by: Jay Chatterjee
Banking - Business Loan Application
Operating Lines of Credit and Letters of Credit
You are probably wondering what a series on business banking essentials is doing on a natural health website.
Well, stress caused by financial worries will eventually adversely affect your health. Many business owners operate under constant financial pressure, and this series on commercial banking and commercial finance will arm them with the knowledge that they need to deal confidently with diverse business situations, and with their bank managers. Knowledge is comforting, it is the fear of the unknown that is stressful.
How can I help you? I obtained my Chartered Accountant designation (I'm retired now) in Australia. Upon moving to Canada, I worked for a wholly owned Canadian subsidiary of an American bank. Over time, I rose to become the Senior Vice-President responsible for the commercial finance division. This division granted flexible operating lines of credit, which included letters of credit for importers. In this career, I encountered numerous different types of businesses including trading, manufacturing and importing.
This is not intended to be a detailed accounting or banking course. I have put together the essential information you need in order to give yourself the best chance of succeeding in your business. I shall tell you what your bank manager would like to hear from you at your meetings. I shall tell you the early warning signs that your business needs positive action.
These comments are not for retail business; they apply to wholesalers, importers and manufacturers.
To cover the vast amount of banking information, even in thumbnail format, I shall break it down into various segments. Some will apply to your business, others may not. I am intentionally phrasing the segments in very simple layman's terms. I would advise you to discuss my advice with your accountant, or even your banker, before you decide to act on it.
This first segment deals with the initial loan application. It is assumed that you are applying for an operating line of credit, which may, or may not, include letters of credit. The actual loan within the line of credit will fluctuate at different times, depending on the cashflow, but the bank will put an upper limit which you cannot exceed without special authorization. The limit of the operating line of credit is determined by the bank after evaluating various aspects of your business, including your equity in it.
There is certain basic information that the financial institution requires in order to make the decision to finance your business. You must come to the appointment with the bank armed with this information, ideally accompanied by your accountant who prepared the information package.
" Financial Statements for the past three years
" Pro forma financial statement for the year to date
" Cashflow projections for the current year
" List of aged accounts receivable
" List of aged accounts payable
" Summary of inventory
From the above documents, the bank will ascertain whether your business was profitable in the past, and whether it appears to be profitable this year.
The cashflow projections will show how high the financial involvement will peak at, and how well the loan will be collateralized at any given time.
The accounts receivable list will disclose the quality of the customers and whether a significant percentage of them is delinquent.
The accounts payable list will reveal whether your business is up-to-date with its payments to suppliers.
The inventory summary will show the nature of the inventory and give an indication of whether it can be sold readily.
In addition to examining the above documentation in detail, be aware that a credit check will be done on the business to ascertain if there is any outstanding litigation, and as to its creditworthiness.
Knowing all this, be sure to have satisfactory explanations for any aspects that may appear detrimental to the bank.
It is important to keep in mind that the ideal customer for an operating line of credit, as far as the bank is concerned, is one who:
" Is profitable
" Needs the credit to finance profitable growth
" Does not require too high a loan/equity ratio
" Has adequate collateral to cover the loan at all times
" Has collateral that can be liquidated easily
" Has excellent credit rating
Your strategy? When making the loan application:
" stress the good value of the assets that support the equity of the business.
" Point out that the inventory is current, or can easily be sold.
" Explain that your accounts receivable are up-to-date and that delinquent receivables have been provided for.
" If you have unencumbered fixed assets, point out that there is additional collateral for the bank in them.
" Advise the bank that you have adequate fire insurance to protect the assets, and personal life insurance that could be used to protect the bank, if necessary.
" Recognise that the banker looks to collateral to repay the loan if the business fails. The banker is not really interested in intangible assets, such as goodwill, even though they could be very valuable.
Kamis, 05 Maret 2009
Offshore Banking Information
by: Kevin Wessell
Offshore Banking
Offshore banking or Offshore banks refers to the many banking and investment institutions available in countries and jurisdictions other than the depositor’s home country. While technically any bank can be considered an Offshore bank when it meets the above criteria, the term is generally reserved for the banking institutions located in what are consider low-regulation, low-taxation “haven” jurisdictions.
Since their origin, Offshore banks tended to be unfairly portrayed by both media and the home jurisdictions alike--the accusations have ranged from tax evasion to money laundering, but careful examination of the true purpose of the Offshore banks, and an unbiased examination of where illicit funds are truly held or “laundered” sheds light on the situation. Other false accusations have centered around criticism of unsafe environments, poor regulation, etc. Again, these could not be further from the truth. Most Offshore banking jurisdictions of any repute have very sophisticated, stable banking regulations, and because it is in their best interest to attract and keep depositors, these regulations are geared towards meeting the needs of the depositor. Many of these jurisdictions rely on foreign capital held in their banks as their primary economic factor, and as their only source of foreign investment.
