crain's new york business.com
By: Elaine Pofeldt
October 18, 2011
BoeFly aims to aid businesses disappointed by their banks, but there's new competition in this financial services niche.
The Company: BoeFly
What it Does: It's an online marketplace matching small business borrowers with lenders around the country.
How's It Doing: Founded in 2010 by two finance industry veterans, the Manhattan-based site is generating nearly $150,000 in revenue a month. It has raised $4 million from private investors. The founders expect it to become profitable in 2012.
To learn more about BoeFly... read the full article... click here.
Showing posts with label banks. Show all posts
Showing posts with label banks. Show all posts
Tuesday, November 15, 2011
Friday, January 21, 2011
How to Finance an Acquisition
The credit crunch has led to an increase in seller financing, asset-based lending and alternative sources of capital for buyers.
By Carolyn Brown
Inc.com, Jan 2011
In pursuing an acquisition there are always key items to consider such as the continued growth opportunity provided by the target company, purchase price, and financing terms. Many acquisitions fail due to these priorities not being in line, say M&A experts. For instance, a common mistake buyers make is to focus on an attractive purchase price, rather than the strategic importance of the company's present and future growth plans.
Securing capital and the best financing terms for an acquisition can be daunting and challenging. The sub-prime lending crisis and sluggish economy over the past 24 months has created huge changes in our financial system.
to read the full article... click here.
By Carolyn Brown
Inc.com, Jan 2011
In pursuing an acquisition there are always key items to consider such as the continued growth opportunity provided by the target company, purchase price, and financing terms. Many acquisitions fail due to these priorities not being in line, say M&A experts. For instance, a common mistake buyers make is to focus on an attractive purchase price, rather than the strategic importance of the company's present and future growth plans.
Securing capital and the best financing terms for an acquisition can be daunting and challenging. The sub-prime lending crisis and sluggish economy over the past 24 months has created huge changes in our financial system.
to read the full article... click here.
Wednesday, May 26, 2010
Three Best Ways to Court a Community Bank
By EMILY MALTBY
Wall Street Journal, WSJ.com
Discouraged by big-bank practices and bureaucratic procedures, many Main Street firms have "gone local" with their lenders. Community banks are often more willing than their larger counterparts to conduct business on a handshake because they understand the needs of their neighboring establishments and, in many cases, have underwriters in-house to approve loans.
In exchange, however, those lenders expect more from their borrowers. "It's like that old saying, dig a well before you are thirsty," says Brian Carlson, president of Excel National Bank, a standalone lender in Beverly Hills. "It can take some time before [a banker] says, 'I know this guy and I'm confident he'll do what he says he'll do.' Having that relationship is valuable because if you need $300,000 by the end of the week to take advantage of an opportunity, the bank will jump to get it done."
Here are the three best ways to develop a relationship with a community lender:
To read more... click here.
Wall Street Journal, WSJ.com
Discouraged by big-bank practices and bureaucratic procedures, many Main Street firms have "gone local" with their lenders. Community banks are often more willing than their larger counterparts to conduct business on a handshake because they understand the needs of their neighboring establishments and, in many cases, have underwriters in-house to approve loans.
In exchange, however, those lenders expect more from their borrowers. "It's like that old saying, dig a well before you are thirsty," says Brian Carlson, president of Excel National Bank, a standalone lender in Beverly Hills. "It can take some time before [a banker] says, 'I know this guy and I'm confident he'll do what he says he'll do.' Having that relationship is valuable because if you need $300,000 by the end of the week to take advantage of an opportunity, the bank will jump to get it done."
Here are the three best ways to develop a relationship with a community lender:
To read more... click here.
Monday, May 24, 2010
U.S. Banks Post Profits, but Woes Persist
Sherpa--This might be a clue as to why credit is so tight.
By MICHAEL R. CRITTENDEN
Wall Street Journal, WSJ.com
WASHINGTON—A total of 775 banks, or one-tenth of all U.S. banks, were on the Federal Deposit Insurance Corp.'s list of "problem" institutions in the first quarter, as bad loans in the commercial real-estate market weighed on bank balance sheets.
Poor loan performance in other sectors also continued to hurt banks, with the total number of loans at least three months past due climbing for the 16th consecutive quarter, FDIC officials said in a briefing on Thursday.
"The banking system still has many problems to work through, and we cannot ignore the possibility of more financial market volatility," FDIC Chairman Sheila Bair said.
There were 702 on the FDIC's "problem" bank list at the end of 2009 and 252 at the end of 2008.
