When you're applying for a mortgage, auto loan, personal loan, or any other loan, you want to get the best outcome. However, your loan application may not go well all the time. It's because lenders consider a range of factors to ensure that they are extending the loan responsibly.
If you don't know what your lender is looking for, it can be more difficult for you to get approval. It would be best to acquaint yourself with the different factors that may significantly affect a lender's decision on your loan.
Before handing in your loan application, you may read through the following factors to help you get the most favourable response from your lender.
Lenders look at different factors when making loan decisions. While some of them are lenient when loaning the money, others can be remarkably strict. It's also worth noting that every lender is different and may place a greater weight on different factors. Many lenders look for trustworthy borrowers to minimise the risks of lending money.
Nevertheless, below are the factors that lenders usually consider when deciding on your loan.
Knowing them by heart can make the difference in qualifying for a loan and getting it at a good interest rate.
Typically, lenders will examine your credit report to know how you've managed your credit with other lenders in the past. Different relevant information that lenders are likely to see on your credit file, but your payment history will probably have a large bearing on your loan application.
Typically, lenders will examine your credit report to know how you've managed your credit with other lenders in the past.
If you didn't incur missed or late payments in your past credit accounts, they may consider you creditworthy. But your payment history, along with other details in your credit report, is basically encapsulated in a single number known as credit scores. Such scores may range between 350-850, and the higher they are, the better off your loan application will be.
It is important to remember that lenders prefer loaning money to borrowers who they have confidence will repay the loan as agreed. With that, they will certainly use your debt-to-income ratio (DTI) to determine how much you're earning and currently owing.
Although each lender has different requirements when it comes to your DTI ratio, they usually prefer a percentage that is not higher than 36%. If your monthly gross income is $5,000, your total monthly debts should not exceed $1,080. The lender's goal is to make sure you have enough income to make payments on new debt.
The amount you want to borrow and how you plan to use it can also affect a lender's decision on your loan application. Basically, it's one of the bases that lenders use to determine how much interest they will charge. If you borrow a larger amount, you are also likely to pay more interest on your loan. But a 20% down payment may help you get less interest.
Depending on the type of loan you'll borrow, lenders may also require you to put up collateral. But they usually do that when you're applying for a substantial amount. Lenders would want you to secure your loan so that they have a sort of protection if you miss payments. The loan purpose may also have some bearing on your application, depending on your lender.
The amount you want to borrow and how you plan to use it can also affect a lender's decision on your loan application.
The length of time you'll be paying the loan plays an important role in the lender's decision. Note that they will usually feel more comfortable lending you the loan for a shorter time. It's probably because you're less likely to default on the loan if you have to pay it sooner. But of course, it would mean a higher monthly payment on your part.
Lenders often take into account your liquid assets when you apply for loans like a mortgage, auto loan, or home equity loan. If they see that you have funds or assets that you can easily turn into cash, lenders may give you lower rates or better terms. It gives them reassurance that you have a financial cushion to fall back on quickly to make repayments even if you lose your job.
Besides the factors mentioned above, it's worth noting that the type of lender you choose can also make a big difference on your loan application. If you want to increase your chances of approval, you may have to go to a lender that best suits your needs and qualifications.
It would help to get yourself acquainted with the following types of lenders and see where you most fit in.
Traditional lenders typically refer to banks and credit unions. For such a long time, they were only the sources for loans and lines of credit. Among all the available commercial lending options, traditional lenders may offer the best terms. But the problem is, they are harder to qualify for since they have stricter application requirements.
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On the other hand, alternative lenders have been around for only a decade. They are also known as online lenders, and they are not subjected to the same level of regulation as banks and credit unions. They often have more lenient qualifications and much faster turnaround times than traditional ones. However, these lenders may charge higher interest rates.
There are various financing options everywhere. However, they are not all created equal. If you want to get the best terms possible, you must take the time to shop around different lenders and work on what they're looking for.
Fortunately, there were only two asbestos bankruptcy cases filed with law firms in 2019. This is the lowest number in any given year since the special asbestos bankruptcy trust and channeling injunction stature was enacted through Section 524(g) of the Bankruptcy Code.