What is Offshore Banking?
The broad definition of an Offshore bank is that of a bank that is located in a jurisdiction or country that is different from the jurisdiction or country that the depositor or investor resides in. One of the many benefits of holding an Offshore banking account is that they are usually located in tax havens that provide substantial asset protection and confidentiality benefits to the account holder. These jurisdictions also often allow for a relaxation of restrictions with respect to the types of accounts available to depositors or investors, and how then can manipulated. This amounts to decreased regulation. The more popular offshore jurisdictions often provide a substantial decrease in tax liability. While technically any bank outside of a depositor’s home country can be called an “offshore bank,” for our purposes here we will focus only on those proven to provide quantifiable benefits as outlined above. These Offshore banks can be located in actual island-states such as the Caymans or Channel Islands, or in landlocked countries such as Switzerland--being surrounded by water is no longer a determining factor.
As mentioned in our opening paragraph, there are a number of misconceptions and myths associated with offshore banking in these offshore financial centers… Are Offshore Banks the Haven of Money Launderers and Criminals? We have additional information on Offshore Banking Myths that should be taken into consideration.
Where Should an Offshore Bank Account be Established?
It is important that the proper jurisdiction be selected when deciding which jurisdiction to use as an offshore banking jurisdiction. The majority of the offshore jurisdictions have prudent, sound regulations in place geared towards safeguarding the deposits and maintaining their confidentiality. However, some weigh their benefits in taxation, while others in confidentiality, and so forth. Though they all offer a comparatively confidential and secure environment, it bears consideration to outline what the banking goals are and then choose the jurisdiction accordingly. A small minority of the offshore jurisdictions do a poor job of managing and regulating their banking institutions, but the informed investor or advisor will deem these as unsuitable for themselves or their clients. Further, these poorly organized and run jurisdictions are often manipulated by illicit depositors and hence prove easy targets of the FATF (Financial Action Task Force) looking for money laundering or other criminal activity.
Offshore Banking History
It is an unfortunate fact that Europeans have always been subjected to relatively heavy tax burdens. This was as true on the British Isles as it was on the continent. Faced with the prospect of watching their hard earned assets and wealth diminish with every out-reach of the tax collector’s hand, they were ripe for a solution. And a solution came--the small, island nation state known as the Channel Islands convinced these frustrated depositors that deposits placed in its banks could be free from scrutiny and hence the heavy-handed taxation burden. The Euros were convinced--and soon this service thrived, with other small jurisdictions becoming savvy to this foreign capital-attracting status and they began to revamp their banking institutions, adopting sound, pragmatic banking rules and regulations that eased the potential concerns of investors and depositors. The Offshore bank was off to a running start!
And soon the term “Offshore banking” became synonymous with any smaller, haven jurisdiction that offered safe, secure, confidential banking with practical regulations. Soon the rest of the world was “in the know,” and began to look at these havens as viable solutions to their needs. Americans, Africans, Asians, etc., found these Offshore banks quite useful for a myriad of reasons. Unlike their banks at home, these Offshore banks were not regularly subjected to political turmoil or economic strife, and were most welcome for their stability and asset protection benefits.
In the years since they have come into greater use and thus more visible, offshore banks and accounts have been unfairly portrayed by the media and by the larger jurisdictions as the stomping grounds of the criminal underground--a veritable haven for their illicitly-obtained assets and funds, or the choice locales for their money-laundering schemes. Money-wise investors and depositors have long known that these prejudices could not be further from the truth. They know that offshore banks can be remarkably effective havens for assets and funds in need of safe, secure, confidential keeping. They know that these banks can safeguard their funds from the perils of civil, economic, or political strife in their home countries. Today, offshore banks continue to keep their end of the bargain and continue to provide a safe, confidential haven for those seeking to safeguard their assets and funds from the perils of undue regulation and taxation.
Many a discriminating depositor has benefited from the safe, confidential, and low taxation environment that Offshore banking has to offer. While it is important to assess your goals and discuss these with a competent, experienced agent before leaping into un-chartered waters, there are many unquestionable benefits provided by establishing an Offshore account. Their reputation among depositors and investors for providing a viable banking location featuring protection from liability and confidentiality is growing, and Offshore banks will continue with this hard-earned reputation for asset protection, tax reduction, and superb confidentiality of deposits.
