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Do You Understand the Fine Print of Your Loan Agreement?

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Make a bad investment? You’re only going to lose the money you put down. Sign a shoddy loan agreement? You may end up in bottomless debt.

For thousands of New York taxi drivers, however, both ended up being the case. According to a New York Times expose published this spring, much of the profession’s financial ruin – and, tragically, rampant suicide rates – can be traced to the deliberate overpricing of taxi medallions (the city’s taxi license) and the predatory loans cabbies took out to afford them.

There’s little argument that the taxi drivers weren’t taken advantage of, with many lacking the English language skills to do their due diligence. The problem is that not all predatory loans are unlawful loans. While usury laws can cap interest rates and payday loans are outright banned in some states, many unethical lenders are still able to operate within the realm of legality.
Failing to read the fine print of a loan agreement can have life-altering consequences. If you’re a small business owner who has been approved for a business loan, the hard part may be over, but don’t let your jubilance get the best of you. Read the fine print.

You’ll know you’ve been thorough if you can answer these seven questions:

1. Is the interest rate fixed or variable?
In a variable interest rate loan, the borrower pays the market’s interest rate plus or minus a fixed percentage. A variable rate commonly seen in business loans is the Wall Street Journal Prime Rate plus 2.5%. As the prime rate changes, so does the interest a borrower pays.

A fixed interest rate, however, is not affected by the market – the percentage remains the same. Variable rates tend to accrue less interest than fixed rates, however, this comes with greater risk, especially for loans with long amortization periods. A fixed interest rate secured when interest rates are low can shield borrowers from market changes.

Look out for interest-only loans. In a standard amortizing loan, borrowers pay off a bit of their principal, or the amount initially borrowed, in addition to interest for each installment. An interest-only loan, on the other hand, is exactly what it sounds like – but it doesn’t last forever. After the interest-only period, borrowers can either convert to a standard amortizing loan, pay off the whole debt in one balloon payment or refinance. [Interested in finding the right business loan for your small business? Check out our best picks and reviews.]

The advantage of interest-only loans, for those willing to take the risk, is that the initial required payments are lower – this can be a lifesaver for a cash-strapped small business. As with any other risky lending practice, however, they can also be used by predatory lenders to mislead inexperienced borrowers. Indeed, this was one of the many schemes The New York Times reported were used against taxi drivers, by leading borrowers to think they were slowly paying off their debts when they were only paying interest.

2. What is the annual percentage yield?
The annual percentage rate (APR), a combination of the total interest payable and all other fees averaged out over the term of the loan, provides a useful way to evaluate and compare loans with one quick figure. What APRs don’t factor for, however, is compounding interest, which is why borrowers should look at the annual percentage yield (APY), or earned annual rate (EAR), for a more accurate read on what they’ll have to pay. This is because unlike APR, which multiplies the interest rate by the number of times it’s applied (e.g., quarterly or monthly), the APY includes compound interest, or interest paid on previous interest.

Since APYs are higher – not to mention much harder to conceptualize – they’re less likely to be quoted by lenders. If that’s the case, borrowers can use this online calculator instead.

Look out for factor rates. It’s common for short-term loans or merchant cash advances to quote interest in the form of a factor rate – this is not to be confused with APR. While APR reflects interest charged on the remaining principal – meaning the more debt you chip away, the less interest you’ll owe – factor rates reflect interest for the entire principal, regardless of the number of installments or how quickly it’s paid off. Thus, a factor rate will accrue more interest than an APR of the same percentage.

That’s something Glenn Read learned the hard way when financing his small business, Allegra Marketing Print Mail, after being turned down for a traditional bank loan.

“I was forced to take out merchant cash advances (MCAs) and high-interest line of credit loans just to meet payroll and keep the lights on,” said Read. “One of the first MCAs I took out, the amount I was given was $40,000 and the payback was $56,000 for a one-year term.” As it happened, the merchant cash advance had charged a factor rate of 40%.

