1kdown.com » Lending

The Key Advantages of Asset Based Lending

Sun, 05 Sep 2010 01:14:59 +0000

Asset based lending can immensely benefit those companies, which are crippled by sudden cash crunch. It is a viable way of meeting their immediate resource needs. This rapidly growing method of funding helps businesses use their assets, in order to solve their problems of cash flow shortage. Expanding companies in urgent need of ready currency have made asset based lending highly popular.
Manifold Benefits of Asset Based Lending
Asset based lending offers a number of advantages to small or large businesses. Compared to traditional modes of loans, they get a quicker access to fairly large amounts of ready cash. Most asset-based lenders and factoring agencies also frequently offer valuable services, such as accounts-receivable processing, invoicing, and collection services. As is well known, a properly managed accounts receivable portfolio can expedite cash flow and support corporate cash requirements leading to increased working capital. As a result, there are fewer outstanding account balances, which mean fewer bad-debt write-offs, as well as enhanced profitability.
Similarly, invoice factoring provides you with working capital leading to improve your business credit. Thus, you are able to turn your accounts receivable into a strong, predictable source of working capital. These days, a large number of asset based lenders help businesses, not only with credit facilities, but they also help in invoice purchasing, accounts receivable management, credit protection, collection services, outsourcing, letters of credit, and international trade services.
In many cases, a prospective borrower does not have to be necessarily a profitable enterprise or to have a minimum net worth. A commercial venture with tangible assets and qualified management can use its assets to create extra capital, in order to execute its plans for the expansion of its business. They are permitted to use the types of collateral such as accounts receivable, inventories including marketable raw materials, machinery and equipment, owner-occupied real estate, personal assets as well as certain intangibles.
It is the boon of asset-based lending, that today even small companies can get not only more cash, but can also get it more quickly than they could from a traditional bank. Among other key benefits are the facts that asset based lending is a non-bank lending. It does not confine growth, but encourages purchase of capital equipment. It is flexible and provides higher advances against collateral, and does not mandate any additional security, such as personal assets, or warrants against subsidiary stock.
Today, it is widely available with no geographical boundaries either. As a matter of fact, asset based lending gives an impetus to activities, such as reorganizations and debt restructures, capital equipment purchases, mergers and acquisitions, seasonal cash shortfalls, turnarounds, debtor-in-possession loans, amongst others.
At this juncture, it may be relevant to throw a glance at the legal aspects of asset based lending. It is a well known fact, that asset based lenders have a certain amount of liability, the breach, of which in the past, has earned quite a few borrower plaintiffs legal awards, well into millions of dollars. Over the years, borrowers have used their right of suing the lenders for the transactional losses incurred by them. This gives a profound sense of psychological security to a prospective borrower of asset based lending.

Subprime Lending: Trojan Horse Of The Home Loan Lending Industry

Sun, 29 Aug 2010 07:12:15 +0000

Home loan lending used to be relatively simple. Lenders were so hungry for business they readily accepted no-down mortgages, interest-only loans, and E-Z refinancing for borrowers with bruised credit. Recently, however, a wave of bad loans wiped out small independent mortgage brokers, devastated bad-credit lenders, and prompted the industry itself to tighten lending practices.
Today, it has become harder than ever for cash-strapped would-be homeowners to obtain home loan lending.
Who Is To Blame?
Experts blame subprime lenders for the recent home loan lending debacle. In the past, people with poor credit scores or large debts and modest incomes would not have been granted a loan. In recent years, however, a new breed of mortgage brokers – called subprime lenders – burst onto the market. Instead of denying loans to people with poor credit history, they let these people take out mortgages and then charge them higher interest rates to offset the high risks associated with the loans.
Such action on the subprime home loan lending front enabled a huge part of the population to own houses. Subprime home loan lending morphed dramatically from a start-up business into a $600-billion-a-year enterprise. The problem with high risks, however, is that they either pay off magnificently or go bust, and this is just what happened. The subprime market fell, and it was not long before homeowners who financed their purchase with subprime loans found themselves with foreclosure notices in their hands.
Stringent Loan Standards
When applying for home loan lending, expect more than run-of-the-mill scrutiny. The industry is cracking down on the so-called “liar loans.” These are mortgages obtained without verification of the buyer’s declared income, under a “stated income loan” or “no documentation loan.”
Additionally, the home loan lending industry has become more conservative in attaching value to houses. Before, bankers generously appraised homes for so much more than they’re worth. Today, the appraisal is based not on the recent market value of similar homes but on worst-case scenario market pricing. Worst-case scenario value is not the amount a house can be sold for, but the amount it will fetch once it goes into foreclosure.
The Silver Lining
That home loan lending implements stricter regulations is sure to dismay everyone, from borrowers to lenders . However, three good things can come out of this. First, inexperienced and even fly-by-night mortgage brokers will be driven out of business, leaving the home loan lending market to legitimate lenders. Second, with lenders no longer eager to grant high-risk loans, there will be more money and better rates for borrowers with sufficient downpayment and good credit. Finally, fewer high-risk loans that never should have been granted in the first place will be floated into the market. This will result in fewer homeowners being dismayed and losing their homes due to inability to meet payments.
Every story has a moral, and this article contains only one. If something sounds too good to be true, it probably is too good to be true. So when buying a house, do not be tempted to take shortcuts. Go the longer but perfectly legitimate and business-sound home loan lending route.

