Finding Money for Exactly what YOU Need, Period.
Provided below is an extensive questions and answers section for multiple types of loan and financial information. Please click on the hyperlink associated with the type of question you need additional information about:
A lender provides the actual loan to the borrower and the SBA acts much like a co-signer, guaranteeing a portion of the loan. Typically the SBA will guarantee between 50%-85% depending on the program, which helps lenders be more comfortable with a loan that they might otherwise not approve.
There are many reasons why an SBA guaranteed loan should be considered, including:
➔ Longer terms (up to 7 years for working capital; up to 25 years for real estate)
➔ Flexible repayment options
➔ Lower down payments and reduced monthly payments
➔ Improved cash flow, so you can use your cash in your business
➔ No balloon payments
➔ Certain types can be paid off early without penalty
The SBA guarantees many types of loans, including the SBA Express Term Loan, 7(a) Regular Business Loan and 504 Development Company Loan. Refer to Lesson 2 for more information.
➔ Real estate purchases
➔ Improvements and/or construction
➔ Refinance of business debt, when combined savings will exceed 20%
➔ Leasehold improvements
➔ Equipment purchases
➔ Permanent working capital
➔ Acquisition of existing business
➔ Business expansion
To qualify for an SBA loan, you must be of good character and have never been convicted of a felony. The SBA also looks for management capability, collateral pledged and owner's equity contribution as part of the deal. The SBA requires anyone owning 20% or more of a company to personally guarantee the loan. Remember that there are some industries that are not eligible for an SBA loan. Other qualifications include:
➔ Type of Business
➔ Size of Business
➔ Use of Loan Funds
➔ Special Circumstances.
➔ Businesses must operate for profit
➔ Businesses must be engaged in or proposed to do business in the U.S.
➔ Business owner must have reasonable personal equity to invest
➔ Business must use alternative financial resources first including personal assets
Refer to Lesson 7 or contact a local SBA specialist/banking institution in your area to learn more about the loan application process.
As an SBA Preferred Lender, the SBA has authorized banks to make lending decisions on their behalf. Loan proposals do not need to go to the SBA for approval, which means the process moves more quickly. Refer to http://www.sba.gov/content/lenders-participating-sba-export-loan-programs for a list of SBA authorized banks.
➔ Pre-qualification- Many lenders can pre-qualify a business for a loan within a couple of days of receiving basic financial information.
➔ Application and Credit Approval- The next step is the full application. After the lender receives the completed application package, an underwriter will review the application and make a decision about the loan request. Once the loan is approved, the lender will send a commitment letter for signature.
➔ Closing- Once the commitment letter is signed, the documentation process begins. The lender will obtain appraisals, IRS tax verification, environmental assessments, and title work. A closing date will be scheduled. Then the final documents are signed during the closing.
FHA - Federal Housing Administration - www.fha.gov
➔ The basic qualifications in applying for an FHA loan is at least two years of steady employment, preferably with same employer, stable or increase of income for the previous two years, less than two 30-day late payments within two years with a minimum credit score of 620 or higher or in some cases no credit score at all. In addition, bankruptcy's must be at least two years old, with perfect credit since discharge, foreclosure's must be at least three years old, with perfect credit since, and your new mortgage payment should be approximately 30% of your gross (before taxes) income.
➔ An FHA loan can be utilized as many times as you desire, however, you cannot have more than one outstanding FHA loan with a loan to value of higher than 75%. You can own rental property and purchase your primary residence using FHA financing.
➔ FHA allows streamline only if you are lowering your monthly payment or converting the loan to a fixed rate.
➔ FHA allows the purchasing of a home with no down payment and 100% financed using an FHA loan. FHA also allows using an insured first mortgage in combination with other programs, which may allow you to purchase a home with no out-of-pocket money.
➔ Unlike other programs, the FHA allows co-signers that are not living in the home help you to qualify for a mortgage. Stipulations include that their rent, mortgage, and/or monthly bills will be used in the qualifying process, and they cannot currently have an FHA loan in their name.
