Check out Inc.com article: Small Business' Real Problem with the Banking System...

"Increased regulation of bank lending still needs to allow for measured risks that permit sound small businesses to receive funding needed to thrive."

Read the full article at Inc.com., In The Trenches, written by Vanessa Merit Nornberg. Vanessa recounts her experiences with financing for her small business start up, Metal Mafia. Interesting and insightful take on the current climate for credit availability for small business.

Click here to read the article.

Check out: The Three Biggest Myths About the S.B.A.

Check out this great article by Ami Kassar of The New York Times about the S.B.A. ... very informative...

The New York Times, June 19, 2012
The Three Biggest Myths About the S.B.A.
By: Ami Kassar

I want to share with you what I consider to be the three biggest myth about the Small Business Administration. But let me be clear: I am a big supporter of the S.B.A. My company, MultiFunding, brokers loans, and we put about 25 percent of our clients into S.B.A. loans. I think it's a good program with a lot of eceonomic benefits. It's also terribly misunderstood by many of the small-business owners we talk to.

So let's debunk some myths.

1. The S.B.A. Lends Money.
2. When the S.B.A. Guarantees a Loan, There is No Need for Collateral.
3. S.B.A. Loans Are as Easy to Get as Other Commercial Loans.

To read the full article Ms. Kassar's debunks... click here.

Check out ""Small Business Administration is an unnecessary, costly agency"

Interesting....

The San Francisco Examiner
sfexaminer.com
By: Tad DeHaven - Special to the Examiner
08/18/2011

Washington continues to entrust stale bureaucracies with the job of righting the economic ship, instead of getting the federal government out of the way. One of those bureaucracies is the Small Business Administration, which has been employed by Congress and President Barack Obama to reignite private-sector lending.

The SBA does this by guaranteeing loans issued by private lenders for up to 85 percent of losses in the event that loan recipients default. As a result of the guarantee, lenders are more willing to lend money to riskier applicants because the SBA - and thus taxpayers - is ultimately responsible for the bulk of any losses.

to read the full article... click here.

Check out... Big Banks Shrinking As SBA Lenders

www.boss.blogs.nytimes.com
You're the Boss: The Art of Running aSmall Business
By: Robb Mandelbaum
08/10/2011

The Small Business Administration's guaranteed loan program is back. Nudged by stimulus provisions that reduced fees and increased guarantees, American banks made a record amounf of S.B.A. backed loans in 2010 (measured in dollars), reversing a demoralizing four-year slide. But there's something noteworthy about who was doing that lending: while banks as a whole loaned more government-backed money than ever, the biggest banks loaned less.

The 25 American banks with the most deposits in 2010 underwrote $3.6 billion in S.B.A. general business, or 7(a), loans. That is just 20 percent of all 7(a) loans approved that year, down nearly a third from the share these same banks loaned in 2006. The decline cannot be tied to a decline in deposits. In that same period, these banks grew to control $5.8 trillion in deposits, 61 percent of all bank deposits in 2010.

In other words, in 2010 the 25 biggest banks held 32 percent more in deposits than those banks did in 2006 - but approved 30 percent less in S.B.A. loans...

read the rest of the article... click here.

Check out: Money is available for small businesses, but it takes work

Posted 11/21/2010 6:00 PM
USAToday.com, Small Business

AskAnExpert: Steve Strauss

Q: I hear that there is more money available these days for Small Business Administration loans. Is that true? If it is, how do I apply to the SBA to get one? Thanks in advance. Maurice

A: Yes, it is true that there are more SBA loan funds available right now than in years past. This is mainly due to 1) a change in administrations, and 2) the fact that both TARP and the new small business law added funding for SBA lending.

To read more... click here.

Is This a Good Thing????

Small Business Administration redefines 'Small Business'
New size standards will now classify more than 18,000 additional businesses as "small business," making them eligible for SBA programs
By Lauren Drell
AOL Small Business
October 11, 2010

Small businesses are getting a little bigger, thanks to new size standards form the Small Business Administration. Effective November 5, 2010, the change will make nearly 18,000 more businesses across 70 industries, including retail and hospitality, eligible for SBA programs, including loans and help winning federal contracts.

SBA size standards vary by industry, and caps are typically set based on the number of employees or average annual receipts -- criteria that have been in place since 1984. This recent "comprehensive review" of size standards will at least double the cap on average annual receipts, taking them from $7 million to as much as $35.5 million.

The change is said to benefit car dealers most of all, as they represent nearly one-third of the 18,000 deemed "small businesses." Whereas the cap for car dealers used to be revenue based, the new rule hinges on the number of employees: 200 is the limit. About 90 percent of all car dealerships will now be considered small businesses, some with revenues up to $20 million, according to a report by The New York Times' You're the Boss blog.

"These increases in the size standards mean more of America's small businesses will be eligible for and can access the resources and services the SBA and other federal agencies have available," SBA Administrator Karen Mills said in a statement. The new size guidelines are aligned with current economic and industry indicators and are meant to ensure that small businesses have the tools they need to grow and create jobs, since small businesses have created 65 percent of all the new jobs in the past 17 years and employ half of America's private-sector workforce.

Check out Finding Surprises in the Small-Business Jobs Bill

By: Robb Mandelbaum
New York Times
Business Day - Small Business
Monday, September 27, 2010

Most of the controversy surrounding the small-business jobs bill that cleared the House of Representatives on Thursday - after nearly a year of discussion - concerned a $30 billion small-business lending fund to be established by the Treasury Department.

But like most of the legislation, the lending fund is a temporary fix. It will make investments in banks for just one year. The tax breaks in the bill, worth about $12 billion, are mostly good for a year or two.

But one part of the bill, which President Obama will sign into law on Monday, also makes permanent and far-reaching changes to the Small Business Adminstration's guaranteed loan programs - it both allows banks to make much largers loans and permits bigger businesses to take advantage of them - changes that have not been widely discussed. Taken together, these measures potentially could alter the essential character of the S.B.A.'s borrowers - it could make them not very small.

to read the full article... click here.

check out... Getting an SBA Loan: 5 Things You Need to Know

Getting an SBA Loan: 5 Things You Need to Know

Getting a business loan is tough -- especially these days. But the Small Business Administration can still be a great lending partner. How to cut through the red tape and secure an SBA loan.

Chasing a Small Business Administration loan these days is a little like going to a carnival and expecting to win one of those giant stuffed animals. It might happen, but the odds are probably against you. As Christine Reilly, the president of small business lending for CIT, points out, about a year ago, the federal government tinkered with the formula for getting an SBA loan, and for a brief shining time, even during the Great Recession, SBA loans were semi-easy to come by.

