Category Archives: Articles

Avoid the Financial Danger Zone

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Leslie Hoffman, Director of Lending, ACCION New Mexico

Leslie Hoffman, Director of Lending, ACCION New Mexico

Credit can be an important financial tool, especially for people who are trying to start or grow a small business. Credit can be used to buy inventory, finance the start-up of a business, or make purchases for large-ticket items like equipment or office space.

But like all tools, performance must support cost. Credit is not extra income — it is money that must be paid back. If it’s not managed well, it can become overwhelming and can prevent you from reaching your financial goals.

When your level of debt outpaces your ability to pay for it, you are in the financial danger zone. You are much less likely to qualify for additional credit and you need to take steps toward better financial health.

One tool lenders use to determine if you’re in the financial danger zone is a mathematical expression of the relationship between your debt level and your income. It’s called debt-to-income ratio and it is calculated by dividing your total monthly debt payments by your total monthly net income – or your take-home pay after taxes and other deductions. Generally, a debt-to-income percentage that exceeds 20 percent is a sign you need to take care of your current obligations before taking on any more debt.
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Take Control of Your Credit

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Leslie Hoffman, Director of Lending, ACCION New Mexico

Leslie Hoffman, Director of Lending, ACCION New Mexico

Ever tried to borrow money from a bank? What about applying for a credit card?  Have your ever financed the purchase of a car? The banker, credit card company or car dealer probably asked about your credit history.

For some, it’s an intimidating question, but it doesn’t have to be.  You can take control of your credit if you understand what it is and what it can do for you.

Credit is the ability to borrow money to pay for things.  Good credit means you make loan payments on time and pay off your debts when they are due.  Poor credit means you miss payments, don’t meet pay-off deadlines or have too much debt.

Credit can be useful in emergencies if you need money quickly. It can also allow you to make larger purchases when you don’t want to pay the full amount at one time. For entrepreneurs, it can be a critical element in the growth or start-up of a business.

Financial institutions verify your credit through a credit report that reflects how you have handled your debts.  There are three national agencies that produce credit reports – Equifax, Experian and Transunion – and all include similar information in their reports.
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Getting a Loan Officer to Say Yes

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Kim T. Blueher, Director of Lending, WESST Corp.

Kim T. Blueher, Director of Lending, WESST Corp.

Asking for money is something no one likes to do.   Asking to borrow money can be just as difficult.  The outcome will depend on how prepared you are.

First, research the different loan programs available throughout New Mexico. It would be a waste of time to apply for a loan that doesn’t fit the requirements of your business. Conversely, it would be a shame to miss out on a loan program that is perfect for your company because you aren’t aware of it.

Make sure you understand words you may not normally use – words like assets, liability, net worth, gross or net profit, collateral, receivables, payables, amortize and depreciate. Having a working knowledge of these terms lets the lender know that you understand the financial part of your business.

Obtain your credit report. This document is one of the most important criteria that lenders evaluate when they are considering a loan request. It is essential that you look at your own report at least once a year to make sure that the information is correct. You can also learn your credit score, which indicates how well you have paid your debts. Many lenders will not approve a loan if the credit score is too low.
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Business Financing: Your Idea Is Just the Beginning

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F. Leroy Pacheco, Executive Director, The Loan Fund

F. Leroy Pacheco, Executive Director, The Loan Fund

People often ask, “What do I really need to get a loan?”

They have reviewed the various bank programs, surfed the Internet, talked to friends and attended seminars. They may be drowning in information but they are still unclear about what to do next. How, exactly, does one go about getting financing, without having to sign over the rights to a house, a car, or as the joke goes – a firstborn child?

It all starts with an idea. But it’s the planning associated with turning that idea into a viable business that is the most important factor and one of the keys to whether or not a loan will be awarded.

Before you talk to a banker, a venture capitalist or an alternative lending group such as The Loan Fund, you need to do some thinking.  Don’t worry about doing a full-blown business plan – yet. Ask yourself these seven questions. We will certainly ask them if you call us about a loan.

Is your idea a good one? You love it, but will anybody else?  Why would someone who doesn’t know you buy your product or service?

How are you going to reach your target customers? We often see plans that include “advertising” as the sole marketing tactic. There’s a lot more to marketing than advertising.
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Preparation Is the Key to Getting a Business Loan

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Paul F. Goblet, Investment Advisor, NMSBIC

Paul F. Goblet, Investment Advisor, NMSBIC

Unlike securing a consumer loan for a home or car, getting a business loan can be difficult. Consumer loans have become readily available, and often a borrower can be pre-approved based on his or her credit score.

A business loan, on the other hand, demands far more documentation, takes longer to close, and is often based on both the historical success of the business and the personal financial strength of the owner.

There are many reasons for this. Valuing a business is not as simple as having an appraisal on a home because there are fewer comparisons – not many businesses are exactly like yours. Nor can the business be sold as quickly as a home or car.

The New Mexico Small Business Investment Corporation (NMSBIC) tries to make the process of obtaining a business loan easier. Through its financial partners, like ACCION New Mexico, WESST Corp. or The Loan Fund, we have provided funding for over 1,300 business loans throughout the state. While each financial partner has their own credit approval process and each requires different documentation, these partners are accustomed to working with small businesses that might otherwise have trouble securing a loan from a traditional bank.
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