Offshore Banking
Offshore banking or Offshore banks refers to the many banking and investment institutions available in countries and jurisdictions other than the depositor’s home country. While technically any bank can be considered an Offshore bank when it meets the above criteria, the term is generally reserved for the banking institutions located in what are consider low-regulation, low-taxation “haven” jurisdictions.
Since their origin, Offshore banks tended to be unfairly portrayed by both media and the home jurisdictions alike--the accusations have ranged from tax evasion to money laundering, but careful examination of the true purpose of the Offshore banks, and an unbiased examination of where illicit funds are truly held or “laundered” sheds light on the situation. Other false accusations have centered around criticism of unsafe environments, poor regulation, etc. Again, these could not be further from the truth. Most Offshore banking jurisdictions of any repute have very sophisticated, stable banking regulations, and because it is in their best interest to attract and keep depositors, these regulations are geared towards meeting the needs of the depositor. Many of these jurisdictions rely on foreign capital held in their banks as their primary economic factor, and as their only source of foreign investment.
What is Offshore Banking?
The broad definition of an Offshore bank is that of a bank that is located in a jurisdiction or country that is different from the jurisdiction or country that the depositor or investor resides in. One of the many benefits of holding an Offshore banking account is that they are usually located in tax havens that provide substantial asset protection and confidentiality benefits to the account holder. These jurisdictions also often allow for a relaxation of restrictions with respect to the types of accounts available to depositors or investors, and how then can manipulated. This amounts to decreased regulation. The more popular offshore jurisdictions often provide a substantial decrease in tax liability. While technically any bank outside of a depositor’s home country can be called an “offshore bank,” for our purposes here we will focus only on those proven to provide quantifiable benefits as outlined above. These Offshore banks can be located in actual island-states such as the Caymans or Channel Islands, or in landlocked countries such as Switzerland--being surrounded by water is no longer a determining factor.
As mentioned in our opening paragraph, there are a number of misconceptions and myths associated with offshore banking in these offshore financial centers… Are Offshore Banks the Haven of Money Launderers and Criminals? We have additional information on Offshore Banking Myths that should be taken into consideration.
Where Should an Offshore Bank Account be Established?
It is important that the proper jurisdiction be selected when deciding which jurisdiction to use as an offshore banking jurisdiction. The majority of the offshore jurisdictions have prudent, sound regulations in place geared towards safeguarding the deposits and maintaining their confidentiality. However, some weigh their benefits in taxation, while others in confidentiality, and so forth. Though they all offer a comparatively confidential and secure environment, it bears consideration to outline what the banking goals are and then choose the jurisdiction accordingly. A small minority of the offshore jurisdictions do a poor job of managing and regulating their banking institutions, but the informed investor or advisor will deem these as unsuitable for themselves or their clients. Further, these poorly organized and run jurisdictions are often manipulated by illicit depositors and hence prove easy targets of the FATF (Financial Action Task Force) looking for money laundering or other criminal activity.
Offshore Banking History
It is an unfortunate fact that Europeans have always been subjected to relatively heavy tax burdens. This was as true on the British Isles as it was on the continent. Faced with the prospect of watching their hard earned assets and wealth diminish with every out-reach of the tax collector’s hand, they were ripe for a solution. And a solution came--the small, island nation state known as the Channel Islands convinced these frustrated depositors that deposits placed in its banks could be free from scrutiny and hence the heavy-handed taxation burden. The Euros were convinced--and soon this service thrived, with other small jurisdictions becoming savvy to this foreign capital-attracting status and they began to revamp their banking institutions, adopting sound, pragmatic banking rules and regulations that eased the potential concerns of investors and depositors. The Offshore bank was off to a running start!
And soon the term “Offshore banking” became synonymous with any smaller, haven jurisdiction that offered safe, secure, confidential banking with practical regulations. Soon the rest of the world was “in the know,” and began to look at these havens as viable solutions to their needs. Americans, Africans, Asians, etc., found these Offshore banks quite useful for a myriad of reasons. Unlike their banks at home, these Offshore banks were not regularly subjected to political turmoil or economic strife, and were most welcome for their stability and asset protection benefits.
