Advertiser Disclosure

Small Business

How to Turn Your Business Idea Into a Small Business

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

start-up business loans
Source: iStock

Most people have probably spotted a successful business and thought, “I wish I’d thought of that.” A good idea can be golden, but inspiration alone is not enough to make it a reality. Launching a new business, however small, is a major undertaking that involves many steps — some fairly mundane and some a bit intimidating. Here’s a list of some of those important tasks to help you get started the right way.

Take time to think it through — thoroughly.

This step is listed first for a reason. Properly done, the analysis you do here will allow you to think clearly and critically about your business idea. And your answers will apply to other key steps in this process. Essentially, you want to know if your idea is unique (in all the world or specifically in your local area) and if it meets a genuine need for an identifiable market.

Think about financing, market research and competitive analytics. Think about what your business will do, how it will reach customers, your competitors, what makes you different from your competitors, what resources you’ll need, what expenses you’ll have, and how you’ll make money.

“It’s really important to think about the details at this stage,” said Mitch Bienvenue, director of the Illinois Small Business Development & International Trade Center at the College of Lake County. “Who am I going to sell to, how am I going to sell it, what am I going to charge, is it financially feasible and so forth.”

Create a business plan.

Business plans don’t necessarily have to be full-blown, 40-page documents anymore. If the business you have in mind is a simple one, the plan can be informal and brief — though it should still grow out of a thoughtful first step.

Taking time to create a robust business plan is one of the smartest things you can do. Studies have shown that companies that start with a business plan grow 30% faster than those that don’t.

If you need outside funding, say through lenders or investors, your business plan will have to be much more detailed. But you won’t need to work from scratch — there are plenty of templates available to help you assemble all the necessary information.

Make a plan for funding.

Business owners fund their companies in a variety of ways, ranging from using their own savings or personal loans to investments, crowdfunding, economic development grants and loans from financial institutions. Commercial lenders typically require a strong business plan, a good credit score and collateral, too.

For new businesses, getting a regular bank loan can be difficult. “If you’re just starting out and you have no business history or business assets to put up as collateral, it can be very tough,” Bienvenue said. “We tell those people they’ll probably have to dig into their own pocketbook, use savings, appeal to friends and family or use credit cards. It’s uncomfortable and it’s scary, but it is a reality.”

Choose your business structure.

Before you can register your business or get a tax identification number (EIN), you need to decide on the legal structure of your business.

“It’s an important decision involving two major factors — what amount of protection from liability you need and how you’re going to report your taxes,” Bienvenue said. “We always encourage people to consult with a business attorney and a CPA.”

The major types of structures include:

  • Sole proprietorship: This is a single-owner business where the owner has total control. It also means your personal liabilities and assets are not separate from the business. This is the default if you don’t set up any other kind of structure.
  • Partnership: This is a way for two or more owners or partners to operate a business together. There are different types of partnerships depending on the role each person will play or how assets are treated.
  • LLC: Here, an owner’s personal assets are free from liability and profits and losses are not taxed at the corporate rate.
  • Corporations: These are expensive to form, but they offer the most protection from personal liability. Bienvenue usually recommends a Subchapter S Corporation — commonly known as an S corporation — over a sole proprietorship since it’s fairly similar, yet offers some liability protection. An S corporation setup gives business owners the asset protections of a corporation, but with some additional tax benefits.

Make it official.

Once you choose your business’ legal structure, you’ll want to apply to the IRS for an employer identification number (EIN), unless you’re a sole proprietorship, which doesn’t require one. Every state has different requirements for small businesses, so make sure you visit your state’s website to find specific information on registering your business, getting permits and licenses and filing your business name. Don’t forget to set up a business banking account and apply for a business credit card.

Set up a bookkeeping system.

Preparing to properly manage your company’s finances is one of the most important decisions to make, right at the very beginning. If you have the resources, consider hiring a part-time bookkeeper — or paying one to help you set up and use the accounting software yourself.

“You can do a lot yourself with software like Quickbooks, but you absolutely have to set up and maintain some sort of system for bookkeeping,” Bienvenue said. “It’s essential. If you don’t, and you get into a bad spot, that could be the end of your business.”

A lot of people wait until tax time to hire a CPA, which is fine as long as you’ve done a good job of keeping your books.

Start branding and marketing your business.