3. Whose credit rating is important?
“It’s important to understand the language of the nonbank lenders,” said Read. Whose credit rating is it based on?

A business loan is often based on a combination of both business and personal credit scores. For small businesses yet to prove creditworthiness, the owner’s personal credit score is especially critical.

“Few small businesses have a long enough track record to have a sufficient credit history,” said Brian Cairns, who runs his own consulting company ProStrategix Consulting Inc. After securing his own small business loan, Cairns now helps many of his clients do the same.

According to Cairns, personal credit concerns not just the founder, but any equity-holding partner. “If you or one of your partners owns a material part of the business (usually about 20% or more), your personal credit can affect your chances of getting a small business loan,” Cairns said.

Look out for unjustified risk-based pricing. A subprime loan, or a loan given to a borrower with a poor credit history, will often pay a risk premium of either higher interest rates, higher fees or both. Some predatory lenders take advantage of this reality by telling the borrower they have bad credit to ramp up interest rates, a practice known as unjustified risk-based pricing. This is an easy trap for inexperienced borrowers unaware of their own creditworthiness. Thus, an awareness of your personal and business credit rating can help you make sure you’re getting a fair price.

4. Do you have to put up collateral?
A secured loan means that the borrower must offer some sort of asset as collateral, or something that can be taken over by the lender in case of default. In mortgages, this is the property itself. An unsecured loan does not include any collateral.

While credit cards and student loans are common examples of unsecured loans, business loans will almost always require some sort of guarantee. Only well-established companies with long credit histories will stand a chance of getting an unsecured business loan.

Look out for personal guarantees. It’s common for small business loans to include a personal guarantee for the same reason personal credit scores come into play – many small businesses have yet to build creditworthiness on their own, making the owner liable instead. On top of that, small businesses may be lacking in assets that can be used as collateral. However, banks may not always be upfront about this.

“Most people don’t read the fine print and can be surprised when they learn that they put some of their personal finances at risk,” Cairns said.

The assertion comes from personal experience. “We caught it in our fine print that the bank was using our founders’ personal retirement savings as a personal guarantee for the loan.”

5. What is the payment and amortization schedule?
Interest rates and APR aside, business loans can also vary by payment schedule. This includes not just the number of payment periods per year, but the inclusion of grace periods, late payment fees and prepayment penalties.

One thing lenders don’t often explicitly specify in the fine print is the amortization schedule, or the schedule of how much of the debt is repaid each month. Remember that in each installment, some of the money a borrower is charged pays off the principal, or the amount of money they were initially lent, and some of it is paying off the interest, which can be seen as a fee for the lender’s services. As a loan reaches maturity, the proportion of each installment paid toward principal increases while the proportion paid toward interest decreases.

The difference between an amortization schedule and a payment schedule is that with the latter, the amount of principal and interest owed each installment is added together into one total amount charged. An amortization schedule, meanwhile, lets borrowers see the exact breakdown, showing how much debt they still hold at any given time during the life of the loan.

It’s important for borrowers to know where they stand with their debts, as these can affect their credit rating. A savvy borrower can also use the amortization rate to calculate how much they’d save in interest by paying off their loan early. Thus, borrowers are advised to plug their loan details into an online amortization calculator.

Look out for prepayment penalties. Getting penalized for paying a loan off early may sound counterintuitive, but the earlier the borrower repays the principal, the less interest they’ll have to pay over the life of the loan if it’s a standard amortizing loan. Since lenders rely on that interest to make a profit, charging a prepayment penalty can offset some of that lost future interest. The good news is that while common for mortgages, prepayment penalties are rarely included in small business loans.

6. What is the lender’s definition of default on payments?
Some borrowers will hang on to the fine print word for word, only to give a cursory glance to the part about defaulting – no one wants to entertain that possibility. What they don’t know is that some lenders may have strict interpretations of what it means to default, creating expensive mistakes down the line. This is why Jared Weitz, founder and CEO of small business lender United Capital Source Inc, stresses the importance of doing your homework.

