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

Parents invest in their children’s futures in all kinds of ways: early education, music lessons, sports, saving for university. But if financial literacy isn’t part of your daughter’s early years, she may well find herself ill-equipped when it comes time to strike out on her own.

Like most members of her generation, your daughter will likely begin adulthood with some significant debt. The average student graduating from university today is carrying more than $20,000 in student loan debt. Additional debts, like auto loans and high-interest credit card debt, are also common.

Despite these harsh realities, many young people receive little to no basic financial education. Instead, they find themselves learning the ropes of financial management in a frightening and potentially overwhelming sink-or-swim immersion.

One of the best things you can do for your daughter today is begin involving her in the money matters of your household. More than anything else, children learn from their environment and watching their parents. Many of us are, understandably, intensely private about money. But that approach doesn’t help our kids learn financial responsibility.

Nothing is going to help your daughter understand finances better than real life. Here are just a few ways you can lift the veil and make sure money is no mystery:

1. If you’re paying bills, involve your daughter. You probably have at least some bills that you’re paying online or having automatically deducted from your account. Teach her about these arrangements, but also let her practice math by balancing the check book the old fashioned way.

2. Walk her through your bank statements and explain the money coming in versus the money going out.

3. Teach her the ins and outs of a credit card account—particularly the difference between making a minimum payment and paying in full—and how quickly interest will accrue with the former!

4. Open a savings account. But don’t stop there. Teach your daughter about investing and the risks and benefits of different options.

5. Don’t let your daughter’s first paycheck be her first introduction to taxes! Spare her the shock and show her your next pay stub or tax return.

6. Give your daughter a loan: either “play money” or a small amount that she will be able to pay back. Create a loan agreement, set an interest rate, and agree to a payment schedule. Like a real-life lender, don’t let her get away with not paying it back!

The importance of early financial literacy cannot be overstated. Taking the time now to prepare your daughter for her financial future is one of the best investments you and she will ever make.

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It’s the mantra around every Thomas train table, the refrain at every playgroup: “You have to share.” There are, of course, varying levels of success, evident in the wailing sparked by a train track to the head and all manner of other unfortunate sharing mishaps. But universally, or so we hope, parents recognize sharing as one of the foundational lessons of childhood.

It’s tempting to feel a sense of relief if you’ve ushered your child to a tantrum-free, biteless, sharing regime by the time playgroup has evolved into preschool. But there’s far more work to be done if the end goal is a responsible adulthood. I was reminded of this recently when my neighbor told my son he could borrow a Wii game. My five-year-old trotted sunnily to me and announced he had been given the game. Aha! A learning opportunity was before us!

A conversation about the difference between “having” and “borrowing” followed, my son thanked my neighbor for sharing, and I left feeling like a good parent…Yet it turns out I forgot a big part of the lesson. This became apparent a month later, with the same game now lying forgotten and gathering dust beside the television. I forgot to teach about the lesson of “contract”: that lender and borrower enter into an agreement with certain conditions…such as the time by which the item must be returned. Of course, in my five-year-old’s lingo, this would more likely be called “a deal” and sealed with a “pinky promise,” but the basics are the same.

Why is this important for my son? Does it really matter that the Wii game was (or was not) returned on time? His friend apparently does not care since he’s not banging down our door to get it back, so why should my son (or I)?

The answer is that the issue is not about the Wii game at all. It is about teaching the fundamentals of responsibility, of setting expectations and then fulfilling those expectations. For our five-year-old, we’re talking simple stuff: a Wii game or a small (hopefully non-breakable) toy. But I know the borrowing stakes will grow as he gets older…perhaps a friend’s favorite book, an expensive piece of sports equipment, or (yikes!) the car. The point is that when he understands some basics he can then graduate to the more abstract notion of “contract and obligations”. Having learned that will help him navigate potentially dangerous situations down road.

So if a 5 year old understands the concept of sharing, grasps the basics of fairness, and is bartering with friends for the loan of a toy, then that child should be ready to understand their responsibilities in “a deal”. With some gentle reminders from Mom and Dad, of course, they should also be able to follow through with their side of a bargain.

So the small-scale borrowing and lending we begin with our friends as children is great, age-appropriate practice for the more important tasks we face later in life (e.g. large-scale borrowing and lending money, etc.). So the next time my son wants to borrow something from or lend something to a friend, this is what we agreed he will do:

1. Clarify the agreement (deal): What exactly is being borrowed? How long will it be borrowed for?
2. Set some terms and conditions: When will the item be returned? How will it be returned? What will happen if it’s not returned?
3. Follow through!

