By: Ernst Ducena
OIEE Contributor

Nearly two years after the collapse of Lehman Brothers, and after intense debate, negotiations and concessions to politicians and lobbyists, congress finally passed financial regulation reform; or something to that effect. While being hailed as the most sweeping reform seen in financial regulation since the Great Depression, the Dodd-Frank bill, named after co-authors Senator Christopher J. Dodd (D-CT) and Representative Barney Frank (D-MA), falls far short of those aspirations.

The economic meltdown of 2008 was due in large part to failure of existing regulation to keep up with the expanding complexities of finance. In that regard, the Dodd-Frank bill added nothing new. Instead of clear guidelines, the bill, with many watered-down proposals, creates new agencies and new regulators with more authority than before without concretely addressing some of the factors that contributed to this mess in the first place. Consider this statement from Senator Dodd: “We can’t legislate wisdom or passion. We can’t legislate competency. All we can do is create the structures and hope that good people will be appointed who will attract other good people.” In other words, we will put just put in new people and hope they are good enough do their job effectively. How is that any different from what we had before?

One key component, and one of the few bright spots, of the new bill is the creation of the Consumer Financial Protection Bureau-a new federal agency tasked with policing the loans and other related products and services that banks and others sell to individuals. This should make loans more transparent and easy for consumers to understand. Rules will also be implemented to protect consumers from predatory lending practices by banning “no-documentation” mortgages and lender kickbacks to brokers for originating high-cost loans. In addition, lenders will be required to provide a credit score to consumers when adverse action, such as being denied a loan or getting less favorable terms, is taken against a consumer as a result of their credit score.

Another key component of the bill is the Financial Stability Oversight Counsel. This group of regulators will be tasked with monitoring systemic risk and making recommendations to the Federal Reserve, who will then create stricter rules regarding capital, liquidity and risk management. The Counsel’s intent is to end the “too big to fail” policy of the last two years, where companies who were so big that their failure would produce catastrophic results for the overall economy, were bailed out using tax-payer money. The Counsel will have the authority to dismantle firms that pose a risk to the overall system, however the guidelines for how this is to be done remain to be seen.

The issue of “too big to fail” would have been much more effectively addressed with the “Volcker Rule”-named after Federal Reserve Chairman Paul Volcker. Under the original Volcker Rule banks would have been barred from practices such as proprietary trading and investing in hedge funds and private equity groups. Under the revised version of this rule, however, banks can invest up to 3% of their capital in hedge funds and private equity groups. Three percent may not sound like much, but when considering that 3% each of JP Morgan, Citi, and Bank of America’s add up to over $11 billion, we get more perspective on how much money is involved. Furthermore, this 3% limit does not significantly curb the amount of money these banks already commit to those practices.

The Dodd-Frank bill’s implications for the average consumer are, at best, uncertain. The creation of the Consumer Financial Protection Bureau, although a positive, still has its limits. For example, auto dealers, which provide financing for car buyers, are not under the Bureau’s jurisdiction, which means they can proceed with business as usual. The bill’s failure to adequately address “too big to fail” creates a lot of uncertainty in the event regulators have to take action concerning a company who poses a threat to the economy. We are essentially back at square one: relying on regulators’ judgment as opposed to preventive measures that make a similar collapse less likely. And since many of these new rules will take years to implement we can only do what Senator Dodd so eloquently stated: we can only “hope that good people will be appointed who will attract other good people” and do what needs to be done.

To ask for regulations that guarantee the prevention of future recessions, or even a collapse, would be grossly unfair and unrealistic. Business and financial innovation will always be a step ahead of regulations since regulations are reactionary by nature. However when what we pass for reform come well short of addressing the issues we already know about, we can hardly call that reform.

Ernst Ducena holds bachelor degrees in French and Psychology and a master’s degree in Psychology. Upon graduation, Ernst worked as a social services professional before transitioning into the field of financial services. Ernst currently holds a General Securities Representative (Series 7) license.

Many people in this country are not ready yet to purchase their first home (but with proper planning everyone can purchase a home).  However, what about a sofa or a television set?  Are your sites set so low that you feel that you do not have the ability to own your own DVD player?  If the answer is yes, and you have the desire to pay exorbitant interest rates on items that you have yet to even own, then Rent-A-Center has built a business model especially for you.
 
