Even the most experienced business owners have difficulty understanding the relationship between the interest rate and the points or fees associated with their loans. The reality is that the two are directly related in that "points" are nothing more than interest that is charged up front. The actual rate and number of points a borrower pays is largely dictated by the quality of the borrower’s credit. As the credit quality decreases, the interest rate, points and fees increase. This is because these loans are more difficult to fund and pose a greater risk of default to the lender.
Often the price of a business loan is stated in terms of an interest rate, points and other fees. A point is a fee that equals 1 percent of the loan amount. Points are usually paid to the lender, Smith Capital And Finance, or both, at the settlement.
Often, you can pay fewer points in exchange for a higher interest rate or more points for a lower rate. Ask Smith Capital And Finance about points and other fees.
A document called the Truth in Lending Disclosure Statement will show you the Annual Percentage Rate (APR) and other payment information for the loan you have applied for.
The APR takes into account not only the interest rate, but also the points, mortgage broker fees and certain other fees that are associated with your loan. Also, ask if your loan will have a charge or a fee for paying all or part of the loan before payment is due (prepayment penalty).
A lender may require you to obtain certain settlement services, such as a new survey, mortgage insurance or title insurance. It may also order and charge you for other settlement-related services, such as the appraisal or credit report. A lender may also charge other fees, such as fees for loan processing, document preparation, underwriting, flood certification or an application fee. You may wish to ask for an estimate of fees and settlement costs before choosing a lender. Some lenders offer no cost or no point loans but normally cover these fees or costs by charging a higher interest rate.
Be Careful
If you see advertisements for lenders offering extremely low rates, don't be misled. Most of the time these very low rates refer to the starting rate on an adjustable rate mortgage or graduated payment mortgage. In other cases, the rate advertised may be for a balloon loan. This is a loan where the remaining balance will have to be paid off early. An example of this is called a 30 due in 5. In this type of loan your payments are based on a 30-year term to make them affordable.
The remaining balance of the loan however, must be paid off at the end of the 5th year. This means that you will probably have to refinance the loan or sell the house at the end of 5 years to satisfy the debt. Locking in your rate or point at the time of application or during the processing of your loan will keep the rate and/or points from changing until settlement or closing. Ask if there is a fee to lock-in the rate and whether the fee reduces the amount you have to pay for points. Find out how long the lock-in is good, what happens if it expires and whether the lock-in fee is refundable if your application is rejected.
Finding business financing that you can operate with for the next 30 years is a serious business. Ask about alternative kinds of business loans in your area. Compare rates, down payments, and closing costs among different types of lenders. Here is where a Smith Capital And Finance can save you time and money.
There is no single nationwide finance rate; interest rates can vary according to the amount of the business loan, the length of the loan and from lender to lender. Look at the entire package that's being offered, including the fine print about penalties and assumptions. The more knowledgeable you are about the loan process, there will be fewer surprises in store for you at closing.
Equipment Lease & Loans
If you don't understand the difference between a lease and a loan, you are not alone. Many business owners continue to finance their equipment the "old fashioned" way, through loans, because they don't fully understand the potential benefits of leasing their equipment.
These benefits can be seen in four important areas, initial cost, equipment obsolescence, tax benefit and off balance sheet financing. Because of these benefits, many business owners are realizing that they do not need to own their equipment in order to conduct business. They only need to use it.
Lease or Buy?
The first thing you need to know about equipment leasing is that it is 100% financing. Because a lease is essentially a "rental" of equipment, there is usually no down payment required to access the equipment your business needs. This directly contrasts most commercial bank equipment loans, which require a minimum of 10% and as much as 50% down payment. By comparison, most equipment leases will require only the first and last payment in advance of delivery. Even if you only need a small amount of equipment, this can result in a tremendous reduction in the "out of pocket expense" necessary to upgrade your equipment. This gives you the opportunity to put thousands of dollars of working capital back into your business, instead of giving it to your banker.
Factoring
Factoring, also known as "cash for receivables," is the conversion of a business accounts receivables into immediate cash by the outright purchase of its receivables, at a discount by a factor.
Factoring is not a loan and is not based on a business ability to repay the money advances. The length of time in business is not a consideration, in addition to the debt to equity ratio. Instead, it is based on the ability of your customers to pay what they owe.
We would like to invite you to discuss your financial needs and find out more about what Smith Capital And Finance can do for you (248) 553-7000.
Smith Capital And Finance "Financing For A Bright Future" Since 2001 248-553-7000 A Smith Entrepreneurship Group Company For Company Blog & Smith Entrepreneurship Group Companies' Preview Website Click Link Below www.smithentrepreneurshipgroup.com