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How I Blew It When Buying a Second Home

ELEANOR BLAYNEY: Hindsight is always 20/20, whereas foresight can be pretty blurry.

Even certified financial planning professionals make financial blunders they wish they could do over.  In my case, I would have bought more Apple stock in 2003, and sold less of it in 2008.

I would have opted for a high-deductible health insurance policy five years earlier than I did and thereby accumulated $20,000 more in my health savings plan than I have now. I would have mortgaged my last home purchase instead of paying cash and put more money in stock investments.

But these are pretty trivial “woulda, coulda, shoudas” in the grand scheme of things. None of them represented bad decisions at the time they were made, based on the information then available. The financial costs were more than offset by other prudent decisions that that turned out well.
This wasn’t the case when I decided to buy a second home in a small historic boating village on Maryland’s eastern shore. I made the decision on my own, reasoning that as a certified financial planning professional I fully understood the financial implications of a second home, the potential risks in the real-estate market, and the challenge of coordinating two households.

What I failed to account for, however, was not the financial but the emotional side of a home purchase. I was powerfully attracted by what that old home seemed to promise to me: a sense of security, and a peaceful way of life reminiscent of my small-town New England upbringing.  The emotional draw eclipsed my better business judgment, and I bought the home at the very top of the market in 2008.  I now rent out the home, and the one piece of good news is that I will have depreciation write-offs for a very, very long time.

While I can forgive myself for buying at the “wrong time,” what’s more difficult to excuse is not having talked to another certified financial planning professional before buying the home.  All my expertise went for naught in the face of such an emotional lure. I was like a neurosurgeon doing her own brain surgery. I needed an objective “outsider” with a steadier hand than mine to help me think it through.

My point is simply this: “Doing it yourself” because you know how it’s done, is not necessarily the best decision when both the financial stakes and your own emotions are running high.

Eleanor Blayney (@EleanorBlayney) is consumer advocate of the Certified Financial Planner Board of Standards.

Read the latest Wealth Management Report.

How To Use A Secured Card To Rebuild Your Credit

Who among us hasn’t needed a second chance? Or a first opportunity? For the millions of Americans who were battered by the Great Recession and came out of it with a tattered credit score, plus the legions of young people who haven’t had a chance to earn and spend money wisely, these are not abstract questions.

Even though the emergence of financial products like prepaid debit cards have made it easier to get some of the ease and benefits of plastic, solid credit still matters. Try to buy a house or a car and you’ll quickly learn how important it is. If you have bad or no credit, you’ll be turned down for a loan or offered an ugly interest rate.

This is where secured credit cards come in. Secured cards are a bit like a bicycle with training wheels – a tool to practice on and demonstrate your capacity to operate something bigger, faster and potentially more dangerous. Unlike unsecured credit cards, the secured variety typically requires a cash deposit in order to establish a credit line. If you put down a $500 deposit, you’ll have a credit limit of $500 (keep in mind that the money you put upfront is not used to pay off monthly charges). This initial deposit is the bank’s way of insuring that it doesn’t get burned if you do not pay your bills.

The best thing about secured credit cards is that, in most cases, the issuer reports your repayment behavior to the three main credit bureaus – TransUnion, Experian Experian and Equifax. Translated, this means that paying your bill on time and following the terms and conditions of the card can, over time, boost your credit score. This makes a secured credit card an extremely valuable tool if, and this can’t be emphasized strongly enough, you are timely and consistent in paying your bill.

Still, there are red flags to watch out for with secured cards. Start by making sure that any secured card you consider will, in fact, report to the three main credit bureaus. If they do not, and your goal is to establish good credit, you’re wasting your time. Like any financial product, it is important to know that not all secured cards are equal when it comes to fees. Shop around. While secured cards generally have higher fees than unsecured ones, there can be big differences in the interest rates, activation charges and account maintenance fees. It’s also smart to know the card issuer’s policy regarding returning your initial deposit when you close the account. Sometimes it can take a few days to get your money back.

Be careful to avoid any secured credit cards that do not have a payment grace period. If it does not, that means you will pay interest on any charge you make from the moment your card is swiped. “With no grace period, there is no way to avoid paying interest,” says Amber Stubbs, editor of CardRatings.com. “With regular credit cards you can avoid interest altogether if you pay your statement in full.” Fortunately, the lack of a grace period is a rarity, although the Horizon Gold Card is one that does this. Also watch out for limitations on how you can use the card. The Horizon card, for instance, can only be used to make purchases on a Horizon outlet store website.

