how to detox your finances

How to Detox Your Finances.

One thing you need to do when you resolve to get your financial ducks in a row is to know how to detox your finances. It is important to get rid of old habits, any residual money pits, or anything else that is hurting you financially so that you can move on in a financially sound manner. These steps provide a financial detox plan to get you on your way.

Steps.

1. Sort out your credit and debts immediately.

Check your credit report. Do this, at the very least, annually. You are entitled to a free credit report once a year from each of the three major agencies.

Manage your credit. Don't let it manage you. Don't max out your cards just because you have a certain limit. It's more important to stay conscious of what you can afford to pay rather than relying on any illusory limit as a source of your finances. The banks want you to spend that much; it doesn't mean you have the income flow capacity to meet it regularly!

Manage your debt. If you are struggling, talk to your creditors. Don't ignore the problem, it will not go away on its own, it will only get worse. The sooner that you seek financial advice and support, the faster you can turn around debt problems.

Avoid store credit cards. Their APR (annual percentage rate) is considerably higher than a 'regular' credit card and having several cards can tempt you into thinking you have more spare cash than you actually do. Store cards also tie you down to spending at one place, regardless of whether it has the best deals or not.

2. Sort out your savings and insurance.

Get a decent interest level in your savings account. Work out how much you can spare from your income to place into this account and try to stick with that minimum on a regular basis. Keep checking for better savings deals and switch your money around to follow increased interest returns - internet banking makes it easier to track interest changes and change your savings approach regularly.

Realize that saving in a low interest savings account might not actually be the best use of your money. If you can use 100 dollars towards knocking down a high rate card or a very low rate savings account, think hard about where to use it.

Invest in yourself. Get some life insurance. Educate yourself about the different types of insurance and what suits you at the time. If you can't afford to make such a payment now, what makes you think your family will be able to if something happens to you? It's a priority worth sorting out in the present.

3. Become actively involved in your finances.

Think about where the money is going, what it is doing. Don't just 'let it happen', or hope that money will come to you. Active planning, saving, and debt paying requires the investment of your time and engaged interest.

Undertake weekly money management tasks. It is better to spend 20 minutes a week sorting finances than to leave it all to tax time - incremental financial attention each week will save you a lot of effort and time in the long run.

4. Watch out for fraud. There are some key things that you can do to protect yourself:

Destroy any unneeded receipts and statements;

Retain the receipts you do need (in a safe place) and compare them against credit card and other financial statements;

Never disclose your personal information to someone on the phone, such as a cold sales call or through your email. It is crucial to remember that most of the time, your email is not secure.

Redirect your mail immediately when you move. If someone moves into a house behind you, they are unlikely to have the same stake that you will in safeguarding your information and will simply throw things in the trash where they can be found by others, or worse still, might be tempted to make fraudulent use of it.

Check your credit report periodically.

Remember that if a deal seems too good to be true, it probably is. Do your research and ask trusted people for advice before leaping in and spending your money.

5. Track your expenditures.

Do this to identify where your money is going and whether or not each expenditure is necessary or frivolous. This will allow you to build a bigger spending pattern and review what you are spending your money on. You can do this by:

Saving receipts (for at least as long as it will take you to note down the cost and what was covered).

Keeping a notebook handy that you can write down prices and purchases as they occur.

6. Think before you buy.

Save, then buy. Start reminding yourself often that don't have to have that item or service right now. That new computer will wait until you can save up to get a new one. Putting a $500 computer on credit now can easily cost you over a thousand dollars over the period it takes to pay it off. Write "New Computer" on an envelope and put money into it every chance you get. Hide the envelope and don't ever take money out except for the new computer.

Avoid impulse buying. Nothing is that important. Stores prey on consumers trying to get you to buy. That is why they are laid out the way they are and why the candy and magazines are right by the cash register.

Carry it around the store for a while. Quite often, you will realize that maybe you don't need it just now. Research it on the Internet to see if you can find it more cheaply, or to see if it really does do what you want it to. Maybe you can borrow someone else's rather than owning it? Think through all the options.

Don't buy into a brand just because you always have. With today's technology, there are alternatives to just about anything, and quite often they are less expensive. Look around and be a choosy buyer. Use buyer comparison sites before you go shopping so that you are aware of the best deals and can use this knowledge to bargain with.

Learn how to haggle and don't be uncomfortable about it. Bargaining is a good way of getting a fair deal.

7. Take charge of your home space.

Sell things that you aren't using or don't want. They are just taking up space and not giving you joy. If you can't sell it, consider donating it. Your personal environment will be a lot cleaner for it and other people can benefit from your donation.

Declutter your home and your life. Clean out your garage, have a yard sale, etc. Doing this will surprisingly lighten your load. It is also a good way of reminding yourself that it's easier not to bring things into the house in the first place as you'll only end up having to clean them out!

Look at your energy usage. Change to light bulbs that use less energy, water heating that is less energy-intensive and turn off your appliances when not in use. Simple things that can save you a lot of money in the long run.

8. Take charge of your earnings.

Earn what you deserve. Look at your wages. Find out what the going rate is for what you are doing in your area. See what you can do to get your salary increased.

Increase your brand value. Yes, your brand value. See what you can do to increase your value to yourself and to your employers.

9. Balance your life and your work. Balance is very important to help you deal with day to day problems. When you are off balance with one thing, other problems will quickly follow and it can be all too easy to resort to spending as the answer to not coping with juggling many things in your life. Slow down and do a stocktake on what you need to change about the way you're living.

10. Teach your children about finances. Don't just assume that because they are kids, they shouldn't have to think about how to budget and how to delay desires for instant gratification. The bad habits they start now will stay with them; equally, teaching them good habits will be life-lasting too.

Tips.

If you have a lot of debt from credit cards, personal loans, payday or car title loans or medical bills, you may want to consult an attorney about bankruptcy.

Visit a free credit counselor in your area for financial and budgetary advice and counseling. These can be especially helpful if you feel you are in over your head.

Avoid blurring wants and needs. It is important to focus on the things you need first and be very conscious about fulfilling your wants.

AnnualCreditReport.com provides consumers with the secure means to request and obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies in accordance with the Fair and Accurate Credit Transactions Act (FACT Act). AnnualCreditReport.com offers consumers a fast and convenient way to request, view and print their credit reports in a secure Internet environment. They also provide options to request reports by telephone and by mail.

Warnings.

Stay away from companies that offer to repair your credit report or score. Many times these agencies will contest all the debts shown on your report. This process works temporarily, as creditors are required to verify debt within 30 days or it is removed from your report. At this point you will appear to have a "clean" record and the agency may collect a hefty fee from you. When the creditors do get around to verifying your debt, it will simply be added to your report again.

None of the advertised credit offers have accurate reporting from the credit bureaus.

There are many companies out there who will offer "free" credit services like reports and score monitoring to first-time customers. Be advised that while you may receive an initial report for free, you may be required to sign up for some kind of paid membership after your trial period is over. These reports are not directly from the credit bureaus, and they are not always accurate.

Credit bureaus do not maintain reporting agencies. There is only one agency maintained, an which deals directly with the bureaus. This site deals with both the FTC and the credit bureaus.

January 20, 2020

How to Detox Your Finances

How to Detox Your Finances.

One thing you need to do when you resolve to get your financial ducks in a row is to know how to detox your finances. It is important to get rid of old habits, any residual money pits, or anything else that is hurting you financially so that you can move on in a financially sound manner. These steps provide a financial detox plan to get you on your way.

Steps.

1. Sort out your credit and debts immediately.

Check your credit report. Do this, at the very least, annually. You are entitled to a free credit report once a year from each of the three major agencies.

Manage your credit. Don't let it manage you. Don't max out your cards just because you have a certain limit. It's more important to stay conscious of what you can afford to pay rather than relying on any illusory limit as a source of your finances. The banks want you to spend that much; it doesn't mean you have the income flow capacity to meet it regularly!

Manage your debt. If you are struggling, talk to your creditors. Don't ignore the problem, it will not go away on its own, it will only get worse. The sooner that you seek financial advice and support, the faster you can turn around debt problems.

Avoid store credit cards. Their APR (annual percentage rate) is considerably higher than a 'regular' credit card and having several cards can tempt you into thinking you have more spare cash than you actually do. Store cards also tie you down to spending at one place, regardless of whether it has the best deals or not.

2. Sort out your savings and insurance.

Get a decent interest level in your savings account. Work out how much you can spare from your income to place into this account and try to stick with that minimum on a regular basis. Keep checking for better savings deals and switch your money around to follow increased interest returns - internet banking makes it easier to track interest changes and change your savings approach regularly.

Realize that saving in a low interest savings account might not actually be the best use of your money. If you can use 100 dollars towards knocking down a high rate card or a very low rate savings account, think hard about where to use it.

Invest in yourself. Get some life insurance. Educate yourself about the different types of insurance and what suits you at the time. If you can't afford to make such a payment now, what makes you think your family will be able to if something happens to you? It's a priority worth sorting out in the present.

3. Become actively involved in your finances.

Think about where the money is going, what it is doing. Don't just 'let it happen', or hope that money will come to you. Active planning, saving, and debt paying requires the investment of your time and engaged interest.

Undertake weekly money management tasks. It is better to spend 20 minutes a week sorting finances than to leave it all to tax time - incremental financial attention each week will save you a lot of effort and time in the long run.

