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The era we are living in is ruled by technology. Be that shopping, cleaning services, or even banking everything has been hit by technology. Providing people with better solutions to the existing problems and adding convenience into their lives.

It is as a result of technology that people today enjoy the perks of living in the modern age of the internet. Everything is readily available for the people on the internet. On the one hand, this has made the lives of people comfortable, while on the other hand, it has exposed people risks of cybercrime, scams, and frauds.

The facility of ordering loans online has really helped people. It saves their time from making frequent bank visits and also keeps them away from the hassle. But as the trend of online loans becomes common, an increased number of risks emerge. One of the most common risks an online borrower can get himself into is dealing with a shady lender. It can result in their money being lost, or they might end up paying way more than required, or they might become a victim of identity threat.

Some red flags have been gathered to help save the people from getting trapped by shady lenders. These will help them stay alert and safe from being scammed by fake lenders!

  1. Up-front Fee:

Usually, a legitimate lender will not ask for payment upfront. The up-front payment technique is a common practice among thieves. If a lender asks for a fee to process an application, there are high chances that it is a scam. Well-reputed online lenders may ask for payments, but all these payments are explained thoroughly. While paying, a borrower knows exactly what he/she is paying for, which is not a case where the lenders are shady. Fee for application processing is only required in a situation when a borrower has to apply for a large loan, such as a home loan. Individuals who come across lenders requiring up-front payments must carry out a thorough background check and consult some experts.

  1. No Credit Card Checks:

Checking credit cards’ history is an essential step for processing online applications for loans. Loans are only approved if a person’s credit card history is clear. Also, it helps in checking if a borrower has enough ways to repay the loan. Legitimate lenders usually carry out soft credit card checks at the initial stage and at the time of approval a hard check is carried out. In a case where a lender does not care much about the borrowers’ credit card history, it is most likely a fake lender. It is advised not to be drawn by ads that say having bad credit card history is not an issue in online loans, because, in reality, it is!

  1. Loan Approval Guaranteed:

Another attractive ad that gains the attention of many online borrowers is “fast money guaranteed”. Guaranteeing the approval of loans is something that is not practiced among real lenders. Without a proper insight of a borrower’s credit history and other financial stats, none of the lenders can guarantee loan approvals. The online lenders that claim that they can approve anybody and everybody, they either are substantial risk-takers, or they are probably fake.

  1. Funds Transfer via Western Union or by Wire:

First things first, a borrower applying for a loan does not send money. And even if some cases require payment, they are well-explained. Also, these payments can be made using credit cards or checks. If any lender asks for a fee via wire or western union or MoneyGram, it is undoubtedly a scam. People need to understand that if a lender is not accepting payments through credit cards, they are trapping the borrower in a fraud.

  1. Secure Website:

Loan lending and borrowing is a process that has to be protected. In the case of online loan lending, the website through which it is being processed has to be secure. A legitimate lending site will include all the necessary security features. A genuine loan lending website begins with HTTPS and not HTTP. Therefore, as soon as an online borrower lands on a lender’s website, these are the first things to notice.

  1. Reviews by Real Customers:

Online reviews serve as one of the best ways to analyze whether a lender is genuine or fake. A basic online search can be beneficial. Along with this, borrowers can look for reviews on platforms like Better Business Bureau. Also, the scam alerts websites by FTC can also help. It is an essential step to figure out whether a borrower is dealing with a legitimate or fake lender.

  1. Require Automatic Withdrawals:

Allowing an online lender to withdraw payments automatically is the very first step into the trap. By doing so, a borrower puts their security in jeopardy. A genuine lender will not need permission to withdraw payments automatically. The lending websites offering more than one payment option are the ones to trust.

People can stay clear of scams, frauds, and shady lenders by looking for the above-mentioned red flags. These are all the possible ways a borrower can differentiate between a legitimate and a fake lender. Borrowing a loan is a sensitive matter and must be addressed with much alertness. Taking loans is not something anyone likes. But at some point, in life, a situation arises which makes a person opt for loans. No matter how difficult a situation is, a person needs to avoid making rash decisions.


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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file, critical financial documents and back office tools in an efficient and secure environment. Complete Controller’s team of US based accounting professionals are certified QuickBooks™️ ProAdvisor’s providing bookkeeping, record storage, performance reporting and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay services. With flat rate service plans, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

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No matter how the economy fares, banks rarely go into a deficit. Despite lending billions of dollars, banks are always thriving. That is possible because they have mastered the game of currency and finances. Hoarding cash used to be the oldest trick in the hat. As interest rates go down, banks start to store cash to save themselves from a massive blow. It seems like they always have a backup plan.

