By Ruth Simon
August 5, 2010
Wall Street Journal (WSJ.com)
Pinnacle Bank made just two loans through Small Business Administration in 2007 & 2008. So far this year, the Orange City, Fla., bank's total is nine, to borrowers from an auto dealer to a computer-equipment wholesaler to a bakery.
"The SBA program is the only way we can continue to lend right now," says David Bridgeman, president of Pinnacle, which has two branches and assets of $213 million, including about 600 loans. For many of the $3.4 million in loans Pinnacle made through the SBA in 2010, the bank has to set aside capital against only the 10% slice that isn't guaranteed by the U.S. government.
Across the nation, many banks have turned to the SBA's so-called 7(a) program to help unfreeze credit. Nearly 3,000 lenders have made 7(a) loans in the current fiscal year, up 21% from 2008.
The 7(a) program, the SBA's largest loan program, is hardly a cure for the credit shortage affecting many borrowers. The agency is involved in less than 10% of all small-business loans, and some banks won't participate because of red tape. Lenders must follow the SBA's rules when making 7(a) loans, which can be used for working capital, fixed assets and other business expenses. The term of the loan can be as long as 25 years.
Last year, Congress temporarily sweetened the 7(a) program by increasing the SBA guarantee to 90% of any given loan from as little as 75% previously. Lawmakers waived fees costing borrowers as much as 3.5% of the loan amount, as well as costs charged in a separate SBA program providing structured financing for fixed assets.
But the sweetened program is now in limbo, drawing complaints from borrowers and lenders, as lawmakers haggle over broader small-business legislation.
To read the full article... click here.
Showing posts with label financing. Show all posts
Showing posts with label financing. Show all posts
Monday, September 13, 2010
Friday, July 30, 2010
check out... Getting an SBA Loan: 5 Things You Need to Know
Getting an SBA Loan: 5 Things You Need to Know
Getting a business loan is tough -- especially these days. But the Small Business Administration can still be a great lending partner. How to cut through the red tape and secure an SBA loan.
Chasing a Small Business Administration loan these days is a little like going to a carnival and expecting to win one of those giant stuffed animals. It might happen, but the odds are probably against you. As Christine Reilly, the president of small business lending for CIT, points out, about a year ago, the federal government tinkered with the formula for getting an SBA loan, and for a brief shining time, even during the Great Recession, SBA loans were semi-easy to come by.
Of course, it's still possible to get an SBA loan -- Reilly is the first to admit it -- and it can be a great way to infuse your company with cash. But how can you navigate the red tape and make sure all the effort pays off? Here are five things you need to know.
- Know the lingo.
- Document everything.
- Got collateral?
- Do your homework. Seriously.
- You are not a risk taker
to read the full article … click here.
Wednesday, April 7, 2010
How To Get Business SBA Approved - Doing so as a seller can help make your business more attractive to buyers.
By Richard Diomo, Bizquest Business for Sale Blog
Question:How do I get my business SBA approved? It seems like doing so would help to move the sale of my business faster.
Answer:This is a great question and you should be commended for being proactive about the financing portion of selling your business. The process is actually quite simple: if you engage a business broker, this is something they can do on your behalf. If you are selling the business on your own, then you should contact a local Preferred SBA lender. They will provide you with a list of documents required to complete the pre-qualification process. These will generally include:
Question:How do I get my business SBA approved? It seems like doing so would help to move the sale of my business faster.
Answer:This is a great question and you should be commended for being proactive about the financing portion of selling your business. The process is actually quite simple: if you engage a business broker, this is something they can do on your behalf. If you are selling the business on your own, then you should contact a local Preferred SBA lender. They will provide you with a list of documents required to complete the pre-qualification process. These will generally include:
- The most recent three year's of company tax returns
- Accompanying P & L statements and Balance Sheets
- Your W2
- Recent interim statements
- Asset list
From this they will determine if, under the right deal terms, the buyer will qualify for the SBA program. Plus, there will be some additional conditions relative to the buyer qualifications. They will be able to determine how much they are prepared to lend, what amount the buyer will need as a down payment, what amount (if any) they may ask you, the seller, to finance, and the fees involved to complete a transaction.
Keep in mind that this step is only a pre-qualification and, like all lenders, they will have plenty of disclaimers. However, once you obtain a pre-qualification status, it will provide you with a huge advantage when advertising your business. Make certain that you do not make any claims to prospects about the financing. This is only an initial pre-qualification.
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."
Monday, November 9, 2009
Article: The SBA is Ready for Its Close-Up... on YouTube?
The SBA is Ready for Its Close-Up... on YouTube?
By GEOFF WILLIAMS, AOL SMALL BUSINESS
Posted: 2009-11-04 15:24:12
It's a little surreal to imagine the Small Business Administration (SBA) amidst videos of Susan Boyle and animated dancing pandas, but they've been part of the YouTube generation for two months now. While their channel is nowhere near as popular as, say, the dancing wedding entrance that appeared in the summer, it seems to be an effective enough platform for the SBA. It currently has 203 subscribers, and the SBA introductory video has been seen by over 4,000 people. It's not setting the world on fire, but it is there, where the SBA can put its videos within reach of anyone, of course, but particularly those under 35, which the agency has made clear they'd like to reach.
Their joining YouTube has had some critics. Shortly after it debuted, George Cloutier, author of Profits Aren't Everything, They're the Only Thing, told Reuters, "SBA officials should be spending less time worrying about YouTube and more time on the thousands of small businesses that fail every week. We'll lose half a million to a million small businesses while they're worrying about the next generation."