FDIC officials said they expected the number of failed banks to peak this year after climbing steadily over the past three years. Regulators have shut 72 banks so far this year, more than double the number closed by this time last year. Ms. Bair said regulators were preparing for a steady pace of additional closures through the end of the year. A total of 237 banks have failed since the beginning of 2008.
The failures continue to strain the FDIC's fund to protect consumer deposits, although officials signaled they were confident they had enough cash on hand to deal with the expected spate of failures, without having to assess new fees on the banking industry. The agency's deposit insurance fund stood at negative-$20.7 billion at the end of the first quarter, a slight improvement from the end of 2009.
"We have the necessary industry-funded resources to complete the cleanup," Ms. Bair said, in a reference to the fees that the agency assesses on banks for insuring their deposits.
Banks, squeezed by problem loans and the continued recession, responded by reducing their lending. The industry's total loan balances grew by 3% during the quarter, but the increase was due to accounting changes that required banks to bring securitized assets back onto their balance sheets. Without taking into account these accounting changes, lending would have declined for the seventh straight quarter, as banks cut back across most major lending categories.
To read the full article …click here.
By MICHAEL R. CRITTENDEN
Wall Street Journal, WSJ.com
WASHINGTON—A total of 775 banks, or one-tenth of all U.S. banks, were on the Federal Deposit Insurance Corp.'s list of "problem" institutions in the first quarter, as bad loans in the commercial real-estate market weighed on bank balance sheets.
Poor loan performance in other sectors also continued to hurt banks, with the total number of loans at least three months past due climbing for the 16th consecutive quarter, FDIC officials said in a briefing on Thursday.
"The banking system still has many problems to work through, and we cannot ignore the possibility of more financial market volatility," FDIC Chairman Sheila Bair said.
There were 702 on the FDIC's "problem" bank list at the end of 2009 and 252 at the end of 2008.
FDIC officials said they expected the number of failed banks to peak this year after climbing steadily over the past three years. Regulators have shut 72 banks so far this year, more than double the number closed by this time last year. Ms. Bair said regulators were preparing for a steady pace of additional closures through the end of the year. A total of 237 banks have failed since the beginning of 2008.
The failures continue to strain the FDIC's fund to protect consumer deposits, although officials signaled they were confident they had enough cash on hand to deal with the expected spate of failures, without having to assess new fees on the banking industry. The agency's deposit insurance fund stood at negative-$20.7 billion at the end of the first quarter, a slight improvement from the end of 2009.
"We have the necessary industry-funded resources to complete the cleanup," Ms. Bair said, in a reference to the fees that the agency assesses on banks for insuring their deposits.
Banks, squeezed by problem loans and the continued recession, responded by reducing their lending. The industry's total loan balances grew by 3% during the quarter, but the increase was due to accounting changes that required banks to bring securitized assets back onto their balance sheets. Without taking into account these accounting changes, lending would have declined for the seventh straight quarter, as banks cut back across most major lending categories.
To read the full article …click here.
Monday, January 4, 2010
The Other Shoe is Dropping
I sometimes think that business brokers are like the canaries in a coal mine as we are often one of the first to "smell" trouble. It appears that we are now in round 2 of business closings. Many of the marginal businesses closed within months of the downturn in the economy as most did not have the resources to survive any drop off of business. Round 2 appears to be effecting the more stable and substantial businesses who have exhausted their resources to fund operational losses and are electing to go dark rather than continue in business. This trend has been accelerated by the drawback of bank credit and the inability of many to secure "normal" lines of credit. Many pundits have suggested that the banks are "hoarding" money to ride out the potential collapse of the commercial real estate market. It appears that there is a strong element of "self fulfilling prophesy " to this strategy as the banks are contributing to the demise of the very tenants which are the lifeblood of the commercial market. For those with nerve, this may be a real buying opportunity.
Thursday, December 31, 2009
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."
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."
Thursday, December 3, 2009
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.
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.
Monday, November 23, 2009
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.”•
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.”•
Thursday, November 19, 2009
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."
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."
Thursday, October 22, 2009
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.
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.
Tuesday, October 6, 2009
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."
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."
Thursday, October 1, 2009
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.
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.
Monday, September 28, 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.)
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.)
Thursday, September 3, 2009
Good News from SBA
Bulletin: Government Relations Update
The Small Business Administration issued its new Standard Operating Procedures document today. Though we are still reading its contents, there is great news contained within the SOP!