I had to see just how much interest Rent-A-Center charges so I called them myself and acted as if I were a customer wondering about their terms.  I asked how much it would cost to purchase four items which included a regular sofa and love seat set, a leather sofa and love seat set, a 26 inch television set, and a 52 inch television set.  For each I got the price that it would cost to rent it from Rent-A-Center on a weekly basis, how long it would take to own the product, and found the retail price of a similar product from Amazon.com.  The results were amazing and are listed below.

Regular Sofa and Love Seat:

Weekly Payment = $19.99
Retail Value = $900
Weeks Until You Own From Rent-A-Center = 78
Interest Rate = 80%
Interest Paid = $659
Total Paid = $1,559 for a $900 Sofa

Leather Sofa and Love Seat:

Weekly Payment = $30.99
Retail Value = $2,000
Weeks Until You Own From Rent-A-Center = 78
Interest Rate = 26%
Interest Paid = $417
Total Paid = $2,417 for a $2000 Sofa

26 Inch Sony Bravio TV:

Weekly Payment = $17.99
Retail Value = $550
Weeks Until You Own From Rent-A-Center = 104
Interest Rate = 163%
Interest Paid = $1,321
Total Paid = $1,871 for a $550 Television

52 Inch Sony Bravio TV:

Weekly Payment = $59.99
Retail Value = $1900
Weeks Until You Own From Rent-A-Center = 116
Interest Rate = 159%
Interest Paid = $5,059
Total Paid = $6,959 for a $1,900 Television
 

As you can see from the chart there is a clear disadvantage from those who choose the Rent-A-Center way versus those who choose to be prudent about how they purchase items for their house.  If you take the 52-inch Sony Bravio television, which retails for $1900, one could use the $59.99 that he/she would be giving to RAC to purchase the product and putting it into a savings account.  Doing it the smart way would allow you to purchase this TV in just 31 weeks.  However, through RAC you would be paying on that TV for a total of 116 weeks before you actually own it.  Over that time period you would pay a total of $6,959.  When you subtract the total paid ($6,959) from the retail value of the TV ($1900) I calculated that you would have paid over $5000 in interest at a rate of 159%.  Being prudent saves you 85 weeks of payments and over $5000 that you could have used to put towards retirement, a new home, a business, or another more meaningful use.  Doing it the smart way you could almost purchase 4 TVs of an equivalent price in the time that it takes you to purchase just one TV doing it the RAC way.

If you ever feel the urge to ever use Rent-A-Center please consider paying a visit to your local Salvation Army and purchasing a temporary inexpensive piece of furniture.  The money that you would be paying to RAC for paying the weekly rental payments deposit in a savings account until you can purchase the furniture or product that you truly wanted for your home. I remember growing up when we had the same black and white TV, with no channel turning knobs (we needed to use pliers), and no antenna (we needed to use the wire clothing hanger to act as rabbit ears to get good reception) for years while many of my friends had the more updated color television sets. My mother didn’t want to purchase a LUXURY ITEM such as a new color television until all of our NECESITIES were provided for which placed a TV as a very low priority in our household! If it worked for her, it will work for you!

Writer, All About Business

Americans have had the luxury of enjoying a lifestyle that can only be supported by an endless supply of energy. The problem, however, is that oil – our main fuel for energy – is a finite resource. Worse still, we import most of it from foreign countries. Even more alarming is the catastrophic impact burning this fossil fuel has had on our environment.

There have been claims we have already reached peak oil – meaning that the worldwide production of oil its at its maximum level, and that it will begin to decline rapidly. If this is the case, the world will soon see huge increases in gas prices that will dwarf the $140+ per barrel we saw in 2008.

America was once the number one producer of oil, but after we reached peak oil in 1970, U.S. oil production began to decrease, and oil imports increased dramatically. This resulted in a shift in power, and allowed Saudi Arabia to become the number one producer of oil. Today America imports over 60% of its oil supply. In 2009 alone, we imported 4.35 billion barrels of oil, sending $265 billion overseas – over $500,00 per minute.

Beyond the economic burden of importing oil, there is a national security risk. If our energy needs are dependent on Saudi Arabia, Russia, Brazil and other countries that don’t particularly like us, we are at their mercy. Just look back at the oil embargo of 1973; Americans had to literally line up at the pump to receive only a small ration of gas that might not last them more than a day or two. People halfway across the globe were able to directly impact our standard of living – and they still have the power to do so today.

