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questionable bank advice?

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I recently ran into a financial problem having lost two regular customers who were good for about 1/4 - 1/3 of my annual income. I also have some much needed home and shop repairs and improvements that should be done yet this fall as well.:(

I went in last week and talked to my bank about the very low interest rate home equity loans they are offering right now. What I got in return for asking was what I feel is rather odd and possibly bad financial advice.

Heres what happened and what was recommended.
I have a fair but not great credit rating. I had a student loan with another bank thats been horribly screwed up for some time and when ever I think it has been cleared up it seems to just developed a new problem.
That dropped my credit score a fair amount but whats really got me confused is that I also was docked considerable credit points because I have not had a credit card in over 8 years and I have rarely taken out loans for anything. And when I have taken a loan I paid it off far faster than the length time it was written for. :)

To help my credit score this advice was given to me.
Sign up for several credit cards and run them up to near the upper limits and just pay off the minimum due for around a year or so. :confused:
To me that seem absolutely irresponsible and just stupid. I live within my means and budget my money fairly well. I dont use credit cards and loans because I dont like owing money. I was basically made to feel that by being financially responsible and living within my present means makes me a bad person by banking standards. WTF? :mad:

If I am in debt over my head and have no real way of paying it off I am qualified for a very low interest loan but if I dont owe anything to anybody and haven't for many years and typically pay things off as needed I am only qualified for a very high interest loan. :(

Does any one else find this odd or is this actually whats considered normal personal financial management practices now and are encouraged by banks everywhere? :mad:
I'm like you, and haven't used a credit card in almost 10 years now, pretty much debt free. Mortgage paid off, and about $1100 left on the last credit card I will ever use.

It's a very bad idea to run up a debt, just to save a few points. Most of your income will go toward interest, you will carry that debt for a long time, making little progress, unless you file for bankruptcy, like the corporation do...

Credit scores are usually just an excuse to charge higher interest, just like anything else the bank can dig up and label undesirable to their greed and profits. They aren't obligated to even take your credit score into consideration. You should shop around for a different lender. Some should be happy to get a consistent and reasonable return.

Haven't look into a loan in a long while, and some of the rules have changed, same with credit cards, but doubt the going into debt is ever a good thing. But I'm pretty sure that the interest you would pay on those credit cards, would exceed the money you would save on the loan. Also, carrying a large balance is also consider a negative, you will lose points over that as well. Too bad you couldn't have gotten that advice in writing, because its very bad.

Who knows, with so many banks failing lately, maybe you wouldn't have to repay...
just pay off the minimum due for around a year or so.
Sounds pretty stupid to me. Yes, use the credit cards, but pay them off in full when the bill comes in. No need to pay crazy card interest rates.

You'd think that the bank would just look at your income, assets, liabilities, and credit history to determine the max loan you'd qualify for. That is what my bank does. Maybe try a different bank?
The other problem I have faced is being self employed with doing service work seems to also go against me. If I work at a dead end job with little chance of making any extra money every month am a good loan candidate. But if I am self sufficient and can increase my cash flow with what I spend from the loan I am a bad candidate? :confused:

One thing they wanted was records for what my material assets are. Thats not a problem since showing what I have and its current market values is easy for me.
What they dont like is most of what I own I acquired by using the buy it broken and fix it method. The fair market value assessment of my equipment is many times higher than what it was worth when I got it. However they see it as bought broken and worth broken value against a loan. :(
To them it doesn't mater that I purchased a broken welder for $100 and fixed it and now have a fair market value $1500 welder. They still see it as a $100 piece of junk. Same with most of my other higher value equipment items.

Plus things like when asked what my yearly profit is I told them its about zero. Because what ever doesn't get used for normal expenses goes into home and shop repair and improvements. That is whats left gets reinvested into my business.;)
Its not that I cant make reasonable loan payments but rather since they were not an issue I have not re budgeted my monthly expenses and work load to compensate for the greater financial outlay. I can easily bring in the added money if I need to but until I need to there is no gainful purpose in it.

I typically dont put money in savings if I can use it to buy something fix it and make a quick return on it. I do have more equipment I can sell but at this point in time the market value is low and I am reluctant to cash it in being that its currently not worth half what it was last year at this time. Because of that I wont have enough profit to cover the basic house and shop expenditures if I sell it.
I felt a low interest loan would work well and when the market for my equipment went up in year or two I would then cash it in and pay off much of the loan at that time.

