Borrowers go to their local banks and get Home Equity Lines of Credit so that they will have cash available when they need it, but then banks freeze those lines due to falling values or bank liquidity issues and if you are a senior borrower on a fixed income, you may not qualify for a new loan. The comfortable income many seniors thought they had planned is often eroded by rising costs and incomes which dont keep pace with those costs. Are there any guarantees anymore?
For those senior borrowers who have chosen to obtain a government-insured Home Equity Conversion Mortgage (HECM or Heck-um), there are some guarantees in which they can find comfort. The HECM is also known as a reverse mortgage because it operates in reverse of a normal mortgage. Instead of a falling debt, rising equity loan which is what you get when you borrow money, make monthly payments and then pay back the principal, the reverse mortgage allows you to receive money from your property without making any monthly payments so your principal balance increases.
On the HECM loan, you also pay mortgage insurance to the Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD). The insurance that the borrower paid on this loan to the government insures that the borrower will always receive the funds owed to them under the terms of their reverse mortgage, on time, no matter what happens to their lender. This is particularly important to borrowers who choose the Line of Credit option or the Monthly Payment Options (the Term or Tenure) to receive their reverse mortgage funds.
Borrowers can take a lump sum when they close their reverse mortgage, can take a line of credit to be drawn when they desire or need, can take monthly payments (for a specified period or for the rest of their life) or a combination of any of the three options above the complete HUD requirements HUD Website. The government insurance guarantees that as long as the borrowers follow the terms of their reverse mortgage documents (live in the property as their primary residence, maintain the home in a reasonable manner and pay the taxes and insurance are the main provisions), the borrowers are guaranteed by the government to always have access to their funds.
Some of the other guarantees that are given to senior borrowers by the government-insured HECM are that if you are aged 62 and over you cannot be turned down for credit other than delinquencies on federal debt or other debts which adversely affect the title of your property. You are guaranteed that you will not be turned down for insufficient income issues. You are guaranteed that no matter how much you receive over the years or what happens to property values, you or your heirs will never owe more than your property is worth. You are guaranteed that YOU own your property, not the bank, and retain all rights of ownership including deciding what will happen to your home upon your demise.
Vendor lines of credit serve two important roles for businesses seeking capital. They first give a business access to products and services based on "net terms" ranging from 15 to 60 days. Secondly, vendor lines of credit can help businesses build their credit scores. In order to build a solid foundation for business credit, businesses must have one bank loan, three business credit cards, and five vendor lines of credit established to build proper business credit.
Another benefit of vendor lines of credit is that they are a lot easier to obtain, than a conventional business loan. Most vendor lines of credit are not secured because collateral is not required to obtain the line of credit. Credit lines are available for all products and services imaginable including office equipment, computers, and even gas for company vehicles. There are more than 500,000 businesses that offer credit lines to other businesses. Out of these though, only 6,000 report your payment history. This means that approximately 1.2% of all of the vendor lines of credit available actually help you build your business credit scores. It goes one step further, and out of the 6,000 that report to the credit agencies roughly 1,000 will allow you to obtain the vendor credit line without using your personal credit history.
You are probably wondering what is so special about business credit scores, and why is it so important to build them up. Many business owners and other entrepreneurs don't realize that business credit works exactly like personal credit. Without personal credit you can't purchase a car or house. You have to have a history of paying on your open accounts in a timely manner. The same principal needs to be applied to your business that you would apply to your personal credit. You also want to separate your personal credit from your business credit. This is essential for anyone that wants to properly establish and grow business credit.
If you have vendor lines of credit open with the other 98.8% of businesses out there you will only gain the credit given to you. This does you no good for the future because you aren't building your credit score while you are using that vendor credit line. The most efficient way to build your business credit history is to have credit accounts open with companies that will report your payment history. This will help you get closer to your goal of being able to borrow the money you need to really grow your business. You have to remember to build your credit first, and then attempt to get the large business loan you desire.
Another benefit of always ensuring that you build your business credit is that after your initial launch you will have the credit backing you to obtain more money for rapid expansion. You can grow your business quicker than your competition with the access to the cash you need. This creates an ease of mind for the business owner and the business itself.
Just knowing the importance of building your business credit using such things as vendor lines of credit won't be enough on it's own to get you the capital you want. There are many other aspects to obtaining financing. If you follow all of the steps you will be in a position to get the capital you need and deserve.
Both Ben Needles & Corey Pierce are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Ben Needles has sinced written about articles on various topics from Business Credit Cards, Anger Control and Business Credit Cards. About the Author (text)Michael G. Branson is a Mortgage Broker Licensed in several states who has over 31 years of mortgage banking experience.. Ben Needles's top article generates over 550000 views. to your Favourites.
Corey Pierce has sinced written about articles on various topics from Finances, Internet Marketing and Business Credit Cards. Corey Pierce is the CEO of BusinessFinance.com a business capital search engine with the funding criteria of 4,000+ sources for business capital. Visit