However, before signing up for a personal loan, you have to know its categories first and assess which one would best suit your financial needs.
If you have financial assets like stocks, bank deposits, mutual funds, and cash, you can certainly sign up for a secured personal loan right now. Moreover, tangible physical assets such as properties and expensive commodities can make you eligible for personal loans.
The assets mentioned above will function as collateral that will qualify you for the loan amount according to your financial capability. These will often serve as the alternative payment to the financial institution if you fail to settle your debt on the agreed loan term.
High-priced collateral would grant you a favourable loan amount. Since collateral is at stake, a secured personal loan will most likely be claiming fewer risks. Therefore, this will be quite fair for borrowers with low credit scores.
Apparently, this one is the total opposite of a secured personal loan. One example is the pre-approved personal loans, where creditors would look to see if the borrower’s credit is worthy, instead of requiring the financial assets as collateral. The credit rating will serve as the grounds if the application is approved or declined.
This type of loan poses a higher risk for the lenders. Secured personal loans allow lenders to take over the collateral if the borrower has neglected the loan terms that were agreed upon during the application period. In unsecured personal loans, lenders would only bank on the borrower's word and the credit scores they boast so much about.
This type of loan poses a higher risk for the lenders.
If you want a stable interest rate over the agreed payment term, a fixed-rate loan is the best option you can go for. If you’re on monthly repayments, you’ll never suffer from fluctuations in the interest rate every month. If you do it this way, then you can sustain consistent financial control since you’ll be allocating the same monthly payment amount for your personal loan.
In this type of personal loan, your economic circumstances would determine your personal loan’s interest rate. For this reason, you aren’t entitled to the power to manage your finances as the interest rate fluctuates every month, depending on the market interest rates.
Unlike fixed-rate loans, the high risk is now charged to you. However, most variable-rate loans offer low-interest rates at the beginning of the payment term. The interest rate would change gradually as the term progresses.
Here’s what you should do to become eligible for different types of loan:
An existing loan doesn’t directly turn down your application for another lender. However, lenders would prefer potential borrowers with a clean credit history upon application. If you have signed in with multiple lenders, then you should consider reconciling all of these debts before applying for another.
A borrower with ongoing financial obligations will raise the risk for both the lender and the borrower. On the lender’s part, the assurance that the borrower could still put up with another loan is disputable. Of course, for the borrower, conflicts of interest could emerge amongst multiple lenders that they signed in with.
[ymal]
The lenders will definitely rely on your credit history. Therefore, you should secure a copy of your credit record before your loan application. You should assess and verify the figures in your credit history so that you’ll still have time to correct any errors that you see.
The loan amount will be heavily based on your financial capacity. If you think you have a clean credit score, then you can expect an agreeable loan amount. However, if you have a stained credit history, you should assume a lower loan grant.
To sustain an outstanding credit score, you should be prompt when the time comes to pay your bills and other financial obligations. All of your financial transactions will be registered in credit bureaus.
Your payment history can tell whether you’re creditworthy or not. Hence, being branded as a delinquent payer would hinder you from applying for another loan in the future. Whether or not you plan to get a personal loan, building a good credit score must be taken seriously.
You should look into the rates offered by your prospective lenders. Comparing the proposals from multiple lenders could help you decide on where to apply. The loan document should be appraised. As a borrower, it is your responsibility to figure out whether a lender is legitimate or not.
The lender would need the borrower to supply proof of identification, address proof, and bank statements issued by a valid financial institution. You have to prep all of the documents so that the lender will have a positive initial impression of you. You have to begin by presenting yourself as an accountable person.
Personal loans aren’t only about picking a lender and accepting the loan. There’s a lot of preparation on your part so that your loan will be approved. Hence, you need to have a good credit score sufficient to secure a personal loan without a hitch.
Ammar Akhtar, co-founder and CEO at Yobota, explores the steps necessary to the creation of successful fintech.
The first national lockdown in March highlighted the importance of the quality and functionality of digital banking solutions. Indeed, most of us quickly became accustomed to conducting our financial affairs entirely online.
Financial services providers have needed to adapt to this shift, if they were not already prepared, and consumers will continue to demand more. For instance, Yobota recently surveyed over 2,000 UK adults to explore how satisfied customers are with their recent banking experiences. The majority (58%) of banking customers said they want more power to renegotiate or change their accounts or products, with a third (33%) expressing frustrations at having to choose from generic, off-the-shelf financial products.
Consumers are increasingly demanding more responsive and personalised banking services, with the research highlighting that people are increasingly unlikely to tolerate being locked into unsuitable financial products. This is true across all sectors of the financial services landscape; from payment technologies (where cashless options have become a necessity as opposed to a trendy luxury) to insurance, the shift to “quality digital” poses challenges throughout the industry.
Providers and technology vendors must therefore respond accordingly and develop solutions that can meet such demands. Many financial institutions will be enlisting the help of a fintech partner that can help them build and deploy new technologies. Others may try to recruit the talent required to do so in-house.
The question, then, is this: how is financial technology actually created, and how complicated is the task of building a solution that is fit for purpose in today’s market?
The finance sector is heavily regulated. As such, compliance and regulatory demands pose a central challenge to fintech development in any region. It is at the heart of winning public trust and the confidence of clients and partners.
