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Is Now a Good Time to Start a Small Business?

March 18, 2009

Have you ever had a dream of owning your own business and not having to work for a boss anymore? That is the dream of many employees who wish to have more control over their lives and their finances. With the unprecedented current level of employee layoffs, more people than ever are considering following that dream rather than trying to apply for a new job. Is now really the best time to do that?

Perhaps it’s time for a reality check. Starting a business is often considered to be one method of building wealth. The fact is, however, that 80% of small businesses fail in the first five years, and almost 80% of the ones that survive fail within ten years. Those that make it through the first decade have a solid financial and entrepreneurial foundation that is strong enough to see the business through the tough times. But what if you’re trying to start a business during tough times? It is possible and there is help available.

The federal government has recently unveiled a plan to get small businesses started and growing. They have allocated $730 million to increasing their funding to the Small Business Administration’s program to guarantee bank loans to small businesses. This should encourage banks to loan to small businesses and increase overall available financing.

Even though the money is there to borrow, starting a profitable business takes planning and patience. In the current economic downturn, consumer spending is down, especially on discretionary items. So, for example, now may not be the best time to start a taffy-making enterprise. There are some industries that are practically recession-proof however and these are great areas to build a business around. Basic services such as tax preparation, home repair, and hair cutting are some examples of things that people need to have done regardless of the economy. Basic goods are also always needed: groceries, baby care, and children’s clothing. Building a business around these foundations will give you a leg up in long term success.

Starting a small business in today’s economy is within the reach of many entrepreneurs who are willing to work and plan hard. The long term potential payoff is worth the effort.

Popularity: 65% [?]

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Tags: business opportunity, entrepreneur, making money, small business
Posted in Career, Financial Goals, Investing Basics, Investing Strategies, Loans, Misc, Retirement Planning, Wealth Building | No Comments »

Banking on American Banks: Why US Financial Institutions Will Survive the Crisis

March 16, 2009

So far this year, the news has been pretty frightening. Banks have been taking huge bottom line hits on their assets. Some banks have teetered on the edge of financial collapse before receiving a $700 million life line from the federal government. Specters of the Great Depression dominated financial markets and, for the first time in two generations, people started wondering if their money was safe in some of the largest banks in the country.

To understand the banking crisis and why US banks will survive it, you have to understand the sub-prime mortgage fiasco. Most of us know that sub-prime mortgages were home loans made to those who couldn’t qualify for conventional bank mortgage financing, making them high risk. Most of these loans contained a low-interest teaser rate to attract new borrowers, but, buried deep in the fine print of the contract, lurked a much higher rate after the first few months. As the rates went up, so did defaults and the mortgage assets weren’t worth as much to banks. What made the situation worse is that banks and other financial institutions bundled these loans up into packages called mortgage-backed securities and sold them to various investors. Many of these investors were not aware of the risk of the underlying loans. Those securities that sat on banks’ balance sheets rotted away until no one was sure what their true value was, if any. As their assets deteriorated, banks ran into a liquidity crises where their current assets were in danger of not being sufficient to meet their current liabilities. That’s when the federal government stepped in with their bailout.

There is good news on the horizon. The sub-prime mortgage is dead. No more of these inscrutable and volatile assets are being created. Bailout provisions are still being discussed but, at this point, it appears that that the government will set up a single bank to buy all of these assets from other banks to get them off of bank balance sheets. Once banks divest themselves of the sub-prime assets, their financial health will improve. People will always need to deposit or borrow money. Banks will always provide that service.

Historically, US banks have been among the strongest and most stable in the world. Once this financial crisis has ended, they will be again.

Popularity: 75% [?]

Technorati Tags: bank bad loans, bank loans, bank rates, banking, banking crisis, cd, mortgage financing, savings account, Stock Market Investing, sub prime, sub prime mortgage

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Tags: bank bad loans, bank loans, bank rates, banking, banking crisis, cd, mortgage financing, savings account, Stock Market Investing, sub prime, sub prime mortgage
Posted in Financial Education, Investing Basics, Loans, Misc, Saving Money, Stock Market Investing, Wealth Building | 1 Comment »

What to Do if Your Stock Portfolio is Down 40%

March 13, 2009

These days, there may be nothing in the world more frightening than taking a peek at your investment or retirement portfolios, especially if they contain equities. Stock markets around the globe have been hit hard by the global recession and the value of both individual and corporate investments have been butchered across the board.