In the years since they have come into greater use and thus more visible, offshore banks and accounts have been unfairly portrayed by the media and by the larger jurisdictions as the stomping grounds of the criminal underground--a veritable haven for their illicitly-obtained assets and funds, or the choice locales for their money-laundering schemes. Money-wise investors and depositors have long known that these prejudices could not be further from the truth. They know that offshore banks can be remarkably effective havens for assets and funds in need of safe, secure, confidential keeping. They know that these banks can safeguard their funds from the perils of civil, economic, or political strife in their home countries. Today, offshore banks continue to keep their end of the bargain and continue to provide a safe, confidential haven for those seeking to safeguard their assets and funds from the perils of undue regulation and taxation.
Many a discriminating depositor has benefited from the safe, confidential, and low taxation environment that Offshore banking has to offer. While it is important to assess your goals and discuss these with a competent, experienced agent before leaping into un-chartered waters, there are many unquestionable benefits provided by establishing an Offshore account. Their reputation among depositors and investors for providing a viable banking location featuring protection from liability and confidentiality is growing, and Offshore banks will continue with this hard-earned reputation for asset protection, tax reduction, and superb confidentiality of deposits.
Minggu, 12 Oktober 2008
How to Successfully Navigate Your Business through an Economic Downturn
by: Terry H Hill
An economic downturn is a phase of the business cycle in which the economy as a whole is in decline.This phase basically marks the end of the period of growth in the business cycle. Economic downturns are characterized by decreased levels of consumer purchases (especially of durable goods) and, subsequently, reduced levels of production by businesses.
While economic downturns are admittedly difficult, and are formidable obstacles to small businesses that are trying to survive and grow, an economic downturn can open up opportunities. A well-managed company can realize the opportunity to gain market share by taking customers away from their competitors. Resourceful entrepreneurs capture the available opportunities, from an economic downturn, by developing alternate methods of doing business that were never implemented during a prior growth period.
The challenge of successfully navigating your business through an economic downturn lies in the realignment of your business with current economic realities. Specifically, you, as the business owner, need to renew a focus on your core clients/customers, reduce your operating expenses, conserve cash, and manage more proactively, rather than reactively, is paramount.
Here are best practices that will help you to successfully navigate your business through an economic downturn:
Goals:
The primary goal of any business owner is to survive the current economic downturn and to develop a leaner, more cost-effective and more efficient operation. The secondary goal is to grow the business even during this current economic downturn.
Objectives:
• Conserve cash.
• Protect assets.
• Reduce costs.
• Improve efficiencies.
• Grow customer base.
Required Action:
• Do not panic… History shows that economic downturns do not last forever. Remain calm and act in a rational manner as you refocus your attention on resizing your company to the current economic conditions.
• Focus on what YOU can control… Don’t let the media's rhetoric concerning recessions and economic slowdown deter you from achieving business success. It´s a trap! Why? Because the condition of the economy is beyond your control. Surviving economic downturns requires a focus on what you can control, i.e. your relevant business activities.
• Communicate, communicate, and communicate! Beware of the pitfall of trying to do too much on your own. It is a difficult task indeed to survive and to grow your business solely with your own efforts. Solicit ideas and seek the help of other people (your employees, suppliers, lenders, customers, and advisors). Communicate honestly and consistently. Effective two-way communication is the key.
• Negotiate, negotiate, and negotiate! The value of a strong negotiation skill set cannot be overstated. Negotiating better deals and contracts is an absolute must for realigning and resizing your company to the current economic conditions. The key to success is not only knowing how to develop a win-win approach in negotiations with all parties, but also keeping in mind the fact that you want a favorable outcome for yourself too.
Recommended Best Practice Activities:
The Nuts and Bolts… The following list of recommended best practice activities is critical for your business' survival and for its growth during an economic downturn. The actual financial health of your particular business, at the outset of the economic downturn, will dictate the priority and urgency of the implementation of the following best practice activities.
1. Diligently monitor your cash flow: Forecast your cash flow monthly to ensure that expenses and planned expenditures are in line with accounts receivable. Include cash flow statements into your monthly financial reporting. Project cash requirements three-to- six months in advance. The key is to know how to monitor, protect, control, and put cash to work.
2. Carefully convert your inventories: Convert excess, obsolete, and slow-moving inventory items into cash. Consider returning excess and slow-moving items back to the suppliers. Close-out or inventory reduction sales work well to resize your inventory. Also, consider narrowing your product offerings. Well-timed order placement helps to reduce excess inventory levels and occasional material shortages. The key is to reduce the amount of your inventory without losing sales.