Of course, it's still possible to get an SBA loan -- Reilly is the first to admit it -- and it can be a great way to infuse your company with cash. But how can you navigate the red tape and make sure all the effort pays off? Here are five things you need to know.

• Know the lingo.
• Document everything.
• Got collateral?
• Do your homework. Seriously.
• You are not a risk taker

to read the full article … click here.

Obama's stimulus aims to boost access to small-biz loans

By Peter Schnitzler, Indianapolis Business Journal

To read the full article online click here.

No incentive can make a bad deal bankable. But President Obama’s stimulus measures are spurring some promising small businesses to begin borrowing again, despite the recession. National politics will help determine whether the budding trend accelerates or stalls.“The president has announced a very exciting series of initiatives. That’s the good news,” said attorney Frank Swain, a partner in Baker and Daniels LLP’s Washington, D.C., office. “The asterisk to bear in mind is, nearly everything the president has proposed will require legislation.”

Obama has a variety of incentives on the table designed to encourage entrepreneurship. For starters, he wants to move $30 billion from the Troubled Asset Relief Program, or TARP, over to community banks that will put it to work in small businesses.

The president also aims to give the Small Business Administration authority to refinance commercial real estate loans for owner-occupied property. Obama has proposed raising the caps on a variety of SBA loans, and he wants Congress to approve a $5,000 tax credit for every net new employee a small business hires.

But at the moment, it’s unclear whether Obama will even be able to preserve the small-business banking measures he’s already added to the books. Thanks to the American Recovery and Reinvestment Act, the SBA is attempting to rekindle borrowing activity by increasing its loan guarantees up to 90 percent and waiving fees.

The SBA’s current loan incentives are scheduled to expire at the end of the month without congressional renewal. Some local entrepreneurs are taking advantage of federal stimulus incentives while they last.

Alivio Medical Center, at 21st Street and Shadeland Avenue, is exactly the type of small business President Obama is attempting to assist. Founded in 2002, it has four full-time physicians, three specialists and a staff of 30. It serves 25,000 patients, primarily Hispanic people for whom Spanish is their first language.

The business has expanded so quickly that it’s twice outgrown facilities. Last fall, Alivio borrowed $705,000 in SBA-backed money from Fifth Third Bank to buy its current building, a former pain clinic.

Dr. Alfredo Lopez-Yunez, 42, a Colombian native who’s Alivio’s owner and director, said he probably could have secured a loan without the SBA’s assistance. But because of its involvement, Alivio used funds that would have gone for fees to instead open a dental clinic and an ophthalmology clinic.

“I wouldn’t say it was a no-brainer, but it was close to that, it was so good,” he said.

McCordsville-based Grassroots LLC is another beneficiary of the SBA’s current incentives. Owner Todd Stadler distributes a variety of musical instruments from a tiny 3,000-square-foot warehouse, “but we use every bit of that room,” he said. He launched the business in October with the help of an $80,000 loan from Star Financial Bank, backed by the SBA. His motive was a common one for entrepreneurs: Stadler, 33, simply wanted to work for himself.

Grassroots has four full-time employees and two part-timers. In just a few months, it has attracted 250 customers and aspires to 2010 sales of $1 million, with a profit margin of 25 percent or better.

“I’ve worked hard for others. I knew I’d succeed if I did that for myself,” he said. “My mind-set was, I’ll do whatever I have to to make this work.”

The SBA’s changes were rooted in necessity. In 2008, wary entrepreneurs battened down their hatches. The international credit crunch trickled down locally into a 35-percent slide in both the quantity and size of SBA-backed bank loans.

The result was a partial, concentrated revival. The SBA’s Indiana District Office reports that its gross dollar totals for loans made during the last 12 months reached 86 percent of their pre-recession level. But the SBA underwrote only about half as many loans as before the downturn.

Mark Schroeder, CEO of Jasper-based German American Bancorp Inc., wants to see the SBA’s current loan incentives extended.

Just before Christmas, Schroeder was one of 12 community bankers from around the country invited to meet personally with Obama. He told the president that German American was fortunate to be well-capitalized and willing to lend. But because of the recession, he told Obama, businesses simply aren’t borrowing. For the last two years, most have concentrated on reducing their inventories and tightening their receivables, not taking on debt for expansion.

As businesses shrink, Schroeder noted, they have less collateral to offer as loan security. That increases their default risk. Until recently, the problem has been hidden by the lack of loan demand. But it will become pronounced as they begin growing, and seek new credit for working capital.

Schroeder believes the SBA’s increased guarantees ought to be extended through 2011, and perhaps beyond.

“That was my point to the president,” he said. “If you pull that SBA credit-enhancement support off the table too soon, just when this economy is ready to come back up and back out, that’s when you’re going to see the credit crunch.”

Obama’s new entrepreneurship proposals also include eliminating capital-gains taxes on investments in small businesses and accelerating tax-depreciation schedules for their equipment purchases.

Swain, the Washington, D.C., attorney, said local entrepreneurs should keep their lenders’ phone numbers handy to track the changing landscape for small-business incentives.“

Chances are that many, if not all, the changes will be made pretty quickly,” said Swain, who served as the SBA’s chief counsel for advocacy before joining Baker and Daniels. “If somebody desperately needs help today, they have to deal with current program rules. But in a month, the rules could be changed.”

Article: Stimulus Relief Extended for SBA Loans

Stimulus Relief Extended for SBA Loans

By EMILY MALTBY

The Senate voted this weekend to temporarily extend funding for two popular stimulus provisions that reduced fees and boosted guarantees on Small Business Administration-guaranteed loans.

The provisions, which helped bolster small-business lending over the past year, had run out of funding in late November. With the new extension, included in the Defense Appropriations bill, the government's maximum guarantee on SBA loans is restored to 90%, compared to pre-stimulus levels of 75%. Fees that the agency normally changes banks are also waived.

Small businesses have been left in limbo since the funding ran out," said Mary Landrieu (D-La.), one of the senators who requested the extension, in a statement. "[The legislation] will provide a lifeline to small businesses in need of credit."

The provisions, however, are only extended through February. Lenders and small-business advocacy groups will have to wait on another piece of legislation – the House's Jobs for Main Street Act, which passed in the chamber last week – for the provisions to be extended through next September.