➔ Active duty and honorably discharged veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility (VA Form 26-1880) from the VA should be provided to the lender to prove that you are eligible for a VA loan. Although it is possible to establish eligibility without your proof of service, it may cause delays and is therefore best to provide the evidence to the lender. Other forms of acceptable proof of military service include an original statement of service signed by the adjutant, personnel officer, or commander of your unit or higher headquarters which identifies your social security number and date of entry (for current active-duty members), or a copy of your DD Form 214 indicating your honorable discharge (for discharged members.) DO NOT SUBMIT AN ORIGINAL DD Form 214 DOCUMENT.
➔ The VA allows reusable eligibility in certain circumstances if you have already obtained one VA loan. Mainly, your prior loan must have been paid in full and you have disposed of the property. However, on a one-time basis, you may have your eligibility restored if your prior VA loan was paid in full but you still own the property. The VA does not allow reusable eligibility if the prior loan was foreclosed up either by the original purchaser or if the loan was assumed and that assumer defaulted on the loan.
➔ Unmarried surviving spouses of veterans who died on active duty or as the result of a service-connected disability are also eligible for the VA home loan benefit. In addition, a surviving spouse who obtained a VA home loan with the veteran prior to his or her death (regardless of the cause of death), may obtain a VA guaranteed interest rate reduction refinance loan. Children of eligible veterans, living or deceased, are not eligible for the home loan benefit.
➔ A home is an investment. When you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes.
➔ First-time home buyers may be a good candidates for federal mortgage programs, such as FHA or HUD. Your local government may also have local homebuying programs that could work for you.
➔ There is help available for single parents who wish to own their own home. Start by becoming familiar with the homebuying process and pick a good real estate broker. Consider getting pre-qualified so that you know the range of cost you are eligible for.
➔ Using a real estate broker is a very good idea. Purchasing a home is a confusing process and the details can be mind-boggling. A good real estate professional can guide you through the entire process and make the experience much easier. A broker will also be well-versed on the different types of benefits that a first-time home buyer may be eligible for.
➔ Many programs that the first-time buyer may be eligible for require little to no money down.
➔ There are two times of the year in which you will get the best price on a car: the last two weeks of December and July to October.
➔ Competition gets you the best price. Know what other dealers are charging for the cars.
➔ Know your credit history and remember that it is illegal for anyone to run a credit check on you without your permission.
➔ The more money you have to put down on a vehicle, the less your payments will be.
➔ When financing your vehicle, know that the longer the financing the lower your payments will be, however, you may end up paying less in actual finance fees than with a shorter-term loan.
➔ Don't give the dealer your license or social security number.
➔ Cars that need to be ordered from the factory should NOT cost more than the cars on the lot.
➔ Be wary of letting a car dealer locate the car you want from another dealership. They often charge you unnecessary fees.
➔ It is illegal for a car to have a missing MSRP or price invoice sticker.
➔ There are pros and cons for leasing vs. purchasing a vehicle. Do your research and determine which avenue is best for you.
➔ There are two types of personal loans, secured loans and unsecured loans. No security is required for an unsecured loan, but a secured loan, which is often for a larger amount, will be secured against an asset, such as your house or your car.
➔ Personal Loans are available to anyone who has a steady source of income. Any Individual can obtain a personal loan as long as they are salaried individuals, self-employed professionals, and/or self-employed non professionals and are subject to credit approval.
➔ Personal loans are much like having a credit card, except when you receive a personal loan it is necessary for the borrower to draw out the entire loan. The loan is then repaid by way of fixed monthly instalments. In the case of a card, the interest is charged based on the amount utilized only.
➔ Personal loans can be used for any legal purpose and can be paid off early without penalty.
➔ When applying for a loan, the lending institution will check your credit history to determine if you are eligible to receive a loan, and what the terms of the loan will be. If you have a low score due in part to late or skipped payments or defaulted on a loan, it will affect your score and may result in your being turned down for the loan. It is important to know that each time you apply for a loan with a financial institution, your credit will be checked and can negatively affect your score if too many inquiries are made.