However, there were several mass tort lawsuit instances in 2019. Due to natural disasters and road construction issues around the world, mass torts have become necessary. These types of torts have also come about due to organized sexual abuse cases, the opioid crisis in the US, and the instances of ovarian cancer due to exposure to the asbestos-contaminated talc in Johnson & Johnson baby powder.
2019 also marked an uptick in bankruptcy filings by non-asbestos debtors seeking to address potentially crushing liability caused by other types of mass torts, such as wildfires in California and a bridge collapse in Florida.
Debtors in non-asbestos mass tort cases now seek to emerge from bankruptcy cleansed of their current liabilities and protected from future claims by an injunction that “channels” such future tort claims to a trust established to resolve and pay claims, using procedures that are based on those in § 524(g).
For some mass tort cases, a trust was established to resolve these cases and pay mass tort claims. This is one of the main reasons that people who felt they might have a case if they were injured or harmed by using a product or resource filed a mass tort.
Fortunately, there were only two asbestos bankruptcy cases filed with law firms in 2019.
The trust ensures that every plaintiff involved in the case receives a small percentage of the settlement funds that are awarded when the attorney for the plaintiff(s) wins the case. In 2019, trusts were established for the asbestos mass tort cases filed against Duro Dyne National Corp, Oakfabco, and Maremont Corp, and for a sexual abuse mass tort against the Diocese of Duluth.
This year was also the year that Magnum Construction Management, LLC received a mass tort lawsuit when a pedestrian bridge collapsed in Florida.
A mass tort is essentially a civil action that a group of plaintiffs takes against one or a few defendants. The case can be tried in federal or state court. A tort is filed if a business' products or services caused significant injury to several individuals. That is why city government entities, medical facilities, and prescription drug companies are often the defendants in mass tort cases.
Before you can determine if you officially have a mass tort case, an attorney will review several records and statements made by other plaintiffs in your case. The lawyer will also go over the allegations about the injuries sustained by you or other individuals involved in your case.
A mass tort lawyer will also have to assess several years' worth of your medical records. This means an attorney will review your entire medical history to determine if you have enough evidence to bring your case to court.
Lawyers who are presiding over a mass tort case will also have to check to ensure that allegations and verbal/written accounts are consistent among all the plaintiffs involved in the case. If each of the people looking for compensation has similar complaints about the defendant's products and services, the judge may be more likely to rule in favor of the plaintiff.
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If you are part of a mass tort lawsuit or think you may have one, be sure to consult with a qualified attorney to find out if you have a valid case and/or are entitled to compensation.
Debt doesn't have to be a fact of life, although many people look at it that way. They assume that it's normal to owe money and may not even pay attention to how much they are paying in interest or how long the payments will take them at their present rate, which could be decades. Others might be struggling to keep up with their bills and wonder if they will ever be in a better financial situation. Wherever you are on this continuum, it is possible to pay off debt fast using the steps below.
Your first step is to take a serious look at your finances and figure out how much is coming in, how much is going out, and how much you owe. For now, just make a list of your total debts, excluding your mortgage since it may be more beneficial to pay this one off over time. Now, review your spending and look for places where you could cut back. Dig deeper than simply cutting back on your entertainment budget or buying cheaper groceries.
For example, could you be paying less for car insurance? What about moving to a cheaper apartment or getting roommates? If you have looked at ways to cut back and not found many, you might need to consider taking on another part-time job or looking for a higher-paying one. Another option is gig work, which can mean anything from dog walking to computer programming and more and is easy to fit around your regular schedule.
The next step is to look at ways to reduce your debt in addition to paying it off. For example, interest on your credit cards is probably very high. Rather than continuing to pay off a little each month, a better option might be to take out a personal loan from a private lender. You can check your estimated interest rate, and it is likely it will be lower than the credit card rate. You can then use the loan to pay off the credit card in full and then turn to paying off the loan at a lower rate.
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Next, you should decide whether you would prefer to pay off your smallest debts first or those with the highest interest rates first. The latter is the more financially sound approach because you will end up paying less in the long run. However, some people find that the former method is more motivating. The main idea is for you to stick to your plan, so choose the one that is the most appealing to you.
Make a list of the debts in the order that you will focus on them. Whichever one you begin with, put the majority of your money set aside for these payments toward that. On everything else, simply make the minimum payment. When that first one is paid off, add what you were paying on it to the minimum payment on the second item on the list. As you proceed through the list, the payments you make on the main debt will grow larger.