4. Watch out for fraud. There are some key things that you can do to protect yourself:

Destroy any unneeded receipts and statements;

Retain the receipts you do need (in a safe place) and compare them against credit card and other financial statements;

Never disclose your personal information to someone on the phone, such as a cold sales call or through your email. It is crucial to remember that most of the time, your email is not secure.

Redirect your mail immediately when you move. If someone moves into a house behind you, they are unlikely to have the same stake that you will in safeguarding your information and will simply throw things in the trash where they can be found by others, or worse still, might be tempted to make fraudulent use of it.

Check your credit report periodically.

Remember that if a deal seems too good to be true, it probably is. Do your research and ask trusted people for advice before leaping in and spending your money.

5. Track your expenditures.

Do this to identify where your money is going and whether or not each expenditure is necessary or frivolous. This will allow you to build a bigger spending pattern and review what you are spending your money on. You can do this by:

Saving receipts (for at least as long as it will take you to note down the cost and what was covered).

Keeping a notebook handy that you can write down prices and purchases as they occur.

6. Think before you buy.

Save, then buy. Start reminding yourself often that don't have to have that item or service right now. That new computer will wait until you can save up to get a new one. Putting a $500 computer on credit now can easily cost you over a thousand dollars over the period it takes to pay it off. Write "New Computer" on an envelope and put money into it every chance you get. Hide the envelope and don't ever take money out except for the new computer.

Avoid impulse buying. Nothing is that important. Stores prey on consumers trying to get you to buy. That is why they are laid out the way they are and why the candy and magazines are right by the cash register.

Carry it around the store for a while. Quite often, you will realize that maybe you don't need it just now. Research it on the Internet to see if you can find it more cheaply, or to see if it really does do what you want it to. Maybe you can borrow someone else's rather than owning it? Think through all the options.

Don't buy into a brand just because you always have. With today's technology, there are alternatives to just about anything, and quite often they are less expensive. Look around and be a choosy buyer. Use buyer comparison sites before you go shopping so that you are aware of the best deals and can use this knowledge to bargain with.

Learn how to haggle and don't be uncomfortable about it. Bargaining is a good way of getting a fair deal.

7. Take charge of your home space.

Sell things that you aren't using or don't want. They are just taking up space and not giving you joy. If you can't sell it, consider donating it. Your personal environment will be a lot cleaner for it and other people can benefit from your donation.

Declutter your home and your life. Clean out your garage, have a yard sale, etc. Doing this will surprisingly lighten your load. It is also a good way of reminding yourself that it's easier not to bring things into the house in the first place as you'll only end up having to clean them out!

Look at your energy usage. Change to light bulbs that use less energy, water heating that is less energy-intensive and turn off your appliances when not in use. Simple things that can save you a lot of money in the long run.

8. Take charge of your earnings.

Earn what you deserve. Look at your wages. Find out what the going rate is for what you are doing in your area. See what you can do to get your salary increased.

Increase your brand value. Yes, your brand value. See what you can do to increase your value to yourself and to your employers.

9. Balance your life and your work. Balance is very important to help you deal with day to day problems. When you are off balance with one thing, other problems will quickly follow and it can be all too easy to resort to spending as the answer to not coping with juggling many things in your life. Slow down and do a stocktake on what you need to change about the way you're living.

10. Teach your children about finances. Don't just assume that because they are kids, they shouldn't have to think about how to budget and how to delay desires for instant gratification. The bad habits they start now will stay with them; equally, teaching them good habits will be life-lasting too.

Tips.

If you have a lot of debt from credit cards, personal loans, payday or car title loans or medical bills, you may want to consult an attorney about bankruptcy.

Visit a free credit counselor in your area for financial and budgetary advice and counseling. These can be especially helpful if you feel you are in over your head.

Avoid blurring wants and needs. It is important to focus on the things you need first and be very conscious about fulfilling your wants.

AnnualCreditReport.com provides consumers with the secure means to request and obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies in accordance with the Fair and Accurate Credit Transactions Act (FACT Act). AnnualCreditReport.com offers consumers a fast and convenient way to request, view and print their credit reports in a secure Internet environment. They also provide options to request reports by telephone and by mail.

Warnings.

Stay away from companies that offer to repair your credit report or score. Many times these agencies will contest all the debts shown on your report. This process works temporarily, as creditors are required to verify debt within 30 days or it is removed from your report. At this point you will appear to have a "clean" record and the agency may collect a hefty fee from you. When the creditors do get around to verifying your debt, it will simply be added to your report again.

None of the advertised credit offers have accurate reporting from the credit bureaus.

There are many companies out there who will offer "free" credit services like reports and score monitoring to first-time customers. Be advised that while you may receive an initial report for free, you may be required to sign up for some kind of paid membership after your trial period is over. These reports are not directly from the credit bureaus, and they are not always accurate.

Credit bureaus do not maintain reporting agencies. There is only one agency maintained, an which deals directly with the bureaus. This site deals with both the FTC and the credit bureaus.

January 22, 2020

How to Get Immediate Cash for Your Annuity

How to Get Immediate Cash for Your Annuity.

An annuity is a type of investment that is usually handled by an insurance company. An investor will invest her money in an annuity fund in exchange for periodic payouts over a predetermined interval (such as for the next ten years) or indefinitely (for the rest of your life). Some annuities provide the option of getting immediate payment. However, if you are in a financial emergency and require immediate cash, you might have to cash out an annuity early. While there may be hefty fees involved, particularly if your annuity is held within a retirement account like an IRA or 401k, it is possible to get immediate cash from your annuity investment.

Method 1 Getting Cash from an Immediate Annuity.
1. Consider carefully whether you need immediate cash. Investments work best when they are allowed to grow over the long term. Withdrawing cash early from an annuity brings with it a risk of fees and will significantly harm the long-term potential of your investment. Consider very carefully whether you are in a true financial emergency before taking steps to sell an annuity, and be sure to use early withdrawal options only as a last resort.
2. Think about other options for immediate cash. Because of the potential penalties of getting cash from an annuity, consider other options for getting cash during a financial emergency. Many of these options come with lower risks and few to no financial penalties. These include:
Take out a short-term, unsecured loan (a loan without collateral) from your bank or a local credit union.
Renting out a room via AirBNB or another website.
Sell unwanted items online.
Take on an additional part-time job or side gig, such as babysitting, dogsitting, or working retail.
Get a Home Equity Loan. These loans will require interest payments, but they might be lower than the penalties you would pay for cashing in an annuity.
3. Determine exactly how much money you need. In some cases, you might be able to receive small, immediate cash payouts from your annuity without too many penalties and fees. However, if you need to cash in your entire annuity, you will likely pay some hefty fines. Therefore, it is important that you know exactly how much cash you need to get through your financial emergency. By only taking out the money you absolutely need, you might be able to be more financially stable in the long run.
4. Determine whether you have an immediate or deferred annuity. An immediate annuity will provide monthly, quarterly, or annual cash payments to the investor immediately after the investment is purchased. A deferred annuity, however, allows the investment to grow for a period of some years before the payouts begin.
If you have an immediate annuity already, you can simply collect your cash installments at the appropriate intervals. Depending on how much cash you require, these installments might be sufficient for your needs.
When payments are made, annuities are taxed on the earning portion of the asset, not a return of principal.
Additionally, an immediate annuity within a retirement account, like a Roth IRA, can provide penalty-free payments to persons under 59.5 years of age.
5. Convert a deferred annuity to an immediate annuity. This option is one that many investors consider as they transition into retirement. They use the deferred annuity to grow their money over the long-term and then convert into an immediate annuity to guarantee an income stream during their retirement. If you convert your deferred annuity to an immediate annuity, you might have the best of both worlds: immediate access to some cash while still allowing your investment portfolio to grow.
Depending on when you purchased your deferred annuity, however, it might be costly for you to pursue the conversion option. Make sure you discuss fees and penalties carefully with your insurance company and your financial advisor before undertaking a conversion.
6. Collect your cash payments without penalty. If you have an immediate annuity, you will receive several small payments each year. This option is a good one for those who are in immediate need of cash (such as those who are on a fixed income). And as long as you only collect the amount specified in your contract, you can do so without paying extra fees.
You will still likely have to pay income tax on a portion or all of the amount you collect.
While immediate annuities provide an immediate cash flow, they generally pay out less total money than deferred annuities, which have more of an opportunity to grow.
7. Determine your surrender period. A surrender period is the period of time after the initial purchase of the annuity where you will be charged hefty fees for cashing out your plan. A surrender period can be anywhere from 5-10 years after purchase, depending on your contract, though it is usually between 6-8 years.
If your surrender period has passed, you might be able to cash out your annuity without paying too many fees.
If your surrender period has not yet passed, you might want to consider the expenses involved before continuing the early withdrawal process.
8. Decide to sell your immediate annuity. Unlike deferred annuities, most immediate annuities do not provide an option for small-sum early withdrawals or partial sales. You will likely have the opportunity, however, to sell the entire immediate annuity for a lump-sum. Again, reserve this option as a last resort given the hassle and fees involved in cashing out your immediate annuity early.
9. Be aware of possible financial penalties. Withdrawing cash from your annuity early can lead to hefty penalties, taxes, and fines. Be sure that you take these penalties into account before making your decision to withdraw your cash.
If your annuity is part of a retirement account and you withdraw your money before you are 59.5 years old, you will have to pay a 10% early withdrawal fee to the federal government.
If you withdraw your money within the first 5-8 years of purchase, you will likely have to pay a "surrender fee" to your insurance company. The exact fee amount depends on your contract. Many surrender fees begin at about a 7% penalty for the first year after purchase and decrease over time from there. However, some companies might charge a fee as high as 20%.
Cash you receive from annuities counts as income. You will likely have to pay income taxes in addition to the early withdrawal fees and surrender fees. The one exception is that payments from an annuity as part of a Roth IRA are not taxable.
10. Research companies that offer cash in exchange for annuity payments. None will give you the full value of your future payments. They might offer anywhere from 60% to 85% of the value of your annuity. Getting 85% of your annuity’s value would be considered a fairly good offer. Since you are legally transferring your rights, you want a company that follows standard procedures and will prepare you for any required court proceedings.
Understand that you are not getting a good deal here because the company you are selling to has to make a profit. Annuity sale prices are reached by discounting a series of future cash flows by some interest rate. Typically, a buyer will use a lower rate than is earned in the annuity to make a profit themselves. This results in a lower sale price for you.
11. Consult your tax attorney or financial advisor. Before agreeing to sell your annuity to a third party, consult a trusted legal or financial expert. They will help you determine your financial liability and help you navigate through the complicated contracts you might have to sign. This will help to ensure that you understand what is happening and that it is done correctly. They might also be able to help guide you to the most reputable companies that purchase annuities.
12. Collect your documents. Documents required for the sale of an annuity include two forms of identification, your initial annuity policy, and an application to sell your annuity to a third party. You might have to contact your insurance company in order to receive correct, up-to-date copies of your paperwork.
13. Complete the transaction. Upon submitting your paperwork and paying your fees and penalties, you will be able to receive your cash payout. Make sure that you report this income correctly during tax time and that you pay all the extra taxes on this money to avoid future penalties.
You might want to consider discussing your finances with a financial advisor to ensure that you will use and invest the cash payout properly.

