United Bank & Trust Blog

This is a question being asked by millions of consumers in today’s world of uncertainty. There is no silver bullet or magic. It will take time, but more importantly it will take dedication and commitment, but it can be done. Recently, several leaders at United Bank & Trust facilitated a 12-week class using Dave Ramsey’s Financial Peace University material with 30 United co-workers completing the course. The participation and level of commitment by employees and their spouses was phenomenal. I will briefly share with you Dave’s Philosophy for reducing debt, but first let me share some really good news that was recently reported on MSNBC.

The amount consumers owed on their credit cards dropped to its lowest level in eight years. Today’s card holders continue to pay off balances in this uncertain economy. This is GREAT NEWS! 

The average combined debt  for bank-issued credit cards – those with a MasterCard or Visa logo – fell to $4,951 in the second quarter, down 13 percent from $5,719 last year.* This is the first time since first quarter 2002 that credit card debt fell below $5,000.

It was also reported that more borrowers made payments on time. This is a great signal that consumers are working really hard to keep their credit cards in good standing, but even more importantly, the desire to reduce credit card debt.

If you are in debit, and looking for a tool, here is what Dave Ramsey says about reducing debt and a tool he refers to it as “The Debt Snowball.”

There is no better time than today to feel like you are in control of your finances. Please let us know if you would be interested in attending a Financial Peace University Class sponsored by United Bank & Trust. We feel great about our pilot test and have a strong passion to take this to our community. Your feedback would be greatly appreciated. I do encourage you to try this method of the “debt snowball.” When you can successfully accomplish this step, you will begin to experience financial peace.

United Bank & Trust is very committed to helping our co-workers, clients and our communities to better understand how to manage their finances. Every day we see that all of us could sharpen our skills around managing our personal finances and we want to be a great resource to our clients and our community.

Have a GREAT DAY!

* Information was reported to TransUnion, a credit reporting agency.

In the recent Wall Street Journal article Collateral Damage in Lending, they discussed several items that we feel are great opportunities to clarify for potential borrowers.

Lack of Collateral

A lack of collateral shouldn’t be a reason to deny a loan under the Small Business Administration (SBA) program. The SBA does allow for the approval of loans that are under collateralized, however, all other assets of the borrower/guarantor, shy of working capital reserves and retirement accounts, are required. This includes all business assets (potentially including accounts receivable, inventory etc. if not tied to an operating line of credit) potential stock portfolios, personal residences as well as other real estate investments to name a few.

Cash Flow

We agree with the bankers in the article – cash flow is still the primary source of repayment and the most convincing way to underwrite a transaction. However, some loans won’t cash flow under conventional terms and this is where the SBA can be of assistance. The ability to amortize furniture, fixture, equipment, working capital and goodwill over 10 years and real estate over 25 years can drastically increase the cash flow position of a company making it more palatable for a lender.

Personal Guaranty

For a small business, especially a start up, a personal guaranty and the willingness of a borrower to offer one is very important. We, as a financial institution, are a lender and not an investor. We want to see that the individuals involved believe in their business and are willing to pledge their personal assets as a sign of confidence. In addition, our return (our interest rate) is priced similarly to any other conventional lender and not an investor.

We don’t get any of the rewards – for more information we have two webinars completed this year on small business lending in today’s economy and Cash is King: How to Manage Cash Flow & Increase Working Capital where we discuss this in greater detail.

In addition the SBA rightfully requires a personal guaranty on any individuals that own 20% or more ownership.

Cash and Cash as Collateral

Typically our SBA loan structure is SAFER for the client and the bank compared to a conventional loan.

Because our LTV’s can be higher, this reduces the amount of cash the client has to put into the deal allowing clients to preserve precious working capital, which they all desperately need!

Cash is usually only taken as collateral during construction- to cover cost overruns, or in rare situations when the loan is under secured AND additional collateral is available that wouldn’t’ hurt their working capital situation. We want our borrowers to have the available working capital to be able to operate their business. One of the top five reasons why businesses fail is attributed to a lack of working capital!

Accounts Receivable and Inventory as Collateral

As I mentioned above, we often will try to leave accounts receivable and inventory available as collateral for potential operating lines of credit.

Don’t hesitate to call on us with any questions, comments, or concerns at contact@unitedstructuredfinance.com. Have a great week!