Annie Button offers her advice on debt management and how investment stacks up against simple repayment.
It is an interesting question that many people will have to face at some point in their lives: if you have some extra money, is it best to use it to invest in something that will hopefully give a profitable return, or pay off previous debts that you have accumulated?
As with virtually all matters of money, this is very much a question that can be answered only by looking at your personal circumstances. Your current budget and your plans for the future have a serious effect on the best moves to make with your money.
Investing can provide you with a greater amount of money than when you started, which could conceivably make it easier to pay off debts in the future. But at the same time, large debts mean expensive interest payments, and these can actually hinder your ability to save extra money and continue investing.
Here we take a look at your options when it comes to using extra money in the wisest way: should you invest, or should you pay off debts?
Debt is a real problem. In the UK, households have an average of over £60,000 in debt as of October 2020. And yet, this is an inevitable part of living. Without taking on debt, the majority of the country would not be able to buy a property or make major purchases such as cars.
Sometimes, unforeseen events force individuals to take on debt - such as in the case of needing emergency repairs to a property. Credit card debt is also very common, with many preferring to make purchases and defer payment to later.
However, it is important not to lump all debt together. Some debts - such as mortgages or student loans - come at a relatively low rate of interest compared with others such as personal loans or credit cards.
Without taking on debt, the majority of the country would not be able to buy a property or make major purchases such as cars.
Credit report providers Experian state that “prioritising the debt with the highest interest rate will save you more money and allow you to redirect funds to other financial goals faster”, and this is a good place to start.
In general, it is always best to pay off any high-interest debt as soon as possible. This is simply because any investment that you might make needs to achieve a better return than the rate of interest that you are paying on your debt. This is clearly harder with high-interest debt.
It can be very tempting to look at the extra money that you have available - whether it comes from savings, disposable income, or a financial windfall - and see the opportunity to turn it into more.
This is especially true coming out of 2020, where many people have seen their financial situations change drastically. But is 2021 the right time to invest?
Of course, everyone is facing uncertainty due to the COVID-19 pandemic and while this can be worrying it can actually make things interesting from an investment point of view. Typically the market responds poorly to uncertainty and challenges.
We are in a situation where the pandemic has caused shares in many previously profitable and successful businesses to fall dramatically. With vaccines now available, and a more positive outlook on the horizon, it may not be long before the stock market begins to stabilize. As such now could be an ideal time to invest.
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No matter your financial situation, it is a great idea to take financial advice before making any move relating to investments or debt. As mentioned above, this really can come down to the specifics of your situation and a financial adviser can help with this. In fact, it can be advisable to look at specialists offering wealth management services.
“Wealth management is important,” says Jonathan Baggot of Numeric Accounting; “it is all about aiming to sustain and grow long-term wealth. The financial market is complex, so wealth management specialists have the knowledge needed to explain plans and schemes clearly and concisely while offering impartial and unbiased financial planning advice”.
Paying off debt is important - but making smart investments as early as possible is best if you wish to reach your financial goals. Everyone’s individual financial situation is different, so following the advice of professionals is a great way to make smart decisions.
This is likely because of the common misconception that any form of debt is bad. While it's true that debts have negative effects, they are also good for several reasons.
Financially responsible consumers take out personal loans to purchase their dream home, finance their car or fund their education. Debts have positive outcomes if you know how to manage them responsibly. But it should be noted that debts, such as personal loans, are not for everyone. They can be a smart move, but only depending on your situation.
Nevertheless, knowing how you can benefit from a personal loan is an excellent place to start to decide if a loan is right for you. Here, we discuss the potential advantages of getting one.
One of the notable benefits of personal loans is their flexibility. Unlike other types of loans, there are no restrictions on how you will utilise a personal loan. You can use the fund for almost anything. However, it's worth noting that not all purposes are financially healthy for you.
If you want to make use of personal loans to your advantage, here are some of the sensible options:
It's always good to have a fund set aside for emergencies. But that is not always the case for everyone. Many people don't have the cash to cover unforeseen expenses like a sudden car repair or medical bill, based on a report. If you find yourself in the same predicament, you can use online installment loans from a direct lender to take care of financial emergencies immediately.
Unlike other types of loans, there are no restrictions on how you will utilise a personal loan.