Controls required to demonstrate compliance can amount to a significant volume of work, not just because the rules can change (even temporarily, as we have seen in some cases this year), but because often there is room for interpretation in principle-based regulatory approaches. It is therefore important for fintech creators to have compliance experts that can handle the regulatory demands. This is especially important as the business (or fintech product) scales, crosses borders, and onboards more users.
The finance sector is heavily regulated. As such, compliance and regulatory demands pose a central challenge to fintech development in any region.
Businesses must also be forthcoming and transparent about their approach towards protecting the customer, and by extension the reputation of their business partner. Europe’s fintech industry cannot afford another Wirecard scandal.
Compliance features do not have to impede innovation, though. Indeed, they may actually foster it. To ensure fintech businesses have the right processes in place to comply with legislation, there is huge scope to create and extend partnerships with the likes of cybersecurity experts and eCommerce businesses.
The size and growth of the regulation technology (regtech) sector is evidence of the opportunities for innovations that are actually born out of this challenge. The global regtech market is expected to grow from $6.3 billion in 2020 to $16.0 billion by 2025. Another great example would be the more supportive stance regulators have taken to cloud infrastructure, which has opened up a range of new options across the sector.
It is the technical aspect of developing fintech products where most attention will be focused, however. There are a number of considerations businesses ought to keep in mind as they seek to utilise technology in the most effective way possible.
The fintech sector is incredibly broad. Payment infrastructure, insurance, and investment management are among the many categories of financial services that fall under the umbrella.
A fintech company must be able to differentiate its product or services in order to create a valuable and defensible competitive advantage. So, businesses must pinpoint exactly which challenges they are going to solve first. Do they need to improve or replace something that already exists? Or do they want to bring something entirely new to the market?
The end product must solve a very specific problem; and do it well. A sharp assessment of the target market also includes considering the functionality that the technology must have; the level of customisation that will be required from a branding and business perspective; and what the acceptable price bracket is for the end product.
[ymal]
In the same vein, as a vendor it is important to be specific and strategic when it comes to pursuing the right clients. A fintech might consider itself to be well-positioned to cater to a vast selection of different businesses; however, it’s important to have a very clear target client in mind. This will ensure product and engineering teams have a clear focus for any end goal.
The value of a good cultural fit should also not be underestimated. The business-to-business relationship between a fintech and its client (a bank, for example), particularly at senior levels, is just as important as finding the right niche. There must be a mutual understanding of what the overall vision is and how it will be achieved, including the practical implementation, timeline and costs.
Leveraging the newest technology is not always the best approach to developing a future-proof proposition. This has been learned the hard way by many businesses keen to jump on the latest trends.
Shiny new technology like particular architectures or programming languages can have an obvious appeal to businesses looking to create the “next big thing”. But in reality, the element of risk involved in jumping on relatively nascent innovations could set back progress significantly.
The best technology systems are those that have been created with longevity in mind, and which can grow sustainably to adapt to new circumstances. These systems need to run for many years to come, and eventually without their original engineers to support them, so they need to be created in modern ways, but using proven foundational principles that can stand the test of time.
To revert back to my original point, fintech businesses cannot forget about the needs of the end customer. There is no better proof point for a product than a happy user base, and ultimately the “voice of the customer” should drive development roadmaps.
The best technology systems are those that have been created with longevity in mind, and which can grow sustainably to adapt to new circumstances.
Customer experience is one of the most important success factors to any technology business. Fintechs must consider how they can deftly leverage new and advancing technology to make the customer experience even better, while also improving their underlying product, which users may not necessarily see, but will almost certainly feel.
Another important consideration is ease of integration with other providers. For example, identity verification, alternative credit scoring, AI assisted chatbots and recommendation algorithms, next generation core banking, transaction classification, and simplification of mortgage chains – these are all services which could be brought together in some product to improve the experience of buying a mortgage, or moving home.
Progressive fintech promotes partnerships and interoperability to reduce the roadblocks that customers encounter.
Powerful digital solutions cannot be created without the right people in place. There is fierce competition for talent in the fintech space, especially in key European centres like London and Berlin. Those who can build and nurture the right team will be in a strong position to solve today’s biggest challenges.
In all of these considerations, patience is key. It takes time to identify new growth opportunities; to build the right team that can see the vision through; and to adapt to the ever-changing financial landscape. Creating fintech is not easy, but it is certainly rewarding to see the immense progress being made and the inefficiencies that are being tackled.
Unfortunately, many people these days have seen their credit score and history slide, often due to financial illness or money problems that have left them in a difficult financial situation. If your credit is in a bad state, you may be considering taking steps to improve it, and this includes using a credit repair agency.
Not everyone uses a credit repair agency, as some people decide to work on their credit reports themselves. If you do decide to use one, there are lots of options you can choose from, but you need to ensure you find a reputable credit repair agency for something as vital as this. It is also worth reading recommendations for the best credit repair services to suit your needs.
But what exactly do these credit repair companies do and how can they help to fix your credit?
The idea behind using a credit repair service to fix your credit is that you will have industry professionals that will check, monitor, and deal with any issues when it comes to your credit report. Now, it is worth noting that this is something that you can do yourself. However, it does mean that you will need to regularly order and check your credit report, be familiar with how to decipher the information, and stay on top of identifying problems and getting them resolved. All this can be time-consuming and stressful when you have other commitments to juggle such as work and family. So, this is where a credit repair agency can step in.
