“THE LENDING DROUGHT: Struggle to get loans hurts small business (Culpeper Star-Exponent)” plus 2 more

THE LENDING DROUGHT: Struggle to get loans hurts small business (Culpeper Star-Exponent)
Personal Finance: TSAs take the scrimping out of retirement saving (The Scranton Times-Tribune)
Before filing for bankruptcy, try living within your means (Los Angeles Times)

THE LENDING DROUGHT: Struggle to get loans hurts small business (Culpeper Star-Exponent)

Posted: 14 Mar 2010 06:47 AM PDT

RUCKERSVILLE—After nearly a decade in business, a great credit rating, debt-free inventory and top-notch credit scores, Blue Ridge Trailer Sales is having trouble getting a loan as finance companies pull out of the small business credit market and federal regulators increase scrutiny of local banks.

"We can't find anyone to finance additional inventory at a time when people are knocking at the door to purchase trailers," said Donna Martin, sitting behind her desk in the Greene County facility that she and her husband, Rob, own.

"The long and the short of it is that we are a highly credit-worthy and successful small business that employs eight people — six of whom are primary breadwinners — and we can't get financing for spring inventory," Martin said. "Without adding inventory we do not stand a chance of being profitable."

It may be little condolence to the Martins, but the lack of loans is nothing personal. It's just business in the fear-and-loathing atmosphere of today's economy.

"There is no question as to whether there is a fund restriction in the commercial credit market. There is," said Gregory Fairchild, associate professor of business administration at the Darden Graduate School of Business Administration at the University of Virginia.

The credit crunch comes as everyone from economists and pundits to President Barack Obama and conservative Sarah Palin say increased lending to small business is key to creating jobs and getting out of recession.

"The story you hear from small business is that 'I'm out there doing a good business, my credit is still good, but I can't get loans now.' That's, in fact, what's happening," Fairchild said.

Blue Ridge Trailer Sales' financing woes began shortly after the current recession. In February 2008, their long-time inventory financier pulled out of the market and required clients to pay off whatever money was outstanding by February 2009.

The company's inventory includes utility trailers, landscaper's trailers and horse trailers from the functional to the comfortable. The trailers vary in price from less than $1,000 to more than $25,000.

In June 2008, the company's back-up finance company pulled out of the market, except for trailers made by three manufacturers, none of which Blue Ridge carries.

In June 2009, American Express took away the company's "corporate gold cold" with an unlimited credit line and issued in its stead a "business gold card" with a $1,500 credit limit, although Martin said the company was always on time with payments. No one from American Express would comment.

In the spring of 2009, the finance company that once financed purchases for the business' customers pulled out of the market.

In the fall of 2009, lenders serving the horse trailer market announced all down payments on financed purchases had to be at least 20 percent.

Fairchild said many new banking regulations are the result of 2009's record bank failures and increased supervision by the Federal Deposit Insurance Corporation, which covers accountholders when banks go under.

In 2008, 25 banks failed across the country. In 2009, more than 133 banks failed.

So far in 2010, 26 banks have gone under.

With the FDIC looking over their shoulders, smaller banks face tighter restrictions on loans at the time when larger banks are seeking profits by providing fewer loans for larger amounts to larger companies rather than more loans for less money to smaller businesses.

"As a bank, I can't just sit pat on my deposits. I make a profit by loaning money and having it paid back with interest. But I might say, I'm only going to loan to people who have very little risk, and big businesses tend to be better risks than smaller businesses," Fairchild said.

"If I loan 10 small companies 10 loans and one goes sour, a few years ago I used to be able to absorb that, but now things have gotten so bad that one loan in 10 could put me under," Fairchild said. "The FDIC, having covered all of the losses in 2009, says we're going to be very careful and make sure all of these loans are as good as they can be so all of the deposits are protected."

Jane Henderson is president of Virginia Commun-ity Credit, a multimillion-dollar, nonprofit community development financial institution that provides loans for affordable housing and economic development projects. She said businesses facing credit crunches similar to Blue Ridge Trailer Sales should develop relationships with local banks.

"Big banks base their decisions on credit scoring and other techniques and they have pulled back from small business lending in a major way," she said. "Smaller banks know their local markets better, they know what businesses are likely to thrive and survive and they're interested in doing business in a variety of accounts."

Henderson said businesses should review their plans and create a plan B. They may consider putting up their homes as collateral.

"Pledging personal assets may not be something you want to do, but it may be what you need to do to survive in a down economy," Henderson said. "Bankers sometimes get a bad rap, but the last thing they want to do is take collateral. They want a healthy, thriving business."

The Martins had already followed Hender-son's advice, cultivating a relationship with North Garden's Old Dominion National Bank. FDIC regulators, however, required the bank to reduce the company's operating credit line by $50,000 to reduce risk exposure.

In December, federal regulators turned down the Martins' request for a Small Business Adminis-tration loan through Old Dominion National because the small bank did not have a full-time employee to administer "floor plan" credit lines.

Since then, the bank has been working with the Martins to secure credit from other institutions.

"That's part of our job as a community bank," said Charles V. Darnell, Old Dominion's president. "We've worked with them for a long time and know the business so, if we can't do the financing, we'll try to find someone who can."