In effect, the cap on goodwill on SBA backed loans has been removed! Business acquisition loans under $500,000 can go into the Preferred Lender Program of the SBA without any SBA oversight and for loans above $500,000, as long as the equity (buyer injection plus standby seller loan) is 25% or more, no SBA review is needed. “This is great news for the business community as well as for the business broker profession,” said Bernie Siegel PhD, CBI, Chair of the IBBA Government Affairs Committee. “We have been working tirelessly on this issue and our efforts have finally paid off.”
“This is the first step that the IBBA has taken to build a long term relationship with the SBA,” said Andy Cagnetta, CBI, BCI, Chairman of the International Business Brokers Association. “We want to be a valued partner with the SBA as it works to get small businesses in America back on their feet.”
More details to come as we continue to digest the new SOP.
The Small Business Administration issued its new Standard Operating Procedures document today. Though we are still reading its contents, there is great news contained within the SOP!
In effect, the cap on goodwill on SBA backed loans has been removed! Business acquisition loans under $500,000 can go into the Preferred Lender Program of the SBA without any SBA oversight and for loans above $500,000, as long as the equity (buyer injection plus standby seller loan) is 25% or more, no SBA review is needed. “This is great news for the business community as well as for the business broker profession,” said Bernie Siegel PhD, CBI, Chair of the IBBA Government Affairs Committee. “We have been working tirelessly on this issue and our efforts have finally paid off.”
“This is the first step that the IBBA has taken to build a long term relationship with the SBA,” said Andy Cagnetta, CBI, BCI, Chairman of the International Business Brokers Association. “We want to be a valued partner with the SBA as it works to get small businesses in America back on their feet.”
More details to come as we continue to digest the new SOP.
Wednesday, August 12, 2009
Learn to Impress Lenders
Learn to Impress Lenders
Proper preparation is key when you're angling for money to fund your business.
By JOSEPH BENOIT, ENTREPRENEUR.COM
Posted: 2009-08-11 13:21:31
Filed Under: Small Business, Small Business Funding
While obtaining a loan may be challenging amid the current economic climate, you can increase your viability as a loan candidate by taking steps to prepare for that initial meeting with a lender.
First, be thorough when preparing documents a lender may request. These include: past financial statements and tax returns, a copy of your current note and payment schedule (if your business is already established), and a detailed business plan.
Your business plan should include:
* Executive summary: A critical introductory statement encapsulating the main points of the plan; a window into every facet of your business.
* Market analysis: A thorough overview of your industry, target market and competitors.
* Company profile: A summary of your company's industry and a description of the elements that will make your business stand out.
* Organization description: A description of your management and organizational structure, the marketing and sales strategy; a description of services or products and financial information, including the requested loan amount, your company's current and forecasted income statements, balance sheets and cash-flow statements.
In addition to preparing a comprehensive business plan, consider these strategies prior to seeking a small-business loan:
* Contact a financial advisor early. Consider cultivating a relationship with your financial advisor before you need a loan. By establishing a relationship early on, you can build a foundation the advisor can draw on later to make a determination about a loan.
* Research loan options. Find out which loan options will best suit your needs and be prepared to discuss these options when meeting with a lender. Will you seek a secured (collateral-backed) or unsecured loan, and what type of payment terms would best meet the needs of your business?
* Plan ahead. Anticipate the questions a lender may pose and have honest, well-researched answers ready. Decisions to lend are fact-based; don't be idealistic when answering questions and providing projections. Lenders will appreciate your practical perspective. It may also be wise to organize all of your documents prior to the meeting for easy access to specific items when requested and to highlight your meticulous attention to details.
* Lend to your venture. Amid the tightened credit market, managing risk is increasingly important for lenders. With this in mind, consider providing ample collateral or money toward your venture if possible. Your willingness to invest in your success may reflect added confidence in your plan.
* Preparation before meeting with your lender is key. The time and commitment you dedicate in advance may help increase your appeal as a solid loan candidate in this competitive market.
Joseph Benoit is the small business banking executive for Union Bank, N.A. Visit www.unionbank.com for more information.
Proper preparation is key when you're angling for money to fund your business.
By JOSEPH BENOIT, ENTREPRENEUR.COM
Posted: 2009-08-11 13:21:31
Filed Under: Small Business, Small Business Funding
While obtaining a loan may be challenging amid the current economic climate, you can increase your viability as a loan candidate by taking steps to prepare for that initial meeting with a lender.