What is asset based lending and factoring?

Sun, 22 Aug 2010 13:10:24 +0000

I’m unable to qualify for a bank loan for my small business. I’ve heard of asset based lending and factoring, but am not sure how it would work for me and how I go about finding someone who does this and help me make sure that asset based lending is the right thing to do. My banker didn’t know who to recommend me to.

Subprime Mortgage Lending: What?s it All About?

Sun, 15 Aug 2010 19:14:03 +0000

There’s a lot of talk in the media these days about subprime lending. Do you really know what it is? Essentially, subprime lending means loaning money at a rate of interest that is usually much higher than the “prime” rate. In the United States, the most frequently used prime rate is the one established by the Wall Street Journal (WSJ). This is the interest rate on corporate loans currently posted by at least 23 of the 30 largest American banks. The prime rate doesn’t change regularly, only when three-quarters of the banks decide they need to change it!

And how might subprime lending affect you? If you have a generally poor credit rating (under 620 on the FICO scale), you are considered a greater credit risk to a lender. You’re perceived as more likely than others to default on your loan. To compensate them for taking a greater degree of risk with their money, subprime lenders charge a significantly higher rate of interest. If you are classified as a subprime borrower, bear in mind that when you need to borrow money, your best bet is not a regular bank, but an organization specializing in subprime lending.

The problem that faces the American public right now is that several years ago people began borrowing more than they could afford to repay. The real estate market appeared solid a few years back; home values were steadily rising. As much as 125% of the value of a home was available for borrowing to the owner. People who opted for subprime mortgage loans expected that the value of their homes would keep rising, and within the next 3-5 years they could refinance once again. Some other types of mortgages that suddenly became popular were negative amortization mortgages, 80/20 mortgages, and interest-only mortgages. These left many homeowners owing more on their mortgage loans than their properties were worth, as the housing market began its sharp decline. These people thus found themselves with “negative equity” in their homes.

Adding to the present subprime lending problem is the fact that many of these homeowners hold adjustable rate mortgages (ARM), which are continually readjusting – and always upward. Although most of these ARMs have a cap of some sort, preventing them from limitless increases, they generally have long-term rates. Many people have found that their mortgage payments have nearly doubled over time, with the continual readjustment of their rates. Simultaneously, we are experiencing record costs for gas and oil, and greatly elevated food prices, making it more and more difficult for many families to make monthly mortgage payments. Once a family is in arrears by three months on mortgage payments, they can expect foreclosure proceedings to be inaugurated by the bank that holds their mortgage. The problem is further augmented as neighborhood real estate values drop, due to the foreclosure sales of some homes.

After reading this description about the subprime lending trouble, assess your own situation. If you believe you may be in trouble, you should discuss the matter with your lender. Sometimes lenders are willing to offer various forms of relief to overextended borrowers, rather than have the bank foreclose on the mortgage. If, on the other hand, your mortgage is up to date and your payments are being made in a timely fashion, don’t worry. Keep yourself informed, and keep focused on your budget. Most importantly, whatever your position, do not panic!

Bank lending up 9.6% year-on-year in June

Mon, 09 Aug 2010 01:14:51 +0000

Bank lending up 9.6% year-on-year in June
The Bangko Sentral ng Pilipinas (BSP) reported Friday that banks’ outstanding loans expanded by 9.6 percent year-on-year in June to P2.18 trillion, higher compared to the pace of growth in the previous months. “The sustained expansion of bank lending reflects the strengthening of domestic economic activity,” said BSP Governor Amando M. Tetangco Jr. “(We) will continue to ensure that the credit …

Subprime Mortgage Lending – 2007 Statement

Mon, 02 Aug 2010 07:29:01 +0000

The United States Treasury Department, along with several other federal financial regulatory agencies, released a Statement on Subprime Mortgage Lending in June 2007. This sizeable document (it is 31 pages long) is aimed at people involved in borrowing and lending for mortgages at subprime rates. Of particular concern to the authors are adjustable rate mortgages (ARMs). The Statement provides guidelines that will ensure more appropriate practices regarding ARMs. The agencies are concerned that lenders persuade borrowers to take out ARM loans by giving them an extremely low rate of interest (called a “teaser rate”) for the first few months. Unfortunately, this rate adjusts upward very soon to a formula based on and exceeding the prime rate. Now the loan is no longer within the means of the person who is classified as a subprime borrower, and it will cause extreme financial hardship. Other issues covered by the Statement are below.

