as a new roof or furnace.

Transfer funds to your spouse for his or her benefit, Transfer funds or set up a trust for your blind or disabled child or for a disabled person under the age of 65.

4. Set up a Medicaid Asset Trust. With a Medicaid Asset Trust, you transfer all of your assets into a trust and give up control over those assets. Any funds placed in the trust do not count towards the Medicaid asset limits. However, if you transfer funds into the trust within 5 years of applying for Medicaid, you may be subject to Medicaid’s “lookback provision.” Under this provision, Medicaid may penalize any person that it determines conducted a non-exempt transfer under the Medicaid regulations. If you are penalized, you may not be able to qualify for Medicaid for months or even years.

Method 3 Using Insurance Options.

1. Purchase long-term health insurance. Unlike regular health insurance, long-term health insurance is designed to pay for long-term care, which may include nursing home care, in-home care or medical equipment. When evaluating long-term health insurance polices, you should carefully select a policy that covers nursing home care if you reasonably believe that you will not have someone to care for you at home should you fall ill and become unable to care for yourself.

It is best to acquire long-term health insurance when you are younger and in good health. As you get older, long-term health insurance becomes much more expensive and many seniors are either unable to afford or qualify for a policy.

2. Cash in your life insurance. Another way to pay for nursing home care is to cash in your whole life insurance policy. Certain policies allow policyholders to cash in their insurance policy for 50 to 75 percent of the face value of the policy.

Keep in mind that this is only an option for whole life policies, not term life policies where there is no cash value.

Depending on your individual life insurance policy, there are two ways that you can cash in your policy: accelerated benefit or life settlement.

If you qualify for an accelerated benefit, the insurance company will pay between 60 and 80 percent of the face value of the policy. Under certain policies, you may have to be suffering from a terminal illness in order to qualify for an accelerated benefit.

A life settlement is a policy payout that you negotiate with an outside company not the insurance company that issued the policy. These settlement companies look at the value of your policy, your age, and your health and pay you between 40 and 75 percent of the face value of the policy. Depending on the health and age of an individual, it may be possible to sell some term policies.

Before negotiating a life settlement, you should speak with an elder law attorney as there may be tax and Medicaid implications from receiving the proceeds of the policy through a settlement company.

3. Check Medicare benefits. While Medicare does not pay the cost of long-term nursing home care, you may qualify for a certain portion of the stay if you were transferred to a nursing home within several days of a hospital stay and you require skilled nursing or rehabilitative care. If you go to a Medicare-approved facility, your stay may be covered for up to 100 days.

Medicare will also pay for in-home care for a certain period as well. This coverage may help if you are trying to reduce assets or do not physically require full nursing-home care.

Tips.

Do not try to transfer or reduce assets before speaking with an experienced elder law attorney.

Be wary of advisers who are not attorneys. Throughout the country, there are people and companies who exploit the elderly and their caregivers by inducements of Medicaid qualification.

December 15, 2019

how to finance nursing home care

How to Finance Nursing Home Care.

As more and more Americans require nursing home care, their families are struggling to find ways to pay for, or at least reduce, the immense cost of care. In 2012, the average cost of a private room was over $90,000 a year and a semi-private room cost $81,000 a year. For most people, paying for a loved one’s nursing home care presents an almost insurmountable financial obstacle. However, there are ways to finance and reduce the cost of a nursing home so that a loved one can get the type of long-term care that they require.

Method 1 Reducing Costs and Using Personal Assets.

1. Consider in-home care. Long-term nursing home care costs between $6,000 and 9,000 a month and many people cannot afford this option. To save money, you may want to consider in-home care, which costs approximately $21 an hour for a care assistant. This option is not only less expensive but it allows your elderly or disabled family member to reside in his or her home for as long as possible.

2. Negotiate long-term care costs. If you are paying out-of-pocket for long-term nursing care, you should negotiate the overall cost with the nursing home. While some nursing homes may refuse to negotiate, others would prefer to take a lower private care rate because it still pays more than state-sponsored Medicaid programs.

3. Relocate your loved one. The cost of nursing home care varies greatly from state to state and even from locality to locality. If your loved one has family members who live in different states, you should determine which state has the lowest cost for nursing home care. Nursing home care in Texas, Utah and Alabama can cost less than half of nursing home care in states in the Northeast.

4. Qualify for a Reverse Mortgage. A reverse mortgage is a loan that a homeowner gets from a bank against the value of their home. The loan converts the home's equity into cash and the homeowner receives either a cash sum, regular payments, or a line of credit equal to the equity in the home. After the owner's death, the bank may foreclose on the home (get ownership without further liability to the home owner) or members of the estate may sell the home and pay off the loan.

In order to qualify for a reverse mortgage, each homeowner must be at least 62 years old and live in the home where the reverse mortgage was taken.

A reverse mortgage may be a good solution if you are in good health. You can use the proceeds from the reverse mortgage to pay for long-term care insurance or to make your home more accessible so that you can remain in the house as long as possible.

If you are in need of care but do not require nursing home care yet, you can use a reverse mortgage to pay for in-home caregiver services. This provides seniors with the ability to stay in their home for a fraction of the cost of a nursing home.

If you are a married couple and one of you need nursing home care, a reverse mortgage can pay for nursing home care and allow the healthy spouse to remain in the family home. If the spouse needing care dies, the surviving spouse can stay in the home so long as they can continue to pay for property taxes and insurance.

Method 2 Qualifying for Medicaid.

1. Determine whether you qualify for Medicaid. Medicaid is a state and federal government program that assists low-income individuals with a variety of medical care, including nursing home care. You can only qualify for Medicaid if you fall below the monthly income and asset limits set by your state.

You can determine whether you meet the eligibility requirements for your state at: https://www.healthcare.gov/medicaid-chip/getting-medicaid-chip/

If you qualify for Medicaid, you can apply online at https://www.healthcare.gov/medicaid-chip/getting-medicaid-chip/ or check the website for the address of your state Medicaid office and apply in person.

