A mortgage is the pledging of a property to a lender as a security for a mortgage loan. While a mortgage in itself is not a debt, it is evidence of a debt. It is a transfer of an interest in land, from the owner to the mortgage lender, on the condition that this interest will be returned to the owner of the real estate when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.
The term comes from the Old French "dead pledge," apparently meaning that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure.
In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property (such as ships) and in some cases only land may be mortgaged. Arranging a mortgage is seen as the standard method by which individuals and businesses can purchase residential and commercial real estate without the need to pay the full value immediately. See mortgage loan for residential mortgage lending, and commercial mortgage for lending against commercial property.
In many countries it is normal for home purchases to be funded by a mortgage. In countries where the demand for home ownership is highest, strong domestic markets have developed, notably in Spain, the United Kingdom, the Commonwealth of Australia and the United States.
Friday, July 18, 2008
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Mission
According to the agency, the mission of the Small Business Administration (SBA) is "to maintain and strengthen the Nation's economy by aiding, counseling, assisting, and protecting the interests of small businesses and by helping businesses and families recover from economic and other disasters."
The agency is also responsible for providing loans to homeowners and renters that have been victims of presidentially declared disasters. Presidential declarations automatically make disaster assistance available to victims if they meet qualifications. The Department of Agriculture and state governors also have the authority to request declarations on areas affected by disasters in their jurisdictions. Over 80% of the loans processed by the agency are for home owners and renters.
Structure
The SBA is an independent agency that operates under the authority of the Small Business Act of 1953. The secretary of commerce delegates small business responsibilities to the SBA. The organization and management of the SBA consists of an administrator and deputy administrator, who are appointed by the president and approved by the United States Congress; field office directors; and administrators for the various program areas. The SBA also has associate administrators for the following offices: Disaster Assistance; Field Operations; Public Communications, Marketing, and Customer Service; Congressional and Legislative Affairs; Equal Employment Opportunity and Civil Rights Compliance; Hearings and Appeals; and Management and Administration.
There are also associate administrators for Investment; Small Business Development Centers; Surety Guarantees; regular Government Contracting; and Minority Enterprise Development. Assistant administrators handle International Trade; Native American Affairs; Veterans Affairs; Women's Business Ownership; and Size Standards, and Technology. There is an associate deputy administrator for Government Contracting and Minority Enterprise Development. These offices are then the backup and resource for over 68 field offices that administer the programs and monitor loans. The Inspector General Office audits and maintains the integrity of the loans and the SBA programs.
History
The SBA was established on July 30, 1953, by the United States Congress with the passage of the Small Business Act. Its function was to "aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns." Also stipulated was that the SBA should ensure a "fair proportion" of government contracts and sales of surplus property to small business. This was accomplished primarily through the Small Business Innovative Research program and government "set-asides."[2][3]
The SBA also makes loans directly to businesses and acts as a guarantor on bank loans. In some circumstances it also makes loans to victims of natural disasters, works to get government procurement contracts for small businesses, and assists businesses with management, technical and training issues.
The SBA has directly or indirectly helped nearly 20 million businesses and currently holds a portfolio of roughly 219,000 loans worth more than $45 billion making it the largest single financial backer of businesses in the United States.[2]
The SBA has survived a number of threats to its existence. In 1996 the then newly Republican-controlled House of Representatives planned to eliminate the agency.[4] It survived and went on to receive a record high budget in 2000.[5] Renewed efforts by the Bush Administration to end the SBA loan program have met congressional resistance, although the SBA's budget has been repeatedly cut, and in 2004 certain expenditures were frozen.
SBA Loan programs
The most visible elements of the administration are the loan programs it administers. The SBA itself does not grant loans with the exception of Disaster Relief Loans. Instead, the SBA guarantees against default certain portions of business loans made by banks and other lenders that conform to its guidelines. Disaster Relief Loans are issued directly from the SBA.
Contrary to popular belief, these programs are not generally for persons with bad credit who can't get bank loans, nor are they primarily used for startup funding; rather, the primary use of the programs are to make loans for longer repayment periods and with looser affordability requirements than normal commercial business loans. Also, a business can qualify for the loan even if the yearly payment would be the same as the previous year's profit, whereas most banks would want payment for a loan to be no more than two-thirds (2/3) of the prior year's profits for a business. The lower payments, longer terms and looser affordability calculations allow some businesses to borrow more money than they could otherwise.
One of the most popular uses of SBA loans is for commercial mortgages on buildings occupied by a small business. These programs are chosen because most bank programs, while having similar payments and rates, require borrowers to refinance every five years.
Types of Guaranteed Business Loans through banking institutions include:
* Loan Guarantee Program: The 7(a) Loan Guarantee Program are designed to help small entrepreneurs start or expand their businesses. The program makes capital available to small businesses through bank and non-bank lending institutions.
* 504 Fixed Asset Financing Program: The 504 Fixed Asset Financing Program is administered through non-profit Certified Development Companies throughout the country. This program provides funding for purchasing land or construction. Of the total project costs, a lender must provide 50% of the financing, a Certified Development Company provides up to 40% of the financing through a 100% SBA guaranteed debenture, and the applicant provides approximately 10% of the financing.
