Other factors entering the decision-making
process are whether the lender may have
already invested in a competing business and
how much competition there is in your market.
Be prepared to tell the lender how you plan to
deal with these conditions, how you have
assessed the market, and how your business
will weather economic changes.
Finally, the person handling your loan has their own personal
conditions. I like to call these the “bad cup of coffee” factors after one of
my law professors. The professor claimed to give lower exam grades
when he had a bad cup of coffee while grading.
These conditions range from the lender’s personal mood to their track
records when making loans. If he is looking for a bonus for number of
loans written, he may be more likely to approve yours. If she has
recently made a number of bad lending decisions, she may be gun-shy
about risk taking and deny your loan.
Even seemingly unrelated factors touch your loan decision. Fights with
a spouse, poor weather, allergy attacks and hunger are among a whole
list of personal issues that may be challenging your banker when you
meet with them.
You can’t improve conditions. However, you can predict and respond to
them, manage and exploit them. By researching some of the systematic
risks that may be of concern to the lender, you can preempt them. Be prepared to talk about how your business will survive seasonal trends,
or profits even with the vagaries of your particular clientele. Come
armed with good answers to why your loan fits into the lender’s overall
loan profile and goals.
Monday, December 04, 2006
Being in the right place at the right time -26
Conditions, simply put, refer to the economic climate of the
marketplace. Consider this role-play:
Paulie: Donna, may I borrow $20?
Donna: Let me check my wallet
Notice the difference? This is the only C of credit that isn’t about you,
the borrower, and you cannot control directly.
Conditions are factors that range from the global economic climate to
the positive or negative influences on the particular lender the day you
apply for a loan with them. Other factors are the tightness and
availability of money due to controls by the Federal Reserve, the
prevailing interest rates, or the economic cycles of recession or growth.
While you cannot control the economic conditions, you can study,
predict, interpret and even mitigate them.
Study the leading economic indicators for the national economic trends.
New housing starts or building permits indicate an improving economy.
The increase of interest rates and tightening of the money supply may
signal fears of inflation. Mid-swing indicators such as new hires and
fires can show you the general trend of the economy.
Conditions include factors intrinsic to the
lending business or of a particular bank or
branch of the bank that are also conditions
that are considered in a lending decision. The
bank’s particular balance sheet requirements,
goals, and the underwriting requirements are
part of the bank’s conditions. If the bank doesn’t make a loan of a particular kind such as loans on
prefabricated homes, this particular condition, no matter how good the
other Cs are for you as a borrower, you won’t get that loan. This can
also help you. If a bank is looking to expand their business in a
particular area, such as small business loans, you may get a positive
lending decision because you were in the right place at the right time. If
the conditions are right the lender may overlook some small weaknesses
in your strength as a borrower.
marketplace. Consider this role-play:
Paulie: Donna, may I borrow $20?
Donna: Let me check my wallet
Notice the difference? This is the only C of credit that isn’t about you,
the borrower, and you cannot control directly.
Conditions are factors that range from the global economic climate to
the positive or negative influences on the particular lender the day you
apply for a loan with them. Other factors are the tightness and
availability of money due to controls by the Federal Reserve, the
prevailing interest rates, or the economic cycles of recession or growth.
While you cannot control the economic conditions, you can study,
predict, interpret and even mitigate them.
Study the leading economic indicators for the national economic trends.
New housing starts or building permits indicate an improving economy.
The increase of interest rates and tightening of the money supply may
signal fears of inflation. Mid-swing indicators such as new hires and
fires can show you the general trend of the economy.
Conditions include factors intrinsic to the
lending business or of a particular bank or
branch of the bank that are also conditions
that are considered in a lending decision. The
bank’s particular balance sheet requirements,
goals, and the underwriting requirements are
part of the bank’s conditions. If the bank doesn’t make a loan of a particular kind such as loans on
prefabricated homes, this particular condition, no matter how good the
other Cs are for you as a borrower, you won’t get that loan. This can
also help you. If a bank is looking to expand their business in a
particular area, such as small business loans, you may get a positive
lending decision because you were in the right place at the right time. If
the conditions are right the lender may overlook some small weaknesses
in your strength as a borrower.
Creating Your Net Worth Statement -25
Net Worth Statement
Assets Liabilities
Current Liquid Assets Current Liabilities
Checking account 3,500.00 Capital Gains tax 1,500.00
Savings account 200.00 Salary Advance 2,300.00
Stocks/Bonds (E-trade) 4,000.00
Total Liquid Assets 7,700.00 Total Current Liabilities 3,800.00
Fixed Assets Short –Term Liabilities
Vehicles 4,500.00 Auto Loan 4,750.00
Home 84,000.00 Credit Cards 12,500.00
Personal Property 84,000.00 Business Loan 42,250.00
Total Fixed Assets 172,500.00 Total ST Liabilities 59,500.00
Deferred Assets Long-Term Liabilities
Promissory Notes 2,000.00 Student Loans 44,000.00
IRA 5,775.00 Mortgage 64,200.00
50% Interest Business 12,130.00
Total Deferred Assets 19,905.00 Total LT Liabilities 108,200.00
Total Assets 200,105.00 Total Liabilities 227,200.00
NET WORTH <$27,095.00>
Notice that the net worth was reported as a negative number. It is
estimated that one in every 10 American households has a zero or
negative net worth. These are primarily college students, recent college
graduates, or retirees on a fixed income.
