SBA Loan Market Has a Stimulus of Its Own

SBA Loan Market Has a Stimulus of Its Own (click title to link to article online)
By Emily Flitter
March 17, 2009

An Obama administration plan to stimulate small-business lending could lure wary lenders back to the business and kick-start the struggling market, bankers said Monday.

The administration said it plans to use up to $15 billion of Troubled Asset Relief Program money to buy securitized pools of Small Business Administration loans. It will also raise the government guarantee on SBA loans to 90% and lower the fees charged to both borrowers and lenders.

"This is a real game-changer," said Chris Reilly, the president of CIT Group Inc.'s small-business lending unit. "I think it's a beautifully simplistic solution, as well. This direct buyback of SBA-guaranteed loans, together with the waiver of all the borrower and some lender fees, is very substantial."

Administration officials said they hope the buyback spurs lending by bankers who worry they might not be able to sell SBA loans in the current environment.

"Any community bank — any bank — will know that any loan that they make from this day forward will be able to be sold to someone who packages loans, who themselves will know that there is a buyer," a senior administration official said during a conference call explaining the program.

Guarantee fees for SBA borrowers have been eliminated in both the 7(a) and 504 lending programs; for the 504 program, fees for some lenders were also cut, and government guarantees on 7(a) loans will now be 90%.

"There is an attempt to put public policy behind all the rhetoric," said Tony Wilkinson, the president of the National Association of Government Guaranteed Lenders. "The rhetoric has always been small business is going to lead us out of the recession, but until now you haven't seen the policy to back it up."

The announcement was a reversal from the policies of the Bush administration, which raised fees and cut the SBA's budget for several years.

The announcement by Treasury Secretary Timothy Geithner, together with the implementation of related provisions in the stimulus package designed to encourage small-business lending, signaled a new willingness to use the agency to stimulate the economy.

The new program aims to regenerate a secondary SBA loan market, which dried up as the credit crisis worsened. The administration estimated that there is a backlog of around $3 billion of pooled 7(a) loans that could not be sold to investors.

SBA officials predicted that the frozen secondary market could cause annual SBA lending to sink as low as $10 billion, from its previous average of $20 billion. Lending dropped 57% in the fourth quarter, and officials said it may have fallen even further in the first two months of this year.

Cynthia Blakenship, a vice chairman of Bank of the West in Grapevine, Tex., who participated in a roundtable discussion on the issue Monday with President Obama, said, "Right now our bank is sitting on unsold portions of government-guaranteed loans, because there has been no secondary market."

That and other changes should persuade lenders to renew their SBA programs, she said. "This is a giant step in the right direction to give banks that perhaps have gotten out of the program an incentive to get back to the program. … It will be a shot in the arm to community banks."

Camden Fine, the president of the Independent Community Bankers of America, said the number of banks making SBA loans dropped to 2,700 last year, from 5,200 in 2001.

"The guarantees kept getting cut, the fees kept getting higher, and there were fewer and fewer SBA loan poolers," he said. "This administration has recognized that and is working to reverse what has been a declining trend in SBA lending on the part of community bankers."

Broker-dealers were more cautious, raising concerns that the program could interfere with a facility established by the Federal Reserve Board to lend money to investors looking to buy new securities.

Administration officials said the new program was not meant to cancel out the Fed's Term Asset-Backed Securities Lending Facility, which is accepting its first round of loan applications this month.

"Over time, we believe these programs will be complementary," a senior official said.

The Treasury Department said it had hired an investment manager to purchase any securities packaged on or after July 1, 2008. The administration did not release details on how the securities would be priced or how many pre-existing pools it would purchase.

The administration also said it would begin requiring the 21 largest Tarp recipients to report monthly on their small-business lending activities.

Before You Buy That Small Business

Before You Buy That Small Business
Buying an existing business is often safer than starting one on your own. But watch out for these red flags.
By Cliff Ennico June 18, 2008

There's no doubt that buying an existing small business is less risky than starting one from scratch. Why? Because, unlike a startup:

•the business has equipment and inventory;
•the business already has a location, and maybe there's a few more years left on the lease;
•the business has employees, some of whom you may actually want to keep;
•the business has customers, most of whom probably will stick with you (unless this is a professional service business or practice); and
•most importantly, the business has a track record--you can look at the business' books, records and tax returns and get some sense of how much money you will make.
But there's still risk. Whenever you buy an existing business and look at its records, you're looking at the past. There's no guarantee things won't change going forward. If you're negotiating to buy a business and you think the seller is giving you a great deal, be very suspicious--there's probably something heading down the road at 90 miles an hour that will blow this business apart when it hits.