And more recently, Susan Wilson Solovic blogged about the SBA star turn at Small Business Television and was equally dubious about the merits of marrying the government organization with YouTube. "There are countless sites on the Internet that provide training videos and other 'how-to' information, so why doesn't that SBA focus its energy on figuring out a strategy to get financing into the hands of small business owners?" wondered Solovic, whose essay appeared across the blogosphere, including prominent sites like The Huffington Post and AllBusiness.com.
"Small business lending is up only slightly after plummeting last year, and entrepreneurs remain unable to get the funds they need to keep their doors open," continued Solovic. "You'd think this would be the top priority at the SBA -- not posting videos and sending out news releases."
I can see the critics' point, but I think it was a smart decision on the SBA's part and don't see this as a sign that the corporate apocalypse is upon us. I seriously doubt that YouTube is actually the SBA's top priority, as Solovic suggested, and it doesn't bother me that some tax dollars from the estimated $825 million SBA budget for 2009 are being diverted to produce these videos. (The Huffington Post huffed, "Your Tax Dollars Are Paying for the SBA to Post Videos on YouTube!") If the SBA weren't on YouTube, you could easily make the argument that the government agency is out of touch and not concerned enough with reaching those young, twentysomethings operating startups.
Sure, plenty of the SBA's videos are self-serving, but there are educational videos about how to market yourself better and financing a business. It's hard to fault that.
Once these videos are posted, like everything else on the Internet, they're there presumably until the apocalypse. And while that means some information will be outdated, the SBA seems to be working on building a video library of educational and historical content that might be useful for years to come. Some may consider it unseemly to start producing videos for YouTube at a time when the business community looks to the SBA for economic guidance, but on the other hand, the folks being hired to produce these videos have been getting some relief from the recession. They probably wish every government agency and corporation would be so unseemly.
By GEOFF WILLIAMS, AOL SMALL BUSINESS
Posted: 2009-11-04 15:24:12
It's a little surreal to imagine the Small Business Administration (SBA) amidst videos of Susan Boyle and animated dancing pandas, but they've been part of the YouTube generation for two months now. While their channel is nowhere near as popular as, say, the dancing wedding entrance that appeared in the summer, it seems to be an effective enough platform for the SBA. It currently has 203 subscribers, and the SBA introductory video has been seen by over 4,000 people. It's not setting the world on fire, but it is there, where the SBA can put its videos within reach of anyone, of course, but particularly those under 35, which the agency has made clear they'd like to reach.
Their joining YouTube has had some critics. Shortly after it debuted, George Cloutier, author of Profits Aren't Everything, They're the Only Thing, told Reuters, "SBA officials should be spending less time worrying about YouTube and more time on the thousands of small businesses that fail every week. We'll lose half a million to a million small businesses while they're worrying about the next generation."
And more recently, Susan Wilson Solovic blogged about the SBA star turn at Small Business Television and was equally dubious about the merits of marrying the government organization with YouTube. "There are countless sites on the Internet that provide training videos and other 'how-to' information, so why doesn't that SBA focus its energy on figuring out a strategy to get financing into the hands of small business owners?" wondered Solovic, whose essay appeared across the blogosphere, including prominent sites like The Huffington Post and AllBusiness.com.
"Small business lending is up only slightly after plummeting last year, and entrepreneurs remain unable to get the funds they need to keep their doors open," continued Solovic. "You'd think this would be the top priority at the SBA -- not posting videos and sending out news releases."
I can see the critics' point, but I think it was a smart decision on the SBA's part and don't see this as a sign that the corporate apocalypse is upon us. I seriously doubt that YouTube is actually the SBA's top priority, as Solovic suggested, and it doesn't bother me that some tax dollars from the estimated $825 million SBA budget for 2009 are being diverted to produce these videos. (The Huffington Post huffed, "Your Tax Dollars Are Paying for the SBA to Post Videos on YouTube!") If the SBA weren't on YouTube, you could easily make the argument that the government agency is out of touch and not concerned enough with reaching those young, twentysomethings operating startups.
Sure, plenty of the SBA's videos are self-serving, but there are educational videos about how to market yourself better and financing a business. It's hard to fault that.
Once these videos are posted, like everything else on the Internet, they're there presumably until the apocalypse. And while that means some information will be outdated, the SBA seems to be working on building a video library of educational and historical content that might be useful for years to come. Some may consider it unseemly to start producing videos for YouTube at a time when the business community looks to the SBA for economic guidance, but on the other hand, the folks being hired to produce these videos have been getting some relief from the recession. They probably wish every government agency and corporation would be so unseemly.
Thursday, November 5, 2009
BizBuySell in the News
BizBuySell.com
Third Quarter 2009 Data Signals Improving Business-for-Sale Market
Business-for-sale transactions begin to increase after hitting bottom in recent months
San Francisco, CA - October 6, 2009 - BizBuySell.com -- the Internet's largest marketplace for buying or selling a small business -- today released economic data for the third quarter of 2009. After multiple quarters of declining business-for-sale transactions, the new numbers suggest that the state of the small business economy is finally beginning to improve.
BizBuySell.com's new Third Quarter 2009 Insight Report shows a 24% year-over-year drop in closed small business transactions. While still lagging behind year-ago transaction numbers, BizBuySell.com's previous report -- which included data for the second quarter of 2009 -- showed a dramatic 50% decline in closed business-for-sale transactions when compared to the same time period in 2008. Closed transactions are reported to BizBuySell.com by business brokers nationwide.
