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Seller Financing and the Current Credit Crunch

The banks are hurting so much so, that they have decided to share the pain with the consumer. Even if you have been an exemplary customer, the banks will still pass their pain onto you. The pain of our current economic distress is being felt by all of us in different ways. From an all time high unemployment rate to cutbacks in salary or wages.

People are feeling the money crunch just like, if not more, than the banks. As if all this uncertainty wasn’t bad enough, the banks have decided to make everyone, even customers that pay their credit cards on time or consistently pay on time in full. No matter your account status the banks are lowering the limit on credit cards. So this obviously changes you debt to credit ratio. Making your debts appear as if they have suddenly become higher.

The ripple effect is your credit score becomes lower, in some cases plummets by more than fifty points. This sudden down turn then alerts the banks that you are having a financial problem. In essence the banks are creating your newly negative score.

If you apply for a loan or credit card more than likely you will be turned down or given a very high interest rate. Through no fault of your own the bank has lowered your credit limit making you have a lower credit score.

In some parts of the U.S. this stacking of the deck against you, to favor oneself, and make you think it is okay, would be considered a scam, a confidence game. But all things aside, the consumer will need to overcome the new obstacles and challenges the banks are setting us for.

What will happen if you suddenly stop using your credit card, your credit rating will not improve too much. The reason the score will not improve, the banks will still lower your limit, at least until you call them. Even then this still may not help your situation. This only benefits the banks, being at the mercy of the financial institutions that need a government bail out.

If you currently have a high interest rate you may not be able to get a loan to refinance or purchase a home. This is where a seller, who cannot seem to find a qualified buyer by the banks current standards, can help themselves and a buyer. Seller financing for twelve months or longer can make a property more attractive to all buyers, and relieve the stress of all parties.

Seller financing is a great option for all parties, you may have a buyer that can make the payment but may not qualify for conventional bank funding. The new bank rules are strict, and people who would have qualified for a loan not too long ago may not qualify now due to having a lower credit score because of the new banking practice of lowering the credit limit.

A seller may not have a lot of risks when it comes to financing their property. Some of the ways a seller could offer financing would be a lease with the option to purchase, carrying a second if a person cannot qualify for the total asking price, or holding the entire first loan. Each technique has its benefits and perceived pitfalls; But the benefits out weigh the alternative.

Corporate Finance and The Quality of Money

Economics as a broad discipline is sometimes treated as a hard and quantitative physical science and sometimes as a human and social qualitative science.

The ongoing debate revolves around whether economics follows certain mathematical laws which can be discovered, or whether it revolves more around generalities and tendencies which can be explored but never proved for certain.

Corporate finance, as a subset of economics, tends to be framed very much as a hard, mathematical science.

Whereas accountancy is a mathematical record of what has already occurred in relation to the trade and ownership of a company, corporate finance is the process of matching necessary funding to trade and the allocation of ownership through investment.

Stock and credit need to be funded, through various combinations of equity, debt and trade funding instruments. Companies’ ownership can change over time through the allocation of equity and investment aimed purely at ownership acquisition, or specifically for the funding of certain activities.

However, fresh thought is required about what value can be brought beyond the immediate cash value. This is particularly true in relation with regard to investments into growth companies, especially earlier stage ones. The new research theory of The Quality of Money is bringing attention to bear on how investment is considerably more than the exact monetary value alone.

The concept of The Quality of Money includes evaluative capacity, co-creation of a working relationship and a realistic plan, ongoing management support, ongoing sector leverage and additional networks, and the ability to construct an appropriate follow-on funding plan.

Some of the existing problem lies in the traditionally adversarial relationship between investor and investee. This has been exacerbated by the spate of TV business investment competitions and their host of regional and local imitators.

Good investment agreements are not built around brief and aggressive encounters, where the entrepreneur tends to rely on hyperbole and the potential investor often strays into overt bullying.

Another key ground on which investment discussions could frequently be much more productively established is that of a realistic plan going forwards. Entrepreneurs often feel a need to talk up potential – often to quite infeasible levels – and investors will quite often understate their perceived potential in order to contain owners’ valuation expectations.

Neither of these tactics will enhance the ultimate objective on which investor and investee interests are in fact completely aligned: the creation of fresh value in a business.

Far too few institutional investors have created rich evaluative methodologies. All too often a former banker will have a moderately good general understanding of general marketplaces. Really effective funders have built around themselves not only exceptional personal knowledge but also extensive networks of experts. These are quite frequently a combination of specialist academics who can comment on IP potential and two types of businesspeople: sector experts who can comment on the precise proposition and senior and successful entrepreneurs who assess and support management, marketing and motivation.

This leads on the final element in this overview of The Quality of Money – the ability to plan for funding success. If an investor does not have particularly deep pockets itself, this is particularly important.

If a business does achieve encouraging growth with its first serious injection of capital, the last thing it needs to be faced with when this tranche begins to run low is the distraction of seeking to find a whole new set of investment relationships and to begin again from scratch the huge task of promoting itself and securing investment.

Whilst it is very tempting for young businesses to take whatever investment they can find, it is wiser again to attempt to secure also the best Quality of Money. Also, for investors, it is imperative that they consider if they are risking selling their investment short through excessive aggression, lack of commitment to networks and support, and an inattention to possible future scenarios.