2. Qualify for Medicaid. If your assets are currently too high to qualify for Medicaid and you want to protect your personal assets from nursing home expenses, you can consider legally reducing your assets in order to qualify for Medicaid.

Before attempting to reduce or transfer your assets, you should speak with an elder law attorney. Medicaid has very strict rules about what assets can be transferred and what purchases are allowable to reduce your income. If you improperly reduce your assets, Medicaid can penalize you for months to years and prohibit your qualification for the program.

The National Association of Elder Law Attorneys has information about elder law specialists on its website at: https://www.naela.org. The American Bar Association also provides attorney referral information at: http://apps.americanbar.org/legalservices/findlegalhelp/home.cfm.

3. Reduce your assets. In order to qualify for Medicaid, you can reduce your assets by.

Paying off debt, such as a mortgage, student loans or credit cards.

Paying for in-home medical care, Paying for necessary home repairs, such as a new roof or furnace.

Transfer funds to your spouse for his or her benefit, Transfer funds or set up a trust for your blind or disabled child or for a disabled person under the age of 65.

4. Set up a Medicaid Asset Trust. With a Medicaid Asset Trust, you transfer all of your assets into a trust and give up control over those assets. Any funds placed in the trust do not count towards the Medicaid asset limits. However, if you transfer funds into the trust within 5 years of applying for Medicaid, you may be subject to Medicaid’s “lookback provision.” Under this provision, Medicaid may penalize any person that it determines conducted a non-exempt transfer under the Medicaid regulations. If you are penalized, you may not be able to qualify for Medicaid for months or even years.

Method 3 Using Insurance Options.

1. Purchase long-term health insurance. Unlike regular health insurance, long-term health insurance is designed to pay for long-term care, which may include nursing home care, in-home care or medical equipment. When evaluating long-term health insurance polices, you should carefully select a policy that covers nursing home care if you reasonably believe that you will not have someone to care for you at home should you fall ill and become unable to care for yourself.

It is best to acquire long-term health insurance when you are younger and in good health. As you get older, long-term health insurance becomes much more expensive and many seniors are either unable to afford or qualify for a policy.

2. Cash in your life insurance. Another way to pay for nursing home care is to cash in your whole life insurance policy. Certain policies allow policyholders to cash in their insurance policy for 50 to 75 percent of the face value of the policy.

Keep in mind that this is only an option for whole life policies, not term life policies where there is no cash value.

Depending on your individual life insurance policy, there are two ways that you can cash in your policy: accelerated benefit or life settlement.

If you qualify for an accelerated benefit, the insurance company will pay between 60 and 80 percent of the face value of the policy. Under certain policies, you may have to be suffering from a terminal illness in order to qualify for an accelerated benefit.

A life settlement is a policy payout that you negotiate with an outside company not the insurance company that issued the policy. These settlement companies look at the value of your policy, your age, and your health and pay you between 40 and 75 percent of the face value of the policy. Depending on the health and age of an individual, it may be possible to sell some term policies.

Before negotiating a life settlement, you should speak with an elder law attorney as there may be tax and Medicaid implications from receiving the proceeds of the policy through a settlement company.

3. Check Medicare benefits. While Medicare does not pay the cost of long-term nursing home care, you may qualify for a certain portion of the stay if you were transferred to a nursing home within several days of a hospital stay and you require skilled nursing or rehabilitative care. If you go to a Medicare-approved facility, your stay may be covered for up to 100 days.

Medicare will also pay for in-home care for a certain period as well. This coverage may help if you are trying to reduce assets or do not physically require full nursing-home care.

Tips.

Do not try to transfer or reduce assets before speaking with an experienced elder law attorney.

Be wary of advisers who are not attorneys. Throughout the country, there are people and companies who exploit the elderly and their caregivers by inducements of Medicaid qualification.

December 15, 2019

How to Easy Finance a Car

How to Easy Finance a Car.

You’ve found the car of your dreams. Now what do you do? How do you get the money for it? When an individual decides to buy a new or used car, he or she often needs to finance part of or all of the vehicle’s price. Because cars are such a big purchase, many buyers can't provide cash down for the vehicle, so they choose to finance a car over a period of time. There are two financing routes you can choose to go down — either getting a direct or a dealer loan. Before you choose to finance your next vehicle, you should do your homework to ensure that you get the best deal.


Method 1 Doing Your Homework.

Find out how much you can afford up front. If you know the ballpark value of what you want to pay for a vehicle, and how much you can afford to pay in cash, you will know about how much you will need to finance.

Maximize your down payment. A smart way to finance a car is to get as much of a down payment as you can. The more you can pay at the beginning of a deal, the less you will have to pay in interest. Even if you have to temporarily sell some assets to buy the car outright, that can be a better deal than financing a major portion of the cost.

Know your credit score. Much of the financing offer for a car is based on your credit score. Those with good credit will get better interest rates and cheaper car financing offers. This is important no matter who you finance your vehicle through.

Find out your credit score either through the dealer or online at websites like www.annualcreditreport.com, www.freecreditscore.com, www.creditkarma.com, or www.myfico.com.

If your credit score is higher than 680, you are considered a prime borrower and are eligible for the best interest rates available. The higher your score, the better bargaining position you will be in.

Compare loan rates online. There are many websites that compare deals at no cost. Additionally, it is a great way to get in contact with various companies.

Get the necessary materials together. Most lenders will want your name, social security number, date of birth, previous and current addresses, occupation, proof of income, and information on other outstanding debts.


Method 2 Getting a Direct Loan.

Contact certified lenders. Local and national banks, as well as credit unions can give you the terms and interest rates they are offering on used car loans over the phone and online. Shop around and find the best rate for you. You don't have to apply for financing through the dealer, though you certainly can. Oftentimes you can get a fairer deal when you figure out your financing first before you walk into the dealership. Apply for financing through a bank or an app that connects you to lenders.

Oftentimes, credit unions have the lowest interest rates, especially if you are a member. Check with your employer to see if they have any connections with local credit unions for you to take advantage of.