Method 2 Getting Cash from a Deferred Annuity.
1. Determine what kind of annuity you hold. There are three kinds of annuity, each one of which pays out money slightly differently. The U.S. Securities and Exchange Commission (SEC) regulates all variable annuities and some index annuities. The SEC does not regulate fixed annuities.
A fixed annuity pays out a predetermined amount at specific intervals over a period of time. This amount is usually based on a specific interest rate applied to your initial investment.
An indexed annuity provides payment to the investor based on the performance of a stock market index fund (or, a fund that tracks the entire stock market performance). Most indexed annuities, however, have a set minimum for payments even if the index fund performs poorly.
A variable annuity allows the investor to choose amongst various investment vehicles, usually mutual funds. Your periodic payment will depend upon the performance of these investments.
2. Determine the type of account your annuity is held in. In addition to the different types of annuity payments, annuities can be held in various types of accounts for certain purposes. These typically include investment and retirement accounts. Both types operate generally the same way, however, they may differ in early withdrawal and tax penalties charged. Check your investment documents or retirement plan agreement to see what type of penalties and restrictions there are on your annuity.
3. Consider penalty-free early withdrawal options. Some deferred annuity policies provide an option for small cash withdrawals without extra penalties. For example, a withdrawal of 5-10% of your initial investment might be accomplished without paying a "surrender fee" to your insurance company. While taking an early withdrawal will diminish your investment's ability to grow, you might be able to get the cash you need without completely emptying your annuity.
If your annuity is part of a retirement account and you are under 59.5 years old, you might still have to pay a 10% tax to the federal government, even if you don't have to pay a penalty to your insurance company.
4. Determine your surrender period. A surrender period is the period of time after the initial purchase of the annuity where you will be charged hefty fees for cashing out your plan. A surrender period can be anywhere from 5-10 years after purchase, depending on your contract, though it is usually between 6-8 years.
If your surrender period has passed, you might be able to cash out your annuity without paying too many fees.
If your surrender period has not yet passed, you might want to consider the expenses involved before continuing the early withdrawal process.
5. Reread your annuity contract. Review the details of your annuity contract. Pay attention to the full-disclosure clause of your agreement. It’s important that you understand what portion of your annuity payments you are exchanging for a lump-sum cash payment.
6. Understand the process. If you are seeking a lump sum of cash in lieu of structured payments, you are in effect signing over to someone else all your rights to receive future annuity payments. That "someone else" is the entity giving you the lump-sum cash.
Be aware that in the long term your annuity is worth much more if you receive structured payments according to the original contract. Talk to your insurance agent to determine the exact worth of your annuity. You may decide to ride out your immediate cash-flow crisis instead of cashing in.
7. Be aware of possible financial penalties. Withdrawing cash from your annuity early can lead to hefty penalties, taxes, and fines. Be sure that you take these penalties into account before making your decision to withdraw your cash.
If your annuity is part of a retirement account and you withdraw your money before you are 59.5 years old, you will have to pay a 10% early withdrawal fee to the federal government.
If you withdraw your money within the first 5-8 years of purchase, you will likely have to pay a "surrender fee" to your insurance company. The exact fee amount depends on your contract. Many surrender fees begin at about a 7% penalty for the first year after purchase and decrease over time from there. However, some companies might charge a fee as high as 20%.
8. Research companies that offer cash in exchange for annuity payments. None will give you the full value of your future payments. They might offer anywhere from 60% to 85% of the value of your annuity. Getting 85% of your annuity’s value would be considered a fairly good offer. Since you are legally transferring your rights, you want a company that follows standard procedures and will prepare you for any required court proceedings.
9. Consult your tax attorney or financial advisor. Before agreeing to sell your annuity to a third party, consult a trusted legal or financial expert. They will help you determine your financial liability and help you navigate through the complicated contracts you might have to sign. This will help to ensure that you understand what is happening and that it is done correctly. They might also be able to help guide you to the most reputable companies that purchase annuities.
10. Collect your documents. Documents required for the sale of an annuity include two forms of identification, your initial annuity policy, and an application to sell your annuity to a third party. You might have to contact your insurance company in order to receive correct, up-to-date copies of your paperwork.
11. Complete the transaction. Upon submitting your paperwork and paying your fees and penalties, you will be able to receive your cash payout. Make sure that you report this income correctly during tax time and that you pay all the extra taxes on this money to avoid future penalties.
You might want to consider discussing your finances with a financial advisor to ensure that you will use and invest the cash payout properly.

Community Q&A.
Question : How can I get money from a union annuity?
Answer : Start by contacting your union steward.
Question : Can I cash out a fixed annuity early?
Answer : What you'll typically lose by cashing out early is a 10% penalty on the taxable portion of your annuity, forfeited to the IRS if you're under age 59½. That's in addition to the 10% federal tax penalty you'll pay on earnings if you're under age 59½.

Tips.

If you aren’t comfortable with the idea of cashing in part or all of your annuity, explore other ways you can raise cash, such as taking out a second mortgage or selling other assets. Downsizing is another way to cover a tight financial spot in your life.
Use the formulas in Discount Cash Flow to find the value of your annuity. You won't be able to sell it for full value, but you need to know what the contract is worth so that you'll know if you're getting a fair offer.

Warnings.
Consult your tax attorney or accountant before selling. If you sell too early, you may be liable for a hefty surrender charge, and if you sell before you have reached the age of 59-and-a-half, you will probably be faced with federal taxes and penalties.
Thoroughly research any company offering to purchase your annuity. You can research any formal complaints filed against a company by contacting the Better Business Bureau.[21] It’s a good idea to ask your tax accountant for recommendations as well.
Do not purchase an annuity unless you have a decent emergency savings account that you can access easily and without penalty. An annuity is not a suitable emergency fund because of the fees, delays, and hassles in receiving quick cash.
To avoid fraud, make sure you purchase an annuity from a reputable, licensed company.

May 04, 2020

How to Choose Business Financing.

How to Choose Business Financing.

Every business needs funding for a variety of reasons, including startup, operations, equipment and project completion. Finance for business is a complex subject that must be approached from a variety of angles. There are many business financing options, some of which may or may not be right for your particular needs. In order to evaluate your situation and determine which finance avenues to pursue, there is a variety of factors to consider. Follow these guidelines to choose business financing.

Method 1 Arranging for a Loan.

1. Compare loans with other types of financing. Loans are a type of debt financing. This means that you have to pay the money back, plus interest. Loans are typically offered by banks, credit unions or other financial institutions. Businesses that typically qualify for loans have a strong business plan, favorable business credit rating and a fair amount of equity capital.

Equity capital is the current market value of everything the company owns less any liabilities owed by the company.

Lenders are sometimes hesitant to give loans to companies without a lot of equity capital. Without equity capital, businesses don't have much collateral to put up for a loan. Also, revenues earned by the business will go toward repaying the debt instead of growing the business.

2. Get a line of credit from a bank. A line of credit is different from a typical loan in that it doesn't give you a lump sum of cash. Rather, like a credit card, you withdraw from the available credit any time you need it. You only withdraw as much as you need. This gives you control over the amount of interest expense you will have to pay. A line of credit can help you control your cash flow as your expenses or income ebb and flow.

To qualify for a line of credit, be prepared to submit financial statements, personal tax returns, business tax returns, bank account information and business registration documents.

Annual reviews are required to maintain your line of credit.

3. Obtain a business loan from a bank. A business loan is like any other kind of term loan. Business loans come with fixed interest rates. You make monthly payments over a period of years until the loan is paid off. Unlike a line of credit, a term loan gives you a lump sum of cash up front. Businesses who are expanding their space or funding other large investments can benefit from a term business loan.