None of these cautions are meant to scare you away from using a secured credit card to rebuild your credit. But being aware of some of the potential problems will allow you to safely ride your training wheel equipped bike without falling into potholes or getting run off the road.

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Curtis Arnold is a credit expert and co-founder of BestPrepaidDebitCards.com

Seek help early, unsecured credit borrowers urged

Credit Counselling Singapore (CCS) is bracing itself for what could be a deluge of requests for help next June, when new rules on unsecured loans come into effect.

The organisation, which helps debtors come up with repayment plans, says it is planning to hire more staff and upgrade its IT systems for the potential influx.

New central bank rules state that if someone owes money on an unsecured loan, such as a credit card, and does not pay even the minimum sum for more than 60 days, he will not get further unsecured credit from that bank.

The minimum payment is normally $50 or 3 per cent of the amount owed, whichever is higher.

Other banks will also be barred from issuing the consumer with a new card or granting him unsecured credit or higher credit limits.

Banks will also be barred from giving someone more unsecured credit if his total unsecured debt exceeds his annual income for three months or more.

While credit cards are the most common type of unsecured credit, others include personal lines of credit, personal loans and education and renovation loans.

According to the Monetary Authority of Singapore, 3 per cent of all unsecured credit borrowers here have debts exceeding their annual incomes.

Assuming that most people who have unsecured credit have a credit card and, based on latest data from Credit Bureau (Singapore) showing there were 1.44 million credit card holders at the end of last year, The Sunday Times estimates that this could mean 43,000 Singaporeans have that much debt.

Deaths and bankruptcies: What awaits states that don’t expand Medicaid?

Take, for instance, recent research on Oregons Medicaid program. A team of researchers found that people given access to Medicaid were more likely to be diagnosed and treated for diabetes and depression. Or consider a recent study of the 2007 Massachusetts health care reform. Researchers found that being covered by Medicaid can lower the risk of dying.

But an expansion of Medicaid might do more than just improve health.  Medicaid coverage can have some surprising, positive side-effects. Along with another researcher, Matt Notowidigdo, I studied the effect of Medicaid on consumer bankruptcy. Families declare bankruptcy when they are overwhelmed with debt. In exchange for their assets, a bankruptcy judge can relieve a family of all of its debts. Bankruptcy used to be rare, but its now common: nearly ten percent of American households have declared bankruptcy.
  
We hypothesized that Medicaid coverage might allow some families to avoid bankruptcy. After all, one of the chief benefits of health insurance is that—when you really need health care—you dont have to pay for it. Perhaps, we thought, families given Medicaid coverage are less likely to get stuck with a big hospital bill, and so are less likely to end up in bankruptcy.
  
To test that hypothesis, we dug up data on the Medicaid expansions of the 1990s and early 2000s. We found that, in the years after states expanded Medicaid, fewer families declared bankruptcy. Every ten-percentage-point increase in Medicaid eligibility—typical of 1990s-era Medicaid expansions—led to an eight-percent reduction in bankruptcy rates.
 

As economists, our research was quantitative: we analyzed bankruptcy records, but we didnt talk to the bankruptcy filers themselves. Still, there exists plenty of anecdotal evidence to suggest that the pattern we observe in the data represents the experience of many Americans. For example, in reporting his book, The Great Unwinding, George Packer interviewed a Florida foreclosure attorney who described clients coming in to his office straight from chemotherapy: I find that a lot of my clients are sick, the attorney said.

And our findings have also been validated by other quantitative research.  For instance, the 2007 Massachusetts health reform was associated with a drop in bankruptcy rates. Once nearly every citizen in Massachusetts had access to affordable health insurance, bankruptcy rates went down.

Of course, past research on Medicaid expansions are an imperfect guide of what to expect from the Affordable Care Act. Only time—and future research—will demonstrate the effects of the ACAs Medicaid expansion. But the evidence we have from past Medicaid expansions tells us what we should expect from the ACA.

