The UCC, as it relates to lending, is a way for each state to have a consistent method of recording the security of a loan. When banks make secured loans, or loans with collateral (e.g., home mortgages), they file a UCC form with the state where the loan agreement is executed. This filing essentially makes the loan security, or collateral, a matter of public record. Without this filing, a lender could run into difficulties laying claim the collateral in case of default.

Do you need to file a UCC form with the state if you make a personal loan with collateral? It depends. In most cases, its enough to simply document the collateral (which you can do using LoanBuilder) since the lender and borrower know and trust each other. In other cases, it may be appropriate to file a UCC form to give the lender more security in the case of default. If you are interested in filing a UCC form for your personal loan, here are some things you should know:

Each state has its own regulations on the maximum interest rate that can be charged for a loan. The maximum interest is also commonly referred to as the "usury limit". When you build your loan you should make sure that you check the usury rate for the state in which the loan is being made. If your loan’s interest rate exceeds a state’s usury limit it could impact the legality of your loan.

While we do our best to keep our usury information accurate and up to date, its important that you check with a local attorney or accountant if you have any questions about the interest rate on your loan.

External Links on Usury

Many people have the mistaken believe that a promissory note is sufficient when a debt is owed, particularly if the financial arrangement is between friends or family members. However, it’s important to consider what promissory notes lack. They may be promises to pay a given amount by a given date, but this is far from adequate for laying out the terms of a loan. In any form of lending or borrowing, the parties should go beyond signing a promissory note to creating a formal loan agreement that covers these important basics:

Loan Purpose

Whether the loan is going to be used to finance the purchase of a car, a new home or just pay off credit card debt, you should know ahead of time exactly what you will do with the money you borrow and exactly how much you need to achieve the purpose.

Loan Amount

The loan amount (or principal) should be clearly stated in the loan agreement and should be clearly linked to the loan purpose so the lender is confident that the loan is being used for the stated purpose. The loan amount is also required to set up the amortization or repayment schedule.

Loan Interest Rate

Don’t assume that borrowing from a friend or family member will leave you off the hook when it comes to interest. A reasonable interest rate is an essential part of any loan. Set the rate too low, and the IRS could consider the loan a gift, which has different tax obligations. A rate that’s too high could violate your state’s usury (excessive interest) limits and endanger your ability to repay the loan at all. Depending on the loan purpose and amount, there are different benchmarks you can use to set an appropriate interest rate. For more information check out “How to Determine the Interest Rate on a Personal Loan”

Loan Term

The loan term is the amount of time you have to pay back the loan measured in months or years. As with the interest rate, don’t assume that borrowing from friends and family makes the loan term more flexible. To help ensure successful repayment, and to safeguard your relationship from misunderstandings, agree on the loan term before signing any paperwork.

Amortization Schedule

The amortization, or repayment, schedule is a table that shows the payments to be made over the loan term. The regular payments can include interest and principal components or interest payments only with a balloon payment of principal at the end of the loan term. The amortization schedule also details the frequency of payments.

The most common payment schedules are monthly, bi-monthly, quarterly or weekly. When considering your amortization schedule, be practical and realistic. What can you afford to repay? How often can you afford to make payments? Remember: the faster you pay back the principal of your loan, the less interest the loan will accrue. Depending on the size of your loan, this can mean a great deal of savings in the long run, so you should strive to pay off your loan as quickly as is realistic.

Loan Security and/or Special Terms

The final important component of many loans is the loan security (or collateral). This is the asset or assets that will transfer to the lender in the event you cannot meet the obligations detailed in the loan. The most common form of collateral is the asset purchased with the loan (e.g. the title to a car, the deed to a home, equipment purchased for a business, etc.). Not all friend or family lenders require loan security. A loan without any collateral is known as an ‘unsecured loan’. However, be sure to discuss this with your lender before you finalize your loan so there aren’t any misunderstandings down the road.

It’s a buyer’s market, and if you’ve been considering purchasing a vacation property or second home, now just might be the time. Whether it’s for personal use, rental income, or both, a second property can have tax benefits, be an added source of income, and prove a good long-term investment.

These days, the vacation and investment property market is not what it once was. That opens the door for some once-in-a-lifetime deals, but it also makes securing financing challenging. That’s one of the reasons many people turn to friend or family lending to partially or fully fund such an investment.

With the boom-time’s lending gusher now tightly capped, and would-be investors on the sidelines with their cash, a private mortgage arranged between family members may be an attractive alternative to a traditional bank mortgage. Another alternative is combining a personal loan from a friend or family member with a traditional loan to finance a second property purchase.