There are also instances when you have to fund a major purchase, such as buying a necessary household appliance or installing a new furnace. Paying for such a large purchase on a higher interest credit card can be too expensive. Taking out a personal loan can be your cheapest option without having to put up any collateral unless you have spare cash.
If you're having a hard time paying off existing debts with high-interest rates, you can consolidate them through a personal loan. With a low-interest personal loan, you can save money and reduce financial stress. Because instead of paying different loans with different due dates, you will only be paying one debt every month.
Interest rates on personal loans are usually reasonable. In fact, their rates are typically much lower than credit card rates. If you have a good credit score, you can get as low as single digit interest rates on a personal loan.
Remember that the interest you pay on loan is the cost you pay for borrowing. Thus, the lower the interest rate is, the more money you can save. What's good about personal loans is you have various options to pick on since many lenders offer them. By shopping around different lenders, you can easily find the best rate for you.
Taking on debts can be stressful. You have to make adjustments in your budget to ensure that you can make monthly repayments on time. Else, you can incur penalties and more interest on your debts. But you can minimise this emotional toll with a personal loan because it has a fixed interest rate and predetermined term.
It means that you know exactly how much interest you'll pay and when you will be done paying off your debts. With a set rate and payment schedule, you can easily manage personal loans in your budget and stay in control of your finances.
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Like any other loans, personal loans may be able to help you boost your credit score if you use them responsibly. Consolidating your debts in a single personal loan is the most obvious way it can help you improve your credit score. But then again, only if you make your payments on time and pay the full amount required.
Another thing is that replacing your credit card debt with a personal loan can also boost your credit score. Note that lenders may consider you a higher risk if your credit utilisation is too high. But since a personal loan is an installment loan, it is not factored in your credit utilisation ratio.
There is no particular rule that allows you to deduct personal loans automatically on your tax bill. However, there are possible cases where you gain tax benefits under a personal loan. If you use the loan to invest in a business, you can claim the interest paid as an expense, which you can deduct from your taxable income.
You can also claim a tax credit if you take out a personal loan to purchase a home because the mortgage interest is deductible, provided that it is your primary residence. The same applies when you use the loan to fund a college education.
Personal loans come with certain benefits. However, it is always important to remember that it depends on how you utilise the loan. To ensure that you're making a sound decision. It would be best to consider your purpose in taking out the loan. Doing so can help you maximise the advantages of personal loans.
The Fair Debt Collection Practices Act protects consumers from unfair debt collection practices. This law applies to third-party debt collectors for personal debts. It doesn’t involve creditors who are legally attempting to recover debts owed to them.
The laws in your state may also protect you beyond this act. In addition to certain practices for collecting being annoying, many are also illegal. As a result, it’s helpful to know about these five unlawful debt collection practices and how to spot them.
One of the biggest complaints consumers have is being asked to pay debts they do not owe. By law, if you don’t owe the debt in question, you have a legal right to request, in writing, that you want verification of the debt. You can also request that the debt collector cease all contact with you. Doing this in writing is wise as it ensures that you have proof that you made the request.
In many cases, when collectors try to claim a debt that you don’t owe, you may be a victim of identity theft. Always check your credit report to see if there are any mistakes or unusual activity.
By law, a collector must provide you with written notice of the debt they are trying to collect from you within five days of the first contact. They must include the amount of that debt, the original creditor to whom the debt is owed, and a statement of your right to dispute the debt. If you do not receive this notification, you can file a complaint with the Federal Trade Commission. If you do receive written notice, it should include all the details of the debt.
Collectors are prohibited from harassing you when they call or contact you by any other means. This is the law. At the same time, the FDCPA doesn’t specify a set number of calls debt collectors can make within any given time frame. Instead, the court can determine what is appropriate and what is considered harassment.
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You can take note of the days and times you receive calls and record messages as evidence. Collectors also cannot legally contact you before 8 AM or after 9 PM unless you’ve expressly allowed them to do so.
According to the law, debt collectors are not allowed to threaten legal action or wage garnishment even if you do owe a debt. Likewise, they aren’t allowed to threaten you with jail time or a poor credit rating unless they have the authority to do so. Such threats violate the FDCPA. Collectors must first sue in court and actually win their cases before they can take any legal action against you.
You can look up a list of debt collectors in the United States and read up on the actions they can legally take.