All of this is to say that 23 states are missing out on more than just billions of dollars in federal funding. They are missing out on the direct benefits of Medicaid: fewer uninsured people and better access to health care. And they are also missing out on indirect benefits, like a reduction in bankruptcies.

Gross is assistant professor of Health Policy,  Department of Health Policy and Management at Columbia University, and a 
Public Voices fellow with the OpEd Project.

 

Third Quarter Portfolio Review: Continuing To Build Dividend Growth And Quality

I am pleased to present my Third Quarter 2014 portfolio review. This review helps clarify my current approach to dividend growth investing. It should not be read that I am in any way suggesting it is the single best approach to investing or the approach that will always amass the largest amount of capital gain. Instead it represents an approach that best matches our risk tolerance — one that helps both my wife and I sleep well at night when the market is as turbulent as it certainly was in October.

My portfolio finished the quarter with 50 holdings and yields roughly 4.6% at todays cost. Each holding represents less than 3% of the overall portfolio with most positions under 2%.

My portfolio was constructed starting in 2011 from the lists of Dividend Champions, Challengers and Contenders (CCCs) maintained by Seeking Alpha Contributor David Fish and available here. Nearly every stock selected from this list has the distinction of not only maintaining its dividend during the bear market of 2008 but growing it each year, with most growing at a rate greater than inflation. In addition to core CCC holdings, there are additional stocks from the Frozen Angel List and others from the Near Challengers List also complied by David.

As a retiree, my goal from the start has been to construct and maintain a portfolio that would substitute for the traditional concept of selling holdings each month to provide necessary retirement income. Our portfolio acts as a substitute for the 4% withdrawal of capital gain plus an additional withdrawal each year equal to inflation, recommended by our former advisers. We chose to rely instead on income generated from dividends growing at a rate greater than inflation.

I have two major goals for our dividend growth investments: increased annual income through dividend growth greater than inflation and capital preservation. Our goal this year is a 6% growth in income from portfolio dividend growth equal to 6%.

I continue to believe our success as investors is a direct result of having and following a portfolio business plan that sets out specific guidelines for buying, selling and on occasion trimming portfolio positions. Our plan, recently revised and available here, was developed after first defining our retirement income requirements and our personal risk profile. It defines our principal investment goals and sets out the clear performance benchmarks upon which success will be measured.

What follows is the quarterly review we conduct at the end of each quarter as required by our plan. It remains exciting to experience firsthand the direct results of strong consistent dividend growth. Applying a key metric — Total Dividend Return, referred to by many as the chowder rule, at the time of purchase has proven instrumental in our success.

As risk-averse investors, we sought a low beta portfolio. Our overall portfolio beta remains under .70 as required by our plan. It is currently registered at .63.

There were no dividend cuts or freezes among our holdings this quarter. During the quarter Digital Realty (NYSE:DLR) was removed from the bench, enjoying a period of greater price stability and performance. Many will remember that according to my plan: My portfolio business plan requires that I consider selling in the case of dividend cut. Note it includes the word consider. I use a bench or probation system, so to speak, to help me make decisions based less on emotion.

A stock is benched for the next quarter for a number of reasons including severe below-market performance, dividend cut or freeze and declining dividend growth. Its almost like putting one of my grand kids on a time out.

When a stock is benched I look first at whether it improves its performance during that quarter. If it does, it continues on the bench. In the case of a stock benched for slowing dividend growth, if dividend growth fails to improve the next year, it is sold. While a stock is on the bench I am not likely to add to that position.

Royal Dutch Shell (NYSE:RDS.B) and Digital Realty (DLR) are two success stories of my use of the bench. LinnCo (NASDAQ:LNCO) is another. Instead of selling the minute the investigation was underway, I benched it first. I ultimately recouped over 25% of my loss, when in a far less emotional state I sold having decided LNCO was not a stock I wanted to own moving forward.

In last quarters review, I discussed the renewed emphasis I plan to place on dividend growth and quality. This quarter I continued our renewed emphasis on dividend growth and quality. We have increase the number of holdings with investment grade credit of BBB or higher and strong dividend growth. Only eight holdings in this portfolio of 50 now fail to have investment grade credit. 37 have credit ranking of BBB+ recommended by Lowell Miller and providing yet another important margin of safety for retired investors.