To view the entire article click HERE

Larry's "Hoosier Madness" Listing Spotlight

Hoosier Madness!

Larry's Listing Spotlight

Small Town Pub/Restaurant w/ RE: (C-N814) Hamilton County. Seats 85. 210 Liquor License.

Specialty Portrait Service: (H-N800) A newborn hospital portrait service established 10 years. Owners Cash Flow $90k.

Suburban Eastside Pub: (A-N807) Gross Revenue $800k/yr. 3-way. Kitchen.

Franchise Pizza/Pub: (C-N780) Suburban N-Side. Motivated.

Bar/Restaurant: Broadripple. 210 Liquor License. Asking $250k.

Amublance Service: (H-N747) Provides basic life support, paramedic & 911 emergency services plus non-emergency transportation. Gross Revenue $4.7 million w/ Cash Flow $1 million.

Self Storage Facility: 136 units. 3 acres plus 4500 sq. ft. building. Indianapolis.

Auto Collision Repair: (H-N751) Established over 39 years. Gross Revenue $2.1 million w/ $270k cash flow.

Laser Esthetic Center: (H-N621) Established 3 years. Six figure cash flow.

Winery: (L-N663) $1.9 million Gross Revenue. $400k Cash Flow.

Downtown Neighborhood Tavern w/ RE: 3-way. Kitchen.

Bar/Restaurant: Southside Indy. Family owned for over 16 years.

Concrete Lifting/Raising Service: Central Indiana.

Package Liquor Store: N. Side. RE Included.

Downtown Indy Cafe: Beer & Wine. Seats 50. RE Included! Sports Bar: Hendricks County. Very nice!

High Volume Upscale Sports Bar: Hamilton County.

Rural Southern Indiana Bar/Restaurant: with Real Estate

High Volume Franchise Steakhouse: Central Indiana. Makes $$!

Local Franchise News

Click the article link below to get the latest news on Noble Roman's, a local Indianapolis franchise.

Franchisee Legal Action May Bankrupt Noble Roman's

Considering Buying or Starting Up a Franchise?

If you have considered buying an existing or start-up franchise, please read this article:


Blogs Provide Insight to Would-Be Franchisees
Sites Offer News, Comments, Updates on the Happenings at Other Businesses; Complaints Are Welcome Too

By RICHARD GIBSON

Would-be franchisees searching for investment ideas can find a bevy of information on franchising blogs.

Such sites offer news, advice and comments by people already in those franchise businesses -- giving others a head's up on what to watch for and how to proceed.

Tim RobinsonFor example, the Franchise Pundit blog reports that sandwich franchiser Quiznos is helping its franchisees renegotiate their store leases, resulting in an average 15% to 20% reduction, at no cost to them.

Here's a look at some blogs...

To continue reading this article/view the full article, click HERE

It's Location Location Location

Today I had a first in my career. I met with a potential Seller whose total gross monthly income would not cover the monthly rent charge of business. A 100% rent factor!!!!! The only logical thing for this seller to do was close the business. It was easy with hindsight to see what this potential Seller had done wrong:

---leased twice as much space as was actually needed.

---failed to analysize how beneficial this location really was for the type of business being opened and operated.

---failed to recognize the true size of the market for the services and product being offered and who the potential customers were and where were they in geographical proximity to the store.

---failed to negotiate the lease in manner that the owner's personal lease liability was limited to the first year or two of the lease or to negotiate a short primary term with a series options to extend the lease if the business is a success. Remember lease liability survives the closure of the business if closure occurs during the term of the lease.

Failing to pay a great deal of attention to lease terms and consequences is often one the major mistakes made by a new business owner.

Don't be the first tenant in a new strip center!!!!!!!!! If there are lots of vacancies in the strip center find out the reason and don't be afraid to look for another location.

Joke of the Day

Latest Industry News: Major SBA Changes Announced!