Lastly, there is the environment. It is agreed within the science community that fossil fuels are harmful to the environment in that they produce the greenhouse gas called carbon dioxide. The release of this gas into the atmosphere increases the effects of global warming and pollutes the air with toxins, which we inhale daily. We are beginning to see how the actions of mankind are impacting the global climate. Tuvalu is a prime example. The small island-nation in the Pacific Rim is literally sinking due to rising sea levels. Increased severity in hurricanes, earthquakes and the melting of the polar ice caps have also been linked to global warming.

What’s the solution?

The solution would have to meet four standards: First, it would have to reliably meet our insatiable, ever-increasing demand for energy. Second, it would do so without releasing carbon dioxide into the atmosphere. Third, it would cost the same or less than what we currently pay for energy. Lastly, and most importantly, it would have to be 100% domestic; the solution would have to strictly utilize American resources to create jobs and strengthen our economy.

Unfortunately, there is no solution yet, and that is because it is extremely challenging to satisfy these four standards. However, the best minds in America are working toward a resolution everyday, and they are making impressive progress. Check back next month for an analysis of some possible solutions that are being discussed by government, businesses, and scientists.

Jonathan T. Hand writes for the All About Business newsletter, specializing in marketing, energy and the environment. He is a marketing major at Pace University, where he sits on the Sustainability Committee, holds the President position for the Pace Ad Club and resides on the True Green Floor. Jonathan is also represents the Pickens Plan – a grass-roots movement whose goal is to wean America off of foreign oil – as District Leader for the 5^th Congressional District of New York. He can be reached at JonHand1@Gmail.com

The derivatives market that grew so rapidly was able to do so because it was not regulated. These were private contracts written between banks and clients in a manner where banks would be able to squeeze large profits and take large risk with nobody to look over their shoulder…yes, a recipe for disaster. Since this was the cause of the collapse of the economy…it is only natural to think that congress would have jumped right on fixing this problem right? WRONG! Not one regulation has been passed since the over two years that we have been in this horrific economy. It seems as if our Government could be helped I they were to seek and find a large amount of intestinal fortitude to fight the strongest lobbying party in Washington…financial lobbyists! I urge you to please call, write, email, and send messages in bottles to your congressman and senators to urge financial market reform today! 

Click here and insert your zip code to see who your local Congressman or Senator is…CALL THEM TODAY!

http://www.nytimes.com/2010/03/05/opinion/05fri1.html?hp 

Written By Ryan Mack, President of Optimum

Written By Ryan Mack, President of Optimum Capital Management, LLC

Let me first say that I feel that we should definitely be extending unemployment insurance and health care benefits to those who need it most. At its very core, to make sure that those people who are unemployed can still pay their bills, put food on the table, keep clothes on their back, is something that we all should be able to agree on. In the richest country of the world, to have people going hungry is a travesty. 

Let me also say that Senator Bunning is a hypocrite. He has switched positions on important issues like the “pay as you go” legislation…he once was for it, but as soon as the President was for it he was against it.  Also, as the Bush administration was rapidly increasing the debt with unpaid tax cuts, unpaid wars, and unpaid Medicare expansions he was in the front row of the cheering section. For him to now posture as if he is a fiscal hawk is hypocritical. 

Lastly, for Bunning to wait until the last moment to stand up and obstruct the legislation from being passed is disingenuous at the least…purely obstructionist at the most. I try not to judge somebody’s heart but if I had to place a bet on whether he was sincere about his position in not expanding the national debt vs. his desire to block any successful piece of legislation from passing under the Obama administration I would probably bet on the latter even though there will never be a way to prove it. 

However, no matter how I feel about the motivation for his position, his position that as a country we must start paying for things as we go in order to not place debt on the shoulders of our future generations is correct!

