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How The Government Can Help Your Small Business

Did you realize the United States government can help you seek financial aid for your small business? Yes, the government does that, and it has been successfully accomplishing this since 1953.

Perhaps if you’re looking for a means to help your company grow, now would be a good time to discover how the federal government can help you with your small business needs.

In order to get a thorough comprehension of the process, let me first expose you to the government’s leading agency that is accountable for assisting the nation’s small enterprises, the United States Small Business Administration.

The United States Small Business Administration, otherwise known as SBA, is a United States government agency that was founded on the 30th day of July, 1953.

The SBA is largely responsible for rendering indirect financial aid to entrepreneurs and small business establishments. Typically, the primary role of the SBA is to provide several financial assistance programs to such businesses that have been engineered to meet essential financing needs.

In order to do this, the SBA has constituted many loan programs and financial assistance strategies which have been thoroughly developed to suit the needs of entrepreneurs and minority-owned business enterprises.

Among all of these programs, the three-most fundamental forms of assistance that is provided by the SBA are that of Guaranteed Loan Programs, Bonding Programs, and lastly, Venture Capital Programs.

How can these programs specifically help you, you ask?

For starters, the Guaranteed Loan Program will work in a manner that the SBA will assist you to seek financial assistance, instead of directly providing you with one.

Since the SBA has formed partnerships with third-party lenders, community development organizations, and microlending institutions, these third-party partners will then be able to directly provide you with loans and other forms of financial assistance. This setup is essentially similar to procuring a commercial loan, but it is easier and more efficient because the SBA will serve as your guarantor, meaning it will assure the third-party partner that you have the capacity of repaying the loan and that you will, without a doubt, repay it.

The Bonding Program, also called the SBA’s Surety Bond Guarantee (SBG) Program, can assist business contractors in obtaining surety bonds by way of standard commercial channels. To comprehend this better, a small business owner should first know what a surety bond is.

A surety bond is an agreement between a surety (someone who agrees to assume responsibility for the debt of the primary borrower in cases wherein the borrower fails to assume his or her responsibilities), a small disadvantaged business contractor and a project owner.

Through the SBG program, the SBA will enter into a contract with a surety stipulating that the SBA will take responsibility for a percentage of loss in the event that the primary borrower fails to adhere to the terms of the loan agreement.

The Venture Capital Program, however, was created to work through the SBA’s Small Business Investment Company (SBIC) Program wherein the SBA could indirectly provide venture capitals to micro businesses and micro entrepreneurs.

Small Business Investment Companies are privately owned and managed investment funds that are licensed and regulated by the SBA. These businesses could help small businesses by providing them with funds by means of debt or equity, just like venture capital, private equity and private debt funds. Nevertheless, they differ in a way that SBICs will only restrict their investments to eligible business concerns that are defined by the SBA.

If you wish to know more about the programs and operations of the SBA, you can visit their website at http://www.sba.gov/.

7 Major Bond Investing Risks In A Weak US Economy

1. Less Liquidity – In a weak US economy one of the best bond investing strategies will take into account any drop in liquidity. During a weak economy interest rates and inflation are typically very low, and this also lowers the demand for bonds of all types. This means less liquidity, and some bond investors may have a difficult time finding a buyer. Less liquidity may mean a longer time before a buyer can be found so that the investor can sell the bond.

2. Default - All bonds are held to the US Treasury Bond standard. While it is very doubtful that the US Government would ever default on bond payments, the same cannot be said of some companies and municipal entities. Usually the higher the risk of default a bond has, the better the return on the investment, but with a weak US economy even companies and municipal authorities that seem like a sound investment can default.

3. The Call Risk Involved – If the bond in question has a call provision then there is a risk of this provision being activated. For bond holders who have paid a premium this can mean a loss of investment return. When interest rates start to decline, a company or municipal entity may choose to call the bond and force a payoff, so that less interest is owed on the bond. Some bond investing strategies consider the call risk while others simply avoid bonds with this provision.