You should have spent some time already doing market research and competitive analysis while writing your business plan. Now use that information to start promoting your business. After you’ve made branding decisions like designing a logo and a company slogan, marketing involves reaching out to potential customers through your website and social media profiles.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Rockwood
Kate Rockwood |

Kate Rockwood is a writer at MagnifyMoney. You can email Kate here

TAGS:

Advertiser Disclosure

Mortgage

How to Find the Best Refinance Companies for Mortgages

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Refinancing your mortgage can be a smart way to reduce your monthly payments and cut down on the amount of interest you’ll pay over the life of your loan. But it’s important that you choose the right lender to make the best financial decision for your home and budget.First things first: What exactly is refinancing? Simply put, refinancing is the process of replacing your current mortgage with a new one with different terms. There are several reasons you might decide to refinance. Maybe you want to take advantage of lower interest rates to secure a lower monthly payment or to shorten, or even lengthen, your total loan term. You also might want to change the kind of mortgage you have, such as switching from a fixed rate to an adjustable rate.

You might be able to secure a lower interest rate because the market shifted, or perhaps your credit score has improved since you first took out the mortgage, making you eligible for better terms. Currently, interest rates are hovering around 4.375% for a 30-year fixed loan for someone with good credit. Rates have been creeping upward over the last year, but you may still benefit from refinancing if you took out your mortgage back when rates were higher.

There are two main types of refinancing: traditional and cash-out. With traditional refinancing, you take out a new loan with a new rate and term. In cash-out, on the other hand, you take out a loan bigger than your remaining mortgage and get cash for the difference, which can then be used for remodeling, debt consolidation or another big expense. You’ll want to decide which approach to take before you get too far into the process.

What makes one mortgage refinance company better than another?

There are many types of mortgage refinance lenders to choose from: banks, credit unions, mortgage companies. In addition, you can take out a loan through a mortgage broker. Regardless of what type of lender you choose, it’s very important to do some comparison-shopping.

The cost of a refinance will vary from lender to lender based on their interest rates, the fees they charge and other terms of the loan. That’s because each institution is different and their costs and regulations vary based on their location, operating expenses, profit margins, risk assessment and more. Credit unions, for example, often have lower interest rates because they are nonprofit and member-owned. And if you use a mortgage broker, you’ll have to pay a fee for his or her services.

If you’re happy with your current mortgage lender, that’s a probably a good starting point in your search. Because you’re already a customer, they have your information (although they’ll still require updated documents). They also may be willing to waive certain fees and costs to keep you around. For example, if you have a prepayment penalty on your current mortgage — a fee charged for paying off a mortgage early — your current lender might agree to waive the fee to keep your business.

Otherwise, you should look for lenders whose rates and fees are in line with other comparable lenders and who are responsive to questions you have. All lenders and brokers should be able to give you an estimate of their fees.

And just as you look at Yelp! reviews before choosing a restaurant, you should read reviews on mortgage refinance lenders, too. Two good places to start are the Better Business Bureau website and the Consumer Financial Protection Bureau’s (CFPB) Consumer Complaint Database. Also, take a look at market research firm J.D. Power’s U.S. Primary Mortgage Servicer Satisfaction Study, which measures customer satisfaction in seven areas.

How to find the best mortgage refi company for you

The best mortgage refinance company is the one that most closely meets your needs. Maybe you’re new to refinancing and need a lot of handholding, maybe you need to close quickly or maybe you just want someone to do the legwork for you and get you rates and terms to compare. And of course, it’s important to work with a reputable company as well. Use your goals to guide your choice.

Cost

For many people, cost is king and they want the lowest refinancing rates available. Just keep in mind that the interest rate itself doesn’t tell you the whole story. You need to also consider points if they’re added on to your refinance deal. Points are fees you pay, typically at closing, in order to lower your interest rate. In general, the more money you pay upfront in points, the lower the interest rate. Ask any lender for the loan’s APR (annual percentage rate), not just the interest rate, because that takes into account points, broker fees and other charges you might have to pay. If you’re looking at an adjustable rate, ask whether the loan payment would go down if interest rates drop.

Customer service

Many borrowers place a high priority on customer service, particularly if they’re not familiar with the refinancing process. If you’re feeling wary of the paperwork, working with a company known for its responsive service may be especially important. You can do some “gut-check” research by seeing how user-friendly the company’s website is, and how responsive they are to your questions.

Speed

If you’re in a time crunch to close on your refinance, you’ll want to ask potential lenders the average time it takes them to close.

Compare quotes and pick the best option for your situation

When you shop around, you’ll find that rates vary from lender to lender. You can start by reviewing advertised rates listed on the company’s website or in an advertisement, but the actual rate you get could be quite different. That’s because the advertised rate will require borrowers to meet a host of specific criteria, such as their credit rating and their loan-to-value ratio (LTV). The better your credit score, the better your interest rate is likely to be. The same is generally true for your LTV, the relationship between the amount borrowed and the home’s value. The more you have paid off on your home loan, the lower your LTV.