Lending between family and friends does carry an element of risk that traditional loans don’t have: risk to the personal relationship. If you choose a family loan or personal loan from a friend as part of your financing arrangement, you’ll need to learn the fundamentals and create a legally recognized loan agreement. Using a service like LoanBack.com makes this easy and helps assure your loan agreement results in a sweet investment, not a bitter feud.

If you have reservations about approaching a family member or friend for a private loan, consider this: Helping to finance a property purchase can be a good investment for your lender, too. Given today’s investment market, if you’re ready to offer an attractive interest rate, your friend or family member may well get a better return investing in you than in traditional investments like stocks and bonds. Plus, if you’re nice, you’ll reserve some time at your killer vacation spot just for them.

If you read articles about ‘how to go green’ or ‘how to save money,’ you know that giving up your car is always one of the top suggestions. Yes, getting rid of your car will reduce greenhouse gases and open up a lot of room in your household budget. But the truth is, even if you wanted to, giving up your car may be impossible. For large swaths of America, going carless simply isn’t an option. Public transportation is great, but for millions of Americans, it’s completely unavailable.

If you need a car, your pocket book is going to take a big hit. Whether buying new or used, few people can afford to drop thousands of dollars at once to purchase a vehicle outright. Most people turn to financing to obtain their wheels. But before you take out your auto loan, ask yourself if it makes sense.

Auto loans aren’t investments; they are necessities. Unlike a house, which traditionally can be assumed to grow in value over time, a car is a poor financial investment; a car may be an investment in your mobility, but it will never gain value. In fact, the value of most vehicles sinks like a stone as soon as they are driven off the lot. Depending too heavily on financing can lead to you paying far more money in the long run than your car is actually worth.

Before purchasing your next vehicle, consider the alternatives that might be available. Going without a car would, of course, be the most economical decision, but it’s probably not practical. But paying thousands of dollars in interest over and above the actual cost of the vehicle isn’t very practical either.
One place to look in this instance is friend and family lending. If you have a friend or family member who is willing and able to make a loan, this can be the perfect solution to the unreasonable interest rates common in many auto loans.

If you consider friend or family lending as part of your auto financing package, be sure to set up a proper, legally binding loan agreement that lays out all the terms of the loan. Just as with a traditional auto loan, agree on an interest rate and set up a payment schedule. Make payments on time and pay the loan down quickly to reduce the amount of interest you pay overall. For more information on friend and family lending, the benefits, the risks, and how to do it right. ]]> http://www.loanback.com/category/auto-loans-consider-alternatives/feed/ 0 http://www.loanback.com/category/personal-loan-types-and-repayment-options/ http://www.loanback.com/category/personal-loan-types-and-repayment-options/#comments Wed, 16 Feb 2011 14:08:59 +0000 admin http://beta.loanback.com/category/?p=414

Putting together a personal loan can be a little confusing if it is your first time or you are not very familiar with financial terminology. In reality, the concepts behind a personal loan are very simple and easy to understand. At LoanBack we have developed a very simple and easy to use wizard to walk you through the loan building process. Before you jump in, let’s explain a couple of the terms and concepts you will see in the wizard.

Loan Repayment Options

There are several different repayment options for a personal loan. When you are building your loan you should select the repayment option that works best for both parties.

Amortizing Loan

An amortizing loan is the most common loan type. In an amortizing loan each payment includes a portion of interest and principal so that the loan balance equals zero at the end of the loan term. This type of loan works best when the borrower will have enough income to cover the payments over the term of the loan.

Interest Only Loan

In an interest only loan, the regular payments only include the current interest. At the end of the loan the principal will be repaid in a lump sum. This type of loan would have smaller regular payments than an amortizing loan but requires a larger payment at the end of the loan. This type of loan can work in a situation where the borrower does not have enough income to cover amortizing payments or believes they can refinance the principal with another loan at the end of the term.

Balloon Payment Loan

A balloon payment loan should be considered the most risky of the three types described here. In a balloon payment the borrower does not make any payments during the term of the loan. At the end of the loan the borrower will make one lump sum payment that includes all accrued interest and the underlying principal. Like an interest only loan, the balloon payment loan can work when the borrower does not have enough income to cover amortizing payments or believes they can refinance the principal with another loan at the end of the term.