Debt collectors are prohibited from using false statements or representations to force you into cooperating with them. This rule holds true even if you owe a debt. If they claim an affiliation with a government or state, tell you that you will face prison time, lose property, or have your wages garnished, or even imply that you committed a crime, it violates the FDCPA.
If you have been harassed by debt collectors who are violating the law, you need the assistance of a skilled attorney.
In that case, bankruptcy serves as a last resort that will allow you to make a fresh start.
While filing for bankruptcy is a solution for many people in bad financial situations, you must be able to qualify for either a Chapter 7 or Chapter 13 bankruptcy. This guide will help you determine which option is best for your situation and what to do with your fresh financial start.
A Chapter 7 bankruptcy is often the most desirable form of debt relief because it involves discharging or dismissing all of your unsecured debts. Typically, any assets you own will be seized by the court and liquidated to relieve some of your creditors. Anything else will be discharged.
In recent years, federal laws have been updated to ensure only those in severe financial distress can qualify for a Chapter 7 bankruptcy, so a means test has been initiated.
In order to pass the means test, your monthly income cannot equal or exceed the average income for families in your state. If you fail the means test, the court will assume you have enough money left over each month to pay your debts off, and that will disqualify you from declaring bankruptcy.
If you believe you will fail a means test, professional bankruptcy lawyers recommend their clients file for Chapter 13 bankruptcy. This is different from Chapter 7 because your debts are not discharged. Instead, you and your attorney will have to draw up a payment plan that consolidates your debts under the court's supervision.
There are a few requirements you'll have to meet in order for the court to allow a Chapter 13 filing. First, you'll have to show that you have a regular source of income that will enable you to meet the obligations of a repayment plan. Additionally, the plan must be structured to ensure your debts will be fully repaid in three to five years.
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The court also restricts the amount you can seek in debt relief. You can owe no more than $394,725 in unsecured debt and no more than $1,184,200 in secured debt. You are also not allowed to have filed for Chapter 7 over the last four years or a Chapter 13 within the past two years.
Even though your debts have been discharged, you may still have some work to do in rebuilding a good financial profile. This will likely include attending a court-ordered credit counseling course. You should also make a habit of checking your credit reports with the three main credit bureaus to make sure your debts have been discharged.
Any remaining debts should be paid off as quickly as possible but be sure to make all the minimally required payments on time. Just one late payment can destroy your credit rating and sabotage any progress you have made so far.
Even though a Chapter 7 stays on your credit report for 10 years and a Chapter 13 stays on your credit report for seven years, you can start rebuilding your credit score immediately. In addition to paying debts on time, getting a secured credit card can help you establish good credit sooner.
You can also help your credit score by maintaining lower balances on any credit cards you still have. All of these methods can be combined to show lenders that you're a low risk client, while also boosting your credit score over time.
Following this guide can help you start a new life for yourself, but, if you don't learn financial responsibility, you'll end up right back where you started. Even if a bankruptcy judge doesn't order it, taking a personal finance course can give you a more thorough understanding of the concepts related to financial responsibility. When you complete the course, you'll know how to build and maintain good credit, which is one of the keys to obtaining a better financial flexibility.
Mat Megans, CEO at Hyperjar, examines current patterns of debt and spending and discusses how the status quo might be changed.
COVID-19 has impacted everyone in different ways. On an economic level, it was the tipping point that burst the bubble of expansion that started after the Great Recession ended in 2009. Now we are in a new recession caused by deliberate, but necessary, actions to try and prevent the rapid spread of the virus. Actions which have hammered the economy. Central banks around the world had to drop interest rates, often to as close to zero as makes no odds, to try and stimulate demand. The average UK consumer is facing this grim situation whilst sitting on a pile of debt even larger than the previous peak in 2008.
The Great Recession was a crisis of our own making that almost took down the global financial system. It caused such a scare that governments around the world implemented various regulations to try and prevent a repeat ever happening again. In the UK, one such regulation was ring-fencing, the set of rules that apply only to UK banks with more than £25 billion of core deposits. The main objective is to separate essential banking services from riskier lending activities – to try and avoid key banks dabbling in esoteric products like CDO-squareds and sub-prime mortgage securitisations. These indirectly led to people lining up in the street outside Northern Rock asking for their deposits back. Ring-fencing has definitely succeeded in making these deposits safer, but has also made it more difficult for many banks to earn attractive returns on capital.