BizBuySell.com's quarter-over-quarter data also supports the rebound in the business-for-sale marketplace. The number of closed transactions reported in the third quarter increased by 7.4% as compared to second quarter transactions. Just one year earlier, when the recession was hitting its stride, that same quarter-over-quarter statistic dropped 30%.
"After many bleak months for the small business-for-sale economy, the market seems to have hit bottom and is fortunately now beginning to turn around," says Mike Handelsman, General Manager of BizBuySell.com. "As credit eases, business fundamentals recover and SBA lending criteria change with respect to goodwill, we are optimistic that the fourth quarter of this year and the first quarter of 2010 will show increased signs of recovery and growth."
Closed Transactions Increase as Pricing Drops
BizBuySell.com's third quarter data suggests that business sellers are dropping their prices, which is making it possible for more deals to close. For example, the median sale price for closed transactions fell to $149,000 from $189,500 year-over-year, a 21.4% decline in price.
The metrics used to value companies have seen a similarly dramatic downward trend. Revenue multiples on reported closed transactions dropped 9.6% to .62 in the third quarter of 2009, and cash flow multiples dropped to 2.44, a 12.2% year-over-year decrease. The revenue and cash flow multiples are calculated by dividing the selling price of the business by its reported annual revenue or cash flow.
"These year-over-year price declines are dramatic, and suggest there are good deals out there for potential business buyers," says Handelsman. "With unemployment at record high levels, and SBA lending loosening beginning in Q4, this decrease in pricing and valuation numbers has made the prospect of purchasing a business much more achievable to buyers."
Business Brokers Optimistic About Business-for-Sale Transactions
A recent BizBuySell.com survey of business brokers around the country similarly revealed that they are positive about the future of small business transactions:
•34% of business brokers reported expecting to close their next deal within the next few weeks.
•75% of survey respondents expect to close their next small business transaction within the next three months.
•47% of survey respondents believe small business transaction levels will not fall any further than they were during the second quarter of 2009, which leads 78% of survey respondents to believe that business-for-sale transactions will begin to increase again before Q2 2010.
For more information on the BizBuySell.com Third Quarter 2009 Insight Report, visit http://www.bizbuysell.com/news/media_insight.html.
Third Quarter 2009 Data Signals Improving Business-for-Sale Market
Business-for-sale transactions begin to increase after hitting bottom in recent months
San Francisco, CA - October 6, 2009 - BizBuySell.com -- the Internet's largest marketplace for buying or selling a small business -- today released economic data for the third quarter of 2009. After multiple quarters of declining business-for-sale transactions, the new numbers suggest that the state of the small business economy is finally beginning to improve.
BizBuySell.com's new Third Quarter 2009 Insight Report shows a 24% year-over-year drop in closed small business transactions. While still lagging behind year-ago transaction numbers, BizBuySell.com's previous report -- which included data for the second quarter of 2009 -- showed a dramatic 50% decline in closed business-for-sale transactions when compared to the same time period in 2008. Closed transactions are reported to BizBuySell.com by business brokers nationwide.
BizBuySell.com's quarter-over-quarter data also supports the rebound in the business-for-sale marketplace. The number of closed transactions reported in the third quarter increased by 7.4% as compared to second quarter transactions. Just one year earlier, when the recession was hitting its stride, that same quarter-over-quarter statistic dropped 30%.
"After many bleak months for the small business-for-sale economy, the market seems to have hit bottom and is fortunately now beginning to turn around," says Mike Handelsman, General Manager of BizBuySell.com. "As credit eases, business fundamentals recover and SBA lending criteria change with respect to goodwill, we are optimistic that the fourth quarter of this year and the first quarter of 2010 will show increased signs of recovery and growth."
Closed Transactions Increase as Pricing Drops
BizBuySell.com's third quarter data suggests that business sellers are dropping their prices, which is making it possible for more deals to close. For example, the median sale price for closed transactions fell to $149,000 from $189,500 year-over-year, a 21.4% decline in price.
The metrics used to value companies have seen a similarly dramatic downward trend. Revenue multiples on reported closed transactions dropped 9.6% to .62 in the third quarter of 2009, and cash flow multiples dropped to 2.44, a 12.2% year-over-year decrease. The revenue and cash flow multiples are calculated by dividing the selling price of the business by its reported annual revenue or cash flow.
"These year-over-year price declines are dramatic, and suggest there are good deals out there for potential business buyers," says Handelsman. "With unemployment at record high levels, and SBA lending loosening beginning in Q4, this decrease in pricing and valuation numbers has made the prospect of purchasing a business much more achievable to buyers."
Business Brokers Optimistic About Business-for-Sale Transactions
A recent BizBuySell.com survey of business brokers around the country similarly revealed that they are positive about the future of small business transactions:
•34% of business brokers reported expecting to close their next deal within the next few weeks.
•75% of survey respondents expect to close their next small business transaction within the next three months.
•47% of survey respondents believe small business transaction levels will not fall any further than they were during the second quarter of 2009, which leads 78% of survey respondents to believe that business-for-sale transactions will begin to increase again before Q2 2010.
For more information on the BizBuySell.com Third Quarter 2009 Insight Report, visit http://www.bizbuysell.com/news/media_insight.html.