Many lenders offer 5 year loans on vehicles that are five years old at most. Older vehicles are often only eligible for 1 to 2 year loans. In many cases, the fear is that an older car will break down and then borrowers will default on their loans.

Additionally, lenders often impose mileage restrictions (often 100,000 miles) and will not finance salvage-titled vehicles. Typically, they will only fund loans for vehicles purchased through a franchised dealership, not through a private party or independent dealer. In these cases, you’ll have to get a deal loan. See below.

Solicit rate quotes from several lenders. The interest rates offered on used car loans are generally 4 to 6 percent higher than rates offered on new car loans. This is because lenders are fearful of financing used vehicles.

Be as specific as possible with a lender. Provide the lender with information about the vehicle you choose. You will need to provide the car's make, model and VIN number, among other things. The more detail you can give the lender, the more firm your rate quote will be.

Talk to lenders about any fees or extra charges. Some lenders offer low interest rates and make back the money by tacking on additional fees and charges to a loan deal. You'll want to know about these, as well as any other specific loan agreement aspects like prepayment penalties, which can trigger fees if you pay the loan off early.

Get prequalified. Fill out the paperwork ahead of time. Many banks or lenders will pre-qualify you for a car loan based on your credit score, the type of car you plan on purchasing, and your driving history.

Ask the lender with the best rate offer for a pre-qualification letter. It should outline the terms and conditions of the loan. Bring this letter with you to the dealership when shopping for the car. When you go to the dealer's lot, you can show them evidence pre-qualification from a reputable lender. This will expedite the car buying experience. It will also tell the car dealer you are ready to buy.

If you haven’t prequalified, you can get financing at the dealer's lot for a one-stop shopping experience, but having other lender alternatives helps you to get the best deal.


Method 3 Getting a Dealer Loan.

Get a loan through a new or used car dealer.

In general, interest rates offered by dealerships are higher than interest rates you can find directly from a lender. In many cases, smaller dealerships work with third party lenders to finance your vehicle. Because they play the middleman, they pass off the costs to you. Therefore, you may want to apply for a direct loan first and cut out the dealership middleman.

In some cases, financing lenders like local banks and credit unions won’t take a chance on used cars. For used cars, most dealers will finance used cars they sell, regardless of its age. Therefore, you may want to apply for a dealer loan if a direct lender denies you financing.

Bring leverage. Bring interest rates from direct loan lenders, even if you plan on financing with the dealer. Dealers are more likely to offer lower interest rates, if you show them that you know what other lenders are offering. Make sure you research competitive interest rates based on your credit score.

Offer a down payment in cash or trade equivalent to at least 10% of the vehicle's purchase price. The larger the down payment, the less money you will have to finance and the less interest you’ll have to pay on that loan.

Tips.

If you have a low credit score, consider asking someone with a high credit score to co-sign on a loan. A co-signor with a high credit score may help you to secure a lower-interest loan.

If your loan application gets rejected, don’t feel bad. Most likely, the lender doesn’t think you are able to pay back the loan on time. Reassess your budget and try again or try a different lender.

Warnings.

If you finance a used car, be prepared to pay for comprehensive insurance on the vehicle, which is more expensive than collision insurance commonly applied to used cars. Lenders require that you carry comprehensive insurance to protect their investment. Lenders often fear that if you damage the car, you will default on the loan, so they make you take out better insurance.

Be wary of dealers who advertise financing with "no credit check." Typically, these car lots sell high-mileage vehicles with inflated down payments and interest rates.

November 22, 2019

how to finance a business purchase

How to Finance a Business Purchase.

Buying an existing business can be convenient in a number of ways. You're buying into a proven business model with existing customers, marketing, and products. With this framework in place, you can also begin repaying your purchase expenses immediately with the profits earned by the business. However, financing that business purchase in the first place can be just as expensive as starting a business yourself. Consider the following methods for coming up with the capital to purchase a business and choose those that best suit your needs.



Method 1 Taking Out a Loan.



1. Investigate SBA loans. The Small Business Administration (SBA) guarantees loans to small business to help them get started and expand their operations. To get started on the road towards acquiring SBA financing, visit a local bank or financial institution that provides SBA loans. The SBA loan makes it easier for you to acquire financing, as part of the loan is repaid by the SBA if you fail to make payments. Specifically, the loan program you will be looking for is the SBA Basic 7(a) loan program, which is used for acquiring or starting new businesses. To qualify for this type of loan, you must.

Own or seek to own a small business as defined by the SBA. This information can be found on their website.

Plan to operate for profit.

Plan to operate within the United States or its possessions.

Have your own assets invested in the business.

Show a need for the loan.

Not owe the US government any money.



2. Meet with financial institutions. Financing is also available through local lending institutions, like banks and credit unions. However, this type of lending can be very difficult to secure, particularly if you have less-than-stellar credit or if there are not significant personal or business assets that can be used as collateral. To qualify for a traditional bank loan, you will need demonstrable management experience, strong existing cash flows, experience in the industry, and a high personal credit score. It may also be easier for you to obtain a loan if you have an existing, strong relationship with the bank providing the loan.

If you are a woman, veteran, or minority, banks may have special lending programs that you can qualify for.



3. Assess the collateral you can provide. Your collateral is the assets, either yours or the business's, that you can provide as insurance in case you default on your loan. For some business loans, these may need to be worth as much as 50 to 70 percent of the loan value. When providing collateral for the banks to use, you can include any of the following:

Equity in your own home.

Assets owned by the business, like accounts receivable and inventory.

A personal guarantee. This essentially means that, in the event of a default, you are personally liable to repay a certain amount of the loan value.

Most lenders, including the SBA, require a personal guarantee for a loan in addition to any collateral pledged. This is because they would prefer avoiding have to take possession of the collateral and go through the subsequent sale.