➔ A consolidation loan allows you to pay off several creditors by making one payment to one creditor and that creditor distributing the payments. This simplifies making monthly payments and can possibly reduce interest rates, so you may end up paying less than what you would have paid without the loan.
➔ A friend or family member can act as a co-signer which can add extra security for the financial lender that provides your loan.
➔ Components of personal finance might include checking and savings accounts, credit cards, consumer loans, stock market investments, retirement plans, social security benefits, insurance policies, and income tax management.
Personal financial planning has five steps:
1. Assessment: Assess your personal financial situation by creating a balance sheet listing the values of personal assets, liabilities, and expenses.
2. Set goals: Setting financial goals helps to direct financial planning. An example of setting a financial goal is to dedicate a certain time frame to purchase a home.
3. Create a plan: The financial plan details how to accomplish your goals. Reducing unnecessary spending or expenses or investing in the stock market are examples on how to accomplish your goals.
4. Execution: Once you have completed steps 1-3, the hard part comes in...executing. This often requires dedication, discipline, and perseverence. Many people enlist the assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.
5. Monitoring and reassessment: As time passes and circumstances change, one's personal financial plan must be monitored for possible adjustments or reassessments.
➔ A 401k is a savings plan for an employee's retirement. The employee authorizes pre-taxed pay to be put into the savings plan in the form of mutual funds or other options set up by the employer. The contributions and investment earnings have the ability to increase (tax-deferred) until they are withdrawn and then will be taxed as ordinary income.
➔ The 401k is established by individual employers and although the employee is contributing to the funds, an employer may choose to add or ‘match’ a certain percentage. The contribution is subtracted automatically before taxes from the employee’s paycheck. It is up to the employee’s discretion how much percentage-wise is deducted from their paycheck, up to a certain percentage, and how their money will be invested.
➔ The money accumulates and is not to be taken out (though it can be, but you will be penalized) until retirement (usually the age of 591/2). The employee does not pay taxes while the money is accumulating, but once the money begins to be withdrawn, taxes will be applied to each withdrawal (small tax installments as opposed to a large sum).
➔ Since the money taken out for the 401k is tax-deferred, the employee does not pay taxes on the contribution and ends up paying less taxes on their paycheck. Employer contributions and growth of savings is tax free until it is withdrawn and an employee can transfer their 401k plan to a new employer.
➔ The disadvantages to a 401k plan are the expensive penalties that are incurred if withdrawals are made prior to retirement, employer contributions do not become accessible to the employee until after a set number of years, and the IRS sets a maximum contribution limit on 401k accounts
➔ If you switch jobs, you can also transfer your 401k into an IRA. IRAs give you more control of your assets. There are thousands of investment plans, but not even ten options for each 401k plan. Spreading out your assets is always a mantra of money professionals. It is suggested to put your money into a self-directed IRA and then try and contribute as much money as possible into the new job's 401k.
➔ Some companies will let the employee be able to permanently withdraw their money from their 401k. It is highly not recommended because you will have to pay income taxes on the money plus the ten percent penalty. Some reasons for early withdrawal are to pay medical expenses, pay college tuition, cover funeral expenses, or avoid an eviction or foreclosure.
➔ Fidelity Funds - Helps find funds to match your investment goals.
➔ Mutual Funds - Pools money together from thousands of small investors and then its manager buys stocks, bonds or other securities with it. When you contribute money to a fund, you get a stake in all its investments.
➔ Money Market Funds - Is an open-ended mutual fund that invests in short-term debt securities such as U.S. Treasury bills and commercial paper. Money market funds are widely regarded as being as safe as bank deposits yet providing a higher yield.
➔ ETFs (Exchange-Traded Fund) - Is traded on stock exchanges. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. ETFs are the most popular type of exchange-traded product.