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.
Thursday, October 8, 2009
How to Calculate Start-Up Costs
The Wall Street Journal - wsj.com
OCTOBER 5, 2009, 10:10 A.M. ET
How to Calculate Start-Up Costs
By COLLEEN DEBAISE
Adapted from the upcoming book THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press, Dec. 29, 2009).
Got a pen handy? To best estimate your start-up costs, you'll need to make a list— and the more detailed the better. A smart way to start is to brainstorm everything you'll need, from tangible goods (such as inventory, equipment and fixtures) to professional services (such as remodeling, advertising and legal work). Then, start calculating how much you'll need to pay for all those goods and services.
Some of the expenses incurred during the start-up phase will be one-time costs, such as the fee for printing up your brochures, creating your LLC or acquiring a permit, while others will be ongoing, such as rent, insurance or employees' salaries. In general, it's best to use a two-step process. First, come up with an estimate of one-time costs needed to get your doors open, and then develop an operating budget for the first six months or even the first year of the business. Check out the Better Business Bureau's sample worksheet here.
The categories listed below will aid you in completing your list of costs for opening and operating a small business:
Location. Think about how much you'll need to pay for rent, to make improvements to the space or for full-scale renovations.
Inventory. Figure out the cost of raw materials, plus any production costs, or the wholesale prices of products you'll be selling. Calculate shipping and packaging costs, sales commissions and other costs related to the sale of your product.
Equipment. Add up how much it costs to buy or lease computers, copiers, telephones, heavy-duty machinery or other fixtures.
Employees. Calculate salaries and wages, plus benefits you would offer, and don't forget payroll-related taxes, overtime pay and workers' compensation.
Marketing. Figure out how much you'll pay for new stationery, marketing materials, advertising campaigns, the sign above your door and meals or entertainment with clients.
Administrative and operational costs. Keep track of how much you'll need to pay for insurance (to protect against property damage, business interruption and floods) and office supplies. Don't forget utilities, a commonly overlooked expense, and other charges, such as phone and Internet service, cleaning and property maintenance.
Professional fees and permits. Add up how much you'll pay for your attorney, accountant or other advisor or consultant. Factor in what you'll need to pay for permits or licenses related to your business.
If you're still having trouble figuring out how much money you need, do research on other companies in your industry and region of the country. Talk to other business owners about how they figured out start-up costs— and ask specifically about expenses they forgot. The SBA offers free counseling through its Small Business Development Centers and its affiliate, SCORE. You can also seek advice from an accountant or attorney accustomed to dealing with small businesses.
When in doubt about your projections, you should always err on the side of overestimating your up-front investment cost and underestimating sales. Eric van Merkensteijn, a University of Pennsylvania business professor who left academia in the late 1990s to open a restaurant in Philadelphia, offers this advice: Figure out your start-up costs, then double that number. Then double it again. Only then will you have a realistic number, says the professor, who closed the business in 2004 and returned to campus.
OCTOBER 5, 2009, 10:10 A.M. ET
How to Calculate Start-Up Costs
By COLLEEN DEBAISE
Adapted from the upcoming book THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press, Dec. 29, 2009).
Got a pen handy? To best estimate your start-up costs, you'll need to make a list— and the more detailed the better. A smart way to start is to brainstorm everything you'll need, from tangible goods (such as inventory, equipment and fixtures) to professional services (such as remodeling, advertising and legal work). Then, start calculating how much you'll need to pay for all those goods and services.
Some of the expenses incurred during the start-up phase will be one-time costs, such as the fee for printing up your brochures, creating your LLC or acquiring a permit, while others will be ongoing, such as rent, insurance or employees' salaries. In general, it's best to use a two-step process. First, come up with an estimate of one-time costs needed to get your doors open, and then develop an operating budget for the first six months or even the first year of the business. Check out the Better Business Bureau's sample worksheet here.
The categories listed below will aid you in completing your list of costs for opening and operating a small business:
Location. Think about how much you'll need to pay for rent, to make improvements to the space or for full-scale renovations.
Inventory. Figure out the cost of raw materials, plus any production costs, or the wholesale prices of products you'll be selling. Calculate shipping and packaging costs, sales commissions and other costs related to the sale of your product.
Equipment. Add up how much it costs to buy or lease computers, copiers, telephones, heavy-duty machinery or other fixtures.
Employees. Calculate salaries and wages, plus benefits you would offer, and don't forget payroll-related taxes, overtime pay and workers' compensation.
Marketing. Figure out how much you'll pay for new stationery, marketing materials, advertising campaigns, the sign above your door and meals or entertainment with clients.
Administrative and operational costs. Keep track of how much you'll need to pay for insurance (to protect against property damage, business interruption and floods) and office supplies. Don't forget utilities, a commonly overlooked expense, and other charges, such as phone and Internet service, cleaning and property maintenance.
Professional fees and permits. Add up how much you'll pay for your attorney, accountant or other advisor or consultant. Factor in what you'll need to pay for permits or licenses related to your business.
If you're still having trouble figuring out how much money you need, do research on other companies in your industry and region of the country. Talk to other business owners about how they figured out start-up costs— and ask specifically about expenses they forgot. The SBA offers free counseling through its Small Business Development Centers and its affiliate, SCORE. You can also seek advice from an accountant or attorney accustomed to dealing with small businesses.