In a phenomenal year we generate approximately $2.5 trillion in tax receipts as a country. In a few years our national debt should reach as high as $15 trillion.  This means that if we spent ONE HUNDRED PERCENT of all tax proceeds on paying down the debt it would take us 6 years to pay it all. Here are three reasons this is highly unlikely to happen not only in the next six years but in my lifetime:

1. Our deficits are scheduled to continue to increase over the next few years. We are not paying down our debt, we are adding to it at a record pace. I must admit that much of this spending was necessary to avoid a depression; however, it is time that we start looking aggressively for places to save and fight the voices of the special interest organizations. 
2. Interest rates are at record lows and they should soon start rising. Approximately 40% of our debt is held in the short term treasuries which essentially make our debt the same as variable debt. Interest rates have nowhere to go but up which will make it much more expensive to pay off the interest to this debt. 
3. Those on the left are too scared to cut spending and those are the right are too scared to not cut taxes…so both sides will continue be either spend happy or revenue deficient. 

Let me give you very real scenario of what can happen.  Almost half of our national debt is owned by foreign investors because we are still viewed as a safe haven to foreign entities. They invest in the USA to the tune of almost $2 billion dollars per day.  Let’s say they see our national debt continues to rise and they become a little more skeptical about our ability to pay this debt back.  They don’t stop investing completely but perhaps they just invest half of what they previously invested or $1 billion per day…still a substantial amount but not as risky.  What will this do?

This will automatically weaken the dollar because of the decrease in foreign investment.  The weakening dollar will cause inflation, and now you have a spiral of problems that occur including inflation, increased interest rates (which will have to occur because they will have to try to make investments more attractive to foreign investors), steadily high unemployment, and a sluggish economy still remains.  An economy that looked very safe before will now not look as attractive…heaven forbid this because we really are at the whim of foreigners. If foreigners decide to pull back, the “ponzi” scheme called the national debt that relies on new foreign investment to pay down interest on existing foreign debt, will begin to unravel.  A few failed treasury auctions because the Fed doesn’t have enough to spend to cover the lack of interest in our debt (the Fed has already had to cover at treasury auctions because of lack of interest) and the government debt house of cards comes tumbling down.

This scenario is a very real scenario and can easily happen within a few years unless we start to get serious about fiscal responsibility!  I don’t care that Bunning is lying through his teeth, being hypocritical, or trying to obstruct the President…what he is saying is correct. I don’t like being in so much debt to foreigners that one shift in their mentality and we are screwed…we need to start paying as we go.  If we can take funding from the stimulus package that hasn’t been allocated and put that towards the extension of benefits without adding to the national debt then we are taking a step in the right direction. 

I will repeat this again, because I don’t want to seem as if I am insensitive to the plight of those who are unemployed whom I am in the streets fighting for every week. I want to see them get an extension of benefits! However, it is beyond time that we start to make sure that we start to take an earnest and honest account of each dollar that we spend as a country. It is just as important to make sure that we provide funding for those who are struggling in the short term, as it is to make sure that our economy can remain stable in the long term.  This is not an either or choice because there is a responsible way to do both.  Is it too much to ask that we find the fiscally responsible means to solve our problems and ask our government to execute?!

Written By Manyell Akinfe, SVP of Optimum Capital Management, LLC

I recently read an article entitled “The Banks Are Bullying The Poor and I’m Not Having It” and I couldn’t believe my eyes.  Russell Simmons was speaking out against predatory banking practices.  While I’m all for getting riled up about the inequalities in the financial services industry, I’m not for hypocrisy.

I have a lot of respect for Russell as an entrepreneur and businessman and can’t imagine him not seeing the similarities in what the banks are doing and what he has been doing with the RushCard.  Maybe he feels because he’s “one of us” he gets a pass. The same way brothers give other brothers a pass for calling them the “N” word but will raise Cain if a Caucasian addressed them that way.  I’m not sure where the disconnect lays but I have to call a spade a spade.

I agree that banks are getting outrageous with their fees. Last year alone banks collected $38.5 billion  in overdraft fees and the average  ATM  charge, rose from $1.78 in 2008, to nearly $2.00 at the end of ’09.  However, these fees are universal. The economic crisis combined with the CARD legislation that was passed last year has forced banks to fill their revenue gap by putting pressure on ALL consumers, not just those with black and brown skin.  I am not disputing that there are disparities but they don’t lie in the fees.  We need to focus on the PRODUCTS & SERVICES that are pushed in our communities like refund anticipation loans, Rent A Centers, check cashing facilities and pre-paid debit cards.

I understand the need to market items in a way which inspire action and evoke change; however, what Russell Simmons seems to be doing is taking advantage of his prominence in the minority community to sell a predatory product.  When I first saw the RushCard I was excited. I was confident that if it wasn’t in the best interest of the people, Russell wouldn’t be a part of it.  I was clearly wrong.  When you compare the RushCard with a typical card from a traditional bank the differences are evident.