➔ Stocks - When you own a share of stock, you are a part owner in the company with a claim (however small it may be) on every asset and every penny in earnings.
➔ Options - A option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction.
➔ Margin Loans - Margin loans are loans taken to finance the purchase of securities, usually the purchase of stock (also known as equity). Margin loans normally are extended by the same financial services firm (stock brokerage firm or securities firm) that the customer uses to trade in the security in question.
➔ Fixed Income - A type of investing or budgeting style for which real return rates or periodic income is received at regular intervals at reasonably predictable levels. Fixed-income budgeters and investors are often one and the same - typically retired individuals who rely on their investments to provide a regular, stable income stream. This demographic tends to invest heavily in fixed-income investments because of the reliable returns they offer.
➔ CDs (Certificate of Deposit) - A CD is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit union.
CDs are similar to savings accounts in that they are insured and thus virtually risk-free; they are "money in the bank". CDs are insured by the FDIC for banks and by the NCUA for credit unions. They are different from savings accounts in that the CD has a specific, fixed term (often monthly, three months, six months, or one to five years), and, usually, a fixed interest rate. It is intended that the CD be held until maturity, at which time the money may be withdrawn together with the accrued interest.
➔ Bonds - A bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals.
➔ Annuities - An annuity contract is created when an insured party, usually an individual, pays a life insurance company a single premium that will later be distributed back to the insured party over time. Annuity contracts traditionally provide a guaranteed distribution of income over time, until the death of the person or persons named in the contract or until a final date, whichever comes first. However, the majority of modern annuity customers use annuities only to accumulate funds free of income and capital gains taxes and to later take lump-sum withdrawals without using the guaranteed-income-for-life feature.
I’ve heard of lottery and merit scholarships. What are the differences?
Lottery scholarships are given just as they are implied: at random. This means that everybody who applies has an equal chance of winning the scholarship. Merit scholarships are awarded based on certain criteria and are competed for. Academic excellence, extracurricular activities, and involvement in community services will give you a leg up on the competition when the award is decided.
This greatly depends on the type of scholarship you are applying for, how well you meet the qualifications, and the number of other applicants. Local scholarships restricted to your demographics give you the better opportunity to win since the application pool is much smaller. In addition, applying for a scholarship that would lower the amount of applicants (such as academic excellence, religious, specific sport-related scholarships, etc.) would also provide you a better opportunity of being awarded the scholarship. The more qualifications you meet, coupled with a nicely-written application, means more chances of you being awarded the scholarship. It is also very important to list all accomplishments when applying for a scholarship, no matter how insignificant you think they may be.
Being active in your community greatly increases your chances for receiving a scholarship. Scholarship providers want to see that you will give back to the community and that you value making contributions of your time and effort. Many proposal essays are written with community service as the topic, and giving back to your community, school, and/or church can only help you in the application process.
Think of your letter of recommendation as being similar to a professional reference. You are selling yourself as being the best person for the “job”. The type of scholarship you are applying for greatly determines who you should ask to write a recommendation for you. For instance, you would want to ask a teacher for a recommendation if you are applying for an academic scholarship. Recommendations should come from people who know you well and articulate your strengths as well as praise your accomplishments. However, it is not recommended that you ask a personal friend or family member.
No. This is why researching a scholarship prior to applying is so important. You most likely will not be awarded the scholarship if you don't meet the qualifications, so focus your time and energy on scholarships that you do have a chance of winning. Remember, there are thousands of scholarships out there, so do your research and apply for those that you have the best opportunity of being awarded.
All scholarship providers are different, but normally the applicant receives notification that they won the scholarship a few weeks after the deadline.
Yes. However, many scholarships are based on financial need, so you will most likely need to notify the scholarship provider of other scholarships and/or grants you have received. Make sure to read the requirements of each scholarship carefully.
Yes. More often than not, the scholarship provider gives your award directly to the college you are attending for your tuition. If this happens, the school will adjust your financial needs accordingly.