Month: September 2014

Lawmaker targets gender gap on small business loans

Women still have a hard time getting small business loans. Sen. Maria Cantwell says she has a plan to close the gap.

Cantwell, chairwoman of the Senate Committee on Small Business Entrepreneurship, introduced legislation in July that would make it easier for women-owned companies to get loans and government contracts. The Washington state Democrat says lending to small businesses as key to job creation because loans give companies the means to expand.

Although women own nearly a third of businesses in the US, their companies receive only 4.4 percent of loan dollars, according to a report by the committee. A similar report is upcoming about minority businesses.

“We see (lending) issues with minorities the same way we’ve seen them with women. We want to make sure they’re getting access to the right help and support,” Cantwell said.

Cantwell spoke with the Associated Press about small business. Here are excerpts, edited for brevity and clarity:

Why did you introduce the Women’s Small Business Ownership Act?

We wanted to get a piece of legislation that built on what the committee’s previous chair (Mary Landrieu, D-La.) had started. We wanted people to understand that the (gender) gap really existed, and that one of the answers was to tailor lending products for women owners.

When I look at my responsibility to my constituents, I’m always focused on the economy, and how to grow jobs. I feel like we’re not quite out of the economic downturn and we’re also in this age where there’s a lot of job disruption. You have to think about, how are you going to get more women in part of the economic equation? One big way is making sure you’re putting capital in the marketplace tailored toward the types of products they would take the most advantage of.

What are the chances of getting the Women’s Small Business Ownership Act passed before this Congress ends its term in January?

I’m going to try to get it done before the end of the year. But you can see we’re in a stalemate effort on things as big as fighting forest fires and transportation bills, things that are expiring at this very minute, and we still can’t get decisions. But I’m hoping that will dissipate as the year goes on and people will see this as essential investment in part of our economy. People understand that women are part of our economy.

What do you see as the problem behind the gender gap in lending?

Men (at banks) may perceive women-owned companies differently because they may not understand their products. We obviously want to look at that. The No. 1 thing I heard at the hearing is you need to have financial products tailored to the interests of women. It’s very clear that they’re interested in microfinancing and intermediate financing, (loans ranging up to $200,000). When you think about the structure of the Small Business Administration programs or conventional financing, they’re as not targeted toward the kind of products women think about.

Math plays a major role in financial literacy

Julie Heath, PhD is the Director of the Economics Center and Alpaugh Family Chair in Economics at the University of Cincinnati’s Carl H. Lindner College of Business.

Last month, the long-awaited results from the Programme for International Student Assessment were released. Why the anticipation? This was the first time that financial literacy questions were included in this test that measures how much 15-year-olds in 18 different countries know in areas of study including math and reading.

More than 29,000 students participated. I was privileged to be one of those invited to attend the official release of the results at a conference in Washington, DC, an event that was every bit as geeky as it sounds. It was wonderful.

It was wonderful because the inclusion of financial literacy gives us a snapshot of several things. First, it benchmarks the performance of students in the US against those in 17 other countries. It also allows us to see what other countries are doing in the area of financial literacy to infer what might work here. Finally, the results let us correlate performance on financial literacy questions with performance in other academic subjects, socioeconomic background and direct financial experience.

How did US students perform? The average score across countries was 500; the average for the US was 492. China scored highest (603), followed by Belgium, Estonia, Australia and New Zealand. What is more illuminating than the mean scores, however, is the distribution between countries. The lowest performing students in China still posted scores that were higher than the average in other countries. In addition, the average score among Chinese students was higher than the top 5-10 percent of students in the US

The outstanding results of Chinese students were all the more telling because the Chinese have less access to financial products than American students. And yet, the Chinese outperformed the rest of the world in the application of concepts. This, along with the high correlation of math scores with those in financial literacy, suggests that math education is the driver behind the Chinese performance.

In fact, the best predictor of performance on financial literacy is students’ access to and performance on conceptual-based math courses. We have known for quite some time that US students’ math scores lag those of many other countries. Now we know that this math deficiency also plays a part in US students’ ability to apply concepts within a financial literacy context.

The impact of socioeconomic background on financial literacy scores varies by country. In the US, students’ performance in financial literacy was heavily dependent upon socioeconomic background – the same is true for math and reading for US students. Other countries have outperformed the US in providing broad access to financial education regardless of income. For example, Australia and New Zealand have, as part of a national education policy, infused financial literacy across their curricula, making explicit cross-disciplinary connections to math, social studies and English.