Access to credit, with or without the stimulus provisions, has remained a problem for Main Street businesses. "The conventional credit market will not near normal until sometime in 2011 because the typical small business will walk in with negative trends on his financial statement," said Tony Wilkinson, president of the National Association of Government Guaranteed Lenders in Stillwater, Okla. "But that's why the SBA programs are important, because lenders can say, 'Hey, this is a survivor who will probably make it.'"

The provisions were originally enacted as part of the Recovery Act in February 2009, and have been widely credited with drawing banks back to the small-business lending arena. SBA Administrator Karen Mills called the increased guarantee and reduced fees on SBA loans "a powerful combination" that has already directed $16.5 billion to small-business owners and brought more than 1,200 lenders back to SBA loan programs.

After the SBA announced in mid-November that funding had nearly drained, lenders acted quickly to approve as many loans as possible under the stimulus provisions. In one week, the SBA received a surge of loan applications, forcing the agency to create a waiting list of 1,069 small businesses seeking $530 million in loans. The extension should move all of those businesses out of the queue, says SBA spokeswoman Hayley Matz. "As we get to the end of February, we will implement the queue again as a way of orderly winding down the process."

Next week marks the end of the SBA's first fiscal quarter. Even if the loan volume has increased for the past three months, credit is still not easy to come by, many business owners say. Earlier this month, President Obama publicly addressed how the credit crunch has impacted small businesses and pledged to institute programs, including the extension of the higher guarantees and waived fees, in order to propel lending. He has also outlined a plan to use TARP funds, though details of that program are still pending.

Janet Crenshaw Smith is skeptical that government programs will help her score a loan. Even before the stimulus funding ran out, she was having trouble at the bank.

Her company, Ivy Planning Group LLC, a 19-year-old consulting and training firm in Rockville, Md., had its $750,000 credit line cut off from Wachovia about 12 months ago. Ms. Smith depended on the line when clients failed to pay within 90 days. The bank expanded the line of credit year after year, leading her to believe that the line wasn't in jeopardy.

"I thought that would never happen to me; I thought I was special," Ms. Smith says. "I went nuts when I got the letter." She has had to scrutinize her cash flow since then, particularly after she lost some large Wall Street clients during the worst months of the recession.

Although she now feels ready to hire and launch new training products, she's hindered without the cash. The next stop, she says, is her community bank, although she's doubtful. "Their guidelines may be too tight," she says. "But this is my opportunity to capture market share because many of my competitors are long gone and won't be back."

Article: For SBA Loans, Stimulus Well Runs Dry

The Wall Street Journal
http://www.wsj.com/


For SBA Loans, Stimulus Well Runs Dry

By EMILY MALTBY

Two popular stimulus provisions that drew hundreds of banks back to the small-business lending arena ran out of funding Monday, setting the stage for a potential new credit squeeze for business owners.

The two provisions, passed as part of the Recovery Act, raised the maximum guarantee on Small Business Administration loans to 90% from 75%, and temporarily reduced or eliminated fees associated with the loans. The measures are widely credited with getting millions of dollars into the hands of small-business owners and making it more attractive for banks to lend during the downturn.

The SBA had anticipated that funding for the provisions, totaling $375 million, would run dry ahead of the provisions' scheduled 2010 expiration dates. Last week, the agency alerted lenders that, as of Monday, the guarantee would be lowered to pre-stimulus levels and the fees would be reinstated, according to SBA spokesman Jonathan Swain.

That created a mini-rush, prompting lenders to issue – over the course of the last week – more than $1 billion in SBA loans, he said. That amount exceeds monthly lending volumes in each of the first six months of the government's fiscal year. As of Monday's cut-off date, there were 282 applications still pending for stimulus loans, totaling $128.7 million. Those applications will be put on a waiting list, and will move forward if borrowers and lenders cancel previously approved loans, he said.

Meanwhile, lending experts anticipate a drop in SBA loan volume unless Congress moves quickly to allocate more funds to renew the stimulus provisions. Last month, the House voted to continue the measures until September 2011, although the legislation has not moved forward in the Senate.

"We absolutely need to extend it, as it has been the driver of loan volume," says Tony Wilkinson, president of the National Association of Government Guaranteed Lenders in Stillwater, Okla. "It is proven, it has worked, and we have gotten credit in hands of small businesses. If it's not extended, we fully expect to see a substantial decline in loan volume."

The SBA has pushed Congress for an extension of the stimulus provisions, and as a first goal wants them to remain in place until mid-February. That was when the 90% guarantee was originally slated to expire, had funding been sufficient. The lower fees were scheduled to expire next September.

"We have been having positive discussions with folks on the Hill and in the administration," Mr. Swain said. "We're hopeful they will understand that these programs are effective."

In a forum on small business lending last week, lenders, government administrators, and business owners discussed the best means of getting credit to small businesses. One proposal which is actively supported by President Obama, is to raise the cap on SBA loans. Cynthia Blankenship, past chairman of the Independent Community Bankers of America, noted during one of the discussion forums that raising the loan cap "is a good idea, but you'd have to raise guarantees" in order for it to be effective. That statement resonated with many of the lenders in attendance.

Article: Local SBA lending dropped 17 percent in 2009

IBJ.com

Local SBA lending dropped 17 percent in 2009
Mason KingNovember 20, 2009

Some of the city’s most generous participants in the Small Business Administration loan program barely cracked the doors to their vaults in the past year.

SBA lending in the Indianapolis area plunged by an astonishing 64 percent for three of the city’s four largest banks during 2009, while overall lending in the program slipped 17 percent in the Indianapolis area.

Among the most active participants in the SBA’s popular 7(a) program in 2008, the trio of Huntington National Bank, National City Bank and Chase originated a combined total of $11.2 million such loans during the agency’s 2009 fiscal year, which ended Sept. 30. That was down from $31.1 million in 2008.

The total value of SBA-backed loans originated by Huntington dropped from about $15.3 million in 2008 to $4.9 million, according to agency figures. Chase’s total sank from $8.1 million to $1.9 million, and National City’s lending sagged from $7.6 to $4.4 million.

The declines may not come as a surprise given the horrific year suffered by the financial industry, triggered in large part by imprudent lending. And many small businesses, staggered by the recession, were in no position to plan pricey moves that would require more capital.

“The biggest reason for the decline was that demand was soft,” said Jean Wojtowicz, executive director of the Indiana Statewide Certified Development Corp., a lender in another SBA program for financing fixed assets like buildings and equipment.