3. Timely collection of your accounts receivable: This asset should be converted to cash as quickly as possible. Offer prompt payment discounts to encourage timely payments. Make changes in the terms of sale for slow paying customers (i.e. changing net 30 day terms to COD). Invoicing is an important part of your cash flow management. The first rule of invoicing is to do it as soon as possible after products are shipped and/or after services are delivered. Place an emphasis on reducing billing errors. Most customers delay payments because an invoice had errors, and therefore, will not pay until they receive a corrected copy. Email or fax your invoices to save on mailing time. Post the payments that you have received and make deposits more frequently. The key is to develop an efficient collection system that generates timely payments and one that gives you advance warning of problems.
4. Re-focus your attention on your existing clients/customers: Make customer satisfaction your priority. A regular review of your customers' buying history and frequency of purchases can reveal some interesting facts about your customers' buying habits. Consider signing long-term contracts with your core clients/customers which will add to your security. Offer a discount for upfront cash payments. The key is to do what it takes to keep your current customers loyal.
5. Re-negotiate with your suppliers, lenders, and landlord:
i) Suppliers: Always keep your negotiations on the level of need, saying that your company has reviewed its cost structure and has determined that it needs to lower supplier costs. . Tell the supplier that you value the relationship you have developed, but that you need to receive a cost reduction immediately. Ask your supplier for a lower material price, a longer payment cycle, and the elimination of finance charges. Also, see if you can buy material from them on a consignment basis. In return for their price concessions, be willing to agree to a long-term contract. Explore the idea of bartering as a form of payment.
ii) Lenders: Everything in business finance is negotiable and your relationship with a bank is no exception. The first step to successful renegotiations is to convince your lenders that you can ultimately pay off the renegotiated loan. You must point out to your lenders why it would be in their best interest to agree to a new arrangement. Showing them your business plan and your action plan that includes your cost-savings initiatives, along with "the how" and "the when" of the implementation of your plan is the best way to achieve this goal. Explain to them that you will need their cooperation to insure that you can survive, as well as, grow your business during the economic downturn. Negotiated items include: the rate of interest, the required security to cover the loan, and the beginning date for repayment. A beginning date for repayment could be immediate, within several months or as long as a year. The key is to realize that your lender will work with you, but that frequent and continual communications with them is critical.
iii) Landlord: Meet with your landlord. Explain your need to have them extend the term of your lease at a reduced cost. Make sure you have a clause in the lease agreement that entitles you to have the right to sublet any or all of the leased space.
6. Re-evaluate your staffing requirements: This is a very critical area. Salaries/wages are a major expense of doing business. Therefore, any reduction in the hours worked through work schedule changes, short-term layoffs or permanent layoffs has an immediate cost saving benefit. Most companies ramped up hiring new employees in the good times, only to find that they are currently overstaffed due to slow sales during the economic downturn. In terms of down-sizing your staff, be very careful not to reduce your staff to a level that forces you to skimp on customer service and quality. Consider the use of part-timers or the current trend of outsourcing certain functions to independent contractors.
7. Shop for better insurances rates: Get quotations from other insurance agents for comparable coverage to determine whether or not your present insurance carrier is competitive. Also, consider revising your coverage to reduce premium costs. The key is to have the right balance-to be adequately insured, but not under or over insured.
8. Re-evaluate your advertising: Contrary to the other cost-cutting initiatives, evaluate the possibility of increasing your advertising expenditures. This tactic realizes the advantage of the reduced "noise" and congestion (fewer advertisers) in the marketplace. The downturn period a great opportunity to increase brand awareness and create additional demand for your product/service offerings.
9. Seek the help of outside advisors: The use of an advisory board comprised of your CPA, attorney, and business consultant offers you objectivity and provides you with professional advice and guidance. Their collective experience in working with similar situations in past economic downturns is invaluable.
10. Review your other expenses: Target an across-the-board cost-cutting initiative of 10-15%. Attempt to eliminate unnecessary expenses. Tightening your belt in order to weather the downturn makes practical, financial sense.
Proactively managing your business through an economic downturn is an enormous challenge and is critical for your survival. However, through well-planned initiatives, an economic downturn can create tremendous opportunity for your company to gain greater market share. In order to take advantage of this growth opportunity, you must act quickly to implement the above best business practices to continue realigning and resizing your company to the current economic conditions.