One of the best results of the release of this data is that we can gain insights into how to address our country’s financial illiteracy. Math matters. Knowing how to write a check does not. Integrating financial education across disciplines – early and often – matters. Throwing additional content at students does not. Teaching our children how to use what they know matters.

A lot of research will be conducted as a result of this release. For us geeks, this is a chance to dig deep into never-before available data. For our nation, it’s a chance to understand how to better prepare our children to take their place as our leaders, to ensure our collective well-being.

To see questions on which these results were based, go to ?

RBS fined £14.5m for mortgage advice failings

The Financial Conduct Authority has fined the Royal Bank of Scotland and NatWest £14.5 million for advice failings around mortgage sales.

Two separate reviews by the regulator found that in more than half of the cases sampled, the suitability of the advice was not clear from the file or recording. The advice failings in the sales process included adequate affordability assessments, not properly advising customers on consolidating debt and not providing adequate guidance to customers on which mortgage term was best for them.

Only two of the 164 sales reviewed overall were considered to fully meet requirements. In the banks own mystery shopping tests, in three instances advisers were found to have given views on the future movements of interest rates.

The regulator said that the banks failed to rectify the problem after earlier findings by its predecessor, the Financial Services Authority.

Tracey McDermott (pictured), director of enforcement and financial crime at the FCA, said: Taking out a mortgage is one of the most important financial decisions we can make. Poor advice could cost someone their home so it’s vital that the advice process is fit for purpose. Both firms failed to ensure that their customers were getting the best advice for them.

We made our concerns clear to the firms in November 2011 but it was almost a year later before the firms started to take proper steps to put things right.  Where we raise concerns with firms we expect them to take effective action to resolve them without delay. This simply failed to happen in this case.

The FCA added that there is so evidence of significant consumer detriment and noted that the banks agreed to settle early and receive a 30% discount on what would have been a £20.7 million fine.

Christian Services takes over financial program

A financial literacy program designed to help low-income Pine Belt residents manage their money is once again being administered by Christian Services Inc. after the United Way of Southeast Mississippi discontinued the program.

Christian Services is offering the Friends for Financial Freedom “Money Work-Out” course for four, two-hour sessions a month.

“We are doing classes, and we are paying for funding going forward,” Christian Services co-founder Cookie Prout said. “Anyone can come to the classes, but our targeted audience is people who have not been educated in money management and who are struggling on a limited income and in the past have relied on agency assistance to make ends meet.”

The classes teach participants such things as how to establish short- and long-term financial goals, track expenses using a variety of methods, distinguish needs from wants, build or repair credit, create a personal budget and save for emergency expenses.

According to Tracie Fowler, the United Way’s executive director, Friends for Financial Freedom was created in 2009 to build financial stability for families. It was originally funded by United Way and administered by Christian Services.

In 2010, the United Way board of directors voted to take over administration from Christian Services and the program’s manager became an employee of United Way. Also in 2010, United Way was awarded a five-year grant that has been used ever since to match savings for families and individuals to acquire assets for first-time home purchases, post-secondary tuition or small business development.

In March, the United Way board of directors decided to discontinue the financial literacy classes.

“The board of directors made the decision to return to our mission of funding our core agencies,” Fowler said in an email.

Fowler said the matching grant program will continue until the current clients meet their match or until the five-year grant expires in September 2015.

“We are not taking any new clients under that program,” she said.

Prout said the next round of “Money Work-Out” classes starts Oct. 7.

Friends for Financial Freedom

October Classes

o Time: 5:30-7:30 pm

o Dates: Oct. 7, 9, 14, 16

o Place: Christian Services Inc., 301 E. Second St., Hattiesburg

o Phone: 582-5683

o Topics: Short-, long-term financial goals, tracking expenses using a variety of methods, distinguishing needs from wants, building or repairing credit, creating a personal budget, saving for emergency expenses

Is The Boom In Small Business Finance Real?

There has definitely been a boom in the small business finance space. Last week, I was approached by a company that enables small businesses to turn unpaid invoices into immediate cash. After doing a little research, I discovered that they had just received $17 million in venture capital funding. They are not the only company which is raising money to serve the borrowing / financing needs of the small business community. Here is a list of some companies that have recently raised significant amounts of money to tackle small business financing.