4. Get pre-qualified for several loans. Before finalizing the purchase of the business, you will need one or several letters of pre-qualification for loans. This means going through the loan process with each lender and getting the go-ahead from them to purchase the business. You can then show the letters to the seller and finalize the purchase, at which point you will need to actually take out one of the loans that you are pre-qualified for.

Getting pre-qualified for several loans is advantageous in case the lending requirements change between your pre-qualification and the close of the sale.

You will need to be pre-qualified for more than the purchase price of the business. You should also include about 90 days of working capital (money used to keep the business functioning, like utilities and inventory purchasing money). You can work with the current owner to assess how much is needed.



5. Consider alternative loan options. There are many other sources of loans available to finance the initial purchase of a business. For some people, there may be an opportunity to borrow money from friends or family. However, bear in mind that this may damage your relationship with that person if things go south. Some other options you can consider include:

Peer-to-peer (P2P) financing. Online lending markets like LendingClub.com and Prosper.com allow you to borrow small amounts (generally less than $25,000) from other people. However, rates on these sites are typically higher than what a bank or the SBA could offer you.

Microloans. Microloans are for smaller amounts that traditional business loans (usually less than $50,000) and have shorter durations (under six years). Check with the SBA or a microlending specialist to investigate your options.



Method 2 Financing the Purchase With Your Own Assets.



1. Use your own savings. The easiest and cheapest way to finance your own business is with your own personal savings. This includes any savings accounts, CDs, investment accounts, or other liquid accounts you hold. By using the money from these accounts to finance your personal, you can avoid having to work with partners, investors, or lenders when running your business. However, it is rare that an individual has enough money in these accounts to purchase a business.



2. Sell any valuable assets you currently own. Another way to raise money is to sell off valuable assets that you own. Parcels of land, non-essential vehicles, and boats can all be sold to raise this type of money.



3. Borrow against your home equity. You can borrow against the value of your home using a second mortgage or a home equity line of credit (HELOC). However, this requires having enough equity in your home in the first place. More importantly, it also introduces the risk that, in the event of the business's default, your house may be foreclosed upon by the lender. Consider the risks and try every other options available to you before pursuing this type of financing.



4. Avoid purchasing the business with your retirement savings. While it is possible to roll your IRA or 401(k) savings balances into a business venture without taking a tax hit, doing so is incredibly risky. If your business fails to perform as expected, you could lose all of the money you have saved for retirement. Personal finance experts recommend against using this as a method of business financing.



Method 3 Bringing On Investors or Partners.



1. Consider finding a partner or several of them. A partner is someone who provides some initial purchase money for the business in exchange for an ownership share. Your partner will likely want to be involved in the business in some way, so make sure to only take on a partner that you can work well with. And being personally close with someone doesn't make them a good partner; sometimes a trusted or knowledgable co-worker or acquaintance can make a better partner than a friend or family member.

In addition, make sure to draw up a legal contract that clarifies the terms of the partnership. This agreement should list how disputes are settled, how major decisions are made, and exactly how profits are divided.



2. Work with a silent partner. A silent partner is one that contributes capital to the business, but has no say in its operations. However, many silent partners eventually want to have a say in how the business is run. Again, to ensure that this relationship works as planned, draw up a partnership agreement that specifies the terms of your partnership in detail.



3. Bring on angel investors. An angel investor is a wealthy private investor who gives start-up capital to new businesses and new business owners in exchange for equity in that business. Businesses with angel investors benefits from the angel investor's industry expertise, business contacts, and financial resources. Locating angel investors, however, can be difficult. You'll have to locate a high net worth individual who shares your passion for the business you are buying and its industry. Then, you'll have to convince them of your own management skill and your ability to give them a good return on their money.

Angel Investors can be located by visiting the Angel Capital Association's website.



4. Engage in equity crowdfunding. Equity crowdfunding, which involves selling small stakes in your business to a large number of small investors, is a relative newcomer in the world of business financing. While equity crowdfunding has been around for years, operating through sites like SeedInvest, it has recently become tightly regulated by the Securities and Exchange Commission (SEC). Equity crowdfunding can be an effective way to raise money, but only with the proper guidance, as following SEC guidelines can be complicated.



Method 4 Getting Seller Financing.



1. Consider the benefits and drawbacks of seller financing. Seller financing, also called owner financing, is a purchase arrangement in which you repay the sale price of the business directly to its previous owner over several years. For the buyer, this provides some flexibility in repaying the loan, such as negotiating a longer repayment period, a temporary reprieve from payments, or reducing the price in exchange for letting the owner keep some equity in the business. However, this type of arrangement is typically more expensive, with the owner charging a higher interest rate than the bank would charge.

Ideally, the buyer should negotiate an arrangement where all or a portion of the loan financed by the seller may be contingent upon the profits reached and payable over a limited term. This protects the buyer in case profits are not as high as expected.

Obtaining seller financing may give you more power in negotiating down the price of the business.

Doing so also gives the seller reason to help you out more in running and managing the business.



2. Ask the seller if they would consider seller financing. Start by asking the seller directly if they would consider seller financing. It may help if you explain to them that this will result in their getting more money over time, as they get to keep the interest on your loan (rather than the bank keeping it). If they agree, you can begin negotiating a contract.

If possible, avoid securing the seller with assets purchased. This gives you a cushion if additional financing is needed to get the business is running smoothly.



3. Negotiate a contract. Work with the seller to form the terms of sale. Start by offering to make a down payment with what you can gather on your own, say 10 to 20 percent of the sale price. Try to offer as large of a down payment as you can afford; this will only help you and save you money in the long run. Then discuss a repayment period and interest rate. Try to negotiate a longer repayment period and lower interest rate to make sure that you can afford the payments.

You may be able to agree on a large, balloon payment in a number of years. This will reduce your monthly payments. Then, you can get a bank loan or use your savings to cover the balloon payment.

Alternately, where a C corporation is involved in the purchase, issuing preferred stock may be a better option than debt for the buyer when repaying the balloon payment.