U.S. Small Business Administration

-- News Release --

***********************************************

Release Date: March 16, 2009
Contact: Mike Stamler (202) 205-6919
Release Number: 09-17
Internet Address: http://www.sba.gov/news

Statement from SBA Acting Administrator on Recovery Efforts Announced by
President Obama Today

WASHINGTON - The following statement was issued today by Acting Administrator Darryl K. Hairston of the U.S. Small Business Administration following the announcement by President Barack Obama of important steps being taken by the SBA and the U.S. Department of Treasury to address the economic challenges facing small businesses and entrepreneurs across the country.

"U.S. small businesses employ about half our nation's workers and over the last decade have created about 70 percent of all new jobs. But their access to credit and lending markets has dried up, making it harder every day for small businesses to keep their doors open and their employees working. American small businesses are one of the strongest engines for economic prosperity in the world, and we can't let this crisis continue to undermine their growth and potential. Today President Obama reiterated his belief that we owe it to America's small businesses to be the partner they need in the midst of this crisis. At SBA, we couldn't agree more.

"SBA this week is implementing two key provisions laid out in the Recovery Act - we are temporarily eliminating certain loan fees and raising guarantees on some 7(a) loans up to 90 percent. With these critical steps by SBA, and the Treasury Department's commitment of up to $15 billion aimed at getting lending markets flowing again, we are standing up with small business owners across this country and telling them how we are going to put much-needed capital in their hands.

"We hope small businesses will take the opportunity to ask their banks about the SBA loans that might be available to them. And, we encourage community banks and other lenders to work with us to reach as many qualified borrowers as we can during these difficult times."

Beginning today, the SBA will:

.. Temporarily raise guarantees to up to 90 percent on SBA's 7(a) loan program, through calendar year 2009, or until the funds are exhausted. This increase in guarantee levels will help provide banks with the greater confidence they need to extend credit during the current recession, will mean more capital available to small business owners around the country.

.. Temporarily eliminate fees for borrowers on SBA 7(a) loans and for both borrowers and lenders on 504 Certified Development Company loans, through calendar year 2009, or until the funds are exhausted. This will mean more capital available to small businesses at a lower cost. The fee elimination is retroactive to February 17, the day the Recovery Act was signed. SBA is
developing a mechanism for refunding fees paid on loans since then.

Additionally, the President announced today that the Treasury Department will commit up to $15 billion to help unlock the frozen credit markets by purchasing small business loan securities currently frozen on the secondary market. By purchasing these securities, it will unlock these secondary markets, and in turn, free up more capital to jumpstart lending for small business owners. The SBA has worked closely with the Treasury Department to address the need to unlock these secondary markets for SBA loans.

For more information on the SBA and Treasury initiatives announced today by the President, visit the SBA Web site at www.sba.gov.

Check out Madoff's World

Anyone who has been tempted to invest in a scheme which is promising returns way above market average should read this article and remember this tale.


Click HERE for the entire article.

Banks Return TARP Funds to Avoid Choking on Attached Strings

Banks Return TARP Funds to Avoid Choking on Attached Strings
by: Markham Lee March 12, 2009 about stocks: GS / SBNY / WFC

Here is a look at the trend of banks refusing TARP funds, and/or looking to return them ASAP due to the conditions imposed on them by the government:

(From the NY Times): "WASHINGTON — The list of demands keeps getting longer.

Financial institutions that are getting government bailout funds have been told to put off evictions and modify mortgages for distressed homeowners. They must let shareholders vote on executive pay packages. They must slash dividends, cancel employee training and morale-building exercises, and withdraw job offers to foreign citizens.

As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds.

The conditions are necessary to prevent Wall Street executives from paying lavish bonuses and buying corporate jets, some experts say, but others say the conditions go beyond protecting taxpayers and border on social engineering.

Some bankers say the conditions have become so onerous that they want to return the bailout money. The list includes small banks like the TCF Financial Corporation of Wayzata, Minn., and Iberia Bank of Lafayette, La., as well as giants like Goldman Sachs (GS) and Wells Fargo (WFC).

They say they plan to return the money as quickly as possible or as soon as regulators set up a process to accept the refunds. On Tuesday, Signature Bank of New York (SBNY) announced that because of new executive pay restrictions in the economic stimulus package, it notified the Treasury that it intended to return the $120 million it had received from the government only three months ago.

