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LAGUNA BEACH AUGUST/REVISED OCTOBER 6, 2009 VOL I
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News & Views
Debt Buyers & Sellers Resource
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Welcome Message
To our friends and colleagues. Recognizing the need for communication among us and the sharing of experiences that might help others, Gary Baker and I, Jill Benshoof have decided to try this format. There are numerous pitfalls and hurdles that we have personally encoutnered in launching our Debt Buying and Collection business, that have cost us valuable time. It bacame evident to us that opening the doorts of communication between us could be of tremendous benefit to us all. Master Mind phone calls or random emails present come challenges, but herein we would be happy to act as a clearing house of information for those who wish to participate.
There are a great number of resources that we have come across that we have found invaluable that we would like to share. No doubt you have discovered many as well. Articles, web sites, important contacts in the industry and significant shared experiences are what we had in mind, but feel free to contribute anything that you think may be helpful to others and I will include it in the following edition, which will either be weekly or bi-weekly, depending on the volume and time sensitivity of the feedback. We encourage you to forward this to other graduates that you are in touch with to give them an opportuntiy to link in as well.
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Business Credit
Gary M. Baker - Crescent Bay Financial LLC
About 95% of all new business owners use their personal credit for financing their business. We were surprised to find out that our previous business had no business credit despite the fact that we had borrowed and diligently repaid a number of loans totaling over $1 million over an 8 year time period.
Apparently you must be proactive in setting up the process by which your good credit can be reported to Dunn and Bradstreet or the Credit Bureaus. Since raising capital is vital to the expansion of the Debt Buying business and good business credit provides much more leverage, establishing business credit early is very important. You must have your company entity in place - LLC, Corporation, etc. and your tax ID number. Several firms provide assistance handling this for you. In setting up our LLC, we went with an online attorney who will set up the LLC, execute the operating agreement, get a Federal Tax ID and file some other forms, as well as provide legal advice on your LLC for about $650. There of course are many other firms who provide these services but we chose AmeriLawyer to handle our LLC. They were fast, efficient and offer legal advice on your business. www.amerilawyer.com.
We have located several companies on line that offer a complete service to help you establish, build, and maintain good business credit which can be used in time to acquire sizeable sums of cash. While some sound great and promise up to $150k within 60 days, our recent research indicates that this is not realistic, so beware. Of the 3 companies we short-listed, 2 are in Las Vegas and one in Newport Beach, California. After a close comparison, we ultimately went with the Newport Beach company because they were the most price competitive and offer more service without up-selling products or providing expensive consulting that we did not need. Visit their site. If you click "Who 'sells' Business Credit?" in the bottom right corner, you will find an excellent overview of what to watch out for in selecting a business credit company.
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Bid Analysis Spread Sheet
During a 5 day seminar various seller surveys were provided from a single vendor on various credit card packages that had been sold in different months. It appeared that each of the survey questions was nearly the same, and since we knew how much each package sold for; it appeared to be a good idea to create a spreadsheet to compare the packages to determine what information was different. Yes a good idea all right. After about 45 hours a "Simple Spreadsheet" was created to compare several different baseline national packages. The spreadsheet is quite comprehensive and with just a little bit of excel knowledge, you can input your own data and compare the results. Study the items that are the same and those that are different from the base line packages and pricing. By knowing the past pricing, you may be able to get some idea of the future.
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BID ANALYSIS SPREAD SHEET
If you would like a copy of Gary's Excel Spread Sheet for anlyzing bid packages, let us know. Feel free to Email me at jill@crescentbayfinancial.com.
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In Search of Funding
Gary M Baker - Crescent Bay Financial LLC
The search for business money has been a challenge, as there are many types of lenders and not all are suitable for this business. We have learned a lot over the past 2 months about the different lending groups and what they are looking for in a business relationship. After much trial and error, we are now targeting private money resources and developing strategies to contact and secure private funds.
Banks
Our journey began with the banks. In contacting over 130 banks by phone and in person and delivering a brief executive summary of our business model, we have found that the banks are extremely stringent in their lending criteria. The reasons for our failure to secure bank financing have generally fallen into four categories.
1. Length of time in business - Banks are not comfortable with businesses that are less than 2 years old; some required 3-4 years in business; some were only lending to existing customers.
