Keeping Small Business Healthy While Wall Street Isn't
(CBS)
For weeks we’ve been reporting for the CBS Evening News with Katie Couric about the credit crunch and the negative affect it has had on small business owners. Specifically, big banks have been reluctant to lend money right now which in turn prevents businesses from growing. Some have had to lay off employees, others have shut down altogether. But we found that for business owners with good credit, a solid business plan, and a lot of determination, there is still money to be had.
The Contos family in Long Beach, Calif., has been running restaurants for 45 years. They have excellent credit, a profitable business and plans to expand to a third location. But when they approached their long time banker, they were not given the amount they needed. Undeterred, they called the Small Business Administration and asked if there were other places they should look for financing. They were referred to Excel National Bank in Beverly Hills. While other banks were making risky subprime home loans, Excel stayed conservative and now has money to lend. Excel loaned Iristi Contos $1.7 million. They will break ground on the new location when the overall economy perks up.
Another alternative source for funding is through economic development centers. At the Valley Economic Development Center in Van Nuys, small businesses with less than perfect credit are encouraged to apply for loans through the SBA and other organizations. But these days, says VEDC director Roberto Barragan, they are seeing people with good credit come in as well, unable to get loans from the big banks. Loan applications are skyrocketing; he says “we've been doing a loan a day. That is four times the rate that we usually are at this time of year.”
The VEDC was able to help two Studio City moms make their business idea a reality. And just last week, Lucinda Lent and Juliet Boydstun opened “The Coop.” It’s an indoor/outdoor play area for children where moms can get a cup of coffee and chat while the kids let loose. The two women secured what’s called a “micro-loan” through the VEDC. A micro-loan is $35,000 or less, but it comes with some strings. According to Lucinda, “it's not like a bank. You have to have a very concise business plan. You have to account for every cent which has been life-saving for two women who like to shop.”
And finally, a third way you could get a small business loan is by going on-line. At sites like prosper.com, you pitch your idea and individuals bid on your loan. It’s called peer to peer lending and it’s growing in popularity. The site saw a 37 percent increase last month in the number of loans they brokered. Just like the other loan options; prosper is seeing an increase in the credit quality of their borrowers. Prime borrowers who have a credit score of 720 or higher accounted for 45 percent of their loans last month compared to just 30 percent a year ago.
The lesson? If you have pretty good credit, some collateral and are willing to look; there are loans out their to launch new businesses and keep already established businesses healthy.
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Finally, I would really appreciate the media letting us know who were the members of congress that felt it necessary to tack on $180 Billion to the $700 Billion rescue package, that was nothing less than extortion and they should be exposed.
There are many varieties of credit scores available to lenders. But the most widely used for large loans are FICO scores, which are based on a scoring system developed by Fair, Isaac & Co. Following are five things you can do to boost your creditworthiness, plus more information on obtaining your personal score.
1.) Review your reports from all three credit bureaus for accuracy once a year as well as several months before applying for a loan.
2.) Paying your bills on time is always a good practice, and it%u2019s especially critical that you make prompt payments close to the time you need a loan.
3.) A heavily weighted factor in your FICO score is how much money you owe on your credit cards relative to your total credit limit. Generally, it%u2019s good to keep your balances at or below 25 percent of your credit card limit
4.) Pay off debt rather than moving it around i.e. since the ratio of your credit card balance to your credit limit is key, closing out an account and transferring the balance simply means you increase that ratio, which is likely to lower your score.
5.) Don%u2019t close unused credit card accounts near loan time.
For more information please visit this site: http://www.creditmagic.org