4. Have a lawyer review the contract. Ideally, you should have an attorney that specializes in business contracts draw up the contract. However, you can also have one review the contract to ensure that your interests are represented and that there are no surprises waiting for you in the wording of the contract. You may also want to have an accountant review the financials of the deal to make sure everything checks out.

The lawyer, and possibly an accountant, should confirm the validity of the financial statements, specifically the identity, value and location of assets and liabilities.



5. Finalize the deal. Once you've been assured that the contract is right for both you and the seller, close the deal and take control of the business. With seller financing, you'll likely be able to convince the previous owner to help you out with getting started as the manager of your new business.

November 22, 2019

how to easy finance a car

How to Easy Finance a Car.

You’ve found the car of your dreams. Now what do you do? How do you get the money for it? When an individual decides to buy a new or used car, he or she often needs to finance part of or all of the vehicle’s price. Because cars are such a big purchase, many buyers can't provide cash down for the vehicle, so they choose to finance a car over a period of time. There are two financing routes you can choose to go down — either getting a direct or a dealer loan. Before you choose to finance your next vehicle, you should do your homework to ensure that you get the best deal.







Method 1 Doing Your Homework.



Find out how much you can afford up front. If you know the ballpark value of what you want to pay for a vehicle, and how much you can afford to pay in cash, you will know about how much you will need to finance.

Maximize your down payment. A smart way to finance a car is to get as much of a down payment as you can. The more you can pay at the beginning of a deal, the less you will have to pay in interest. Even if you have to temporarily sell some assets to buy the car outright, that can be a better deal than financing a major portion of the cost.



Know your credit score. Much of the financing offer for a car is based on your credit score. Those with good credit will get better interest rates and cheaper car financing offers. This is important no matter who you finance your vehicle through.

Find out your credit score either through the dealer or online at websites like www.annualcreditreport.com, www.freecreditscore.com, www.creditkarma.com, or www.myfico.com.

If your credit score is higher than 680, you are considered a prime borrower and are eligible for the best interest rates available. The higher your score, the better bargaining position you will be in.



Compare loan rates online. There are many websites that compare deals at no cost. Additionally, it is a great way to get in contact with various companies.



Get the necessary materials together. Most lenders will want your name, social security number, date of birth, previous and current addresses, occupation, proof of income, and information on other outstanding debts.









Method 2 Getting a Direct Loan.



Contact certified lenders. Local and national banks, as well as credit unions can give you the terms and interest rates they are offering on used car loans over the phone and online. Shop around and find the best rate for you. You don't have to apply for financing through the dealer, though you certainly can. Oftentimes you can get a fairer deal when you figure out your financing first before you walk into the dealership. Apply for financing through a bank or an app that connects you to lenders.

Oftentimes, credit unions have the lowest interest rates, especially if you are a member. Check with your employer to see if they have any connections with local credit unions for you to take advantage of.

Many lenders offer 5 year loans on vehicles that are five years old at most. Older vehicles are often only eligible for 1 to 2 year loans. In many cases, the fear is that an older car will break down and then borrowers will default on their loans.

Additionally, lenders often impose mileage restrictions (often 100,000 miles) and will not finance salvage-titled vehicles. Typically, they will only fund loans for vehicles purchased through a franchised dealership, not through a private party or independent dealer. In these cases, you’ll have to get a deal loan. See below.



Solicit rate quotes from several lenders. The interest rates offered on used car loans are generally 4 to 6 percent higher than rates offered on new car loans. This is because lenders are fearful of financing used vehicles.

Be as specific as possible with a lender. Provide the lender with information about the vehicle you choose. You will need to provide the car's make, model and VIN number, among other things. The more detail you can give the lender, the more firm your rate quote will be.

Talk to lenders about any fees or extra charges. Some lenders offer low interest rates and make back the money by tacking on additional fees and charges to a loan deal. You'll want to know about these, as well as any other specific loan agreement aspects like prepayment penalties, which can trigger fees if you pay the loan off early.



Get prequalified. Fill out the paperwork ahead of time. Many banks or lenders will pre-qualify you for a car loan based on your credit score, the type of car you plan on purchasing, and your driving history.



Ask the lender with the best rate offer for a pre-qualification letter. It should outline the terms and conditions of the loan. Bring this letter with you to the dealership when shopping for the car. When you go to the dealer's lot, you can show them evidence pre-qualification from a reputable lender. This will expedite the car buying experience. It will also tell the car dealer you are ready to buy.

If you haven’t prequalified, you can get financing at the dealer's lot for a one-stop shopping experience, but having other lender alternatives helps you to get the best deal.







Method 3 Getting a Dealer Loan.



Get a loan through a new or used car dealer.

In general, interest rates offered by dealerships are higher than interest rates you can find directly from a lender. In many cases, smaller dealerships work with third party lenders to finance your vehicle. Because they play the middleman, they pass off the costs to you. Therefore, you may want to apply for a direct loan first and cut out the dealership middleman.

In some cases, financing lenders like local banks and credit unions won’t take a chance on used cars. For used cars, most dealers will finance used cars they sell, regardless of its age. Therefore, you may want to apply for a dealer loan if a direct lender denies you financing.



Bring leverage. Bring interest rates from direct loan lenders, even if you plan on financing with the dealer. Dealers are more likely to offer lower interest rates, if you show them that you know what other lenders are offering. Make sure you research competitive interest rates based on your credit score.



Offer a down payment in cash or trade equivalent to at least 10% of the vehicle's purchase price. The larger the down payment, the less money you will have to finance and the less interest you’ll have to pay on that loan.





Tips.

If you have a low credit score, consider asking someone with a high credit score to co-sign on a loan. A co-signor with a high credit score may help you to secure a lower-interest loan.

If your loan application gets rejected, don’t feel bad. Most likely, the lender doesn’t think you are able to pay back the loan on time. Reassess your budget and try again or try a different lender.

Warnings.