As experts within this field, credit repair companies can go through your credit report thoroughly and can pick up on any issues such as mistakes, outdated information, suspicious transactions, and more. If there are any issues on the credit file that they pick up on, they then liaise with the credit bureaus on your behalf to get them resolved. They can also sometimes get negative accounts removed depending on the situation, and this is done by making contact with the relevant bureaus.
Because these professionals do this on a full-time basis, they are able to focus on the situation and get things done far more quickly than you would be able to do when trying to sort out your credit in between other commitments. This means that you can benefit from faster results and see your credit improve more quickly.
[ymal]
So, why do people turn to credit repair agencies to sort out their credit rather than trying to do it themselves? Well, there are many reasons behind this, and some of the main ones include:
Saving Time
The truth is that many people these days simply do not have the time to sort out their own credit, as fixing your credit can be a time-consuming and challenging process. When you have to work full-time, have family or other commitments, and have a social life, you will struggle to find the time to deal with your credit issues. This is why a lot of people turn to experts for assistance, as it can save them a lot of time.
Expert Assistance
Not everyone is familiar with credit reports, how to read them, and how to determine if there is an issue. This is another reason why people turn to credit repair agencies. The experts are used to dealing with credit reports from all the major bureaus, so they know exactly what to look for and how to analyze the report to gather the necessary information. So, by using a professional, you can be sure that the credit report has been properly checked and any problems are picked up.
Reduced Stress
For some people, trying to deal with their credit issues is too stressful for them, so they just let the problems continue. This then has an impact on their future and causes even more stress. Credit repair service professionals will take all the stress out of the process and will even deal with the credit bureaus on your behalf to make things even easier.
Giving You a Better Chance of Success
In short, using a good, reputable credit repair specialist can boost your chances of success when it comes to improving your credit. The processes they use are designed to help improve your credit and score, as well as your financial future.
These tips can help you get the funding you need even if your credit is not the best.
The best way to fund your business is using your own money, a process known as bootstrapping. You can turn to family and friends or tap into savings. You can even borrow against a 401k to get the funding you need. In fact, more than half of all business owners say that they received financing help from friends and family.
This type of financing is not based on your credit score and, in some cases, borrowing from family may help you increase your credit score if you use the funds to catch up late payments as well as funding your business.
Another method for funding your business is seeking venture capital from investors. This type of investment is normally provided with a share of ownership in the company. The investor may also want to take an active role in your business. There are differences between traditional financing and venture capital which include:
There are many venture capital firms who offer funding to business owners. You will need a solid business plan, and there will be a due diligence review. If the investors are interested, you will agree on terms and the funding is provided.
Normally, venture capital is provided as you meet milestones which means you may not get the full amount up front. You will have to meet certain goals included in the terms to receive percentages of the investment over time.
[ymal]
Websites like Kickstarter and GoFundMe allow you to seek investments from a large number of people. The process, known as crowdfunding, lets people donate small amounts to your business to see you succeed. In some cases, you may have to give them a gift or reward as a thanks for the donation, usually a free product, acknowledgement of their contribution or other benefit.
This type of funding is best for companies that produce creative works like art or film as well as those who have created a unique product, such as a high-tech vacuum. There is very little risk to your business and, if your business fails, you are not required to repay the investors. The crowdfunding sites do take a percentage of anything you raise, however.
Loans are another popular method for funding a business. However, if there are obstacles to getting a traditional business loan, the Small Business Administration partners with banks to offer loans that are guaranteed by the organisation.
This type of loan is especially designed for those who may have difficulty obtaining a traditional loan, like those with poor credit. There are special requirements and stipulations you must meet in order to qualify, but your lender should have information about the Small Business Loans that will work for your company.
There are many grants and gifts available to help small businesses, but it is important to be careful. Companies that offer to locate a government grant for a fee are often fraudulent and can lead to excessive costs that you will not be able to recover.
There are grants available for specific types of industries, such as technology or retail, but you will need to search in order to find one that works for you. Also keep in mind that grants are very competitive, so you may need to fill out quite a few applications before you are successful.
Gift financing may also be non-cash benefits such as free office space or free services from businesses who want you to succeed.
Further information on business loans is available if you would like to learn more about your options.
If you have been injured in an auto accident, your injuries may prevent you from working, which means you may be struggling to manage your finances. A legal settlement can take months, and sometimes years, before you ever receive any money. While you wait, you must still pay your mortgage, your car payment, and all your other bills. In many cases, you will be doing this while you are missing work due to an injury.
If you’re drowning in debt and struggling to make ends meet after an accident, one option you could take advantage of in your situation is a loan designed specifically for someone in your position. There are some disadvantages to legal funding, such as the fact that you’ll need to pay the loan back with interest if you win, but in many cases it can be a real life saver.
Legal funding is sometimes known as a pre-settlement loan. You are provided money as a cash advance on money you will receive as part of your settlement or lawsuit outcome. This means you don’t need to wait until the case is over to receive a portion of your settlement and some companies can provide you with funding within a few days. You will benefit from learning all you can about what legal funding is and how it works.
No matter how ironclad you think your case may be, there is always a chance you could lose. When you apply for legal funding, the company will research your case and determine what your chance of winning may be. If you lose your lawsuit, you will not be required to pay the money back.