These are the sorts of problems you run into when the government has a lot of influence/control/involvement with private industry, because politicians tend to think in terms of political objectives instead of what's best for the business (Exhibit One: the Mortgage GSEs). This is not to say that some of the measures (like limiting bonuses) aren't good ideas, but at the end of the day the government is thinking politics first and business second.

The TARP was sold to us based on the idea that if we have healthy banks we'll have a healthy economy; if that's truly the case the government needs to keep its promise and focus on business first and make politics a distant second. If the goal is to get the banks healthy again so they can pay back the TARP funds, the government shouldn't be engaged in the counterproductive activity of pushing the banks to do things that are bad for business.

You know things are getting ridiculous when banks are refusing TARP funds so they can continue to support community organizations.

This is not to say that the banks should get to define their own terms, or that some of the complaints aren't just whining from executives who want things to be like the "good old days". Instead, I think that the government should stick to whatever terms and conditions agreed to when a particular bank accepted the funds, instead of constantly changing things in a way that makes the banks feel as if they're beholden to the ever changing whims of the government. I also think that the government should be thinking in terms of getting the banks healthy enough to payback the taxpayer, as opposed to pushing the banks to serve their political objectives.

You can read more here.

Source:

The NY Times: "Some Banks, Citing Strings, Want to Return Aid" -- Stephen Labaton, March 10, 2009.

American Recovery and Reinvestment Act of 2009

-Please visit www.recovery.gov for more information.

The American Recovery and Reinvestment Act contains a package of loan fee reductions, higher guarantees, new SBA programs, secondary market incentives, and enhancements to current SBA programs that will help unlock credit markets and begin economic recovery for the nation’s small business sector.

The bill provides $730 million to SBA and makes changes to the agency’s lending and investment programs so that they can reach more small businesses that need help.

“The tax incentives and credit stimulus elements of the Recovery Act will truly help small business owners affected by the credit crunch, and will provide financing opportunities to help them create new jobs in their communities,” said Acting SBA Administrator Darryl K. Hairston.

Overview of the American Recovery and Reinvestment Act of 2009 (Recovery Act)The American Recovery and Reinvestment Act of 2009 (Recovery Act) was signed into law by President Obama on February 17, 2009. It is an unprecedented effort to jumpstart our economy, create or save millions of jobs, and put a down payment on addressing long-neglected challenges so our country can thrive in the 21st century.

The Act is an extraordinary response to a crisis unlike any since the Great Depression, and includes measures to modernize our nation's infrastructure, enhance energy independence, expand educational opportunities, preserve and improve affordable health care, provide tax relief, and protect those in greatest need.

View the Recovery Act Legislation.

Implementing the American Recovery and Reinvestment Act of 2009The American Recovery and Reinvestment Act will have a significant impact on small businesses and on the credit crunch, providing tax incentives and financing opportunities that will help them create jobs.

The American Recovery and Reinvestment Act makes SBA part of the solution, providing it with specific tools to make it easier and less expensive for small businesses to get loans, give lenders new incentives to make more small business loans, and help unfreeze the secondary markets to boost liquidity in the credit markets.

More details on implementation will be coming over the next few weeks.

The bill provides $730 million to SBA and makes changes to the agency’s lending and investment programs so that they can reach more small businesses that need help. The funding includes:

$375 million for temporary fee reductions or eliminations on SBA loans and increased SBA guaranteed shares, up to 90 percent for certain loans

$255 million for a new loan program to help small businesses meet existing debt payments

$30 million for expanding SBA’s Microloan program, enough to finance up to $50 million in new lending and $24 million in technical assistance grants to microlenders

$20 million for technology systems to streamline SBA’s lending and oversight processes

$15 million for expanding SBA’s Surety Bond Guarantee program

$25 million for staffing up to meet demands for new programs

$10 million for the Office of Inspector General

SBA Press Release

Bank "bailout" funds a Trojan Horse?

This is a very interesting article especially worth noting that the bank regulators haven't yet set up a system to allow the banks to repay the funds.

Click HERE for article.

Small Acts Have Big Consequences

Bad Times = Good Times to Own a Family Business

Dad's laid off, Mom's looking for a job and their are two teenagers in the house texting and spending time playing computer games. Grandma's looking for part time work because of the shrinkage in her 401 K. The wolf's at the door! Maybe its time to look at owning a small family run business? Convenience Stores, Sub Shops, Pizza Shops, Gas Stations, Pubs, dry cleaners etc have long been successful models for a true family owned and run business.