* MicroLoan Program: Available for up to $35,000 through non-profit, micro loan intermediaries, to small businesses considered unbankable in the traditional banking industry.
* Economic Development Program: SBA partners such as SCORE and the Small Business Development Centers (SBDC's), operating in each state provide free and confidential counseling and low-cost training to small businesses
* 8(a)-Business Development Program: Assists in the development of small businesses owned and operated by individuals who are socially and economically disadvantaged.
Homeowners are eligible for long-term, low-interest loans to rebuild or repair a damaged property to pre-disaster condition. Before making a loan, the SBA must establish the cost of repairing or rebuilding the structure (which is determined by SBA's Loan Verification officers who visit the property), applicant's repayment ability (determined by applicant's credit worthiness and income) and whether the applicant can obtain credit in the commercial market (called the credit elsewhere test). Applicants who do not qualify for disaster assistance loans are then referred to the Federal Emergency Management Agency (FEMA) for grants. Although SBA says it won’t decline a loan for lack of enough collateral, the agency is statutorily required to ask for whatever collateral is available including the damaged property, a second home or real estate.
Businesses are also eligible for long-term, low-interest loans to recover from a nationally declared disaster. The means testing used by the SBA seems variable as a recovering business may be eligible for a smaller loan shortly after a disaster, but if the company has not substantially recovered within a short period of time and within the window in which Disaster Loans are still available for that area, the business may be granted a subsequent loan from the SBA for a greater amount. Similar to the homeowner's loan program mentioned above, a small business owner must pledge all their personal assets and acquire a similar pledge from a spouse or partner in the ownership of any shared assets. If defaulted on the loan the spouse or partner must surrender their value in the asset(s). The total value of an applicant’s assets is not considered by the SBA therefore a company may be approved for a loan regardless of if that person has little or great net worth.
Once an SBA guaranteed bank loan is approved, the SBA may mail closing documents to the applicant for signature. Disbursements may include an initial unsecured amount of $10,000 and subsequent disbursements pending upon construction progress and continued insurance coverage. After final disbursement, the loan is transferred to the SBA's Office of Capital Assets for management and servicing or collection in the case of default.
Disaster Relief Loans can take many months to be approved. Often forms that are submitted to the SBA must travel to multiple locations and all information provided to them must be verified before any funds are disbursed. This delay in funding can often result in damage to the businesses cash flow, credit and ability to maintain the level of revenue required to repay the loan. The SBA solely determines the amount of the loan they will approve for a business and the business will not be notified of the amount of the loan until one to two business days before the funds are received.
If a business which has a current Disaster Relief Loan defaults on the loan and the business is closed, the SBA will pursue the business owner to liquidate all personal assets. The IRS will withhold any tax refund expected by the former business owner and apply the amount toward the loan balance. After taking possession of all personal assets, the SBA may not pursue the former owner for many years allowing the person to rebuild their personal assets then will renew collection proceedings through a contracted collection agency.
The agency is also responsible for providing loans to homeowners and renters that have been victims of presidentially declared disasters. Presidential declarations automatically make disaster assistance available to victims if they meet qualifications. The Department of Agriculture and state governors also have the authority to request declarations on areas affected by disasters in their jurisdictions. Over 80% of the loans processed by the agency are for home owners and renters.
Structure
The SBA is an independent agency that operates under the authority of the Small Business Act of 1953. The secretary of commerce delegates small business responsibilities to the SBA. The organization and management of the SBA consists of an administrator and deputy administrator, who are appointed by the president and approved by the United States Congress; field office directors; and administrators for the various program areas. The SBA also has associate administrators for the following offices: Disaster Assistance; Field Operations; Public Communications, Marketing, and Customer Service; Congressional and Legislative Affairs; Equal Employment Opportunity and Civil Rights Compliance; Hearings and Appeals; and Management and Administration.
There are also associate administrators for Investment; Small Business Development Centers; Surety Guarantees; regular Government Contracting; and Minority Enterprise Development. Assistant administrators handle International Trade; Native American Affairs; Veterans Affairs; Women's Business Ownership; and Size Standards, and Technology. There is an associate deputy administrator for Government Contracting and Minority Enterprise Development. These offices are then the backup and resource for over 68 field offices that administer the programs and monitor loans. The Inspector General Office audits and maintains the integrity of the loans and the SBA programs.
History
The SBA was established on July 30, 1953, by the United States Congress with the passage of the Small Business Act. Its function was to "aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns." Also stipulated was that the SBA should ensure a "fair proportion" of government contracts and sales of surplus property to small business. This was accomplished primarily through the Small Business Innovative Research program and government "set-asides."[2][3]
The SBA also makes loans directly to businesses and acts as a guarantor on bank loans. In some circumstances it also makes loans to victims of natural disasters, works to get government procurement contracts for small businesses, and assists businesses with management, technical and training issues.