Before making a loan, lenders want to know what the loan is for and how you will spend the money. Be prepared to demonstrate that the loan is for a sound financial purpose.

Different lenders require different documents. In general, be prepared to produce: your personal and business credit history; personal and business financial statements for existing and startup businesses; projected financial statements; a strong, detailed business plan; cash flow projections for at least a year; and personal guaranties from all principal owners of the business.

Large banks tend to avoid working with small businesses. They don't want to do all of the work to underwrite a small loan that won't make a large profit for them.

Local banks with whom you already have done business or credit unions may be more willing to work with small businesses.

4. Apply for a commercial loan. A commercial loan is similar to a home equity loan. It is for businesses that own commercial real estate. You borrow against the equity you have in the commercial real estate you own. The amount you can borrow depends on the value of your property and how much equity you have.

Commercial loans are not backed by government entities like Fannie Mae, so lenders see these loans as risky. Therefore, they tend to charge higher interest rates for them. Also lenders scrutinize the business more closely as well as the real estate that will serve as collateral for the loan.

5. Request a Small Business Association (SBA) loan. These loans are given by participating banks and are guaranteed by the SBA. They are for businesses that might have trouble getting a traditional bank loan. The SBA guarantees a portion of your loan to repay if you default on your payments. Find a bank that works with SBA loans by visiting www.sba.gov/lenders-top-100. Use the application checklist (www.sba.gov/content/sba-loan-application-checklist) to make sure you have all of the necessary documentation.

SBA loans for starting and expanding a business include the Basic 7(a) Loan Program, the Certified Development Company (CDC) 504 Loan Program and the Microloan Program.

SBA also offers disaster assistance loans for businesses in a declared disaster area and economic injury loans for businesses that have suffered a physical or agricultural production disaster.

Export assistance loans help exporters obtain financing to support exporting activities or to compete if they have been adversely affected by competition from imports.

Veteran and military community loans help businesses meet expenses when an essential employee has been called up on active duty.

Other special purpose loans include CAPlines, which help businesses purchase capital equipment, pollution control loans for pollution control facilities, and the U.S. Community Adjustment And Investment Program (CAIP), for businesses that have been adversely affected by the North American Free Trade Agreement (NAFTA).

6. Work with state and local economic development agencies. Economic development agencies exist in every state and in some local municipalities. They provide low-interest loans to businesses that might not qualify for traditional bank loans. In addition to financial services, these agencies provide startup advice, training, business location selection assistance and employee recruitment and training assistance. You can find the economic development agency in your state by visiting www.sba.gov/content/economic-development-agencies. You can also contact your city or county government office to find out about their economic development programs.

Each agency has its own application process. However many require the same basic documentation. Gather the following information.

A loan application form that details why you are applying for the loan and how you will use the money.

Your resume gives lenders information about your expertise in the field.

All lenders will require a sound business plan. For help with writing your business plan, visit www.sba.gov/writing-business-plan.

Your business credit report gives lenders information about your credit worthiness.

Be prepared to submit your business and personal tax returns for the past three years.

Prepare historical financial statements, including your balance sheet, income statement, cash flow statement and bank statements. You may also be asked to submit projected financial statements.

Be able to demonstrate your business' current financial position with accounts receivable and accounts payable information.

You may need to put up collateral, especially if you cannot provide strong financial statements.

Gather important legal documents, including your business license, articles of incorporation, third party contracts, franchise agreements and commercial leases.

7. Consider online lending. Online lending services include Kabbage and OnDeck. These loans are for businesses who want small, short-term loans. Businesses turn to these lenders to handle short-term cash flow shortfalls. The application process is quick, and most applicants can complete the application in an hour. If approved, you get the money within days.

Be aware that you will pay for the convenience of the fast processing time. These loans are expensive. A typical loan from an online source costs about the same as taking a cash advance from your credit card. The average interest rate on one of these loans can be as much as twice that of a traditional bank loan.

Method 2 Applying for Grants.

1. Compare grants with debt financing. Like a loan, a grant is typically a one-time infusion of cash. Unlike a loan, however, you do not have to pay back the money. You can think of a grant as free money. But it can be trickier to qualify for a grant than for a loan. Typically, grants are awarded to businesses that meet special criteria. For example, non-profits, minority- or women-owned businesses and those that perform highly-technical research and development activities often qualify for grant money.

2. Find out if you qualify for federal grant money. The federal government does not give grants for starting or growing a small business. Some businesses do receive federal grant money if they are involved in something related to a policy initiative. For example, the Small Business Administration (SBA) can sometimes make grants to non-profits for education and training. Also, federal grants sometimes fund medical research, science, education and highly-technical research and development activities.

SBA grants for non-profits are announced on grants.gov.

Businesses qualifying for specific initiative grants authorized by Congress will be notified.

U.S. government's Small Business Innovation Research (SBIR) program and its Small Business Technology Transfer (STTR) programs offer grants for high-tech research and development. You can find out about these grants at SBIR.gov.

3. Find state and local grants. State and local governments sometimes offer grants to specific kinds of businesses. For example, some states offer grants for expanding child care facilities. Other initiatives for which you may find state grants include developing energy-efficient technology and creating marketing for tourism. You usually are required to match funds if you receive one of these grants. Also, the grants are typically small, so you may have to seek other forms of financing, such as a loan.

4. Apply for grants for women- or minority-owned businesses. Most states offer grants for women- or minority-owned businesses. Also, federal agencies assist women and minorities to find funding to start or expand their businesses. Finally, private funding sources are available for women- and minority-owned businesses.

Go to the business section of your state's website to find available grants. Here you will also find information about any incentives or programs your state has available for your business.

Visit the Minority Business Development Agency (MBDA) at mbda.gov. This agency is run by the U.S. Department of Commerce, and it helps minorities and women to establish and expand their businesses. Here you can research grants and find links to state funding for your business.

Private companies that fund grants for women-owned businesses include Huggies, Chase Google, InnovateHER, Fedex, Idea Cafe, the Woman Veteran Entrepreneur Corp (WVEC), Walmart and Zion's Bank.

Private companies that offer grants for minority-owned businesses include Fedex, the National Association for the Self Employed (NASE), Miller Lite and Huggies.[15]

Method 3 Finding Investors.

1. Compare investments with other types of financing. Investments are similar to grants in that they do not have to be paid back. However, they are different from grants in that the investor contributes to the company in exchange for shares, or partial ownership, of the company. This is called equity financing. Companies who choose to find investors are typically young companies that cannot qualify for other types of financing.

2. Find venture capital investments. Venture capital is perfect for businesses that cannot qualify for traditional financing either because of their small size, early stage of development or lack of equity capital. Venture capital funds invest cash in exchange for shares in your business and an active role in running the business. These investors target young, high-growth companies. This is typically a long-term commitment that gives young companies time to grow into profitable businesses.

Find venture capital funds through the Small Business Investment Program (SBIC). This program is administered by the SBA. It licenses private funds as SBICs and links them to businesses seeking equity financing. You can find the list of licensed funds by state at www.sba.gov/content/sbic-directory.

Each venture fund is a private company with its own application process. In general, the fund begins by reviewing your business plan. Then it does due diligence on your business to evaluate the worth of the investment. If the fund decides to invest, it will take an active role in running the business with you. As your company meets milestones, more financing may be available. Venture funds typically exit the investment after four to six years via mergers, acquisitions or Initial Public Offerings (IPOs).

3. Seek an angel investor. Angel investors are high-net-worth individuals who seek lucrative investments in young, high-growth businesses. These investors may be doctors, lawyers or former entrepreneurs. The Securities and Exchange Commission (SEC) has established specific criteria for accrediting angel investors.

According to the SEC, angel investors must have a net worth of at least $1 million and make $200,000 a year (or $300,000 a year jointly with a spouse).

Angel investors give you money in exchange for shares in your company. This exchange must be registered with the SEC.

Find angel investors through networking with your local Chamber of Commerce or Small Business Development Center. Also, a trusted lawyer or accountant may be able to link you to an angel investor.

Find angel investors online at the Angel Capital Association (ACA), AngelList and MicroVentures.

4. Ask friends and family. You may have friends or family members who are willing to invest in your business. Be very careful about making this choice. Unless they are already wealthy, sophisticated investors, they may not understand the risk involved. If your business fails, you cannot easily shut it down and walk away if friends and family are partial owners. Before accepting their money, make sure they understand how easily it can be lost.

December 19, 2019

how to choose business financing

How to Choose Business Financing.

Every business needs funding for a variety of reasons, including startup, operations, equipment and project completion. Finance for business is a complex subject that must be approached from a variety of angles. There are many business financing options, some of which may or may not be right for your particular needs. In order to evaluate your situation and determine which finance avenues to pursue, there is a variety of factors to consider. Follow these guidelines to choose business financing.

Method 1 Arranging for a Loan.

1. Compare loans with other types of financing. Loans are a type of debt financing. This means that you have to pay the money back, plus interest. Loans are typically offered by banks, credit unions or other financial institutions. Businesses that typically qualify for loans have a strong business plan, favorable business credit rating and a fair amount of equity capital.

Equity capital is the current market value of everything the company owns less any liabilities owed by the company.

Lenders are sometimes hesitant to give loans to companies without a lot of equity capital. Without equity capital, businesses don't have much collateral to put up for a loan. Also, revenues earned by the business will go toward repaying the debt instead of growing the business.

