News and Tips on structured settlement transfers.



Jan 11

Understanding the Discount Rate

When soliciting bids for your structured settlement, you have probably seen that the amounts being offered as lump-sum purchases for your settlement are substantially less than the total of all the payments that are coming to you.  If you’re wondering the reason for the difference, it’s the discount rate.

One way of describing the discount rate is to think of it as an interest rate in reverse.  When you borrow money, the lender is charging you interest – an amount over and above the initial loan that you are paying them to compensate for your use of their money.  Similarly, the discount rate is the amount that a structured settlement buyer is charging you to give you an advance on your settlement.

While this may seem unfair, think of it from the perspective of the buyer.  In order to buy your structured settlement, the buyer has had to amass the lump sum of cash that he will be giving you; if he doesn’t have this cash on hand, he’s had to borrow it from somewhere else.  Even if he does have the cash on hand, he is losing interest earnings on that money by giving it to you.

On top of this are the buyer’s operating costs.  He probably has an office, with rent and staff that don’t work free.  He probably has a few lawyers of his own – and they aren’t free, either.  And, of course, he’s not in business to help you – he wants to make a profit.

So what kind of discount rate can you expect to give up when you sell?  Well, there is no hard-and-fast rule.  Discount rates can often be in the double digits.  In 2010 a New York judge questioned one structured settlement agreement that had a discount rate of approximately 20%.  You’ll probably have to appear in court to finalize any sale of a structured settlement, but don’t count on the judicial system to determine if a discount rate is reasonable.  Once you see the offers you get – and you should always shop your note around to several buyers – you can use online calculators to determine the discount rate you’re being charged.  Additionally, when you seek out legal and financial advice for your prospective sale, your advisors should be able to tell you if the discount rate you’re being charged is comparable to other deals they’ve seen recently.  If it just seems outrageous – especially if they’re charging you other fees on top of it – it may be time to step back and reconsider whether selling your settlement is your best option.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

Jan 11

Structured Settlements and Your Finances

If you have won a settlement as part of a personal injury lawsuit, you may find that it will be paid to you in installments rather than all at once; this is, of course, a structured settlement.  The defendant will purchase an annuity, usually from an insurance company, which will make payments to you, usually on a monthly basis.

There are a few reasons why your settlement may be annuitized in this way.  Of course, the defendant probably doesn’t have the full amount of your settlement on hand, so the annuity is the only way he can afford to pay it.

For the plaintiff, an annuity is designed to provide for his living and medical expenses for a period of time.  This can be particularly important if the personal injury that gave rise to the lawsuit has left the plaintiff unable to work and earn a living.  An annuity is also designed to protect the plaintiff from himself; that is, to keep him from spending down the entire settlement too quickly.  If the annuity is to settle a lawsuit based on a personal injury, the annuity payments are tax-free.

Still, an annuitant may want or need to get a lump sum of cash up front.  Some or all of the annuity payment stream can be sold to interested buyers in what is legally referred to as a structured settlement factoring transaction.  If you are considering selling your annuity, you should make sure you have a compelling reason to do so, since you will receive much less in a lump sum than you would have received over the life of the annuity.  The sale will have to be court approved, and the judge will want to know the reason you’re cashing out.  Basically, it should be a financial emergency, repayment of debt, or some other pressing need that the sale of the annuity will resolve in full. 

Selling your structured settlement in order to get a lump sum of cash to place in some other investment is likely not a good idea.  Structured settlement buyers use what’s called a discount rate to determine how much they will pay you for your annuity.  This discount rate can often be in the double digits, so unless you have an alternative investment that will beat that discount rate, you are better off staying with your original annuity.  If you have found an investment that will beat that rate of return, it’s probably risky.  Besides, there are often fees associated with the sale of your settlement, and that also eats into the amount you will receive.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

Jan 11

Finding the Right Buyer for Your Structured Settlement

So, you’ve decided to sell your structured settlement, or lottery settlement, or some other installment payment that’s coming to you.  You want to get the best deal, but how do you know who’s the best buyer?

Shop Around.  Of course, always shop your note to several buyers.  A website like QMAP makes this process easy by allowing you to publish the details of your settlement, and let the offers come in.  This should be your mandatory first step.

