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Lo-an behold, should I be borrowing?
I remember getting my first loan. It was to pay for a then little-known experimental procedure called moustacheplasty. My friends warned me not to, but I just knew that Id love the way the wind would feel through the bristles (which, as an impulsive young lady of 19 years was quite a thrill I can tell you!). I managed to get a good deal on my loan, and had it repaid in no time. It ended up as a good investment really; I now get so much work from circuses and village fetes that the operation has paid for itself many times over.
But I was lucky, with the moustache but more so with the loan. I did it all wrong but somehow managed to land on my feet. However, if you dont want to leave selecting a loan to the vagaries of chance read on for some helpful hints
Do you need a loan?
It sounds like a simple thing to say but do you actually need a loan? Maybe a credit card might be more appropriate if you can get an interest-free deal and can be disciplined enough to repay what you borrowed in a short space of time. So-called payday loans (a specialist type of loan where the money you borrow normally has to be repaid within a month) charge a fantastical amount of interest and should only be considered as a very last resort once you have exhausted all other avenues.
Committing yourself to any borrowing requires careful thought. Is this something you can save for? Is it necessary to make the purchase right now? (In my case I had the impatience of youth and just wanted my own moustache as soon as I could get it glued onto my face.) Once you have questioned your motives and have decided that you are still looking to get a loan, check out these key points:
- The very first thing you should do is itemise your income (wages, moustache-related royalties etc.) and your outgoings (mortgage, council tax, utilities, subscription to The International Mustachio Gazette). Itemise everything and be realistic if you think you only spend £250 on groceries each month, but your previous bank statements show you spend £350, use £350! Once you have itemised all your outgoings and worked out how much you have left, then you will have a better idea how much you can afford on a monthly basis.
- When taking out any loan, be it an unsecured loan, secured loan, mortgage or moustache finance, it is always best to set the term for as short a time as your budget allows. This will mean that your monthly repayments are higher, but over the term of the loan you will actually pay less as you are not getting charged as much interest.
- Secured vs. Unsecured. You might be forgiven for thinking that the difference between a secured and an unsecured loan is that a secured loan gives you more security. Not so. A secured loan will be attached (secured) to a piece of property, normally your house or car, less commonly your moustache. If you fail to keep up with your repayments the lender can sell your property to get their money back. Secured loans tend to be available for larger amounts, over longer terms. If you are considering a secured loan speak to your mortgage lender as well, they may be able to off you a further advance which might cost a lot less!
- When you are looking for a loan, be aware that the typical advertised APR rate isnt necessarily the rate that you will actually get. It is usually the case that the rate you pay is linked to your credit score, as well as to the amount you wish to borrow.
- Dont settle for the quote your bank gives you. When I was considering moustacheplasty I looked at several surgeons, and then chose the one that had the best moustache. It is similar with loans; rates vary considerably so dont be lazy and settle for it, do some leg work to make sure you get the best deal.
- When you take out a loan a lot of lenders will allow you to defer your first payment for a couple of months. Some of them will sneakily include the deferred payment on a quote watch out for this as its a way lenders can squeeze more money out of you. When deferring the first payment on a loan, interest continues to be charged, increasing the overall amount you end up paying back. Think about whether you actually need to do this to alleviate the immediate pressure on your finances (you might want to pay for Christmas for instance or your annual car insurance premium or an excursion to the 2010 Moustache of the Year tournament in Bratislava). If you can afford the payment it is best to pay sooner, not having to pay for a couple of months might feel good, but you are only postponing the inevitable!
- Early Repayment. Many lenders will charge you if you repay your loan before the end of the agreed term. If you think you might be able to repay early, you should be ready for this charge. Even better though, when selecting your loan, why not find one that doesnt have an early repayment charge at all!
- Fees. There may be a fee payable for setting up the loan so, as ever, check the terms before you sign up some lenders will “helpfully” offer to add this to your loan (theyre all heart arent they? But remember any fees added will be charged interest as well which will increase the overall cost). You might be offered a same day transfer of the loan into your bank account there might be a charge for this.
- Payment Protection Insurance (PPI). This type of cover has had a lot of bad press over the last few months. Basically PPI will ensure the monthly repayments are met on your loan if you are unable to make them due to sickness, an accident or unemployment. The two key things to remember are: dont settle for the quote your lender gives you (shop around or see a broker) and think carefully about whether the cover is actually necessary. Payment Protection Insurance may be worthwhile, particularly if things are tight or you are reliant on a single income. In these situations, it may be more appropriate to try to cover all of your outgoings: mortgage, utilities, insurance premiums etc. with a larger policy, normally called Accident, Sickness and Unemployment cover.
- Lastly, it is always a good idea to check your credit rating before you make an application. Remember that any declined loan applications go onto your credit file as well, so dont blindly go to every lender making an application it will become less likely that you will get a loan. If you have a poor credit history in this time of tightening criteria, you would be better to seek professional guidance on your options. Remember you can also always get online and compare the best loans available to you before speaking to anyone.
Well, these tips should have given you all you need to go forth and prosper. As for me, well, I am currently in rehearsals for my bid to become the first female Freddie Mercury tribute act in Nepal. Coming to a theatre near Kathmandu soon
How a Financier Reads a Business Plan and Tips for Writing a Business Plan
This article explains the importance of a business plan when seeking help from a financier. In addition it provides useful tips for writing a business plan.
A business plan has four main purposes.
1. To establish the viability of your business
2. To document your objectives and forecasts for the business
3. To benchmark and measure progress
4. To communicate your plans to outsiders such as a financier
There are two types of financier, the lender and the investor that you may approach or who may be interested in your company venture.
The Lender i.e. a bank will be looking to see how you propose to handle potential risks that your company may encounter. Their main concern is regarding the security of the repayments for the money they have loaned you, and will therefore want to ensure that you will be managing the companys risk wisely. As well as checking your credit rating a bank manager may ask you a number of questions in an interview which you will need to be able to answer, such as:
Why do you need the amount requested?
What will you do with it?
How do you know its enough?
How much less can the company survive on?
What other sources of finance do you have or who else are you borrowing from?
How are you going to pay it back?
What collateral or guarantee do you have?
You need to ensure that these questions are already answered in your business plan as it is much harder to change the managers mind in your interview with them. The bank will look for collateral and cash flow within your plan.
Make sure you are not afraid to ask for the exact amount required, because if they lend you an amount that is not enough to get the business going and you need to ask the bank for more money, they may question how well you have planned your financial requirements. This could make them sceptical about lending you more.
Professional Investors accept risk, although they will try to limit their exposure to it. The questions they may be asking themselves while reading your business plan are:
How much can I make? They are usually looking to make around 30-50% annual compound growth on their investment
How much can I lose? What is the risk of losing their investment?
How can I get my money back or out of the company?
Who else is investing it this company?
So now you know why it is important to have a business plan when seeking investment from a financier, the article will give some useful tips for what to include in the business plan. The business plan should summarise the following points:
The overall objectives of your company.
Who your clients will be and their current buying behaviour.
Who your suppliers are and how much bargaining power they have.
Who your competitors are and how you will differentiate yourself from them.
Who are the key personnel and what their core skills are.
How the business will operate, including the assets needed to run it.
How much finance is required; and contingencies should sales fail to meet the forecasted level.
To conclude, business plans are very useful for raising finance for a business. Even if you are lucky enough to be in a situation where you do not need to raise capital, preparing a plan will help focus your thoughts, check your calculations, help you monitor results and enable better communication of your ideas.