How Collateralizing a Loan Can Help Auto Finance Consumers

How Auto Finance Lenders Choose to Lend

Barring the rare exceptions that prove the rule, auto finance lenders choose their clients based on the potential to earn a profit on the outstanding sums. In main, the potential to earn a profit can be considered a combination of the interest being charged on the outstanding sum and the chances of the auto finance consumer defaulting on the same. For example, if a lender stands to earn $2,000 in interest on a $20,000 loan that is meaningless if said loan has a 50 percent chance of being defaulted upon with nothing recoverable. In fact, based on the stated circumstances, said lender has an expected outcome of -$9,000, based on a 0.5 chance of $2,000 and a 0.5 chance of -$20,000.

How Auto Finance Lenders Can Influence Expected Outcomes

However, auto finance lenders have methods that can be used to influence both interest calculation and chances of default for the purpose of increasing their expected outcomes. For example, some lenders choose to set higher interest rates to compensate for higher chances of default, while others restrict their lending of auto credit to a more selective clientele. In practice, these methods can be seen in how people with bad credit either cannot secure auto credit or have to secure it at higher costs than their counterparts. However, seeing as how lenders can influence expected outcomes to protect their profits, it should come as no surprise that borrowers can influence the same so as to benefit from more lenient borrowing conditions.

How Auto Finance Consumers Can Use Collateral to Compensate For the Same

One of the best methods for securing more lenient borrowing conditions on auto credit is to put up collateral. This is a simple but effective method that serves to raise the auto finance lender’s outcome in case of default, which has a direct effect on the expected outcome of outstanding auto credit. For example, an asset worth $20,000 being used as collateral would be enough to convince a lender to offer $20,000 in auto credit to a borrower with even chances of defaulting and not defaulting in exchange for $2,000 interest. This is because in the case of the borrower defaulting upon the outstanding auto credit with nothing recoverable, the lender has an outcome of $0 because the $20,000 in collateral makes up for the $20,000 lost in outstanding auto credit. As a result, the lender’s expected outcome changes from -$9,000 to $1,000, which makes the borrower a profitable prospect.

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The Rise of Digital Asset Management

When I first heard the term digital asset management I assumed it was just another financial term for some type of media stocks or bonds. In actual fact, Digital Asset Management or DAM is pitched to be one of the top media software products of the future.

Digital Asset Management’s suggested growth over the next 5 years is estimated at over 300% which is triple the current value. The business research & consulting firm Frost & Sullivan are forecasting that “the market is set to grow at a very healthy double digit growth rate through the forecast period, 2007 to 2013″. According to Frost & Sullivan; “Around 70 major vendors are now seeing the need to digitize their media assets”.

DAM solutions are becoming as streamlined into a website development as content management systems and search marketing. The reason for its success is that most big corporate websites hold a lot of rich digital media including images, audio and video content and this can make storage and retrieval of these assets difficult. For all of this content to be hosted, easily retrievable, distributed and exported it needs to be stored in a central location, properly filed, archived, optimised and available in a range of different downloadable formats.

Another reason for the success of DAM is that a lot of files, specifically video files can be so huge that even FTP access across public services is undesirable, DAM makes this possible by employing a delivery service, with access to single assets from multiple locations, thus reducing the time and cost of producing the content and maximising the return on investment.

What types of DAM systems are there?

The types of DAM are dependent on their facilitation with the business; brand asset management for example is focused largely on marketing and deals with marketing collateral such as product imagery, fonts and logos. Production asset management is commonly used in the organisation and storage of frequently changing digital media assets, whereas digital supply chain services purely focuses on the pushing of digital content out to retailers i.e. Music and games store. Library management is probably the most widely used type with a focus on the storage and retrieval amounts of mostly archived video and photo media.

If we take a closer look at DAM, the tools that it utilises start to make the system more of a tangible product. The types of uses for the system in business is for Multimedia press kits and marketing materials, corporate presentations, VOD, rich media libraries of; video, fonts and images and other marketing collateral. The types of files this includes are; images, logos, audio, animation, CAD, video and HTML.

So what’s in store for the future?

According to industry analyst Zippy Aima “There is the recent proliferation of digital media content, especially video, and the rise of portable devices for viewing it. We can add the widespread availability of broadband data services to distribute it, and the need for systems that can store and deliver that content to the right people at the right time.”

With media creation so accessible via broadband and likely to grow vastly over the next decade, images from our everyday devices such as cameras, phones and scanners will continue to flood onto the web, billions of assets (files) all hitting social networks, websites and blogs at a furious pace, and all with a thousand different destinations and target audiences. DAM will soon be the only technology capable of dealing with the demand and with the worth of digital media content management set to rise; from $203 million to an anticipated $558.6 million by 2014 this looks set to continue.