The terms you’re seeking in the refinancing also affect your rate and may result in a different offer for you than the advertised rate. Given all these factors, you need to contact different lenders directly to get quotes personalized to your situation. Advertised rates can give you a ballpark idea of different rates, but they won’t tell you exactly what you can expect.

Apply for a loan from several lenders to see what terms they can offer. Each lender is required to provide you with a Loan Estimate document within three business days of getting your application. This detailed breakdown of costs and fees will show you the interest rate, monthly payment, closing costs and more, and will give you a preliminary picture of your true costs.

Be sure to compare “apples to apples” — that is, scrutinize the same loan terms across different lenders. If you’re considering a conventional 15-year loan from one lender, for example, request the same from the others as well. Once you have several offers, negotiate with the different lenders. Let them know you’re comparing their terms to those of their competitors. By encouraging lenders to compete against each other, you can help yourself secure the best deal.

Conclusion

By carefully comparing your options and negotiating, you can save thousands of dollars on the cost of your refinancing. To do this, put in care and effort throughout the process, and you will end up with a refinancing deal that helps you meet your financial goals.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Rockwood
Kate Rockwood |

Kate Rockwood is a writer at MagnifyMoney. You can email Kate here

TAGS:

Compare Mortgage Loan Offers for Free

Home Purchase Quotes

Home Refinance Quotes

(It only takes 3 minutes!)

NMLS #1136 Terms & Conditions Apply

Advertiser Disclosure

Mortgage

How You Can Refinance Your Home After Bankruptcy

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Since 2012, 5.3 million Americans have gone through a bankruptcy. While there are often many reasons that people declare bankruptcy, the end result is often the same: Their credit takes a hit. For people who already had poor credit pre-bankruptcy, the dip will likely be more modest, but it will be very sizable for anyone who had good credit before bankruptcy.While a bankruptcy might seem dire, it’s not the end of the world. Even if you have a bankruptcy filing in your past, it’s still possible not only to buy a home but even to refinance an existing mortgage. And now is a great time to refinance: While mortgage rates are higher than a year ago, they’re still historically low. Below, we’ll walk you through what it takes to refinance after a bankruptcy.

What to know about refinancing after bankruptcy

The first thing to do when you decide to refinance your home after a bankruptcy is to learn about your options. There may be some restrictions based on your specific situation, the type of bankruptcy filed and the type of loan you want. It’s important to know the rules of refinancing so you can plan ahead and pick the right time to refinance.

There are two different types of personal bankruptcy:

Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, a debtor’s nonexempt assets are liquidated and those proceeds are used to pay down debts. People who file for Chapter 7 must pass a “means test” that proves their income is low enough to qualify. Whether someone can keep assets like a car or their home depends on the amount of equity they have in those assets and the rules of their state. Most states allow you to keep some equity in your home and car.

A Chapter 7 bankruptcy will remain on your credit report for 10 years. After the bankruptcy is discharged, there is a two-year waiting period for a government-backed mortgages (like a Federal Housing Administration loan), and a four-year waiting period until you can apply for a conventional home loan, one that is not backed by the federal government but meets the loan limits set by Fannie Mae and Freddie Mac.

Chapter 13 bankruptcy. Also known as a wage-earner’s plan, a Chapter 13 bankruptcy allows people with a steady income to create a plan that will help repay all or part of their debts over a period of three to five years. Chapter 13 may be an option if you don’t qualify for Chapter 7 bankruptcy because your income is too high and/or you want to repay your debts, prevent home foreclosure or want to keep nonexempt properties that would be liquidated under Chapter 7.

Chapter 13 bankruptcy has a waiting period of two years for a conventional home loan, but only one day after discharge for a government-backed loan.

Chapter 11 bankruptcy. Unlike Chapter 7 and 13 bankruptcies, Chapter 11 bankruptcy is mainly for reorganizing business debt. Chapter 11 allows a business to continue running while plans are being made to repay or discharge debts. Businesses that qualify for Chapter 11 bankruptcy can range from large corporations to small local businesses. Individuals with a debt load beyond the Chapter 13 limits may also file for Chapter 11 bankruptcy.

To refinance your home loan after bankruptcy, you’ll need to meet the same kind of qualifications as anyone else, including:

  • Proof of income
  • Employment history
  • List of debts
  • Sufficient credit score
  • Debt-to-income (DTI) ratio appropriate for the loan (50% for government-backed loans, and 43% for conventional loans)

It’s important to note that if you’ve had more than one bankruptcy of any kind over the last seven years, there’s a waiting period of five years to refinance your mortgage.