2. Charged off Asset Collateral Value - The banks have not recognized value in the collateral that we have to offer, which is the assets that we will acquire. They view these charged off debts as having no value because they "believe that the banks already do a good job of collecting debt".
3. Moral Reasons - Some banks just will not lend on this type of business for moral reasons. They do not want to be seen as profiteers of the current banking crisis.
4. Risk Factor - All of the risk is on the banks. If you fail to collect on the debt, how are we "the bank" going to collect when you can't?
Some banks are willing to follow the standard loan process where an application is filled and reviewed, supporting documents filed and reviewed, credit reports reviewed, loan committee and then an answer 1 to 3 months later. Even more cumbersome is the involvement of the SBA. Banks continue to turn to the "safe harbor" SBA for protection on coverage of 50% of the loan if the business fails. Since business failure rates are about 90%+ within the first 2 years of operation, it is easy to see the banks reluctance to take a chance on new businesses.
Some banks have also told us that they have restrictions on business lines of credit. This may not apply to all banks but we have been informed by many that they want to let the credit line rest for 2 months. This appears to be within a 12 month period. Another point that the banks have made is that the bank can call the credit line due in 12 months. Most of the banks who have been willing to discuss loan terms with us have insisted on a personal guarantee as a condition for any loan or line of credit.
Even with all of the problems that we have faced, banks offer many "perks" that other funding do not. They offer low interest rates, they don't want a piece of the profit and they don't want to own a piece of your company or sit on your Board of Directors. For these very compelling reasons, we should not eliminate banks from our target audience for sources of funds for our business. Our criteria was "new company; using purchased debt as collateral." If you have had success with the banks, please share your experiences.
How one Bank Looks at Lending
We obtained this interesting information from an online bank. Their website is www.cplloans.comand they had a very good description of their basic lending guidelines. While CPL is generally a commercial lender, their information at least provides some insight into the lending process, from the lenders perspective.
CPL views a commercial loan as a three-legged stool.
1. The Collateral
2. The Borrower
3. The Business Enterprise
We look at; 1) the appraised value of the collateral, 2) the financial strength and experience of the borrower, 3) the ability of the business enterprise to repay the loan. If one of the three legs is not as strong as we feel it should be, then the other two legs must be stronger, i.e. In the case of a start up business where there is no historical track record, we will look at the expertise of the borrower and the value of the collateral. If we feel that the borrower has good experience and can produce solid projections based on a sound business plan, quite often we can provide the financing that is needed.
How The Loan Process Works
1. Three year's financials. The first step in having your loan request considered is to submit to CPL the past three year's financials on the business or property in question. From this we can normally tell you the amount, terms and interest rate of the loan we feel that we can secure for you.
2. Loan Placement Agreement (LPA). If the loan amount and terms we quote are acceptable and you elect to go forward, CPL will prepare for you a Loan Placement Agreement (LPA). This is the agreement in which you engage the services of CPL. We must have this to move forward with your loan request. You will also need to sign a credit release authorization.
3. Underwriting. Once the LPA is executed and a credit check is obtained and reviewed, the borrower must supply the normal information any lender needs to underwrite the loan request. The information we will need is as follows:
· Complete financials on the business (past 3 years)
· 3 years tax returns on all principals and any corporate returns
· A signed and dated financial statement on all principals
· Resumes of all principals
· Photographs of the business or property
· A business plan for start up or turn around situations
· An appraisal from an acceptable MIA appraiser
4. Loan Commitment. Once the above information is received, the loan package will be underwritten and prepared by CPL. This process usually takes 3-5 days once we have received the information we need. We then submit the loan package to the loan committee for approval; if the loan is approved, a loan commitment is normally issued within a week.
5. Closing. A closing attorney is engaged and a closing is scheduled. This process normally takes 2-4 weeks.
How long will it take to get my loan?
This is the question that everyone asks. The length of time the entire loan process takes is 90% up to the borrower and how responsive the borrower is in supplying the necessary information. All loans are different, depending on the complexity of the situation, but we can normally have a commitment within 2-4 weeks from the time we get the needed information. Once a commitment is obtained, it normally takes another 2-4 weeks to get the loan closed.