The 7(a) program helps small businesses obtain financing when they might not be eligible for loans through normal channels. The SBA does not make loans; instead, it guarantees most of the value of loans made through commercial lenders.

“Businesses were a little bit apprehensive,” Wojtowicz said. “Some of them were not interested in expanding; they were interested in surviving. And banks respond to what businesses are asking for. They don’t peddle loans to people who don’t want them.”

Credit crunch

However, small-business lending by Huntington, National City and Chase declined much more steeply than that of many of their peers. In 2008, the trio accounted for 34 percent of the $91.3 million in total lending for the 7(a) program in the nine-county Indianapolis area. In 2009, their combined lending skidded to only 15 percent of the $75.8 million in loans issued through the program.

“The obvious thing is that we’re in the middle of a credit crunch,” said Marianne Markowitz, Midwestern regional administrator for the SBA.

Markowitz hesitated to draw any conclusions about individual banks. “Every bank is affected differently depending on their loan portfolio,” she said. “Of course they have to be conservative. They got here by not being conservative. They need to be diligent in their underwriting process.”

New York-based Chase, Cleveland-based National City and Columbus, Ohio-based Huntington were the city’s first-, second- and fourth-largest banks in the Indianapolis area, respectively, in 2008, according to IBJ’s most recent list of the region’s largest banks and thrifts. The banks were ranked by number of local full-time employees.

Local Huntington and Chase officials maintain that they haven’t significantly changed their strategies or credit standards for SBA lending. Instead, they point to decreased demand for small-business loans. In addition, some potential clients found themselves in more dire financial straits in 2009, said Mike Newbold, regional president of Huntington Bank in Indiana.

“They may have been credit-worthy 12 months ago, but if they were unable to adjust to the downturn, they may not qualify even under the same underwriting guidelines,” Newbold said.

Tim Oliver, senior vice president and central Indiana market manager for Chase Business Banking, noted that Chase looks at many lending vehicles for its clients, and that, in 2009, SBA loans “weren’t the ideal solution in as many cases [as in 2008].”

Chase recently announced plans to increase small business lending system-wide by $4 billion in 2010, and to hire 325 additional small-business bankers. “We expect demand to pick up,” said Chase spokeswoman Nancy Norris.

The circumstances for National City Bank were slightly different than those of its two compatriots. National City was acquired by Pittsburgh-based PNC Financial Services Group Inc. on Dec. 31. (The 77 Indianapolis-area branches still carrying the National City name are expected to be rebranded in 2010.)

Prior to the Dec. 31 purchase and then as a division of PNC, National City originated 23 SBA 7(a) loans worth about $4.4 million for businesses in the Indianapolis area during the 2009 fiscal year—a 43 percent drop in value from 2008.

PNC spokesman Fred Solomon declined to speculate on the reasons behind the reduction in local 7(a) lending from 2008 or PNC’s level of participation in the program going forward.

“PNC will continue to be an active lender to small businesses,” Solomon said, noting that the bank as a whole originated more than $900 million in small-business loans, including SBA lending, in the third quarter of 2009.

Recovery Act assistance

Like much of the financial industry in late 2008 and early 2009, SBA lending sank in the muck of the recession and spun its wheels. However, it found better traction after the American Recovery and Reinvestment Act went into effect in March.

Portions of the act were designed to make SBA lending more attractive, including eliminating fees for borrowers and raising the agency’s guarantee from 75 percent to 90 percent.

Lending rebounded in a big way—to an average of $8.6 million a month from April to September, compared to $4 million per month from October 2008 to March 2009.

Smaller banks led the way nationwide, SBA’s Markowitz said.

“We’ve seen instant traction at the smaller community banks,” she said. “They have been able to pivot and grab onto these programs more quickly. … In this particular economy, the small banks are the strength of the network.”

Local standouts included Indiana Business Bank, which leaped from $490,000 on four loans in 2008 to $2 million on nine loans in 2009; Bank of Indiana NA, originating $2.9 million on four loans in 2009 after $830,000 on two loans in 2008; and Community First Bank of Indiana, which furnished four loans worth $2 million in 2009 after no activity in the Indianapolis area in 2008.

The federal funding that makes the Recovery Act provisions possible is expected to last through December, Markowitz said.

Central Indiana’s small-business community appeared to fare better than the rest of the country during the SBA’s 2009 fiscal year. The 7(a) program’s total dollar volume nationwide dropped from $12.7 billion in 2008 to $9.3 billion in 2009, a reduction of 27 percent. Indianapolis recorded a 17-percent drop, from $91.3 million to $75.8 million.

'We just gave up'

One local small-business owner who recently sought an SBA loan said his reception from banks was less than welcoming.

“It’s been very hard to get loans,” said Travis Sealls, co-owner of the Pita Pit franchise at 1 N. Pennsylvania St., which opened in March. “We just gave up on the whole thing.”

Looking for a loan to get the business off the ground, Sealls and a silent partner contacted about a dozen banks in mid-2008 to talk about lending opportunities. Only a handful returned their calls, and most said that their terms had become more restrictive. The only serious offer that they received demanded that they deposit $300,000—the full value of the loan—at the bank as collateral, Sealls said.

“It used to be that the worst-case scenario is that you’d only have to put down 30 percent,” he said. The partners had the capital to fulfill the requirement, but decided against taking the loan.

Going ahead with plans to open the eatery, they hired a broker to look for borrowing opportunities. They again received a single offer—an $185,000 loan through Old National Bank in April. Again, they decided to pass.

“We were like, ‘We really don’t need it now,’” Sealls said. “We weren’t in a cash crunch. We were up and running.”•

Small Business Loans Article

CNNMoney.com

Small business loans: $10 billion evaporates

Reports to the Treasury confirm what small business owners have known all year: Banks are cutting back on Main Street lending.

By Catherine Clifford, CNNMoney.com staff reporter
Last Updated: November 17, 2009: 10:11 AM ET

NEW YORK (CNNMoney.com) -- Eight months after President Obama began prodding the nation's banks to increase their small business lending, the loan numbers continue to move in the opposite direction.

The 22 banks that got the most help from the Treasury's bailout programs cut their small business loan balances by a collective $10.5 billion over the past six months, according to a government report released Monday.

Three of the 22 banks make no small business loans at all. Of the remaining 19 banks, 15 have reduced their small business loan balance since April, when the Treasury department began requiring the biggest banks receiving Troubled Asset Relief Program (TARP) funding to report monthly on their small business lending.