If you finance a used car, be prepared to pay for comprehensive insurance on the vehicle, which is more expensive than collision insurance commonly applied to used cars. Lenders require that you carry comprehensive insurance to protect their investment. Lenders often fear that if you damage the car, you will default on the loan, so they make you take out better insurance.

Be wary of dealers who advertise financing with "no credit check." Typically, these car lots sell high-mileage vehicles with inflated down payments and interest rates.

November 17, 2019

How to Finance a Business Purchase

How to Finance a Business Purchase.

Buying an existing business can be convenient in a number of ways. You're buying into a proven business model with existing customers, marketing, and products. With this framework in place, you can also begin repaying your purchase expenses immediately with the profits earned by the business. However, financing that business purchase in the first place can be just as expensive as starting a business yourself. Consider the following methods for coming up with the capital to purchase a business and choose those that best suit your needs.





Taking Out a Loan



Investigate SBA loans. The Small Business Administration (SBA) guarantees loans to small business to help them get started and expand their operations. To get started on the road towards acquiring SBA financing, visit a local bank or financial institution that provides SBA loans. The SBA loan makes it easier for you to acquire financing, as part of the loan is repaid by the SBA if you fail to make payments. Specifically, the loan program you will be looking for is the SBA Basic 7(a) loan program, which is used for acquiring or starting new businesses. To qualify for this type of loan, you must.

Own or seek to own a small business as defined by the SBA. This information can be found on their website.

Plan to operate for profit.

Plan to operate within the United States or its possessions.

Have your own assets invested in the business.

Show a need for the loan.

Not owe the US government any money.



Meet with financial institutions. Financing is also available through local lending institutions, like banks and credit unions. However, this type of lending can be very difficult to secure, particularly if you have less-than-stellar credit or if there are not significant personal or business assets that can be used as collateral. To qualify for a traditional bank loan, you will need demonstrable management experience, strong existing cash flows, experience in the industry, and a high personal credit score. It may also be easier for you to obtain a loan if you have an existing, strong relationship with the bank providing the loan.

If you are a woman, veteran, or minority, banks may have special lending programs that you can qualify for.



Assess the collateral you can provide. Your collateral is the assets, either yours or the business's, that you can provide as insurance in case you default on your loan. For some business loans, these may need to be worth as much as 50 to 70 percent of the loan value. When providing collateral for the banks to use, you can include any of the following:

Equity in your own home.

Assets owned by the business, like accounts receivable and inventory.

A personal guarantee. This essentially means that, in the event of a default, you are personally liable to repay a certain amount of the loan value.

Most lenders, including the SBA, require a personal guarantee for a loan in addition to any collateral pledged. This is because they would prefer avoiding have to take possession of the collateral and go through the subsequent sale.



Get pre-qualified for several loans. Before finalizing the purchase of the business, you will need one or several letters of pre-qualification for loans. This means going through the loan process with each lender and getting the go-ahead from them to purchase the business. You can then show the letters to the seller and finalize the purchase, at which point you will need to actually take out one of the loans that you are pre-qualified for.

Getting pre-qualified for several loans is advantageous in case the lending requirements change between your pre-qualification and the close of the sale.

You will need to be pre-qualified for more than the purchase price of the business. You should also include about 90 days of working capital (money used to keep the business functioning, like utilities and inventory purchasing money). You can work with the current owner to assess how much is needed.



Consider alternative loan options. There are many other sources of loans available to finance the initial purchase of a business. For some people, there may be an opportunity to borrow money from friends or family. However, bear in mind that this may damage your relationship with that person if things go south. Some other options you can consider include:

Peer-to-peer (P2P) financing. Online lending markets like LendingClub.com and Prosper.com allow you to borrow small amounts (generally less than $25,000) from other people. However, rates on these sites are typically higher than what a bank or the SBA could offer you.

Microloans. Microloans are for smaller amounts that traditional business loans (usually less than $50,000) and have shorter durations (under six years). Check with the SBA or a microlending specialist to investigate your options.







Financing the Purchase With Your Own Assets.



Use your own savings. The easiest and cheapest way to finance your own business is with your own personal savings. This includes any savings accounts, CDs, investment accounts, or other liquid accounts you hold. By using the money from these accounts to finance your personal, you can avoid having to work with partners, investors, or lenders when running your business. However, it is rare that an individual has enough money in these accounts to purchase a business.



Sell any valuable assets you currently own. Another way to raise money is to sell off valuable assets that you own. Parcels of land, non-essential vehicles, and boats can all be sold to raise this type of money.



Borrow against your home equity. You can borrow against the value of your home using a second mortgage or a home equity line of credit (HELOC). However, this requires having enough equity in your home in the first place. More importantly, it also introduces the risk that, in the event of the business's default, your house may be foreclosed upon by the lender. Consider the risks and try every other options available to you before pursuing this type of financing.



Avoid purchasing the business with your retirement savings. While it is possible to roll your IRA or 401(k) savings balances into a business venture without taking a tax hit, doing so is incredibly risky. If your business fails to perform as expected, you could lose all of the money you have saved for retirement. Personal finance experts recommend against using this as a method of business financing.







Bringing On Investors or Partners.



Consider finding a partner or several of them. A partner is someone who provides some initial purchase money for the business in exchange for an ownership share. Your partner will likely want to be involved in the business in some way, so make sure to only take on a partner that you can work well with. And being personally close with someone doesn't make them a good partner; sometimes a trusted or knowledgable co-worker or acquaintance can make a better partner than a friend or family member.

In addition, make sure to draw up a legal contract that clarifies the terms of the partnership. This agreement should list how disputes are settled, how major decisions are made, and exactly how profits are divided.



Work with a silent partner. A silent partner is one that contributes capital to the business, but has no say in its operations. However, many silent partners eventually want to have a say in how the business is run. Again, to ensure that this relationship works as planned, draw up a partnership agreement that specifies the terms of your partnership in detail.