SBA
In a normal SBA loan environment, the bank will take the lead in the processing and will generally involve their SBA loan expert. We have been told that our business does not qualify for SBA participation as the SBA has determined that we are a speculative business like a "wildcatter" or crop farmer. We do not agree with the determination but after having the discussion with several experts on SBA loans, we have no option to continue with an SBA process that we have found. That also includes the State of California incubator business programs which we were also turned down for because of the nature of the business. However, it is worth pointing out what the process is and what is required by the SBA for a loan.
Banks
Loan Application
SBA
Personal Information
Interim Financial Statement
Business Financial Statements 3 years
Personal Financial Statements 3years
Statement of Personal History
Personal Tax Returns 3 years with all schedules
Business Tax Returns 3 years with all schedules
Business Debt Schedule
Authorizations
Release/Obtain Information
Tax Verification
Certificate of Secretary
Certification of Financial Stmt w/in 45 days
Application
History of Business
Accounts Receivables & Payable Aging w/in 45 days
Projections Worksheet - monthly income and expense project. 12 months
Copy of purchase agreements, escrow instructions
Business Plan
Management Resumes
Other
Partnership Agreement
Articles of Incorporation and Bylaws
Lease Agreements
Fictitious Business name Statement
Trust
Bids, Purchase Orders
Contracts
Insurance
Life Insurance
Business License
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Credit Scores
Gary Baker
Throughout the process of dealing with the banks, not one time, did any lender ever pull a credit report to review. They made their decisions based on the type of business, the length of time in business and the collateral involved. Personal credit scores are vital in obtaining many types of loans and if your credit report is filed with derogatory remarks, late pays, foreclosures, and charged off accounts the chances off obtaining any regular financing from a lender will be difficult. There are many credit repair companies who claim to be able to improve your credit score 100 points or more. Based on accounts that we have read, most of these claims are bogus and many of these sites have been reported to be no more than rip-off artists.
We did discover what we thought to be one credit repair company that had come strongly recommended and we originally listed their name. Immediately we were made aware of investigations that were taking place into that firm by one of our readers. Of course we called the company to try to get an explanation, but no one will return our call. For that reason we are not placing any recommendation on a credit repair company. From what we see, everyone is an expert if there is something to be sold. (We have found and the majority of people who are hyping various products and services and making ridiculous promises and "Bonus Offers" should probably not be taken seriously. Always do your own due diligence and check out a variety of vendors before you spend your money). Sometimes there are pieces of good advice and services worth purchasing.
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NO. CAROLINA TARGETS DEBT BUYERS
"North Carolina recently enacted a piece of legislation that could prove to be a game changer for accounts receivable management companies in the state, especially debt buyers." Link to article from Inside Arm.
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Credit Repair
Gary Baker
The truth is, borrowing from banks is probably the easiest and cheapest money you'll ever find. Why? Because you don't need to make a presentation to a group of investors, or convince anybody you know to give you money and generally the banks offer some of the best interest rates. You just fill out forms, follow the rules and play the right strategy-and the money comes rolling in! (Well maybe before the banks melted down)
Most people are freaked out about going to a bank to borrow money-fear of rejection, fear of liability. That's because most don't know the rules and they don't know the winning strategies involved in obtaining a loan.
Banks based their lending decisions on set of fixed guidelines and rules. So to get a loan, you need to understand the banks lending rules. For a personal loan you need a good credit score. These days, that means a 680 to 700 or higher. If your scores are not at that level there are also options and one is to repair your credit score which we will discuss below, and a second option is to use your business credit score to borrow money (we cover this topic in an article above).
First, stop doing the things that lowers your credit-like paying late on bills. The easiest way to do this is to arrange with your vendors to automatically draft amounts out of your bank account. Or bank online and set up automatic monthly bill paying. Second, get a copy of your credit reports so you know your score.
Even if your credit is in the 680-700 range, you'll get even more money, more easily and more cheaply if your credit is in the 750-800 range.
Interest Rate and Monthly Payment - Dec 2008
Almost all purchases today are made with some type of credit card. If you carry a balance, you may be paying 20-25% on it. You can get better terms from a hard money lender!