Darnell said local banks face an ever-changing array of federal guidelines and regulations, many of which are designed to answer problems that face community banks in other states.

"What we might consider to be credit-worthy, trustworthy people aren't strong enough credit-wise to meet some of the requirements of regulators," he said. "They are making decisions that are based on small banks in other states that have very different economic environments than ours."

Martin says the experience of her company bodes ill for other small businesses.

"I'm going to do everything I can to put inventory on our lot and meet the pent-up demand that's out there, but without financing, I don't know what we can do," Martin said. "We're a credit-worthy, healthy business and there are a lot of others like us out there that can't get financing. If this trend continues, I think we're going to see a tremendous number of businesses shutting their doors."

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Personal Finance: TSAs take the scrimping out of retirement saving (The Scranton Times-Tribune)

Posted: 14 Mar 2010 12:19 AM PST

For most people, the hardest part about building a nest egg is pulling some of the hard-earned cash back out of their pockets and putting it into a retirement account. How do you save for tomorrow when you're busy paying bills today?

Pay yourself first

You can with a 403(b) tax- sheltered annuity. 403(b) salary reduction TSAs - retirement savings arrangements available to employees of public schools and certain nonprofit organizations - can make saving for retirement automatic. Funds in a TSA accumulate through before-tax payroll reduction. Once you decide how much you want to save (within IRS and plan limits), you enter into a salary-reduction agreement with your employer. Your designated contribution then goes directly to the TSA. The money never passes through your checkbook, so you're not tempted to spend it.

Tax deferral

Not only do TSA salary-reduction contributions essentially automate your retirement savings will power, but they also may assist you in saving on your current income tax bill. Contributions to your TSA account come out of your paycheck on a pretax basis. Since these contributions are excluded from gross income for federal income tax purposes, you don't pay current income taxes on them, and in turn, have the potential to lower your current income tax liability. By reducing your current income taxes, TSAs offer two advantages over conventional, after-tax strategies: Either you can afford to contribute more to a TSA per paycheck, or you can afford to contribute to a TSA while bringing home more. How? If you're in a 28 percent tax bracket and you budget to contribute $100 of your gross earnings per paycheck in an after-tax vehicle, you pay taxes first and then you're left with only $73 to put aside. If $100 is really the amount you want to contribute, your actual gross allotted contribution figure would be closer to $130. On the other hand, with a TSA, pretax salary-reduction contributions allow you to put aside the full $100 per paycheck, assuming that this amount does not exceed the maximum permitted under federal tax law. With the reduction of current income taxes, you keep more of your take-home pay for yourself. Eventually you do pay taxes on your TSA contributions and earnings, but the taxes are deferred until you begin to withdraw money for retirement income. By that time, you may be in a lower tax bracket, enabling you to keep more of your TSA monies.

After tax versus before tax

Your after-tax contribution through a TSA: If your gross salary is $1,000, your income tax is $280 (assumes a 28 percent federal income tax bracket not taking into account state and local taxes; FICA will still apply). Your subtotal is then $720 with your after-tax savings being $100 and your net pay after savings being $620.

Your before-tax contribution through a TSA: If your gross salary is $1,000 and your TSA contribution is $100, your taxable salary after your TSA contribution is $900 and your income tax is $252. Therefore, your net pay after your TSA contribution would be $648.

Saving for retirement

Not only do your contributions accumulate tax deferred, but also so do your earnings. Since the federal tax law doesn't tax your earnings as they accrue in a TSA, all things being equal, you have the potential to earn more than you would through a currently taxable vehicle.

Compound interest

When you reinvest your earnings in a TSA or any other investment vehicle, you can earn money on both your contributions and your earnings. This is called compounding, and it can have a positive impact on your account over time. Combine the effect of compounding with the benefits of tax deferral on any earnings and you can increase your investment return over alternative after-tax saving strategies.

More savings freedom

Individual retirement accounts/annuities can also be used to reduce your current tax liability (given you qualify for tax deductible contributions). However, TSAs can provide more retirement savings freedom than IRAs. Here's how: If you qualify, an IRA will only let you contribute $5,000 per year, or double that for a two-income married couple. TSAs generally allow you to contribute up to 100 percent of your income to a maximum of $15,500 per year. Participants age 50 and above can make an additional catch-up contribution of $5,000. Alternatively, participants with 15 or more years of service, may be eligible to contribute more depending on a number of factors such as the type of employer, years of service and prior employee and employer contributions and must be calculated using a formula that takes the applicable tax rules into account.

TSA restrictions

Generally speaking, withdrawals from TSAs prior to the age of 59½ or severance from employment, death, disability or hardship are prohibited. Under some circumstances, you can withdraw the money from your TSA, but you can face current taxation, contract surrender charges, plus a hefty 10 percent tax penalty for withdrawals before age 59½. IRAs are also retirement savings vehicles, so, while unlike TSAs, withdrawals from IRAs are allowed at any time, withdrawals prior to age 59½ are similarly subject to both income tax and a potential 10 percent tax penalty.