RushCard Monthly Pre-Paid Debit vs. Typical Bank Card

Activation Fee: RushCard = $3.00     Typical Bank Card = Free

Monthly Fee: RushCard = $9.95   Typical Bank Card = Free with a commitment of usage or balance

Convenience Fee: RushCard = $1.00(when using pin)   Typical Bank Card = Free

ATM Cash Withdrawal: RushCard = $2.50/ 2 free per month    Typical Bank Card = Free (At Branch)

ATM Balance Inquiry: RushCard = $.50 Typical Bank Card = Free

Bill Payment: RushCard = $1.00 Typical Bank Card = Free

Lost or Stolen Card Fee: RushCard = $9.95   Typical Bank Card = Free

My experience as a financial advisor has taught me that there’s no one size fits all solution in personal finance.  However, in all the work I’ve done with disenfranchised youth, public housing communities and the formerly incarcerated I have yet to come across an instance where it was necessary to recommend a pre-paid debit card over a traditional bank card or secured credit card.

Optimum has been in the trenches of the community since the company started in 2004 and our audience is never confused about where we stand on financial literacy and economic empowerment.  A few years ago, President of Optimum Capital Management Ryan Mack wrote, “A Letter to Russell Simmons: Stop Selling Your RushCard” pleading with Russell to take a closer look into what he was pushing in our communities.  Since then a few fees on the RushCard were lowered and this recent stance shows that Uncle Russ is taking a closer look at what’s really going on in the banking industry but I need him to dig much deeper. He needs to look at the Rush Card he has been pushing since 2003 to the same audience he is sticking up for in his rant because his predatory practices are doing much harm to the community.

However, when reality set in I began to think to myself, “Brighter days for who?”

This economy has faltered because of one word…GREED. Every level from the Government, Wall Street, and the individual was guilty of biting off more than we could chew. The individual was guilty of purchasing homes and using excessive debt to fund a spendthrift lifestyle. Wall Street was guilty of pushing high-profit, junk loans to uneducated homebuyers and slicing/dicing fancy securities and instruments to create false images of profits on financial statements. Also, the Government was guilty of caving into the funds of lobbyists to allow the economy and everyone in it to continue like children at recess playing dangerous games without any supervision.

So now the people of America are ticked off and who can blame them. We have one in six people in this country who are either without jobs or are working at a job that only serves to barely pay the bills (if at all). People are losing sleep thinking about how they can keep their homes across this country if they haven’t lost it already. These are the very same people Goldman and all of Wall Street tapped for funds when Wall Street needed saving.

Let’s look at Goldman, one of the firms who took large unmitigated risk without any thought or concern to what would happen if they failed. When they did fail they were allowed to borrow money from the people to stay afloat. So not only did Goldman get $10 billion of our money at rates that individuals could only dream of, they were able to insure $30 billion of Credit Default Swaps to the tune of 100 cents on the dollar. They got money from the pockets of the people, they profited because they took unreasonable risk with a payout from AIG (which we paid $175 billion to and $30 billion of that went to Goldman), they were given another $20+ billion dollars worth of cheap money because they were granted rights to become a holdings company, excess bank reserves are at record levels across all of Wall Street as banks are not lending (as they were supposed to with our money), and now as a penalty for leading us into a recession with their poor decision making they are rewarded with record earnings and what equates to a $700,000 bonus for every employee at Goldman.

So I get back to my original question, “Brighter days for who?”

The people are not upset with the fact that Goldman made money this quarter; they are upset at the way that profited and that IT WAS ALL LEGAL. It seems as if the administration is content with allowing Goldman and the other Wall Street Crusaders of Greed to continue without any reform or regulation. Now that Wall Street knows that they have the tax payer as yet another buffer of risk there is no question of whether or not they are going to take on more or less risk in the future. Not only was money given with no strings attached, but the strings are not even closed to being created to stop this crisis from happening again. Without regulation Wall Street will continue to operate under the guise of privatizing gains and socializing losses. Goldman and all of Wall Street will continue to think, “Heads we get paid…tails the people pay.”

Obama, I love you, respect you, and voted for you; however, this Mr. Nice Guy is getting old and we need your administration stand up to these Wall Street lobbyists for the sake of our country!