The SBA has directly or indirectly helped nearly 20 million businesses and currently holds a portfolio of roughly 219,000 loans worth more than $45 billion making it the largest single financial backer of businesses in the United States.[2]
The SBA has survived a number of threats to its existence. In 1996 the then newly Republican-controlled House of Representatives planned to eliminate the agency.[4] It survived and went on to receive a record high budget in 2000.[5] Renewed efforts by the Bush Administration to end the SBA loan program have met congressional resistance, although the SBA's budget has been repeatedly cut, and in 2004 certain expenditures were frozen.
SBA Loan programs
The most visible elements of the administration are the loan programs it administers. The SBA itself does not grant loans with the exception of Disaster Relief Loans. Instead, the SBA guarantees against default certain portions of business loans made by banks and other lenders that conform to its guidelines. Disaster Relief Loans are issued directly from the SBA.
Contrary to popular belief, these programs are not generally for persons with bad credit who can't get bank loans, nor are they primarily used for startup funding; rather, the primary use of the programs are to make loans for longer repayment periods and with looser affordability requirements than normal commercial business loans. Also, a business can qualify for the loan even if the yearly payment would be the same as the previous year's profit, whereas most banks would want payment for a loan to be no more than two-thirds (2/3) of the prior year's profits for a business. The lower payments, longer terms and looser affordability calculations allow some businesses to borrow more money than they could otherwise.
One of the most popular uses of SBA loans is for commercial mortgages on buildings occupied by a small business. These programs are chosen because most bank programs, while having similar payments and rates, require borrowers to refinance every five years.
Types of Guaranteed Business Loans through banking institutions include:
* Loan Guarantee Program: The 7(a) Loan Guarantee Program are designed to help small entrepreneurs start or expand their businesses. The program makes capital available to small businesses through bank and non-bank lending institutions.
* 504 Fixed Asset Financing Program: The 504 Fixed Asset Financing Program is administered through non-profit Certified Development Companies throughout the country. This program provides funding for purchasing land or construction. Of the total project costs, a lender must provide 50% of the financing, a Certified Development Company provides up to 40% of the financing through a 100% SBA guaranteed debenture, and the applicant provides approximately 10% of the financing.
* MicroLoan Program: Available for up to $35,000 through non-profit, micro loan intermediaries, to small businesses considered unbankable in the traditional banking industry.
* Economic Development Program: SBA partners such as SCORE and the Small Business Development Centers (SBDC's), operating in each state provide free and confidential counseling and low-cost training to small businesses
* 8(a)-Business Development Program: Assists in the development of small businesses owned and operated by individuals who are socially and economically disadvantaged.
Homeowners are eligible for long-term, low-interest loans to rebuild or repair a damaged property to pre-disaster condition. Before making a loan, the SBA must establish the cost of repairing or rebuilding the structure (which is determined by SBA's Loan Verification officers who visit the property), applicant's repayment ability (determined by applicant's credit worthiness and income) and whether the applicant can obtain credit in the commercial market (called the credit elsewhere test). Applicants who do not qualify for disaster assistance loans are then referred to the Federal Emergency Management Agency (FEMA) for grants. Although SBA says it won’t decline a loan for lack of enough collateral, the agency is statutorily required to ask for whatever collateral is available including the damaged property, a second home or real estate.
Businesses are also eligible for long-term, low-interest loans to recover from a nationally declared disaster. The means testing used by the SBA seems variable as a recovering business may be eligible for a smaller loan shortly after a disaster, but if the company has not substantially recovered within a short period of time and within the window in which Disaster Loans are still available for that area, the business may be granted a subsequent loan from the SBA for a greater amount. Similar to the homeowner's loan program mentioned above, a small business owner must pledge all their personal assets and acquire a similar pledge from a spouse or partner in the ownership of any shared assets. If defaulted on the loan the spouse or partner must surrender their value in the asset(s). The total value of an applicant’s assets is not considered by the SBA therefore a company may be approved for a loan regardless of if that person has little or great net worth.
Once an SBA guaranteed bank loan is approved, the SBA may mail closing documents to the applicant for signature. Disbursements may include an initial unsecured amount of $10,000 and subsequent disbursements pending upon construction progress and continued insurance coverage. After final disbursement, the loan is transferred to the SBA's Office of Capital Assets for management and servicing or collection in the case of default.
Disaster Relief Loans can take many months to be approved. Often forms that are submitted to the SBA must travel to multiple locations and all information provided to them must be verified before any funds are disbursed. This delay in funding can often result in damage to the businesses cash flow, credit and ability to maintain the level of revenue required to repay the loan. The SBA solely determines the amount of the loan they will approve for a business and the business will not be notified of the amount of the loan until one to two business days before the funds are received.
If a business which has a current Disaster Relief Loan defaults on the loan and the business is closed, the SBA will pursue the business owner to liquidate all personal assets. The IRS will withhold any tax refund expected by the former business owner and apply the amount toward the loan balance. After taking possession of all personal assets, the SBA may not pursue the former owner for many years allowing the person to rebuild their personal assets then will renew collection proceedings through a contracted collection agency.
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