When in doubt about your projections, you should always err on the side of overestimating your up-front investment cost and underestimating sales. Eric van Merkensteijn, a University of Pennsylvania business professor who left academia in the late 1990s to open a restaurant in Philadelphia, offers this advice: Figure out your start-up costs, then double that number. Then double it again. Only then will you have a realistic number, says the professor, who closed the business in 2004 and returned to campus.
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.
Thursday, September 24, 2009
SBA, After Backlash, to Ease Limits on Loans for Buyouts
SBA, After Backlash, to Ease Limits on Loans for Buyouts
By EMILY MALTBY
The Small Business Administration, after enduring a backlash from lenders and business appraisers, plans Oct. 1 to modify a restriction it had placed on loans used to finance acquisitions of small companies.
In March, the SBA, capped the guarantee it was willing to extend on "goodwill" financing, which is the amount of a loan used to purchase an existing business's intangible assets, such as an established name, brand or customer base. The market price of a small business is based partly on its tangible assets, such as property, equipment and inventory, but often primarily on its goodwill. For some firms for sale, such as professional practices, Internet companies and service firms, the value of intangible assets can range between 55% and 95%.
For years, lenders were free to administer SBA-guaranteed loans with any amount of goodwill financing. But in March, the SBA changed its rules so that guarantees for goodwill financing would be capped at $250,000, or 50% of the loan amount, whichever was lower. The rules were designed in part to prevent sellers from inflating companies' intangible assets.
SBA-guaranteed loans are a small proportion of small-business loans. But the move didn't help in a market already taking a beating, business-acquisition specialists said. In March, closed business sales were 33% below the levels seen a year earlier, according to BizBuySell.com, an online marketplace for business acquisitions based in San Francisco.
"It was the antistimulus," said Ronald Feldman, chief executive of Siegel Financial Group, a consultancy firm for small-to-midsize business acquisitions in Bala Cynwyd, Pa.
Starting in October, the SBA is raising the cap on its guarantee of goodwill financing to $500,000. If the goodwill financing exceeds that amount, the SBA will recommend that lenders consider requiring more equity from the borrower or seller. SBA spokeswoman Hayley Matz said the agency adjusted the cap after collecting data on goodwill financing, and found that the average goodwill amount was close to $400,000. "We want to make sure they have continued access to capital," Ms. Matz said.
The National Association of Government Guaranteed Lenders, a Stillwater, Okla., group that represents lenders that make SBA loans, said the new rules are less restricting.
"Lenders really tightened up on business acquisitions after the March 1 rules took effect," said Tony Wilkinson, the group's president and chief executive. The guidelines also clarify the circumstances under which lenders may process loans. For instance, for goodwill financing that exceeds $500,000, the SBA recommends 25% in equity from the purchaser.
The guidelines are seen as a compromise between the free rein on goodwill that lenders and business appraisers had historically experienced and the March rules. For potential buyers, the new rules, like the March rules, may provide security that they aren't overpaying for a company's intangible assets.
Jeanine Vigeant of Providence, R.I., said she wished some goodwill restrictions were in place when she took out an SBA loan in April 2008 to buy a business that imported shoes from China for U.S. distributors. She paid $1.5 million for the business, relying on the seller's word that the loyalty of 10 customers, the primary basis for the goodwill, which made up 95% of the price, would continue.
But, within months of acquiring the business, those customers had severed their relationship, she said. Ultimately, she and her son, a partner in the business, defaulted on the loan after six months. The sellers of the business didn't return calls to comment.
"When I read [in March] that the SBA would put a cap on the goodwill or hold the seller accountable for more, I couldn't resist writing to the SBA," she said. "I told them I wished this had happened a year earlier, because then I would not be in this position."
By EMILY MALTBY
The Small Business Administration, after enduring a backlash from lenders and business appraisers, plans Oct. 1 to modify a restriction it had placed on loans used to finance acquisitions of small companies.
In March, the SBA, capped the guarantee it was willing to extend on "goodwill" financing, which is the amount of a loan used to purchase an existing business's intangible assets, such as an established name, brand or customer base. The market price of a small business is based partly on its tangible assets, such as property, equipment and inventory, but often primarily on its goodwill. For some firms for sale, such as professional practices, Internet companies and service firms, the value of intangible assets can range between 55% and 95%.
For years, lenders were free to administer SBA-guaranteed loans with any amount of goodwill financing. But in March, the SBA changed its rules so that guarantees for goodwill financing would be capped at $250,000, or 50% of the loan amount, whichever was lower. The rules were designed in part to prevent sellers from inflating companies' intangible assets.
SBA-guaranteed loans are a small proportion of small-business loans. But the move didn't help in a market already taking a beating, business-acquisition specialists said. In March, closed business sales were 33% below the levels seen a year earlier, according to BizBuySell.com, an online marketplace for business acquisitions based in San Francisco.
"It was the antistimulus," said Ronald Feldman, chief executive of Siegel Financial Group, a consultancy firm for small-to-midsize business acquisitions in Bala Cynwyd, Pa.
Starting in October, the SBA is raising the cap on its guarantee of goodwill financing to $500,000. If the goodwill financing exceeds that amount, the SBA will recommend that lenders consider requiring more equity from the borrower or seller. SBA spokeswoman Hayley Matz said the agency adjusted the cap after collecting data on goodwill financing, and found that the average goodwill amount was close to $400,000. "We want to make sure they have continued access to capital," Ms. Matz said.
The National Association of Government Guaranteed Lenders, a Stillwater, Okla., group that represents lenders that make SBA loans, said the new rules are less restricting.