One thing people appreciate about this type of funding is the fact that there are no monthly payments while you wait for your case to wind through the court system. There are no credit checks, as the loan is based on the merits of the case. If the legal funding company doesn’t think you can win the case, they will not lend you the money.
[ymal]
There are companies that charge an application or origination fee, and some of those can be fairly high. Most companies, however, review your case for free. Interest can range between 1.99% to 3.99% per month, but some loans have a cap of 30% to 60% annually. Other companies simply charge a percentage of the settlement amount while still others charge a percentage of the amount of the loan.
Each company is different, and it is important to research in order to find the best rates. Keep in mind the company lending the money is taking a risk that your lawsuit will be successful. Be sure that the actual payback amount is in the contract, as some companies may include escalating compound interest that could have you owing more than your settlement amount.
It is recommended that you tell your attorney that you are applying for legal funding. Most attorneys are familiar with the process and, even if your attorney recommends against the loan, it is still your decision. In some instances, attorneys find legal funding beneficial.
If you may receive a large settlement, the other side may try to drag the case out hoping that financial difficulties could lead you to accept a lower settlement offer. With legal funding, you will have the financial ability to wait for the settlement you deserve. Because your lawyer wants you to get the largest settlement you can get, they may support legal funding.
If you are a small business owner, you may know how difficult it is to get a business loan from banks and other financial institutions. The number of small business loans by traditional lenders has been on a decline since the 2008 financial crisis. This is not exciting news for small business owners who require financing to keep their small businesses moving.
However, this doesn't necessarily mean you can't acquire a business loan when you need one. You can always get a loan from a direct lender. You don't have to only rely on traditional lenders; direct lenders are a great option for short-term loans. Here are five benefits of working with direct lenders.
Have you ever wondered why big banks and financial institutions are not interested in giving out loans to small businesses? It's because the returns associated with small business loans are not worth the risk to them. Direct lenders don't think this way, which makes it easier for small business owners to get financial assistance from direct lenders.
Unlike strict bank loan terms, direct lenders offer flexible loan terms that are favourable to small business owners. They are more accommodating when it comes to their interest rates. If you have a good credit score, you have a good chance of securing favourable terms with a direct lender. If your credit score is not good, direct lenders can still find an option on how to work with you.
Time is of the essence for small business owners looking to keep their businesses afloat. Traditional lenders do not realise this, and most of them take a while to approve loans and release the cash. This is not the case with direct lenders, most of whom operate their businesses online. This means they approve loans and release loan cash quickly.
[ymal]
Normally, banks and bigger financial institutions require a huge down payment before they agree on repayment terms. This is unfavourable to small businesses, most of which do not have the ability to make a big down payment. Generally, direct businesses don't require big down payments. However, there will be times when down payments will be unavoidable, but be sure they will be reasonable for small business owners.
Working capital is the money required to fund a business's daily activities. Most banks and financial institutions are unlikely to give working capital loans to small businesses. Fortunately, you can get a working capital loan from a direct business lender.
Many people can get a loan as long as they have the ability to repay it. However, it is a struggle for many small business owners as most banks and other traditional lenders fail to approve their applications, take forever to approve and release loan cash, and when they do, they give unfavorable loan terms. Fortunately, direct lenders approve and release loan cash quickly, and their loan repayment terms are flexible.
When the recent pandemic happened, one area that was notoriously affected was businesses. Restaurants closed down. Airlines ceased from operating. Malls, fashion boutiques, function halls, and beauty salons stopped functioning. Perhaps the only business establishments that stood the awful pandemic predicament were grocery and drug stores.
Fortunately, with the recent development and precautionary measures conducted, the businesses have slowly resumed their operations. But sadly, others have lost so much money that they will need to start from scratch and obtain corporate financing.
Hence, elaborated below are the tips to get a personal loan with the lowest interest rates to help business owners start all over again and regain what was once lost.
The loan that the business owners will obtain can be a personal loan. It is defined as a type of unsecured loan that will help these entrepreneurs with their financial needs, such as recovering from a terrible loss or survival.
So if you are a business owner, with this type of loan, you will usually not need any collateral or pledge within which to secure your loan. And your lender may provide you the flexibility to utilise the funds or resources according to your needs. However, although you are not obliged to post any security for your loan, you will still need to pay the agreed interest rates, as mentioned in the loan contract.
Of course, it is suicide for lenders to lend a loan without imposing any interest rate at all. Interest rates are indispensable in the lending business. Why? Because it is the amount due to the lender. They could not use their money since it was given to someone else like the borrower. Meaning, they could not enjoy and use their cash because they lent and gave it to someone else.
Imposing an interest rate is the remedy to that situation. Thus, an interest rate is an amount proportionate to that borrowed in which the lender charges the debtor and is mostly expressed as an annual percentage.
[ymal]
Follow any of these methods, and your business will surely recover and flourish:
As a business owner, you need to find the lowest interest rate personal loan. Your lenders will assess your credit history before lending you a loan. Thus, you must have maintained as spotless a credit history as possible so they will not hesitate to provide you the funding that you need. But if you have a low credit score, you must improve it to be lent money in no time.
You must make inquiries and shop around when it comes to looking for the most favourable lender for you. Choosing a lender requires a lot of research and planning to find the lowest interest rate. Ask around. Compare the terms and conditions. And study the rates and repayment schedule fees.