2. Get a line of credit from a bank. A line of credit is different from a typical loan in that it doesn't give you a lump sum of cash. Rather, like a credit card, you withdraw from the available credit any time you need it. You only withdraw as much as you need. This gives you control over the amount of interest expense you will have to pay. A line of credit can help you control your cash flow as your expenses or income ebb and flow.

To qualify for a line of credit, be prepared to submit financial statements, personal tax returns, business tax returns, bank account information and business registration documents.

Annual reviews are required to maintain your line of credit.

3. Obtain a business loan from a bank. A business loan is like any other kind of term loan. Business loans come with fixed interest rates. You make monthly payments over a period of years until the loan is paid off. Unlike a line of credit, a term loan gives you a lump sum of cash up front. Businesses who are expanding their space or funding other large investments can benefit from a term business loan.

Before making a loan, lenders want to know what the loan is for and how you will spend the money. Be prepared to demonstrate that the loan is for a sound financial purpose.

Different lenders require different documents. In general, be prepared to produce: your personal and business credit history; personal and business financial statements for existing and startup businesses; projected financial statements; a strong, detailed business plan; cash flow projections for at least a year; and personal guaranties from all principal owners of the business.

Large banks tend to avoid working with small businesses. They don't want to do all of the work to underwrite a small loan that won't make a large profit for them.

Local banks with whom you already have done business or credit unions may be more willing to work with small businesses.

4. Apply for a commercial loan. A commercial loan is similar to a home equity loan. It is for businesses that own commercial real estate. You borrow against the equity you have in the commercial real estate you own. The amount you can borrow depends on the value of your property and how much equity you have.

Commercial loans are not backed by government entities like Fannie Mae, so lenders see these loans as risky. Therefore, they tend to charge higher interest rates for them. Also lenders scrutinize the business more closely as well as the real estate that will serve as collateral for the loan.

5. Request a Small Business Association (SBA) loan. These loans are given by participating banks and are guaranteed by the SBA. They are for businesses that might have trouble getting a traditional bank loan. The SBA guarantees a portion of your loan to repay if you default on your payments. Find a bank that works with SBA loans by visiting www.sba.gov/lenders-top-100. Use the application checklist (www.sba.gov/content/sba-loan-application-checklist) to make sure you have all of the necessary documentation.

SBA loans for starting and expanding a business include the Basic 7(a) Loan Program, the Certified Development Company (CDC) 504 Loan Program and the Microloan Program.

SBA also offers disaster assistance loans for businesses in a declared disaster area and economic injury loans for businesses that have suffered a physical or agricultural production disaster.

Export assistance loans help exporters obtain financing to support exporting activities or to compete if they have been adversely affected by competition from imports.

Veteran and military community loans help businesses meet expenses when an essential employee has been called up on active duty.

Other special purpose loans include CAPlines, which help businesses purchase capital equipment, pollution control loans for pollution control facilities, and the U.S. Community Adjustment And Investment Program (CAIP), for businesses that have been adversely affected by the North American Free Trade Agreement (NAFTA).

6. Work with state and local economic development agencies. Economic development agencies exist in every state and in some local municipalities. They provide low-interest loans to businesses that might not qualify for traditional bank loans. In addition to financial services, these agencies provide startup advice, training, business location selection assistance and employee recruitment and training assistance. You can find the economic development agency in your state by visiting www.sba.gov/content/economic-development-agencies. You can also contact your city or county government office to find out about their economic development programs.

Each agency has its own application process. However many require the same basic documentation. Gather the following information.

A loan application form that details why you are applying for the loan and how you will use the money.

Your resume gives lenders information about your expertise in the field.

All lenders will require a sound business plan. For help with writing your business plan, visit www.sba.gov/writing-business-plan.

Your business credit report gives lenders information about your credit worthiness.

Be prepared to submit your business and personal tax returns for the past three years.

Prepare historical financial statements, including your balance sheet, income statement, cash flow statement and bank statements. You may also be asked to submit projected financial statements.

Be able to demonstrate your business' current financial position with accounts receivable and accounts payable information.

You may need to put up collateral, especially if you cannot provide strong financial statements.

Gather important legal documents, including your business license, articles of incorporation, third party contracts, franchise agreements and commercial leases.

7. Consider online lending. Online lending services include Kabbage and OnDeck. These loans are for businesses who want small, short-term loans. Businesses turn to these lenders to handle short-term cash flow shortfalls. The application process is quick, and most applicants can complete the application in an hour. If approved, you get the money within days.

Be aware that you will pay for the convenience of the fast processing time. These loans are expensive. A typical loan from an online source costs about the same as taking a cash advance from your credit card. The average interest rate on one of these loans can be as much as twice that of a traditional bank loan.

Method 2 Applying for Grants.

1. Compare grants with debt financing. Like a loan, a grant is typically a one-time infusion of cash. Unlike a loan, however, you do not have to pay back the money. You can think of a grant as free money. But it can be trickier to qualify for a grant than for a loan. Typically, grants are awarded to businesses that meet special criteria. For example, non-profits, minority- or women-owned businesses and those that perform highly-technical research and development activities often qualify for grant money.

2. Find out if you qualify for federal grant money. The federal government does not give grants for starting or growing a small business. Some businesses do receive federal grant money if they are involved in something related to a policy initiative. For example, the Small Business Administration (SBA) can sometimes make grants to non-profits for education and training. Also, federal grants sometimes fund medical research, science, education and highly-technical research and development activities.

SBA grants for non-profits are announced on grants.gov.

Businesses qualifying for specific initiative grants authorized by Congress will be notified.

U.S. government's Small Business Innovation Research (SBIR) program and its Small Business Technology Transfer (STTR) programs offer grants for high-tech research and development. You can find out about these grants at SBIR.gov.

3. Find state and local grants. State and local governments sometimes offer grants to specific kinds of businesses. For example, some states offer grants for expanding child care facilities. Other initiatives for which you may find state grants include developing energy-efficient technology and creating marketing for tourism. You usually are required to match funds if you receive one of these grants. Also, the grants are typically small, so you may have to seek other forms of financing, such as a loan.

4. Apply for grants for women- or minority-owned businesses. Most states offer grants for women- or minority-owned businesses. Also, federal agencies assist women and minorities to find funding to start or expand their businesses. Finally, private funding sources are available for women- and minority-owned businesses.

Go to the business section of your state's website to find available grants. Here you will also find information about any incentives or programs your state has available for your business.

Visit the Minority Business Development Agency (MBDA) at mbda.gov. This agency is run by the U.S. Department of Commerce, and it helps minorities and women to establish and expand their businesses. Here you can research grants and find links to state funding for your business.

Private companies that fund grants for women-owned businesses include Huggies, Chase Google, InnovateHER, Fedex, Idea Cafe, the Woman Veteran Entrepreneur Corp (WVEC), Walmart and Zion's Bank.

Private companies that offer grants for minority-owned businesses include Fedex, the National Association for the Self Employed (NASE), Miller Lite and Huggies.[15]

Method 3 Finding Investors.

1. Compare investments with other types of financing. Investments are similar to grants in that they do not have to be paid back. However, they are different from grants in that the investor contributes to the company in exchange for shares, or partial ownership, of the company. This is called equity financing. Companies who choose to find investors are typically young companies that cannot qualify for other types of financing.

2. Find venture capital investments. Venture capital is perfect for businesses that cannot qualify for traditional financing either because of their small size, early stage of development or lack of equity capital. Venture capital funds invest cash in exchange for shares in your business and an active role in running the business. These investors target young, high-growth companies. This is typically a long-term commitment that gives young companies time to grow into profitable businesses.

Find venture capital funds through the Small Business Investment Program (SBIC). This program is administered by the SBA. It licenses private funds as SBICs and links them to businesses seeking equity financing. You can find the list of licensed funds by state at www.sba.gov/content/sbic-directory.

Each venture fund is a private company with its own application process. In general, the fund begins by reviewing your business plan. Then it does due diligence on your business to evaluate the worth of the investment. If the fund decides to invest, it will take an active role in running the business with you. As your company meets milestones, more financing may be available. Venture funds typically exit the investment after four to six years via mergers, acquisitions or Initial Public Offerings (IPOs).

3. Seek an angel investor. Angel investors are high-net-worth individuals who seek lucrative investments in young, high-growth businesses. These investors may be doctors, lawyers or former entrepreneurs. The Securities and Exchange Commission (SEC) has established specific criteria for accrediting angel investors.

According to the SEC, angel investors must have a net worth of at least $1 million and make $200,000 a year (or $300,000 a year jointly with a spouse).

Angel investors give you money in exchange for shares in your company. This exchange must be registered with the SEC.

Find angel investors through networking with your local Chamber of Commerce or Small Business Development Center. Also, a trusted lawyer or accountant may be able to link you to an angel investor.

Find angel investors online at the Angel Capital Association (ACA), AngelList and MicroVentures.

4. Ask friends and family. You may have friends or family members who are willing to invest in your business. Be very careful about making this choice. Unless they are already wealthy, sophisticated investors, they may not understand the risk involved. If your business fails, you cannot easily shut it down and walk away if friends and family are partial owners. Before accepting their money, make sure they understand how easily it can be lost.

December 18, 2019

How to Choose Business Financing

How to Choose Business Financing.

Every business needs funding for a variety of reasons, including startup, operations, equipment and project completion. Finance for business is a complex subject that must be approached from a variety of angles. There are many business financing options, some of which may or may not be right for your particular needs. In order to evaluate your situation and determine which finance avenues to pursue, there is a variety of factors to consider. Follow these guidelines to choose business financing.