  • Fundation – Raised $2.7 million March 2013
  • Dealstruck – Raised $1.2 million January 2014
  • Bluevine – Raised $4 million March 2014
  • FundBox – Raised $17.5 million April 2014
  • Funding Circle – Raised $66 million July 2014
  • OnDeck – Raised $77 million March 2014
  • Fundera – Raised $3.4 million January 2014
  • Kabbage – Raised $50 million May 2014

What do these companies have in common besides recently raising money, and a lack of originality in choosing names?

  • They are as much technology companies as they are finance companies.
  • They are serving a market, small businesses, which has been neglected by banks for decades.

Are banks satisfying the need for small business credit?

What are the chances of a “real” small business getting a loan from a big bank? The answer is around 19%, according to Rohit Arora of Biz2Credit. However, this number may overestimate the willingness big banks (those with over $10 billion in assets) to loan to small business. Many small businesses don’t even apply for loans, because they anticipate rejection. Small banks are much more willing to lend to small businesses, as about half of loan applications to small banks result in a loan offer. However, small banks use SBA loan guarantee programs heavily to limit the risk of these loans.

Why are banks reluctant to lend to small businesses? Is it because it is not a good investment, or are there other reasons?

According to former SBA Administrator’s Karen Mills article, Why small business lending is not recovering?, there are a few reasons why bank’s don’t want to serve this market.

  • The default rate on small business loans is more sensitive to economic conditions than loans to bigger companies. In a period of time when banks are being told to limit risk, it’s hard to add these riskier (although, not necessarily less profitable) loans.
  • Community and small banks don’t always have the tools or information resources to properly assess the risk of lending to very small businesses.
  • Diversity of small business borrowers makes it difficult to apply universal standards to loan underwriting. It also makes it harder for banks to re-sell these loans.
  • The processing costs for making these loans are high compared to the amount of revenues that they produce.

Do these same problems affect new entrants to this market?

  • Returns are more important volatility. As the new entrants are not regulated or funded like banks, they should have a higher tolerance for risk, provided there are good returns.
  • Access to online bookkeeping and bank statements are a treasure trove of information. The new entrants, which are technology driven, are able to access and electronically analyze a tremendous amount of information that would be cost prohibitive to do manually.
  • There now exists a sizable group of retail and institutional investors looking to invest in these small loans. Investors are much more open to investing in small loans in general, because Lending Club and Prosper have shown that lending small amounts can extremely profitable.
  • These new entrants have much lower processing costs than traditional lenders. These companies don’t have costly branches, and have highly automated everything from onboarding to collecting payments.

The new market entrants have major advantages over traditional banks in serving small businesses. How do I make money from the explosion in small business finance?

There are three ways which I see investing in this space:

1. Providing the money to finance these small business loans

In a past Forbes article, I discussed investing in a hedge fund that invests in these small business loans. Also, Funding Circle has has a fund that enables individual investors to invest in a portfolio of the loans generated through its platform. In both these cases, the funds are only open to sophisticated investors, and have minimums of $100,000 or more.

Unfortunately, there is no Lending Club or Prosper style marketplace for investors to invest in small business loans. (Although, it should be noted that Lending Club does offer small business loans to borrowers.)

2. Investing in the companies that make these loans

There is only one publicly traded company that specializes in providing small business loans. IOU Central. Never heard of them? You’re not alone. Shares of this company trade for under a buck. While one of the earliest players in the market, the company has had tremendous trouble growing. Not a great sign when one’s main competitor is experiencing rapid growth.

3. Investing in those that benefit from small businesses having more access to credit

There are two problems with this idea. One, the amount of credit that these companies are providing is still very, very small. OnDeck Capital, perhaps the largest non-bank online small business lender currently, is on track to do one billion dollars in lending this year. The market will have to radically grow before the trickle down impact is significant. Two, I am not sure where the money will go. Will these loans be used to hire employees, increase inventory, buy or lease real estate? I don’t know.

I am very excited about the expansion of small business lending, but I am still trying to find ways to invest in it.

Student loans aren’t ‘technically’ holding back homeownership, report suggests

Oregonians loaded with student debt will have to earn 24 percent more than their peers without student debt in order to buy an equivalent home, according to a recent study.

Even so, a would-be homebuyer with a typical debt load can still get a mortgage to buy a median-priced Portland-area home, according to the analysis from real estate listings firm RealtyTrac.

That suggests a combination of tightened credit standards and higher student loan debt might not be the obstacle to the housing market some pundits have claimed at least, not directly.

(Student loans) are not holding people back technically, said Daren Blomquist, a vice president at RealtyTrac. Thats not to say that, psychologically, a person who has that student loan debt is going to be eager to take on a little more.