Copyright © 2008 Terry H. Hill
You may reprint this article free of charge in your newsletter, magazine, or on your website, provided that the article is unedited, and that the copyright, author's bio, and contact information below appears with each article. Articles appearing on the web must provide a hyperlink to the author's web site, http://www.legacyai.com
Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at http://www.legacyai.com
To download a copy of this article, click on this link: http://www.legacyai.com/Article_Downturn.html.
google29a4d753f0401644.html
Loan Protection Explained
by: Simon Burgess
Mis-selling of loan protection has occurred in the past and one of the biggest factors that contributed to this is poor information given when the policy was sold. The main culprits have been high street lenders that have poor selling techniques, with little or no training when it comes to selling. While the high street lender can give a good deal on a loan, they cannot give the cheapest quotes for protection. It has been revealed that they make £4 billion in profits when selling high cost insurance alongside a cheap loan.
Many individuals are under the impression that they have to take out protection insurance offered by the lender in order to be able to borrow. This is not true; all individuals can shop around for a policy. In fact, this is the cheapest way to take out what could be valuable protection. It is also one of the safest ways when it comes to getting the information needed to determine whether a policy would be suitable. There are exclusions which mean that loan payment protection is not suitable for all. Being of retirement age, working for yourself, having an ongoing illness or not being in full-time work could all mean a policy would not be suitable.
You do have to go over the wording of the terms and conditions carefully. Those who are self-employed could still benefit from taking out a policy if they were to cease trading altogether due to reasons which were no fault of their own. In addition, if the pre-existing medical condition had not resurfaced within the past two years then those suffering an illness could benefit from a policy. Providers can also add in other conditions and these can vary from provider to provider, so along with comparing the cost of the insurance you should also compare the small print.
Providing protection for a loan is suitable and you have checked it out thoroughly then getting the cheapest policy is the next step. It is important to remember that by shopping around and getting several quotes you can save as much as 80% on the premiums. A specialist offers the cheapest premiums, which are based on the amount you wish to cover each month and your age. Loan cover will be offered when borrowing and while it might be the easiest option just to have cover added on, it can also be very expensive. In some cases lenders have been known to work out the full cost of the insurance for the term of the loan. They then add this onto the cost of the borrowing and then calculate the interest with loan cover on top. When combined this way your protection policy could almost double the cost of what was once a cheap loan.
Loan protection polices do vary when it comes to paying out. The majority of policies will begin to provide the policy holder with a tax-free income once they have been unable to work for between 30 to 90 days. If you were to remain incapacitated then the income would continue for between 12 to 24 months, depending on the terms and conditions of the provider. However, this payment of course depends on the policy being suitable for your circumstances in the first place.
Mis-selling of loan protection has occurred in the past and one of the biggest factors that contributed to this is poor information given when the policy was sold. The main culprits have been high street lenders that have poor selling techniques, with little or no training when it comes to selling. While the high street lender can give a good deal on a loan, they cannot give the cheapest quotes for protection. It has been revealed that they make £4 billion in profits when selling high cost insurance alongside a cheap loan.
Many individuals are under the impression that they have to take out protection insurance offered by the lender in order to be able to borrow. This is not true; all individuals can shop around for a policy. In fact, this is the cheapest way to take out what could be valuable protection. It is also one of the safest ways when it comes to getting the information needed to determine whether a policy would be suitable. There are exclusions which mean that loan payment protection is not suitable for all. Being of retirement age, working for yourself, having an ongoing illness or not being in full-time work could all mean a policy would not be suitable.
You do have to go over the wording of the terms and conditions carefully. Those who are self-employed could still benefit from taking out a policy if they were to cease trading altogether due to reasons which were no fault of their own. In addition, if the pre-existing medical condition had not resurfaced within the past two years then those suffering an illness could benefit from a policy. Providers can also add in other conditions and these can vary from provider to provider, so along with comparing the cost of the insurance you should also compare the small print.
Providing protection for a loan is suitable and you have checked it out thoroughly then getting the cheapest policy is the next step. It is important to remember that by shopping around and getting several quotes you can save as much as 80% on the premiums. A specialist offers the cheapest premiums, which are based on the amount you wish to cover each month and your age. Loan cover will be offered when borrowing and while it might be the easiest option just to have cover added on, it can also be very expensive. In some cases lenders have been known to work out the full cost of the insurance for the term of the loan. They then add this onto the cost of the borrowing and then calculate the interest with loan cover on top. When combined this way your protection policy could almost double the cost of what was once a cheap loan.
Loan protection polices do vary when it comes to paying out. The majority of policies will begin to provide the policy holder with a tax-free income once they have been unable to work for between 30 to 90 days. If you were to remain incapacitated then the income would continue for between 12 to 24 months, depending on the terms and conditions of the provider. However, this payment of course depends on the policy being suitable for your circumstances in the first place.