“One piece of language and content to look out for is the time period allowed to make amends after receiving a default notice,” said Weitz. “If you read this prior to signing and default your loan, you will already know what to do and how quickly it must be done.”

There are some instances in which a borrower can pay on time and still go into technical default. This is a result of violating other terms of the loan, such as failing to provide tax returns or taking on additional debt.

Look out for Confessions of Judgment. A Confession of Judgment (COJ), or cognovit vote, is a written agreement signed by the borrower that forfeits their rights to dispute any actions taken by the lender upon default. This means that if a borrower defaults, the lender can present the COJ in court and obtain a judgment without the borrower ever being notified, let alone given the opportunity to defend themselves.

“These days, it seems the No. 1 predatory lending scheme that SMBs are prone to is the use and misuse of Confessions of Judgement,” said Weitz.

According to Weitz, such predatory lenders profit by enforcing the COJ as soon as the business owner defaults before owners are even given the chance to cure the default in the time specified in the loan agreement. “These predatory lenders go into the financing agreement with the intention of default so that they can seize the business and personal assets of the business owner.”

Luckily, COJs are not a necessary evil. “There are many lenders out there that will work with you without the use of a COJ, so when shopping around make sure you mention that you will not agree to any terms that involve a COJ,” said Weitz.

7. How does the lender make money?
The best thing small business owners can do to get a fair loan agreement is to ascertain where the lender’s profits are coming from.

A fair lender should be turning most of their profit from interest rates reasonably based on the borrower’s credit history. Look out for lenders raking in profit from penalties or seized collateral, however. If the lender earns more money that way than from interest, then they’ll be incentivized to reverse engineer loan agreements to force borrowers into default. Indeed, this is exactly how many predatory lending schemes are conceived – which is why no borrower should enter a contract in which the lender profits from their failure.

It’s unlikely that your lender is going to let you read their income statement, but such loans are usually made obvious by the too-good-to-be-true interest rates, excessive fees and lack of any grace period. You can also look up your lender’s rating on the Better Business Bureau.

Bottom line
The takeaway is not that some loan terms are bad and should never sign the agreement. The takeaway is that you should never sign a loan agreement until you understand every term in the fine print. Do not hesitate to consult a lawyer if that’s what it takes.

Many of the same terms used in predatory lending schemes are also effective financing tools for borrowers willing to take a bit of risk, as long as they know what they’re signing onto. By that same token, lenders deemed safe may still include unexpected terms and conditions that end up ruining borrowers who didn’t do their due diligence. In conclusion, read the fine print!

Source: https://www.business.com/articles/do-understand-the-fine-print-of-your-loan-agreement/

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Uber, lyft and other taxis

Lyft Is Another Step Closer to Driverless Ridesharing

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Ridesharing company Lyft (NASDAQ: LYFT) inched a little bit closer toward self-driving ridesharing last week when it said in a blog post that it’s adding Chrysler Pacifica hybrids to its autonomous vehicle (AV) testing fleet and opening a new self-driving vehicle test facility.

The new facility, located in East Palo Alto, California, will allow the company to increase the number of AV tests it can run. It will also let the company test how the systems do with different road configurations, including intersections, merging lanes, traffic lights, and similar challenges. The company said in the post that the new facility will let Lyft “further accelerate the speed of innovation.”

Lyft says that it’s driving four times more autonomous miles per quarter than it was just six months ago and has about 400 employees worldwide working on self-driving tech. That figure is likely to expand, considering that Lyft has more than 40 autonomous vehicle job openings listed on its website.

In addition to the new facility, Lyft said that it’s adding Pacifica minivans to its AV fleet, which is the same vehicle that Waymo, Alphabet’s self-driving car company, uses for its public self-driving ridesharing project and AV tests. Lyft said that, “The minivan’s size and functionality provide our team with significant flexibility to experiment with the self-driving rideshare experience.”

Why does all this matter for Lyft’s autonomous-vehicle future? Because to have a successful, public self-driving ridesharing fleet in the coming years, Lyft needs to lay the groundwork right now.