The profile above is typical of a new investor. This person has gone to
college, as evidenced by the student loan liability. They have recently
purchased their home. Note the outstanding home mortgage is 77%
value of the home, indicating a recent home purchase, possibly in the
last two years. The person also signed personally for a business loan to start a
business in which they are a 50% partner. This is not uncommon.
Most of us will have to sign personally on business accounts for the first
couple of years as our business gets started.
You can improve your capital, and thus your net worth statement, in a
variety of ways. The first is simply to increase your savings and
decrease your spending. Each time you do this, more of what you earn
will appear in the assets column of your net worth statement, and tip
your net worth figure farther to the positive side.
Saving more goes hand in hand with reducing your debt. Debt
reduction lowers your liabilities and thus increases your net worth.
Learn more about strategically decreasing your debt and saving more in
Chapter 11 called “Dividing debt and conquering credit.”
The second way to have the most impact in improving your net worth
statement is to purchase undervalued assets. When you get a deal on
an asset and buy it for less than its value, you get an instant boost to
your asset column.
Assets Liabilities
Current Liquid Assets Current Liabilities
Checking account 3,500.00 Capital Gains tax 1,500.00
Savings account 200.00 Salary Advance 2,300.00
Stocks/Bonds (E-trade) 4,000.00
Total Liquid Assets 7,700.00 Total Current Liabilities 3,800.00
Fixed Assets Short –Term Liabilities
Vehicles 4,500.00 Auto Loan 4,750.00
Home 84,000.00 Credit Cards 12,500.00
Personal Property 84,000.00 Business Loan 42,250.00
Total Fixed Assets 172,500.00 Total ST Liabilities 59,500.00
Deferred Assets Long-Term Liabilities
Promissory Notes 2,000.00 Student Loans 44,000.00
IRA 5,775.00 Mortgage 64,200.00
50% Interest Business 12,130.00
Total Deferred Assets 19,905.00 Total LT Liabilities 108,200.00
Total Assets 200,105.00 Total Liabilities 227,200.00
NET WORTH <$27,095.00>
Notice that the net worth was reported as a negative number. It is
estimated that one in every 10 American households has a zero or
negative net worth. These are primarily college students, recent college
graduates, or retirees on a fixed income.
The profile above is typical of a new investor. This person has gone to
college, as evidenced by the student loan liability. They have recently
purchased their home. Note the outstanding home mortgage is 77%
value of the home, indicating a recent home purchase, possibly in the
last two years. The person also signed personally for a business loan to start a
business in which they are a 50% partner. This is not uncommon.
Most of us will have to sign personally on business accounts for the first
couple of years as our business gets started.
You can improve your capital, and thus your net worth statement, in a
variety of ways. The first is simply to increase your savings and
decrease your spending. Each time you do this, more of what you earn
will appear in the assets column of your net worth statement, and tip
your net worth figure farther to the positive side.
Saving more goes hand in hand with reducing your debt. Debt
reduction lowers your liabilities and thus increases your net worth.
Learn more about strategically decreasing your debt and saving more in
Chapter 11 called “Dividing debt and conquering credit.”
The second way to have the most impact in improving your net worth
statement is to purchase undervalued assets. When you get a deal on
an asset and buy it for less than its value, you get an instant boost to
your asset column.
Creating Your Net Worth Statement -24
Gather all of your financial records.
Compile your assets. Assets are anything of value that you own. Some
examples of the types of documents you are looking for:
Statements for savings and checking accounts, investment and
securities accounts, 401(k), or IRAs;
Deeds and titles to real estate, vehicles and equipment;
Notes or certificates of paper assets, stock or partnership interests; and
Appraisals of collectibles and other personal property.
Accounts receivable and available lines of credit can also be considered
assets, as long as the entire line of credit balance and the cost of
production for any future accounts receivable are included as liabilities.
Classify your assets into three separate classes: liquid assets, fixed
assets and deferred assets. Fixed assets can be sold, but not easily,
and will often need to be replaced. Deferred assets are ones that you
can’t access immediately such as retirement accounts and business
ownership interests.
Compile your liabilities. Liabilities are any thing that you owe. You’ll be
gathering statements for mortgages, credit cards, school loans, auto
loans, personal loans, other promissory notes payable, and estimated
tax liabilities. Classify these as current liabilities (have to be paid this
year) short-term (paid in a few years) and long-term liabilities.
To calculate your net worth, take the sum of all your assets and
subtract your total liabilities. The resulting figure is your net worth.
Your resulting financial statement will look something like this: See the next post.
Compile your assets. Assets are anything of value that you own. Some
examples of the types of documents you are looking for:
Statements for savings and checking accounts, investment and
securities accounts, 401(k), or IRAs;
Deeds and titles to real estate, vehicles and equipment;
Notes or certificates of paper assets, stock or partnership interests; and
Appraisals of collectibles and other personal property.
Accounts receivable and available lines of credit can also be considered
assets, as long as the entire line of credit balance and the cost of
production for any future accounts receivable are included as liabilities.
Classify your assets into three separate classes: liquid assets, fixed
assets and deferred assets. Fixed assets can be sold, but not easily,
and will often need to be replaced. Deferred assets are ones that you
can’t access immediately such as retirement accounts and business
ownership interests.
Compile your liabilities. Liabilities are any thing that you owe. You’ll be
gathering statements for mortgages, credit cards, school loans, auto
loans, personal loans, other promissory notes payable, and estimated
tax liabilities. Classify these as current liabilities (have to be paid this
year) short-term (paid in a few years) and long-term liabilities.
To calculate your net worth, take the sum of all your assets and
subtract your total liabilities. The resulting figure is your net worth.
Your resulting financial statement will look something like this: See the next post.
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