Check A Payment Protection Policy Very Carefully Before Buying
by: Simon Burgess
A payment protection policy is taken out by those who have credit repayments to make each month and who wish to protect those repayments. A policy can be taken out to cover against being unable to work if you should have an accident or get ill, or become unemployed through no fault of your own.
However, there are certain conditions that could mean a policy would not benefit the individual. Due to the exclusions present in all policies designed to safeguard payments, you have to check the cover thoroughly before taking it out. Those individuals who suffer from a pre-existing illness, are of retirement age, only work part-time or are self-employed would certainly have to read the small print very carefully. The cover can be valuable and give a much needed income, but only if the policyholder meets the set criteria. It is also worth nothing that statistics show that only 4% of those who take out a policy actually claim on it. Furthermore, 25% of those who do make a claim find their claim rejected by the provider.
You should also make sure that you are not covered for being unable to work by some other means. Around 85% of employers will actually offer much more than the statutory sick pay they have to pay out. Those who are extremely lucky will find their employers will pay out a full wage for a certain period of time. This of course means if you are able to get back to work quickly you would not need a protection policy.
If you believe protection cover would benefit you then go with a standalone provider for a quote. Protection products can be extremely expensive but by choosing to shop around for your quotes with an independent provider you can save as much as 80% on the premiums. While you can take cover alongside the loan at the time of borrowing this could mean you would pay five times more than you would if you shopped around.
The high street lender can play many tricks when it comes to offering protection. Some will work out how much the insurance would cost and then add this onto the amount you are borrowing. This means that instead of quoting you a monthly premium for the cover you will be paying interest on it. On the other hand, a standalone provider will give you a quote for monthly premiums. This is based on the monthly amount of your debt and your age at the time of applying. In some cases the savings you make are immense.
Another huge benefit of going with a specialist provider for your protection quote is that they are more ethical. They will ensure that consumers have access to the FAQs regarding a policy and will explain the technical jargon in plain English, which takes the confusion out of buying a policy.
The majority of policies offered by an independent payment protection specialist will begin to provide the policy holder with a tax-free income from between the 30th and 90th day of being incapable of working. The policy gives peace of mind and allows the individual to relax and concentrate on getting well without financial worries. The pay out would last between 12 and 24 months depending on the terms set out by the provider. You can find the terms and conditions in the key facts that are supplied by the provider on their website before signing up for cover. This makes comparing and deciding if a policy is value for money so much easier.
The Basics Of Loan Payment Protection
by: Simon Burgess
Not understanding loan payment protection is the number one fault associated with mis-selling. Providing cover is suitable then taking out a policy to cover your loan repayments can save you from getting into debt and give you peace of mind and the security of an income each month. This income is used to cover your loan or credit card repayments and is tax free.
Loan insurance premiums can vary a lot and the cheapest way to take out a policy is to go with a standalone specialist provider. By choosing to buy cover after taking out the loan you will not feel as though you are getting pushed into the cover and you will be able to take your time going over the terms and conditions. An independent provider will always make this information available.
A policy could start to pay out if the policy holder was out of work due to an accident or illness, or through unemployment such as redundancy. The policy holder waits a period of time before receiving a payout, which usually comes 30 to 90 days after being out of work continually. The policy pays out a tax-free income for up to 12 months, or for up to 24 months with some providers, which is usually enough time to recover and get back to work.
You do have to make sure that a policy would be suitable for your circumstances before you buy. This is due to there being terms and conditions that can stop you from claiming. The exclusions most regularly found include being retired or self-employed, suffering an illness or only working on a part-time basis. But these exclusions are not set in stone; for example, providing the illness has not occurred within the last two years then cover might be suitable.
Beware of borrowing online and if you do pay attention to whether loan protection cover is already included. Online lenders have in the past included loan protection as standard unless a box is un-ticked. While the majority of lenders have now put an end to this to avoid confusion, it is worthwhile double checking. The same goes when taking out a loan with the high street lenders, because they have also been known to add in the cover and then add interest onto the total amount. This, of course, can almost double the cost of what was a cheap loan and is the most expensive way of purchasing peace of mind.
When buying a protection policy for your loan make sure you know whether you will pay a single premium or regular one. If you pay a single premium then lenders will charge around three years’ premiums upfront, which you are expected to pay in one lump sum. You also need to pay attention to any clauses relating to early repayment of the loan. Always check to make sure what you would be able to claim back if you should take the loan out then find out you can afford to repay it early.
While loan payment protection can work and give you a much needed income it does only pay out for a maximum amount of time. While in the majority of cases the individual will return to work within this period, occasionally they remain unable to work for a longer period. Therefore, you must consider how you would be able to maintain the repayments if you should remain off work once the cover stopped providing an income.