Written by Ryan Mack, President of Optimum Capital Management, LLC

The market falters because of the failure of the banking system and the Government calls upon this worker for help. Bush, Paulson, Bernanke, and other members of the Government explain to this worker that if the banks fail he will be negatively impacted. This same story is repeated by Obama, Geithner, Bernanke, and other Government officials. This worker is a little reluctant at first but he eventually gets the bigger picture. He understands how the system works so he reaches into his pocket with his calloused hand and pulls out some of hard earned capital to give to the banks to support the system.

Soon after, on his way to work at 4:30 am , getting prepared to do a double shift, he picks up a cup-a-joe and a newspaper with a headline grabs his attention. Headline: “AIG Gives $165 million in Bonuses!” He doesn’t really follow the news that closely but thinks to himself, “I wonder if they used my hard earned money to bail out AIG as well?”

When he gets to work, in the locker room, many of the co-workers are talking about the same story. They ask him, “Do you see that we bailed out THOSE GUYS only to help them get their million dollar bonuses!?”

Shocked at this injustice, the worker sits down to consume what he has heard. He begins to think of the numerous times the media called people “losers” because they bought a house without proper information and how he has close friends who are in that exact situation- foreclosure. He thinks about how the President of his company was demonized for flying to Washington D.C. on a private plane and didn’t get any support…but those on Wall Street flew to Washington D.C. on the same private plane and were allowed to have $2 million carnivals, $1.5 million offices, $400 thousand weekend getaways, $50 million proposed planes, and millions of dollars to put their name on the side of a stadium. Their penalty for the most part was that they were given MORE of his money just to give out heavy bonuses!

He thinks about how he is fighting so hard just to keep his job and they are fighting to keep their bonuses. Feeling like the odds are stacked against him doubt enters his mind and he starts to question why does he get up so early if he is only going to get fired? He feels as if this country was designed for the rich to get richer, the middle class to shrink, and the working class to increase. “I was going to go back to school but what is the point?” He begins to leave work earlier, come in later, his production decreases, and his apathetic attitude worsens.

This worker isn’t by himself. Teachers, coal miners, waitresses, and many across America saw the AIG story and felt the same way. They reacted in a similar manner by decreasing production and losing hope of a brighter tomorrow promised to be fulfilled by the American dream if one works hard and believes. We see evidence of this by decreased production and record low consumer confidence.

In the grand scheme of things, the amount of AIG bonuses was very small compared to the amount of funds being thrown around to fix this economic crisis. However, the impact on the American people was quite large. Faith is one of the most important commodities to the American people. Is $787 billion enough to create enough jobs and restore this economy? No. However, the Government was never meant to be the fix-all of our economic woes. The stimulus was only meant to “stimulate” the economy…provide the jump start that we need to get going in the right direction. The faith of the people is going to fill the void.

Faith is one half believing in a brighter future and the other half is acting on that belief. If the people lose hope of a brighter tomorrow they will not believe and consequently will lose their motivation to work as hard as they can for themselves, families, and community. In this economy it really is “all hands on deck”. We need EVERYONE to work as hard as they can to be as productive as possible. Without faith people will not go back to school or get re-trained to help solve this unemployment crisis. Without faith people will not purchase homes and stunt the decrease in home values to help fix this housing crisis. If we don’t have faith, we will see the level of apathy continue to rise while production continues to decrease causing this recession to lengthen.

It is time for all of us to do what American’s have done throughout this country’s brilliant history and answer to a higher calling. Just because something is legal does not make it right. I pray that one of the valuable lessons we have learned from this economic crisis is that we are all in this together; and all of our decisions should be made for the good of the commons, the people and NOT for the good of our pockets.

Author: Ryan Mack, President of Optimum Capital Management, LLC

2. Avoiding The Hard Work Up Front
Business insurance policies don’t come in pre-set sizes like sneakers, so there is no reason not to tailor your policy precisely to your needs. But doing that means knowing what your needs are, and that requires a hard look at the risks of your business, says Britton. After the policy is drawn up, scour it; make sure you’re clear on every exception specified in the footnotes. If there’s anything you don’t understand, have your insurance broker walk you through the finer points. (Note: Some exceptions are non-negotiable. For example, nearly all insurers won’t cover losses related to mold and terrorism.)