This creates two side effects:
Ring-fencing has definitely succeeded in making these deposits safer, but has also made it more difficult for many banks to earn attractive returns on capital.
I believe these conditions contribute to a number of trends seen over the past decade. Unsecured consumer debt has risen to all-time highs. Consumers are bombarded with offers for credit to buy almost anything, in almost every way imaginable – on social media, at the checkout till or online basket, in the post, at the ATM, on television. Fintech has also participated in driving innovation to make accessing credit easier and more prevalent with a strong increase in Buy Now Pay Later services at checkout.
The net result of this mountain of unsecured debt? Many people find themselves in very difficult situations as the expansion ends and recession sets in, leading to higher unemployment and increased personal financial difficulty.
Yes, we have a heavily indebted consumer. But debt isn’t always bad. In fact, some debt is a tool that creates significant happiness and wealth, for example: mortgages. A small deposit can help buy a house, and even modest levels of price appreciation over the long term can net attractive returns, or allow for mortgage repayments which are lower than the rent for an equivalent property. I call this good debt, debt used to generate positive returns and outcomes. Then you have other forms of good debt which arise through unplanned necessity, for example debt used to buy a car that’s essential for work, or a broken boiler that needs to be repaired.
Bad debt is none of this. It’s debt used to buy depreciating assets such as a nice pair of shoes or the latest gadgets that do not generate real, absolute or relative financial returns. Problems can often arise as bad debt accumulates, sometimes on top of necessary good debt. What inevitably happens is those with the smallest financial buffer have the worst debt, and this means they suffer more in a recession.
It’s not all dark and gloomy. We can do a lot. It has become a cliché, but in this case, we really can build back better, and not just as a political slogan. Perhaps we can rewire society’s relationship with spending and debt:
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These factors set up an opportunity to reset and to think about fintech business models which are designed around savings, not around debt. At HyperJar we are working with a group of forward-thinking retailers to offer attractive rewards to consumers who can commit funds that will be spent with them in the future. The funds are safely held at the Bank of England until our customers are ready to spend it. On top of the rewards, which grow dynamically over time when money is allocated, you’re less tempted to spend on things you don’t need. A win-win between shoppers and the places where they shop. That’s a future we think is possible and worth trying to build.
Finance Monthly hears from Lynne Darcey-Quigley, founder and CEO of Know-It, on the problem of fraud plaguing UK firms and how they can protect themselves from it.
Throughout the 1960s, Frank Abagnale famously faked eight different identities, including a pilot, lawyer and a physician, to gain free flights and defraud banks. There was subsequently a film titled ‘Catch me if you can’, starring Leonardo DiCaprio, made about his life and how he conned people. Arguably his most ingenious (or in fact worrying) tactic was his ability to write personal cheques on his own overdrawn account. This, however, would work for only a limited time before the bank demanded payment, so he moved on to opening other accounts at different banks, eventually creating new identities to sustain this charade and continue to defraud financial institutions.
Although time has passed and technologies and systems have been put in place to weed out the Frank Abegnales, the issue of fraud and financial crime continues to linger. This has been made plainly obvious throughout the COVID-19 pandemic, where the Coronavirus Bounce Back Loan (BBLS) scheme has been plagued by fraudulent applications.
As a result, the National Audit Office (NAO) has estimated that taxpayers could lose as much as £26 billion from fraud, organised crime or default, as up to 60% of the loans may never be repaid.
For businesses across the UK, this may not be a surprise. Even before the pandemic, a study from PwC found that half of all UK companies had been the victim of fraud or economic crime between 2016 and 2018. The research found that for more than half of the organisations affected, criminal activity resulted in losses of around £72,000.
Fraud and financial crime, therefore, has clearly not been born as a result of the ongoing COVID-19 pandemic, nor will it diminish once the virus has passed. The case of COVID-19 loan fraud should, therefore, provide businesses, government and other stakeholders with a wake-up call and a chance to reflect on how they can reduce the risks of falling victim to financial fraud. But what lessons can these stakeholders learn and what needs to change?
Even before the pandemic, a study from PwC found that half of all UK companies had been the victim of fraud or economic crime between 2016 and 2018.