Not understanding loan payment protection is the number one fault associated with mis-selling. Providing cover is suitable then taking out a policy to cover your loan repayments can save you from getting into debt and give you peace of mind and the security of an income each month. This income is used to cover your loan or credit card repayments and is tax free.
Loan insurance premiums can vary a lot and the cheapest way to take out a policy is to go with a standalone specialist provider. By choosing to buy cover after taking out the loan you will not feel as though you are getting pushed into the cover and you will be able to take your time going over the terms and conditions. An independent provider will always make this information available.
A policy could start to pay out if the policy holder was out of work due to an accident or illness, or through unemployment such as redundancy. The policy holder waits a period of time before receiving a payout, which usually comes 30 to 90 days after being out of work continually. The policy pays out a tax-free income for up to 12 months, or for up to 24 months with some providers, which is usually enough time to recover and get back to work.
You do have to make sure that a policy would be suitable for your circumstances before you buy. This is due to there being terms and conditions that can stop you from claiming. The exclusions most regularly found include being retired or self-employed, suffering an illness or only working on a part-time basis. But these exclusions are not set in stone; for example, providing the illness has not occurred within the last two years then cover might be suitable.
Beware of borrowing online and if you do pay attention to whether loan protection cover is already included. Online lenders have in the past included loan protection as standard unless a box is un-ticked. While the majority of lenders have now put an end to this to avoid confusion, it is worthwhile double checking. The same goes when taking out a loan with the high street lenders, because they have also been known to add in the cover and then add interest onto the total amount. This, of course, can almost double the cost of what was a cheap loan and is the most expensive way of purchasing peace of mind.
When buying a protection policy for your loan make sure you know whether you will pay a single premium or regular one. If you pay a single premium then lenders will charge around three years’ premiums upfront, which you are expected to pay in one lump sum. You also need to pay attention to any clauses relating to early repayment of the loan. Always check to make sure what you would be able to claim back if you should take the loan out then find out you can afford to repay it early.
While loan payment protection can work and give you a much needed income it does only pay out for a maximum amount of time. While in the majority of cases the individual will return to work within this period, occasionally they remain unable to work for a longer period. Therefore, you must consider how you would be able to maintain the repayments if you should remain off work once the cover stopped providing an income.
Income Protection Could Give You Financial Security
by: Simon Burgess
If you were to suddenly find yourself without an income, due to losing your job or being unable to work for health reasons, your lifestyle could change drastically. If you have monthly mortgage repayments to make you would still have to continue meet the costs or risk losing your home to repossession. Loan or credit card repayments would also have to be made too, and you could struggle when it comes to finding the money needed. Income protection could give you the financial security needed each month for a small monthly premium.
A protection policy would replace your lost income up to a certain amount each month. The exact sum you would receive is decided when you take out the cover. A specialist provider will offer the cheapest premiums, which will be based on how much of your income you wish to protect and how old you are when applying for the cover. Along with a quote for the protection, with an independent provider you will also be able to take advantage of the many tips and advice offered by way of articles and FAQs relating to payment protection products. Understanding what you are buying is key to making sure your cover delivers exactly what you need for your circumstances.
Not explaining to the consumer that there are terms and conditions attached to these insurance policies is the main failure that providers have been guilty of in the past, and this is deemed mis-selling. There are some exclusions that are general to all policies and it is essential to check them against your circumstances to be absolutely sure that the policy you are considering would benefit you. Individuals who are self-employed, suffer from an ongoing illness, only work a few hours each week or who are retired might not benefit from taking out cover. However, those who do suffer from an illness should still give some thought to cover if the illness has not been present within the past two years. In addition, a self-employed individual could benefit if they have to cease trading through no fault of their own.
Just as the premiums for income cover varies from provider to provider then so do the exclusions, so it is absolutely imperative that you compare the exclusions along with comparing the cost. Providers can add in their own exclusions too and these can vary considerably. The best independent providers add in very few exclusions and this is what you should check for.
An income protection insurance policy could kick in anywhere between day 30 to 90 of being continually unable to work. Cover is then backdated to the first day of being unable to work, whether that’s due to redundancy or suffering an illness or accident. The majority of policies will last for up to 12 months. There are providers that do extend the payout for up to 24 months, but you can expect to pay a higher premium for this. The terms and conditions will be set out in the key facts of the cover and will include the details of the payout. You should also give some thought to the fact that after the period of protection ends you could still be unfit for work or might not have found another position.
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