4. Bankruptcy – Bankruptcy is a very real possibility when the US economy is weak. Consumers do not buy as much and prefer to hold on to their money instead, and this can affect the bottom line of business and government both. Higher unemployment rates mean fewer taxes for government entities, and less profit for companies as well. Some cities and municipalities have declared bankruptcy in the last few years, and many businesses have also sought this protection as well.

5. Bond Credit Rating Downgrades – Few bond investing strategies consider the risk of a credit downgrade, but as recent events have shown even the US government and foreign governments are not immune from this action. If the bond issuer suffers a credit downgrade then the bond will not be as attractive to other investors, and may need to be sold at a lower return than previously believed.

6. Reinvestment Risks – When a bond matures and the investor wants to reinvest the capital in the bond market it is typically done at lower interest rates if the US economy is weak. This can mean a loss on the expected return when the capital is reinvested. If the interest rates are too low than many investors may choose not to risk the capital at all, and may simply hold onto it instead.

7. Changes in Legislation – One thing that few bond investing strategies can predict is changes in legislation. This can come in the form of changes in the tax code, changes in the regulations or requirements for the bond market, and many other changes as well. A weak US economy increases the risk that there will be new laws or regulations that affect bond holders and others in the investment sector.

5 Reasons Why Investing in Property in Hull Will Create Wealth

This article aims to educate the reader on the 5 fundamentals of professional property investing specifically focused on the city of Hull in the East Riding of Yorkshire

The topics covered

  1. Leverage
  2. Return on Investment
  3. Rental Demand
  4. Stress Testing
  5. Exit Strategy

Leverage

When investing in property you can benefit by borrowing from the bank using the power of leverage. Typically, a buy to let mortgage requires you to put a 25% deposit down and the bank will provide the remaining 75% of the purchase price of the property. Where else can you get them to do that? Banks will lend you money to buy property. They are less likely to lend you money to grow your business and they definitely will not lend you money to buy stocks and shares. They understand that property is still a safe secure asset despite what the media says. To show you the power of leverage lets show you an illustration. You have 100,000 to spend on an investment property. The following scenarios show how you can spend that money

Scenario 1 – Buying 1 property worth 100K with all your cash

Buying 1 house without a mortgage. Put down 100K and buy the property outright. The following year inflation raises the price of that property by 5%. The property is now worth 105K. You now have a property worth 105K and an equity of 5K in that property.

Scenario 2 – Buying 4 properties each worth 100K with a mortgage on each

You put a 25K deposit down on each property and a mortgage for the remaining 75K, spending all your 100K across 4 properties not just 1 property this time. The following year inflation raises the prices of that property by 5%, the same as scenario 1. Each property is now worth 105K. However, now you have 4 of them so benefit from the 5K equity in each one. So you now have 20K equity instead of the 5K in scenario 1. You have still spent the same amount of money but have benefited from leverage of money from the Bank.

2-3 bedroom properties in Hull can be bought for between 40-100K. They offer a superb opportunity to leverage your cash

Return on Investment

The return on investment is defined below

Return on investment = Gain of Investment – Cost of Investment / Cost of Investment

In basic terms, how hard is your money working for you. You can choose to invest in a new business venture, shares on the stock market or property. Each wealth creation channel has its own return on investment together with its associated risk. As a professional investor you have to weigh up your appetite for risk and potential return on your investment. Lets revisit the 2 leverage scenarios and examine the return on investment

Scenario 1 – Buying 1 property worth 100K with all your cash

Return on investment (ROI) is 5% e.g. 5K/100K

Scenario 2 – Buying 4 properties each worth 100K with a mortgage

Return on investment (ROI) is 20% e.g. 20K/100K Hull is a great place to start your professional property investing career because of the great return on investment. The reason is that property prices in Hull are among some of the cheapest in the UK. So, the cost of your investment is lower. This means not only can your money go further ie. you could buy more properties but each of those properties will go up in price and if you’ve leveraged your investments with mortgages your return on investment will be even greater.