A family owned and operated business is simply one where the family covers the vast majority of the labor costs incurred in running the business. The whole family works and draws a paycheck--the economic value of the business is the sum total of the wages paid to the entire family unit, plus net profit, plus tax benefits from owning a business.

A further advantage is hopefully the family members will be "trusted employees" and employee theft and shrinkage will be minimized, plus the fact that their will usually be an "owners" presence at the business which should result in better customer service, a higher degree of cleanliness, and overall better performance of the business.

This is a model which I have seen "New Americans" use with much success over the years and have often seen them acquire multiple businesses using extended family members (uncles, cousins, etc.) and truly realize the "American Dream."

Remember if you own your own business, you can't be laid off, downsized or have your job shipped out of country. You are the master of your own economic destiny.

There are lot's of opportunities out there for families willing to work--you may have to drag the teenagers away from Facebook and Wi but there are lot's of valuable lessons to be learned from hardwork, made all the more valuable because they are making a real contribution to the family unit.

What Type of Business Entity Should You Form?

The following is an excerpt from Jake D. Dunton, CPA, CFE, CVA - Director of Client Services at Dunton & Co., P.C. Feel free to contact him at 317-842-6325 with more questions.

You will need to decide how to structure your business entity. Here are six types of business entities and their differences:

First Meeting with a Potential Seller - It's a Job Interview

One of the most crucial and often least thought about by Brokers and Buyers is the initial meeting between the Seller and Prospective Purchaser.
This meeting will set the tone for all future dealings. I have had Sellers turn to me and say after a meeting, I wouldn't sell that SOB this business under any circumstance.
Some tips:

1. This is the equivalent of a job interview--look appropriate and be respectful to the Seller who is looking for a good home for his baby.
2. Be educated about the industry and the business--spend some time with Google gathering back ground information.
3. Try to initially ask broad questions in order to get a feel for the business, its past and prospects for the future. Have a short list of questions which you want to cover--it is important and appropriate to ask the Seller why he is selling the business.
4. Small talk is good--establishing a connection with the Seller is good! Establishing any common acquaintances is good.
Telling the seller the baby is ugly is bad!!!!!!
5. Initial meeting is not a time for financial due diligence. Keep away from detailed financial questions. Don't ask the Seller how much money he is "stealing" from the business.
6. Initial meeting should usually last about an hour.
7. Don't spend the whole meeting telling the Seller how smart and successful you have been--a short summary of your life's accomplishments is fine, but keep in mind this is an interview. Don't act arrogant!!
8. Remember what your mother told you "if you can't say anything good, then don't say anything at all."
9. An astute purchaser can pick up a lot of information in the initial meeting.
10. Look around, sometimes you can learn a lot by being observant.

Thinking of Buying a Franchise??

Read this article to find out who is struggling. These are important numbers to review in making an informed decision about buying a franchise.

Click here: Loan Defaults by Franchisees Soar - WSJ.com

Check Out What Wines to Pair w/ Asian Cuisine

Occasionally I run across good articles which offer excellent tips on improving a business and I will be putting these links on my blog. This is a good artlcle for owners of Asian restaurants and I think illustrates the growing popularity of wine in general and its importance for restaurants in making the dining experience better for their customers and adding a potential profit center for the restaurant.

"What Wines to Pair with Asian Cuisine?"

So You Want to Be an Enterpreneur....

I recently read an excellent article on WSJ.com entitled: "So you want to Be an Entrepreneur First Answer these questions to see if you have what it takes. It was written by Kelly K. Spors. If you are thinking about buying or starting a business you should read this article (click on the title to view article).
The ten questions to ask if you have what it takes to be an entrepreneur as set forth in the article were as follows;

1. Are you willing and able to bear great financial risk?

2. Are you willing to sacrifice your lifestyle for potentially many years?

3. Is your significant other on board?

4.Do you like all aspects of running a business?

5.Are you comfortable making decisions on the fly with no playbook?

6. What's your track record of executing your ideas?

7.How persuasive and well spoken are you?

8. Do you have a concept you're passionate about?

9. Are you a self starter?

10.Do you have a business partner?

It's Hard to Get a Bank Loan

This cartoon illustrates the growing frustration among business owners on trying to get credit in today's banking meltdown.