Over the six months that the reporting requirement has been in effect, the banks have cut their collective small business lending by 4%. Their cumulative balance stood at $258.7 billion as of Sept. 30, according to a Treasury Department report.

The bank with the biggest lending drop was Wells Fargo (WFC, Fortune 500), which cut its loan balances by $3 billion. However, Wells Fargo also remains by far the biggest small business lender, with $73.8 billion lent out to small companies. No other bank comes close to that tally.

Some banks are unapologetic about their cutbacks. Small business defaults are soaring, and banks are under pressure to shore up their balance sheets and reduce their exposure to risky loans. Two key small business lenders, CIT Group and Advanta, filed for bankruptcy this month.
But other banks downplay their dwindling loan numbers.

JPMorgan Chase (JPM, Fortune 500) made headlines last week by announcing that it would increase its small business lending by $4 billion this year. But there's no sign of an increase so far in the reports the bank has been filing to the Treasury. JPMorgan's small business lending total has declined every month since April, falling 2.5% over the period. As of Sept. 30, the balance stood at $25.4 billion, down $664 million from six months ago.

JPMorgan spokesman Tom Kelly said the bank will ramp up its lending as the economy improves. The bank is already starting to see healthier, better-qualified applicants, he said: "Some of the businesses are better than they were six months ago."

He also pointed to JPMorgan's recent move to hire additional small business specialists. "We are going to have 325 more bankers talking to customers, so that means there is going to be more applicants for loans," Kelly said. "We have 325 more people knocking on doors."

Credit crunch: Obama administration officials, including Treasury Secretary Tim Geithner and Small Business Administration head Karen Mills, will host a forum Wednesday in Washington to discuss the lending challenges small businesses face. Bankers, members of Congress, and a selection of small business owners will participate.

While credit conditions have improved in some parts of the financial system, lending remains very tight for businesses that rely on banks for their financing, Federal Reserve Chairman Ben Bernanke acknowledged on Monday.

"Many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms," Bernanke said in a speech at the Economic Club of New York. "The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further."

Those in the field back that view. Susan Carlson is president of The International Center for Assistance, a nonprofit organization in Richmond, Va., that assists small businesses seeking capital. Lenders remain very skittish, she said.

"They will look at me and say, 'Susan, we would love to help you, but right now we can't take the risk,'" she said.

Jobs on the line: Frank and Ingrid Brown are a prime example of what happens when entrepreneurs can't get financing. The couple would like to expand their businesses in Auburn, Ala., which currently employ 20 people, but can't land the loan they'd need to do it.

The Browns own two retail art and gift shops, The Villager and AuburnArt.com, as well as a collection of online stores. First they applied at the bank for a loan targeting businesses in underutilized urban areas, but were denied because their sales exceeded the cap for the loan. So they applied with the bank for a Small Business Administration-backed 7(a) loan, but were again rejected.

Next the Browns turned to the America's Recovery Capital (ARC) loan program, a stimulus measure launched this year to get government-backed bridge loans to struggling but viable businesses. After filling out mountains of paperwork, the couple got a bank loan for $14,000 -- less than half the $35,000 they applied for.

"We couldn't get any answers for why we didn't get the full amount, but that is what they came up with. It was kind of like 'take it or leave it,'" Frank said. "By the time you get through everything, it is not even worth it."

The Browns also applied at their local bank, BBVA Compass in Birmingham, for a $50,000 credit line. They were approved for $10,000.

The frustration is taking its toll. "People like us go out and hire people," Frank said. But without the capital it needs to grow, The Villager isn't bringing on new staffers.

That's the nightmare scenario for policymakers as they try to fan the flames of the nation's fragile economic recovery. As long as bank vaults stay slammed shut, fewer startups will launch, successful businesses will have trouble expanding, and struggling businesses are more likely to fail.

"Difficulties in obtaining credit could hinder the expansion of small and medium-sized businesses and prevent the formation of new businesses," Bernanke said on Monday. "Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth."

Article: The SBA is Ready for Its Close-Up... on YouTube?

The SBA is Ready for Its Close-Up... on YouTube?
By GEOFF WILLIAMS, AOL SMALL BUSINESS
Posted: 2009-11-04 15:24:12

It's a little surreal to imagine the Small Business Administration (SBA) amidst videos of Susan Boyle and animated dancing pandas, but they've been part of the YouTube generation for two months now. While their channel is nowhere near as popular as, say, the dancing wedding entrance that appeared in the summer, it seems to be an effective enough platform for the SBA. It currently has 203 subscribers, and the SBA introductory video has been seen by over 4,000 people. It's not setting the world on fire, but it is there, where the SBA can put its videos within reach of anyone, of course, but particularly those under 35, which the agency has made clear they'd like to reach.

Their joining YouTube has had some critics. Shortly after it debuted, George Cloutier, author of Profits Aren't Everything, They're the Only Thing, told Reuters, "SBA officials should be spending less time worrying about YouTube and more time on the thousands of small businesses that fail every week. We'll lose half a million to a million small businesses while they're worrying about the next generation."

And more recently, Susan Wilson Solovic blogged about the SBA star turn at Small Business Television and was equally dubious about the merits of marrying the government organization with YouTube. "There are countless sites on the Internet that provide training videos and other 'how-to' information, so why doesn't that SBA focus its energy on figuring out a strategy to get financing into the hands of small business owners?" wondered Solovic, whose essay appeared across the blogosphere, including prominent sites like The Huffington Post and AllBusiness.com.

"Small business lending is up only slightly after plummeting last year, and entrepreneurs remain unable to get the funds they need to keep their doors open," continued Solovic. "You'd think this would be the top priority at the SBA -- not posting videos and sending out news releases."

I can see the critics' point, but I think it was a smart decision on the SBA's part and don't see this as a sign that the corporate apocalypse is upon us. I seriously doubt that YouTube is actually the SBA's top priority, as Solovic suggested, and it doesn't bother me that some tax dollars from the estimated $825 million SBA budget for 2009 are being diverted to produce these videos. (The Huffington Post huffed, "Your Tax Dollars Are Paying for the SBA to Post Videos on YouTube!") If the SBA weren't on YouTube, you could easily make the argument that the government agency is out of touch and not concerned enough with reaching those young, twentysomethings operating startups.

Sure, plenty of the SBA's videos are self-serving, but there are educational videos about how to market yourself better and financing a business. It's hard to fault that.