What are the FHA rules for mortgage refinancing after bankruptcy?

The FHA insures loans from individual lenders, meaning that the government guarantees the loan if the lender can’t recoup their money from the borrower. This guarantee from FHA loans means that borrowers who might not qualify for a typical home loan may get a second chance with lenders.

The good news is that if you’ve declared bankruptcy, you can still get an FHA loan. However, there’s a waiting period, which is partially based on your bankruptcy type. Someone who filed Chapter 7 bankruptcy is eligible to apply for an FHA loans two years after the bankruptcy is discharged. That time may be reduced to one year if you can prove that you filed bankruptcy due to circumstances beyond your control and that you’ve been responsible with your finances since then. If you filed a Chapter 13 bankruptcy, you must make payments on the payment plan for one year, provide a record that all payments have been made on time and acquire written permission from bankruptcy court to enter into a mortgage transaction.

But that’s not all. There are still other factors that affect whether you can get an FHA loan after bankruptcy. It’s crucial to demonstrate that you’ve re-established your credit and finances after bankruptcy. To qualify for a FHA loan with a down payment as low as 3.5%, you’ll generally need a credit score of 580. If your credit score is lower than that, you’ll probably have to put down at least 10%. You’ll also need to have proof of income and steady employment.

What are the private lender requirements for mortgage refinancing after bankruptcy?

Working with private lenders is another option for homeowners who have gone through bankruptcy and who want to refinance their home loan. There are some substantial benefits to taking this path: Private financial lenders don’t have the same strict lending criteria as banks. Some may even be willing to provide a loan as soon as the bankruptcy is discharged, saving homeowners potentially years of waiting to refinance.

However, while these loans generally have less stringent requirements, there are some factors to consider: It’s important for the borrower to be financially stable and with a solid income. Also, private lenders usually require a much larger down payment because they are lending to riskier borrowers. The interest rates they charge will usually be much higher and the time allowed to pay back the loan is usually much shorter.

Tips on repairing credit after bankruptcy

There’s no way around it: Declaring bankruptcy will dent your credit. And whether you opt for a government-backed or private loan, repairing your credit will only work in your favor. Here are some steps you can take to get your credit in better shape after bankruptcy:

Reduce the amount of debt you owe. If you can afford it, put more money toward your balances on the cards with the highest interest rates while still making the minimum payments due on the rest.

Pay your bills on time. This is the biggest factor in determining your credit score, so paying your bills on time or early can really help your score.

Keep your balances low. If you must carry a balance on your credit cards, you shouldn’t use more than 30% of the available credit on any card.

What does it mean to reaffirm a debt, and do you have to do this in order to refinance after bankruptcy?

Reaffirming your debt means that you and your creditor have agreed that you’ll remain liable for a specific debt and its repayments through the bankruptcy process and beyond. In turn, they agree they will not repossess the asset as long as you continue making your payments.

Generally, if you want to keep your home after filing Chapter 7 bankruptcy, you should reaffirm your mortgage with your lender. This tells the lender you are committed to paying the mortgage debt and plan to keep your home. If you didn’t reaffirm your debt, you might still be able to refinance later, as long as you still legally own the home. However, if you didn’t reaffirm the debt, you can’t refinance the loan with the same lender because of bankruptcy laws. So you’ll have to find a new lender to refinance the loan.

You should reaffirm any debts if you intend to keep and pay them because this will create a positive credit history that will help you refinance later on. A case where you wouldn’t want to reaffirm would be if you want to let go of the debt during bankruptcy, especially if you know you won’t be able to afford payments on that debt in the future.

Bottom line

Bankruptcy can throw some roadblocks in the way to refinancing a home, but it shouldn’t stop you. With a little knowledge and preparation, it’s possible to enjoy the benefits of refinancing after declaring bankruptcy. Make sure to take your time selecting your loan, and compare the benefits from various lenders carefully to be sure you are getting a deal that’s right for you. It’s crucial to start rebuilding your credit as soon as possible after the bankruptcy. Bankruptcy is a setback, but with time and diligence, your credit can be repaired and you can even get loan terms comparable to borrowers without a past bankruptcy.

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Rockwood
Kate Rockwood |

Kate Rockwood is a writer at MagnifyMoney. You can email Kate here

TAGS:

Compare Mortgage Loan Offers for Free

Home Purchase Quotes

Home Refinance Quotes

(It only takes 3 minutes!)

NMLS #1136 Terms & Conditions Apply