This quarter I sold two positions: National Health Investors (NYSE:NHI) and PPL Corporation (NYSE:PPL) due to slowing dividend growth and in the case of NHI, failure to have investment grade credit. I began positions in HCP Inc. (NYSE:HCP) and SCANA Corporation (NYSE:SCG) because of factors like higher investment credit quality and dividend growth.

Capital preservation, a key objective for our portfolio, continues to exceed expectations, particularly for a portfolio with 35% less risk than the Samp;P 500 Index. We are pleased that since starting in February of 2011, our return on capital is 58.54% compared to 52.54% for the Samp;P 500. Now thats what I call capital preservation!

Capital gains help ensure our holdings maintain their dividends and hopefully increase their growth. Remember it is primarily through dividend growth, not capital growth, that our monthly income increases. During the same period, February of 2011 and today, our income from dividends has increased over 30%. Now thats what I call Total Dividend Return.

We expect the income to pull back just a bit as we scale back risk and reduce low conviction holdings.

Below are the current holdings making up my portfolio. Most were purchased at fair value or better between 2011 and today. I have included Morningstar Fair Assessments for those they review. * Highly Overvalued, ** Overvalued, *** Fairly Valued, **** Undervalued . Yield is todays.

How Operation Choke Point Hurts the Unbanked

This is the second article in a two-part series adapted from a keynote speech delivered recently at the annual meeting of the Financial Services Centers of America, a trade group representing nonbank financial services companies.

In any line of business, there are some good operators and some who refuse to play by the rules. The same holds true among payday lenders, check cashers and other alternative financial service providers. Its clear that we must protect consumers from those who seek to take unfair advantage. Regulators and law enforcement agencies need to be aggressive with companies that are ethically challenged or lax in observing the law.

Where regulators and law enforcement agencies lose me is when they cast a net so wide that they fail to distinguish good operators from the not so good. The Department of Justices Operation Choke Point program, apparently run in conjunction with the Federal Trade Commission and some bank regulators, casts a net so indiscriminately that one can only conclude that it is intended to drive all providers of alternative financial services out of business by denying them access to the banking system and harassing them with regulatory enforcement actions. This type of action drives banks to derisk (ie,dump) alternative financial service providers to avoid unwarranted scrutiny and greatly increased costs for risk controls.

This represents a serious abuse of government power. It is causing significant harm to the economy generally and to tens of millions of working-class Americans for whom alternative financial services provide a lifeline.

To put the market need in perspective, lets take a look at some key findings from the Federal Deposit Insurance Corp.s latest survey of unbanked and underbanked households. In 2013, roughly 34 million households, representing 68 million adults, had limited or no participation in the banking system. According to an earlier survey in 2009, two-thirds of unbanked households use alternative financial service providers to cash checks, provide payday and title loans, issue money orders, and issue pre-paid cards.The FDIC survey indicates that most underbanked households that use alternative financial services do so primarily for convenience, speed of service, and ease in qualifying for a loan.

Critics call payday loans predatory, due to their short term and relatively high cost, but it is very difficult for me to understand how a small, unsecured loan to a high-risk borrower can be predatory. If the borrower defaults, the lender has no collateral to go after, and the loan is too small to justify legal action to collect. The only recourse the lender has is to refuse to make additional loans to that borrower.

Short-term, unsecured consumer loans to borrowers with weak or limited credit histories are priced to cover the risks and operating costs of providing the service. The loans are short-term to limit the default risk. The typical payday loan is priced at a flat $15 per $100 two-week loan. Critics point out that the annual percentage rate on this loan exceeds 350% and call for short-term lenders to limit the APR to 36%.

But to achieve a 36% APR, the lender would need to limit the fee on a two-week $100 loan to $1.38. While I believe that a more competitive marketplace will likely bring the price meaningfully below $15 per $100 loan, I cant conceive of any business being willing or able to make $100 two-week unsecured loans to borrowers with poor or nonexistent credit histories for anything close to a $1.38 fee.

The millions of people who use short-term, fixed-fee loans almost certainly know whats in their own best interest better than anyone else. Payday loans are usually less expensive than overdraft fees. They are less painful than the consequences of defaulting on an auto loan or a mortgage. And they are a better deal than having the electricity turned off only later to pay fees for having it turned back on.