First, be thorough when preparing documents a lender may request. These include: past financial statements and tax returns, a copy of your current note and payment schedule (if your business is already established), and a detailed business plan.
Your business plan should include:
* Executive summary: A critical introductory statement encapsulating the main points of the plan; a window into every facet of your business.
* Market analysis: A thorough overview of your industry, target market and competitors.
* Company profile: A summary of your company's industry and a description of the elements that will make your business stand out.
* Organization description: A description of your management and organizational structure, the marketing and sales strategy; a description of services or products and financial information, including the requested loan amount, your company's current and forecasted income statements, balance sheets and cash-flow statements.
In addition to preparing a comprehensive business plan, consider these strategies prior to seeking a small-business loan:
* Contact a financial advisor early. Consider cultivating a relationship with your financial advisor before you need a loan. By establishing a relationship early on, you can build a foundation the advisor can draw on later to make a determination about a loan.
* Research loan options. Find out which loan options will best suit your needs and be prepared to discuss these options when meeting with a lender. Will you seek a secured (collateral-backed) or unsecured loan, and what type of payment terms would best meet the needs of your business?
* Plan ahead. Anticipate the questions a lender may pose and have honest, well-researched answers ready. Decisions to lend are fact-based; don't be idealistic when answering questions and providing projections. Lenders will appreciate your practical perspective. It may also be wise to organize all of your documents prior to the meeting for easy access to specific items when requested and to highlight your meticulous attention to details.
* Lend to your venture. Amid the tightened credit market, managing risk is increasingly important for lenders. With this in mind, consider providing ample collateral or money toward your venture if possible. Your willingness to invest in your success may reflect added confidence in your plan.
* Preparation before meeting with your lender is key. The time and commitment you dedicate in advance may help increase your appeal as a solid loan candidate in this competitive market.
Joseph Benoit is the small business banking executive for Union Bank, N.A. Visit www.unionbank.com for more information.
Wednesday, July 1, 2009
SBA Tweaks Rules Of 504 Loan Program
JUNE 26, 2009
SBA Tweaks Rules Of 504 Loan Program
By RAYMUND FLANDEZ
In its latest effort to help cash-strapped entrepreneurs, the Small Business Administration on Wednesday permanently changed a key loan program so that businesses can refinance if they plan to expand or buy equipment.
Previously, business owners could only take advantage of the SBA's 504 program when they sought new loans to buy real estate, upgrade machinery and make improvements. Now, borrowers can refinance any existing fixed-asset loan as long as the amount is 50% or less than the total cost of expansion.
The change is designed to help business owners restructure debt under better terms and "improve their cash flow and enhance their viability so that they can grow and create jobs," said Hayley Matz, an SBA spokeswoman.
For instance, a business owner who wants a $1 million loan to expand could refinance $500,000-worth of existing equipment debt, for a $1.5 million total 504 loan package at a better interest rate, Ms. Matz said. The small-business borrower must also create or retain a job for every $65,000 guaranteed by the SBA, a change from $50,000.
Some industry experts, however, doubt that this will help struggling small businesses that need to pay a 504 loan coming due soon. Many aren't in an expansion mode and so aren't poised to take advantage of the debt refinance provision.
"Most are struggling and working overtime to figure out how to be able to survive this economy," says Bob Coleman, publisher of the Coleman Report, a newsletter for SBA lenders.
As of last week, the SBA has approved 3,900 loans under the 504 program since its fiscal year began in October, down 41.5% from the 6,671 loans in the same period a year earlier. Total dollar amount of those loans has dropped 42.5% to $2.28 billion, from $3.97 billion a year ago.
This change is the latest initiative that the SBA has rolled out in the past few months as part of President Obama's stimulus package. Since mid-February, the agency has reduced fees for its loans and raised the guarantee on most of its 7(a) loans, the SBA's flagship program, to as much as 90% from 75% to 85%. Last week, it rolled out an emergency-loan program for established businesses that are cash-strapped. Next week, the SBA plans to launch a loan program that would make it easier for car dealers to buy inventory.
"This is one more piece of the Recovery Act that is going to have a direct impact and put more money in the hands of small business owners just when they need it most," SBA Administrator Karen G. Mills said in a statement. "Lower interest rates mean lower payments and less money going out the door each month in debt repayments."
Write to Raymund Flandez at raymund.flandez@wsj.com
Corrections & Amplifications
Borrowers can refinance any existing fixed-asset loan to expand or buy equipment, not just an SBA-backed loan, as a previous version of this article implied. In addition, a business owner who wants to get a $1 million loan to expand can refinance $500,000 worth of existing equipment debt, for a $1.5 million total 504 loan package. An example of how a business can use the program in a previous version didn't accurately represent the scope of the program.