Isn’t Lyft already doing AV testing?

Lyft is, of course, already working on AV testing. The company’s original self-driving test facility has been up and running since early 2018. The company also started a partnership with Waymo earlier this year to test autonomous ridesharing. Additionally, Lyft also works with Aptiv, an AV tech company, and together they’ve created “the largest publicly available commercial self-driving program in the country” and have completed more than 75,000 rides through the partnership.

But the recent announcements by Lyft show that the company is taking its AV focus a bit further. The Pacifica minivans have been used by Waymo’s AV ridesharing program in Phoenix for more than a year now, making them a proven choice for shuttling around ride-hailing passengers. Lyft may not be ready to launch a wide-scale autonomous ridesharing service just yet, but testing out these vehicles likely means that it’s moving past earlier stages of AV testing and is now looking at how its next-generation self-driving tech can handle new vehicles.

Why this matters for Lyft

Lyft and other ride-hailing companies, including Uber, are keeping a close eye on self-driving developments and testing out the technologies themselves because it could eventually become an integral part of their business model. Research from Intel predicts that the AV ridesharing market could be worth $3.7 trillion by 2050.

Additionally, as regulations surrounding ridesharing drivers continue to increase, Lyft is likely looking to AVs to eventually replace some human drivers. Just a few months ago, the state of California introduced a bill that could pave the way for independent contractors, including Lyft’s drivers, to be reclassified as employees. If a version of the bill becomes law and other states follow California’s lead, it could significantly increase operating costs for Lyft. That could be bad news for the company, which is unprofitable right now and hoping to be in the black just two years from now.

While Lyft’s announcements may not seem all that significant right now, investors should know that these baby steps moving the company closer to AV ridesharing could have huge results in the coming years. For now, investors should be pleased that Lyft is beefing up its own AV testing. Each move the company makes now means that it’ll be much more ready for a self-driving ridesharing future.

Source www.nasdaq.com

By Chris Neiger

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Uber, lyft and other taxis

Uber fined $650 million by New Jersey over driver classification

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New Jersey is the latest state to say Uber’s drivers should be classified as employees rather than independent contractors. The state’s Department of Labor and Workforce Development said that because of this misclassification, the ride-hailing company owes it roughly $650 million in unemployment taxes and disability insurance, according to Bloomberg Law.

The Department of Labor reportedly has been trying to get unpaid employment taxes from Uber going back as far as 2015, according to documents obtained by Bloomberg Law. It said the company owed the state $523 million in overdue taxes along with another $119 million in interest and penalties for the last four years. Uber disputes these findings.

“We are challenging this preliminary but incorrect determination,” an Uber spokesman said in an email. “Because drivers are independent contractors in New Jersey and elsewhere.”

Driver classification is an issue that government regulators have been taking a closer look at over the past year. California passed a law in September that could require Uber and other on-demand companies to reclassify their drivers as employees instead of independent contractors. The law is set to go into effect Jan. 1. New York, Oregon and Washington state have considered similar legislation.

Uber, Lyft and several other tech companies have vowed to fight the California law, collectively putting more than $90 million behind a ballot initiative that’ll take the issue to voters next November. Many drivers have said this move is a slap in the face as they struggle to earn a living wage.

Uber’s and Lyft’s business models depend on bringing aboard hundreds of thousands of independent contractors, whose labor is typically cheaper than that of employees. That’s because Uber and Lyft drivers supply and maintain their own cars and also pay for their own health care and benefits, such as sick days or overtime pay.New Jersey is the latest state to say Uber’s drivers should be classified as employees rather than independent contractors. The state’s Department of Labor and Workforce Development said that because of this misclassification, the ride-hailing company owes it roughly $650 million in unemployment taxes and disability insurance, according to Bloomberg Law.

The Department of Labor reportedly has been trying to get unpaid employment taxes from Uber going back as far as 2015, according to documents obtained by Bloomberg Law. It said the company owed the state $523 million in overdue taxes along with another $119 million in interest and penalties for the last four years. Uber disputes these findings.