"Lenders really tightened up on business acquisitions after the March 1 rules took effect," said Tony Wilkinson, the group's president and chief executive. The guidelines also clarify the circumstances under which lenders may process loans. For instance, for goodwill financing that exceeds $500,000, the SBA recommends 25% in equity from the purchaser.
The guidelines are seen as a compromise between the free rein on goodwill that lenders and business appraisers had historically experienced and the March rules. For potential buyers, the new rules, like the March rules, may provide security that they aren't overpaying for a company's intangible assets.
Jeanine Vigeant of Providence, R.I., said she wished some goodwill restrictions were in place when she took out an SBA loan in April 2008 to buy a business that imported shoes from China for U.S. distributors. She paid $1.5 million for the business, relying on the seller's word that the loyalty of 10 customers, the primary basis for the goodwill, which made up 95% of the price, would continue.
But, within months of acquiring the business, those customers had severed their relationship, she said. Ultimately, she and her son, a partner in the business, defaulted on the loan after six months. The sellers of the business didn't return calls to comment.
"When I read [in March] that the SBA would put a cap on the goodwill or hold the seller accountable for more, I couldn't resist writing to the SBA," she said. "I told them I wished this had happened a year earlier, because then I would not be in this position."
Tuesday, September 15, 2009
Restaurant Financing 2009 Update Re-cap
Restaurant Financing 2009 Update Re-cap
By: Colemanpublishing.com
September 15, 2009
2009 Restaurant Financing Update
-Roughly 50,000 SBA loans since 2000
-$11 Billion 7(a) and 504
-1 out of 9 SBA Loans finance restaurants
-15% failure rate
-12% of all Charge-offs since 2000
-1 Million Restaurants in United States
-(1 Restaurant for every 320 Americans)
Nathaniel Booker, President of First Innovative Financial Group, Inc. explains, "Quite often many of the deals that we have done are in strip centers, sometimes in malls. This is why it's very critical underwrite the business.
When you underwrite the business, you're underwriting the owner, management is very critical.
You want someone who has experience operating a restaurant. If they are opening up a second or third location you mitigate your risk of loss. When you're opening up a new location you need projections that are listed and supportable. Many of them don't do what I consider very critical analysis regard to table turn.
Chris Hurn, President & CEO of Mercantile Capital Corporation explains, "I want to see that they know their space well. If they're a sit down or fast casual, knowing what else is around that particular location is helpful.
"I'm a big believer that you can tell a lot about a company with the kind of measures restaurants have in place to try and make it such that the employee's enjoy what they do and then actually show it to the customers as well.
"Is the experience delivered consistently every single time? In the case of restaurants, do the waiters or waitresses check their attitudes at the door and they put on a performance when they're there. These are all non-financial, intangible items, but it's important to know that. It helps a lender contemplate doing a particular loan to know some of these things because it gives you a better feel for what this concept is going to be like and whether they should actually do it or not.
By: Colemanpublishing.com
September 15, 2009
2009 Restaurant Financing Update
-Roughly 50,000 SBA loans since 2000
-$11 Billion 7(a) and 504
-1 out of 9 SBA Loans finance restaurants
-15% failure rate
-12% of all Charge-offs since 2000
-1 Million Restaurants in United States
-(1 Restaurant for every 320 Americans)
Nathaniel Booker, President of First Innovative Financial Group, Inc. explains, "Quite often many of the deals that we have done are in strip centers, sometimes in malls. This is why it's very critical underwrite the business.
When you underwrite the business, you're underwriting the owner, management is very critical.
You want someone who has experience operating a restaurant. If they are opening up a second or third location you mitigate your risk of loss. When you're opening up a new location you need projections that are listed and supportable. Many of them don't do what I consider very critical analysis regard to table turn.
Chris Hurn, President & CEO of Mercantile Capital Corporation explains, "I want to see that they know their space well. If they're a sit down or fast casual, knowing what else is around that particular location is helpful.
"I'm a big believer that you can tell a lot about a company with the kind of measures restaurants have in place to try and make it such that the employee's enjoy what they do and then actually show it to the customers as well.
"Is the experience delivered consistently every single time? In the case of restaurants, do the waiters or waitresses check their attitudes at the door and they put on a performance when they're there. These are all non-financial, intangible items, but it's important to know that. It helps a lender contemplate doing a particular loan to know some of these things because it gives you a better feel for what this concept is going to be like and whether they should actually do it or not.
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.
Monday, August 31, 2009
Before Taking a Bet on a New Business, Think Like Sam Walton
Before Taking a Bet on a New Business, Think Like Sam Walton
Tom Taulli, AOL Small Business
I really like how Wendy first got a job in the field in which she wanted to start her business. True, there are many examples where entrepreneurs jump into a venture -- such as with Wes Hurt and Brian Morris -- but why not spend some time learning the ropes? Do you really need to rush?
Interestingly enough, if you try to get a bank loan, one of the first questions you'll get is: what's your experience in the industry? If you do not have at least a year's worth of experience, then you probably won't get a loan. Simply put, banks have learned the hard way on this.
If anything, by working in the field, you might realize that you really don't want to spend your hard-earned money -- and precious time -- in the business. Unfortunately, there are many unhappy business owners who feel they have no choice but to continue with their ventures. When doing your stint, it's critical that you study every possible aspect of the business. Think of it as a paid MBA (and it will probably be more valuable -- at least for entrepreneurs).
