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Refinancing your mortgage to pay down a pricey business loan

Dear Your Business Credit,
We have a business loan that was taken out when our business was doing well. With the new economy, our business is doing about a fourth of what it was. The loan is at $40,000 and a high interest rate. We have refinanced our home at a much lower interest rate and have taken out cash to clear our business debt and credit cards. Since our bank has made a lot of dollars on our business loan, I would like to know how to reduce what we pay every month with a cash payout. Is this a possibility? Thanks. — Jim

Dear Jim,
It’s smart to do your homework in a situation like this.

When I ran your question past Jeffrey M. Stibel, chairman and CEO of Dun & Bradstreet Credibility, which issues credit scores for businesses, he said that if you made a personal guarantee on the loan, then using your home equity line to pay down the business line could make sense. “Home equity lines are relatively affordable, lower risk since there is no personal guarantee, and — in this particular case — may be a good way to subsidize the business while it gets back on solid footing,” he said.

It could also help you avert the damage to your personal credit that you could potentially suffer if you can’t pay the business loan. “Business credit that is backed personally risks a personal bankruptcy,” he says.

Nat Wasserstein, a crisis manager with Lindenwood Associates in Upper Nyack, NewYork, and New York City, also agreed that refinancing your debt using your home equity line of credit could give you some breathing room. However, he says there’s a downside to tapping your home equity: “You’ll encumber personal assets for business,” he says. What happens if your business fails? You may end up with no way to bring in income and find yourself falling behind on your mortgage, which puts your house at risk.

I assume that when you say your business is doing a fourth of what it was, you are referring to sales. If that’s the case, you may have what Wasserstein calls an “upside down” balance sheet. You could have too much debt relative to the sales you’re taking in. That’s because you took out the loan at a time when you had four times more revenue.

In a scenario like this, Wasserstein recommends that entrepreneurs look for ways to get rid of the debt entirely and not just stretch it out. In an ideal scenario, you’d figure out a way to bring in a lot more money, so you could retire the loan by paying it off. That might mean coming up with a new product or service more profitable than what you are selling now — something you may need to do, anyway, if sales are a quarter of what they once were. Many businesses have had to reinvent themselves in a more digital and global economy, and brainstorming with your business advisors and mentors or a few fellow entrepreneurs that you trust could pay off. Taking a second job for a while may also help you build momentum in paying down the loan.

If those full-payback options are not possible, it’s worth considering another option: a “workout” or restructuring of the debt with your bank. Essentially, you need to alert the bank that you no longer have enough revenue to support the loan payments. This may enable you to negotiate an arrangement in which the bank forgives part of the debt so you can improve the balance sheet of your business.

Why would a bank do this? A lender would rather that you keep the business open so you can pay back some of the debt than see you go out of business, he explains. If you close your doors, the bank will likely have to liquidate the business, and will probably walk away with less money than if you keep working and make loan payments. “It’s a risk management issue for the bank,” Wasserstein says.

However, this is not easy to orchestrate if it looks like you have some other means to pay the debt. “A bank workout when a business is doing that poorly is unlikely if the individual can afford to pay the loan as is,” says Stibel. Given that the loan is for $40,000 and not, say, $1 million, the bank may not buy an argument that you can’t come up with the money somehow.

Anyone looking to do a workout would need a turnaround professional to make a strong financial case to the bank that you cannot generate the necessary sales to pay down the loan, Wasserstein says. Once the bank has that information, it is under an obligation to write down the loan, he says. “They have no choice,” he says. “They can’t lie to bank regulators when evidence is being presented to them that a loan is no good.” Once a bank writes down the loan, it is a lot easier to forgive, he says.

If you want to go this route, don’t just walk into your bank and try to negotiate the terms yourself. This is a complex negotiation, and you need a financial professional with experience in restructuring a business on your side, says Wasserstein.

As in many areas of financial services, some professionals in this area are more reputable than others. He suggests talking to a well-respected attorney in your community who handles business bankruptcies to see if he or she can recommend a good turnaround professional. The Turnaround Management Association, a nonprofit group with more than 9,000 members, is another potential source.

Having interviewed several entrepreneurs who have gone through a workout with a bank over the years, I can tell you that it was extremely stressful for many of them. The bank may play hardball. But in some cases, it may be worth enduring if you emerge with a much lower debt burden and can save your business. Good luck — and please check back in and let me know how you’re doing.

See related: Finding a free bankruptcy lawyer for business, consumer debt, If your company fails, your credit card rate can rise, Repayment, settlement, bankruptcy: Facing debt from failed business

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Who Can Make an application for a Pay-day Loan? – Altercom

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Pay-day loans are options to get cash in a fast period of time when somebody wishes additional money straight away. While folk with poor credit, and folk with no credit, can sign up for a loan, there are some needs that really must be met to be approved. At first , most loan corporations will permit anyone that is of the necessary age ( often, eighteen years old ) to sign up for a loan.

The loan application might be filled out on site or it could also be filled out online or over the telephone, relying on the rules set by each categorical company. Filling out a loan is step 1 and anybody of the necessary age and who is a resident of the country they’re filling in the application can apply. Getting accepted for a loan is less complicated than getting accepted for a standard loan.

People who’ve fought with their credit report and need a little time to boost their credit record can turn to payday loan options as a reliable source of additional money when it is required. While some loan firms have conditions on what the loan need to be used for, many loan centres will extend a payday loan for any reason whatsoever at all so long as the individual meets the qualification. If you want to mend your automobile, pay for a birthday surprise, get wrapped up on a hire or mortgage bill, or just need some additional money to go furniture shopping, so long as you meet the loan qualifications, you can spend your payday loan money as you see fit according to the great majority of payday loan centres.

When it is time to pay the loan back, it is standard for payments to be made in little payments each time you receive a check. Some loan corporations will be offering a 30 day honeymoon period before you have to start to remit payments. Each company has got a very different condition on honeymoon periods so it is vital to make sure you understand any clauses and any honeymoon period info that’s included in the loan contract.

It’s also significant to comprehend the interest fees concerned with payday loans before you consent to line up a loan.

While a payday loan can be useful to people that are unable to get money anyplace else, the rates are often higher than the great majority of traditional loan establishments. Rates can be anywhere from 10 p.c up to 100 p.c and higher. Some states and regions, dependent on the country, will have a cap re the amount that rate can be charged by a payday loan company.

The rate might be higher for payday loans, but many folks see this sort of loan as their only course if money is just unavailable in any other form. Paying down the loan faster than what’s agreed to in the contract will infrequently give the individual a break on the rate of interest.