SBA Tweaks Rules Of 504 Loan Program
By RAYMUND FLANDEZ
In its latest effort to help cash-strapped entrepreneurs, the Small Business Administration on Wednesday permanently changed a key loan program so that businesses can refinance if they plan to expand or buy equipment.
Previously, business owners could only take advantage of the SBA's 504 program when they sought new loans to buy real estate, upgrade machinery and make improvements. Now, borrowers can refinance any existing fixed-asset loan as long as the amount is 50% or less than the total cost of expansion.
The change is designed to help business owners restructure debt under better terms and "improve their cash flow and enhance their viability so that they can grow and create jobs," said Hayley Matz, an SBA spokeswoman.
For instance, a business owner who wants a $1 million loan to expand could refinance $500,000-worth of existing equipment debt, for a $1.5 million total 504 loan package at a better interest rate, Ms. Matz said. The small-business borrower must also create or retain a job for every $65,000 guaranteed by the SBA, a change from $50,000.
Some industry experts, however, doubt that this will help struggling small businesses that need to pay a 504 loan coming due soon. Many aren't in an expansion mode and so aren't poised to take advantage of the debt refinance provision.
"Most are struggling and working overtime to figure out how to be able to survive this economy," says Bob Coleman, publisher of the Coleman Report, a newsletter for SBA lenders.
As of last week, the SBA has approved 3,900 loans under the 504 program since its fiscal year began in October, down 41.5% from the 6,671 loans in the same period a year earlier. Total dollar amount of those loans has dropped 42.5% to $2.28 billion, from $3.97 billion a year ago.
This change is the latest initiative that the SBA has rolled out in the past few months as part of President Obama's stimulus package. Since mid-February, the agency has reduced fees for its loans and raised the guarantee on most of its 7(a) loans, the SBA's flagship program, to as much as 90% from 75% to 85%. Last week, it rolled out an emergency-loan program for established businesses that are cash-strapped. Next week, the SBA plans to launch a loan program that would make it easier for car dealers to buy inventory.
"This is one more piece of the Recovery Act that is going to have a direct impact and put more money in the hands of small business owners just when they need it most," SBA Administrator Karen G. Mills said in a statement. "Lower interest rates mean lower payments and less money going out the door each month in debt repayments."
Write to Raymund Flandez at raymund.flandez@wsj.com
Corrections & Amplifications
Borrowers can refinance any existing fixed-asset loan to expand or buy equipment, not just an SBA-backed loan, as a previous version of this article implied. In addition, a business owner who wants to get a $1 million loan to expand can refinance $500,000 worth of existing equipment debt, for a $1.5 million total 504 loan package. An example of how a business can use the program in a previous version didn't accurately represent the scope of the program.
Thursday, June 18, 2009
SBA Lenders Pick Up Steam
Small Business Lender Sentiment Survey On Lending and Employment
June 2009
More lenders lending again thanks to secondary market improvements!
The SBA is hiring more lending people than all banks combined.
This months’s survey provides promising news. More banks are lending again and the SBA is reporting significant improvement in the number and dollar volume of loan approvals. Almost all SBA districts are reporting sharp increases in loan activity in April and May. The PLP Approval Office is hiring credit staff as quickly as they can find them. This encouraging sign shows a strong commitment by the SBA to a continued quick turn on PLP approvals.
While more loans are being approved, credit remains as tight as it has been all year. However, the number of small business applications continue to rise. Those interviewed for this survey reported high loan applications. And it appears the customer is more willing than ever to meet the lender’s loan requirements to get approval. This includes additional capital injections and providing more collateral as requested. In addition, there is very little argument over the pricing of the loan.
Many lenders have reported that the biggest issue they are facing is real estate appraisals that continue to come in lower than required. This is particular true in hard hit states like Florida, Nevada and California. And apparently, sellers are more willing than ever to negotiate to make the deal work.
The industry is showing signs of improvement but, it appears that this economic recovery is going to be protracted. With growing delinquencies in commercial real estate loans, credit managers are not likely to loosen up approval parameters in the foreseeable future.
Click HERE to view the rest of the article.
Monday, March 16, 2009
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.
-- 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.
Friday, March 13, 2009
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.
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.
Wednesday, March 11, 2009
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.
Click HERE for article.
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