We understand that the issuing of COVID-19 loan schemes was a unique situation. Lenders have been under huge amounts of pressure to approve loans quickly and help support struggling businesses. Unfortunately, this simply doesn’t give them the time they need to conduct the checks that are needed to protect themselves from fraud and financial crime. Yet this echoes similar findings from PwC’s research from a few years ago: UK organisations are generally not doing enough to prevent fraud, with only half carrying out a fraud risk assessment in the last two years.
Regardless of whether your organisation is an SME, a large enterprise or a national government, basic and thorough credit checks must be in place as part of the process of protecting your business. Through establishing the validity of a customer your business is looking to establish a working relationship with, you are immediately reducing the risk of exposing yourself to fraud or financial crime. But why stop there? Compiling credit reports and verifying a business’ status on Companies House before committing to a commercial arrangement are also effective measures that can help protect your business.
These checks go a long way for business owners, particularly SMEs, as late payments and of course, fraud, can cause disruptions to business cash flow. Cash flow issues can prove fatal for smaller business owners, which is why credit checking, building credit reports and validating other businesses and its financial status is key to survival.
When it comes to government support loans, businesses do not have to begin paying back the money from May 2021 onwards. However, this time large time period isn’t a luxury when it comes to collecting payment from customers. Consequently, implementing a responsive and robust debt recovery process is essential to minimising the risk of non and late payment issues, helping business protect their cash flow and minimise risk.
Agreeing and making a record of credit terms in advance ensures that no business transactions can be disputed, which could later lead to businesses losing out on payment from customers Under the BBLS, the government provided lenders with a 100% guarantee for the loan. For SMEs in particular, this approach simply cannot be taken, especially if debt recovery steps, such as ensuring credit terms between businesses, are not agreed and recorded beforehand.
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Chasing owed payments is far easier after the checks to validate a business have been made. Businesses can take measures which include; credit holding, which involves pausing services to a client until they have paid. Issuing final notices is also essential to the debt recovery process, the final correspondence before taking up legal proceedings usually resolves any delayed payment issues. The problem facing the government is that fraudsters applying for support loans will do so illegitimately, therefore remaining anonymous and slipping through the debt recovery net. This reiterates the importance of verifying and checking recipients during the early stages of a business agreement, as this eases the rest of the debt recovery process.
However, it is not just the initial checks before the first commercial transaction that must be invested in. To truly protect themselves, infrastructure must be put in place to continually monitor and chase customers. In larger businesses it is common to have a designated department or employee who will handle this process – usually this person will be known as a ‘credit controller’. Yet, we understand that many – particularly smaller businesses – do not have the resources readily available to continuously check the credit status of their customers and conduct due diligence.
Fortunately, this is where advancement in technology play a critical role. For example, by using technology to automate the credit control process, this can help businesses streamline this process so they can credit check and monitor and conduct due diligence, all from one place. Automating this process, firms can collate the information and identify areas of concern, without expending huge amounts of time and precious resources, ultimately helping them to limit risk and reduce fraud.
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.
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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.
Multinational cinema chain Cineworld saw the value of its shares surge on Monday following an announcement that it had secured new loans worth $450 million and waivers for its debt covenants until January 2022.
In addition, Cineworld announced that it will issue equity warrants worth around 11% of its share capital, and that its new debt measures have given it over $750 million in extra liquidity and allowed its monthly cash spend to be reduced to around $60 million.
The company also extended the maturity of its $111 million incremental revolving credit facility from December 2020 to May 2024.
“Over the long term, the operational improvements we have put in place since the start of the pandemic will further enhance Cineworld's profitability and resilience,” said Mooky Greidinger, CEO of Cineworld Group.
“The group continues to monitor developments in the relevant markets in which we operate and our entire team is focused on managing our cost base.”
Cineworld has been struck hard by the COVID-19 pandemic, with government-imposed restrictions on public gatherings forcing it to close its theatres and make heavy layoffs.
The news of its new debt relief elevated Cineworld shares by 19.5% in early trading, reaching 55.08 pence per share. Last year saw a high of £2.27 per share, having since fallen by 77% since the onset of the COVID-19 pandemic.
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Cineworld has also emerged as the UK’s most shorted stock, with around 9.51% of its shares held short by 10 investment firms, according to analysis from GraniteShares.
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.
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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.