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Why 2014 May Be The Perfect Year To Sell Your Business

In the entrepreneurial ecosystem, business owners looking for an exit strategy are likely to find 2014 an optimal year for selling.- Peter Lehrman, Entrepreneur Magazine

Timing any market is always a tricky proposition, especially in this era of diminishing returns and lowered expectations. The market for selling a small to mid-sized business is no exception.

Anyone considering selling a business, especially boomer business owners thinking about retirement, should have a list of compelling reasons why they want to sell and a plan to help them do so.

For most business owners, the timing will never be perfect, so waiting until the ideal moment to sell could be an impractical course of action. However, certain indicators are pointing to a better than average success rate for selling a business in 2014.

That’s why it’s a good idea to employ strategies right now that will help you get the maximum money for your business.

2014: The “Year of The Seller?”

Three or four years of turmoil in a struggling economy makes some business owners understandably cautious when it comes to optimistic projections for 2014. However, there are some very good indicators pointing to the possibility of a perfect selling environment for at least the next 18 months or so.

For example:

• The majority of businesses have experienced increased profitability for the past 2-3 years.

For numerous business owners, 2008-2010 were flat as far as profits were concerned. Those who survived this period felt lucky to break even, much less put profits on the books. With demand down across the country for services and solutions, business owners were unhappily treading water.

However, the recession is slowly retreating, allowing businesses to recover. Many are now in a position to show the three or four years of solid growth that qualified buyers want to see when they build projection models.

The ability for a company to demonstrate upward trends in their financials shows prospective buyers that it is right to make positive projections for future growth. This in turn gives owners better valuations and does wonders to make the deal viable. Buyers want to know that a business they purchase is poised to survive even a serious economic downturn.

• Low interest rates (for a little while longer, anyway)

You don’t have to have an advanced degree in economics to understand that the artificially maintained low interest rates we now experience will soon be a thing of the past. Forecasters have been fretting that the Federal Reserve will be forced to curtail its’ bond-buying program soon.

A growing number of experts now say that 2014 could be the year when that finally occurs. This means, naturally, that waiting too long to sell might mean an owner will see higher interest rates and a lower price for his or her business.

The reason for this is that interest rates always have a direct impact on the price of capital used to purchase a company. Buyers who rely on loans to acquire a business will feel the sting of these rising rates since earnings are used to pay the interest on loans. An increase in the price of capital will almost certainly lead to lower valuations for businesses.

It makes sense that the more expensive it is for buyers to get capital, the less willing they are to pay top price for a business. As soon as rates begin to rise in 2014, there will be a negative impact on business valuations.

• Low levels of debt and lots of positive cash flow

Credit Suisse reported in February, 2014 that 73 percent of U.S. companies and 56 percent of European companies have incredibly low levels of debt on their balance sheets compared to their total market capitalization.

Private equity companies are awash in cash, with nearly $1.1 TRILLION in cash on hand. At the same time, levels of corporate debt are falling to new lows. So, what does this mean for you as a business owner who is seriously considering selling?

Well, for one thing, since all this cash needs to go someplace other than under the CEO’s mattress, private buying groups will be out en masse looking for successful businesses they can buy and from which they can see immediate cash flow.

For another thing, there is a natural mood elevation that goes on when so many dollars are in play.The old saying “a rising tide lifts all boats” is applicable here. Every billion dollar mega-deal that goes down makes every smaller business deal more attractive. Small businesses are sure to benefit from the optimism that comes with any boom.

• Changing demographics are pushing boomers to sell.

The first half of the “Baby Boomer bubble” (2005-2010) has passed. During that period, older Boomers were able to sell to younger boomers, although the success rate was still a mere 3%.

However recent research indicates that the number of boomer owners indicating they wanted to retire increased from 50,000 in 2001 to over 750,000 in 2009.

It is possible we could see over one million businesses go on the market in the next 10-15 years in a transition tsunami. If this holds true, then it makes sense to sell ahead of the herd and reap the benefits of the current buying frenzy fueled by low debt levels and loads of cash.

Even if you think you aren’t ready to leave your business yet, you should plan as if you are. Positioning your business to sell is never a bad idea or waste of time.

By crafting a well-thought-out exit plan, you will be prepared if circumstances (either good or bad) push you to sell, or if you get an offer from a qualified buyer that you just can’t afford to pass up.

You never know, maybe 2014 will be the year you make a profitable transition from your business and start enjoying everything for which you’ve worked so hard.

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