Adequate documentation of income for subprime borrowers is not always required by lenders. This practice is of concern to the agencies because it leads to so-called “liar loans.” A borrower can put whatever inflated number he chooses on the application form, knowing there will be no effort to verify that this is truly the amount of his income. These loans greatly increase the chance that the borrower will default, which is a problem for the lender as well.

The agencies also address the problem of the introductory rate period. Most ARM loans include significant penalties for early prepayment, and the penalties extend well past the initial period. In addition, borrowers are not always given full information about additional monthly payments that will be required, such as taxes and homeowners insurance. This failure to disclose such information leaves the borrower at an enormous disadvantage, and will no longer be permitted.

It is interesting and unusual that, three months before releasing the Statement on Subprime Mortgage Lending, the agencies involved in creating it requested comment from the public, from members of Congress, and from financial institutions that engaged in mortgage lending. From the industry came the comment, over and over, that they are opposed to disclosing to borrowers all the details of ARM fees and rates. They think that would result in “overloading the consumer with information”! This is of great concern to the agencies, and to the author of this article as well. We don’t think the average consumer requires the protection of subprime lending agencies from information overload. Consumers can handle information just fine! Failure to disclose costs and fees for which the borrower will be responsible is nothing short of deception.

Virtually all comments reflected uneasiness that there was no adequate definition of the term “subprime” within the Statement. When the final revision appeared in June, readers were requested to refer back to the definition of a subprime borrower contained in the earlier guidelines document Expanded Guidance for Subprime Lending (2001). All the pertinent characteristic are listed there, and can be used in determining whether a particular borrower should be classified as subprime.

The Statement also requires that every borrower be given a full repayment schedule, including information on amortization, and an estimate of the amount of insurance and taxes that will be applicable. This must be done whether or not the extra costs are escrowed and are included in the loan. The extra charges must be part of a mandatory and accurate calculation of the borrower’s debt ratio.

The Statement on Subprime Mortgage Lending is a valuable effort to remedy some of the ailments of the current housing market, and insure that subprime borrowers as well as subprime lenders are not left with a financial disaster on their hands because of imperfect communication between them.

Subprime Mortgage Lending – Regulators Tighten Rules

Mon, 26 Jul 2010 13:18:15 +0000

The most recent regulatory report on subprime lending is the Statement on Subprime Mortgage Lending (June 2007). This 31-page document was released by the Federal Reserve and other federal financial regulatory agencies in response to the current out-of-control subprime lending market. It describes in detail the requirements made of subprime lenders for the financial protection of both the borrower and the lender.

The first issue of concern is improved communication to subprime borrowers about the real, hidden cost of their adjustable rate mortgage (ARM) loans. This kind of loan is often suggested to subprime borrowers because the introductory rate of interest is so low – so low, in fact, that it’s often called a “teaser rate”. Before the appearance of the government Statement, ARM loans assessed huge penalty fees for refinancing the loan or prepaying it before the term expires. Often, the penalties continued for most of the duration of the loan.

Regulators tighten rules for subprime lending in the Statement by providing guidelines requiring subprime lenders to offer full disclosure of fees and rates associated with an ARM. Moreover, they state that “liar loans,” loans that ignore a borrower’s capability of repaying the loan and require no documentation of earnings, must be curtailed. These liar loans are also called “stated income loans,” “low-doc loans,” and “no-doc loans.” A borrower simply states the amount of his income, without being required to produce a W2 form or pay stubs to substantiate his statement. Based on what he has claimed, he qualifies for a loan he cannot really afford. It’s clear that this practice is the cause of at least part of the subprime market problem!

The Statement is specific about predatory and deceptive lending practices – what they are, and why they must not be used. Such predatory practices often victimize those who may not really understand what they are being asked to sign, members of particularly vulnerable groups: the elderly, minorities, and first-time home buyers. It is also very clear about the fact that not all subprime lenders can be considered predatory.

If you are a subprime buyer, what do these new regulations mean to you? For one thing, you can’t be entrapped in an ARM with an upcoming reset date: 60 days notice is now required. If you decide to refinance early in the loan, or if for some reason you become able to repay it early, no astronomical prepayment fees will be assessed. Lenders must now require proper documentation to verify income. This is a positive improvement, because a subprime borrower should never borrow more than he will really be able to repay. Many subprime financial institutions have gone under in recent years, simply because they ignored the critical need to determine accurately each home buyer’s capability to meet financial obligations. The regulations force subprime lenders to deal more ethically with subprime borrowers. They must show due diligence with their determination of these borrowers’ future solvency. Foreclosures ruin local real estate markets, as well as borrowers and lenders.