As for Wendy, she counted the number of customers, trying to estimate the revenues. Is this a business that can make money? Are there ways to improve things?
This reminds me of the legendary entrepreneur, Sam Walton. He was a sponge, constantly learning. He visited thousands and thousands of stores (even while he was on vacation), and he counted everything he could. He talked to as many people as possible (and got kicked out of a good number of stores). There was no end for his thirst of knowledge (to get a sense of this, it's definitely worth reading Sam's autobiography, Sam Walton: Made In America).
In fact, Wendy has practiced something else Sam was good at: looking beyond his business. For example, back in the 1960s, he attended a conference about computers. Somehow, he thought they would be important for the success of Walmart.
Wendy was smart to look at the distribution side of her business. How do suppliers work? What can be done differently? Are there ways to improve margins?
I know it's exciting when starting a business. At the same time, the temptation is to get started as fast as possible. However, try to resist this. Get some experience in the industry, learn, and learn some more. Like Sam, you should never stop learning.
Tom Taulli, AOL Small Business
I really like how Wendy first got a job in the field in which she wanted to start her business. True, there are many examples where entrepreneurs jump into a venture -- such as with Wes Hurt and Brian Morris -- but why not spend some time learning the ropes? Do you really need to rush?
Interestingly enough, if you try to get a bank loan, one of the first questions you'll get is: what's your experience in the industry? If you do not have at least a year's worth of experience, then you probably won't get a loan. Simply put, banks have learned the hard way on this.
If anything, by working in the field, you might realize that you really don't want to spend your hard-earned money -- and precious time -- in the business. Unfortunately, there are many unhappy business owners who feel they have no choice but to continue with their ventures. When doing your stint, it's critical that you study every possible aspect of the business. Think of it as a paid MBA (and it will probably be more valuable -- at least for entrepreneurs).
As for Wendy, she counted the number of customers, trying to estimate the revenues. Is this a business that can make money? Are there ways to improve things?
This reminds me of the legendary entrepreneur, Sam Walton. He was a sponge, constantly learning. He visited thousands and thousands of stores (even while he was on vacation), and he counted everything he could. He talked to as many people as possible (and got kicked out of a good number of stores). There was no end for his thirst of knowledge (to get a sense of this, it's definitely worth reading Sam's autobiography, Sam Walton: Made In America).
In fact, Wendy has practiced something else Sam was good at: looking beyond his business. For example, back in the 1960s, he attended a conference about computers. Somehow, he thought they would be important for the success of Walmart.
Wendy was smart to look at the distribution side of her business. How do suppliers work? What can be done differently? Are there ways to improve margins?
I know it's exciting when starting a business. At the same time, the temptation is to get started as fast as possible. However, try to resist this. Get some experience in the industry, learn, and learn some more. Like Sam, you should never stop learning.
Thursday, August 27, 2009
Six Ways to Speed Up SBA Loan Approval
Six Ways to Speed Up SBA Loan Approval
By DIANA RANSOM
Attention small-business owners: Time is running out on an opportunity to access fee-free business loans that are guaranteed up to 90%.
Earlier this year, the Small Business Administration set aside $375 million to temporarily eliminate loan fees and increase the agency's loan guarantee to 90% for certain loans. The moves were part of the American Recovery and Reinvestment Act (ARRA), which was signed into law by President Obama in mid-February. So far, the SBA has used about 55% of those funds; they have translated to $6 billion in loans under the 7(a) and 504 programs, says John J. Miller, an SBA spokesman.
However, barring another act of Congress, SBA-backed loans will revert to their pre-Recovery Act status by the end of November or December, Miller says. The impact will be palpable. Loans made once the funds run out will only get a 75% to 85% guarantee, down from 90%. The decrease will make it tougher to get approved for a loan because lower guarantees raise a bank's risk, says Eric Grimstead, a business advisor at the Center for Economic Vitality at Western Washington University in Bellingham, Wash. In addition, business owners taking out loans through the SBA loan will have to pay a 2% to 3% loan guarantee fee again, he says.
November is more than two months away, but given that the SBA loan approval process can take as long as 120 days, applicants had better get cracking, says Dave Mulcahy, the director of the Small Business Development Center at Lamar University in Beaumont, Texas.
Here are six ways to speed up the application process for SBA loans:
Update your financials
To accelerate a loan's approval, prepare and provide at least three years of tax returns and up-to-date financial statements, including income and cash-flow statements, balance sheets and sales projections, says Tom Burke, the senior vice president of Wells Fargo SBA lending in Minneapolis. If you don't have a business plan, write one. And if you don't have a marketing plan, write one of those too, he says. "Business owners have to be able to show that they can pay everyone back," Burke says. (Click here for the SBA's loan application checklist.)
Tap a preferred lender
Use a preferred SBA lender such as TD Banknorth or KeyBank, Grimstead says. Conventional wisdom says business owners should consult a bank with which they already work, but if that institution doesn't currently work with SBA loan programs, the process can be take weeks longer than comparable loans at SBA-ready lenders, he says. Not only is there a massive learning curve when working with SBA programs, which are complex and change frequently, but nonpreferred lenders also have to send loans into the SBA for approval, which can take up to four weeks, Burke says. Conversely, preferred lenders are generally able to underwrite their own SBA loans, he says.