You must find a co-signer with an excellent credit history and reliable income when you apply for a personal loan for your business to increase your chances of getting approved at a lower interest rate. The reason is that your co-signer will guarantee the payment of your loan if you miss it. With that, your lenders will not hesitate to approve your loan application because they can run after your co-signer if you do not pay.
Indeed, you need lower interest rates for your business needs. Why? The reason is crystal clear. With lower or even flat interest rates, you can quickly obtain corporate funding and other products cheaper than they usually are. It also means that most of your money is applied to the principal instead of the interests when making monthly payments, making it easier for you to pay the whole unpaid obligation.
With lower or even flat interest rates, you can quickly obtain corporate funding and other products cheaper than they usually are.
It is common knowledge that businesses need money to earn money, increase their revenues, or recover from a mishap like the pandemic. But because all their business income had been utilised to survive, they would have to seek financing. And that is what corporate finance or funding is all about.
So, what is corporate finance? Corporate finance is akin to corporate funding, which is a means to provide money and resources for businesses. This means that a lending corporation, bank, or partnership involved in lending will provide capital, otherwise known as money, to the business owners for the latter’s survival, business expansion, improvements, or income-generating activities.
In short, corporate financing entities lend money to these business owners or grant loans but with interests for their benefit.
With all these tips and knowledge, you will not find it difficult to bounce back and resume your business. You need only to be determined and strong-willed to thrive again and for your business to thrive even in these difficult times.
Matt Cockayne, CCO of Yapily, outlines what embedded finance is and the role it plays in modern business.
“Embedded finance” could very easily become the next overused hype cycle. Another phrase that gets bandied about, over-hyped by the press and industry talking heads alike, but that ultimately fails to meet the weighted expectations placed on it.
Embedded finance is already happening. And what’s more, it will only continue to improve the experience for both consumers and businesses across multiple industries, not to mention keep the fintech ecosystem growing in the coming years. As with any new concept, however, there are a number of misconceptions surrounding embedded finance - what it is, what it isn’t and the role it will play in the coming years.
A decade ago, financial services was an industry in and of itself, along with the likes of education, commerce and healthcare. Fast forward to 2020, and financial services is the ultimate enabler - one that touches almost every single industry as they look to incorporate financial products and services into their native offerings.
More and more we’re seeing non-banking players launch their own financial services to open up new revenue lines and improve customer experience. Apple launched a credit card. Amazon offers loans to merchants who have “stalls” with them online. It’s this native integration of financial services into any non-traditionally financial app or service offering that characterises embedded finance.
As such, embedded finance can take on myriad forms. The simplest would be your local take-away or pub enabling you to order and pay for your favourite Chinese or tipple online from the comfort of your home. Something many in fact did during lockdown. But it can also go much further. Tesla, for example, offers its own car insurance to would-be EV owners during the sales process itself.
Sticking with insurance, gig-economy workers, like Uber drivers, often need extra insurance beyond their standard cover for when they’re actively working for specific companies. To help bridge that gap, Uber and other companies now provide various levels of cover to the temporary workers they employ. As we see even greater uptake of gig work post Covid, this type of service will only grow.
[ymal]
This is all well and good, though we’ve seen time and again new technologies and trends fail to meet expectations. But embedded finance is here to stay. Not simply because evolving customer expectations and a global pandemic have created the perfect petri dish for a radical reimagining of how and where the key functions of finance are delivered. There’s big money here too - the VC firm Andreessen Horowitz predicts it will increase the profitability of a customer five times over the original revenue stream.
Added to this, while Big Tech is currently leading the way, the most effective way for both banks and other fintechs to survive and emerge as winners in the coming years will be through partnerships. And the success of embedded finance is predicated on developing mutually beneficial partnerships across multiple industries.
As a lender, you can’t embed payments options for your customers online - thereby making it easier and more reliable for them to make repayments and enhancing their overall customer journey with you - without having a solid payments partner. One that has the best technical infrastructure and APIs that you can rely on to provide the quality payments service you want to give customers.
In the coming months and years we will see more partnerships emerge that facilitate embedded finance. Partnerships that will help the fintech ecosystem thrive in the coming months. Opening doors for new technologies, innovations and collaboration at the exact moment when it’s needed.
Some might believe that established businesses do not need financial aid, funding, or loans. The logic is those big companies are wealthy. It may be accurate, but owning stock or assets is not enough. A big company can sell items to inject some cash into their operations. It can apply for bank lines of credit. A working capital loan is the fastest way for a firm to keep things moving. Today, we will discuss this type of corporate loan. We will explain how it works and what corporations can access it.
Corporations use working capital loans to finance everyday operations. It is normal in the current economic landscape and the ongoing global health crisis. They could sell stock or get bank loans to fund investments. As many businesses know, this year was anything but ordinary when it came to daily operations. Even large firms need fast access to cash to pay debts, cover rent, pay employees, etc. A working capital loan is a financial instrument. It helps companies big and small to make it through periods of low business activity.
The definition of a working capital loan is simple. It represents the difference between your current assets and your liabilities. The resources can include accounts receivable, inventory, investment/stock portfolio, etc. The obligations can include owed payments to suppliers, debts, etc.
Most corporations receive unsecured business loans. It means that they are eligible for such funding without collateral. By comparison, small businesses and startups have to present guarantees. Corporations in need of a working capital loan can address a bank, governmental funding, and private lenders.