Method 1 Arranging for a Loan.

1. Compare loans with other types of financing. Loans are a type of debt financing. This means that you have to pay the money back, plus interest. Loans are typically offered by banks, credit unions or other financial institutions. Businesses that typically qualify for loans have a strong business plan, favorable business credit rating and a fair amount of equity capital.

Equity capital is the current market value of everything the company owns less any liabilities owed by the company.

Lenders are sometimes hesitant to give loans to companies without a lot of equity capital. Without equity capital, businesses don't have much collateral to put up for a loan. Also, revenues earned by the business will go toward repaying the debt instead of growing the business.

2. Get a line of credit from a bank. A line of credit is different from a typical loan in that it doesn't give you a lump sum of cash. Rather, like a credit card, you withdraw from the available credit any time you need it. You only withdraw as much as you need. This gives you control over the amount of interest expense you will have to pay. A line of credit can help you control your cash flow as your expenses or income ebb and flow.

To qualify for a line of credit, be prepared to submit financial statements, personal tax returns, business tax returns, bank account information and business registration documents.

Annual reviews are required to maintain your line of credit.

3. Obtain a business loan from a bank. A business loan is like any other kind of term loan. Business loans come with fixed interest rates. You make monthly payments over a period of years until the loan is paid off. Unlike a line of credit, a term loan gives you a lump sum of cash up front. Businesses who are expanding their space or funding other large investments can benefit from a term business loan.

Before making a loan, lenders want to know what the loan is for and how you will spend the money. Be prepared to demonstrate that the loan is for a sound financial purpose.

Different lenders require different documents. In general, be prepared to produce: your personal and business credit history; personal and business financial statements for existing and startup businesses; projected financial statements; a strong, detailed business plan; cash flow projections for at least a year; and personal guaranties from all principal owners of the business.

Large banks tend to avoid working with small businesses. They don't want to do all of the work to underwrite a small loan that won't make a large profit for them.

Local banks with whom you already have done business or credit unions may be more willing to work with small businesses.

4. Apply for a commercial loan. A commercial loan is similar to a home equity loan. It is for businesses that own commercial real estate. You borrow against the equity you have in the commercial real estate you own. The amount you can borrow depends on the value of your property and how much equity you have.

Commercial loans are not backed by government entities like Fannie Mae, so lenders see these loans as risky. Therefore, they tend to charge higher interest rates for them. Also lenders scrutinize the business more closely as well as the real estate that will serve as collateral for the loan.

5. Request a Small Business Association (SBA) loan. These loans are given by participating banks and are guaranteed by the SBA. They are for businesses that might have trouble getting a traditional bank loan. The SBA guarantees a portion of your loan to repay if you default on your payments. Find a bank that works with SBA loans by visiting www.sba.gov/lenders-top-100. Use the application checklist (www.sba.gov/content/sba-loan-application-checklist) to make sure you have all of the necessary documentation.

SBA loans for starting and expanding a business include the Basic 7(a) Loan Program, the Certified Development Company (CDC) 504 Loan Program and the Microloan Program.

SBA also offers disaster assistance loans for businesses in a declared disaster area and economic injury loans for businesses that have suffered a physical or agricultural production disaster.

Export assistance loans help exporters obtain financing to support exporting activities or to compete if they have been adversely affected by competition from imports.

Veteran and military community loans help businesses meet expenses when an essential employee has been called up on active duty.

Other special purpose loans include CAPlines, which help businesses purchase capital equipment, pollution control loans for pollution control facilities, and the U.S. Community Adjustment And Investment Program (CAIP), for businesses that have been adversely affected by the North American Free Trade Agreement (NAFTA).

6. Work with state and local economic development agencies. Economic development agencies exist in every state and in some local municipalities. They provide low-interest loans to businesses that might not qualify for traditional bank loans. In addition to financial services, these agencies provide startup advice, training, business location selection assistance and employee recruitment and training assistance. You can find the economic development agency in your state by visiting www.sba.gov/content/economic-development-agencies. You can also contact your city or county government office to find out about their economic development programs.

Each agency has its own application process. However many require the same basic documentation. Gather the following information.

A loan application form that details why you are applying for the loan and how you will use the money.

Your resume gives lenders information about your expertise in the field.

All lenders will require a sound business plan. For help with writing your business plan, visit www.sba.gov/writing-business-plan.

Your business credit report gives lenders information about your credit worthiness.

Be prepared to submit your business and personal tax returns for the past three years.

Prepare historical financial statements, including your balance sheet, income statement, cash flow statement and bank statements. You may also be asked to submit projected financial statements.

Be able to demonstrate your business' current financial position with accounts receivable and accounts payable information.

You may need to put up collateral, especially if you cannot provide strong financial statements.

Gather important legal documents, including your business license, articles of incorporation, third party contracts, franchise agreements and commercial leases.

7. Consider online lending. Online lending services include Kabbage and OnDeck. These loans are for businesses who want small, short-term loans. Businesses turn to these lenders to handle short-term cash flow shortfalls. The application process is quick, and most applicants can complete the application in an hour. If approved, you get the money within days.

Be aware that you will pay for the convenience of the fast processing time. These loans are expensive. A typical loan from an online source costs about the same as taking a cash advance from your credit card. The average interest rate on one of these loans can be as much as twice that of a traditional bank loan.



Method 2 Applying for Grants.

1. Compare grants with debt financing. Like a loan, a grant is typically a one-time infusion of cash. Unlike a loan, however, you do not have to pay back the money. You can think of a grant as free money. But it can be trickier to qualify for a grant than for a loan. Typically, grants are awarded to businesses that meet special criteria. For example, non-profits, minority- or women-owned businesses and those that perform highly-technical research and development activities often qualify for grant money.

2. Find out if you qualify for federal grant money. The federal government does not give grants for starting or growing a small business. Some businesses do receive federal grant money if they are involved in something related to a policy initiative. For example, the Small Business Administration (SBA) can sometimes make grants to non-profits for education and training. Also, federal grants sometimes fund medical research, science, education and highly-technical research and development activities.

SBA grants for non-profits are announced on grants.gov.

Businesses qualifying for specific initiative grants authorized by Congress will be notified.

U.S. government's Small Business Innovation Research (SBIR) program and its Small Business Technology Transfer (STTR) programs offer grants for high-tech research and development. You can find out about these grants at SBIR.gov.

3. Find state and local grants. State and local governments sometimes offer grants to specific kinds of businesses. For example, some states offer grants for expanding child care facilities. Other initiatives for which you may find state grants include developing energy-efficient technology and creating marketing for tourism. You usually are required to match funds if you receive one of these grants. Also, the grants are typically small, so you may have to seek other forms of financing, such as a loan.

4. Apply for grants for women- or minority-owned businesses. Most states offer grants for women- or minority-owned businesses. Also, federal agencies assist women and minorities to find funding to start or expand their businesses. Finally, private funding sources are available for women- and minority-owned businesses.

Go to the business section of your state's website to find available grants. Here you will also find information about any incentives or programs your state has available for your business.

Visit the Minority Business Development Agency (MBDA) at mbda.gov. This agency is run by the U.S. Department of Commerce, and it helps minorities and women to establish and expand their businesses. Here you can research grants and find links to state funding for your business.

Private companies that fund grants for women-owned businesses include Huggies, Chase Google, InnovateHER, Fedex, Idea Cafe, the Woman Veteran Entrepreneur Corp (WVEC), Walmart and Zion's Bank.

Private companies that offer grants for minority-owned businesses include Fedex, the National Association for the Self Employed (NASE), Miller Lite and Huggies.



Method 3 Finding Investors.

1. Compare investments with other types of financing. Investments are similar to grants in that they do not have to be paid back. However, they are different from grants in that the investor contributes to the company in exchange for shares, or partial ownership, of the company. This is called equity financing. Companies who choose to find investors are typically young companies that cannot qualify for other types of financing.

2. Find venture capital investments. Venture capital is perfect for businesses that cannot qualify for traditional financing either because of their small size, early stage of development or lack of equity capital. Venture capital funds invest cash in exchange for shares in your business and an active role in running the business. These investors target young, high-growth companies. This is typically a long-term commitment that gives young companies time to grow into profitable businesses.

Find venture capital funds through the Small Business Investment Program (SBIC). This program is administered by the SBA. It licenses private funds as SBICs and links them to businesses seeking equity financing. You can find the list of licensed funds by state at www.sba.gov/content/sbic-directory.

Each venture fund is a private company with its own application process. In general, the fund begins by reviewing your business plan. Then it does due diligence on your business to evaluate the worth of the investment. If the fund decides to invest, it will take an active role in running the business with you. As your company meets milestones, more financing may be available. Venture funds typically exit the investment after four to six years via mergers, acquisitions or Initial Public Offerings (IPOs).

3. Seek an angel investor. Angel investors are high-net-worth individuals who seek lucrative investments in young, high-growth businesses. These investors may be doctors, lawyers or former entrepreneurs. The Securities and Exchange Commission (SEC) has established specific criteria for accrediting angel investors.

According to the SEC, angel investors must have a net worth of at least $1 million and make $200,000 a year (or $300,000 a year jointly with a spouse).

Angel investors give you money in exchange for shares in your company. This exchange must be registered with the SEC.

