The end of “Easy Credit”

Like “easy money” easy credit comes to an end

When easy credit even first began it was perplexing to many. Why were lenders trying to entice consumers who had little or no credit or even consumers with bad credit to borrow money from them? Lenders could make more money by lending money or extending credit to people who could not afford it and who had bad credit in the first place. Doesn’t seem like a very ethical practice, but perfectly legal. But like all things in life, what goes around comes around and as the New York Times puts it “Bam! Easy Credit Evaporates, and so Does the Buyout Frenzy!” If you have watched the news of looked at any newspapers lately you will see they are full of stories about Wall Street, the credit and debt market and the housing market and it isn’t likely to go away any time soon.

This affects the American economy and is creating many more new difficulties for borrowing money for many homeowners and companies that have bad credit and in some cases where they have “passable” credit and even some money to put down. Quite a change from last year where you could get a loan with “No Credit” or “Bad Credit” and even with “No Credit Check!” This credit crisis began with a focus on the sub prime mortgage industry and has now spread into highly leveraged companies as well. We are now in the midst of a very weak market in terms of credit that reaches globally.

This not only affects companies and people who are looking to buy or build new homes, it also affects many jobs in the housing industry. According to a report released on Thursday, July 26, 2007 by Challenger Gray & Christmas, more than 65% of the planned job cuts in the real estate, construction and mortgage sectors are based on the impact of the housing market slump and that number is probably even greater than that. There are also job cuts in other industries such as retail, consumer products and industrial products manufacturing. Wednesday it was reported that the sales of existing homes fell last month to their lowest point in nearly five years. Take a look for yourself, drive down any street or through any neighborhood, how many houses do you see with for sale signs out front and how long have they been there?

In the next two years look for many more foreclosures, and defaults on mortgages, sub prime and primary. This slump has at least another year or two to run its course. This will cause even more financial strain for consumers, who may already be struggling to make a mortgage payment. They will likely spend even less in order to try and make their housing payments which will affect the U.S. profit growth in companies nationwide. Any slowdown in consumer spending affects the corporate world’s earnings considerably. In a survey done by the Wall Street Journal of 28 major metropolitan areas, they show that the surge in inventories of unsold home is slowing and in Boston and Denver the number of homes for sale has declined from a year ago. Many sellers who don’t “need” to move have taken their homes off the market. While those who do “need” to move are sprucing up their homes and lowering their prices to try and find a buyer.

As more borrowers default on their mortgages it creates this weakness and spreading troubles in the mortgage market and puts those homes back into the already flooded market. In addition to this, most lenders and banks are being more critical on who they lend money to even turning down people with good credit, full time employment and money to put down. According to the Commerce Department the inventory of unsold new homes in June was 537,000 houses.

Who is to blame for this slump? I believe it is the lenders, with the advertisements focusing on people with little or no credit, bad credit and no money down, how did they expect these people to make those mortgage payments indefinitely? When you advertise to people who don’t have credit or who have bad credit, of course they want to apply for a mortgage with you, and everyone wants to “move up” in the world, by owning their own home, or owning a nicer or larger home. I believe the lenders persuaded these consumers to borrow many times, more than they could easily afford with an adjustable rate mortgage when they felt sure the rates would rise. Many of the borrowers are so excited or enthralled with the thought of owning their own home or having a better life, that they don’t or didn’t pay particular attention to the type of interest or interest rates they were sucked into. Many believe that this was their only option to ever own a home, and so they took the bait. Most lenders or bankers would not or did not point out to a potential customer that the loan rate were all but certain to rise, now resulting in many of these borrowers being in default. Many of these sub prime mortgages that are now in default should never have been made at all. Now with tighter lending standards being put into place troubled borrowers are floundering. Now that their homes are worth considerably less and they might want to refinance in order to make their mortgage payments, they will not be approved which will contribute to even more prime-loan defaults in the next year.

Have you been Denied for a Business Loan? Add a Credit Policy to your Business Plan and Get Approved!

If you have been to the bank to get a business loan to start a business or for funding for your existing business you probably approached them with a business plan and possibly a marketing plan or outline. Every business plan has part of if not all of a marketing plan included. If you were denied your loan, part of the problem could be that you didn’t explain or elaborate enough on how you were going to pay back the money you want to borrow.

Your business plan tells the lender what you are going to do for a business, and the marketing plan tells them how you are going to obtain new clients and make money. Your credit plan or credit policy tells them how you are going to get paid, in order to pay them back. The credit plan will also tell them what you will do if you do make sales and don’t get paid. This can put a bankers mind at ease, while showing them that you are serious about your business and about paying them back.

Approval of any loan is based on many things, one of the most important being on how you present yourself and your business. A well written business plan is the first step, and will give the lender an overall picture of your business. Make sure you include a credit history or if you have poor credit, get copies of your credit reports and fix any errors and pay off any debts before approaching a lender.

You can expedite the processing of your loan by providing the lender with as much relevant information that they need to make a decision right away. If they have to continually contact you for more information, your chances of approval go down. Banks will carefully and particularly look to see if you have a solid understanding of financial record keeping, business credit, the importance of collecting accounts receivables, inventory control and turnover and marketing. If you include a credit policy as well as a marketing plan or marketing plan outline with your business plan you will find that the lender will take you much more seriously and if they had any questions on your understanding of their being paid back will see that you have thought this through and have a plan in place to pay them back their money. That makes every banker happy; remember they make money by lending you money.

Remember, when you are trying to get someone to give you money, it is a hard job and the more thorough you are the better your chances. If you approach your lender with a professional looking business plan, that includes a marketing plan and a credit plan, your application will go to the top of the pile.