Reputation.  Once you have some offers in hand, it’s easy to see which one will get you the most cash.  But you also need to consider the source.  Is the prospective seller reputable?  Can they be counted on to deliver what they’ve promised?  If you look around the Internet for news articles, you will find plenty of stories of buyers who were burned in selling their structured settlements.  To avoid being another dissatisfied customer, check the reputability of your prospective seller.

Check the Internet.  A quick Internet search for the company’s name is not conclusive research, but it will give you an idea of complaints that have surfaced about the prospective buyer, and about his history.  And don’t be sold just on a big name with lots of clients; some of the less prominent buyers might be start-ups who are genuine but don’t have the impressive resume.

Better Business Bureau.  Go further in your search by checking the Better Business Bureau.  It’s easy to trash a company online, but filing a complaint with the BBB takes a little more effort and should carry more weight in your evaluation.  Common complaints against buyers of structured settlements are that they changed the terms of the agreement midstream; charged exorbitant or hidden fees; or that they took longer to close the deal than promised. 

Details of the Deal.  Once you’ve evaluated your offers and the prospective buyers, and chosen the one you’d like to work with, check the fine print of the deal you’re offered.  You should always seek legal and financial advice in selling a structured settlement to make sure the deal is right for you.  Look at the discount rate – the rate the buyers use to peel back your total settlement to the amount they are planning to pay you for it – to make sure it’s in line with other sales (your lawyer or financial advisor should be able to tell you how it stacks up).  Look closely for any fees – court fees, legal fees, processing fees, or anything else, and be aware that it will be coming out of your settlement.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

Dec 10

Should You Cash Out Your Structured Settlement?

When you settled your lawsuit, won the lottery, or entered into some other structured transaction, it probably seemed like your best option at the time.  But now that some time has passed, and life has happened to you, you might be re-thinking the whole thing.  Should you sell what you have for quick cash?

First, understand that if you sell your structured settlement, you will receive much less in a lump-sum than you would have collected over time.  Still, there may be very good reasons to take your payout.

Expenses.  A financial emergency may be pressing on you.  You may be facing unemployment, medical bills, foreclosure, or legal troubles that have become unbearable.  If the cash you’ll get from selling your structured settlement is enough to cover and take care of the emergency, then cashing out might be a good idea.  Paying off a crushing debt load might be a good reason to cash out too – even though you’ll get less in a lump sum than you would have gotten over time, if you’re facing double-digit credit card interest rates, wiping out the balance could be well worth it.  Just don’t get yourself back into debt again.

Education.  If you or a family member are going (or going back) to school, cash from your settlement can help cover tuition and fees.  But before you cash out for this reason, check other sources of financing.  Scholarships or government grants are ideal.  If that’s not available, check into student loans.  If the interest rate on a student loan is lower than the effective interest rate you’re earning on your structured settlement, you’re better off with the loan. 

Going Into Business.  Maybe you always wanted to start a business, or you may have stumbled upon an irresistible opportunity.  Your settlement may provide the cash you need to pounce on that opportunity quick.   Before you sell, consider other possibilities for financing the venture, such as a bank loan or a business partner.  And check out your new opportunity thoroughly to make sure it isn’t a scam and that the profit potential is there. 

Know Thyself.  One more thing to consider:  what not having the annuity will do to your future finances.  Structured settlements are intended to lock in future income.  If you’ve won the lottery, you likely don’t want to work the rest of your life.  And if you have a settlement as a result of a personal-injury lawsuit, you may not be able to work.  What will you do if that income is no longer there?  If you are a spendthrift who has trouble managing money, who is prone to impulse buys of toys and trips, think long and hard before cashing in that settlement.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

Dec 10

Analyzing Business Financials (part 4):

This is the last part of a series of posts discussing what potential buyers review when considering a business for purchase.  This will help potential buyers, as well as potential sellers looking to spruce up their product.

 Prior Year Financials.  If possible, get financials from the business going back five years or even longer, if available.  Check all of the ratios for trends.  Look at all the financial ratios discussed in the prior posts to those throughout the industry to see how this particular company is performing.  Are things getting better, or worse?

