 Borrowing
to recover from Katrina
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 Dear
Dr. Don,
I live in the Katrina disaster area and have been offered (passed
final approval) a SBA (Small Business Administration) loan for $40,000
at 2.687 percent, which sounds good to me. I have asked for, and
have not been able to get, the Annualized Percentage Rate on the
loan. Do you know if SBA loans have an APR and if so what it would
be?
I have a mortgage ($60,000 -- $519/month payment) at 6.00 percent,
a car note ($6,500), and a small bank card balance. I am retired.
I expect my insurance rates to go up. I have used my insurance money
and most of my "ready cash" to fix up the house. My plan
was to pay off all but the mortgage, restore some of my emergency
cash and invest the rest. Does this sound reasonable to you?
-- Brenda Bounce-Back
 Dear
Brenda,
Any loan can have an annual percentage rate, or APR, calculated
since it's just a way of stating the loan's interest rate in a,
relatively, uniform manner. The Truth in Lending Act, or TILA, also
know as the Federal Reserve Board's "Reg.
Z,"spells out the lender's requirement to calculate and
advertise this rate, as well as supply this rate to borrowers. It's
possible -- in fact it's likely -- that the lender doesn't have
to calculate and provide you with an APR for your SBA loan, either
because of the loan's size or the loan's purpose.
The idea behind calculating an APR is to include the
costs the borrower incurs in obtaining the loan, along with the
loan payment frequency, to arrive at an approximation of the all-in
cost of the loan. You can get an idea of the all-in cost of the
loan by calculating the loan's internal rate of return, or IRR,
or by using a Web-based APR calculator. I've used Wheatworks Software's
free APR calculator
before, but there are dozens of APR calculators available on the
Web.
Although you haven't explained the income side of your financial
situation or how you plan to invest the funds, assuming you can
afford the payments, I think your financial restructuring plan makes
sense.
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