Is that 10 percent penalty what they call an "early withdrawal tax?" You bet it is. TSAs, like IRAs, are designed to help you save for retirement, not day-to-day emergencies.

So be aware of this: a freedom that you won't get with your TSA is the withdrawal-on-a-whim privilege. But whether your withdrawal is from a TSA or an IRA, you will be responsible for the 10 percent federal tax penalty in addition to ordinary income tax should you be eligible to, and do, in fact, withdraw your money before age 59½, unless you meet one of the exceptions to the tax under the law. Plus, many insurance companies build early withdrawal "surrender" fees into TSA and IRA contracts. TSAs have the advantage of offering loans, however, which are not taxable distributions, so long as they are paid back timely. By taking a nontaxable loan rather than withdrawing your money in a taxable withdrawal, though, you basically keep your TSA intact. Loan amounts are subject to IRS limits, and your employer must allow loans under its 403(b) plan.

Remember, for those of us who find it easier to spend than save, TSAs are long-term funding vehicles that can make saving for retirement simple and automatic. Don't let withdrawal fees get you down. Think of them as built-in motivation to keep your money where it belongs: in your TSA account, where it has the potential to grow and give you more freedom in your retirement years.

DAVID J. PATCHCOSKI is a financial services representative with MetLife in Blakely. Would you like to write about the economy, finances or other business-related issues? IN THIS CORNER features commentary by guest columnists. Send ideas to jmatthews @timesshamrock.com.

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Before filing for bankruptcy, try living within your means (Los Angeles Times)

Posted: 14 Mar 2010 12:14 AM PST

Don't rely on the Internet for advice; talk to a bankruptcy attorney.

By Liz Pulliam Weston Money Talk

March 14, 2010

Dear Liz: I am a 49-year-old single father with two boys, 17 and 12. I had my own business for five years, which I finally gave up last year. I have credit card debt of about $68,000. My credit score is still good and all payments are current. I do not own a house, and I do not own much personal property either. I found a job a few months ago, and with that, I can still make payments every month. But I just figured out that it will take me about 40 months to pay them all off.

I am considering filing for Chapter 7 bankruptcy. My thinking was to file for bankruptcy now to wipe out the credit card debt, so that I can start saving for my retirement and the boys' college. But I also heard that some student loans are based on parents' credit, which worries me.

I have a car in good condition, but I will need to replace it in a few years because it is 15 years old. I also would like to start another business on the side, which will be easier if I still have credit.

I've read a lot of advice on the Internet, but I'm not sure whether I should file for bankruptcy. What do you advise?

Answer: That you not rely on Internet opinions when making a decision this monumental.

You really need to speak to a bankruptcy attorney about your individual situation. What you'll probably discover is that you're not a good candidate for bankruptcy, since you're able to pay off your debt in less than five years. People who are allowed to file for Chapter 7 bankruptcy liquidation typically have far more debt than they could repay in that time period.

There's another reason you probably shouldn't file: You need to learn how to live within your means. You seem to be eager to start the borrowing cycle all over again, even though it ended in disaster last time.

Business-related debt is good debt only if it helps you get ahead. If you use credit just to keep a failing business afloat, it's bad debt.

'Exit fee' may be in the fine print

Dear Liz: My wife and I are rolling over our bank certificates of deposit to another investment company to consolidate our holdings. Two weeks before the CDs' maturity date, we notified the bank and filed the necessary papers. The bank didn't complete the rollover for two months and then withheld $50 for something it called a "Trustee to Trustee Transfer Fee." What is this, and can the bank make this charge?

Answer: Such "exit fees" are a way for banks and brokerages to nip an ounce of extra flesh from departing customers. Many financial institutions charge them, but they often aren't well disclosed and few investors know to ask about them. You'll know better next time.

More on federal gift-tax rules

Dear Liz: I'm an estate-planning attorney and want to expand on the answer you gave to the parent who wanted to give her children money for their educations or a car but was worried about gift taxes.

Your explanation of the federal rule was accurate -- only gifts of more than $13,000 per recipient have to be reported, and gift tax isn't owed until amounts over that exclusion exceed $1 million -- but state laws vary. (California levies no gift tax.) In addition, the $13,000-per-person annual exclusion and the $1-million lifetime exclusion is available for each giver, so a married couple could give $26,000 without reducing their lifetime exemptions.

Also, tuition is not considered a gift if paid directly to the school, irrespective of the amount, so the giver could offer to pay tuition directly and then give money separately for a car. Finally, 529 college savings plans are an excellent way to save for a child's higher education and are often preferable to giving money directly to the children.

Answer: Thanks for the additional information. College savings plans allow people to contribute up to five times the annual gift exclusion amount at one time, meaning generous parents or grandparents could stow $65,000 into a 529 plan without having to file a gift tax return (as long as they make no other gifts to the recipient in that five-year period).

Liz Pulliam Weston is the author of the book "Your Credit Score: Your Money and What's at Stake." Questions for possible inclusion in her column may be sent to 12400 Ventura Blvd., No. 238, Studio City, CA 91604, or via the "Contact Liz" form at www.asklizweston.com. Distributed by No More Red Inc.

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Fast loans or credit?

Sunday, March 14, 2010