According to All Year Funding, alternative lenders offer loans to small and big companies alike. They do not push for perfect credit scores and collateral. In this context, startups and larger firms can access merchant cash advances. These types of business loans can quickly cover a company’s needs for money for daily operations. The advantage is that alternative lending works much faster than banks. Large food distributors, supermarket chains, and construction companies have access to loans in a couple of days. The limitation of such a loan is the payment threshold. A company needing a few million dollars should go to another type of lender.
Corporations use working capital loans to finance everyday operations.
When it comes to corporate funding, your best bet is the Small Business Administration. Do not let the name fool you. The entity allows you access to loans as high as $5 million. It depends on your working capital needs. Here are some popular SBA working capital loans for corporations:
Small businesses have their SBA microloans and 7(a) working capital loans to access. They also have private lenders to rely on in emergencies. In comparison, corporations need to meet rigid criteria to access SBA funding. A high credit score and no history of bankruptcy in the past three years are mandatory.
Before you jump at the opportunity of accessing working funds through a bank, the SBA, or private lenders, you need to know the pros and cons of this type of loan.
[ymal]
The global economy is taking some hits as of late, and they do not spare medium and large corporations either. Whether your lenders are banks, the SBA programs, or private financial entities, you need to make sure you meet their criteria. Working capital loans are great solutions to keep employees. They allow you to run the business through all your facilities and boost marketing efforts. You have to pick the best conditions for your company and make sure you pay on time.
John Ellmore, Director of KnowYourMoney.co.uk, investigates emerging trends in personal finance and the fintech driving it.
A lot has changed over the past 20 years. We are now living in a world where home assistants and smartphones have become the norm, and as a result of these great leaps in technology, people are increasingly relying on their devices to make their lives easier.
The coronavirus pandemic has only driven the need for such technologies even further. With the implementation of social distancing measures and nationally enforced lockdowns, consumers have seen a complete overhaul to their day-to-day lives. Consequently, 57% of consumers now prefer to use online banking tools to manage their finances; pre-COVID-19, less than half (49%) of consumers preferred online offerings.
With more consumers opting to use online offerings to look after their cash, it’s clear that this change in consumer mentality is here to stay, and it hasn’t just been limited to online banking.
The personal finance industry has come a long way since the turn of the century. Indeed, the rise of financial technology (fintech) has transformed the way in which service providers are able to engage with their customers. In short, fintech has simplified the complicated personal finance industry, making it far more accessible for the average consumer.
One factor which has been instrumental to such changes is the rise of comparison websites.
The previous two decades have seen a growing number of consumers relying on comparison websites to save money on everything from their car insurance to credit cards. And it seems that the popularity of comparison websites will not falter any time soon, with research from the Competition and Markets Authority revealing that 85% of UK consumers have used price comparison websites at some point in their lives.
The previous two decades have seen a growing number of consumers relying on comparison websites to save money on everything from their car insurance to credit cards.
So, what exactly has driven the popularity of comparison websites? Put simply, they take the effort out of researching and comparing financial options. By gathering all of the data and consolidating the available options in a clear and concise list, consumers have been able to investigate their choices without conducting hours of monotonous research.
However, it is fair to say that this this offering is in a constant state of change, and we are seeing the fintech industry adopting highly complex algorithms at a rapid pace. As these algorithms are now able to make rapid assessments of risk using an individual’s financial data, it is now possible for comparison websites to offer more targeted results. Consequently, the personal finance industry creating a more tailored, personalised service for consumers.
The growing popularity of comparison websites has been complemented by the rise of online banking. Indeed, consumers are now looking for convenient digital offerings from their banking provider, be it an established high street bank or a virtual challenger bank.
Consumers now demand easily accessible and user-friendly online platforms to make the management of their personal finances a far more streamlined. So, by offering smart analytics, user-friendly app designs and real-time payment notifications, banks have made it easy for consumers to always be aware of their outgoings and any fraudulent activity in their accounts. With saving made easier and safer than ever, now consumers can watch their wallets without ever having to leave the house.
It is clear that technology is playing an increasingly large role in the way we handle our finances, and the sector is primed for further innovation yet. So, with many useful developments in the pipeline, what does the future hold for the personal finance industry?
[ymal]
Traditionally, most consumers would assume that one could only receive personalised, tailored advice with the help of a human adviser. However, the future is digital, and such regulated advisers could soon take the form of digital chatbots, or “robo-advisers”, powered by artificial intelligence (AI).
At present, such customer-facing technology does exist, but is still in the very early stages of its development. Indeed, such “bots” are only able to provide generic guidance to basic consumer queries. However, at the current pace of AI developments, it’s likely that further industry disruption is on the horizon.
Whilst it is unclear exactly when such advancements will be ready for consumers to use, it is plain to see that the technology will inevitably be used to drive the personalisation of the personal finance sector. I predict that in the coming years, we will soon see a new generation of empowered consumers who are able to take advantage of the greater choices, transparency and hassle-free experience driven by the ‘fintech revolution’.
Ultimately, the days of one-size-fits-all advice are numbered. The modern consumer should expect a streamlined process, which not only offers a wide variety of products to choose from, but also is tailored to their specific needs. What’s more, they should expect providers to act upon their decision immediately. Whilst humans can offer this service to an extent, only technology can offer such a sophisticated service to the masses.