Find angel investors through networking with your local Chamber of Commerce or Small Business Development Center. Also, a trusted lawyer or accountant may be able to link you to an angel investor.

Find angel investors online at the Angel Capital Association (ACA), AngelList and MicroVentures.

4. Ask friends and family. You may have friends or family members who are willing to invest in your business. Be very careful about making this choice. Unless they are already wealthy, sophisticated investors, they may not understand the risk involved. If your business fails, you cannot easily shut it down and walk away if friends and family are partial owners. Before accepting their money, make sure they understand how easily it can be lost.

February 10, 2020

how to choose business financing

How to Choose Business Financing.

Every business needs funding for a variety of reasons, including startup, operations, equipment and project completion. Finance for business is a complex subject that must be approached from a variety of angles. There are many business financing options, some of which may or may not be right for your particular needs. In order to evaluate your situation and determine which finance avenues to pursue, there is a variety of factors to consider. Follow these guidelines to choose business financing.



Method 1 Arranging for a Loan.

1. Compare loans with other types of financing. Loans are a type of debt financing. This means that you have to pay the money back, plus interest. Loans are typically offered by banks, credit unions or other financial institutions. Businesses that typically qualify for loans have a strong business plan, favorable business credit rating and a fair amount of equity capital.

Equity capital is the current market value of everything the company owns less any liabilities owed by the company.

Lenders are sometimes hesitant to give loans to companies without a lot of equity capital. Without equity capital, businesses don't have much collateral to put up for a loan. Also, revenues earned by the business will go toward repaying the debt instead of growing the business.

2. Get a line of credit from a bank. A line of credit is different from a typical loan in that it doesn't give you a lump sum of cash. Rather, like a credit card, you withdraw from the available credit any time you need it. You only withdraw as much as you need. This gives you control over the amount of interest expense you will have to pay. A line of credit can help you control your cash flow as your expenses or income ebb and flow.

To qualify for a line of credit, be prepared to submit financial statements, personal tax returns, business tax returns, bank account information and business registration documents.

Annual reviews are required to maintain your line of credit.

3. Obtain a business loan from a bank. A business loan is like any other kind of term loan. Business loans come with fixed interest rates. You make monthly payments over a period of years until the loan is paid off. Unlike a line of credit, a term loan gives you a lump sum of cash up front. Businesses who are expanding their space or funding other large investments can benefit from a term business loan.

Before making a loan, lenders want to know what the loan is for and how you will spend the money. Be prepared to demonstrate that the loan is for a sound financial purpose.

Different lenders require different documents. In general, be prepared to produce: your personal and business credit history; personal and business financial statements for existing and startup businesses; projected financial statements; a strong, detailed business plan; cash flow projections for at least a year; and personal guaranties from all principal owners of the business.

Large banks tend to avoid working with small businesses. They don't want to do all of the work to underwrite a small loan that won't make a large profit for them.

Local banks with whom you already have done business or credit unions may be more willing to work with small businesses.

4. Apply for a commercial loan. A commercial loan is similar to a home equity loan. It is for businesses that own commercial real estate. You borrow against the equity you have in the commercial real estate you own. The amount you can borrow depends on the value of your property and how much equity you have.

Commercial loans are not backed by government entities like Fannie Mae, so lenders see these loans as risky. Therefore, they tend to charge higher interest rates for them. Also lenders scrutinize the business more closely as well as the real estate that will serve as collateral for the loan.

5. Request a Small Business Association (SBA) loan. These loans are given by participating banks and are guaranteed by the SBA. They are for businesses that might have trouble getting a traditional bank loan. The SBA guarantees a portion of your loan to repay if you default on your payments. Find a bank that works with SBA loans by visiting www.sba.gov/lenders-top-100. Use the application checklist (www.sba.gov/content/sba-loan-application-checklist) to make sure you have all of the necessary documentation.

SBA loans for starting and expanding a business include the Basic 7(a) Loan Program, the Certified Development Company (CDC) 504 Loan Program and the Microloan Program.

SBA also offers disaster assistance loans for businesses in a declared disaster area and economic injury loans for businesses that have suffered a physical or agricultural production disaster.

Export assistance loans help exporters obtain financing to support exporting activities or to compete if they have been adversely affected by competition from imports.

Veteran and military community loans help businesses meet expenses when an essential employee has been called up on active duty.

Other special purpose loans include CAPlines, which help businesses purchase capital equipment, pollution control loans for pollution control facilities, and the U.S. Community Adjustment And Investment Program (CAIP), for businesses that have been adversely affected by the North American Free Trade Agreement (NAFTA).

6. Work with state and local economic development agencies. Economic development agencies exist in every state and in some local municipalities. They provide low-interest loans to businesses that might not qualify for traditional bank loans. In addition to financial services, these agencies provide startup advice, training, business location selection assistance and employee recruitment and training assistance. You can find the economic development agency in your state by visiting www.sba.gov/content/economic-development-agencies. You can also contact your city or county government office to find out about their economic development programs.

Each agency has its own application process. However many require the same basic documentation. Gather the following information.

A loan application form that details why you are applying for the loan and how you will use the money.

Your resume gives lenders information about your expertise in the field.

All lenders will require a sound business plan. For help with writing your business plan, visit www.sba.gov/writing-business-plan.

Your business credit report gives lenders information about your credit worthiness.

Be prepared to submit your business and personal tax returns for the past three years.

Prepare historical financial statements, including your balance sheet, income statement, cash flow statement and bank statements. You may also be asked to submit projected financial statements.

Be able to demonstrate your business' current financial position with accounts receivable and accounts payable information.

You may need to put up collateral, especially if you cannot provide strong financial statements.

Gather important legal documents, including your business license, articles of incorporation, third party contracts, franchise agreements and commercial leases.

7. Consider online lending. Online lending services include Kabbage and OnDeck. These loans are for businesses who want small, short-term loans. Businesses turn to these lenders to handle short-term cash flow shortfalls. The application process is quick, and most applicants can complete the application in an hour. If approved, you get the money within days.

Be aware that you will pay for the convenience of the fast processing time. These loans are expensive. A typical loan from an online source costs about the same as taking a cash advance from your credit card. The average interest rate on one of these loans can be as much as twice that of a traditional bank loan.



Method 2 Applying for Grants.

1. Compare grants with debt financing. Like a loan, a grant is typically a one-time infusion of cash. Unlike a loan, however, you do not have to pay back the money. You can think of a grant as free money. But it can be trickier to qualify for a grant than for a loan. Typically, grants are awarded to businesses that meet special criteria. For example, non-profits, minority- or women-owned businesses and those that perform highly-technical research and development activities often qualify for grant money.

2. Find out if you qualify for federal grant money. The federal government does not give grants for starting or growing a small business. Some businesses do receive federal grant money if they are involved in something related to a policy initiative. For example, the Small Business Administration (SBA) can sometimes make grants to non-profits for education and training. Also, federal grants sometimes fund medical research, science, education and highly-technical research and development activities.

SBA grants for non-profits are announced on grants.gov.

Businesses qualifying for specific initiative grants authorized by Congress will be notified.

U.S. government's Small Business Innovation Research (SBIR) program and its Small Business Technology Transfer (STTR) programs offer grants for high-tech research and development. You can find out about these grants at SBIR.gov.

3. Find state and local grants. State and local governments sometimes offer grants to specific kinds of businesses. For example, some states offer grants for expanding child care facilities. Other initiatives for which you may find state grants include developing energy-efficient technology and creating marketing for tourism. You usually are required to match funds if you receive one of these grants. Also, the grants are typically small, so you may have to seek other forms of financing, such as a loan.

4. Apply for grants for women- or minority-owned businesses. Most states offer grants for women- or minority-owned businesses. Also, federal agencies assist women and minorities to find funding to start or expand their businesses. Finally, private funding sources are available for women- and minority-owned businesses.

Go to the business section of your state's website to find available grants. Here you will also find information about any incentives or programs your state has available for your business.

Visit the Minority Business Development Agency (MBDA) at mbda.gov. This agency is run by the U.S. Department of Commerce, and it helps minorities and women to establish and expand their businesses. Here you can research grants and find links to state funding for your business.

Private companies that fund grants for women-owned businesses include Huggies, Chase Google, InnovateHER, Fedex, Idea Cafe, the Woman Veteran Entrepreneur Corp (WVEC), Walmart and Zion's Bank.

Private companies that offer grants for minority-owned businesses include Fedex, the National Association for the Self Employed (NASE), Miller Lite and Huggies.



Method 3 Finding Investors.

1. Compare investments with other types of financing. Investments are similar to grants in that they do not have to be paid back. However, they are different from grants in that the investor contributes to the company in exchange for shares, or partial ownership, of the company. This is called equity financing. Companies who choose to find investors are typically young companies that cannot qualify for other types of financing.

2. Find venture capital investments. Venture capital is perfect for businesses that cannot qualify for traditional financing either because of their small size, early stage of development or lack of equity capital. Venture capital funds invest cash in exchange for shares in your business and an active role in running the business. These investors target young, high-growth companies. This is typically a long-term commitment that gives young companies time to grow into profitable businesses.

Find venture capital funds through the Small Business Investment Program (SBIC). This program is administered by the SBA. It licenses private funds as SBICs and links them to businesses seeking equity financing. You can find the list of licensed funds by state at www.sba.gov/content/sbic-directory.