Hull gives a better return on investment than more expensive cities in the UK because property prices are lower

Rental Demand

Of course, an investment property only becomes an asset if you are able to rent it out. If you can’t, that asset very quickly becomes a liability. A quick reminder on the definition of an asset and liability

Asset = Puts money in your pocket

Liability = Takes money out of your pocket

So, to ensure your investment property remains an asset you need to be confident that it is in an area of high rental demand. Hull is a hidden gem of a city. It is the gateway to Europe via ABP ports and P&O Ferries and therefore has a thriving export/import industry. Siemens are going to locate a large wind turbine manufacturing plant there cementing it’s status as a centre of excellence for Renewable energy technology. It is well connected by the M62 and has a broad manufacturing base. The Deep, the UKs only submarium has established itself as a tourist destination too. The University of Hull continues to grow and has a healthy student population around 25,000. However, due to the relatively low salaries in the region, affordability to buy a house is low. This consequently has led to a high demand for rental property.

The following post codes in Hull are great rental areas. HU5 is close to the University for students. HU7 and HU9 are great for families.

Financing Deals

If your aim is to own 10, 20 or 30 properties and supply the deposits for each one you would soon run out of your own cash so how do the Professionals do it? Well, the answer is Other Peoples Money (OPM). They buy their properties at the right price. Money in property is made when you buy the property NOT when you sell it. Buying at the right price i.e. below market value or BMV as it’s called enables you to refinance with the mortgage lender at the Open Market Value and pull out most of your deposit cash. This enables you to recycle your pot of cash to purchase another property. However, in this market, the Council of Mortgage Lenders have imposed a 6 month rule that prevents you remortgaging unless the property has been held for at least 6 months. If you can demonstrate added value then you have a better chance of achieving the valuation you desire. On average Property Prices double every 11 years. This means a 100K property is worth 200K in 11 years time. When you sell this property you pay off the original 100K mortgage and then have approximately 100K profit. This means if you bought 2 properties you can sell one and pay off the mortgage on the other and still have 1 cash flowing property with no mortgage on it. Using this principle it can be scaled up to any number of properties you wish to buy. Getting a mortgage can be difficult in this current economic climate but not impossible. The money hasn’t disappeared. It is just in different places. The trick is to find the people with the cash.

Buy for cash

Some properties in need of refurbishment in Hull can be bought for as little as 20K. This means you need to buy them with cash as mortgage providers generally do not lend below 40K. It also means you can move quickly and not have to involve Mortgage Lenders and Valuers in the purchase. Once you have refurbished the property you can then get a surveyor to value the property with a view to placing a mortgage on it and get most if not all of your cash returned.

Deposit Finance

You can help people with cash earn more than they are getting in the bank by offering them a higher interest rate for borrowing their money to fund a deposit. You can then return their money after refinancing.

Mortgage Host

If you can’t get a mortgage then find someone else who can and offer to share the cash flow from a property. Get a lawyer to draw up an agreement between you and the host. Because property prices are relatively low in Hull, there is more chance of finding investors who are willing to lend you 10-15K for a deposit. Risks are reduced as the amounts on loan are less. Once you’ve done 1 deal with an investor and made them more money they will be happy to do another deal with you.

Hull property prices are low which leads to lower risk for Cash Investors when funding a deal.

Stress Testing

With any of your investments we advise stress testing your investments at higher interest rates. Whilst we enjoy historically low interest rates it’s tempting to buy lots of property deals. However, interest rates have only 1 way to go and that is up. Test that your investment still produces cash flows at higher interest rates so it remains an asset and not a liability.

Test your investments at higher interest rates. Hull investment properties still positively cash flow at 8-9% interest rates at current rental values.

Exit Strategy

With any investment it is vital you know your exit strategies. With an aeroplane knowing where the exits are is vital in case of an emergency. Similarly, with investing you need to know where your exits are for getting out of the investment deal in an emergency.

Selling your investment

If for any reason you need to come out of an investment you can sell a property. The properties that will be easiest to sell will be the most popular type in that area. If you own an expensive, executive detached house in a desirable area the number of buyers is reduced and constrained to residential buyers. However, if you have a cheaper, investment property you can sell to both investors or residential buyers. This is important when considering your investment.

Know at least 2 exits when entering an investment deal. There are lots of investors in Hull and because of low prices they are affordable to residential buyers too.