Once these videos are posted, like everything else on the Internet, they're there presumably until the apocalypse. And while that means some information will be outdated, the SBA seems to be working on building a video library of educational and historical content that might be useful for years to come. Some may consider it unseemly to start producing videos for YouTube at a time when the business community looks to the SBA for economic guidance, but on the other hand, the folks being hired to produce these videos have been getting some relief from the recession. They probably wish every government agency and corporation would be so unseemly.

Local lenders support small-biz loan initiative

IBJ.com
October 22, 2009
Scott Olson
Click HERE to view the article online

Small business lenders in Indianapolis are supporting a proposal announced by President Obama Wednesday that would increase the size of government-backed loans.
Small-business lenders in Indiana are supporting a proposal announced by President Obama that would increase the size of government-backed loans.

Under the plan announced Wednesday, loan amounts made through the U.S. Small Business Administration’s flagship 504 and 7(a) programs would increase to $5 million. Current maximums are $4 million for 504 loans and $2 million for 7(a) lending.

The initiative would be funded by the Troubled Asset Relief Program and would need to be approved by federal lawmakers.

“I think that increasing the caps on SBA lending is absolutely the way to go,” said Joe DeHaven, president and CEO of the Indiana Bankers Association. “It’s the correct way to spur small-business loans.”

The credit crunch has severely slowed lending activity, although most bankers contend that capital remains available to clients with a solid credit history. Still, the number of SBA-backed loans in Indiana dropped nearly 30 percent in fiscal 2009 from the previous year.

For the fiscal year ended Sept. 30, 1,035 loans totaling $266.8 million were made through the two SBA programs. That compares with 1,460 loans totaling $307 million in the previous fiscal year.

“We’re still cautious, but I think we are lending to credit-worthy borrowers,” said Scott Burns, vice president of SBA lending at the Indianapolis office of Pittsburgh-based PNC Financial Services Inc. “And you’ll see [lending] starting to step up over the next year.”

Burns thinks Indiana’s large manufacturing base could benefit most from the proposed increase, because a mid-size factory can’t purchase a lot of equipment with a $2 million loan.

The Washington, D.C.-based Independent Community Bankers of America issued a statement supporting the proposal, as did the National Association of Development Companies.

NADCO is the trade association for the nation’s certified development companies that make 504 loans. Jean Wojtowicz, director of the Indiana Statewide Certified Development Corp. in Indianapolis, is chairwoman of Virginia-based NADCO.

“Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job-creation money to Main Street,” Wojtowicz said.

504 loans typically are used to purchase land, buildings and equipment.

The SBA currently guarantees as much as 90 percent of loans it backs through approved financial institutions. The guarantee provides an incentive for banks to lend to small businesses that are more at risk of defaulting.

Sour Year for SBA Loans Ends With Uptick

Sour Year for SBA Loans Ends With Uptick

By EMILY MALTBY

The Small Business Administration ended its 2009 fiscal year on Wednesday, marking the close of a tumultuous year of lending initiatives to keep banks' doors open. Despite the efforts to revive the credit market, the SBA approved less than 45,000 loans, down 36% compared to last year and 56% from 2007.

The loan volume reflects all the small business loans approved by lenders that are guaranteed by the government under the SBA's flagship 7(a) lending program. In addition to the drop in number of loans that were approved to small businesses, the total dollar amount also fell drastically to $9.3 billion total, falling short of last year's total by about $3.4 billion.

Lending, however, appeared to rebound in the later part of the year, which the agency attributes to stimulus-related efforts. "We had a big finish to the fiscal year," says SBA spokesman Michael Stamler. "Dollar volume for the [7(a) loans] in September was the highest recorded since August 2007."

Broken down, the 2009 quarterly loan numbers (see interactive chart, at bottom) reveal the complete story of the year following September 2008, when Lehman Brothers filed for bankruptcy. The secondary market, where banks had typically sold their SBA loans to investors in order to initiate new loans, came to a standstill. According to the January 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices, about 70% of banks had tightened their standards on small business loans. As a result, the SBA backed 57% fewer loans in the first quarter of the year.

In February – six months into the fiscal year - the Recovery Act passed. The stimulus legislation dropped fees associated with the loans and raised the maximum guarantee on the loans to 90%, meaning that if the borrower defaulted, the government would reimburse the bank up to 90% of the loss.

Lending remained down in the third quarter of the year, the first full quarter following the stimulus. Top-tier lenders, including CIT and J.P. Morgan Chase, had reduced their small business lending considerably.

Small Business Loan Lenders On Way to Recovery?3:22Loans to small businesses came to a standstill after the collapse of Lehman Brothers last September, but due to some government stimulus programs a recovery was sparked in the latter part of the year. WSJ's Emily Maltby discusses with Kelsey Hubbard.

However, crediting the stimulus measures, the SBA reported that lending activity had started to pick up and that hundreds of lenders who hadn't made a 7(a) loan in months had jumped back into the game.

"We saw many more banks increasing their SBA loans," says Paul Merski, chief economist at the Independent Community Bankers of America in Washington, D.C. "The stimulus provisions helped jump-start the interest in SBA lending."

Fast forward to the last quarter of the year, ended this week, where more than 15,000 loans totaling $3.3 billion were approved in the last three months - up 18% from the year prior and nearly hitting 2007's quarterly levels.

"The real turning point was the Recovery Act," says SBA spokesman Jonathan Swain. "When you look at the data since February, I think we can say that the Recovery Act hit the mark when it comes to SBA lending."

The lending volume boost in the second half of the year was also due to the revival of the secondary market, which was supported by a program called the Term Asset-Backed Securities Loan Facility, or TALF.

The TALF initiative, which kicked off in March, allowed secondary-market investors to take out loans from the government to start purchasing asset-backed securities, such as SBA loans. Although investors have taken only a small amount of money from TALF to buy SBA loans, the program restored confidence in the market, which has since recovered.

"The TALF program had a very small but positive effect on the secondary market," says Paul Merski, chief economist at the Independent Community Bankers of America in Washington, D.C. "[The market] largely corrected itself and credit started flowing more."

Scott E. Harris Scott Harris and his wife, Becky, secured an SBA loan to launch their distilling company. The loan process took four months.

That means more SBA loans are available for new business to get off the ground and for existing businesses to grow. Take Scott Harris, for example, who owns Catoctin Creek Distilling Company LLC in Purcellville, Va. with his wife, Becky. On Wednesday, the last day of the fiscal year, they signed on the dotted line for a 7(a) loan that will help them start their spirits business.

"We started looking at the banks in June," says Mr. Harris, who credits the couple's ability to secure a loan to a solid business plan, robust credit score and a significant amount in personal savings invested in the the business. The four-month waiting game has been "exciting and terrifying," he says.