Naturally, this will have a knock-on effect on the way consumers handle their finances, and savers should be on the lookout for new innovations that might help them better manage their money in the years to come.
Katya Batchelor, banking and finance lawyer at Thomson Snell & Passmore, explains the consequences of the LIBOR transition and how firms can ensure they are prepared for it.
Despite the disruption caused by the COVID-19 pandemic, the regulators of the financial sector continue to focus on phasing out LIBOR and the deadline of the end of 2021 has not changed. After this date firms cannot rely on LIBOR being published, and whilst it may seem far away, the far-reaching scope and scale of the transition cannot be underestimated. To support the Risk-Free Rate (RFR) transition in sterling markets, the Bank of England began publishing the Sterling Overnight Index Average (SONIA) Compounded Index, a Risk-Free Rate that had been chosen to replace LIBOR in the sterling market, from 3 August 2020.
LIBOR is all-pervasive in many businesses. The LIBOR benchmark is used in a variety of commercial scenarios, including as a discount factor or reference rate in commercial contracts. LIBOR is also widely used as the reference rate for intra-group lending arrangements.
There are a number of significant differences between SONIA and LIBOR and the differences will impact the way firms manage their risk. LIBOR is a forward-looking term rate, which means that the rate of interest is fixed at the beginning of each interest period and is quoted for a range of different maturities. This method provides borrowers with advance visibility as to their financing costs. SONIA measures the average rates paid on overnight unsecured wholesale funds, denominated in sterling. It is, therefore, a backward-looking overnight rate, based on real transactions, with the interest rate being determined and published after the period. Compounding is done in arrears, which means that the borrower only knows at the end of the interest period how much interest it has to pay.
There are a number of significant differences between SONIA and LIBOR and the differences will impact the way firms manage their risk.
Borrowers are likely to face operational challenges if they lack certainty as to what payments need to be lined up in advance of the interest payment date. Market participants are actively looking for a satisfactory solution to this challenge as there may now need to be a distinction between an interest period and a payment date, or period to allow time to arrange payment. In order to provide some forward visibility, the parties may choose to start the reference period for the interest rate calculations several business days before the beginning of, and end several business days before the end of, the relevant payment period. Alternatively, parties may fix the rate a few days before the end of the interest period. In addition, borrowers may need to hold additional cash to cover any potential interest rate movements during an interest period, impacting the internal cash management processes.
Both lenders and borrowers are facing deadlines and challenges, the most important of which is the establishment of market conventions for calculating SONIA compounded in arrears. We have seen some development of tentative standardised documentation – a welcome step. Current recommendations from the Working Group on Sterling Risk-Free Reference Rates state that clear contractual arrangements should be included in all new and refinanced LIBOR-referencing loans to facilitate conversion, through agreed conversion mechanisms or an agreed process for renegotiation to SONIA, or other alternatives. Of course, both lenders and borrowers seek certainty in their arrangements, and the greatest certainty can be achieved by setting out in advance the terms of conversion at a future date.
As always it is essential to keep the lines of communication open between the counterparties, especially when any legacy contracts (existing contracts that do not mature until after the end of 2021) are dealt with.
The process of transitioning for firms is likely to start with a large-scale due diligence exercise. All existing and new documents that include LIBOR provisions need to be reviewed in order to determine what fall-back language is used if a benchmark rate ceases to become available. The changeover from LIBOR to SONIA or to any other alternative rate is likely to impact a number of provisions in facility documents (and documents that are “grouped” with them, like ISDA master agreements or any intra-group funding arrangements), not just the interest calculation. Those include interest payment provisions, payment and repayment dates, break costs and others.
All existing and new documents that include LIBOR provisions need to be reviewed in order to determine what fall-back language is used if a benchmark rate ceases to become available.
A SONIA loan (or any other RFR based loan) does not need any particular interest period selection. Selection of interest periods drives frequency of interest payments to be made and the duration of the compounding period: the longer the period, the more compounding there is.
The parties might want to revisit the prepayment and break costs clauses. Where the loan is not priced against a term benchmark, the arguments for break funding costs are more difficult to articulate. However, a bank receiving an unanticipated prepayment may still look to recover an amount reflecting its shortfall on redeployment of funds.
There is a real possibility that financial markets will evolve significantly over the next few years and so firms may want to transition to another alternate benchmark as the new financial products and markets become established. Therefore “replacement of screen rate” clauses in new and revised documentation should follow the market standard but allow for any flexibility required by the parties). Also, consider the triggers for applying the new rate. For example, should a new rate apply only if LIBOR is discontinued or should it also apply if some form of LIBOR continues to be published but on a different basis?
Complex financings involve multitudes of different parties and interests so it is important to be aware well in advance what involvement and consents are required; intercreditor agreements often contain restrictions so that the consent of another group of creditors is required to any amendments relating to the interest calculation and payment provisions.
It is essential to be mindful that the transition may result in accounting and tax issues. These may arise because of the uncertainty in the period leading up to the replacement and from the replacement rates themselves. When amending existing facility documentation, lenders particularly must be mindful of their regulatory obligations.
[ymal]
In addition to legacy loans the working group identified a narrow pool of “tough legacy” contracts that cannot transition from LIBOR. The working group defines tough legacy contracts as those which do not have robust fallbacks for replacement of screen rates and are unable to be amended ahead of LIBOR discontinuation. It strongly suggests a legislative route for dealing with such contracts.