Loan Collateral Options

If possible, a lender should always ask for collateral or security for their loan. Loan collateral offers a lender piece of mind about their principal and also gives the borrower added motivation to repay the loan. When the loan proceeds will be used to purchase some physical item (e.g. car, boat, home) it is easy to determine the appropriate collateral. In some cases, like a debt consolidation loan, there is no obvious collateral. In a case like this a lender can ask the borrower to offer up some other asset as collateral like their car or a piece of jewelry.

Loan Covenant Options

Loan covenants are conditions or rules that the borrower must comply with over the term of the loan. If the borrower fails to comply with a covenant the lender can immediately request repayment of the loan. When you are building your personal loan the covenant section is an excellent way for the lender and borrower to spell out any special rules they must follow. Some of the most common covenants include the following:

Late Fees

A late fee clause would cover any penalties the borrower would have to pay if the regular payment was not made on time.

Demand Notice

A demand notice allows the lender to “demand” repayment of the loan with some advance notice. For example, the demand clause can say that the lender has the right to demand repayment of the loan within 30 days of the demand notice.

Asset Sale/ Change of Control

An asset sale clause gives the lender the right to demand immediate repayment of the loan in the event that the borrower sells the asset purchased using the loan. For example, if the loan is used to purchase a car and the borrower sells the car, the lender can demand repayment of the loan. The same clause can work if the loan is for a small business. If the borrower sells the business the lender can demand repayment.

Financial Reporting

A financial reporting clause is most commonly included in small business loans. In this case, the lender can require the borrower to provide regular reports on the health of the business or share year-end tax statements. This type of clause can also be included in personal loans, although many borrowers might view this type of requirement too invasive.

Debt Restrictions

A debt restriction clause can be used to restrict a borrower from taking on any additional debt without the lenders permission.

More Information
Lending Glossary – LoanBack
What is a loan covenant? – LoanUniverse.com ]]> http://www.loanback.com/category/personal-loan-types-and-repayment-options/feed/ 0 http://www.loanback.com/category/tips-on-evaluating-a-request-for-a-personal-loan/ http://www.loanback.com/category/tips-on-evaluating-a-request-for-a-personal-loan/#comments Wed, 16 Feb 2011 13:53:58 +0000 admin http://beta.loanback.com/category/?p=400

Neither a borrower nor a lender be;
For loan oft loses both itself and friend…
- William Shakespeare

When a friend or relative asks for a personal loan it can put the prospective lender in an uncomfortable position. Instead of rejecting the request out of hand or whipping out your wallet, take some time to ask yourself a couple of critical questions before you make a final decision:

Can you afford to lend the money?

There is no guarantee that your money will be repaid unless the loan is secured with adequate collateral. If you cannot afford to lend the money you should reconsider the loan or ask for greater security from the borrower.

Is this an emotional or business investment?

Decide whether you are going to make this loan based on an emotional connection to the borrower or treat the loan as a purely business transaction. If you are going to evaluate the loan on purely emotional terms, you may decide to provide the borrower a below market rate. If this loan is purely for business purposes, you may want to be more stringent on the interest rate and loan terms.

What is the opportunity cost of the loan?

Lending money to a friend or relative means that your money will not be invested in some other asset. Consider the trade off between the return you expect to receive and what you anticipate you would receive from some other investment like a CD or Money Market account.

How could this loan affect other friends or relatives?

In evaluating the loan request ask yourself how the loan might affect your relationship with other friends or relatives. If you lend money to your friend Bill to start his hot dog cart will you damage your relationship with your other friend Sam who has been asking for capital to start his tire shop?

Is the borrower serious about repaying this loan? Does the loan make sense?

When you review the loan proposal from the borrower, does it seem realistic? Does your past experience with the borrower give you confidence that they will take the repayment of the loan seriously? If the loan is for a small business does the business plan make sense? When evaluating the prospects and purpose of the loan, would it be a good investment if you didn’t have a personal relationship with the borrower?

How will the loan impact your relationship with the borrower?

If the loan goes bad for some reason, can you deal with having a strained relationship or no relationship with the borrower? If not you might want to take your lumps immediately and say “No”. You should ask yourself whether or not you can stay out of the borrower’s business even if the loan is current. The obligations of the lender and borrower should be spelled out in the loan agreement. For example, if you lend your friend money to open a coffee shop, it doesn’t give you the right to dictate what kind of coffee to sell and at what price.

How are we going to make this loan work?

Negotiating the terms of the loan and writing the check are easy compared to patiently tracking the performance of the loan over its life, especially with a loan term of two years or longer. After you have settled on your loan, it is critical that both parties settle on how they will track the loan using a service like LoanBack.

