Making and Servicing Loans

It goes against my grain to stand on a soapbox and ask everyone to look at me.  I have to remember that what I have to offer is really quite good.  The people that need my software are going to be very happy they found it.  It’s worth being a little pushy for us both to benefit.  Many of the people that call with questions before deciding to buy my system say the had searched the internet at great length before they finally found me.  Anything I can do to make that search quicker is just a smart move. I was buying something at a local music store and casually asked if they do in-house financing , in hopes that I might be able to buy some loans at a discount.   The person I was talking to said they did zero-interest-for-a-full-year on any purchase, which didn’t sound too appealing.   I groaned that I really want to make some loans, and the person that had helped me with my purchase asked if I would consider making a loan to an individual .   I said “of course!” and they mentione

I’ve read a lot of business books.   Books on management, leadership, advertising, marketing, internal processes, hiring, motivational and inspirational books.   I link to think I’m somewhat well read on the subject.   If all these authors were my patient teachers, I don’t doubt I would hear a great collective sigh of relief that I am finally beginning to understand. Moneylender is the primary product that my company produces.   It’s not surprising that the vast majority of my time is spent on Moneylender-related activities.   For fifteen years, I worked almost every day to build the best solution to the problem of managing loans that I could conceive.   I’m pretty happy with the result, now manifest in Moneylender 3. That’s great, really it is.   Having a product that holds my complete confidence is a very important part of being a successful business.   But I missed the point.   Sometimes narrowly, sometimes entirely, but I definitely didn’t quite get the reality of the s

It might seem daunting to try to make sense of your loans when it’s time to do quarterly assessments or annual tax returns.   Business finances from loans are actually not too hard to manage, as long as you keep in mind two or three key ideas. Interest, Fees and Points – This Is Your Profit All the interest you receive, the fees you collect, and the points you were paid when the loan began – thee things are your profit.   They’re income, and taxable in most situations.   You don’t need to separate these numbers.   Their total is how much revenue you brought in from lending.   In some places, you can’t report the points or origination fees as profit all at once, you have to report them over the scheduled life of the loan.   In most other places, you report the fees and points as profit as soon as they’re received. Charge Offs – These Are Your Losses If you have given up on collecting a loan and have to take a loss, you write-off the unpaid principal balance.   You’re

The last four months have seen a steep downturn in sales of Moneylender.  I asked my bank how business has been lately, and they noticed their branches were oddly silent in August.  Many of my fellow business owners described an eerie quiet lately.  This is by no means conclusive proof of an economic slowdown, but I did review some government metrics that are showing those signs. In the mid 00’s, defaulting mortgages put a quick end to the easy-to-get mortgages for underqualified borrowers from previous years.   Slowing home sales eventually pulled down the global economy.   Moneylender sales seemed a bellwether, as sales slumped dramatically from 2006 to 2009.   While the lending market languished, so did Moneylender. While many industries stuttered and shrunk, I saw other industries flourish in a way that sparked my imagination.   As foreclosures soared, drive-by appraisers went into action.   The rental market took up some of the slack in housing demand.   Services that

I often talk with customers that are dealing with the headaches of trying to account for thousands of loans, often with a team of people each having different responsibilities, and quite a bit of confusion can arise when trying to implement and operate a new system to do the complex accounting demanded by loans.  I’ve summed up some of the pitfalls I’ve seen people fall into time and again, along with the path you should walk to avoid endless confusion and accounting headaches. Problem: Not relying on the accuracy and accountability of Moneylender’s systems. You start using Moneylender, but you don’t trust that Moneylender is doing what you want.   Perhaps you were managing your loans in Excel and input every number by hand.  Losing that familiarity with every single penny feels wrong, like your loans are out of control.   Perhaps you have a strong accounting background, and you want to apply the principals of standard business bookkeeping to the loans as an aggregate

Lots of commercial lenders have a style they like to use when setting up their loans.  For lenders that might be considering a deal, and want to tailor the financing to match the situation, here are some examples of how commercial loans are often structured to match the situation. Interest rates Increasing Rates – Example: every year the interest goes up one percent - interest is at 5% the first year, 6% the second year, and 7% the third year.   Sometimes the interest might jump from 8% to 13% after a year, and then 14% after another year, etc. Why might you do this?   If the deal is expected to take a set period of time, financing costs are lower if the deal happens on schedule.   Interest rate hikes can add pressure conclude a deal expeditiously if the cost of delay will be higher.   If you want to be out of a deal by a certain date, it can add incentive for a borrower to seek alternative funding once they’ve completed their initial startup and will have access to b

How a borrower perceives you is the key to where you rank in their priorities.  With a little practice, you can perfect a persona so your borrowers will keep payments to you at the very top of their priorities. Many of the articles on this blog talk about the math or the rules of lending.   This time, I want to get a little deeper into purposefully posturing yourself in your relationship with your borrowers.   I’m going to lean on the ideas I read in the early 2000s from the book Winning Through Intimidation .   It’s an amazing book about how the author, Robert Ringer, was tricked repeatedly by big money investors and real estate developers as he refined his ability to make himself central to the deals he was brokering.   His story takes us along as he transitioned from repeated, painful commissiondectomies to impressing his clients with aerial tours in his private Learjet. He discovered that surviving in the cutthroat business of high-dollar commercial real estate required

How to loan some money without losing a friend. First, are you sure it’s not a gift? If your friend doesn’t have the income to support their regular bills plus the payments on your loan, you might end up unwittingly giving them your money.   If your friend might have an interruption to their income, your loan is probably the last thing on their priority list. Is this person a friend you want to hang out with from time to time? Once you’ve loaned out your money, the debt is going to hang over your relationship until it is repaid.   If there are problems during repayment, or you have to take steps to ensure collection on your loan, your friendship will probably never be the same again. Are you headed down a slippery slope? Once you fund your friend with cash, are they going to come back and ask for more.   You might become their new favorite bank if they can make withdrawals from you.   Are they going to tell your other friends?   Will they spur the great exodu