Exclusivefocus - National Association of Professional Allstate Agents ...

commonly provided by the selling agentor by a small community bank that iswilling to give an agent a payment basedon a 7 to 12 year loan, but who wantsall its money back in 4 years or so. Theagent is then left hoping that favorablerefinance terms are available when theloan balloons on the 48th month.In situations where an Allstate agenthas a loan that balloons, the agent bearsadditional monitoring responsibilities:1. Keep a close eye on your credit. Weall know that one or two missed paymentscan really affect your credit score. If yourcredit score drops below 650, you may notqualify for financing regardless of howlittle you owe relative to the value of youragency. Or, if a lender approves the loan, itcould be subject to unfavorable provisionsthat may include higher rates and fees.2. Save as much money as you can.I’m talking cash! Market conditions dictatethat agencies are sometimes up andsometimes down. If you find yourselfreturning to your lender with a less desirablebook, you may still be able to getquality financing terms if you have 10%or 20% cash to put down. It’s always agood idea to have “rainy day” funds available,so living conservatively for 3 or 4years will put you in the best position.This includes holding off on buying thatrental property or vacation home untilyou know you are in the clear.These economic times certainly tellus that there is no guarantee that what isavailable today will be available tomorrow.By avoiding a balloon note and borrowingmoney for a fixed-term at a fixed-rate ofinterest will ensure that your loan will bepaid off at maturity. It will also relieve youof the hassle of procuring replacement financingin very uncertain economic times.Making use of this strategy will not onlygive you peace of mind, but will allow youto turn your attention to more importantitems, such as growing your agency andretaining customers.Taking a higher rate fixed-term loanover a loan that balloons is probably theright thing to do and will save you a lotof headaches. However, if you do findyourself in a situation where a balloonloan is the only option, make sure youare prepared. If not, the debt you have onyour agency may force you to sell it muchearlier than you would like.Paul Clarke, EVP, COO and Fred deRoode, Chairman, CEOwww.ppcloan.comCAPITAL RESOURCESRESPONSE:Capital Resources is excited aboutthe opportunity to respond to one ofyour readers.First, borrowers should be prepared tohonestly discuss any negative issues, suchas retention, loss ratio, lack of new businessproduction, evaporating bonuses, etc.They should also be prepared to openlydiscuss and demonstrate why these negativeissues occurred and what measures arebeing taken to correct the problems.Second, although you are already acustomer of another lender and haveestablished ownership of your agency, anew lender will require documentationjust as they do with any new application.Here are some helpful tips on applyingfor a business loan. These helpful tipsalso appear on our Website.“Know Your Credit Score:Before you apply for a loan, you shouldknow your personal credit score. If you do notknow what your credit score is, it will likelybe to your advantage to review your creditreport before you start the loan acquisitionprocess. Your FICO credit score is availablefrom www.myfico.com for a small fee. Youcan get a credit report free, however freecredit reports do not contain a credit score.To order a free annual credit report fromeach of the three major credit bureau agencies:Equifax, Experian and TransUniongo through www.annualcreditreport.com orcall 1-877-233-8228. Take steps to cleanup any derogatory remarks listed on yourcredit report prior to applying for a loan.Most lenders use your median credit score aspart of their approval process. The medianis the middle number of the three nationalcredit reporting agencies, (Experian, TransUnion,and Equifax).Credit Report Red Flags:Excessive credit card debt and highly leveragedassets (i.e. HELOC’s, 2nd mortgagesto consolidate debt, etc.) are red flags thatwill mark you as being high credit risk. Takingsteps to pay down these types of debts anddemonstrating they will not recur before youapply for a loan can dramatically increaseyour probability of being approved for a commercialloan.Tax Returns and Accounting:File both your personal and (if applicable)business tax returns on time and donot file extensions. Furthermore, be sure thebusiness that you are acquiring is currentand has filed their most recent tax returns.This not only demonstrates responsible businesspractices and good organizational skillsto your lender, but it also will supply yourlender with the most current information,which could increase your chances of a loandecision in your favor. It should be notedthat sloppy or deceptive tax practices can bea major hurdle in qualifying for a commercialloan. For example, businesses sometimesmaximize expenses in order to lower taxliabilities. This can work against you sincemost lenders like to see that the businessesthey are lending to are profitable.Know your Agency:A lender will expect you to proveyour commitment to the business and demonstratethat you'll have the ability to paythem back. Have an intimate knowledge ofall aspects your agency. You should know theagency's history, market area, expenses, revenuetrends and revenue makeup. Additionally,be proactive in cutting agency expensesto make up for revenue shortfalls, and beprepared to project what your agency's expenseswill be going forward. A lender willexpect to see that you have a thorough anddetailed knowledge of the agency cash flowsand how that will effect your compensationas an owner. If you don’t have a detailedbusiness plan, start working on one.Documentation and Presentation:Obtaining a commercial loan requires agreat deal of legwork and preparation. Theorganization and timely preparation of allthe requested and required documents willbe a reflection of how you will run yourbusiness, so pay close attention to the presentationon all documents. Fill in all blanks,write neatly and legibly, make sure copiesare dark enough to read and supply all requesteditems at the same time if possible.”Tom Sanders, Vice Presidentwww.capitalresources.comSpring 2009 Exclusivefocus — 23