Where Negative Credit Begins
-Debt to income ratio
-Late pay
-Collections (especially medical)
-Public records (i.e. bankruptcy, tax lien, judgment)
-Repossession/foreclosure
-Excessive inquiries
Each agency (There are three: Trans Union, Equifax, Experian) has its own unique score and slightly different criteria used to arrive at this score. (They credit reporting agencies also keep the methods that they calculate the scores a secret) Creditors subscribe to the agencies based on their specific credit approval requirements.
Little known fact: Creditors pay for credit bureaus to report derogatory information. This is why they are so reluctant to remove negative credit from your profile.
Once you have some of these derogatory items, you find you have little or no financial flexibility. Many people don't have the necessary tools to dig themselves out of a bad credit report so they hire an "expert" to help them. If you can do just a little research on-line, you can find so much free information on credit repair now, that it is probably worth doing most of this yourself. If you need help in consolidation of loans, there is a whole network of people, non profit organizations and government agencies that can also help, for little or no charge. If you believe that you really need someone to help you here rebuild your credit, be careful in selecting your consultant. These people charge a lot and there have been many problems reported. Check out any firm with both the Better Business Bureau and you should inquire with your state attorney general's office as well.
The Process of Improving your Personal Credit
-Obtain/review credit profile (Experian, Trans Union, Equifax)
-Identify negative credit
-Devise a strategic plan for removing negative items and improve F.I.C.O. score
-Monitor developments in your credit profile
-Keep records of all of correspondence
-Try to negotiate on paying off old accounts in exchange for having the item removed from your credit report (In many cases this is very difficult)
-Are they really your debts? Ask for proof. If proof cannot be provided that you owe the money the item must be removed from your credit report
-Avoid making future payments late, look at an automatic pay system if you forget due dates or are traveling
When you get your credit reports, most offer a free copy to you if you have been turned down for credit, or you can go to one of the credit report sites and order a copy. Review your credit report to identify the factors that are keeping your credit down. There are 2 types -
1. Non-derogatories - these are issues like inquires (you'd be amazed at how many there can be), and these can be removed relatively quickly.
2. Derogatories - these are things like late pays, bankruptcies, charge off's, etc. (For example, if you had a $20 credit card charge and was 30d late in paying - it could lower your score by at least 30 points!). These issues take somewhat longer to remove.
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Legal Credit Repair Methods
From Credit Repair.com
To better understand what legal credit repair is, it would be helpful to understand a few types of illegal credit repair:
Illegal: Changing your social security number to obtain a clean bill of credit. If any company should suggest this type of credit repair, report them to the authorities.
Illegal: Disputing every item on your credit report, regardless of nature. The Fair Credit Reporting Act specifically states that only items that are unverifiable, inaccurate or misleading should be disputed. Items that are clearly yours, and reflect your credit history should not be disputed.
Illegal: Charging for services that have not yet been completed. This is to protect the consumer from fraudulent companies that charge for services that never get completed (charging to "repair your credit", then hitting the road...)
So, what exactly is Legal Credit Repair?
You have the right to plead "not guilty" to questionable information on your credit reports
Legal Credit Repair consists of removing the questionable items on a credit report. There are a few different methods of going about this, the most common and effective are:
"Goodwill" Negotiation: Negotiating directly with creditors and asking them to "please" remove questionable items from your credit reports is a viable method of credit repair for mild late-pay accounts. There are no laws that require that questionable items stay on your reports for any amount of time, and creditors have the ability to simply remove these items if they see that it could somehow work to their benefit, even if that simply means a pleased customer.
Credit Disputation: The Fair Credit Reporting Act gives you the right to contact credit bureaus directly and dispute items on your credit reports. Just as in a court of law, you have the right to plead "not guilty" to questionable information on your credit reports, and leave the burden of proof to the credit bureaus. You can dispute any and all items on your credit reports that you feel classify as inaccurate, unverifiable, or misleading. If the bureaus can not verify that the information on your reports is indeed correct, then those items must be deleted.
Does the CCCS help consumers restore credit?
Consumer Credit Counseling Service or CCCS is a non-profit debt counseling service that assists consumers who are over their heads in debt. CCCS is funded and controlled by the credit grantors and the credit bureaus. Often, CCCS provides a beneficial service to the consumer. Because of the obvious allegiance between CCCS and the credit bureaus, you cannot reasonably expect CCCS to do anything that the credit bureaus would frown upon, such as help you restore your credit. In fact, if you decide to leave CCCS before you have finished their program, they can list your failure to complete the process as a questionable listing on your credit report. When you participate in the CCCS program, your creditors will sometimes (though rarely) note it on your credit report. The fact that you resorted to a debt counseling program is a huge red flag for prospective credit grantors. Remember, paying off your debts is a step in the right direction, but it does not restore your credit.