Critics also attack check cashing services, questioning why people should be charged $7 or $8 to cash a payroll check, particularly when the check can be deposited in a bank account without a fee. But many people take their payroll check to a non-bank check-cashing firm because they need the funds immediately, and their bank will not release the funds until three or four days after the check is deposited. These customers make the entirely reasonable judgment that having the cash in hand on Friday afternoon rather than the following Wednesday is worth seven dollars. Who are we to tell these people they are not capable of making that call?

There is no doubt that alternative financial services companies should be regulated ? and indeed they are by both the states and the Consumer Financial Protection Bureau. But eliminating these businesses will not do consumers any favors. States that eliminate payday loans immediately experience a substantial rise in costly outcomes to consumers, according to research at the Federal Reserve Bank of New York and Kansas City Fed. These studies also find that more households file for bankruptcy when payday loans are no longer available.

Until US authorities can demonstrate that they have a better idea as to how to deliver necessary financial services to this large segment of our population at attractive prices that allow a fair margin for profit, they should stop trying to drive from business the lawful companies that are working night and day to serve this clear market need.

It is my fervent hope that Congress will act to curtail Operation Choke Point immediately after the elections in November. I urge the House of Representatives to promptly pass the bill introduced by Rep. Blaine Luetkemeyer, R-Mo., the End Operation Choke Point Act of 2014.

The legislation would correct the most serious abuses under Operation Choke Point by offering safe harbor to financial institutions that do business with legal payday lenders and other businesses as long as they meet certain conditions. It is my hope that banks that have cut ties with the alternative financial services industry will restore their years-long profitable relationships with legal, licensed businesses.

William M. Isaac, a former chairman of the Federal Deposit Insurance Corp., is senior managing director and global head of financial institutions at FTI Consulting, which represents many clients throughout the world, some of which have interests in the issues considered in this article. The views expressed are his own.

BBVA Compass pledges $11 billion to community development program

HOUSTON, Nov. 6, 2014 /PRNewswire/ –BBVA Compass pledged today to put $11 billion in lending, investments and services toward supporting low- and moderate-income individuals and neighborhoods, a significant step in delivering on its promise to boost economic development across all the communities in its footprint.

Over the next five years, the bank will originate $2.1 billion in mortgage loans to low- and moderate-income (LMI) homebuyers and in LMI neighborhoods, $6.2 billion for small business lending, $1.8 billion for community development lending, and make $900 million in community development investments. The bank also plans to unveil new delivery channels, products and services for LMI individuals in 2015.

BBVA Compass is a principled bank that is committed to building a better future for absolutely everyone in our communities no exceptions, said BBVA Compass Chairman and CEO Manolo Sanchez. Its good business sense, its responsible banking and it helps us connect in a meaningful way to the places where we put down stakes. We are committed to doing our part in a way thats as big as our vision for banking in the 21st century.

BBVA Compass vowed to focus on initiatives that support low- and moderate-income neighborhoods after its recent disclosure regarding its Community Reinvestment Act exam, which measures how well financial institutions are meeting the credit needs of the communities they serve. The bank disclosed in a Form 10-Q filing with the SEC in August that it expects its rating will limit its ability to make certain acquisitions and open new branches.

In Washington, DC, last week, Sanchez met with representatives from the National Community Reinvestment Coalition and other community partners* all organizations dedicated to serving the housing, community and economic development needs of diverse communities across the US to discuss the banks efforts to reach out to LMI customers and neighborhoods.

I think BBVA Compass is making all the right moves in responding to calls for increased lending and investments to LMI communities, said NCRC President and CEO John Taylor.

The news comes on the heels of several moves the bank has made to boost its commitment to its communities. In September, to ensure the highest level of accountability, centralize management of the banks community development efforts, and meet CRA expectations, BBVA Compass moved the CRA function to the Corporate Responsibility and Reputation department. That same month, the bank welcomed veteran banker and seasoned CRA strategist Chris McGillis as the banks CRA program administration director.

The bank also has added a new Community Development Finance team, and announced its plan to hire 10 community relations officers across its footprint who will serve as the banks local champions for lending, investments and services for community development efforts.

The bank hosted its first week of service initiative in September, with more than a thousand employees volunteering more than 6,800 hours of their time in LMI communities teaching financial education to children, hosting small business and affordable housing workshops and offering their professional expertise to community development organizations.