The couple procured the loan, which Mr. Harris says was for more than $100,000, with their local BB&T branch. The money will be split between startup purchases such as equipment, and working capital to grow the business.

Still, a jump in the year-over-year numbers doesn't necessarily mean the trend will continue on an upward trajectory. While conditions are better today, the July 2009 Senior Loan Officer Opinion Survey shows that 36% of banks reported tightening credit standards for small firms in the last three months. Only 2% reported standards easing somewhat.

Furthermore, many lenders who historically have been stalwarts in the SBA lending arena remain hesitant to make small business loans. CIT, the top lender in 2008, has fallen to number 13 and is still teetering on the brink of bankruptcy.

"Where we are today compared to February is encouraging but no one in the administration will say we should declare victory," says the SBA's Mr. Swain. "Going forward one of the things we are doing with real urgency is looking at what is needed in marketplace today in terms of access to capital. The main focus is what we can do to keep moving in a positive direction."

One measure that may help, says Mr. Merski, is pushing the end date for the stimulus programs. While the no-fee and 90% guarantee provisions are set to expire on September 30, 2010, the SBA estimates that funding is expected to run out by December, cutting the end date short. "[Lenders are] 100% behind extending the date as we're turning the corner," he says. "If they are pulled back in, we could have a dip in lending. I think that's going to be a huge factor as to whether this strong uptick in the final quarter of 2009 will continue."

SBA Announces Maximum Fixed Rate

SBA Announces Maximum Fixed Rate

by Ethan W. Smith, Esq.
September 30, 2009

Historically, SBA has been permitted to publish a maximum allowable fixed rate for its guaranteed loans in the Federal Register, see 13 CFR 120.213(a). However, up to this point, the Agency has not done so. Lenders have been reluctant to make fixed rate loans under the 7a program because they have been restricted to a maximum rate equal to the Prime Rate (or LIBOR Base Rate) plus the maximum rate spreads identified in 13 CFR 120.214 (d) and (e) and 13 CFR 120.215. Currently, this results in a maximum rate of approximately 6.00%, which is not a rate most lenders are willing (or able) to lock in at for a long-term loan.

Yesterday, the SBA published in the Federal Register, its guidelines for calculating fixed rates for long term 7a loans, effective October 1, 2009.

The new guidance establishes a calculation for a "Fixed Base Rate" which is equal to the LIBOR Base Rate plus the average of the 5-year and 10-year LIBOR SWAP Rate (each as established on the first calendar day of the month). The maximum allowable fixed rate for 7(a) loans (excluding SBA Express and Export Express) will be calculated using the Fixed Base Rate plus the same spreads available on variable rate 7a loans, typically between 2.25% and 2.75%. See 13 CFR 120.214 (d) and (e) and 13 CFR 120.215.

Accordingly, the maximum fixed rate for loans with a maturity greater than seven years would be 9.17% using the September, 2009 LIBOR Base Rate (3.26), plus the average 5 and 10 year LIBOR Swap Rates (3.16), plus the maximum spread (2.75).

"This is good news for lenders and borrowers" says Bob Stephan of Coastal Securities, "Borrowers want to take advantage of this low interest rate environment to lock in a fixed rate, but lenders need a rate higher than what was previously allowed, in order to make offering a fixed rate feasible." Additionally, Stephan says that lenders can sell the guaranteed portion of their fixed-rate loans for a premium in the 4 point range and can still retain a 1% servicing fee, thereby reducing their exposure to these fixed rate loans.

The new maximum fixed rate policy is effective for loans submitted on or after October 1, 2009.

Status Report: Small-Business

Status Report: Small-Business Lending
September 17, 2009
By Diana Ransom

SMALL-BUSINESS LOANS are up at many of the nation’s lenders, but business isn’t exactly humming, and growing apprehension about commercial lending could leave a substantial number of firms without a source of capital.

The recent increase in lending has been clear. JPMorgan Chase (JPM), the parent company of Chase Bank and Washington Mutual, said it issued about $1.5 billion in loans to 4,177 small businesses with revenues up to $10 million during the second quarter, up 32% over the first quarter. Over the same period, Regions Financial (RF) said it issued or renewed $2 billion in loan commitments to small-business clients, a 31% hike over the first quarter.

Further, the country’s top 22 banks receiving capital injections from the U.S. government collectively reported more of the same. Although the total outstanding balance of small-business loans fell 1% in June, the total number of small-business loan originations surged 26% over a month earlier, according to the Treasury’s latest monthly bank lending survey.

Some lenders are newly bullish about issuing loans to small businesses because of a slight uptick in demand and the apparent success of the Small Business Administration’s move to lift its flagship 7(a) loan guarantee to 90%, up from 75% or 85%.

“The SBA programs help you out with newer businesses or businesses that don’t have a lot of collateral,” says Maria C. Coyne, executive vice president of KeyBank (KEY) who also noted an increase in demand for loans.

Still, lending isn’t what it used to be. “In terms of our [current] lending pipeline, what we’re seeing now in lending demand is 60% of what we’d expect in a normal lending environment,” says John Asbury, the executive vice president of business services at Regions Financial. That’s up from loan levels of less than 50%, which the bank logged in December of last year. But it’s hardly back to normal, he says.

Firms holding their expansion plans in check may have a good reason, says Bob Coleman, a small business banking analyst in La Canada, Calif. “We’re still in a recession,” he says. “We’re not talking Armageddon here, but it will [likely] remain tough for businesses to get loans,” says Coleman.

The root of the problem is a lack of solid private backing for small-business loans. One example is the disparate markets for the two components of 504 loans, which business owners use to purchase real estate and equipment. Although the secondary market for 504 debentures (the 40% stake of each of these loans that is guaranteed by the government) is flowing relatively freely, there is no secondary market for 504 first mortgages (the 50% stake made by private lenders), Coleman says. In the American Recovery and Reinvestment Act (ARRA), the SBA was instructed to take steps that would establish a secondary market for these first mortgages, says Jonathan Swain, a SBA spokesman. “We are currently in the process of finalizing the regulations for that piece of the Recovery Act,” he says.

Still, Coleman insists that the SBA is dragging its feet. Through the program, the Treasury would purchase mortgages if no other buyers step forward. Assurance of a buyer might drive banks to continue issuing 504 loans. Without that guarantee, banks could remain wary about issuing such loans, as many analysts expect the market for commercial loans to be the next shoe to drop, he says. Already, there are about $135 billion in defaulted commercial mortgages, a figure that has more than doubled since the beginning of the year, according to Real Capital Analytics, a firm that tracks commercial property sales.