Bring on angel investors. An angel investor is a wealthy private investor who gives start-up capital to new businesses and new business owners in exchange for equity in that business. Businesses with angel investors benefits from the angel investor's industry expertise, business contacts, and financial resources. Locating angel investors, however, can be difficult. You'll have to locate a high net worth individual who shares your passion for the business you are buying and its industry. Then, you'll have to convince them of your own management skill and your ability to give them a good return on their money.

Angel Investors can be located by visiting the Angel Capital Association's website.



Engage in equity crowdfunding. Equity crowdfunding, which involves selling small stakes in your business to a large number of small investors, is a relative newcomer in the world of business financing. While equity crowdfunding has been around for years, operating through sites like SeedInvest, it has recently become tightly regulated by the Securities and Exchange Commission (SEC). Equity crowdfunding can be an effective way to raise money, but only with the proper guidance, as following SEC guidelines can be complicated.







Getting Seller Financing



Consider the benefits and drawbacks of seller financing. Seller financing, also called owner financing, is a purchase arrangement in which you repay the sale price of the business directly to its previous owner over several years. For the buyer, this provides some flexibility in repaying the loan, such as negotiating a longer repayment period, a temporary reprieve from payments, or reducing the price in exchange for letting the owner keep some equity in the business. However, this type of arrangement is typically more expensive, with the owner charging a higher interest rate than the bank would charge.

Ideally, the buyer should negotiate an arrangement where all or a portion of the loan financed by the seller may be contingent upon the profits reached and payable over a limited term. This protects the buyer in case profits are not as high as expected.

Obtaining seller financing may give you more power in negotiating down the price of the business.

Doing so also gives the seller reason to help you out more in running and managing the business.[



Ask the seller if they would consider seller financing. Start by asking the seller directly if they would consider seller financing. It may help if you explain to them that this will result in their getting more money over time, as they get to keep the interest on your loan (rather than the bank keeping it). If they agree, you can begin negotiating a contract.

If possible, avoid securing the seller with assets purchased. This gives you a cushion if additional financing is needed to get the business is running smoothly.



Negotiate a contract. Work with the seller to form the terms of sale. Start by offering to make a down payment with what you can gather on your own, say 10 to 20 percent of the sale price. Try to offer as large of a down payment as you can afford; this will only help you and save you money in the long run. Then discuss a repayment period and interest rate. Try to negotiate a longer repayment period and lower interest rate to make sure that you can afford the payments.

You may be able to agree on a large, balloon payment in a number of years. This will reduce your monthly payments. Then, you can get a bank loan or use your savings to cover the balloon payment.

Alternately, where a C corporation is involved in the purchase, issuing preferred stock may be a better option than debt for the buyer when repaying the balloon payment.



Have a lawyer review the contract. Ideally, you should have an attorney that specializes in business contracts draw up the contract. However, you can also have one review the contract to ensure that your interests are represented and that there are no surprises waiting for you in the wording of the contract. You may also want to have an accountant review the financials of the deal to make sure everything checks out.

The lawyer, and possibly an accountant, should confirm the validity of the financial statements, specifically the identity, value and location of assets and liabilities.



Finalize the deal. Once you've been assured that the contract is right for both you and the seller, close the deal and take control of the business. With seller financing, you'll likely be able to convince the previous owner to help you out with getting started as the manager of your new business.

November 14, 2019

how to finance a business purchase

How to Finance a Business Purchase.

Buying an existing business can be convenient in a number of ways. You're buying into a proven business model with existing customers, marketing, and products. With this framework in place, you can also begin repaying your purchase expenses immediately with the profits earned by the business. However, financing that business purchase in the first place can be just as expensive as starting a business yourself. Consider the following methods for coming up with the capital to purchase a business and choose those that best suit your needs.





Taking Out a Loan



Investigate SBA loans. The Small Business Administration (SBA) guarantees loans to small business to help them get started and expand their operations. To get started on the road towards acquiring SBA financing, visit a local bank or financial institution that provides SBA loans. The SBA loan makes it easier for you to acquire financing, as part of the loan is repaid by the SBA if you fail to make payments. Specifically, the loan program you will be looking for is the SBA Basic 7(a) loan program, which is used for acquiring or starting new businesses. To qualify for this type of loan, you must.

Own or seek to own a small business as defined by the SBA. This information can be found on their website.

Plan to operate for profit.

Plan to operate within the United States or its possessions.

Have your own assets invested in the business.

Show a need for the loan.

Not owe the US government any money.



Meet with financial institutions. Financing is also available through local lending institutions, like banks and credit unions. However, this type of lending can be very difficult to secure, particularly if you have less-than-stellar credit or if there are not significant personal or business assets that can be used as collateral. To qualify for a traditional bank loan, you will need demonstrable management experience, strong existing cash flows, experience in the industry, and a high personal credit score. It may also be easier for you to obtain a loan if you have an existing, strong relationship with the bank providing the loan.

If you are a woman, veteran, or minority, banks may have special lending programs that you can qualify for.



Assess the collateral you can provide. Your collateral is the assets, either yours or the business's, that you can provide as insurance in case you default on your loan. For some business loans, these may need to be worth as much as 50 to 70 percent of the loan value. When providing collateral for the banks to use, you can include any of the following:

Equity in your own home.

Assets owned by the business, like accounts receivable and inventory.

A personal guarantee. This essentially means that, in the event of a default, you are personally liable to repay a certain amount of the loan value.

Most lenders, including the SBA, require a personal guarantee for a loan in addition to any collateral pledged. This is because they would prefer avoiding have to take possession of the collateral and go through the subsequent sale.



Get pre-qualified for several loans. Before finalizing the purchase of the business, you will need one or several letters of pre-qualification for loans. This means going through the loan process with each lender and getting the go-ahead from them to purchase the business. You can then show the letters to the seller and finalize the purchase, at which point you will need to actually take out one of the loans that you are pre-qualified for.

Getting pre-qualified for several loans is advantageous in case the lending requirements change between your pre-qualification and the close of the sale.

You will need to be pre-qualified for more than the purchase price of the business. You should also include about 90 days of working capital (money used to keep the business functioning, like utilities and inventory purchasing money). You can work with the current owner to assess how much is needed.