We have made significant enhancements to our CRA program in terms of staffing, governance and overall strategy, said BBVA Compass Director of Corporate Responsibility and Reputation Reymundo Ocanas, who joined Sanchez in Washington to meet with the various community organizations.

BBVA Compass also elevated Ocanas, the banks CRA officer. He now reports directly to Sanchez, a point that NCRCs Taylor says is a sign of the banks commitment.

The personal assurances from the banks CEO and the fact that the lead staff person on these matters reports directly to him are all good signs of an increased sensitivity and commitment to underserved community credit needs, Taylor said.

As part of its community development program, the bank also plans to set up an advisory board with 16 members from markets across its footprint to provide input, guidance and feedback on its CRA program restructure.

* Additional attendees to the event in Washington included representatives from the following:

  • National Low Income Housing Coalition
  • National Alliance of Community Economic Development Associations
  • Hispanic Heritage Foundation
  • National Association for Latino Community Asset Builders
  • National Coalition for Asian Pacific American Community Development
  • National Council of La Raza

Details of the banks five-year $11 billioncommunity development program:

Lending commitment highlights

$2.1 billion in mortgages for LMI homebuyers and in LMI neighborhoods

  • New homebuyer assistance program to launch in 2015
  • New portfolio product with flexible loan-to-value (LTV) terms
  • Federal Housing Administration (FHA) mortgage product with more flexible terms
  • Dedicated community development mortgage banking officers

$6.2 billion in small business loans

  • Remain focused on loans under $100,000 to smaller-sized businesses
  • Partnerships with loan funds, including Community Development Financial Institutions (CDFIs) and technical assistance providers
  • Small business bankers trained to work within LMI communities

$1.8 billion in Community Development loans

  • Affordable housing as the primary focus, including single family development
  • New economic development projects for job creation in LMI communities
  • Support for clinics and medical facilities in underserved areas, given the banks specialty in healthcare lending
  • Dedicated community development lending team within Commercial Banking

Investment commitment highlights

$250 million in low income housing tax credits (LIHTC) investments

  • Transaction support to come from community development finance team in corporate responsibility department and community development lending team in Commercial Banking

$100 million in Equity Equivalents (EQ2s) and equity investments into CDFIs

  • Partnership with Opportunity Finance Network
  • Includes support for smaller/emerging CDFIs active in rural and border markets

$43.5 million in grant contributions from the BBVA Compass Foundation

  • 50 percent of all grants for Community Development
  • Special grant program for CDFIs

Service commitment highlights

Additional ATMs

  • Deposit-taking ATMs and Banker Links (remote video teller ATMS) deployed in LMI areas

LMI and Unbanked Products/Services

  • Low/no cost checking accounts for qualified LMI customers
  • Digital innovation products to include LMI consumers

Commitment to Service

  • Bolster financial education platform to include in-person and online content across the US for children and adults
  • Employees to receive paid time off for community development service hours
  • Pro bono effort with community development corporations

New Community Advisory Board

  • Advisory board will provide bank executives and board directors with input, guidance and feedback on the banks CRA program restructure
  • Provide referrals for qualified community development business opportunities such as mortgage, small business and community development loans and investments
  • Board will include 16 members from across the banks footprint.

About BBVA Group

BBVA Compass is a subsidiary of BBVA Compass Bancshares Inc., a wholly owned subsidiary of BBVA (NYSE: BBVA) (MAD: BBVA). BBVA is a customer-centric global financial services group founded in 1857. The Group has a solid position in Spain, is the largest financial institution in Mexico and has leading franchises in South America and the Sunbelt region of the United States. Its diversified business is geared toward high-growth markets and relies on technology as a key sustainable competitive advantage. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture. It operates with the highest integrity, a long-term vision and applies the best practices. The Group is present in the main sustainability indexes. More information about the BBVA Group can be found at www.bbva.com.