“We are challenging this preliminary but incorrect determination,” an Uber spokesman said in an email. “Because drivers are independent contractors in New Jersey and elsewhere.”

Driver classification is an issue that government regulators have been taking a closer look at over the past year. California passed a law in September that could require Uber and other on-demand companies to reclassify their drivers as employees instead of independent contractors. The law is set to go into effect Jan. 1. New York, Oregon and Washington state have considered similar legislation.

Uber, Lyft and several other tech companies have vowed to fight the California law, collectively putting more than $90 million behind a ballot initiative that’ll take the issue to voters next November. Many drivers have said this move is a slap in the face as they struggle to earn a living wage.

Uber’s and Lyft’s business models depend on bringing aboard hundreds of thousands of independent contractors, whose labor is typically cheaper than that of employees. That’s because Uber and Lyft drivers supply and maintain their own cars and also pay for their own health care and benefits, such as sick days or overtime pay.

 

“New Jersey is sending a message that the state’s labor laws aren’t dictated by corporations,” Bhairavi Desai, executive director of the New York Taxi Workers Alliance, said in a statement. “It’s a stinging rebuke of the architects of the gig economy, and we hope it permeates across other sectors.”

Even if Uber’s drivers were determined to be employees rather than independent contractors, Uber said the $650 million New Jersey tax fine would be too high — particularly if it’s based on what the company has earned in the state. Uber didn’t disclose the revenue it generated in New Jersey over the past four years, but its combined revenue for all the markets where it operated in 2018 was $11.3 billion.

 

 

 

Source www.cnet.com

By Dara Kerr

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Adams Clinical removes hurdle to clinical trial participation

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How Adams Clinical increased retention and streamlined operations by switching to Uber.

One of the hardest parts of conducting a clinical trial is identifying willing participants. Once a participant is identified, strict qualifications and an often-lengthy time commitment limits who can participate, and a lack of access to transportation can make it difficult for participants to commit to and complete the study. To help improve recruitment and retention rates, Adams Clinical offered taxi rides to their participants. However, this solution became a burden on operational efficiency since taxis were only accessible to participants who lived close by and required the staff to pay at the end of each ride.

Finding the perfect transportation solution with Uber Health

To expand their transportation offering, Adams Clinical became an early beta partner with Uber in 2016. The team started using Uber’s web dashboard to arrange and pay for rides for participants with just a few clicks. Over the three years of this partnership, the switch to Uber Health simplified operational management, while reducing time spent on recruitment with increased retention rates. The easy-to-use Uber Health dashboard tracked all the rides and processed payments from one centralized interface, allowing the staff to arrange rides without the hassle of paying at the end of each trip. This flexibility, plus the extensive reach of Uber driver-partners in the Boston area, provided Adams Clinical with the transportation solution needed to successfully manage their participants in need of rides—which removed the headache from recruiting and retaining their study participants.

The result: Improved retention rates, simplified financial records, and an overall lift in team morale

By teaming with Uber Health, Adams Clinical enjoys a number of key benefits including:

• Expanded Recruitment—Using Uber Health cut down the length of enrollment by providing a larger pool to recruit from, resulting in a 5 to 10 percent reduction in recruitment time over the last two years. 

• Centralized Billing—All rides are charged to one company credit card, which is then processed at the end of each month to streamline the amount of administrative effort required.

• Reliable Service—Each ride is tracked in the dashboard so the team knows when the participant will be arriving to help keep the rest of the study on schedule.

• Improved Retention—In the first two years of the partnership with Uber, Adams Clinical estimated up to 20 percent fewer people dropped out of a trial when transportation was arranged to and from the clinic.

• Financial Accountability—Details for each ride are available in the dashboard, and can be downloaded to a spreadsheet, offering convenient management with trial-specific reporting per participant.

• Easy to Use—Using Uber Health has been easy for both staff and participants, even among populations without smartphones or passengers new to Uber.

 

by Kendall Brown

Source uber.com

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