 Sales Detail.  If possible, find out who’s buying from this business.  Are there a lot of first-time buyers?  A number of regular buyers?  Or are there only a few buyers? Large retailers have been known to pick small suppliers and become their number-one customers, only to later squeeze those retailers for smaller margins, effectively putting those vendors are out of business.  If this company has all its eggs in one basket, walk away.

 Accounts Payable.  Who are the vendors and suppliers this business is using?  What are their payment terms?  How do those terms compare with the accounts receivable terms, and how well clients are paying their bills?  Even if a business is profitable, cash flow is important, so if money is going out faster than coming in, walk away.

Cost Detail.  If possible, obtain detail of the specific costs the firm incurs to do business.  How are they spending their money?  What are they paying their employees?  Are the employees’ salaries competitive with similar businesses, or are they overpaying (or underpaying) their staff?  What are they spending on sales and advertising?  Again, is this competitive in the industry?  Consider the expenditure detail and what you would change upon purchasing the business.  Are your planned changes something the business – and its clients – would accept and survive?

 Location, Location, Location.  Just like any good piece of real estate, a business is dependent on the local area for its value.  How is the local area doing financially?  Are people moving in, or are they leaving?  Of course, this isn’t important for all businesses; for example, if most sales are made online and shipped far from the home office, location isn’t quite as important.

 Business Valuation.  You should seek the help of a professional to perform these evaluations, especially if you are new or unfamiliar to the industry this business is in.  Consider enlisting a business broker, someone who makes his living buying and selling businesses (much like real estate).  Alternatively, consider a CPA who is certified in business valuation. 

 Why is this business selling?  This is perhaps the most important question to ask of any business that’s up for sale.  Why are they looking to sell?  Is the owner simply looking to retire, or are they seeing negative trends that have told them it’s time to cash out and run?

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

Dec 10

Analyzing Business Financials (part 3):

In addition to financial statement ratios, here are some things a potential business buyers will consider.  This is a resource if you’re looking to buy – or if you’re looking to spruce up a business (or business note) you’d like to sell.

 Financial Details.  If at all possible, examine the detail underlying transactions for the business.  Many entrepreneurs use a business as a tax write-off for items they buy and use personally.  This can affect the numbers you’re reviewing in the financials, so be on the lookout for these types of transactions.

 Inventory.  What do the inventories look like?  If you are able to examine the inventories in person, consider whether they look brand new, or whether they have an inch of dust resting on them, implying that they’re not selling.  Trust your gut – do you see customers actually wanting to buy this stuff?  You might consider taking a business valuation specialist, such as a business broker, with you for this inspection.

Furniture, Fixtures, and Equipment.  Much like the inventory, what does it look like?  Is it new, or old and broken down?  Can you use it?  Will it attract potential buyers to your business?  Can you use it, or will you have to modify what you have (i.e. pay more money) to make it work?  Is it paid in full, or are there still leases in effect that you’ll have to pay?

Liabilities.  What does the business owe?  Are there outstanding loans or leases?  Mortgages?  What about contracts with suppliers or employees?  What about outstanding liens or other liabilities?  Get a good idea of what the business owes – and what you’ll have to pay.  A lawyer can be particularly helpful in finding this out.

Taxes.  Does the business owe taxes to the IRS or to the state?  Are there back tax bills that need to be settled? 

Accounts Payable and Accounts Receivable Detail.  Again, if possible, take a hard look at the underlying vendors or clients that make up these numbers.  Get a solid understanding of the creditworthiness of the business’ clients.  How likely are you are to get the cash you’re owed?  How much, and how soon, will you have to pay your suppliers?  A profitable business means nothing if there is no cash flow, so if Accounts Receivable aren’t converting quickly to cash, this is a red flag.  Are those A/R sales legitimate, or could they be fraud?

Returns.  Pay close attention to any returns figures listed on the financial statements.  Again, this is a favorite place to hide fraudulent “sales” that aren’t turned into cash.  Even if there’s no fraud, a high rate of returns does not bode well for the profitability of this business.  

Industry.  Consider the industry this business is in.  Is it a growing industry with lots of potential, or is it stagnating?  Is this an emerging line of business that is untested?