It wasn’t too long ago that many European countries, including the UK, introduced the concept of negative interest rates which means that banks had to pay money to lend money to the government trying to get out of recession. This basically means that not lending costs more than lending. The governments were trying to push start the lending game despite the recession.

So, how did the banks get out of the sticky situation? Simply by storing cash.

Why Do Banks Store Cash?

Banks store cash to avoid a negative interest situation. When there is a risk of interest rates going below 0, financial institutes are unable to make any profit on lending. That is when most of them stop lending, creating a further risk for the overall economy. Two years ago, the government, like in the UK, tried to overcome this situation by making not-lending even more expensive, i.e. by charging a levy on the funds held by the banks. That is when storing cash can turn in the favor of banks. By storing cash, we mean hiding piles and piles of it.

How Much Cash Was Stored in Europe?

It is estimated that, during 2016, European banks actually hid billions of worth in cash to avoid lending during the negative interest rate period.

Now, this may take you back to the good old Bond movies with villains transporting their fortune in huge trucks and sending them to secret caves. This may sound like a vile scheme from the banks, but storing cash actually makes sense. Taking a look at what actually happened in Europe, let’s start with some hard facts and figures. Private sector banks in Europe were paying around 0.4 percent annual levy on the funds they kept. This policy cost the banks more than 2.5 billion euros in just two years. On the other hand, the government introduced an incentive to encourage lending to businesses and start-ups. Still, the policies weren’t working in favor of private sector banks.

The easiest way for the banks to hide their funds from the government was to turn the traceable electronic money into hard cash and hide it somewhere it cannot be found by the feds. Munich Re, a known German lender, has said to have stored millions of euros. A few other lenders followed suit but they were soon denied massive cash withdrawal in order to prevent further distress.

Why Did Storing Cash Not Work?

At the time it happened, it seemed like the smartest way out. It was, however, a lack of foresight on the lender’s part. Storing cash in huge volumes accompanied excessive costs that weren’t initially considered. One of the main costs was transport and storage itself. While many lenders were able to manage that cost, there was another disaster in the waiting. The insurers weren’t willing to insure a huge amount of money in hard cold cash form.

According to most financial analysts, the insurance cost was around 1 percent of the total worth of the cash stored. This means that the total cost of storing cash piled up much higher than the negative rate being charged by the European Central Bank.

The Takeaway

The strategy didn’t work as most banks expected. Hoarding or storing cash doesn’t bid well in anyone’s favor.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

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A brand new business owner may not necessarily be found as a financial expert. It is quite common and natural that a start-up will often be required to take a loan. Investors normally wish to be provided with an extensive financial analysis and data before they consider granting any such loan to the owner for their start-up.

So, what is this data and where does it come from? The data is from the bookkeeping records that calculates all of the company’s financial ratios. These ratios define the health and well being of a business along with the risks. Investors are highly interested to see these facts and figures before deciding if they wish to invest in that certain business or not.

Ratio analysis is one of the most recognized methods used for determination of a business’s overall financial condition. These ratios are also found to be most useful in making comparisons and assessments between a client and other companies found in the industry.

In the field of accounting and bookkeeping, each and every one of the below ratios are extremely important for credit professionals to make informed decisions. They are able to judge and decide if they should or shouldn’t give credit to customers, exactly how credit worthy the business is, how much they should invest, and what the appropriate terms of sale should be.

Financial Ratios That Lenders Review when Deciding the Credit Worthiness of a Business

 

  1. Debt-to-Equity Ratio

The debt-to-equity ratio permits lenders to compare a company’s assets with its debts. A lender considers a business as a high risk when their debt to equity is a high ratio. They would much rather invest in a business where the ratio calculated is found to be of little or no debt.

In order to calculate the debt-to-equity ratio, take a company’s recent balance sheet. Divide the figure of total liabilities by their total figure of shareholder’s equity. Take an example, a business with a figure of $200,000 as liabilities and a figure of $400,000 as assets. That company’s debt-to-equity ratio will be calculated as 0.5.

 

  1. Operating Margin

An operating margin is used to calculate a company’s profit as a percentage of their total sales. Operating margins find a company’s total revenue and total profit. These figures give a clear picture of where the company is standing in terms of efficiency.