Even at the age of five, I know my son is practicing and developing life skills. It will be a long march to socially and financially responsible adulthood. Creating some structure, setting some ground rules, and honoring agreements now will not only be good for his friendships, it will be great practice for his later years when the stakes will be so much higher. ]]> http://www.loanback.com/category/teaching-your-child-about-borrowing-and-lending-the-right-way/feed/ 0 http://www.loanback.com/category/the-high-cost-of-small-business-loans/ http://www.loanback.com/category/the-high-cost-of-small-business-loans/#comments Mon, 21 Feb 2011 08:12:08 +0000 admin http://beta.loanback.com/category/?p=503

Whether you need startup financing for a new business, or funds to support a business already in operation, these days personal business loans can be hard to come by. Banks have tightened their belts on all forms of lending. If you’re looking for a small business loan, follow these steps:

1. Consider banks and loan types carefully:

Just because big banks aren’t lending doesn’t mean a traditional bank loan is out of the question. Small community banks generally did not wade into the financial quagmire that has engulfed their larger counterparts. Small, healthy banks are still lending.

Along with choosing a bank, you must choose a loan option. Not all banks offer “small business loans” specifically. Instead, you may be taking out another type of loan, such as a home equity or a personal loan, to finance your business venture. Research the key lending rates in your area, and be realistic about what you can afford.

2. Be prepared:

No matter what bank you approach, they won’t just hand you a loan. Prepare the following:

- Debt-to-equity ratio: What is your business’s total debt? What is its total equity (value when all debts are paid)? Be prepared to explain your calculation and show all debts and assets.
- A down payment and/or collateral: Just like buying a house, a down payment and/or other collateral will be required to secure your small business loan.
- Business plan and financial statements: This should show exactly how much money you need and exactly how it will be used. If you’re a start up, your business plan will be especially important.
- Your track record: How has your business performed in the past? What’s your credit history?

3. Be realistic about costs and look for alternatives:

A traditional bank loan is going to come at a cost. From the down payment/collateral you’ll commit, to the interest that will accrue, your loan agreement will have significant costs beyond the loan principal. Are you ready to take on a high-interest personal loan, mortgage your house, or invest your savings? Can you get a better deal elsewhere?

Consider this: Many small businesses don’t get their startup capital from a bank. They get it from family or friends. Think about this lending alternative and consider the possibility of angel investors in your inner circle.

4. Do it right:

If you, like so many others, decide to fund your venture through friend and family lending, a legally recognized loan agreement is essential. Before you start, learn all the basics in A Borrower’s Guide to Friend and Family Loan Agreements. Then use LoanBack’s easy to create the loan agreement that is right for you.

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.

At LoanBack, you can learn about the benefits of friend and family lending, create a legally recognized loan agreement, set up an easy loan repayment schedule, and more. But if you’re considering borrowing money from a friend or family member, don’t overlook the importance of credit counseling…particularly if you are borrowing money to pay off other debt.

Many people turn to friend or family loans because they’ve gotten themselves into trouble with too many credit cards or other consumer debts. If this sounds familiar, you owe it to yourself and your lender to seek credit counseling so you can change the habits that created your debt situation and pay back your loan. Your friend or family member has assumed both financial and personal risk in agreeing to lend you money. By getting good credit counseling, you can give them peace of mind, make sure those monthly loan payments are made in full and on time, and rebuild your financial stability and credit rating.

One of the most important things when seeking credit counseling is to find a reputable service. There are great resources out there, but not everyone representing themselves as a credit counseling agency has your best interest at heart. If the service you’re considering charges significant fees, for instance, they’re probably not a good choice; there are plenty of reputable free or low-fee services. If they demand personal information or credit history from you before they will reveal anything about their services, walk away. Likewise, if the agency is not a member in good standing of the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies, steer clear.

Although it’s not required everywhere, licensing can also be a way to weed the good from the bad when choosing a credit counseling service. Be sure to check whether or not licensing is required in your jurisdiction. You can also turn to the Better Business Bureau or your state attorney general to see if complaints have been filed against the agency.

You can learn more and get a list of reputable consumer credit counseling services by contacting the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.