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

Dec 10

Analyzing Business Financials (part 2)

If you’re considering buying a business and want to determine its financial health, here are a few more measurements that might help you.

Fixed Asset Turnover.  Purchasing of plant and equipment are typically a business’ largest outlays.  How well are they performing.  Divide revenues by the average property plant and equipment (beginning versus ending PP&E divided by 2).  The higher this ratio, the better the business is doing at turning its assets into profit.  Of course, not all companies rely on capital expenditures to do business, so keep this in mind.

Sales per Employee.  Divide total revenues by the total number of employees to determine how much money the enterprise is making on each employee.  A bigger number is better.  But, just like Fixed Asset Turnover, keep in mind that all businesses are different; this ratio will look different on a firm that is less labor-intensive. 

Gross Profit Margin.  Gross Profit is total revenues less the cost of goods sold.  Take Gross Profit divided by Sales to determine the gross profit of every dollar of sales.

This measures the company as a whole, however.  You can focus this ratio even further to determine the gross profit margin for each type of product sold.  For example, if you’re not sure whether Product A or Product B is the better performer, calculate Gross Profit Margin for each of them.  Businesses use this type of analysis to determine which product lines to keep.

Operating Profit Margin.  To find out the profit on every dollar of sales after all inventory costs and sales expenses are considered, take operating profit (gross profit less operating and sales expenses) divided by total sales.  This will give you an even more focused view of what the company is able to retain in profit after all its necessary operating expenses are considered.

Net Profit Margin.  The strictest measure of a company’s profitability, this takes Net Profit divided by Sales.  This gives you the most narrow measure of how well the company is controlling operating expenses in order to turn a profit. 

Operating Cycle.  This is the most complicated to calculate, but worth it.  If a business isn’t turning sales into cash, it’s not worth your investment.  The Operating Cycle is Days Inventories Outstanding plus Days Sales Outstanding less Days Payables Outstanding, where

Days Inventories Outstanding = Average Inventories (beginning inventory plus ending inventory divided by 2), divided by the cost of sales per day (cost of sales / 365).

Days Sales Outstanding = Average accounts receivable (beginning A/R plus ending A/R divided by 2), divided by net sales per day (net sales divided by 365)

Days Payable Outstanding = Average accounts payable (beginning A/P plus ending A/P divided by 2), divided by cost of sales per day (calculated in Days Inventories Outstanding, above).

Once you add these together, you’ll see how many days, on average, it takes a business to turn sales into cash.  The shorter the cycle, the more liquid the business.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

Dec 10

Analyzing Business Financials (part 1)

If you’re holding a note secured by a business and are looking to sell, one of the things a potential buyer will consider is the financial health of the business. There are lots of measures for this, but here is a rundown of some of the key ratios used.

Current Ratio.  The current ratio is, simply, total current assets divided by total current liabilities.  Current assets and liabilities are those that are immediately liquid, or have a term of less than one year.  If this ratio is less than 1, it suggests that the business does not have enough assets to pay off its immediate liabilities.

Quick Ratio.  This is much like current ratio, but this formula divides quick assets (current assets less inventory) by current liabilities.  The quick ratio takes away the effects of inventory that might make the current ratio look better than it should, since inventories are not immediately liquid.

Accounts Receivable Turnover Ratio.  Take accounts receivable at the beginning of the period plus accounts receivable at the end of the period and divide by 2.  That’s Average Accounts Receivable.  Then divide Sales by Average Accounts Receivable.  This gives you some indication of how current the business’ receivables are, and how reliable the customers are for making payments.

Return on Assets.  This is a measure of how well management is using its assets to make a profit.  Divide Net Income by Average Total Assets (beginning assets plus ending assets divided by 2).  The higher the number, the better job management is doing of employing existing assets.

Return on Equity.  Divide Net Income by Average Shareholders’ Equity.  The higher this ratio, the better the company is doing to maximize the shareholders’ return on their investments.

Operating Cash Flow to Sales.  Using the Statement of Cash Flows, divide net cash provided by operating activities to Sales for the year.  The higher this ratio, the better job management is doing at turning sales into cash.  If this ratio is low, even when sales are increasing, it can indicate that management is doing a poor job of collecting on receivables, extending too much credit, or, worst of all, recording fraudulent sales.