Consider alternative loan options. There are many other sources of loans available to finance the initial purchase of a business. For some people, there may be an opportunity to borrow money from friends or family. However, bear in mind that this may damage your relationship with that person if things go south. Some other options you can consider include:

Peer-to-peer (P2P) financing. Online lending markets like LendingClub.com and Prosper.com allow you to borrow small amounts (generally less than $25,000) from other people. However, rates on these sites are typically higher than what a bank or the SBA could offer you.

Microloans. Microloans are for smaller amounts that traditional business loans (usually less than $50,000) and have shorter durations (under six years). Check with the SBA or a microlending specialist to investigate your options.







Financing the Purchase With Your Own Assets.



Use your own savings. The easiest and cheapest way to finance your own business is with your own personal savings. This includes any savings accounts, CDs, investment accounts, or other liquid accounts you hold. By using the money from these accounts to finance your personal, you can avoid having to work with partners, investors, or lenders when running your business. However, it is rare that an individual has enough money in these accounts to purchase a business.



Sell any valuable assets you currently own. Another way to raise money is to sell off valuable assets that you own. Parcels of land, non-essential vehicles, and boats can all be sold to raise this type of money.



Borrow against your home equity. You can borrow against the value of your home using a second mortgage or a home equity line of credit (HELOC). However, this requires having enough equity in your home in the first place. More importantly, it also introduces the risk that, in the event of the business's default, your house may be foreclosed upon by the lender. Consider the risks and try every other options available to you before pursuing this type of financing.



Avoid purchasing the business with your retirement savings. While it is possible to roll your IRA or 401(k) savings balances into a business venture without taking a tax hit, doing so is incredibly risky. If your business fails to perform as expected, you could lose all of the money you have saved for retirement. Personal finance experts recommend against using this as a method of business financing.







Bringing On Investors or Partners.



Consider finding a partner or several of them. A partner is someone who provides some initial purchase money for the business in exchange for an ownership share. Your partner will likely want to be involved in the business in some way, so make sure to only take on a partner that you can work well with. And being personally close with someone doesn't make them a good partner; sometimes a trusted or knowledgable co-worker or acquaintance can make a better partner than a friend or family member.

In addition, make sure to draw up a legal contract that clarifies the terms of the partnership. This agreement should list how disputes are settled, how major decisions are made, and exactly how profits are divided.



Work with a silent partner. A silent partner is one that contributes capital to the business, but has no say in its operations. However, many silent partners eventually want to have a say in how the business is run. Again, to ensure that this relationship works as planned, draw up a partnership agreement that specifies the terms of your partnership in detail.



Bring on angel investors. An angel investor is a wealthy private investor who gives start-up capital to new businesses and new business owners in exchange for equity in that business. Businesses with angel investors benefits from the angel investor's industry expertise, business contacts, and financial resources. Locating angel investors, however, can be difficult. You'll have to locate a high net worth individual who shares your passion for the business you are buying and its industry. Then, you'll have to convince them of your own management skill and your ability to give them a good return on their money.

Angel Investors can be located by visiting the Angel Capital Association's website.



Engage in equity crowdfunding. Equity crowdfunding, which involves selling small stakes in your business to a large number of small investors, is a relative newcomer in the world of business financing. While equity crowdfunding has been around for years, operating through sites like SeedInvest, it has recently become tightly regulated by the Securities and Exchange Commission (SEC). Equity crowdfunding can be an effective way to raise money, but only with the proper guidance, as following SEC guidelines can be complicated.







Getting Seller Financing



Consider the benefits and drawbacks of seller financing. Seller financing, also called owner financing, is a purchase arrangement in which you repay the sale price of the business directly to its previous owner over several years. For the buyer, this provides some flexibility in repaying the loan, such as negotiating a longer repayment period, a temporary reprieve from payments, or reducing the price in exchange for letting the owner keep some equity in the business. However, this type of arrangement is typically more expensive, with the owner charging a higher interest rate than the bank would charge.

Ideally, the buyer should negotiate an arrangement where all or a portion of the loan financed by the seller may be contingent upon the profits reached and payable over a limited term. This protects the buyer in case profits are not as high as expected.

Obtaining seller financing may give you more power in negotiating down the price of the business.

Doing so also gives the seller reason to help you out more in running and managing the business.[



Ask the seller if they would consider seller financing. Start by asking the seller directly if they would consider seller financing. It may help if you explain to them that this will result in their getting more money over time, as they get to keep the interest on your loan (rather than the bank keeping it). If they agree, you can begin negotiating a contract.

If possible, avoid securing the seller with assets purchased. This gives you a cushion if additional financing is needed to get the business is running smoothly.



Negotiate a contract. Work with the seller to form the terms of sale. Start by offering to make a down payment with what you can gather on your own, say 10 to 20 percent of the sale price. Try to offer as large of a down payment as you can afford; this will only help you and save you money in the long run. Then discuss a repayment period and interest rate. Try to negotiate a longer repayment period and lower interest rate to make sure that you can afford the payments.

You may be able to agree on a large, balloon payment in a number of years. This will reduce your monthly payments. Then, you can get a bank loan or use your savings to cover the balloon payment.

Alternately, where a C corporation is involved in the purchase, issuing preferred stock may be a better option than debt for the buyer when repaying the balloon payment.



Have a lawyer review the contract. Ideally, you should have an attorney that specializes in business contracts draw up the contract. However, you can also have one review the contract to ensure that your interests are represented and that there are no surprises waiting for you in the wording of the contract. You may also want to have an accountant review the financials of the deal to make sure everything checks out.

The lawyer, and possibly an accountant, should confirm the validity of the financial statements, specifically the identity, value and location of assets and liabilities.



Finalize the deal. Once you've been assured that the contract is right for both you and the seller, close the deal and take control of the business. With seller financing, you'll likely be able to convince the previous owner to help you out with getting started as the manager of your new business.

November 13, 2019