About BBVA Compass

BBVA Compass is a Sunbelt-based financial institution that operates 673 branches, including 342 in Texas, 89 in Alabama, 77 in Arizona, 62 in California, 45 in Florida, 38 in Colorado and 20 in New Mexico, and commercial and private client offices throughout the US BBVA Compass ranks among the top 25 largest US commercial banks based on deposit market share and ranks among the largest banks in Alabama (2nd), Texas (4th) and Arizona (5th). BBVA Compass has been recognized as one of the leading small business lenders by the Small Business Administration and recently earned the top ranking with customers in American Bankers 2014 annual reputation survey of the top 25 largest US retail banks. Additional information about BBVA Compass can be found at www.bbvacompass.com, by following @BBVACompassNews on Twitter or visiting newsroom.bbvacompass.com.

Editors Note:
BBVA Compass is a trade name of Compass Bank.

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SOURCE BBVA Compass

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Starting out: Business plans promote financial success

Nathan Glynn didnâ??t originally plan on being an interior designer. Instead, the owner of The Mezzanine in Winona built his business client by client and sale by sale.

While working full-time for another company, Glynn took on his first interior design project the summer of 2013. He took the money from that first job and put it back into the business, letting him take on even more work.

Continued success, along with around $2,000 in personal capital invested in the first four months of the business allowed him continue to grow until he had the finances to open up his downtown showroom and become an interior designer full-time. Although Glynn started his business in a non-traditional manner, he used online software to help develop a series of one, three and five-year plans for his fledgling company and stuck with them, ensuring his success.

â??The Mezzanine could be anything I wanted it to be,â? he said. â??I decided to grow it into a full interior design service.â?

Businesses come in all shapes and sizes from large industrial operations to small mom and pop storefronts and even outfits run from the home office. The amount of capital needed to get these businesses off the ground also runs the gamut from business loans to finding investors to new digital crowd-sourced models like Kickstarter and Patreon. But one thing experts agree that makes all the difference in getting funded and keeping a business financially healthy after it starts is developing a business plan.

â??In most cases, one of the fundamental first steps should be creating a business plan,â? University of Wisconsin-La Crosse Small Business Development Center director Anne Hlavacka said. â??Most businesses start from a good idea or a unique product,â? Hlavacka said. â??But the devil is in the details.â?

Good business plans should go over many of the details and forecasts of a company over its first several years, including a budget laying out where the money is going to come from. They should also have forecasts for where the business is going to gets its revenue and how, along with alternative scenarios if the business does more poorly or better than predicted.

It can be hard for some prospective business owners to make an educated guess on some of the unknowns, but it is the process itself that is most important as business planning helps challenge assumptions and allows that business owner to think through all of the little details that go into making a business work.

And a business plan is one of the key factors business lenders take into consideration when considering financing. Erica Jerowski, vice president and business banking manager at Winona National Bank includes business planning in the list of criteria she considers when working with customers.

Personal financial information also helps the bank with the process. A personal stake is another important component, with Jerowski saying a quick rule of thumb would be to have twenty percent of the initial investment in a business coming from personal finances.

â??That helps the bank feel that they are personally invested in the business,â? Jerowski said. â??It also helps lower the amount of debt taken out and helps with the cashflow.â?

Andrew Palm is no stranger to business ownership. An optometrist, Palm worked for Pearle Vision for eight years before buying the Valley View Mall franchise three years ago.

Those years of experience in business helped teach him the ropes when he opened a second business, Carrollâ??s Popcorn amp; Frozen Yogurt near the food court in the mall last winter.

Understanding the benefits and pitfalls of the franchise model helped Palm when he worked with Pat Carroll of Rochester, Minn., to bring the Carrollâ??s brand across the river. Instead of a franchise, the two agreed upon a partnership model, with Carroll providing expertise, product sourcing and recipes to the table in return for a percentage of sales.

And his years of experience in business helped him with planning the second venture, which has Palm and his brother as equal investors in the shop. He was familiar with writing up projections and liabilities, and his experience helped him to write up a realistic plan instead of planning for cashing out quick.

His experience with Pearle Vision also helped him to plan for expenses many new business owners donâ??t always think of. Those include controlling costs, keeping payroll under control and the less visible costs of running a business like credit card fees and taxes.

â??These are things you donâ??t necessarily think about when opening a business,â? he said. â??But it helped when opening the second store.â?

The mall also had resources to help with planning. They helped provide data on similar businesses to help with the business plan and craft realistic benchmarks and expectations.

But Palm said the biggest indicator of success isnâ??t found on a piece of paper. The best business strategy doesnâ??t matter if the business owner isnâ??t passionate about what they are doing.

