Money Talks for April 5, 2020: Small Business Loans

Brad Zucker explains what businesses need to know before signing on the dotted line.

DOORS OR TRY TO FIND LOANS TOSTAY AFLOAT.I SPOKE WITH LOCAL FINANCIALPROFESSIONAL BRAD ZUCKER FROMSAFE MONEY ADVISORS ABOUT WHATBORROWERS NEED TO KNOW BEFORESIGNING ON THE DOTTED LINE.Q: WHAT RELIEF EFFORTS ARE ONTHE WAY FOR BUSINESSES HURTFINANCIALLY DURING THECORONAVIRUS PANDEMIC?

FEDERALAGENCIES ARE ENCOURAGING BANKS,SAVINGS ASSOCIATIONS AND CREDITUNIONS TO OFFER SMALL-DOLLARLOANS TO CONSUMERS ANDBUSINESSES AFFECTED BY COVID-19.REGULATORS WOULD LIKE TO SEEBANKS AND CREDIT UNIONS WORKWITH CONSUMERS AND BUSINESSESWHO CANNOT AFFORD TO REPAYCURRENT LOANS BY FINDING WAYSTO PAY BACK THE PRINCIPALWITHOUTHAVING TO BORROW ANOTHER LOAN.SMALL-DOLLAR LOANS ARETYPICALLY FOR BORROWERS WHODON'T HAVE THE BEST CREDIT ANDNEED SHORT-TERM MONEY TO MAKEENDS MEET.THE IDEA IS TO HELP BUSINESSESFIND THE LONGEST PAY-BACK TIME,THE LOWEST INTEREST RATES ANDTHE SMALLEST FEES.Q: WHAT ARE THE DO'S AND DON'TSOF BORROWING MONEY?

DO'S OFBORROWING MONEY WHEN SHOPPINGAROUND FOR A LOAN, YOU NEEDTO LOOK AT THE FEES AND HOWLONG THE LENDER IS GIVING YOUTO PAY BACK THE LOAN.INSTEAD OF A SINGLE-PAYMENTLOAN, WHICH REQUIRES YOU TO PAYBACK THE ENTIRE PRINCIPAL PLUSANY INTEREST AT A CERTAIN DATE,CONSIDER AN INSTALLMENT LOAN.AN INSTALLMENT LOAN ALLOWS YOUTO BORROW A LARGE SUM OF MONEYOVER A PERIOD OF TIME.IT USUALLY CARRIES A FIXEDINTEREST RATE AND REQUIRESMONTHLY PAYMENTS.DON'TS OF BORROWING MONEY FORMANY BORROWERS, ASINGLE-PAYMENT LOAN DOESN'TMAKE SENSE.SOME WORRY SMALL-DOLLAR LOANSMIGHT RESEMBLE PAYDAY LOANSTHAT HAVE HIGH INTEREST RATESAND LEAD TO A CYCLE OF DEBT.PAYDAY LOANS MAY SOUNDATTRACTIVE BECAUSE ALL YOUNEED IS A VALID ID, PROOF OFINCOME AND A BANK ACCOUNT.HOWEVER, THEY TYPICALLY HAVEHIDDEN RULES THAT CHARGEBORROWERS ADDED FEES.A TYPICAL TWO WEEK PAYDAY LOANCAN COST YOU $10-30 FOR EVERY$100 BORROWED.THAT EQUATES TO AN ANNUALINTEREST RATE OF ALMOST 400%!Q: DURING A TIME OF CRISIS, HOWDO YOU KEEP YOUR DEBT IN-CHECK?TAKE INVENTORY START BYORGANIZING YOUR DEBT BYINTEREST RATE AND MONTHLYPAYMENT.THIS INCLUDES BUSINESS LOANS,LINES OF CREDIT AND BUSINESSCREDIT CARDS AS WELL AS ANYOUTSTANDING PAYMENTS.THERE ARE TWO POPULAR METHODS:THE AVALANCHE METHODENCOURAGES YOU TO TACKLE THEDEBT WITH THE HIGHEST INTERESTRATE FIRST.THE SNOWBALL METHOD ENCOURAGESYOU TO PAY OFF THE DEBT WITHTHE SMALLEST BALANCE FIRST.WITH EACH METHOD, CONTINUEMAKING AT LEAST THE MINIMUMPAYMENTS ON YOUR OTHER DEBTS ASYOU WORK TO PAY IT ALL OFF.CUT COSTS IF YOUR EXPENSES ARERUNNING TOO HIGH, YOU'LL HAVETO FIND WAYS TO CUT COSTS.YOU MAY HAVE TO SELL OFFEQUIPMENT THAT IS NOT USED VERYOFTEN AND CONSIDER BUYING USEDOR LEASING THAT EQUIPMENT.DOWNSIZE TO A SMALLER OFFICEYOU CAN'T AFFORD TO REPAY DEBTSAT THIS TIME, CONSIDER DEBTCONSOLIDATION OR REFINANCING.REFINANCING ALLOWS YOU TO TAKEOUT A LOWER-INTEREST LOAN TOREPAY THE ORIGINAL LOAN.CONSOLIDATION COMBINES SEVERALLOANS INTO ONE LOAN - IDEALLYGIVING YOU A LOWER INTERESTRATE AND SHORTER REPAYMENTPERIOD.THESE OPTIONS CAN HELP YOU LOCKIN A LOWER, FIXED INTEREST RATEAND LOWER YOUR PAYMENTS.((AD-LIB))