Cash Flow Coverage.  Again using the Statement of Cash Flows, divide Net Cash Provided by Operating Activities by Capital Expenditures (expenditures for property, plant, and equipment) OR by short-term debt expenses. The higher either of these ratios, the better the company’s ability to meet its various obligations with cash on hand.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

Dec 10

What is Pre-Settlement Funding?

If you are the plaintiff in a personal injury case, you may have been approached about something called pre-settlement funding, litigation funding, personal injury funding, or accident funding.  Alternatively, your attorney may have suggested you consider the possibility.  So, what is it?

Pre-settlement funding is, essentially, a loan (even though it is not called a loan) against the expected value of your lawsuit, once it is resolved.  You make a promise to repay this loan once (and if) the lawsuit is decided or otherwise settled.  Of course, there will be interest on the repayment, so you will pay back more than the original amount of the loan.  Since a lawsuit can take months or even years, the plaintiff – especially if an injury has made him unable to work – might be in dire need for cash, and this is the most compelling reason to choose pre-settlement funding.  However, much like selling an annuity or structured settlement, you can expect to get much less cash from a pre-settlement funder than you would from an outright settlement.  The main reason to seek out such a settlement is some immediate need for cash.

So, consider whether you truly need cash up front.  Consider whether other funding sources are available to take care of the bills you are facing.  Carefully evaluate any offers you receive to make sure what you give up in the future is worth what you need now.

Pre-settlement funding loans are usually “non-recourse,” that is, there is no obligation for you to repay the advance, even if you do not reach a settlement or your lawsuit is unsuccessful.  As a result, the prospective lender will take a critical eye of you and your lawsuit in order to compensate them for their risk.  The amount of money that your prospective lawsuit is worth to them can vary greatly, from a few hundred to several thousand dollars.

Expect that prospective lenders will contact your attorney to talk about the specifics of your case, especially the likelihood that you will prevail.  There may also be specific requirements for a pre-settlement funding, depending on the state where you live.  Prospective lenders will likely charge a generous discount rate in order to cover their costs, the risks of taking on a loan to you, and to make a profit.  You can also expect that there will be fees over and above the discount rate, such as “legal fees,” “processing fees,” or “origination fees.”

Should your suit be successful, you’re on the hook.  So make sure that any pre-settlement funding is absolutely your best option.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

Dec 10

Selling a Mortgage Note (Part 2)

This is the second in a series of posts about selling your mortgage note.

At this point, you’ve decided that selling the note is right for you.  You’ve shopped your note to several prospective buyers and compared their offers.  You’ve made sure that these buyers are legitimate and free of complaints.

Now the burden of the work is on you.  You will have to assemble a comprehensive portfolio of documents and information to satisfy the seller that they’re doing the right thing.  Get together:

The promissory note;

The mortgage agreement;

(Even though the terms are often used interchangeably, a promissory note and a mortgage are not the same.  A promissory note spells out the actual terms of the loan, i.e., a certain amount of payments at $X at an interest rate of X%.   The mortgage actually pledges ownership in the property as security for payment of the promissory note.)

The original amortization schedule on the note;

Evidence of the payor’s payment history to date, including documentation to support the payor’s employment and creditworthiness;  

Information on any third party you have used to collect payments on the mortgage;

Proof of a current hazard insurance policy in force on the property;

Proof of clear title to the property, including title insurance, and;

Proof that real estate taxes on the property are up-to-date.

Expect that the prospective buyer will be doing due diligence of his own.  He will check the title to the property and the creditworthiness of the payor.  He will also likely do some sort of appraisal of the property.  Some mortgage note buyers limit their purchases to property worth over a certain amount, or limit their purchases to certain types of property, such as modular homes.

Like any other major sale, you should consult with an attorney to make sure the sale agreement, and all of the underlying documents, are in order. 

Once you and the buyer are satisfied with the condition of the property and have reached an agreement to sell, there will be a closing, much like a closing to buy a home.  This might occur in person, but can also be done via express mail.  The most important document in this arrangement, however, is the Assignment of Mortgage, which officially turns the payment stream over to the buyer.  Again, check the terms of this document to make sure the seller has not changed the deal from the original offer.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

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