â??ClichÃs are clichÃs for a reason,â? he said. â??If you donâ??t love what you are doing, you wonâ??t be successful.â?

Feds Say Bay Area CEO Ran a Ponzi Scheme

SAN FRANCISCO (CN) – The Justice Department has charged a Bay Area investment manager with conning investors out of millions by selling securities in the form of membership interests in investment funds.
Mark Feathers, CEO of Small Business Capital Corp., was charged Oct. 29 with 17 counts of securities fraud and 12 counts of mail fraud, according to unsealed court documents released by the US Attorneys Office.
Feathers, 51, allegedly raised more than $50 million from over 250 investors starting in 2009, and promised prospective investors that the funds would pay member returns of at least 7.5 percent, prosecutors say.
By 2012, the Los Altos man had allegedly funneled more than $5 million in unsecured loans to his management company and had about $2 million for his own use. He allegedly constructed a Ponzi scheme to pay investors by using money from new investors, prosecutors say.
Feathers was released on $250,000 bond after appearing in federal court in San Jose on Wednesday. Hes due back in court on Nov. 19.
Small Business Capital Corp. has been in receivership since 2012, when the Securities and Exchange Commission closed it down and won a $7.78 million judgment against Feathers. Feathers has appealed that judgment.

Sowell: Negative effects of ‘predatory lending’ greatly exaggerated

The New York Times is again on the warpath against what it calls predatory lending. Just what is predatory lending? It is lending that charges a higher interest rate than people like those at the New York Times approve of.

According to such thinking — or lack of thinking — the answer is to have the government set an interest rate ceiling at a level that will be acceptable to third parties like the New York Times. People who believe in government-set price controls — whether on interest rates charged for loans, rents charged for housing, or wages paid under minimum-wage laws — seem to think that this is the end of the story. Yet there is a vast literature on the economic repercussions of price controls. Whole books have been written just on the repercussions of rent-control laws in countries around the world.

These repercussions include the housing shortages that almost invariably follow, the deterioration of existing housing, and the shift of economic resources — both construction materials and construction labor — from building ordinary housing for the general public to building luxury housing that only the affluent can afford, because that is usually exempted from rent control.

There is at least an equally vast amount of literature on the repercussions of minimum wage laws. Unemployment rates over 20 percent for younger, less-skilled and less-experienced workers have been common, even in normal times — with much higher unemployment rates than that during recessions. Against this background of negative repercussions from various forms of price control, in countries around the world, why would anybody imagine that price controls on interest rates would not have repercussions that need to be considered?

Yet there is remarkably little concern on the political left as to the actual consequences of the laws and policies they advocate. Low-income people often get short-terms loans when they run out of money to meet some exigency of the moment. The interest rates charged on such unsecured loans to people with low credit scores are usually higher than on loans to people whose higher incomes and better credit histories make them less of a risk.

Crusaders against such loans often make the interest rate charged seem even higher by quoting these interest rates in annual terms, even when the loan is actually repayable in a matter of weeks. It is like saying that a $100 a night hotel room costs $36,500 a year, when virtually nobody rents a hotel room for a year. Because those who obtain unsecured short-term loans are usually poor and often ill-educated, the political left can cast the high interest rates as unconscionably taking advantage of vulnerable people.

Exploiting ignorance

But similar principles apply to more upscale short-term lending to well-educated people who have valuable possessions to use as collateral. A small-time businessman who suddenly finds that he does not have enough cash on hand to pay his employees this week knows that if he doesnt pay them this week, he may not have any employees next week — and can face lawsuits the week after that.

There is an upscale lending market available to such people, where he can use his expensive personal possessions as collateral to get the money he needs immediately. He can borrow more money than the poor can borrow, and at not as high an interest rate. But his interest rate can still be 200 percent if figured on an annual basis — even though he may be able to pay off the loan next month when his customers pay him what they owe him, so he is paying only a small fraction of that hypothetical 200 percent, just as the poor are paying only a small fraction of the hypothetical 300 percent or 400 percent that they are charged.

Editorial demagoguery against predatory lending might well be called predatory journalism — taking advantage of other peoples ignorance of economics to score ideological points, and promote still more expansion of government powers that limit the options of poor people, who have few options already.