RealtyTrac compared two otherwise average homebuyers, one with $27,000 in student debt the average student loan balance in Oregon and one without. They assumed a 20 percent down payment (perhaps an extraordinary assumption for a first-time homebuyer) on a 30-year mortgage with a 4.13 percent fixed interest rate.

Then they calculated how much debt the two hypothetical buyers could take on, up to the 41 percent maximum debt-to-income ratio allowed under new mortgage regulations. The homebuyer with the student debt would have to earn 24.1 percent more to buy a median priced house.

But both, if earning the median household income or more, could buy a median-priced home in the state (which would cost $239,800) without hitting the debt-to-income cap. That holds true in all of the states largest counties.

The study didnt examine the account additional wages for people who graduated with a degree likely earn. But bachelors degree holders have in recent years made 75 percent more in annual wages than people with only a high school diploma.

— Elliot Njus

Ways to Save: RFID Blocker: Save yourself from ID Theft

Ways to Save: RFID Blocker: Save yourself from ID Theft

These days, all it takes is a scanner in someones shopping bag to grab your credit card number safely tucked into your purse or back pocket. I want to help beat those thieves Thursday with a bargain, in my continued quest to save you time and money.

Number Of Aging Americans Paying Student Loans Soars: U.S. Report

By Scott Malone

BOSTON (Reuters) – The rising cost of higher education is dogging Americans into retirement, with people aged 65 and older still carrying some $18.2 billion in unpaid student loans, according to a federal report released on Wednesday.

While the Government Accountability Office report noted that relatively few US households headed by people 65 or over are carrying student loans, the value of the unpaid debt had spiked from $2.8 billion in 2005, before the financial crisis.

That debt is concentrated in a small number of homes. Just 4 percent of households headed by someone 65 or older carried student loan debt as of 2010, up from 1 percent in 2004.

Some may think of student loan debt as a just a young persons problem, said US Senator Bill Nelson, who heads a Senate committee on aging and held a hearing on the findings on Wednesday. As it turns out, thats increasingly not the case.

The $18.2 billion figure includes loans related to both the holders education, often for those who have returned to school later in life, and their childrens education, the report found.

Across the United States, about 40 million Americans are paying back some $1.1 trillion in student loan debt.

Student loans are a particular concern because unlike credit card debt or mortgages, they are typically government-backed and cannot be written off in bankruptcy proceedings, leaving retirees facing the risk of having their Social Security payments garnished to cover student loans.

The cost of higher education in the United States has steadily increased over the past decade, with one years costs for tuition, room and board, and other fees at the average four-year US college coming to $23,872 for the 2012-2013 academic year, according to Department of Education data. That is up 21 percent, accounting for inflation.

Education debt has become a significant factor for younger workers, threatening a middle-class standard of living and at times even forcing some to delay their retirement, said Debra Whitman, an executive vice president at AARP, the largest lobbying group representing retired Americans. Student loan debt is also becoming a matter of serious concern for some older Americans many of who are still paying off their kids debt or helping their grandkids well into their ?retirement.

(Reporting by Scott Malone; Editing by Mohammad Zargham)

Former hospital employee gets 4+ years for ID theft

A former employee of Crozer Chester Medical Center was sentenced Wednesday to more than four years in prison for stealing the identities of numerous patients as part of a tax fraud scheme.

Reynaldo Estrada, 50, of Brookhaven, Pa., received a 51-month sentence. He pleaded guilty on April 24 to one count each of conspiracy to commit identity theft, aggravated identity theft, and aiding and abetting the use of a false Social Security number.

In addition to the prison term, US District Court Judge Mitchell S. Goldberg ordered three years of supervised release, restitution in the amount of $409,779, and a $300 special assessment.

The US Attorney’s Office said between October 2010 and October 2011, Estrada, while he was working for Crozer-Chester Medical Center’s environmental services department and at Community Hospital in Chester, Pa., stole scores of treatment authorization forms containing the names, addresses, dates of birth, and Social Security numbers of patients.

Estrada admitted today that he gave the forms to co-conspirators who paid him for the stolen identities, knowing that the forms would be used as a part of a tax fraud scheme. The co-conspirators, Rafael Henriquez Polanco and Yanira Lopez, are charged in a separate indictment with allegedly using the identifying information provided by Estrada to prepare and file approximately 144 false and fraudulent federal individual income tax returns claiming bogus refunds in excess of $1.7 million. Both Polanco and Lopez have pleaded guilty to all charges against them, according to the US Attorneys Office.