Each venture fund is a private company with its own application process. In general, the fund begins by reviewing your business plan. Then it does due diligence on your business to evaluate the worth of the investment. If the fund decides to invest, it will take an active role in running the business with you. As your company meets milestones, more financing may be available. Venture funds typically exit the investment after four to six years via mergers, acquisitions or Initial Public Offerings (IPOs).

3. Seek an angel investor. Angel investors are high-net-worth individuals who seek lucrative investments in young, high-growth businesses. These investors may be doctors, lawyers or former entrepreneurs. The Securities and Exchange Commission (SEC) has established specific criteria for accrediting angel investors.

According to the SEC, angel investors must have a net worth of at least $1 million and make $200,000 a year (or $300,000 a year jointly with a spouse).

Angel investors give you money in exchange for shares in your company. This exchange must be registered with the SEC.

Find angel investors through networking with your local Chamber of Commerce or Small Business Development Center. Also, a trusted lawyer or accountant may be able to link you to an angel investor.

Find angel investors online at the Angel Capital Association (ACA), AngelList and MicroVentures.

4. Ask friends and family. You may have friends or family members who are willing to invest in your business. Be very careful about making this choice. Unless they are already wealthy, sophisticated investors, they may not understand the risk involved. If your business fails, you cannot easily shut it down and walk away if friends and family are partial owners. Before accepting their money, make sure they understand how easily it can be lost.

February 09, 2020

How to Finance a Used Car

How to Finance a Used Car.

If you need a car and can't afford to buy one with cash, financing is always an option. If you want to finance a used car, you have the choice of getting your own direct financing, or having the dealer obtain financing for you. If you have a low credit score, "Buy Here Pay Here" lots may be your only option, but should only be used as a last resort.


Method 1 Getting a Direct Loan.

1. Request a copy of your credit report. Knowing your credit score will give you a good idea of what kind of rates and terms you'll potentially be offered. In the United States, you're entitled to one free copy of your credit report every year.

Check your report for errors or inaccuracies that could be affecting your credit score.

If you have a credit score of 680 or above, you're a prime borrower and should be able to get the best possible rates. The higher your score, the lower the rate you can potentially negotiate with lenders.

2. Contact local banks and credit unions. If you have had a credit or savings account with the same bank for a number of years, start there when looking for a direct car loan. Your history as a customer may get you better rates.

Branch out to other banks in your area. Credit unions often have more forgiving loan terms and fewer restrictions.

Banks typically won't do a direct car loan for a car purchased from a private owner or an independent dealership. In those situations, you may need to try to take out a personal loan. This is also true if you're buying a collector or exotic car.

3. Try online lenders. If you're not a prime borrower, it's still possible to get a direct loan for a used car. There are a number of online lenders who are willing to finance used cars for people with less than stellar credit.

Since online lenders have less overhead, they typically will offer you a lower rate than you could get from a brick-and-mortar bank or credit union.

These loans may come with more restrictions than the direct loan you could get from a bank with better credit. For example, they may not finance cars more than five years old, or cars with over 100,000 miles.

4. Get rates from multiple lenders. Before you choose a loan, apply for several so you can compare the rates offered. Many banks and lending companies have a pre-approval process that won't affect your credit.

Multiple offers may give you the opportunity to negotiate for a better deal. For example, if you got a better rate from a different bank than from your own bank, you could get your bank to match that rate to get your business.

5. Complete a loan application. Once you've decided which lender you want to use for your financing, you'll typically have to fill out a full loan application. Many lenders give you the option to complete the application online.

You'll need to provide basic identification information, such as your driver's license and Social Security numbers. You also may need to provide basic financial information regarding your income and debts.

If you've had some credit problems in the past, you may want to go into a bank and apply for the loan in person so you can talk to a lending agent.

Your loan agreement will include basic requirements that the car must meet. As long as the car meets these requirements, you can use the financing to purchase the car.

6. Negotiate with the dealer. In most cases, you're going to secure direct or "blank check" financing before you find the specific car you want to buy. Having financing already secured puts you in a stronger position to get the best price from the dealer.

When you bring your own financing, you're saving the dealer a lot of costs. Ask if there's a discount available for that.

Since you're buying a used car, have it inspected before you buy it and go over the car's history. The car is a better buy if it's had fewer owners and never been in an accident.

7. Give the dealer your blank check. Lender policies vary, but in most cases you'll get a check for the exact amount of your car, or a blank check that's worth any amount up to the maximum amount your lender has approved.

When you buy a car using direct financing, you still must maintain full coverage insurance on the car. Your loan agreement will include information on the minimum amounts of coverage you must maintain.


Method 2 Using Dealer Financing.

1. Research interest rates. Dealers have special financing offers available throughout the year. Especially if you're not picky about the make or model of your car, shop around and see who has the best deal.

Know your credit score and how qualified you are for different offers. Typically the best offers are only available for prime borrowers with credit in the 700s or higher.

If you're trading in an old car, look for dealer offers to double the price on a trade-in, or pay a minimum amount for any trade-in regardless of its condition.

2. Choose your car. If you've done your research, you have a few dealerships in mind. You should be able to evaluate their inventory online before you go visit in person. Find the best car for you, looking at overall price.

Dealers may advertise monthly payment amounts rather than total price. This can be a way to charge you a higher interest rate.

Dealers typically will finance any car on their lot, so you may have more variety to choose from if you use dealer financing than you would if you used direct financing. However, this might not necessarily be a good thing – you still need to check the car's history and have it inspected before you buy.

3. Offer a sizable down payment. Cars depreciate in value. If you're buying a used car, you want to finance as little of the total price of the car as possible. A down payment of 10 to 20 percent of the purchase price of the car typically will get you the best rates.

A sizable down payment can help you avoid being underwater on your loan – meaning you owe more for the car than it is worth. This is particularly important to avoid when you're financing a used car, which could develop mechanical problems relatively quickly.

4. Apply for financing through the dealer. You'll need basic identification information as well as information about your income and employment to complete the financing application at the dealership.

It may take a few minutes, but in most cases the dealer will have a financing offer available for you that day. Then they'll call you back into an office to discuss the terms you've been offered.

The finance company may require additional documents from you, such as pay stubs to verify income. If the dealer mentions any of these, make sure you get copies to the dealer as soon as possible so as not to jeopardize your financing offer.

5. Negotiate the deal. If you've done your research and know your credit score, you may be able to get better terms from the dealer than what you're initially offered. Review each term and see if you can improve it.

For example, you typically want the shortest term loan, since it will usually have the lowest interest rates. But dealers often focus on the amount of the monthly payment. Financing for a shorter term does mean a higher monthly payment, but it will save you money overall.

6. Use cash for extras. Dealers tend to tack on extra fees, including sales tax, registration fees, and document or destination fees. You also may end up paying extra for dealer warranties, especially for a used car.

The dealer typically has no problem rolling these extra fees into your financing, but there's no point in paying interest on fees and tax. Pay that out of pocket if you can.


Method 3 Using "Buy Here Pay Here" Financing

1. Exhaust all other options. If you need a car and have had credit problems or have an extremely low credit score, BHPH financing is available for you. However, due to the high rates you should consider this only as a last resort.

There are some franchised dealerships, particularly Ford and Chevy dealerships, who are willing to work with customers who have bad credit. It may be possible for you to get a loan there. It wouldn't be the best rates, but it you would still pay less than you would at a BHPH lot.

If you have a relative with a good credit score, you might find out if they are willing to co-sign on the loan with you. That could get you a better rate or make traditional lenders more willing to work with you. This option can be especially valuable if you're young and don't have much, if any, credit history.

2. Ask if the dealer reports to credit bureaus. Because BHPH lots finance the car themselves, they don't always report to credit bureaus. If you have bad credit or no credit, you want the payments you make for your car reported so you can start to rebuild your credit.

You may have to visit several lots before you find one that reports to credit bureaus, but be persistent.

3. Research the car thoroughly. Any car you buy from a BHPH lot typically is sold "as is." Some of these cars may have mechanical problems, and the lot may not be required to disclose those problems before you buy the car.

Demand a Carfax or similar car history report so you can see how many owners the car has had and whether it's been in an accident. These lots typically have older cars, so they've likely had several owners – but a car that's changed hands several times in the past few years may be a red flag.

Take the car to a reputable mechanic before you buy it and have them conduct a thorough inspection. If there are any major repairs that need to be made, you may be able to convince the lot to make those repairs before you purchase the car.

4. Negotiate with the dealer. BHPH dealers often present the price of a car – and the financing terms – as though they are non-negotiable, but that's typically not true. Even though you may not be in the best bargaining position, you can still try to get a better deal.

The more of a down payment you can make, the better your terms typically will be. These lots often specialize in low down payments, but that doesn't mean you can't pay more.

If you're buying a car at a BHPH lot, your down payment should be as high as possible to keep you from ending up underwater – try to aim for somewhere between 40 and 60 percent down.

5.
Make your payments on time. You typically won't have to make payments for a long term, but it's essential to make every payment on time if you want to rebuild your credit. Some BHPH lots will repossess a car after as few as one missed payment.

Some BHPH lots require you to make a trip to the lot with your payment. Depending on how the financing is structured, you may be required to make weekly or bi-monthly payments. If you have a checking account and the lot offers automatic payments, sign up for them so you won't have to worry about it.

At most BHPH lots, you won't pay any less if you pay the loan off early. Ask about this when you buy the car. If the lot is reporting to the credit bureau and you won't save any money by paying the loan off early, just keep making the payments on time. All those payments will reflect well on your credit score.

November 22, 2019