3. Not Minding The Attorney Fees
Some policies bake in fees paid to the insurance company’s attorneys, says Britton. Example: You might have an insurance policy that covers up to $1 million in claims, but the insurance company could spend $200,000 litigating the claim and use your payout to do it. Figure this out before you sign.

4. Cutting The Runway Short
Determine when your coverage starts and stops. The carrier might start the clock a month after the papers are signed; on the other end, you can be liable for several years after you stop doing business, so consider negotiating a “tail policy.” A reasonable policy should remain in effect for several years after your company shuts its doors, says Britton.

5. Being Dishonest
Underwriters will ask a series of questions to assess the level of risk. Answer fairly and accurately–if you don’t,and you file a claim related to a risk your carrier was not aware of, you may well be denied coverage. (That said, you don’t have to volunteer information beyond a carrier’s specific questions.) Also, disclose prior claims under previous companies. For example, if you used to own a trucking outfit and your drivers had several accidents, you must disclose this to an underwriter when drafting a policy for your new trucking company. Your rate will rise, but if you fail to disclose your insurance history, your claims could be denied later on.

How is your relationship with your lender?
Trust is a very important factor in the lender/client relationship.  It is essential that the lender get to know you on a more personal level before you complete the loan process.  The more they know you, your circumstances and your integrity, the more they will trust that you are a good credit risk.  The more they trust you, the more likely you will be able to obtain a loan from them.  Visit the lender on several occasions before applying for the loan to ask questions and explore the loan application process. Let him/her see that you are a serious customer who thoroughly investigates your options before making major decisions. You want that lender on your side fighting for you.

How do you plan to repay the loan?
One must put themselves in the position of a lender.  From their perspective, the main concern is that the lending institution must be able to get their money back in a timely manner.  They want to know your precise and detailed strategies for repaying the loan.  In addition, be prepared to tell them how you expect to repay the loan if your business falls short of hitting its projected revenue numbers.

How comprehensive is your business plan?
Some people make the mistake in thinking that a long business plan increases the chances of receiving a loan.  In the eyes of a lender, the length of a business plan is not as important as one that is comprehensive and technically sound.  How well does the plan articulate your business goals and projections?  Do you use deceptive language that attempts to disguise potential problems or risks?  Here are a few key elements that should be included within every business plan:

•    Make sure that your plan addresses all contingencies.
•    Be articulate and thorough about all plans for the future.
•    Make sure that you effectively communicate the capacity of the ENTIRE management team to implement the actions outlined within the plan.
•    Make sure the financial statements are prepared through sound research of your industry.

How much money do you want to borrow?
Many make the mistake of asking for extra money thereby, providing a “cushion” for times of uncertainty.  A loan should not serve as a cushion nor provide for the “extras” but should only provide for the real needs of your business.  Commit to doing enough research to determine a precise amount that will be required when starting or expanding your small business. Keep in mind that the lender must trust you and believe that you have thoroughly researched the exact amount of money required to meet the goals of your business plan.

Are you talking to the right lender?
Since there are a variety of lenders, make sure you talk to the lender who will address the needs of the business you are creating or attempting to expand.  If you are a small business, it might be more to your advantage to talk to a small business loan provider.  An extra perk is the lender who has some familiarity with the industry in which your company operates. Do your research and find the best suited lending institution for you and your company.

Personal finance matters!
When applying for a loan, your personal financial situation most certainly matters.  If your personal financial situation is in disarray, the lender is less likely to trust that you will be able to responsibly handle any additional funds required for your business.  Before you begin planning for your business, take the time to get your personal financial situation in order.  Some things you should have in place are as follows:

•    Adequate insurance coverage for your family and loved ones.
•    Up-to-date estate planning documents.
•    An emergency fund worth 12 months of living expenses. (I generally state that three to six months of living expenses are sufficient; however, because starting a business is extremely risky, it is best save as much liquidity as possible before pursuing your venture.)
•    A solid FICO score of at least 720.

Take the time to make sure these items are in place before you start your business and apply for a business loan.  I understand that you are excited about starting your business, but proper planning and preparation will ensure that your company will be around for the long term and not falter because of a weak personal financial foundation.

I hope this helps.  As always, if you have questions about starting a small business or any personal financial matter, feel free to give me a call at 877-75-TEACH (83224).

Start your tomorrow today!