As published in Scotsman Guide's Residential Edition, July 2008.
Although popular with many homeowners, home-equity lines of credit (HELOCs) are essentially being phased out of existence. HELOCs were a popular means of advancing individual credit to oneself on an as-needed basis. Borrowers pay interest only on the outstanding balance, and when repaid, the credit was again available for future use.
Many property-buyers kept HELOCs in mind for emergencies or for expenses like their children's college tuition. Also, many small-business-owners often tapped into their home equity for business purposes.
Because of the credit crunch and falling property values, however, major banks across the country are now eliminating or limiting this product's availability. In fact, the "Senior Loan Officer Opinion Survey on Bank Lending Practices," the Federal Reserve System's quarterly credit-demand study, found that 70.3 percent of lenders tightened standards on HELOCs during the second quarter of this year.
There is another option, however, for business-owners who need a line of credit -- and that can supplement mortgage brokers' income during these downturns: unsecured lines of credit.
For a residential mortgage broker, taking on business financing may be overwhelming. Indeed, going it alone would require substantial education and a steep learning curve. Many brokers might feel trepidation about handling their clients' business affairs without the proper expertise. They also may fear making mistakes and the potential legal consequences from such mistakes.
To feel more secure and maximize their effectiveness when adding unsecured lines of credit to their offerings, brokers should consider partnering with firms that specialize in the product. These companies often look for mortgage brokers with whom to affiliate. They also may provide training, documentation and processing services to brokers, usually free of charge. This type of affiliation will jumpstart brokers' business activities in this new arena. Brokers main task, then, is to find qualified clients.
Because many business-owners also are homeowners, mortgage brokers often can find prospects for unsecured lines of credit in their existing customer database. They must inform their clients that this source of financing exists and that they qualify. Review your database and contact all your clients who own businesses.
The application process for unsecured lines of credit can be complex. In fact, a lot of applicants who apply for themselves get declined. Borrowers who work with brokers and specialists in the area, however, can increase their chances of approval greatly.
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