Ensure the right fit
When scanning the list of preferred lenders, find ones that cater to businesses like yours, Burke says. For instance, some banks won't authorize SBA loans to start-ups. Others may avoid restaurants or other similarly risky ventures, he says. Also, take into account differences in banks' credit policies. For instance, Wells Fargo will extend a real estate loan for 25 years, but other banks do so for just 20 years.
Hedge your bets
Even if you secure the word of a preferred lender, make sure you've applied to a couple other banks backups, Grimstead says. "Some borrowers get three or six or even 12 weeks into the process only to get a 'no' from someone at the bank," he says. To slash your risk of rejection, apply to a few different banks at the same time. (Note that going through the application process at several banks will not harm your credit, says Mulcahy, from the SBDC in Beaumont, Texas.)
Offer more backup
SBA loan programs often require less of a down payment than typical business loans, says Becky Naugle, the state director for the Kentucky Small Business Development Center at the University of Kentucky in Lexington. For instance, banks providing normal business loans might require owners to put 20% to 40% down, but banks working through an SBA program might require just 10% down. Despite this lower standard, consider putting more down or offering some sort of personal guarantee, she says. "If particularly risky business owners can mediate a [bank's] risk by having a personal guarantee, that could push it through faster," she says.
Get help
An experienced business advisor can also help push your company's loan through quicker, Burke says. Check out a local Small Business Development Center, or tap a volunteer business professional in your area via SCORE, a nonprofit business counseling service, he says. There's also at least one SBA district officer in each state whom business owners can ask questions about SBA loans.
By DIANA RANSOM
Attention small-business owners: Time is running out on an opportunity to access fee-free business loans that are guaranteed up to 90%.
Earlier this year, the Small Business Administration set aside $375 million to temporarily eliminate loan fees and increase the agency's loan guarantee to 90% for certain loans. The moves were part of the American Recovery and Reinvestment Act (ARRA), which was signed into law by President Obama in mid-February. So far, the SBA has used about 55% of those funds; they have translated to $6 billion in loans under the 7(a) and 504 programs, says John J. Miller, an SBA spokesman.
However, barring another act of Congress, SBA-backed loans will revert to their pre-Recovery Act status by the end of November or December, Miller says. The impact will be palpable. Loans made once the funds run out will only get a 75% to 85% guarantee, down from 90%. The decrease will make it tougher to get approved for a loan because lower guarantees raise a bank's risk, says Eric Grimstead, a business advisor at the Center for Economic Vitality at Western Washington University in Bellingham, Wash. In addition, business owners taking out loans through the SBA loan will have to pay a 2% to 3% loan guarantee fee again, he says.
November is more than two months away, but given that the SBA loan approval process can take as long as 120 days, applicants had better get cracking, says Dave Mulcahy, the director of the Small Business Development Center at Lamar University in Beaumont, Texas.
Here are six ways to speed up the application process for SBA loans:
Update your financials
To accelerate a loan's approval, prepare and provide at least three years of tax returns and up-to-date financial statements, including income and cash-flow statements, balance sheets and sales projections, says Tom Burke, the senior vice president of Wells Fargo SBA lending in Minneapolis. If you don't have a business plan, write one. And if you don't have a marketing plan, write one of those too, he says. "Business owners have to be able to show that they can pay everyone back," Burke says. (Click here for the SBA's loan application checklist.)
Tap a preferred lender
Use a preferred SBA lender such as TD Banknorth or KeyBank, Grimstead says. Conventional wisdom says business owners should consult a bank with which they already work, but if that institution doesn't currently work with SBA loan programs, the process can be take weeks longer than comparable loans at SBA-ready lenders, he says. Not only is there a massive learning curve when working with SBA programs, which are complex and change frequently, but nonpreferred lenders also have to send loans into the SBA for approval, which can take up to four weeks, Burke says. Conversely, preferred lenders are generally able to underwrite their own SBA loans, he says.
Ensure the right fit
When scanning the list of preferred lenders, find ones that cater to businesses like yours, Burke says. For instance, some banks won't authorize SBA loans to start-ups. Others may avoid restaurants or other similarly risky ventures, he says. Also, take into account differences in banks' credit policies. For instance, Wells Fargo will extend a real estate loan for 25 years, but other banks do so for just 20 years.
Hedge your bets
Even if you secure the word of a preferred lender, make sure you've applied to a couple other banks backups, Grimstead says. "Some borrowers get three or six or even 12 weeks into the process only to get a 'no' from someone at the bank," he says. To slash your risk of rejection, apply to a few different banks at the same time. (Note that going through the application process at several banks will not harm your credit, says Mulcahy, from the SBDC in Beaumont, Texas.)
Offer more backup
SBA loan programs often require less of a down payment than typical business loans, says Becky Naugle, the state director for the Kentucky Small Business Development Center at the University of Kentucky in Lexington. For instance, banks providing normal business loans might require owners to put 20% to 40% down, but banks working through an SBA program might require just 10% down. Despite this lower standard, consider putting more down or offering some sort of personal guarantee, she says. "If particularly risky business owners can mediate a [bank's] risk by having a personal guarantee, that could push it through faster," she says.
Get help
An experienced business advisor can also help push your company's loan through quicker, Burke says. Check out a local Small Business Development Center, or tap a volunteer business professional in your area via SCORE, a nonprofit business counseling service, he says. There's also at least one SBA district officer in each state whom business owners can ask questions about SBA loans.
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.
Subscribe to:
Posts (Atom)
Son Isaac on Camel in Tangiers
