Everything, even how we borrow money, is changing as a result of this new reality. We asked a panel of recognized financial experts to weigh in on the advantages and disadvantages of various lending options for American homes and businesses.

Taking out a loan, whether for commercial or personal purposes, is almost always about expanding one’s horizons. You want to fund that once-in-a-decade refurbishment, or you want to expand your family-owned business.

Loans can be lifesavers for American families that have lost one or both of their income streams.

 

 

Should you apply for a loan at your bank or hunt for one online? If you are unable to secure government financing for your business, what other options do you have? Is it a smart idea to take a business loan to pay off your personal debt?

We spoke with leading personal finance and lending professionals to seek answers to these and other questions:

• Chris Muller – is the writer of the monetary weblog Money Mozart.
• Roger Wohlner – a seasoned financial advisor and the blogger behind the Chicago Financial Planner site.
• Sally Herigstad – is a certified public accountant who wrote the book “Help! I Can’t Pay My Bills”
• Lance Cothern – is a certified public accountant and the founder of the Money Manifesto blog.

Despite the fact that banks are unwilling to lend, there are other solutions available.

With so many families in financial distress, it’s no surprise that lenders (both banks and non-banks) are hesitant to make loans.

If you have enough equity in your house, you could consider a home equity loan or a home equity line of credit, Cothern suggests. That, too, is becoming increasingly difficult to obtain. Banks are limiting the number of home equity loans and lines of credit they provide according to Cothern.

Another possibility, which one would avoid at all costs, is credit cards. You can sometimes get a 0% introductory offer on purchases for 12 or 18 months, but be aware that once that period expires, or if the payment is not on time or break the terms, you’ll be hit with the higher standard APR on whatever you haven’t paid off, which can be 18% or more, he adds.

If neither of those options is available, Cothern recommends a more traditional approach. This is one of those rare instances where he would actually suggest considering if you have family or friends who can help, and you can also establish very strict restrictions for borrowing money from them.

Payday loans should be rejected at all costs.

There are two opposing forces at work when it comes to borrowing expenses. On the one hand, we have historically low-interest rates. The dangers to lenders, on the other hand, have increased.

● Loans are now more inexpensive. Muller believes that pricing is more advantageous. And if you can qualify for a loan that you can realistically afford to pay back, he believes it’s an alternative.

● One thing you should avoid is payday loans, according to him. It’s one of the issues that he even had personally, with this entire forcing people into pay-day loans—which he absolutely does not recommend. The regulators used to look at things like income, rent, school debts, and their ability to pay them back. Those limitations have been lifted. His concern is that, with both events occurring at the same time, people will be pushed into higher-risk loan categories. Make sure you understand all of the terms and circumstances of the loan you’re taking out and that you can afford to repay it.

If you miss the PPP train, what should you do?

● Firms in financial distress or looking to expand had a good borrowing choice until recently: the Payment Protection Program (PPP), which was overseen and financed by the US government. Small-Business Administration (SBA). According to a report provided by the Small Business Administration in early August, more than five million businesses won approval and received $525 billion in funding.

● The application’s last deadline was August 8, and millions of businesses are now unable to participate in the program (either because they missed the deadline, or because they were disqualified).

● Wohlner says there’s the EIDL disaster loan, which is Covid-related. The terms vary, but the total amount can be up to $100,000. Bridge loans are also available from the SBA.

● After that, there’s a chance to get credit for employee retention. He’s not sure what the terms are, but they’re mutually exclusive: you can’t do both. You may be entitled to a tax credit if you didn’t take out the PPP loan or missed it and meet the standards for keeping these employees on staff.

Should you take out a personal loan to cover your expenses?

● With lenders growing less willing to issue personal loans, numerous business owners found a workaround: leveraging a business loan to support personal expenses. While this strategy appears to be effective, it isn’t without dangers. Muller said that he admires the principle of using a commercial enterprise mortgage for commercial enterprise aims, but he believes when you start flowing beyond the mortgage’s boundaries, this is whilst it is becoming a concern.

● First and foremost, check the loan’s terms and conditions to determine if that’s possible. Muller believes that some of those who are doing so today may be able to experiment with it in the short run.” He continues that he personally would not encourage taking that risk.

● If you begin blending your private and your commercial enterprise money, there may be something called “breaching the company veil.” As soon as that happens, your commercial enterprise money owed can come after your private assets, and when you do that, everything’s up for grabs, Cothern explained. They have the power to seize your home and bank account, so keep your business and personal [lives] separate so they don’t have access to your personal assets. That is if your company is set up properly in the first place.