In order to find out the operating margin of a company, divide the income from operations by the total figure of net revenues. Take an example, a company with a figure of $1 million from $100 million yearly profits from their sales, will have their operating margin calculated at 1%.

  1. Current Ratio

Current ratio is used as a liquidity ratio. This ratio is calculated when the total sum of all current assets is divided by the total current liabilities. This ratio measures if you have sufficient assets to pay for your liabilities. If your current ratio is calculated to be two, it means that you have twice as much current assets as your current liabilities.

This ratio is similar to the ratio of debt-to-equity, though in this case, total assets are divided by total liabilities instead of liabilities divided by shareholder’s equity.

  1. Inventory Ratio

A company’s production and purchasing efficiency can be calculated by using the inventory ratio. The inventory ratio gives a fair picture of how many times the company is able to sell their inventory for a specific period of time.

In order to calculate this ratio, divide the entire cost of the services or products sold with the entire inventory cost. If the ratio is higher, it means the company is more efficient at turning over their inventory. Lenders will take and consider such businesses as credit worthy and most likely to be successful and productive for investment.

Let’s take an example for this. If a business has sales of $500,000 and inventory of $100,000, the inventory ratio calculated will be 5-to-1.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Business Financing - Complete Controller

There are three main purposes of financing:

  • Funding a business start-up
  • Financing for growth and expansion of a business
  • Dealing with unforeseen financial encounters

Sources of Business Financing:

  • Self-Funding
  • Giving up Equity
  • Debt Check out America's Best Bookkeepers

Debt is taken on by an entrepreneur to use in funding huge purchases that they could not afford under normal circumstances. A debt arrangement means that the borrower is given money under the condition that the money will be paid back at later dates with interest. There are different types of funding:

  • Business credit card use
  • Small Business Administration loans
  • Foreign investors
  • Crowdfunding/selling shares of the business

An Entrepreneur Must Be Clear of the Situation and Considerations When Taking Loans

Consider the following when taking a loan:

  1. How early are the finances needed? If there is no time to wait, then debt financing may be the only option left to invest in the business.
  2. How much finance is needed? If there is a small amount to be invested, a loan can be taken.
  3. If a company is running successfully and financing is required urgently, debt can be taken.
  4. Debt is beneficial if you want to keep the business local and keep the whole ownership with you.
  5. When taking debt, the lender has no claim to equity in the business. Ownership remains the same. Business operation and bookkeeping decisions remain with the owners/entrepreneurs/executive management. Check out America's Best Bookkeepers
  6. When net profit is increased, the lender will only be given the borrowed money and the interest in it. If business progress and rewards are larger, the entrepreneurs will reap the rewards. The lender will have no claim or share in the business rewards/profits.
  7. Interests on debt can be subtracted on the business’s tax returns: Borrowing money can be a gift to entrepreneurs. The cost of interests decreases taxable profit that your business earns, thus it reduces the tax expense in your company/business. Large corporations/businesses also use this strategy to minimize tax expense.

Consider options other than taking loans:

  • Debt has to be paid back with interests, whether the business is a success or not.
  • High interest in debt during a recession of business can dissolve the business.
  • The bigger the debt to equity ratio in the business, the riskier the business is considered by investors.
  • The company is usually required to place assets of the company as security/warranty to the lender.
  • If you are making day to day purchases and are small in numbers, then the use of a business credit card is the best possible option.

 

It can be a challenging duty of entrepreneurs to decide when and how business financing is right for the business. If the entrepreneur does not have enough money to be used as the capital investment, they may go to lenders for borrowing money or taking debts from banks or financial institutes. Starters in the business field are not experienced, and lenders will not give them a true picture. Getting loans in the wrong situations and at the wrong times is costing financial losses to entrepreneurs. Check out America's Best Bookkeepers

Entrepreneurs must understand these important factors before going to lenders:

  • Credit history: previously, how has the business financing been managed.
  • Ability to pay back the loan: is the business going well enough to pay back the amount borrowed with interest?
  • Has the entrepreneur invested enough personal finances as capital in the business?
  • Does the business have assets to be put down as security in debt in the case that the business fails, or a period of double-dip happens?
  • Does the entrepreneur have enough experience in business financing and business operations?

Conclusion

If entrepreneurs are not experienced, they can consult with bankers and accounting firms to get a clear picture of their business and when to take a loan. They can benefit from the advice of bankers as well. 

Using the right tools and the right assistance at the right time for business financing is a way to a successful business. 

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers