Banking Guide
Financing
► What can I do to raise money for my small business?
Although the process is complex and frustrating, raising capital is the most basic of all business activities. When looking for financing, there are various sources to consider. For most new businesses, the main source of capital comes from savings and other forms of personal resources. There are better options available than credit cards that are often used for financing, even a small business loan.
When beginning, entrepreneurs usually look to private sources like friends and family. Generally, the money is loaned at a low interest rate or interest free, which is very beneficial at the beginning.
The most common source of funding, not including personal resources, are credit unions and banks who will provide a loan if it is possible to show that your offer is worthwhile. Other sources are venture capital firms that aid businesses in exchange for partial or equity ownership.
► For business financing, what kinds of loans exist?
You must know the exact amount of money that you need, what your purpose is and how you will repay it in order to be successful in getting a loan. You must convince the lender in a written proposal that you are a good credit risk.
There are two basic kinds of loans, although terms vary by lender:
Short-term and long-term, maturity periods of up to one year are generally short-term, which include accounts receivable loans, working capital loans and lines of credit.
Maturities greater than a year and less than seven years is a typical long-term loan. Equipment and real estate loans can have maturity up to 25 years. Major business expenses such as purchasing real estate and facilities, durable equipment, construction, vehicles, furniture and fixtures, etc. are a few purposes for long-term loans.
► When do banks look for when considering a loan request?
The bank official who reviews the loan request is focused on repayment. Most loan officers request a copy of your business credit report to determine your ability to repay.
The lending officer will consider the following issues while using the information you provided and the credit report:
-
Have you invested at least 25% or 50% of savings or personal equity into the business for the loan you are requesting? (Keep in mind that 100% of your business will not be financed by an investor.)
-
Do your work history, your credit report and letters of recommendation show a healthy record of credit worthiness? This is a key factor.
-
Do you have the training and experience necessary to operate a successful business?
-
Do your loan proposal and business plan document your knowledge of and dedication to the success of the business?
-
Is the cash flow of the business sufficient to make the monthly payments on the requested loan?
► What do I need to include in a good loan proposal?
The following main points should be contained in a good loan proposal:
General Information
Reason for the loan: the exact purpose of the loan and why it is necessary.
Amount needed: the specific amount needed to reach your goal.
Business name and address, names of officers and their social security numbers.
Description of Business
Describe the type of business you have, its age, current business assets, and number of employees.
Structure of ownership: describe the legal structure of the company.
Management Profile
Prepare a short statement that is focused on each principal in your business; give details about education, background, accomplishments and skills.
Market Information
State clearly the products of your company as well as its markets. Name the competition and explain how you plan to compete in the market. Describe what the business will do to satisfy the needs of its customers.
Financial Information
Submit your own personal financial statements as well as those of the principal business owners.
Financial statements: the income statements and balance sheets for the past three years. If you have a new business, provide the projected balance sheet and income statement.
Specify the collateral that you are able and willing to give as security for the loan.
Getting a Loan
► What are the advantages of prepaying a mortgage, and should I if I can?
It is highly recommended that you prepay as much of your mortgage as possible every month, which will drastically reduce the total amount that you pay.
► Should I refinance?
In order to refinance your home, the current market rate should be at least 2 percentage points lower than what you are paying on your mortgage.
► Does borrowing against my securities make sense?
This could be a low-cost option for borrowing but there is some risk involved.
► Can a Home Equity Line of Credit be beneficial?
A home equity line of credit is a form of credit which allows you to borrow and use your home as collateral.
► What costs are associated?
The costs associated with getting a home equity loan are basically the same as a refinance.
► How can you lock in an interest rate?
After choosing a lender, you may be quoted a rate, which may "float" until the actual closing, meaning that it is not guaranteed.
► What disclosures should I get from my lender?
The lender is obligated by the Truth in Lending Act to provide you with a written statement with a list of all of the costs associated with the loan and the terms of financing.
► How does a reverse mortgage work?
A reverse mortgage is a way for you to take advantage of some of the equity that is currently tied up in your home.
► Is any loan interest tax deductible?
These interests are deductible, some fully, some partially ...
► Can you stop paying Private Mortgage Insurance (PMI)?
Usually people that make a down payment of less than 20% are required to pay private mortgage insurance by their lender.
Loan FAQ
► What are the possible implications if I co-sign for a loan?
The co-signer enters an agreement to be responsible for the repayment of the loan if the borrower defaults.
► How can I ensure that I get the best possible rates on my loans?
Be careful when signing up for a home equity loan or line of credit - the disclosed APR does not reflect the total fees that are associated with the loan, such as closing costs and others.
► Is it better to get a home equity line of credit or a traditional second mortgage?
With a second mortgage you will have a fixed amount of money that is repayable over a fixed period of time or is due in full at a given time.
► What will the loan cost?
Before you are charged any fees, the Truth in Lending Act requires that the lenders disclose to you all pertinent terms of the agreement ...
Bank Accounts FAQ
► Which banking fees should I watch for with a new bank account?
Keep in mind that banks are always required to notify you of the fees for their accounts.
► What are the different types of bank accounts I can choose from?
Checking Accounts, Money Market Accounts (MMDA), CDs ...
► What type of account should I go with?
This depends on how you plan to use the account.
► How should I "shop around" for an account?
There are several features of accounts you should investigate at various banks.
► How much protection do I get from federal deposit insurance?
Only deposit accounts at federally insured depository institutions are protected by the FDIC.
► Can I negotiate my checking account fees with my current bank?
Yes. Here are some tips on how to approach this ...
► What is overdraft protection and should I have it?
This protects you from the possibility of bouncing checks.
► What is the Truth in Savings Act?
This is a federal law that requires depository institutions to inform you of the following ...
ATM Transactions
► How do ATM transactions work?
There are a variety of electronic transactions one can execute ...
► What should I do if I find an error on an EFT or ATM transaction?
Call your bank as soon as possible, or within 60 days of the error.
► What if my ATM card is lost or stolen?
It's important to note the difference in how you will be reimbursed for credit cards vs. ATM or debit cards.
► Can I use my ATM card abroad?
Yes, there are plenty of ATMs all around the world, but it is wise to check beforehand.
► How do I know when a pre-authorized credit has been deposited into my account?
Your institution may notify your employer, or you.
► How do I cancel a pre-authorized payment?
You can call or write your bank, or often stop the payment by going to your bank's website.