Earlier guidelines issued by the regulatory agencies have been tightened by the Statement. Some have been incorporated into its text; others, like the 2001 Expanded Guidance, are referenced. The intention of the federal agencies in tightening the rules for subprime lending is to protect subprime borrowers from lenders of questionable integrity, and to protect lenders from ruining themselves because of laxity in their underwriting practices. This document is bound to have a positive effect on the current downward-spiraling real estate market.

What can the peer-to-peer lending industry change or add to better benefit consumers?

Mon, 19 Jul 2010 19:17:20 +0000

I’m researching and writing a paper regarding the US peer-to-peer (P2P) lending markets. (1)If you have ever used or have been tempted to use micro-lending for personal gain how has this new trend of lending/borrowing benefited you, (2)what/how do you think these companies can change and/or add to better benefit the consumer, and (3)what segmented markets are still untapped? Thank you

Predatory Lending

Tue, 13 Jul 2010 01:20:10 +0000

Were you the victim of Predatory Lending? Deceptive and predatory lending practices were all too common between 2001 and 2008, as the lawyers at www.ConsumerDebtAdvocate.net find over 90% of all loans we perform a forensic analysis on have multiple violations. If you took out a new mortgage loan during this period of time it is highly likely that there were violations in Truth in Lending, RESPA, Section 32, or Regulation Z. Even the best educated consumers may have been victims of predatory lending practices. CDA’s Attorney’s offer a complete forensic analysis of your loan documents by a recognized expert in the field who has over 30 years of experience helping consumers. CDA uses the results as leverage to force your lender to restructure your loan terms, or as an alternative, suing to challenge the validity of the loan itself. If you win a predatory lending case in court, you will often receive your home’s Deed free and clear, plus be re-paid all payments and fees you have made from the time you took out the loan.

Common Predatory Lending Practices:

? Predatory lenders use deceptive or aggressive practices to sell their loans, often targeting certain neighborhoods? Predatory lenders strip equity form homes through excessive fees without considering the borrower’s ability to repay the loan, sometimes resulting in foreclosure? Predatory lenders use prepayment penalties and adjustable loans that increase without regard to market conditions.? Predatory Lenders offer you one rate and fee structure, but change the loan terms at the last minute without proper disclosures.? Predatory lenders may use Spanish speakers to gain the trust and confidence of Hispanic Homeowners.? Predatory lenders charge excessive fees, points, and interest rates.? If you did a “stated income” or “stated asset” loan, you likely were the victim of mortgage fraud.? If you are elderly (over age 65), you may also be the victim of Elderly Abuse.

Common Indicators of Predatory Lending:

Excessive Points, late charges, and pre-payment penalties: Loan origination fees and other charges can cost many thousands of dollars, even if your were promised a “No Fee” or “No Charge” loan. Pre-payment penalties may make it very expensive to refinance or sell your home.

High Interest rate: Victims of predatory lending pay a higher interest rate than the national average or pay an interest rate not commensurate with their credit score.

Asset-based Lending: Rather than receiving a loan based upon your ability to repay the loan, you were given a loan based on how much equity you had and were able to pull out or pay as fees. You may have been encouraged to “inflate” your income or it was done without your knowledge so your could “afford” the loan. They may lend you more than you could afford to repay, as the lender would get the full amount of equity if they foreclosed on your property even if the loan was small.

Misrepresentations: The loan officer may offer you one set of terms (including rate and fees) and then change them at closing. They may also misrepresent the terms such you signed.

Balloon Payment: A large sum of money due at the end of the loan that is often beyond your ability to repay, often causing you to lose the home. IT is also illegal in sub-prime loan under HOEPA regulations.

Discrimination: The lender charges a woman, older adult, or minority consumer more than a similar consumer who is not a member of that group.

What Can You Do?

There are several important documents you should have received as part of the loan process to better help you understand your loan. Three days before you signed loan documents your lender must have provided you with a Good Faith Estimate that should outline your rate and fees. At closing, compare this to the Settlement Statement or HUD-1. It tells you where all the money you are borrowing will go. If there are any differences between the Good Faith Estimate and the HUD-1, make sure you agree with them before you sign.

You should also study the Truth in Lending disclosures which detail how much you are paying for your loan, what the percentage rate and APR is, and what you will owe at the end of the loan. Also review the contract to determine if there are prepayment penalties that lock you into the loan for a pre-determined period of time. IF you feel you were a victim of predatory lending, it is critical you get a forensic review of these documents before the statute of limitation runs out. Some violations can restart the rescission clock and you will have up to three years from the time you discover the violations to address them.

How do you start a small lending firm?

Tue, 06 Jul 2010 07:10:02 +0000

I have a lot of capital, and I am a financial analyst, but I’m interested in starting a small lending firm in Louisiana.