“Be fearful when others are greedy, Be greedy when others are fearful” ‘Warren Buffett’

So what can you do if your investment stock portfolio is down 40%? Here are some common sense tips:

1) Don’t panic. In difficult stock markets, many investors fear that when their stocks are going down, they will continue to go down so they jump off the train and sell their stocks to avoid further losses. Once you have sold your stocks, you have locked in that loss. Until then, there is the probability that the markets will recover and that you will be able to sell your stocks at a gain. Take time to sort out and plan your market strategy based on your investment goals.

2) Look at your time horizon. If you have five or more years before you will need the money from your investment or retirement portfolios, then it’s best to simply ride out the storm. Equity investments are meant for the long term and should be able to survive ups and downs. That doesn’t mean you should ignore your portfolio however. It is still important to assess the long term viability of each stock and cull out the ones who are not likely to regain value on the other side of the recession.

3) Look for the deals. The old adage of “buy low, sell high” is never more relevant than in today’s stock markets. While you are not likely to be able to “sell high” at the moment, you can certainly “buy low”. The best bets in the market today are those companies with solid financials that are simply being punished by the overall downturn. These companies will be strong throughout the recession and increase significantly in better times. Keep an eye out for any news on the company that could have a negative impact on share price in the near future.

Losing substantial value in your stock portfolio can make even the most seasoned of investors blanche. Taking your time and assessing your portfolio rationally will keep you from making a bad situation even worse. Your portfolio will be stronger when the market eventually recovers.

Popularity: 75% [?]

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Tags: equities, Investing Strategies, stock investments, Stock Market Investing, stock portfolio
Posted in Financial Goals, Investing Strategies, Stock Market Investing, Wealth Building | 1 Comment »

Valuing Your Home: Lost Home Equity Can Bite You

March 11, 2009

It’s hard to go a single day without hearing or seeing a headline shouting about the mortgage crisis. High foreclosure rates and tighter lending practices are causing the inventory of houses for sale to increase and the number of sold houses to decrease. This has created a drop in average housing prices as the supply outstrips the demand.

What does that mean to you though if you have no intention of selling your house tomorrow? It can mean plenty and can even land you into financial hot water. When the average sales price declines in a neighborhood, the decreased value is also attributed to the occupied houses in the area. If, for example, housing prices come down 20% this year in your community, it means that your house is worth 20% less.

The main party that will care about that is your mortgage company. They have loaned you the money to purchase the house of the basis of its value at the time of the loan. Now that the value has decreased, the loan-to-value ratio has gone up which means the mortgage company is taking on more risk than they had initially intended. The value of your home may now be even less than the balance of your mortgage. This is called “being upside down” on your mortgage. If the mortgage company had to take your house back and sell it, they would be out of pocket for the shortfall.

Many mortgages have provisions for calling the mortgage in an upside down position or forcing the borrower to pay the difference immediately. This can leave you scrambling to make alternative borrowing arrangements.

Understanding your particular situation is the first step towards protecting yourself from the equity erosion in your house. Pull out your mortgage documents and read them. Look for any provisions relating to changing values on your house. Then compare the current value of your home to your mortgage balance. A valuation can be the informal opinion of a real estate agent or a more formal assessment by a property appraiser. If you are at risk of going upside down on your mortgage, look for ways to pay down the balance. Keeping the lines of communication open between you and your banker will also help.

Losing equity in your home can be disheartening but keep in mind that, in all likelihood, the real estate market will eventually rebound and will reinstate that equity. Common sense and an understanding of your borrowing situation will help get you through the current rough patch.

Popularity: 68% [?]

Technorati Tags: heloc, home equity, home values, line of credit, real estate investing, refi your hoe, refinancing

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Tags: heloc, home equity, home values, line of credit, real estate investing, refi your hoe, refinancing
Posted in 401k, Financial Education, Investing in Real Estate | 1 Comment »