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Future Topics
Our research has taken us in many unexpected directions and we have buckets of information to pass on that may very well be helpful to you and save you time. In the future we plan to offer tips in developing your financial model, finding other sources of private money income (venture capital, private equity, Angel Investors and private money placement), how to find the right bank, presentation hints written by Angel Investors, SEC Regulations with regard to advertising for money. We also have a very large amount of other web resources that will hopefully be of interest to you.
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Affiliate Marketing
A point that must be acknowledged is the use of affiliate marketing programs. At the bottom of many websites that offer download information and e-books for sale is the affiliate button. This allows for an account to be created and connected to the website via Click Bank or other payment provider where you can receive a referral fee and portion of the sale of the item offered (Commission) to be credited to your account. In many cases they referrals pay from 10 % to 50% and more for a purchase through your affiliate link and in most cases, the host page will provide you will banner ads and referral tips to drive traffic to your own site so that you can refer that user to the host site. Affiliate links are great sources of passive income and do not cost the end user anything extra.
Many readers have come from the Bill Bartmann program. There is an affiliate link on the home page where you can sign up and receive a 50% discount on the debt buying program if you enroll through this affiliate link. (Too bad we didn't know this before!)
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Bob Parson's 16 Rules
CEO of Godaddy.com and former Marine Corps Officer.
1. Get & stay out of your comfort zone. Not much happens when we're in our comfort zone. People say, "I'm concerned about security." My response to that is simple: "Security is for cadavers"
2. Never give up. Almost nothing works at the first attempt. If things do not seem to be working, it doesn't mean it won't work. It just means that it might not work the way you're doing it. If it was easy, everyone would be doing it, and you wouldn't have an opportunity
3. When you're ready to quit, you're closer than you think. There is an old Chinese saying: "The temptation to quit will be greatest just before you are about to succeed"
4. Regarding what worries you, accept the worst thing that could happen, & make it a point to quantify what the worst thing could be. Seldom will the worst consequence be anywhere near as bad as a cloud of "undefined consequences." My father would tell me early on, when I was struggling, "Well, Robert, if it doesn't work, they can't eat you"
5. Focus on what you want to happen. Remember that old saying, "As you think, so shall you be"
6. Take it a day at a time. You can get through any difficulty if you don't look too far into the future, & focus on the present moment. You can get through anything one day at a time
7. Always be moving forward. Never stop improving or doing something new. The moment you stop improving your organization, it starts to die. Make it your goal to be better each day, in some small way
8. Be quick to decide. Remember what General George S. Patton said: "A good plan violently executed today is far and away better than a perfect plan tomorrow"
9. Measure everything of significance. Anything that is measured and watched, improves.
10. Anything that is not managed will deteriorate. If you want to uncover problems you don't know about, take a few moments & look closely at the areas you haven't examined for a while. I guarantee you problems will be there
11. Pay attention to your competitors, but pay more attention to what you're doing. When you look at your competitors, remember that everything looks perfect at a distance. Even the planet Earth, if you get far enough into space, looks like a peaceful place.
12. Never let anybody push you around. You have just as much right to what you're doing as anyone else, provided that what you're doing is legal
13. Never expect life to be fair. Life isn't fair. You make your own breaks. You'll be doing good if the only meaning fair has to you, is something that you pay when you get on a bus (i.e., fare)
14. Solve your own problems. You'll find that by coming up with your own solutions, you'll develop a competitive edge. SONY co-founder said: "You never succeed in technology, business, or anything by following the others." There's also an old Asian saying that I remind myself of frequently. It goes like this: "A wise man keeps his own counsel"
15. Don't take yourself too seriously. Lighten up. Often, at least half of what we accomplish is due to luck. None of us are in control as much as we like to think we are
16. There's always a reason to smile. Find it! You're lucky just to be alive. Life is short. My little brother always reminds me: "We're not here for a long time, we're here for a good time!"
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