Small-business advocates also worry about what will happen once the $375 million set aside by the SBA to temporarily eliminate loan fees and increase the agency’s loan guarantee to 90% for 7(a) and 504 loan programs runs out. SBA-backed loans are expected to revert to their pre-Recovery Act status by the end of November or December, according to the SBA.

In addition, lending terms are still tight. According to the Federal Reserve’s latest Senior Loan Officer Opinion Survey, 35% of domestic banks said they tightened credit for small firms in July, down slightly from more than 40% in April. And as many business owners have seen their credit scores slide, they’ve lost some of their ability to qualify for loans.

The steady stream of regional bank failures isn’t helping either. Since last September, 108 banks have shuttered, according to the Federal Deposit Insurance Corporation. Many other banks have been bought out. For borrowers, industry consolidation means that there are fewer lenders to approach for loans, which can limit a company’s ability to attract funding.

When PNC Financial Services Group (PNC) acquired National City Corp. last December, John Snyder, a senior business consultant at Gannon University’s Small Business Development Center in Erie, Pa., said his clients were left with few alternatives. “National City was always the biggest SBA lender in the area,” he says. “Now that they’ve mostly been absorbed by PNC, they aren’t [necessarily] willing to do SBA loans for start-ups,” Snyder says. (According to PNC spokeswoman Meghan Cole, the bank does lend to start-ups — under the right circumstances, such as to those with an experienced manager or owner.)

SBA, After Backlash, to Ease Limits on Loans for Buyouts

SBA, After Backlash, to Ease Limits on Loans for Buyouts

By EMILY MALTBY

The Small Business Administration, after enduring a backlash from lenders and business appraisers, plans Oct. 1 to modify a restriction it had placed on loans used to finance acquisitions of small companies.

In March, the SBA, capped the guarantee it was willing to extend on "goodwill" financing, which is the amount of a loan used to purchase an existing business's intangible assets, such as an established name, brand or customer base. The market price of a small business is based partly on its tangible assets, such as property, equipment and inventory, but often primarily on its goodwill. For some firms for sale, such as professional practices, Internet companies and service firms, the value of intangible assets can range between 55% and 95%.

For years, lenders were free to administer SBA-guaranteed loans with any amount of goodwill financing. But in March, the SBA changed its rules so that guarantees for goodwill financing would be capped at $250,000, or 50% of the loan amount, whichever was lower. The rules were designed in part to prevent sellers from inflating companies' intangible assets.

SBA-guaranteed loans are a small proportion of small-business loans. But the move didn't help in a market already taking a beating, business-acquisition specialists said. In March, closed business sales were 33% below the levels seen a year earlier, according to BizBuySell.com, an online marketplace for business acquisitions based in San Francisco.

"It was the antistimulus," said Ronald Feldman, chief executive of Siegel Financial Group, a consultancy firm for small-to-midsize business acquisitions in Bala Cynwyd, Pa.

Starting in October, the SBA is raising the cap on its guarantee of goodwill financing to $500,000. If the goodwill financing exceeds that amount, the SBA will recommend that lenders consider requiring more equity from the borrower or seller. SBA spokeswoman Hayley Matz said the agency adjusted the cap after collecting data on goodwill financing, and found that the average goodwill amount was close to $400,000. "We want to make sure they have continued access to capital," Ms. Matz said.

The National Association of Government Guaranteed Lenders, a Stillwater, Okla., group that represents lenders that make SBA loans, said the new rules are less restricting.

"Lenders really tightened up on business acquisitions after the March 1 rules took effect," said Tony Wilkinson, the group's president and chief executive. The guidelines also clarify the circumstances under which lenders may process loans. For instance, for goodwill financing that exceeds $500,000, the SBA recommends 25% in equity from the purchaser.

The guidelines are seen as a compromise between the free rein on goodwill that lenders and business appraisers had historically experienced and the March rules. For potential buyers, the new rules, like the March rules, may provide security that they aren't overpaying for a company's intangible assets.

Jeanine Vigeant of Providence, R.I., said she wished some goodwill restrictions were in place when she took out an SBA loan in April 2008 to buy a business that imported shoes from China for U.S. distributors. She paid $1.5 million for the business, relying on the seller's word that the loyalty of 10 customers, the primary basis for the goodwill, which made up 95% of the price, would continue.

But, within months of acquiring the business, those customers had severed their relationship, she said. Ultimately, she and her son, a partner in the business, defaulted on the loan after six months. The sellers of the business didn't return calls to comment.

"When I read [in March] that the SBA would put a cap on the goodwill or hold the seller accountable for more, I couldn't resist writing to the SBA," she said. "I told them I wished this had happened a year earlier, because then I would not be in this position."

Restaurant Financing 2009 Update Re-cap

Restaurant Financing 2009 Update Re-cap
By: Colemanpublishing.com

September 15, 2009

2009 Restaurant Financing Update

-Roughly 50,000 SBA loans since 2000
-$11 Billion 7(a) and 504
-1 out of 9 SBA Loans finance restaurants
-15% failure rate
-12% of all Charge-offs since 2000
-1 Million Restaurants in United States
-(1 Restaurant for every 320 Americans)

Nathaniel Booker, President of First Innovative Financial Group, Inc. explains, "Quite often many of the deals that we have done are in strip centers, sometimes in malls. This is why it's very critical underwrite the business.

When you underwrite the business, you're underwriting the owner, management is very critical.

You want someone who has experience operating a restaurant. If they are opening up a second or third location you mitigate your risk of loss. When you're opening up a new location you need projections that are listed and supportable. Many of them don't do what I consider very critical analysis regard to table turn.

Chris Hurn, President & CEO of Mercantile Capital Corporation explains, "I want to see that they know their space well. If they're a sit down or fast casual, knowing what else is around that particular location is helpful.

"I'm a big believer that you can tell a lot about a company with the kind of measures restaurants have in place to try and make it such that the employee's enjoy what they do and then actually show it to the customers as well.

"Is the experience delivered consistently every single time? In the case of restaurants, do the waiters or waitresses check their attitudes at the door and they put on a performance when they're there. These are all non-financial, intangible items, but it's important to know that. It helps a lender contemplate doing a particular loan to know some of these things because it gives you a better feel for what this concept is going to be like and whether they should actually do it or not.