The regulator has also identified that certain type of borrowers will ultimately require a forward-looking rate. However, the current understanding between market participants is that such forward-looking term rates may not be available until relatively late in transition process, if at all.
As the end of 2021 is looming, firms must start to prepare to transition away from LIBOR as soon as possible. We recommend conducting a thorough due diligence exercise on all relevant documents to identify the scope of the project and then holding discussions and making a plan for transition with all relevant counterparties. Internally, organisations need to identify systems and processes that need changing and understand how the change will impact them economically and from an accounting and tax perspective. Implementation may be complicated and have far-reaching consequences and it would be sensible to start the process of transition with plenty of time left.
For many years now, an increasing percentage of consumers have transitioned to using debit cards rather than cash. Many projections state that of all global currency, only 8% of it is physical currency, which shows just how prevalent and important the likes of credit and debit cards are to global economies.
Credit and debit card use is much more widespread than before, with users citing added convenience and time saving as major reasons, yet in 2020, COVID-19 has provided another reason for both customers and businesses to embrace cashless trading. By walking into essentially any store on the high street, you will likely find signs banning every transaction other than contactless payments, which shows that COVID-19 is accelerating society towards this cashless revolution.
Since the pandemic, many stores have opted for a cashless policy, whilst cash machine withdrawals have fallen by 55%. Due to the uncertainty surrounding COVID-19 and a potential second wave, this trend looks set to continue. Below, Southern Finance's Tom Simpkins explores the pros and cons of a business going cashless during the COVID-19 crisis, as well as what advantages going cashless may have for everyone after COVID-19.
Just as many adhered to the paperless revolution a decade ago, deciding to go completely cashless removes the need for expensive equipment that would have once been considered essential. Shops would have little to no need for tills, nor would the likes of safes be standard when all transactions would be handled electronically.
Deciding to go cashless may save time, money and effort in the long run, especially as it looks like it may be becoming the new standard. After all, the beginning of the UK’s lockdown in March saw the use of physical currency in stores drop by approximately 50%, and with lockdown measures fluctuating, the rest of the country is seeing little reason to return to relying on physical cash.
Deciding to go cashless may save time, money and effort in the long run, especially as it looks like it may be becoming the new standard.
‘Staying ahead of the curve’ is always a wise move, especially if you’re trying to get a one-up over your competition. By embracing the new standard in an ever-growing cashless society, you can adjust to the new challenges that it brings, such as a focus on convenient technology. An example of this would be to invest in contactless payment points, digital tablets, and other equipment that can make life easier for customers and workers in almost any industry, ranging from the restaurant industry to retail.
Cashless transactions aren’t just efficient due to saving time counting out physical currency, it also promotes smoother transactions for businesses in general. By primarily dealing with cashless transactions, businesses will have less stress handling physical currency, such as handling bank deposits or concern over germs. Proof of this latter point was seen in China during the early lockdown efforts, as thousands of banknotes were destroyed from fear of being contaminated.
Certain businesses and industries such as those that specialise in transportation have already seen a boost in efficiency, so much so that it feels like there’s no going back from cashless for them. A prime example of this would be buses, as before COVID-19 there were various pushes to encourage using contactless card payments as opposed to paying in cash, yet now that necessity demands contactless payments this push has become much more important.
As to be expected, cashless transactions are also much more convenient for customers, thanks in no small part to the abundance of digital wallets available. Along with credit and debit cards, most smartphones are capable of being connected to bank accounts and serving as digital cards; the likes of Apple Pay and Google Pay are already immensely popular. By being able to make a payment by placing a phone against a card reader, customers can make everyday transactions quicker than conventional methods, like fishing out a credit card.
[ymal]
Of course, no system is perfect, and some raise large concerns with a truly cashless society. From a reluctance to adapt to a cashless society to concerns with banking security, going completely cashless requires plenty of willing participants. While we’ll likely never see a day where physical currency is worthless, many are still confident in its staying power, along with the sense of security that physically holding currency provides.
Resistance to a cashless society isn’t new to the COVID-19 crisis, as the Access to Cash Review once called on the government and lawmakers to stop shops offering cashback, especially when the request was made without making a purchase. This continued push has persisted even to 2020, with the government’s budget in March detailing further protection for those that want reliable access to cash. Just as some don’t wish for a cashless society, many still rely on cash and face-to-face banking.
There’s also the age-old problem of disclosing too much information, as many fear that cashless transactions risk their banking information being stolen. Experts in the financial industry are attempting to address this issue, such as fintechs, who strive to assist electronic payments without the use of bank accounts. The truth is that when using cash, you don’t often grant the opportunity to access your banking details, and even the possibility of that happening is enough to put many people off the notion of a cashless society.
While arguments can be made both in favour of and against a truly cashless society, COVID=19 has made it clear that many businesses can either thrive from it or need to go cashless to survive. The amount we rely on cashless transactions, as well as how common they become, may depend on how quickly we can handle and eliminate COVID-19, yet it’s becoming likelier by the day that the pandemic's impact will be long-lasting, if not felt forever.
Whether this extends to being a completely cashless society or not is yet to be seen, but for now it’s clear that during a pandemic and the lockdown going cashless is a safe move, no matter what industry it’s utilised in.