The case was investigated by US Immigration and Customs Enforcement Homeland Security Investigations, the US Department of State Diplomatic Security Service, the US Department of Labor Office of Inspector General, and Internal Revenue Service Criminal Investigations. It is being prosecuted by Assistant US Attorney Kevin Brenner.

Jeff Blumenthal covers banking, insurance and law.

3 Tips to Score More Financial Aid

Incoming freshmen, beware of the front-loaded financial aid package. To entice new students to enroll, some schools offer freshmen substantial merit aid — awards that are based on qualifications other than financial need — then sneakily reduce those scholarships and grants in subsequent years, leaving upperclassmen with bigger college bills.

Theres no data that explains how widespread front loading is, but its pervasive enough to make the average bottom-line cost of college for first-year freshmen nationwide about $1,400 lower than the cost for returning students, according to a 2011 report by higher education policy analyst Mark Kantrowitz. If you have already stepped into a front-loaded trap, and watched your financial aid drop, there are ways to fill in the fiscal gap. Here are three strategies to increase your aid as an upperclassman:

1. Seek specialized scholarships
One advantage upperclassmen have over incoming freshmen is experience. Many institutions have upperclassmen-only awards that are available exclusively to students in certain majors who have completed a requisite number of credits.

Go to a department head [in your major] to see if there are any special scholarships, suggests Paul Gilroy, founder and CEO of ProEducation Solutions, a private financial aid consulting firm headquartered in Sarasota, Florida. After that, hit up your schools financial aid office for information on other awards for students with your academic and extracurricular profile.

You can also find awards for college sophomores, juniors, and seniors through private scholarship providers. Professional associations, as well as organizations such as the Morris K. Udall Foundation and The Elie Wiesel Foundation for Humanity offer awards that are only available to upperclassmen. FastWeb also has a list of upperclassmen awards on its website to get you started. And dont overlook local resources, says Rhonda Risser, director of financial aid for Scripps College in Claremont, California.

Local service groups such as the Elks, Rotary, and Kiwanis offer scholarships, [and] businesses and banks often have college scholarships, too, she says. Students should check with their parents employers, as well. Places of worship also often offer scholarships.

2. Get a job
Even if your school doesnt offer upperclassmen awards, they may provide lucrative work positions for seasoned students. As an added bonus, these campus jobs can potentially be resume builders, too.

There may be opportunities to be teaching assistants in classes — research assistants, says Kathy Ruby, senior manager of college finance for College Coach, a college admissions and financial aid advising firm. These are the kinds of jobs that enhance your resume and enhance your learning experience but also give you a financial break. It might be that you get paid for doing those things, or you might get some kind of a partial tuition waiver.

Resident advisor positions — many of which come with the perk of free housing — are also usually reserved for older enrollees, as are student management positions, which may come with either a steady paycheck or a reduction in meal or tuition expenses.

There are also summer opportunities. Schools like Indiana University and the University of Nebraska offer paid summer research gigs for undergraduate upperclassmen, as do many private, nonprofit and governmental organizations, including the National Science Foundation and the National Institutes of Health. Upperclassmen can also score a summer stipend if theyre willing to do an internship. Boston College, Oberlin College, Tufts University and many others offer stipends for current students who complete unpaid internships throughout the summer.

3. Reduce your costs
Freshmen are often required to live on campus, but sophomores and above frequently have far greater control over their living expenses. Obtain off-campus housing, and share with other people so you can cut down on the cost of the rent, Paul Gilroy says. That could be cheaper than a dormitory.

While the average public college student pays nearly $9,500 per year to live on campus, according to the College Board — thats about $600 above the average cost of tuition — those who opt for off-campus digs, several roommates. and many nights of home-cooked meals could save a bundle. Just shop carefully. On-campus room and board prices generally include a furnished living space, utilities, meals, Internet access and, sometimes, cable television, not to mention the reduced transportation cost of being within walking distance of your classes.

Many houses and apartments located off campus separate these expenses out, making it difficult to compare apples to apples. (Hint: Online financial calculators can help.) A double drawback to renting off-campus is that apartment leases generally last for a full year, meaning that youll be responsible for paying rent even if youre not there during the summer. But sticking around your college town through the sweaty months could be a good thing, Kathy Ruby adds.

Check the summer tuition rates at your institution because some colleges charge a reduced tuition rate, she says. If youre trying to get through in three-and-a-half years, sometimes taking classes during the summer can be an economical way to do it.

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