Mortgage C.A.F.E.- Credit And Finance Expert

I hear this question a lot, being in the finance world, and everyone expecting the right answer.  To put simply: imagine you give your friend a five dollar bill to borrow, and overnight you'd like to see a one dollar bill added and given back to you the next day with your principal, making it 6 dollars in return.  It was worth it right?  Well, that's the problem globally right now.  Banks are not able to give each other a nice return on those "loans" and therefore are hoarding their cash and waiting.  If you gave your friend that $5 bill, and you KNEW the next day he could MAYBE give you back the $5, or maybe you would take a loss, you're not going to give the $5.  You're going to hold onto it because it's starting to be a rainy day.  You might just need that $5.

Well your friend represents those people in commercial, retail, etc that need money on loan.  If the condition of getting loan gets so restricted, he will take those loans to the private sector (Guido) as his only resource.  This is what makes the rich richer and the poorer even poorer.  If I own a coffee shop and had to upgrade the A/C for that shop, it would normally require a certain type of equipment commercial loan.  With a 700 score that should be easy right?  Wrong.  If the anticipation from the banks is that we're in a depression and coffee shops are like Starbucks and will suffer, they assume that you're on a downward slope regardless of your credit now.  They won't approve it.  Normally I would have paid interest of 6% for that commercial loan, but now I need to go to Guido, or get a hard money loan.  Starting rate is twice that of the free market.  So now I'm paying 14% for the same loan, and have bumped coffee prices by 25 cents to make up for the overhead cost of my shop.  Now less people will frequent my shop since coffee is a luxury, not a necessity and those that do go into my shop, along with myself are considered the low to moderate income base.  We suffer.