Unfortunately the losing the two customers unexpectedly killed off most of my reinvestment cash flow and all of my winter savings potential and now I need to get things fixed up and make the shop better for winter work in order to change my direction enough to make it possible to recover those looses by doing different types of work during a time when I normally dont work much.
The bank is looking like a bad option and picking up a longer term 'regular job' may be my only way to get this done this winter. :(

The more I deal with this I find that everything seems to be set up completely backwards from what common sense logic would seem to dictate. Its partly why I dont do loans in the first place. Every time I do look into one they seem to have gotten more twisted and just plain stupid as to what hoops I have to jump through and what ridiculous criteria I need to meet.:mad:
Seems like a good example of why the banking industry is having so much trouble. They are looking at how they can still profit off the loan, even if the borrower defaults, not in how to set up a loan the borrower can pay on. Don't remember if it was North or South Dakota that was one of the states with no cap on interest rates, and a huge credit card industry. Might be a reason why your bank suggested maxing out a bunch of plastic, which is a big consumer no-no. Maybe there is an Obama small business bailout loan available... Although, it seems like most of his handouts have been to his campaign contributing friends.
Unless your business is incorporated or registered by some other legal means, that is to say, not working under the table, then you might seem to present a risk for a lender. Having an employer with a steady paycheck demonstrates a continual income.

My question to you TCM is, are you working on the up and up, ie, paying taxes on income, properly licensed, etc... ?

If not, don't expect much help. Do not be offended by my questions as I do not know you or your situation, only to comment on your dilemma further info is needed. If this is too personal, then I understand that as well.

Good Luck
Well I'll my 2.2 cents worth,
5 years ago when we bought the farm the deal was to pay my amex card off and get rid of it. 19K later in bank fees they said they wasn't enough $$$ left to pay it off. Since then I've been paying just over the bill so i can buy online stuff but at near $200 a month the time has come to kiss goodbye to credit cards. A few months ago I got a debit visa card so now i can still buy anything on the net using my own money and not debt. Now last week i contacted my personal banker to get rid of the amex card, they suggested a unsecured personal loan @ 13%. I suggested just throwing the debt on my mortgage where the interest rate is 5.5%. They sent me out the info for a personal and my missus said the postage was short by $6.45 and luckily the agent laughed and said dont worry about the bill. Today I rang my personal banker and said well the amex debt will put on the mortgage and I also want another 2K for a new backup genset. I got all the advise for getting rid of the amex, got told that was my best option on consolidating debt and why only 2K for a backup genset. She said we can give you 10K if you want, that to me is typical of banks.

Tcm if you can avoid loans then dont bother applying for them it sounds like to me that your setup is a nice one and if you want cash just go fix something and sell it.

Regards Bryan
A few months ago I got a debit visa card so now i can still buy anything on the net using my own money and not debt.

That's the best way to go. With a debit card, you only spend money that's already in the bank in your account. That tends to reduce the temptation to spend beyond means, and if the holder does, there is a heavy penalty.

It's hard for an independant businessman to prove his worth, unless as has already been said he has an established, licensed business and a good net worth sheet. Banks are in the business of using other people's money to make money for themselves, and they don't like to jeaprodize their income. Not to take up for them, for I consider them usurous at best, but they do have a bottom line to worry about. If they loan money that is not repaid, that reduces their inventory of money that can be used to make more money. Greedy, isn't it?

Hope you get your problem solved, tcm, but it sounds like taking a loan is not the solution at this time.
Well as far as I know I am on the up and up. The tax man seems to think I am not doing anything wrong so tend to take their word for it. The only issues for me is how to record trade for trade deals and equipment purchases.
If someone needs work done or wants to buy an item but doesn't have the money but does have something I believe I can use or fix and sell I will happily trade a fair labor value or sale value for an item.
My tax adviser seems to not have a problem with this being that eventually if I do sell the item I will be keeping track of what profit I made on it.
I am not an accountant or paper pusher by any means so I do try to error on the over claim side when possible with things like taxes. I could be wrong but I am not deliberately trying to hide anything. ;)

What happened to my business customers was they are small business's that make contract parts for large manufacturing companies. Not being aggressive enough on diversifying there products and cutting operation costs limited what they made and sold. The national market changes and more aggressive competitors from other places pushed them out.
Mom and Pop businesses dont have deep pockets and wont justify changing how something was done in many situations. They are more just in it because it pays the bills and gets them by with slightly better advantages than working for someone else. Basically same as me but the next step or two up.
Given the economic problems in most of the country the big companies cut costs by changing to cheaper supply sources. The local companies I did work for wouldn't justify the cost of updating manufacturing processes and dropped out. They are not dead but just shut down until markets change. They could start up a few months from now or maybe never.
I just cant wait and see on this right now. :(

I am trying not to go the way they did but being a business of one I at least can justify picking up more work in new areas if I can swing the start up costs. For me just getting my shop set up for year round work would help out immensely.
When you dont use loans or credit and work on a build as you can justifiably afford method large buildings take some years to fully construct. I am just to the point now where I can start doing insulation and interior finish work so as to be fully heatable all winter.
A heated shop with a dirt floor is still better than nothing!:)
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