Up Front Fees.......Are They A Scam?

There has been a lot of talk in the past several months about financial institutions charging barrowers what we call “Up Front Fees” to get a business loan.  When this strategy first came to the market it was a bit of a shock.  Barrowers weren’t used to paying someone to find them a loan.  Not upfront at least.  Barrowers were saying “I’m trying to find money not spend money”.  I was compelled to write a bit about this to make sure I clear up the perception of “Up Front Fees”.

As we all know times have been tough and it’s been a struggle to stay in business.  Organizations of all kinds have had to get creative in their business processes to make sure they can survive another day.  One industry that has had to get creative to stay in business is the lending community.  This market has obviously hit them very hard.  In order for many of these firms to stay in business they have had to change their business model a bit.  Pre-market crash, any barrower could go to a financial firm to get a loan and that firm would do their best to find that customer a loan free of cost.  The financial firm would recoup their cost on the back end by charging a few points on the loan.  Well what was happening when the market hit the floor is that barrowers were going to financial firms inquiring about a business loan, the firm said “Sure I will do what I can for you” and the firm would bust their hump for hours, weeks and even months to find that customer a loan for their business.  After a few weeks the firm would call the customer saying “I have a solution for you” and the barrowers would say, “No it’s ok, I have found another solution” or, “No it’s ok, I’m no longer interested”.  How aggravated would you be if you spent hours and weeks of hard work to help a customer to just have them blow you off in the end?  These firms were losing precious hours and money everyday with barrowers that were stiff arming them in the end.  The financial firms had to do something about this stay in business.  This is where “Up Front Fees” come in.  Firms will tell you they need a certain amount of money up front in order to work for you.

So what I guess I am trying to say is that “Up Front Fees” are not uncommon in this current market and they are definitely not a scam.  The caution warning I give you where fraud could happen is to not give a single penny to anyone unless there is a contract in place.  The contract should allow for your money back if that firm can’t find you your loan. 

Bottom line…….Businesses need to be paid for their services today.  However, always make sure the terms of service are in writing and both parties are on the same page.

0 comments - Posted by Tom Markel III at 11:25 AM - Categories:

Increase Your Chances of Getting Funded With The 5 C's Of Credit

As many of you know the current economic conditions aren’t very friendly to the small business owner.  Lending is tight, credit cards are hard to find and people just aren’t spending money.  There is however some best practices on how to increase your chances of receiving funding even in the worst of economies.  I would like to introduce the 5 C’s of credit.  What many business owners fail to realize is our country has seen these current lending criteria’s before.  Pre-subprime which would probably be pre-1997 the lending criteria was virtually the same.  You needed good numbers, decent collateral, and a strong business plan.  The 5 C’s of credit might be able to help.

Character

What does your company stand for?  Does your management team have a reputation in the community, industry, or workplace?  Do you promote good customer service and do your customers know that?  Lenders want to see that you have created a positive culture.

Capacity
How much can your company take on as far as financial responsibilities such as debt?  Lenders want to know the point at which the boat no longer floats if too much debt is on the books.

Capital

Do you have a 401K or some sort of pension?  Do you have a savings account?  If so have you tapped that cash to grow or sustain your business?  Lenders want to see if you are personally invested in your own company before they give you their money.  If you won’t belly up why should the lenders?

Collateral
What are some of the assets the company owns or you personally own?  Lenders especially today require some sort of asset they can take if you don’t pay off the loan that they can convert to cash.  Try to put up company owned assets before you go to your home or your cars etc.

Conditions
Lenders want to know how your particular industry is handling the current economy.  Is it up or down or flat?  If so what are you doing to stand out to make a difference?

2 comments - Posted by Tom Markel III at 4:43 PM - Categories: Business Startups | Business Financing

The New Rules

As the economy shifts into a different shape, a shape that has never been seen before, the old rules have changed.  I keep hearing people say “I have been doing this for 25 years.  It will work.” Sorry, but what worked 25 years ago just doesn’t work today.  What worked one year ago doesn’t necessarily work today.  The path has been paved over and the new rules of the road are now flashing—if you’re paying attention of course.

Web site Visitors and Users

First, if you don’t have a Web site you’re already far behind.  I don’t care if your business is building plastic clamps for a part that goes in the trunks of Ford SUV’s.  Every business needs a Web site. Historically, the most popular pages on a Web site were its news section, maybe some landing pages and some content pages.  In these new times do you know what we have found to be one of the most popular pages on a Web site?  The “About Us” page.  Web site visitors today are discovering that the “Search” process whether you go through Google, Yahoo, or any other search engine, does not always offer the best results.  Many businesses today, before going anywhere on your site now wants to know what your company is all about.  Does this company believe in what I believe in?  What’s the customer service like?  Is the owner of the business truly dedicated to his or her customers?  Is the company a good company?  The days of slapping up some content to entertain the Google algorithms to get on the first page of Google or Yahoo are over.  You still might get on the first page of Google or Yahoo but now that customers are doing more research, acquiring new customers will be more difficult if your company is not credible.  Be transparent as you can with your customers.  Speak about your story and how you were founded.  Speak about success stories, business goals and objectives.  Speak about your core values and why they are your core values.  Earn the trust of your customers.

Getting a Business Loan

Before the credit markets got silly with loose lending practices and greedy executives, what where the lending rules?  The rules were do you have collateral?  Do you have appropriate income?  Do you have a good credit score?  How long have you been in business?  Are you profitable? 

What were the rules during our recent economic boom?  Do you have a pulse?  Oh great here’s your loan.  Yes, the credit markets are extremely tight right now.  However, if you are going to need a business loan or want a business loan during these times you best be prepared and know what you’re doing.  Make sure you have everything organized in a professional-looking way.  The banks don’t want to take on a single ounce of risk right now.  Making the banks do any kind of extra work to learn about your business is going to threaten your chances of getting a loan.   The best way for banks and lending institutions to learn about your business is through a professional SBA certified business plan.  Without a business plan 99% of banks will throw your application right in the trash.  There are all different kinds of business plan templates at all different prices.  If you are going to pay someone to write a business plan for you make sure it’s a certified business plan.

Sales and Marketing

When I was growing up I walked door- to-door selling Christmas garlands and wreaths to people in my neighborhood.  Back then they thought it was cute.  Today, they would most likely slam the door in my face and probably call the police.  Cold calling, email blasting, recorded voice calling….these methods might still work for some of you today, but you should add social media to your marketing mix. An effective social media effort will attract new customers at almost no cost.  Social media is still this big black hole for many people today, but if you spend some time with social media, it’s not that hard to learn how to effectively use it.  The main question with social media is how do you create the habitual user?  As the owner of your company what can you share with your customers that will get them to come back to visit your site on a daily, weekly or monthly basis?  Once familiarity and credibility is established the customer will naturally use your services or products.  Some social media accounts to look into:  Linkedin, Twitter, Facebook, Digg, Delicious. 

0 comments - Posted by Tom Markel III at 2:10 PM - Categories: Business Startups | Business Financing | Business Consulting

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