How a Leverage Loan Works
0July 14, 2013 by Jerry
Although the definition of a leveraged loan tends to vary across the financial services industry, most definitions contain conditions for buyouts, acquisitions, and recapitalizations at the personal and corporate level. Most of the borrowers already carry a considerable amount of debt through other types of loans, so lenders offer leveraged loans with higher interest rates. Because there is a history of debt, these lenders consider leveraged loans high- risk, and the higher interest rates help to offset any future defaults by the borrowers.
How It Works
Because leverage loans are generally considered high- risk, most are funded from two separate agencies or lenders that take on the possibility of default by the borrower. For example, many leverage loans for personal homes and farms are co- sponsored by a bank and an affordable subsidized grant. When both of these agencies support the risky loan, neither will lose everything they have invested, and both can gain from a successful leveraged loan.
Leveraged loans are created through separate financial agreements between the applicant and each financial agency providing loaned funds. This sounds like extra paperwork, but most agencies work together frequently and can provide a streamlined process that avoids duplicated applications as much as possible.
Sources of Leveraged Funds
The main sources of half the leveraged loans are banks and other major financial institutions, but these agencies cannot offer leveraged loans on their own. The other funds must come from other agencies, and there are a variety of lenders that can offer the second piece of these loans. Market rate financing from a private lender is sometimes applicable in a leveraged loan, but there are always stipulations concerning the length of the term, balloon payments, and installments involved in these types.
Other subsidized financing is also available, such as grants with long- term restrictions. These constraints are applied due to the riskiness of leverage loans, but borrowers with reliable income should have nothing to worry with these loans. Options such as forgivable loans and deferred payment loans may be arranged for borrowers as provisions when loans are not properly repaid. Borrowers who wish to begin a leveraged loan for a house purchase may also be eligible for affordable housing loans offered by state and local government that can help provide the needed funding for the loan.
Leveraged loans are an opportunity for applicants who would not typically be eligible for bank- provided loans due to large debts to borrow the funds that they require to buy properties and businesses. Through a dual- lender system, leveraged loans allow high- risk applicants to receive the money that they need.
Category investing, loans | Tags:
Few Pointers to Consider on How to Save Money With an RESP
1July 4, 2013 by Jerry
Given the present economic challenges, the need to save money for the future is rising, especially when you have a family.
One good way to save for your children’s future is to take advantage of the Registered Education Savings Plan (RESP). In particular, your children will benefit greatly from this savings plan when they move on to higher education.
What is an RESP
Generally, this is similar to Registered Retirement Savings Plan (RSSP). The difference is that in this case, you are creating your tax- sheltered education savings account in order to handle your children’s post- secondary education instead of your own retirement. Also, when compared to RSSP, the RESP contributions are not tax deductible. With this plan, you will have no annual contribution limit.
In addition, with the help of the Canada Learning Bond as well as the Canada Savings Grant provided by the government, which matches up to the first $2500 in contributions, the money invested in RESP naturally grows faster.
How to Save Money with an RESP and Some Considerations
Just like any savings plan, there are also some things to consider on how to save money with an RESP. To enumerate some of these important considerations, read on:
1. Different financial institutions have a wide variety of options or plans offered. That is why you need to ensure that you understand the offered plans. Some of these financial institutions are credit unions, banks, investment dealers and mutual fund companies.
2. By now, you should know that programs where you can use the RESP are offered by universities, colleges, trade schools and more certified establishments.
3. One example of plan variations is the schedule of receiving payments from the plan. For instance, some of these financial institutions may make payments on a set schedule; some, however, will let you to choose the date to receive such payment.
4. Now, if for instance your child may not be able to pursue his post- secondary education, the good thing about the savings program is that the contributions will still be returned. However, any grant money will have to be returned to the government.
5. Another thing to considering before entering into this plan is the mode of payment for the contributions. Some institutions may require you to pay for it following a set schedule. However, some may let you decide as to how much and when will you make payments.
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Important Restrictions of the Old Age Security Pension
0September 8, 2012 by Jerry
Over the next decade, more and more baby boomers will be entering their retirement period, marking the peak at which their generation will stop working and start living out of their pension. Legislators are therefore closely watching how this will affect the Canada Pension Plan (or CPP) and the Old Age Security (or OAS). While the CPP has been found to be well- funded, the OAS is a hot topic for debate. It would therefore be prudent to go over its history to understand the present situation for most of Canada’s pensioners.
The OAS’ original form was passed in the 1920 in order to provide pension for less- fortunate retirees. This eventually turned into a slightly different act which paid out a fixed pension to all citizen retirees. After the 1950s, some minor changes were added which changed the retirement age from 70 to 65, and added a few more benefits for seniors.
Now the OAS pays up to $540 a month for retirees beginning at the age of 65. This is age- restricted so anyone younger than that will have to wait a few more years. It is also participatory, meaning those interested in the pension must apply and pay a monthly fee. Although mandated by the government, those without membership will not be eligible for any income whatsoever.
Because of all these restrictions, some baby boomers and even younger generations as well are arguing that the OAS should be changed. While some of their points are well deserved, the pension will stay as it is for now because of the sensitive nature of the fund itself.
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