More Information
Your Friends Need Money. Do They Have References? – New York Times
5 Questions You Should Ask Yourself before Loaning Money to Friends or Relatives – Grad Money Matters ]]> http://www.loanback.com/category/tips-on-evaluating-a-request-for-a-personal-loan/feed/ 0 http://www.loanback.com/category/tips-on-how-to-ask-for-a-personal-loan/ http://www.loanback.com/category/tips-on-how-to-ask-for-a-personal-loan/#comments Wed, 16 Feb 2011 13:43:12 +0000 admin http://beta.loanback.com/category/?p=392

Asking for a loan from a relative or friend can be an intimidating and uncomfortable experience if you haven’t properly prepared yourself and your proposal beforehand. If you are going to approach a friend or relative to ask for a loan, follow our tips below to help lower your blood pressure and increase your chances of a happy outcome.

Get Your Plan Together

The first step is to spend some time thinking about exactly what you are going to ask for and why. Before you approach a friend or relative you should have a clear understanding and rationale for the loan and what you intend to use the proceeds for. You should also make sure that you are being realistic with respect to your ability to repay the loan you are asking for.

Put Yourself in Your Lender’s Shoes

When deciding which friend or relative to ask for a loan, make sure your prospective lender is in a position to help you. If you are looking for $50,000 for a down payment on your first home, approaching your retired Uncle who lives on a fixed income might be a waste of time for both of you. Make sure that your request is realistic from the lender’s perspective. If you are asking for a large amount you may want to approach more than one friend or relative to see if they can split the total amount of the loan.

Create a Formal Proposal

Now that you have a good idea of what kind of loan you are looking for, it’s time to put together a formal proposal. Putting your request in writing using a professionally formatted document will communicate your seriousness to the lender. When putting together your proposal you should also propose your idea for the interest rate, loan term and repayment schedule. All these points will need to be negotiated with the lender, but it gives both parties a starting point. LoanBack can help you create a professional loan proposal.

Set Up a Meeting

Now you are ready to meet with your prospective lender. It’s always best to meet in person, but if it is not possible a phone call will suffice. When choosing a location to meet, select a place where both of you will be comfortable and be able to speak privately.

Be Open, Honest, and Direct

When you meet with your prospective lender it is critical that you openly and honestly answer all of his or her questions. Even though you have a relationship with your lender, you should treat your personal loan as a business transaction in order to minimize any impact it might have on your relationship.

Formalize Your Loan

If you and your lender are able to agree on the basic components of the loan, it’s time to formalize your agreement and agree on how you are going to track it’s performance. At LoanBack, we have created a suite of products that allow lenders and borrowers to formalize their loan agreement in a legally binding document. After the loan has been funded, LoanBack can be used by both parties to track loan payments and set up payment reminders.

More Information
If you must ask family to help, here’s how – Bankrate.com
Unconventional Borrowing – Bankrate.com
How to Get a Personal Loan From Friends or Relatives – eHow.com ]]> http://www.loanback.com/category/tips-on-how-to-ask-for-a-personal-loan/feed/ 0 http://www.loanback.com/category/family-lending-the-fear-factor/ http://www.loanback.com/category/family-lending-the-fear-factor/#comments Wed, 16 Feb 2011 12:36:00 +0000 admin http://beta.loanback.com/category/?p=362

Are you considering a loan agreement with a family member? If so, you’re probably facing the fear factor: “Family and money don’t mix.” Is it true? Well, consider this analogy.

You’ve heard the trumped up charges. Things like: “Four out of five new businesses fail within five years,” and “Only one in three start-ups survives.” Declarations like these strike fear into the hearts of would-be entrepreneurs and nip many a new business plan in the bud.

Yes, there are a lot of failures out there, but in truth, many new businesses have every chance of success. What separates the likely success stories from the imminent failures? Usually preparation. Those who get off to the right start—those with experience in the field, knowledge of the market, a well-researched business plan, and adequate funding or investment, for example—are those who are successful in the end.

Now back to that other trumped up charge: “Family and money don’t mix.” When it comes to lending to family members, yes, there are some horror stories out there. But, as with new businesses, getting off to the right start can ensure success.

If you’re considering a loan involving family, don’t let the fear factor govern your decisions. But don’t rush in unprepared, either. Do your research, then create a proper, legally recognized loan agreement (LoanBack makes it easy). This way, there will be no misunderstandings. It’s the best way to ensure you family loan ends as a success, not a frightening statistic.